Lebanon to allow price of oil to float if market rises further

BEIRUT: The Lebanese government cannot afford to subsidize the prices of oil and its derivatives if these rates exceed the local official threshold, Acting Energy Minister Mohammad Safadi said on Friday. "We are not making any revenues from the sale of gasoline and oil after the prices in the international markets reached [record] high levels," Safadi told The Daily Star.

He added that if the prices of gasoline in the international markets exceeded the local price of LL22,700 per 20 liters of gasoline, consumers will have to bear the cost of the difference.

"The Lebanese government used to collect more than $800 million in revenues from gasoline and oil two years ago but now we are not making a penny," Safadi said.

The price of a barrel of oil has exceeded $90 in the international market amid fears that the rates will climb even further if the Turkish Army invades northern Iraq in an attempt to crush Kurdish rebels.

New York's main futures contract, light sweet crude for delivery in November, touched $90.07 per barrel in early afternoon deals. That beat the previous high of $90.02 set late on Thursday.

The contract later retreated to stand at $88.59, down $0.88 from Thursday's close.

Safadi said that if the price fell below the local charge of LL22,700 per 20 liters of gasoline, the government will be able to make money. But if the prices jumped above this level, the state will not intervene to stop the price climb, he added.

The minister admitted that the prices of kerosene and fuel oil are rising fast, even in the local market.

"We will try to subsidize kerosene, but even with these subsidies the prices will stay high," Sadadi said.

He added that Lebanon must find alternative sources of energy to reduce the high cost of fuel oil which still runs the country's power plants.

"Switching to gas from fuel oil will save us $200 million for Dir Ammar power plant in north of the country," Safadi said.

The minister said he recently reached an agreement with Egypt to receive natural gas through a pipeline.

Safadi said due to the high cost of fuel oil, Electricte du Liban (EDL) is forced to sell each kilowatt of electricity at LL2,400 or more, instead of LL300.

"Both the consumer and the state are suffering from the high prices of oil but we can't do anything about it at the moment," Safadi said.

He added that Syria would not block the flow of gas through its territories.

"But we have a problem in  the Zaharani power plant in the south because we don't have a pipeline that connects to this area," Safadi said.

He added that the government may be obliged to ship the gas by tankers and that this will save $100 million each year.

EDL has become a huge burden on all successive governments due to poor management, electricity theft and poor bill collection. Its total accumulated losses since 1993 are estimated at more than $11 billion, or one third of Lebanon's public debt.

Safadi said that the first step toward shoring up EDL and cutting mounting losses is to privatize the management.

"Once we privatize the management of EDL, then it would be easier to sell the production units and distribution but the state will keep the transport," he said.

The minister said that Lebanon has not yet taken advantage of its rich water resources to find an alternative source of energy.

Safadi expressed hopes of finding oil and gas in Lebanon.

"All the studies showed that we have oil and gas off the Lebanese coast but before making any explorations we must have an oil policy," he said.

Safadi said that he will submit a preliminary study on oil to the Cabinet in the next meeting.

"We cannot launch a tender for exploration if we don't have an oil law. The companies are not willing to do any drilling without this law," he said.

Economist Marwan Iskander also voiced opposition about the idea of subsidizing the price of oil should it rise further.

"But we should find alternatives to relieve the citizens such as improving public transport and build new oil refineries,' Iskander said.

He added that if Lebanon builds oil refineries then Lebanon will not only be able to meet local demand but export the remaining refined oil to other countries.





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