June 30, 2020

LIFE’s Response to the Government of Lebanon’s Electricity Reform

LIFE believes that a comprehensive electricity reform strategy should be the cornerstone of the Government’s Financial Recovery Plan. The lack of reforms in the power sector has been a key driver of the ongoing economic and financial crisis in Lebanon. We herein emphasize our support to the “Lebanon Power Sector Emergency Action Plan” (“White Paper”) recently drafted by the World Bank and strongly recommend its endorsement by the Government.

The White Paper outlines the key issues in the sector and identifies the critical revenue enhancement and cost cutting measures, supported by quantitative analysis and experiences from other jurisdictions. The four proposed pillars of Governance, Security, Stability, and Sustainability are the foundations for a well-run, reliable, low-carbon emission, and self-funded power sector. Policy papers prepared by previous Governments in 2010 and 2019 fall short in identifying governance shortfalls, financial management issues and do not clearly articulate policy actions. In addition to the reform measures detailed in the White Paper which we support wholeheartedly, we highlight the following:

  • It is crucial to stabilize the macroeconomic and geopolitical environment to attract private infrastructure capital. We expect that it would be exceptionally difficult for financial institutions to approve credit funding for infrastructure projects in Lebanon, whether privately or publicly funded, unless a holistic economic credible is adopted with an immediate start of implementation. IMF is likely to condition its funding to the seriousness of reforms undertaken in the power sector. Therefore, we urge the Government to endorse the White Paper (including additional considerations detailed herein) as soon as possible. This should have the additional benefit of addressing the justifiable concerns of CEDRE partners and potentially help the country unlock additional funding sources.
  • A dedicated and empowered Power Generation Procurement Agency/Division is of utmost Priority. While the White Paper recommends the set-up of an independent regulatory authority, the Government should consider prioritizing the set-up of an Agency/Division that would be responsible for procuring a large number of identified thermal and renewable Independent Power Producers (“IPPs”) in a competitive and transparent fashion in line with best international practice. This Agency, reporting to the Ministry of Energy and Water, would be supported by international technical and legal advisors to guide in developing Bankable Project Agreements and preparing Request for Proposals documentation.

There is no Silver Bullet Solution, but also no other credible alternative. The White Paper’s proposed tariff increases and removal of Government subsidies will lead to higher consumer prices. However, absent these measures, EDL would no longer be able to fund fuel purchases thereby further deteriorating electricity supply in the near term. For these tariff increases to be accepted by the population, it is critical that they are accompanied by an improvement in service reliability and a reduced reliance on widespread inefficient and polluting diesel generators. With the potential support from some of Lebanon’s financial backers and a transparent communication and implementation strategy, we feel confident that the country can overcome those challenges.

We are out of time; people’s lives and livelihoods are at risk. The time to implement is now.

LIFE
www.lifelebanon.com

LIFE is a global network of Lebanese professionals working together towards a brighter future. As an apolitical, non-sectarian organization of Lebanese professionals, LIFE will continue to provide independent, objective and transparent views and advice and is not influenced by any other body, association, or party.