Lebanon News

Beydoun warns that EDL privatization can only work with proper planning

A thorough shake-up of Lebanon’s energy sector is proceeding under the guidance of Energy and Water Minister Mohammed Abdel-Hamid Beydoun, who says the policy will impact relations with foreign investors, the tourism sector and the environment, as well as shrink the ballooning debt.

International experts and financial institutions are involved in drawing up the needed legal framework to prevent a repeat of the experience of the cellular network, which saw the government cancel two BOT contracts last month.

“If there had been a well-studied, basic law set down for the cellular sector, we wouldn’t have reached the point we did,” Beydoun told The Daily Star in an interview. “There needed to be a regulator created to set down pricing policies and regulate the relationship between the various sides.”

Beydoun disclosed that the government was still mulling the question of what kind of regulator to put in place in the various sectors likely to be privatized.

“There’s a problem that we are going to face regarding privatization, whatever the sector,  water, telephones or electricity. This problem is the prerogatives of the regulator and of the ministry,” he said. “In theory, the ministry represents the public, while the regulator should be the arbiter between the people, who are buying the service and are represented by the ministry, and the investors, who are providing the service.

“The regulator is an independent body. This is fundamental,” Beydoun said, adding that in the minds of many, including lawmakers, a regulating body should be modeled on the Banking Control Commission, i.e. individuals selected by the government.

Beydoun said that experience should not be copied in creating new regulatory posts.

“You need to guarantee the highest possible level of independence, in every sense of the word. This is something that

is holding us up in producing this legislation: How can we create an independent regulator” in a country that Beydoun said has had “bad” experiences with the concept of independent state authority.

“We haven’t found a solution yet. In my view, we should select representatives of various sectors who are elected by these sectors, like the head of the Lebanese Industrialists Association, for example.

“They will be independent, but are connected to the market that we’re talking about, for example, the head of the LIA will also be a consumer of electricity, as an industrialist.

“But can we have 20 regulators? There is an opinion, currently prevalent within the government, that it should appoint the regulator, just like it does the Banking Control Commission.

“Also, can we have a regulator for water, and another one for electricity, and for natural gas, etc.?” he asked.

“I think we should talk about having a single regulator. For each post of regulator, we need an administrative apparatus. But in the end, I think it’s more effective to have one decision-making body.”

To guide the energy transition, Beydoun has set himself the task of drawing up master plans for energy and natural resources policy on various fronts: petroleum and gas, water and waste water, and electricity.

Also needed are laws, such as one for regulating natural gas pipelines, the water sector and all hydrocarbon-related domains.

The minister said he was confident that the political muscle was in place to ensure a rapid adoption of the required legislation, although the laws have not been completed.

“There’s an agreement between the government and Parliament about privatization,” he said, insisting that there was no intense opposition to the policy in the legislature.

“There’s an agreement about a key point, which will make things go smoothly: There must be a law for each sector, to let MPs see what is going to happen. The main condition from MPs is full transparency. We don’t want to hear afterward that ‘we should have sold this (institution) for a higher price.’ We favor seeing the big purchases take place on the stock market, so that we can have the greatest possible degree of transparency.”

The government is in the final stages of completing the required draft law for privatizing electricity, but key issues remain unresolved.

“It’s not just about selling Electricite Du Liban, but opening up the entire sector. It means any electricity production firm can come and produce power and sell it; it means any distributor can come here and say ‘I want to distribute electricity.’

“We hope that we can find a strategic partner for EDL by the end of the year,” he said, but indicated again that a few more administrative details were holding up the move.

“France’s BNP-Paribas needs six months before they find a strategic partner for us. Beginning the process is connected to a decision by the Higher Council for Privatization. Do we sell a small part of the electricity sector, or open up the process to large components of the sector?

“There are two points of view. One says sell only a small part, because with a new administration the performance will improve. The other says that with the amount of losses and investment levels required to be paid the state in the next few years, we should choose privatizing the entire sector, so that the state won’t incur these losses.

“The council’s decision is a bit late, but if it meets for a week or two (to settle this), we should be looking at four to six months for the entire process of finding a strategic partner, which means a private sector partner assuming responsibility for running EDL.”

He downplayed speculation that the process could mirror the recent experience with restructuring Middle East Airlines, where unions rejected the plan and forced further negotiations.

The average age of EDL employees is 56 years, Beydoun pointed out, predicting that permitting voluntary retirements would facilitate a smooth restructuring process.

“Meanwhile, the remaining, qualified employees will benefit from higher salaries,” the minister maintained. Issues like determining the number of employees to be employed in the electricity sector will be ironed out with the strategic partner, he added.

