Following the deadly blast at Beirut’s port last month, various international organizations and companies rushed to offer support to a Lebanese city in ruins. Among them was Siemens Energy. In a statement on August 12, the German company offered to deliver medical aid and to run two gas turbines with a total electrical capacity of about 80 megawatts (MW) free of charge. This week, however, Siemens Energy altered its electric power offer due to various constraints in Lebanon.
Instead of delivering and running the two A45-GT gas turbines in Beirut, Siemens Energy has offered to upgrade the Deir Ammar and Zahrani power plants, and to increase their production capacity at no cost, in addition to providing preventive maintenance, according to a spokesman at Siemens Energy. The revision was also announced in a statement released following a meeting between Lebanese officials and a Siemens Energy delegation on September 2. The two power plants have a capacity of around 450 MW each.
Siemens Energy has put forward different options to support Lebanon following the massive explosion that killed at least 190 people and injured over 6,500. These included the two gas turbines that would have been provided for one year free of charge. But this offer did not materialize. Instead, the new offer to upgrade the two power plants of Zahrani and Deir Ammar turned out to be the most feasible, according to the spokesman.
Various restrictions have blocked the first offer of two A45-GT gas turbines to aid Lebanon following the explosion.
Caretaker Energy Minister Raymond Ghajar highlighted the heavy costs of the fuel required to run the turbines. “The fuel was going to be provided by the Lebanese government, and this is a high cost,” he said in a phone interview, adding that “this would have constituted about 60 to 70 million USD a year based on current international prices.” The fuel type to run those two gas turbines would have been diesel, a petroleum product used for power generation in Lebanon along with fuel oil.
“We were in opposition to the $70 million and said let’s find something that does not cost us anything,” the caretaker energy minister said. The new offer to upgrade the two power plants comes with no costs, according to Ghajar.
One source familiar with the matter said a set of issues hampered the first offer. In addition to logistical challenges that included the act of delivering the fuel to run those turbines, there were also political constraints.
Plans to revamp Lebanon’s power sector, or at least to address some of its daunting problems have been drafted and showcased since at least 2010. However, political bickering and other obstacles hampered these initiatives. Energy consultant Jessica Obeid writes that Lebanon’s political system that has been in place since the end of the Lebanese civil war (1975-1990) has “hindered any economic growth or sectorial reforms, and nowhere is this more evident than in the power sector.” Moreover, she added in a phone interview that the Lebanese state’s talks with Siemens Energy over the offer to upgrade the two power plants could be an attempt “to show the international community that it is willing to embrace reforms so that it can secure financial aid.”
Crippled Power Sector
In 2010, the Ministry of Energy and Water (MoEW) prepared a policy paper for the electricity sector that provided solutions related to power generation and transmission, transition to natural gas, electricity tariffs, and the fiscal budget of the state-owned power company Électricité du Liban (EDL), in addition to other matters. The plan did not progress mostly due to the habitual political wrangling and lack of commitment to carrying out reforms. Last year, the plan was updated with a focus on reducing EDL’s financial deficit and improving supply. Unsurprisingly, it hit a wall once again.
According to a report from the World Bank, Lebanon’s power sector “has long been at the center of the country’s economic and fiscal challenges.” In an updated policy paper from 2019, the Ministry of Energy says that the financial deficits of EDL “reached $1.8 billion” in 2018, adding that various factors have contributed to the shortfall, including: aging power plants with high operating costs and low efficiency, low electricity tariffs, losses on the transmission network, and others. These deficiencies have been known for over a decade, and although the solutions have been easy to identify, mismanagement and political motives have trumped reforms and development.
Moreover, the widening gap between EDL’s electricity supply and demand has empowered an informal power system led by a network of private diesel generators. Using subscription fees, many in Lebanon have been relying on such generators to avoid outages when the “government’s electricity” (a Lebanese term used to refer to EDL) is unavailable. This network “created a complex informal economy that has been resistant to regulations and government oversight,” according to a paper prepared by Ali Ahmad and published by the World Bank in May 2020.
Power outages vary between different Lebanese areas. They worsened a few months ago amid a severe financial crisis and a paralyzed government. Various reasons were cited to justify the acute power outages, including “a lack of fuel supplies” due to the financial crisis. However, decades-long mismanagement, was the chief culprit, and not the issue of securing fuel supplies, as some actors in Lebanon claimed.
Lebanon’s Fuel Imports
Fuel oil and diesel shipments to Lebanon come from various places, particularly Europe and the US. According to a report from the Lebanese finance ministry, “the US ranked first in 2019 with a share of 9 percent of total imports of which 49 percent are minerals fuel and oil.” In addition to the EDL, there are private actors that import fuel, including around 12 importing companies.
Most shipments of US fuel oil to Lebanon “originate from the Houston Fuel Oil Terminal, which is operated by Energy Transfer since their acquisition of SemGroup in 2019”, according to Homayoun Falakshahi, a senior analyst at Kpler, a data intelligence firm. Other sellers have included Macquarie Infrastructure Corporation, United Refining Company and Marathon, according to Falakshahi. Since December 2019, shipments from the US have been destined to Lebanon’s two power plants in Jiyeh and Zouq, Kpler’s data shows. Fuel oil imports from the US during the first half of this year dropped by around 45 percent compared to the same period last year, according to Kpler.
Meanwhile, diesel/gasoil imports also originate from various suppliers in countries such as Greece, Italy, Russia, Turkey, Kuwait, and others. Diesel imports during the first half of this year have averaged around 70,000 barrels per day (bpd) based on Kpler’s data, almost equal to the average during the same period in 2019.
Lebanon continues to rely on aging power plants for power generation despite the plans that have been presented to overhaul the power sector. There have been talks over the past years with international companies to build new power stations and improve the electricity value chain in the country, but no progress has been made.
So far, successive governments have failed to shove reforms into an ailing power sector that has almost become unalterable as failures mounted and solutions were rendered castles in the sky. It is a sector that has faced accusations of rampant corruption. If reforms are to happen, the power sector can no longer be ignored.