The President’s Attitude toward Electricity
Under General Michel Aoun, the Presidency of the Lebanese Republic produced a report on the issue of electricity in Lebanon and the ways of addressing it. It was distributed to ministers during the Council of Ministers meeting on March 7, 2018.
The report’s summary highlights the following:
The Accumulated Electricity Deficit and its Negative Effects on the Economy
- The total accumulated electricity deficit over 26 years (from 1992 to 2017) accounted for USD 36 billion, of which USD 20.6 billion are funds and USD 15.4 billion are interests at an annual rate of 6.8%.
- This deficit represents about 45% of the gross public debt, which ended 2017 at USD 79.5 billion.
- Conversely, cash transfers from Banque du Liban (BDL) to cover the electricity deficit amounted to USD 1.295 billion in 2017, i.e. 2.4% of GDP (estimated at around USD 54 billion) or 6.8% if debt servicing payments estimated at USD 2.4 billion annually were added.
- The 2018 budget has a deficit of USD 1.4 billion that is likely to increase if the government agrees to buy 850 megawatts to secure the bulk of the present power shortfall.
A solution to the electricity problem in the mid-1990s could have:
- Reduced the public debt to USD 43 billion by the end of 2017.
- Helped citizens save a huge additional cost of more than USD 17 billion since the early 1990s. This cost is currently estimated at between USD 1.1 and 1.2 billion per year (in recent years averaging USD 1.15 billion) being paid to private generator owners.
- Reduced environmental damage and problems.
- Pushed the national economy to grow faster at an annual rate of between 1 and 1.5%, according to a World Bank report.
Volume of Electricity Production and Consumption
The average annual energy demand is estimated at 2,350 MW.
The current volume of produced electricity is broken down as follows:
- 1,800 MW as the current production capacity of power plants, including domestic power purchase.
- 115 MW as the capacity imported from Syria.
- 385 MW as the capacity of energy purchased from the Fatmagul Sultan and Orhan Bey ships.
- The total volume of electricity produced and purchased amounts to 2,300 MW, of which 13% (300 MW) is lost in transmission and distribution.
- The amount of electricity currently distributed to Lebanese residents (including displaced persons and Palestinian refugee camps) is 2,000 MW, of which 82% (1,640 MW) is billed (part of which is not levied from citizens and UNRWA) and 18% (360 MW) is non-technical loss (about one third is illegally used by Syrian refugees). Non-technical losses have been gradually reduced from 26% in 2001 to about 12% presently.
- Lebanon’s energy needs are estimated to rise to 3,450 MW during the peak hours of August 2018.
- If there is no technical loss, the shortfall in the energy needed to meet consumer demand will be 1,450 MW (3,450-2,000). However, if the losses in transmission and distribution (13%) still persist, Lebanon needs to produce an additional 1,666 MW.
Total Cost of Power Production and Purchase in Lebanon
The total cost of electricity consumption in Lebanon exceeds USD 3.35 billion. It is broken down as follows:
- The annual deficit borne by the treasury represents around 39% of the total cost.
- The levies collected by EDL represent around 26% of the total cost.
- The cost of private generators paid by citizens represents around 35% of the total cost.
Although the price of a crude oil barrel has increased significantly, exceeding USD 130 in recent years, Lebanon’s official electricity tariff is still based on the late 1990s average price of a barrel, which is nearly USD 24. Today, a barrel costs USD 65.
Compared to the power cost (16.5 cents per kWh), of which 13.5 cents represents the average cost of power production and purchase, and 3 cents the average cost of power transmission and distribution, the average power price is below 9 cents per kWh. This cost reached 22.7 cents in 2014.
Representing around one-third of electricity consumption, the shortfall in the quantity needed to meet market demand and in the availability of plants to produce electricity is covered by private generators. These generators cost the citizens 22 to 24 cents, i.e. two-and-a-half times the official electricity tariff (9 cents per kWh).
If Lebanon were to purchase 850 MW at USD 700 million per year (USD 300 million as royalties + USD 400 million as fuel at USD 65 per barrel) to cover the consumption shortfall for at least the first 10 months of the year, the total electricity bill would decrease by about USD 190 million during 2018 and USD 250 million in 2019 as a result of:
- Reducing the private generator bill by USD 540 million (USD 700 million in 2019)
- Collecting additional levies of USD 200 million for EDL. They may reach USD 280 million in 2019
- Adding USD 150 million to the treasury (USD 200 million out of the total deficit in 2019
- Reducing the total electricity bill by USD 190 million in 2018
- Reducing the total electricity bill by USD 250 million in 2019
After reconsidering the electricity tariff, the distribution of the total electricity bill in 2019 would be as follows:
- USD 900 million, the amount of levies collected by EDL (USD 850 million as levies + USD 50 million as other revenues)
- USD 280 million, the amount of additional levies resulting from the purchase of 850 MW
- USD 470 million, the amount of additional levies resulting from the increased tariff
- USD 450 million, the value of private generators’ bill in 2019 (USD 1,150 million at present)
- USD 2,100 million, the value of total bill paid by citizens for providing 22-hour power supply
- USD 1,000 million , the deficit that the treasury entails in 2019 until operating the ships and power plants on gas
- USD 3,100 million, the value of the total electricity bill borne by the citizens and the government (USD 3,350 million at present)
The operation of power production plants and ships on gas, the establishment of new plants, as well as the implementation of a gas network project along the coast from the north to the south, and the construction of a liquefied natural gas (LNG) plant in 2019 will erase the annual electricity deficit borne by the treasury by 2020, notwithstanding that the project implementation cost is equal to the annual electricity deficit that has accumulated for more than a quarter of a century.