May 02, 2019
The Government Monitor No. 3: Scrutinizing Lebanon’s Electricity Plan


What is the issue at hand? 
On 4 April 2019, the Council of Ministers (CoM) approved the long-awaited electricity plan, which was then ratified by parliament on 17 April 2019.  

The 10-year plan aims to increase the electricity supply, largely through the construction of six new power plants in Deir Ammar, Zahrani, Salaata, Jiyyeh, Zouk, and Hreisheh. In the short term, it relies on temporary generator units to close the gap between supply and peak demand.

The plan also aims to decrease existing technical and non-technical production losses, collect arrears, enhance the collection process (through the use of smart meters and collection campaigns), and increase electricity tariffs to reduce EdL’s deficit by 2020. The tariffs are set to increase incrementally concurrent with increases in supply hours.

The plan promises to achieve a national 24-hour power supply in 2020 as well as make the sector more cost-efficient and environmentally friendly through the substitution of fuel oil with natural gas.
 
However, the plan and its legal framework entail measures that require scrutiny:

• The extension of Law 288/20141—which gives the authority of licensing electricity production to the CoM and delays the appointment of regulatory authority members—undermines the prospect of implementing a proper governance structure in the sector by expanding the authority of the Ministry of Energy and Water (MEW). This bestows on the ministry more power than it otherwise would have, as ministries are conventionally afforded “guardianship” authority over their respective public institutions as opposed to playing an implementary role. This extension also violates the CEDRE reform program as well as the ministerial statement with respect to the formation of a regulatory authority and the modernization of Law 462/20022
   
• The tendering process for the proposed plants and generator units will likely be politicized as it has been assigned to the MEW and the Public Procurement Management Administration, whereby a ministerial committee will have the authority to resolve potential disputes between the aforementioned institutions
   
• The proposed timeline for the tendering process—including the terms of reference’s preparation and advertisement, the offers’ evaluation, and the CoM’s approval—are short3, casting doubt on the process’s competitiveness
   
• The plan does not address the lack of infrastructure for the efficient distribution of natural gas. This effectively means that distribution will require renting more than one floating storage regasification unit with high daily running costs
   
• The plan does not include measures that address the structural and capacity challenges facing EdL beyond proposing the appointment of its board, which remains outstanding

 
Why is this important? 
The plan, if implemented, would be an important development given citizens' and firms’ current reliance on private generators. Given the country’s alarming fiscal deficit, reforming the electricity sector has the potential of curbing its excessive yearly subsidies—one of the state’s major financial burdens. In light of this, the CoM has committed to reforming the energy sector in CEDRE and its ministerial statement.

Although the adoption of the plan indicates that the political elite have the willingness to deliver on the promised pledges, they have also done so while undermining the role of key state institutions.

Background 
Lebanon has faced major challenges in its energy sector over the past two decades with previous governments failing to address the crippling sector. The cost of supplying electrical power through the sector’s dilapidated infrastructure imposes a sizeable budgetary burden that deepens the country’s alarming fiscal deficit by an estimated $2 billion annually. While electricity demand stood at about 3,500 MW in 2018, the country’s old and inefficient fuel oil plants generate about 2,050 MW, rendering it impossible for the country to secure 24-hour coverage. Hence, the government has been unable to increase its tariffs since 1994, irrespective of changes in global oil prices.



1 The law was first extended on 24 October 2015, and later on 17 April 2019 upon the request of the CoM.
2 The law pertaining to the regulation of the electricity sector.
3 Discussions with sectoral experts surrounding the tendering process indicate unconventional short timeframes.