Lebanon's insoluble

Electricity crisis

USD 36 billion wasted (1992-2018)

The beginning of 19th century marked a milestone with the discovery of electricity. The Italian scientist Alessandro Volta was the first to invent the electric battery, followed by the discoveries and innovations of great scientists such as Ampère, Dynamo, and Edison, which contributed to the establishment of the field on a solid scientific basis.

Lebanon has known electricity since the beginning of the 20th century—that is, from the days of the Ottoman Empire. The electricity network had expanded at that time to culminate on the eve of the Lebanese civil war, which destroyed many facilities and brought darkness and inactivity to houses and factories.

The electricity sector experienced a growing crisis during that time. Yet, despite the end of the civil war, the return of stability, and the disbursement of more than USD 25 billion on projects related to the construction, restoration, and operation of power plants, the crisis still persists. Solutions do not seem to be coming to light soon; rather the crisis seems to be perpetual due to a conflict of interests. Each president or minister promises the power-starved Lebanese they will provide electricity 24/7, but they keep breaking their promises.

Rehabilitation and Development Project Problems

After the end of the war and the start of reconstruction activities in 1993, the government attached great importance to the power sector and to the necessity of rehabilitating and overhauling it in order to meet the increasing demand for electricity. As shown in Table No.5, the cost of these projects totaled nearly USD 1.8 billion. Yet, several reasons prevented the Lebanese from having 24-hour power supply.

Rehabilitation of power plants

By the start of 1993, the power capacity was about 500 MW, but actual need was climbing, reaching 1,250 MW by 2002. This necessitated the rehabilitation of existing plants, and works were assigned to the sole bidder, the Italian company Ansaldo, for USD 66 million after being reduced from USD 92 million following negotiations with the Ministry of Water and Electrical Resources. Although the then-Minister of Water and Electrical Resources Georges Frem was removed from his post for refusing to sign the agreement with Ansaldo and raising questions about the elevated cost, the value of the contract increased to USD 111 million.

In order to cope with the increasing demand, two contracts were signed with the integrated group Ansaldo/Siemens to establish two combined-cycle power plants, each having a capacity of 435 MW: The first in Zahrani and the second in Beddaoui, at a total cost of about USD 571 million.

The value of the contracts approved by the sole bidder accounted for 91% of the total contracts of power production plants or 37% of the total power projects. It is worth mentioning that Italy had provided loans of about USD 260 million to implement power projects.

This high cost raises question marks over the quality of work and operational and maintenance errors, which has aggravated the failures in both the old and newly established plants. For instance:

• The third unit of Zouk has stopped working since the beginning of 2001 and the first and the second units have operated below their actual capacity.
• Only one of the five units of Jiyeh was maintained, necessitating the maintenance of the four other units and thus their shutdown one by one.
• The operation and maintenance works of Zahrani and Deir Ammar plants established by Ansaldo/Siemens were awarded by mutual consent to Ansaldo at a monthly cost of USD 440,000 for each plant. However, these works had been assigned by EDL to “Anil” company at the end of 2001 at a monthly cost of USD 330,000 for each plant, thereby saving USD 110,000 per month. It is noteworthy that both plants have not been fully operational since their establishment in 1998 for various reasons and excuses: Lack of transmission lines, shortage of gas and fuel, and sudden breakdowns. Therefore, the question is: What about the equipment used in the establishment of these two plants, and when will the country benefit from their maximum capacity estimated at 870 MW?

Incompatibility of power distribution grids with poduction plants

The government did not tender the installation of the new plants’ power transmission lines concurrently with their establishment, causing them not to fully operate despite the passage of more than three years since being built. This is the reason why the Zahrani plant was not fully connected to transmission lines.

Mansourieh line

It was decided to establish the “Mansourieh line” in 1996, but it has not yet been fully established. The Mansourieh line is the backbone of transmission grids, but without completing the remaining 1,900 meters, it will remain pointless to generate additional power due to the inability of the current grid to absorb and transmit it. For some experts, this line is not a threat, yet the objections of Mansourieh residents have impeded its construction. According to them, this line affects health and safety—and causes cancer—which is why they demanded laying cable underground.