Beydoun emphasized that EDL’s losses resulted from administrative problems, and not a political conspiracy that sees some people pay their bills and others ducking them.

“We are producing 9 billion kilowatt-hours, and only getting paid for half. Allowing for about 10 percent natural waste for technical reasons, that means we are failing to collect 40 percent of the bills.

He denied that there was a political cover for non-payers, saying poor bill collection was for “technical reasons” and could only be straightened out when a private sector takes over the company’s management.

“The problem is that we are in need of some 400,000-500,000 electricity meters … . There is tampering with meters, particularly in big firms and institutions, sometimes on the advice of EDL officials,” Beydoun said, chuckling.

“There are 1 million meters now out there that are mechanically based, and to prevent tampering, we have to change them to electronic ones.

“Once the private sector is in charge of electricity, it can quickly figure out what is needed, and the whole thing can be completed in six months. I reject the idea that the Treasury should bear any expenses when it comes to the electricity sector.”

EDL’s losses are due to the “weakness of the EDL administration and not a political decision,” he stressed. “Wherever there are meters, people are paying, at a 90 percent rate. There’s a lack of meters in the North, the South, the Bekaa, the suburbs of Beirut and Beirut itself.

“France’s EDF set up a model electricity distribution area in Beirut’s suburbs, setting up meters and everything else in the Bourj al-Barajneh-Shiyah-Haret Hreik, and the rate of payment there is 98 percent.

“This is the proof that if we have the right management, we’ll have better collection rates than Italy. I’m only the minister with supervisory power, not EDL. I informed them months ago to install 400,000 meters. They say they need to prepare the tender. I’m still waiting,” Beydoun said.

He also criticized EDL for issuing 1 million “estimated” amounts for collection in the last six months.

“People were showing us that they had kept their receipts, showing us both the receipts and the bill from EDL saying that they hadn’t paid LL20 million since 1991.

“We had an amnesty for civil war crimes, drug crimes, construction violations and settlements for illegal seafront properties and back taxes …but not for electricity bills?” the minister asked incredulously.

Beydoun stressed that apart from restructuring or selling EDL, electricity policy involves an even more critical move, namely switching to natural gas instead of fuel oil and diesel as a source of power generation.

“The most important thing we’re doing is putting what we’re saying about natural gas in the implementation stage. Our two big plants, namely Beddawi and Zahrani, were built to run on natural gas.

“Natural gas should be one-quarter less expensive than fuel oil. But we haven’t secured the gas yet, so we’ve been forced to run these plants on diesel, which is 100 percent more expensive than fuel oil.

Under debate is how Lebanon can take advantage of natural gas supplies from its biggest neighbor, Syria.

“The government still hasn’t taken a decision as to who will finance a gas pipeline,” meaning whether there will be private sector participation,” the minister said.

“The specifications booklet has been completed, but there is still one item to be filled in. Will it be the government directly financing the pipeline or will the contractor of the project do it and then get paid by the government or take a percentage of the receipts?”

Beydoun’s ministry is also working on a gas pricing formula. “We’ve carried out a tender for specialized consulting firms, like Arthur Anderson, to prepare a study on pricing for us.

“In our negotiations with Syria, we will rely on this scientific study by a neutral party. When all of the offers are in, the government will select the firm to complete the pricing study. Creating a natural gas sector in Lebanon, which lacks one at present, involves several key points.

“We have begun negotiating with a company that will conduct seismic exploration” into the possibility that natural gas exists off the country’s northern shore. “I hope the Cabinet approves this contract this week,” Beydoun said.

Exploration should take no more than six to eight weeks, he continued, confident that the ambitious initiative would yield positive results.

Following that, assuming the seismic survey reveals significant quantities of gas, a bid to allow exploration and a new law are needed.

“This law will deal with the question of what we are choosing here. Will we choose the suitable arrangement for the process, whether profit-sharing, concession, etc.?

“The preliminary studies indicate that there is gas off Lebanon, just like off Gaza. There is a theory that this entire gas field lay under the Nile, but moved northward into the Mediterranean due to earthquake activity,” he said. “All of the satellite photography points in this direction.”

Sea-based exploration for fuel is very advanced, he said, stressing that the public should not fear environmental problems resulting from any exploration activities.

“For us, the future is natural gas, and we can’t wait several more years,” he warned. “We must begin now. The first step is an agreement with Syria to provide us with gas, which is almost finished. We think that this will provide us with a quarter of our needs.

“The second is an attempt to conclude an agreement with Egypt, which will secure us 50 percent,” he added. “The third involves exploration.”

