Chinese investors offer hope to power-starved Lebanon

The search for investors in Lebanese power plants has resembled a complex soap opera rather than political reality.
Sunday 11/11/2018
The chimneys of a Turkish-owned floating power plant off the Lebanese town of Zouk Mosbeh, north of Beirut. (AFP)
On a slow burn. The chimneys of a Turkish-owned floating power plant off the Lebanese town of Zouk Mosbeh, north of Beirut. (AFP)

BEIRUT - PowerChina officials met with representatives of the Lebanese Ministry for Energy and Water to discuss constructing two 500-megawatt power plants in northern and southern Lebanon.

The search for investors in Lebanese power plants has resembled a complex soap opera rather than political reality. Tenders were made and cancelled for Deir Ammar power plant, north of Tripoli, by Cypriot, Spanish and German firms, Future Movement MP Ghazi Youssef said in an interview with Executive magazine in 2015.

Work on the Deir Ammar power plant has been stalled ever since. There was a minor breakthrough in May when the Lebanese cabinet agreed to change the current “engineering, procurement and construction contract” to a “build, operate and transfer contract” but Deir Ammar’s future remains unclear.

Sepco, a subgroup of PowerChina, was interested in Deir Ammar but “refused to sign some of the conditions, saying it could not be done,” Youssef said. Now, PowerChina is back and interested in new assets.

“PowerChina is very likely to sign a contract to build two new 500-megawatt power plants, which would be sufficient to cover Lebanon’s energy deficit,” a source said.

Such a deal would be significant progress for Lebanon’s energy sector. The country has suffered from electricity shortages since the end of the civil war in 1990. Residents of Beirut are often without electrical power for three hours day. In some regions, blackouts last up to 12 hours.

In 1975, an estimated 41.5% of Lebanese power was hydroelectric. Destruction of infrastructure during the war and subsequent disasters, such as the 2006 Jiyeh Power Station oil spill, put strains on Electricite du Liban (EDL), the state power company, which controls more than 90% of the energy sector. In the past 25 years, 9% of public spending has gone to EDL.

It would be short-sighted to blame the crisis on the civil war alone. Recently, there has been renewed academic interest in addressing the inadequacies of Lebanon’s pre-war energy sector with its competing private interests and structural deficiencies that are all too familiar.

As for current practices, the problems are also well-known: An estimated 20% of electricity is lost due to “non-technical losses” — poor cabling and theft. Auxiliary electricity can be bought from private diesel generator operators, a pricey and unclean business.

“In Hamra [a Beirut neighbourhood], there is 50% generator density, one generator for every two buildings,” said Najat Saliba, professor of atmospheric chemistry at the American University of Beirut. “Diesel generators are the most dangerous air polluter because they are in residential areas.”

“Having enough power plants would be my dream. We always have to make hard choices that are forced on us,” Saliba said.

Building more fossil fuel-burning power plants may be the best solution to the energy crisis, especially if oil can be substituted with relatively clean-burning natural gas. Offshore oil and gas exploration began this year but won’t yield short-term results. Progress is also blocked by the Central Committee of Generator Owners, a powerful syndicate for which the energy deficit provides a lucrative income.

Eliana Ibrahim, president of the China Arab Association for Promoting Cultural and Commercial Exchange, is an advocate of allowing diesel operators to have a stake in local power plants. “The answer is simple. The Lebanese government should give shares in the new power plants to generator owners. Without incentives, nothing is achieved,” she said.

It is not an impossible task. In 2016, Zahle, the largest city in the Bekaa governorate, rid its city of generator operators and provided residents with 24-hour energy. It is a success story that could be replicated elsewhere in Lebanon.

Temporary solutions to the power crisis, such as the Karadeniz Powership, burden the state with yet more public debt. The government has spent $1.9 billion on the Turkish-owned floating power plant, which has fuelled a sectarian feud between the Amal Movement and the Christian Free Patriotic Movement. Funding for new power plants would wean the Lebanese state off emergency measures such as the Karadeniz Powership.

“PowerChina has three conditions before investing,” Ibrahim said. “First, it wants a guarantee from a global institution, such as the World Bank. The World Bank’s commitment was pledged during the CEDRE conference, so this shouldn’t be a problem. Second, it needs safety for its workers, which is dependent on regional security. “

“The third condition is that the investment will make a profit. PowerChina’s experience in Saudi Arabia has been very profitable; it successfully made a $3 billion deal to develop a port owned by Aramco. PowerChina have the resources to provide 100% investment in the new power plants but it wants a local partner who could provide up to 20% of the funding. It is very important that Lebanon shows local commitment.”