Privatization of electricity in Zahleh, other regions to follow

Mon, 06/15/2015

After long years of neglect of this vital public service, the government is moving ahead with the privatization of power generation, as per the World Bank’s instructions, while arguing and justifying that it is incapable of containing the fiscal drain of the electricity public company. The first phase saw the setting up of the first power station by the Electricity Company of Zahle, in the Beqaa, a step which is expected to be followed by others, most imminently, in Jbeil.

Bases on several studies, the World Bank indicated in a recent report a report on the state of electricity in the country, that the poor performance of this sector has straitjacketed the growth of the economy. Reviewing the financial deficit during the period between 1992 and 2013, the WB studies pointed out that the cumulative allocations of public funds to this sector amounted to 55.4% of the Gross Domestic Product and 40% of total public debt. The World Bank President, Jim Yong Kim’s during his last June visit to Beirut which aimed at helping Lebanon face up to the impact of the Syrian refugee influx, referred to the need to start off the privatization process mainly of water, electricity and other public services as part of economic reform.

The World Bank’s advice to privatize public facilities is not new. Back in 2007, the Paris 3 Conference of donors recommended privatization as an indispensable tool for stimulating economic reform.

On April 10, 2014, the Lebanese Parliament passed a law that authorized, albeit temporarily, the issuance of permits to private companies to generate electricity. According to mainstream local newspapers, and based on public opinion in the Beqaa area, the pilot venture in Zahleh has clearly succeeded in ensuring 24 hours of electricity supply while bringing about a remarkable cut of the electricity bill by almost one half. This reduction seemingly benefited more than 200 thousand inhabitants of the greater Zahleh area, as well as dozens of industrial, agricultural, touristic and commercial establishments across 16 towns and villages. When asked about the project and whether it was a path towards privatization, As3aad Nakad, Director General of Zahleh Electricity Company, said it is merely ‘complementary’ to the services of his private company. He added that the franchise contract signed between his company and the Electricity of Lebanon stipulated that upon the end of the contract by the end of 2018, his company is required to hand over all equipments, facilities and networks to the Lebanese State provided they are still in good condition. However, one thing Nakad did not clarify was whether or not his enterprise was truly ready to handover the privatization after all the investments and lost incurred.

For its part, the private electricity company in Jbeil has followed the same path as in Zahleh and has formally applied on 11/03/2015 for a license to generate and supply electricity 24/24 hours to Jbeil area. The company is now waiting for the official reply from the Minister of Energy in order to start the construction of a new power station.

Furthermore, there are reports that the owner of Aley private electricity company is considering submitting a similar request after the expiry of its old franchise. It is to be noted that Aley Electricity received its old franchise for 82 years which ended in 2013. The old franchise authorized the company to receive electricity supply from the public grid at an average price of LBP 75 for each kilowatt (based on the latest official tariff) and to sell it to the public at an average price of LBP 127 for each kilowatt.

In conclusion, it is true that many people may not perceive any harm in the present trend, particularly if it is accompanied with short term financial benefits for citizens. Nevertheless, one can only note with grave concern the continuous failure of the successive governments in meeting their responsibilities in addressing the livelihoods situation, on the pretext of giving priority to more pressing political and security problems.