Beirut during a partial blackout in August 2021. Issam Abdallah /Reuters
The catastrophic state of the energy sector is central to, and emblematic of, Lebanon’s broader economic and political collapse. The Lebanese government and international partners have cobbled together short-term responses to the sector’s deterioration but have thus far failed to put into place any measures that could stabilize it, much less resuscitate it in the longer term. A plan released by the previous government offered a hazy vision for what an overhauled power sector might look like, while reformists have offered much more technically detailed plans for how the sector could be remade. Although these competing visions focus primarily on ostensibly technical matters, the stakes are deeply political since each proposes its own distinct distribution of resources, costs and decision-making power.
The surprisingly strong showing of independent and opposition candidates in Lebanon’s May parliamentary elections—the first vote since the 2019 uprising—might offer a narrow opportunity to rebuild Lebanon’s rotting, fossil-based energy system in a way that weakens the stranglehold of the country’s elite over its kleptocratic, spoils-based political and economic system. Whether the sector remains under the thumb of the political class, or if technocratic officials, private capital or local communities manage to seize control of all or part of it, will shape the contours of Lebanon’s political economy for years to come.
Running on Fumes
Lebanon’s energy regime is built almost entirely around fossil fuels, which generate the country’s electricity, fuel its automobiles, run its factories and provide heat for basic needs like cooking. Although Lebanon once refined its own petroleum products and produced enough electricity to export surplus power to Syria, the 1975–1990 civil war witnessed the large-scale physical destruction of infrastructure. Postwar reconstruction did not deliver functional refineries or reliable electricity. Residents of Beirut became accustomed to three-hour daily blackouts and paying for private generators to fill the gap. While some villages and municipalities managed to provide 24-hour electricity by establishing their own grids, many others in Lebanon’s peripheries made do with much less. Electricity demand consistently outstripped supply at a national level, and by 2018, power generation met less than 60 percent of peak demand.
The outflow of foreign currency to import fuel and pay off this debt burden contributed to the financial collapse that began in 2019 when the value of the lira came unglued from its official exchange rate of around 1500 LL to the US dollar. The state’s system for setting fuel prices caused the Central Bank to hemorrhage foreign currency as it continued to finance the importation of fuel at the official exchange rate even as the lira’s black-market value fell by more than 90 percent. By keeping fuel relatively affordable for a few months, the state temporarily prevented the cost to consumers from rising at the same rate that the currency depreciated. But it also rapidly drained foreign currency reserves, which fell from around $40 billion in 2016 to less than $13 billion by mid-2021. As a result, the lira’s value was pushed ever lower, widening the price gap, intensifying the outflow of foreign exchange reserves and thus accelerating the downward spiral of the energy sector and state finances.
The state’s system of setting fuel prices finally shuddered and collapsed in the summer of 2021, producing gas lines and darkened skylines. A combination of hoarding, rationing and disputes over subsidies between the government, the Central Bank and importers led to a recurring scarcity of basic fuels. In order to stanch the bleeding and disincentivize fuel hoarding, the Lebanese government began setting domestic fuel prices that matched international price levels in August 2021. While this move helped ensure that fuel was physically available, it also made it extraordinarily expensive for the vast majority of the population that still receives wages, salaries and other fixed incomes like pensions in a currency that has lost most of its value. For most people the price of gasoline has increased almost ten-fold from December 2019 to September 2021.
In the fall of 2021, the United Nations estimated that 78 percent of Lebanese now live below the poverty line. The impoverishment of most of the population has been accompanied by a sharp increase in energy poverty—the absence of the electricity and liquid fuels needed for light, heating, cooling, refrigeration, cooking, work and mobility. The heavy reliance on omnipresent private diesel generators has also dramatically worsened air pollution in Beirut, further burdening residents with health hazards and medical expenses.