Beydoun acknowledged that the failure to wrap up the Egyptian agreement had delayed matters, but emphasized that the time was not going to waste.

“This is giving us time to do more about the exploration issue,” he said. “If we end up having large quantities of gas, we don’t have to rely as much on foreign sources.”

He said that the government was certain to secure these three sources (Syria, Egypt and local quantities) while a fourth was being looked into. This involves purchasing liquefied natural gas, or LNG, from a gas-rich country such as Qatar.

“We are also looking for alternative sources, like natural gas, not liquefied gas. The problem with LNG is that the infrastructure required is expensive. We don’t have a problem if the companies involved provide the infrastructure at their own expense, we won’t have a problem.

“It’s very important to have a master plan for natural gas,” he explained, “to identify our needs and ensure that our sources will be secure ones.”

Beydoun said that it was high time to depend on natural gas, in everything from kitchen stoves to taxis.

“It’s so much less expensive for domestic use, where we’re now using fuel oil, diesel, and electricity. It’s also safe, since the pipe pressure is so low, meaning little fear of explosions from gas leaks.

“Switching to gas in domestic use means we’ll be getting rid of the most dangerous thing, namely diesel, which is used in heating, motors, etc. It is very bad for our health. We should gradually get rid of diesel in favor of natural gas.

“In Egypt, they’ve begun the experiment of natural gas-powered vehicles,” Beydoun noted. “This requires a certain infrastructure, and it’s not easy.

“If we’re thinking about Lebanon’s future in terms of tourism, the least we can do is pass a law requiring all taxis to operate on natural gas, which will constitute a big reduction in pollution.”

As for whether there is a short-term solution for the country’s electricity problems, Beydoun was confident that the end of the summer would see considerable improvement, if not the end of rationing.

“We have to remember that there are repair periods and emergency problems due to the fact that the Zouk and Jiyyeh plants are on their last legs,” he said. “Another problem is that the big plants, Deir Ammar and Zahrani, cannot operate at full capacity.”

Even if the necessary facilities are repaired, officials must grapple with a 5 to 10 percent annual increase in energy demand, Beydoun said.

“Each year, there’s a new crisis,” Beydoun said, summing up the situation.

At present, energy demand is 1,650-1,700 megawatts, while production is approximately 1,100 MW.

Another 180 MW or so power is being purchased from Syria, for a total of around 1,300 in consumption and 1,600 in supply. Simple arithmetic means that there is a 25 percent shortfall to meet demand, meaning power cuts to make up the difference.

The cuts are mostly affecting Mount Lebanon and the South, the minister said, while the city of Beirut is supposed to receive round-the-clock electricity.

“Of course, there are people who ask ‘why don’t we have rationing in Beirut’?” he said, “but we prefer to improve the situation around the country, rather than have the Beirut situation go backward.

“But in about six weeks’ time, we’ll begin to see improvements, due to repairs at the Zahrani and Zouk facilities,” he predicted.

“By the beginning of September, we’ll get another 220 MW of power from Zahrani, when the repairs are completed on a gas-fired turbine. When that happens, Zahrani will be operating at full capacity.

“Also, we’re in the process of finishing repairs at Zouk, which will provide another 140 MW. These two items together will mean an extra 360 MW, meaning that we can stop rationing. Also, at that time of the year, in the fall, demand goes down a bit.

“The second part of the plan, which will help us tremendously, will be in February 2002, when we can run the Beddawi plant at full capacity.

“This will mean another 300 MW for the network, which means responding to the annual increase in demand, while having some of this 300 MW as a reserve, in case of any problems at other plants.

“So, 2002 will go by with no rationing,” he predicted with a confident laugh. “But it’s too early to talk about 2003.”

Beydoun acknowledged that the public sector was unlikely to see something truly radical: a hefty pay rise for state employees, to improve productivity.

But the minister did propose that directors-general at the various ministries see their salaries adjusted based on their qualifications, such as educational background.

“I think they should be treated like contract workers,” Beydoun said, “and their salary arrangements worked out on an individual basis.”

Asked about his daily duties as minister under the current, traditional set-up, Beydoun related anecdotes indicating that the sector was in dire need of a shake-up.

“I get telephone calls about power cuts every minute, every day, to the point where I sometimes just have to turn the phone off.

“I get calls at midnight from people, saying that their power is out,” he said. “I’ll get a call at 2am, from someone complaining about the electricity bill.

“Just because they can’t sleep because of this bill they’ve received, does that mean I’m not supposed to get any sleep either?”

 

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