Policy Paper for the Electricity Sector (2010-2015)

This plan was unanimously adopted by the Council of Ministers by virtue of the Resolution No. 1 of June 21, 2010, after Minister Gebran Bassil took charge of the Ministry of Energy and Water. The plan offers solutions to the power sector and citizens in order to secure financial balance and electricity stability. It rests on the following:

• Production of about 4,000 MW in 2014.
• Production of about 5,000 MW as of 2015. This can be achieved through renting and importing energy, the prompt establishment of fuel-run power plants with a capacity of 700 MW, the rehabilitation and development of Jiyeh, Zouk, Deir Ammar, Zahrani, Baalbeck, Sour, and Al-Hreesha plants, and the establishment of new 1,500 MW and 1,000 MW plants in partnership with the private and public sectors.

This allows a 24-hour power supply and turns Lebanon after 2018 into an energy-exporting country.

The estimated cost of the plan is USD 4.8 billion, distributed as follows:

• USD 2.3 billion from the private sector.
• USD 1 billion from external funding.
• USD 1.5 billion from the Lebanese government.

Electricity Cost

The electricity cost in Lebanon is very low. It was adopted in 1994 but has not been amended despite the significant rise in oil prices (the average price of a barrel of oil was USD 15 and now stands at about USD 70) and the high cost of living and other basic public services. Electricity cost is set as shown in Table No.1 below:

Table No.1: Electricity cost based on the adopted pro rata and consumer type.

Source: EDL Board of Directors, Decision No. 343 of July 19, 1994. 

 

Power Production Plants

In Lebanon, there are 13 power plants with an installed capacity of around 3,016 MW, broken down as follows:

• Thermal power plants: 2,764 MW
• Hydraulic power plants: 252.6 MW

As for their actual capacity, it does not exceed 2,000-2,200 MW. It is broken down according to Table No.3 below.

 

Transmission Lines

The 1,362 km of air transmission lines are divided into four types:

• 400 KV high-voltage power lines, of 21 km of length.
• 220 KV high-voltage power lines, of 484 km of length.
• 150 KV high-voltage power lines, of 163 km of length.
• 66 KV high-voltage power lines, of 689 km of length.

The 178 km underground cables are divided into three types:

• 220 KV high-voltage cables, of 50 km of length.
• 150 KV high-voltage cables, of 26 km of length.
• 66 KV high-voltage cables, of 102 km of length.

Main Transformer Plants

Electricité du Liban (EDL) has 129 main power transformer stations, with a capacity of 4,734 MVA, broken down according to Table No.4 below.

Table No.4: Power transformer stations at EDL.

Source: Electricité du Liban (EDL).

 

Rent of Power-Generating Ships:

USD 180-280 million annually?

Lebanon is plagued by a chronic electricity crisis that seems insurmountable for technical, financial, and political reasons. Fed up with constant and repeated power cuts, people took to the streets and blocked roads to protest against the frequent blackouts and to demand a radical solution for their misery. The Ministry of Energy and Water proposed a quick solution that could temporarily increase electricity supply until the establishment of new power plants. The proposition entails the rental of power-generating ships.

Companies and Offers

The Council of Ministers, by virtue of its Decision No. 1 of September 29, 2010, approved the formation of a ministerial committee tasked with discussing the rental of power-generating ships. The meetings held by the committee led to a consensus over the fiscal feasibility of leasing those ships. The Ministry of Energy and Water published an advertisement in newspapers announcing its willingness to provide electricity through the rental of ships or generators. Sixty companies were interested in the invitation to tender bids with 23 submitting their proposals. The number of companies deemed eligible to bid came to 17, classified as follows:

• Seven companies offered the provision of fast-rotating generators which operate on fuel  and may be placed near the regional switching stations (around 45), but their offers were turned down due to their high cost, the lack of space necessary to accommodate these generators and the impossibility of allocating energy equally.
• Four companies offered the supply of medium-speed generators that could be placed inside the power plants, but their offers were also refused for lack of room inside the plants as well as the costly equipment needed for their installation and connection to grid.
• Six companies suggested the provision of medium-speed generators and turbines that could be placed on board vessels moored alongside the plant’s wharf and be connected to the grid.