Far-fetched and Piecemeal Solutions
The political class has long regarded the prospect of developing Lebanon’s potential offshore natural gas resources as a panacea for the country’s energy and economic woes. Domestically produced gas seemingly promises cheap energy, a new source of government revenue and possibly foreign currency from exports. An offshore gas discovery would represent a cheap and efficient fuel source that is compatible with existing power plants, generating more electricity and saving EDL—and the state treasury—money. Gas production, even for domestic consumption, would create another revenue stream for the state. And if a hypothetical find turns out to be large enough to export, it could provide an important source of ever-scarce foreign currency. As the Lebanese economy faltered in 2020, President Aoun declared that Lebanese hydrocarbons would form the basis for a newly “productive economy.”
But Lebanese energy experts have been much less sanguine. They point out that a wide array of obstacles militates against the development of these resources in the near term. According to Diana Kaissy—an advisory board member of the Lebanese Oil and Gas Initiative (LOGI), an independent non-governmental research organization—the massive Beirut port explosion of August 2020 destroyed the necessary supply base for the foreign oil companies (Total, ENI and Novatek) searching for offshore gas reserves. Likewise, Lebanon’s steady political and infrastructural deterioration have made the country a very challenging setting in which to operate. Global market conditions and Total’s growing (but still woefully insufficient) climate ambitions have imposed limits on the amount of capital that the company is willing to invest in new oil and gas fields.[2] Slow progress on delineating Lebanon’s maritime boundary with Israel represents another obstacle. Israel’s recently announced intention to begin developing a potentially disputed offshore gas field called Karish, and Hezbollah’s warnings that it would target any such Israeli incursion on Lebanon’s maritime resources, complicate matters further. Beyond all these constraining factors, it is far from certain that any discovery in Lebanon’s territorial waters would yield enough resources—or have a large enough market—to merit foreign investment.
Even if offshore hydrocarbons are eventually discovered, their impact on the electricity crisis would be delayed and limited, at least in the short term. Marc Ayoub, an energy researcher affiliated with the American University of Beirut’s Issam Fares Institute (IFI) estimates that such resources could take six to eight years to develop, at best.[3] Another estimate places the start of production “sometime in the 2030s—if production ever starts.”[4] Moreover, no potential discovery can reasonably be expected to provide enough revenue to rescue the country financially. The value of any find is unlikely to exceed one to two percent of Lebanon’s GDP, and tax income might optimistically peak at 3 percent of state revenues for a short period more than a decade in the future.[5]
In the absence of any such panacea, the government has turned to a series of tenuous, largely short-term deals with foreign powers and international organizations, including emergency funding from the United Nations for fuel purchases and a complicated arrangement by which Lebanon would provide medical services to Iraq in exchange for Emirati fuel. In the summer of 2021, Hezbollah generated significant controversy and press attention by reaching an agreement with Iran to deliver relatively small amounts of fuel by tanker for distribution by the party’s militia and its affiliates. The shipments were routed through the Syrian port of Baniyas to circumvent US sanctions that could result from a direct Iranian fuel delivery to a Lebanese port.
Significant obstacles to arrangements with neighboring countries remain. For example, these deals are politically sensitive because they require extensive engagement with President Bashar al-Asad’s Syria and would likely provide the Syrian government with in-kind compensation in gas and electricity for its role as a transit state. These arrangements could also run afoul of US sanctions on Syria, although the Biden administration has indicated that these deals fall under an “international organizations” exemption, making World Bank approval essential to their implementation. Also, since Egypt relies on its own gas resources for power generation, it can only export additional natural gas if it increases its gas imports from Israel. This scenario means that Lebanon’s energy supply would ultimately be tied to a country that routinely violates its sovereignty and with which it remains formally at war. Acts of sabotage against the long, transnational Arab Gas Pipeline could also threaten this project’s viability. Indeed, the AGP initially fell into disuse following dozens of attacks by militants between 2011 and 2014. Fighters apparently affiliated with the Islamic State attacked a natural gas pipeline in the Sinai in 2020 and hit a section of pipeline near Damascus following the initiation of negotiations to revive the AGP in September 2021. While Egyptian gas and Jordanian electricity might offer the best chance of reviving Lebanon’s grid in the short term, this effort still faces serious obstacles.
