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Lebanon inks $360 mln electricity deal

Karadeniz and Bassil during the signing ceremony.

BEIRUT: Lebanon signed Friday a $360 million three-year contract to lease electricity-generating ships from Turkish firm Karkey Karadeniz Elektrik Uretim, with the first barges due to arrive in 120 days. The two ships are expected to generate 270 megawatts of electricity, Energy Minister Gebran Bassil said.

During a news conference held at the Energy Ministry, Bassil said that he regretted that it has taken two years to implement the project after political bickering “delayed bringing electricity to Lebanese.”

Depending on whether the government utilizes the power ships to substitute some of the country’s aging plants – scheduled for extensive repairs – Lebanon could see electricity rationing fall by one to two hours a day, the minister said.

Bassil also said that depending on the decision, the state-run Electricite du Liban would be able to make savings ranging from $30 to $130 million a year on fuel.

Lebanon’s current electricity production stands at around 1,500 MW, while demand soars above 2,400 MW.

The huge deficit renders the country vulnerable to severe power rationing that often exceeds 12 hours a day outside of Beirut.

According to Bassil, the power ships would produce energy at rates of almost $0.06 per kilowatt hour, significantly less than in Lebanon’s outmoded plants.

Energy Ministry estimates put Lebanon’s current energy costs at no less than $0.17 per kilowatt hour.

The troubled EDL receives massive government subsidies, which have reached a record LL1.797 trillion ($1.19 billion) in 2011, LL828 billion higher than in 2010.

The massive increase followed higher fuel oil and gasoil prices, as well as soaring consumption, said a Finance Ministry report.

Turkish Ambassador to Lebanon Inan Ozyildiz said the contract was the largest business agreement between the two counties.

He said Turkey was ready to get involved in more projects to help revitalize Lebanon’s electricity sector.

Turkey has a growing interest in Lebanon’s energy sector, the ambassador said, citing promising prospects for cooperation in the country’s offshore oil and gas sector.

The chairman of KKEU, Ohan Karadeniz, said his firm would make an effort to deliver the barges before the date stipulated in the contract.

“We hope to realize the project quickly and contribute to reinforcing relations between Lebanon and Turkey,” he said.

The Cabinet agreed to lease two electricity-generating ships from the Turkish company after post-tender negotiations that saw the firm slashing its original bid by 9 percent. The two countries also agreed to reduce the ships’ leasing period from four to three years.

Meanwhile, a legal dispute between the government of Pakistan and the Turkish firm has escalated as KKEU sought damages at the International Court of Arbitration, a tribunal for commercial disputes.

The dispute started last year when the Pakistani Supreme Court revoked the contracts of several power-ship companies on corruption charges and failure to produce electricity stipulated in their contracts, Pakistani media reported.

Pakistan’s National Accountability Bureau is seeking $180 million in penalties from KKEU. The company refused to pay the sum, saying Pakistan’s breach of contract was in violation of international law.

The company’s bank accounts in Pakistan were frozen pending the settlement of the legal dispute.

In terms of Lebanon’s contract, the Turkish firm has promised to try to cut short the time needed for delivery.

Bassil said Lebanon would enforce up to $270,000-a-day in penalties if delays occur.

Additional penalties stipulated in the contract specify a loss of $500,000-a-day for every percentage point of electricityproduction that falls below the contracted rate, or if the ships are less fuel efficient than promised.

 
A version of this article appeared in the print edition of The Daily Star on July 14, 2012, on page 4.

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