The Ministry opted for the final offer after having found compelling justifications for their choice:

• The absence of technical and logistical complications as to the installation and connection to the grid
• An affordable price
• Being a quick solution that did not necessitate equipment

The Ministry of Energy and Water pointed out that five of the six companies did not work in power generation and were waiting to be awarded the contract to buy the vessels and equip them. Ultimately, it opted for the offer presented by the Turkey-based Karadeniz Powership Co. and reiterated its desire to enter into an immediate contract with them because their services were in high demand by other shortage-stricken countries in the region such as Iraq and Pakistan. These two countries had already been supplied with two vessels, thus delaying the process of providing ships for Lebanon.

The striking part is that the Ministry reaffirmed it chose to resort to the floating power plants although they do not have a wide market worldwide and the margin of competition in this field is very low. It also stated that no provisions were made by the successive governments to establish permanent plants.

Cost

Regarding the expenses in case of an agreement with Karadeniz Powership Co., the Ministry of Energy and Water reported the following:

• The average energy cost per kWh would be 4.8 cents (without the fuel cost, which had not been determined yet).
• The offer presented by Karadeniz Powership Co. could be carried out rapidly and the company could deliver the first vessel within three months from negotiating the contract. The second vessel would be delivered in six months.
• The annual cost would stand somewhere between USD 180 million and USD 280 million and would ensure an additional two to three hours of supply per day. The Ministry pointed that, compared to the cost borne to produce the same amount of electricity from the plants, leasing the ships would save them USD 100 million to USD 300 million every year.

The Lebanese want electricity and they are pressing for this rightful demand at any cost and regardless of high fiscal burdens.

Another US company participated in the tender preventing the contract from being awarded. Many detractors refused to go ahead with the bids offered by the two companies, arguing that the cost is too high and suggesting to relaunch the tenders.

- Why did the Ministry rule out the offers suggesting the operation of generators inside or nearby the plants and opt for a less-common technique?

- Why were five companies excluded from the bid in favor of only one?

- What is the actual cost of leasing those ships after adding fuel expenses?

- Is it true that the Ministry would save USD 300 million thanks to this offer?

Summary

In light of all of the above, we find that several reasons lie behind the problem of electricity in Lebanon. They overlap to exacerbate the problem and complicate the solution:

• The power rehabilitation and development projects, on which almost USD 1.8 billion has been spent (excluding interest cost), failed to provide the energy needed by consumers.
• EDL’s fiscal deficit that stems from a number of reasons:

- The decisions issued by the Council of Ministers to exempt some Lebanese regions from paying the electricity bill for security and social reasons.

- The failure to collect electricity bills from certain regions for political reasons.

- The refusal of some actors to pay their dues.

- The low cost of concessions.

- A large number of state employees who have a working relationship with EDL have benefited from the reduced cost, thereby violating laws and regulations.

- EDL employees have benefited from the nominal electricity cost.

• The non-installation of electricity meters for the new subscribers, which increases their consumption without paying any bills.
• Lack of transparency in awarding the fuel contracts, especially in terms of prices and quality, which increases the fuel cost and causes failures in the power plants. This subject deserves a detailed study.
• Israeli attacks that caused failures in the power transformer stations.
• Lack of political will.

The cost of debt to rehabilitate the power plants and networks represents 32% of Lebanon’s income from electricity, while the fuel cost represents 100%.

The situation of electricity in Lebanon is a pilot case study on Lebanon’s reality, whether in terms of inadequate planning, or in terms of poor implementation, inefficiency in public administration, and rampant favoritism. It is therefore vital to rehabilitate EDL so it becomes a profitable department before being privatized. This is why the Lebanese territories are in darkness.

 

To be continued