The Previous Government’s Plan
In February 2022, the Ministry of Energy and Water (MOEW)—led by Walid Fayyad, a former international management consultant aligned with President Aoun—and EDL launched a long-awaited power sector reform plan called “Setting Lebanon’s Electricity Sector on a Financially Sustainable Growth Path.” The plan echoes longstanding expert recommendations but emphasizes ongoing economic rescue efforts spearheaded by international organizations and the United States. In brief, it aims to salvage the power sector by overhauling it: reworking how electricity is generated and supplied, how it is distributed and transmitted, how it is paid for and the institutional, legislative and regulatory frameworks that govern it.
In the short term—within one year—EDL and the MOEW aim to provide eight to ten hours of power per day using electricity from Jordan and natural gas from Egypt. This increase in supply would require the successful implementation of the US-backed plan to revive the AGP connecting Egypt, Jordan and Syria to Lebanon, and the transmission of Jordanian electricity to Lebanon via the Syrian grid. It also depends on the success of Lebanon and partner countries in securing $600 million in loans from the World Bank. According to Sibylle Rizk—a member of LOGI’s board and Director of Public Policies for Kulluna Irada, an organization that lobbies the government for reformist causes and coordinates opposition electoral campaigns—most of the reform plan is mere “décor,” intended to convince the World Bank to provide the loan needed to finance the deals. Rizk argues that the plan is meant “to satisfy one objective, which is to import electricity from Jordan and gas from Egypt…It is as if the whole plan has been put on the table to satisfy the World Bank, which needs a commitment in order to move forward on the loan concerning Egypt and Jordan…My deep conviction is that all of this is just ink on paper.”[7] The World Bank may not be convinced, as indicated by the stall in talks before the parliamentary elections and rumors that the bank is concerned about the “political seriousness” of the AGP deal.
One key aspect of the government’s plan is the establishment of the Electricity Regulatory Authority (ERA), an independent body that would be responsible for planning, technical oversight and licensing in the sector following the unbundling of EDL into separate entities—measures that have been awaiting implementation since 2002. A cornerstone of many reformers’ visions for the sector’s future, the ERA would be a key tool for dismantling an inefficient public utility and vesting politically independent technocrats with responsibility for the sector’s governance. The government’s reform plan, however, includes the stipulation that the law calling for the formation of the ERA, Law No. 462 of 2002, be amended. Ayoub warns that previously proposed amendments to this law were designed to neuter the ERA as an autonomous institution by leaving it subject to the “whims of the political establishment”—that is, to the influence of elected officials more interested in divvying up spoils than in rebuilding the sector.[8]
Simultaneously, it proposes raising the cost of electricity to match the international market price of fuel oil and the true dollar price of the Lebanese lira. Although the proposed tariff structure carves out lower rates for those in lower income brackets, the envisioned price increases are dramatic. The lowest bracket, presumably encompassing the poorest households, would see the price of electricity jump from 35 LL to 800 LL per kilowatt-hour, while the highest bracket would see an increase from 200 LL to 6,000 LL per kilowatt-hour. The plan foresees the lowest-consumption households spending around one million LL per month—almost twice the minimum wage of 675,000 LL per month—for only 16 hours of daily electricity. A key aspect of this plan is therefore to substantially increase the burden of energy costs on the poorest strata of Lebanon’s population. The progressive structure of electricity tariffs will matter little to those who simply cannot afford to power their homes.
