Perspective / Nadine Hani: In Lebanon, looking at your watch before getting into an elevator

In Lebanon you usually look at your watch before entering any elevator, because you know at what time the electricity is cut off, and naturally you don’t want to get stuck inside the cabin for a few minutes until the generator—which residents of each neighborhood subscribe to—starts working.

Where I live, electricity is usually cut off between 4 to 8 hours daily. The tariff of state electricity is very low and is never revised up due to social concerns. However, what the citizen ends up paying for the generator is more than three folds of the state tariff. As for the industrial sector, the costs are huge to maintain backup generators in order to secure production.

If we take a look at the technical aspect of this problem, the production of the Lebanese electricity utility “Electricite du Liban” or “EDL” is not enough to cover the country’s requirements. There is a daily deficiency that exceeds 1,000 megawatts, that’s why it is forced to cut off the electricity, or what is known as rationalization.

The loss of the utility costs the state $1.5 billion annually, which is equal to 3 percent of the Gross Domestic Product (GDP). This year the figure might even go higher because of high oil prices.

Covering the deficit of the electricity sector constitutes the third highest expense in the state’s budget, after servicing the public debt and government wages and salaries. These are funds that the government could have invested in vital sectors such as education and health, instead they are wasted on an institution that doesn’t provide the citizen with his most basic requirement.

The reasons for the deficit in the Lebanese electricity utility are varied. On the revenues side, the low tariff does not cover the cost of production. The current tariff was set when oil prices stood at $21 per barrel, and it hasn’t changed since then. More than 40 percent of electricity production in Lebanon is wasted (25 percent theft and 15 percent technical waste due to the old network.) As for the cost of production, it is high due to the use of fuel oil in some stations and the lower dependence on natural gas, as well as the high operating cost of EDL due to the absence of regular maintenance.

The solution is not easy. In addition to the political hurdles, the current state of the electricity utility does not attract the private sector because the problems raise the risk profile of investments in this sector, and therefore raise the cost of funding. That’s why private sector funding requires guarantees from the government or international associations such as the IFC.

The political rivals in 2007 agreed on a reformation plan for that sector before Paris 3, but it was not implemented. After that another reform plan was laid out last year. It involves investing $5 billion by the government, international associations and the private sector to raise the production capacity and improve the transfer of electricity, through the use of cheaper and more environmentally friendly sources of energy such as natural gas and substitute energies such as wind, solar, etc.

As for the major differences between the 2 plans, last year’s reform plan uses $1.5 billion from the state’s budget instead of the funds of Paris 3. It also includes a delay of the participation of the private sector—for two years—than what the Paris 3 plan calls for. But with the resignation of the latest government, the plan was not implemented.

Regardless whether the best solution lies in the participation of the private sector or by the government carrying out a set of reforms first; it is time to place the reform of the electricity sector among the priorities of any upcoming government. The latest plan won political consensus, so let us start by implementing it and we can always add the needed amendments during application.

In parallel, the corporatization of Electricite du Liban should start as quickly as possible so that it would have the power to carry out the needed reforms. Any delay in reforming the sector would cost the Lebanese economy $2.5 billion annually, according to the World Bank, in addition to the costs to the budget. Who would bear the brunt for such delays?

(Nadine Hani, Senior Business News Presenter at Al Arabiya, can be reached at [email protected] and on twitter @Nadine_bn. This column originally appeared in Arabic in Lebanon’s An Nahar newspaper on Thursday, June 9. Ms. Hani writes regularly for Al Arabiya English Website.)