Lebanon approves plan to reform ailing electricity sector

The Turkish floating power station Karadeniz Powership Orhan Bey, which generates electricity to help ease the strain on the country's woefully under maintained power sector, is docked near the Jiyeh power plant, south of Beirut, Lebanon, Monday, April 8, 2019. (AP)
Updated 08 April 2019

Lebanon approves plan to reform ailing electricity sector

  • The decision is the most significant by the cabinet since it was formed in late January
  • Hariri on Monday said the cabinet unanimously approved the plan which would improve power supply, raise electricity tariffs

BEIRUT: The Lebanese government on Monday approved a plan to reform its electricity sector, vowing to provide power 24 hours a day from a grid notorious for blackouts.
The decision is the most significant by the cabinet since it was formed in late January and is a step toward unlocking billions in aid pledged to Lebanon in exchange for slashing public spending and overhauling the electricity sector.
Prime Minister Saad Hariri on Monday said the cabinet unanimously approved the plan which would improve power supply, raise electricity tariffs and reduce fiscal deficit resulting from government transfers to state-run Electricite du Liban (EDL).
“This plan satisfies the Lebanese people because it will bring them electricity 24/7,” he told reporters after the session.
“It will also reduce the budget deficit,” he said.
Hariri said implementation of the plan was “urgent” and “could not be delayed” because it was critical to Lebanon’s economy.
Energy Minister Nada Boustani, who first presented the plan last month, described the cabinet’s approval as a “positive step.”
The plan still needs to be approved by parliament.
A dated electricity grid, rampant corruption and lack of reform has left power supply lagging way behind rising demand since Lebanon’s 1975-1990 civil war.
According to the McKinsey & Company consulting firm, the quality of Lebanon’s electricity supply in 2017-2018 was the fourth worst in the world after Haiti, Nigeria and Yemen.
Government subsidies to state-run EDL have also worsened the cash-strapped government’s budget.
EDL receives one of the largest slices of the government’s budget after debt servicing and salaries.
According to the World Bank, government transfers to EDL averaged 3.8 percent of gross domestic product from 2008 to 2017, amounting to about half of Lebanon’s fiscal deficit.
Lebanon is one of the world’s most indebted countries, with public debt estimated at 141 percent of GDP in 2018, according to credit ratings agency Moody’s.
A conference dubbed CEDRE in the French capital in April pledged aid worth $11 billion (9.5 billion euros), promising to stave off an economic crisis.
At the Paris conference, Lebanon committed to reforms including slashing public spending and overhauling the electricity sector.
In exchange, the international community has pledged major aid and loans, mostly for infrastructure projects that need to be signed off by the new government.


WEEKLY ENERGY RECAP: Keeping things in balance

Updated 08 December 2019

WEEKLY ENERGY RECAP: Keeping things in balance

  • The over-compliance will result in cuts of 1.7 million bpd

Brent crude rose above $64 per barrel after OPEC+ producers unanimously agreed to deepen output cuts by 503,000 barrels per day (bpd) to a total 1.7 million bpd till the end of the first quarter of 2020.

The breakdown is that OPEC producers are due to cut 372,000 bpd and non-OPEC producers to cut 131,000 bpd.

Current market dynamics led to this decision as oil price-positive news outweighed more bearish developments in the US-China trade narrative that has weighed on oil prices throughout the year, with US crude exports rising to a record 3.4 million bpd in October versus 3.1 million bpd in September.

OPEC November crude oil output levels at 29.8 million bpd show that producers were already overcomplying with its current 1.2 million bpd output cuts deal by around 400,000 bpd. 

The over-compliance will result in cuts of 1.7 million bpd, especially when Saudi Arabia continues to voluntarily cut more than its share.

This makes the agreed 1.7 million bpd output cuts pragmatic since it won’t taken any barrels out of the market.

It isn’t a matter of OPEC making room in the market for other additional supplies from non-OPEC sources, as OPEC barrels can’t be easily replaced.

Instead, this is about avoiding any oversupply that might damage the global supply-demand balance.

Saudi energy minister Prince Abdulaziz bin Salman has effectively kept his promise and managed to smoothly forge a consensus among OPEC and non-OPEC producers.

He has also successfully managed the 24-country coalition of OPEC+ including Russia in reaching an agreement.

Despite suggestions otherwise in recent coverage of the Vienna meeting, the deeper cuts announced on Friday have nothing to do with the Aramco IPO. Let’s remember this meeting was scheduled six months ago and the IPO has been in the works for much longer.

The Aramco share sale did not target a specific oil price. If that was a motivating factor it could easily have chosen another time.