Most importantly, the MOEW/EDL plan aims to provide 24/7 electricity nationwide in the longer term, primarily through investments in new fossil fuel-burning thermal plants and a smattering of wind and solar facilities. Ayoub notes several wasteful and ill-considered aspects of the plan: It proposes that Lebanon rent a mobile power plant for several years (an expensive but familiar prospect in the Lebanese context); it favors a type of thermal plant that can run diesel (a model that trades reduced generating capacity for the ability to run this costly and polluting fuel); and it foresees the establishment of a possibly superfluous gas import terminal at Zahrani. It also gestures toward meeting Lebanon’s Paris Climate Agreement goal of achieving 30 percent renewable energy by 2030 but remains vague on just how this objective might be reached. With the state in fiscal crisis and in the absence of a predictable investment climate, it is unclear where the requisite capital would come from for long-term investment in the sector, beyond that provided by the World Bank for the plan’s first phase. The EDL and MOEW plan treats macroeconomic stabilization as a main desired outcome of the reforms they propose, but Rizk argues that any progress in the power sector requires that the Lebanese state first resolve its macroeconomic woes.[9]
Wresting control of this sector away from the political class with its powerful vested interests will be a serious challenge for newcomers in parliament. For now, EDL and the MOEW remain important spoils in the semi-competitive patronage system that defines contemporary Lebanese politics. The sector’s inefficiencies have also created lucrative opportunities for graft. For example, politicians extracted wealth from the exorbitantly priced electricity provided by the Turkish power barges for a decade. Lebanon’s fuel cartel also profits from the continued importation of the expensive, dirty and inefficient fuel oil and diesel used to generate most of the country’s electricity. Lebanon’s entrenched stratum of private power generators has also become accustomed to reaping massive profits since the collapse of the state grid. Given that members of this group are known to enjoy political connections and to employ coercion to quash competition, it is unclear why it would consent to simply fading away, assuming the state could ever provide reliable 24/7 electricity. Whether generator owners would try to formalize their participation in the sector once a framework for private investment exists, or whether they would simply attempt to derail reforms to preserve monopoly profits, remains an open question.
Electoral Wins and Visions of Reform
Lebanon’s May 2022 parliamentary elections saw surprising gains for political forces ranging from genuine opposition parties and candidates to independents to quasi-independents with links to traditional parties. The group of opposition MPs is relatively small, by most counts claiming only 13 out of parliament’s 128 seats. But it could play an important role in governance given that neither Hezbollah nor the Lebanese Forces, now the two largest parties in parliament, control enough seats to dominate legislation or government formation.
The reports, plans and policy recommendations that these experts produce cover a diverse and abundant array of technical, economic, legislative and regulatory subjects. They converge around a core objective that dovetails with reformists’ political aims: removing the energy sector from the hands of Lebanon’s kleptocratic political class and placing its component pieces under the control of politically independent technocratic state bodies, private capital and local communities. These represent three distinct—although in some instances potentially complementary—approaches to remaking the energy sector.
For example, a paper published by the Issam Fares Institute in September 2021 focuses on the process of unbundling EDL into separate entities responsible for generating, transmitting and distributing electricity, including the establishment of private and municipal companies. It calls for public-private partnerships to take over the generation and distribution of electricity while leaving transmission in the hands of a fully public utility. It also calls for the formation of the ERA, which the Ministry of Energy and Water and EDL included in their February 2022 plan. The paper contends that “political interference has always been the main obstacle impeding any solution or root change from taking place” in the power sector, and regards EDL as too completely dominated by the political class to be salvaged in its current form.[10] This domination stems from EDL’s lack of autonomy vis-à-vis the Ministry of Energy and Water and the Ministry of Finance, the delayed implementation of legislation to reform how the sector is regulated and political preferences in hiring at EDL. In short, the authors argue that the transition from a politically subordinate public utility to a properly regulated ecosystem of public and private entities is a means of breaking the political class’s stranglehold over key infrastructures and institutions.
Some experts also see the transition to renewable energy as a means of achieving reformist aims. In mid-2019, IFI, the Lebanese Foundation for Renewable Energy and a subsidiary of international management consulting firm PwC published a paper called “Lebanon’s Electricity Sector—Leapfrogging to Higher Penetration of Renewables.” This report proposes that Lebanon pursue a rapid energy transition by encouraging foreign investment in renewable energy. It recommends reducing EDL’s role to managing the transmission of electricity. It also suggests that a separate entity should be created to tender competitive bids for renewable power projects and deliver this power to the grid as well as enable the establishment of private renewable energy companies. Under this scenario, the green transition would loosen the grip of EDL as a public utility—and the political class over the energy sector—in favor of private capital.
