Lebanon has just received some of the fuel required for Electricité du Liban to run its power plants. This shipment was originally scheduled to be delivered in August under an agreement inked in July 2021 with Iraq, which now represents the state power provider’s only source of fuel.

A 30,000-ton gasoil shipment is expected to ensure around three hours of state power supply per day, caretaker Energy Minister Walid Fayad told al-Mayadeen TV channel on Wednesday evening.

This delivery is therefore vital for Lebanon, which has been hit by one of the worst economic crises the world has seen in more than 150 years, according to the World Bank, and while EDL is barely able to provide one hour of power supply per day, given its inability to purchase the needed fuel.

The delivery’s timing is all the more important given the present cholera outbreak in the country, which began at the beginning of October with the first reported case of the disease since 1993. Mainly focused in areas in northern Lebanon and the Bekaa Valley, these cases are mainly caused by the use of contaminated water in the irrigation and washing of fruits and vegetables. This contamination is likely partly due to a lack of power supply to water stations.

In this vein, Fayad explained that “priority [in terms of supply] will be given to public infrastructure and hydraulic installations to contribute to the fight against cholera.”

The agreement with Iraq

The initial agreement was to import 1 million tons of Iraqi fuel, over a period of 12 months, which Lebanon could swap for other types of fuel compatible with its power plants.

However, if the August delivery was supposed to point to the end of this agreement, a ministerial source told L'Orient-Le Jour it was “divided into two [shipments]: the first consisting of 80,000 tons of Iraqi fuel oil in exchange for which Lebanon would receive 30,000 tons of gas oil, and the second of 100,000 tons of Iraqi fuel oil that still have not been exchanged.”

Supplied by the Iraqi State Organization for Marketing of Oil (SOMO), these amounts are each time recovered and exchanged by a company that is selected following a call for tenders in which these five pre-selected companies may participate. These companies are the Emirates’ Coral Energy DMCC and ENOC, Oman’s OQ, Greece’s ELINOIL and Kuwait’s IPG (Independent Petroleum Group).

Lebanon’s Energy Ministry told L’Orient-Le Jour that the Omani OQ company won the contract this time, against Coral Energy DMCC, which was the only other firm to make an offer.

In parallel, the ministry announced the launch of the next call for tenders related to the rest of the planned amount.

It is important to note that the mechanisms and terms of this agreement have been extended by one year, so as to ensure that Lebanon would be supplied with another 1 million tons of Iraqi fuel oil.

Egypt, Jordan and Iran

In parallel with the Iraqi agreement, Lebanon planned to increase its electricity production through several partially implemented mechanisms: the import of gas from Egypt, the import of electricity from Jordan, and Iranian fuel that could be exchanged for compatible fuel oil supplied to EDL by a third party, based on a mechanism that is similar to the one between Beirut and Baghdad.

The first two mechanisms depend on obtaining a $300 million loan from the World Bank, following the finalization of all other prerequisites. These include, in particular, repair works on the Arab gas pipeline (linking Lebanon to Egypt via Syria and Jordan) and the electricity grid (linking Lebanon, Syria and Jordan), as well as an exemption from the US sanctions under the Caesar Act.

However, according to World Bank vice president for the Middle East and North Africa, Ferid Belhaj, three additional prerequisites need to be met in order for Lebanon to obtain the funds. They include increasing EDL’s tariffs, which have been the same since 1994; establishing an independent electricity regulatory authority; and completing an audit of EDL’s accounts.

Only the first condition has been put in place and will be applied as EDL’s supply hours increase. In this case, EDL will charge 10 cents per kilowatt hour for the first 100 kilowatt hours consumed each month, and 27 cents per kilowatt hour for each unit above that threshold.

Regarding the Iranian fuel, Fayad said on Sept. 26 that his ministry was preparing to cooperate with the Iranian authorities to determine the types of fuel to be delivered, stating that the first deliveries in this regard are expected “within the coming days or weeks,” as Iran wants to “extend a helping hand quickly” to Lebanon.

These remarks were made following a Lebanese delegation’s visit to Iran after the Islamic Republic indicated that it wanted to donate 600,000 tons of fuel to Lebanon to be delivered over a period of five months, or 120,000 tons per month.

Similar to the Iraqi agreement, these amounts would need to be exchanged as part of a barter involving third-party companies as the Iranian fuel is not compatible with Lebanon’s power plants. While “the technical aspects have been finalized,” a ministerial source said, the “political” dimension of the file — meaning the potential for Western sanctions as a result of engaging with the deal — does not seem to have been addressed.

One last option

In the absence of any concrete steps taken with Egypt, Jordan or even Iran, and given the meager improvement that the Iraqi agreement alone will bring, Lebanon is now forced to consider new options to increase EDL’s electricity supply hours.

The last option would be to obtain a loan from financing institutions. Announced by Fayad on Oct. 24, this option allows Lebanon to obtain a loan and defer repayments "by five to six months,” so as to allow EDL to collect the invoices and reimburse the sums due.

According to the caretaker minister, this mechanism will allow EDL to launch tenders for the purchase of fuel to produce eight to 10 hours of power per day over a period of six months, for a budget ranging between $100 million and $150 million per month.

One of the sources mentioned for such funding is Banque du Liban. Indeed, the caretaker minister has indicated that he has obtained assurances regarding this funding from Prime Minister-designate Najib Mikati, who asked him to examine the option. A second ministerial source contacted by L’Orient-Le Jour, also said that the discussions are already underway between the ministry and BDL.