Haytayan and Aaron Sayne’s pessimistic 2021 report, “Oil and Gas in Lebanon: Time to Rethink Expectations,” for the Natural Resource Governance Institute on the dim prospects for domestic gas production likewise argues that there is an opening for a green transition that would align with reformists’ aspirations. They suggest a mix of price increases, tax breaks, the establishment of an independent electricity regulatory authority and mechanisms for selling electricity outside of EDL to attract private investment in renewables. Triangle, a think tank-cum-consulting firm that partners with the Friedrich-Ebert-Stiftung, has proposed a green transition that would fully circumvent EDL and the political status quo that it embodies by encouraging municipalities to invest in renewable generating capacity. It also regards this municipal green transition as a means of remaking Lebanon politically:
Moving forward, Lebanese citizens should be able to assume control over power production, wresting it from the grasp of the country’s self-interested ruling elites. The democratisation of energy production can decrease decision-making bottlenecks, build intra-community trust, and eventually usher in a reliable, more affordable, and sustainable system for generating electricity.[11]
A Still Uncertain Future
The plan to import Egyptian gas and Jordanian electricity could provide essential power, but it could also help Lebanon’s kleptocracy reproduce itself through an infusion of international aid. The domestic production of natural gas, which once seemed poised to resolve Lebanon’s crises on behalf of the political establishment through an infusion of cheap energy, government revenue and foreign currency, is now a distant prospect. The February 2022 reform program formulated by EDL and the MOEW makes symbolic gestures toward some of the key reforms proposed by Lebanese and international experts but could extend the life of the country’s political class and its rotting energy regime.
On the other hand, Lebanese experts have proposed an array of visions for decentralizing, privatizing, greening and reforming the power sector to remove it from the establishment’s grasp and place its component pieces in the hands of independent technocrats, local communities and private capital. The victory of a small group of independent and opposition MPs in May’s parliamentary elections represents a narrow opportunity to bring these visions closer to reality.
In the very optimistic case that the energy sector can in fact be rebuilt, critical questions remain as to whether it would be defined by community ownership or foreign investment and whether it would be democratically or technocratically run. Unfortunately, the Lebanese ruling class’s proposed solution to the energy crisis sounds all too familiar: It would privatize public assets and offload economic costs and environmental harms on the most vulnerable under the cover of empty gestures toward technocracy, transparency and international best practices.
[Zachary Davis Cuyler is a PhD candidate in History and Middle Eastern and Islamic Studies at New York University.]
Endnotes
[1] Carol Ayat, Jessica Obeid, Laury Haytayan and Marc Ayoub, “Keeping the Lights On: A Short-Term Action Plan for Lebanon’s Electricity Sector,” Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut (March 2021) p. 3.
[2] Interview with Diana Kaissy, October 15, 2021.
[3] Interview with Marc Ayoub, October 5, 2021.
[4] Laury Haytayan and Aaron Sayne, “Oil and Gas in Lebanon: Time to Rethink Expectations,” Natural Resource Governance Institute (November 2021).
[5] LOGI, “Lebanon’s Offshore Gas Sector: Shifting Towards Domestic Growth” (May 2020).
[6] Ministry of Energy and Water and Electricité du Liban, “Setting Lebanon’s Electricity Sector on a Financially Sustainable Growth Path” (February 2022) p. 4.
[7] Interview with Sibylle Rizk, March 29, 2022.
[8] Email correspondence with Marc Ayoub, April 22, 2022.
[9] Interview with Sibylle Rizk, March 29, 2022.
[10] Marc Ayoub, Pamela Rizkallah and Christina Abi Haidar, “Unbundling Lebanon’s Electricity Sector,” Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut (September 2021) pp. 4–5.
[11] Alex Ray, “Power to the People: It’s Time for Renewable Energy to Transform Electricity in Lebanon,” Triangle (October 2021) pp. 8–12.
