Lebanon’s Energy Sector

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Jon Alterman: Jessica Obeid is an energy consultant, a senior global advisor at the London-based consultancy Azure Strategy, an academy associate with Chatham House's Energy, Environment, and Resources Programme, and a non-resident fellow at the Lebanese Center for Policy Studies. From 2016 to 2017, she served as the chief energy engineer at the UN Development Programme in Beirut, where she previously served as an energy engineer for eight years. Jessica, welcome to Babel.

Jessica Obeid: Thank you for having me.

Jon Alterman: So how did you get into energy as a young Lebanese woman? Why energy?

Jessica Obeid: I think it's probably because we do have an electricity sector that seems quite complicated, but is technically quite simple to solve, but we haven't had reforms in the past three decades. I was interested in that part and why electricity was quite complex to provide as a service. I think at some point I realized renewable energy as a future access to provision was so interesting. At some point I did realize that technology by itself, without the right policy tools and without accounting for the broader political context, is not going to get so far. So eventually I did move into policy for that.

Jon Alterman: You studied as an engineer first in Lebanon and then in France and—

Jessica Obeid: —Yeah, it was a program between Lebanon and France, it was political science, but I did my electrical engineering degree here in the Lebanese American University.

Jon Alterman: And you learned about conventional thermal electricity generation. You burn fuel and you crude electricity. Isn't that the way Lebanon produces all of its energy?

Jessica Obeid: Yes, unfortunately the biggest part of it is through a thermal of conventional fossil fuels, but also the case for the broader Middle East—so many countries have had so many advancements in renewable energy and the Middle East, and Lebanon also in particular, have been mostly discussing a renewable energy plan, but lagging behind a lot in terms of implementation.

Jon Alterman: Is that because there are vested interests who don't want Lebanon to develop renewable energy?

Jessica Obeid: If we look into the political economy than we do see that there are vested interests, as you mentioned, across the entire value chain and electricity provision. We noticed that in the fuel industry, and also because there's a high shortage of electricity supply in Lebanon and minding the gap has been done through a proliferation of private diesel generators. So, there are vested interests in the fuel economy, there are indigent informant generators economy in procurement also, which is a barrier for renewable energy because more deployments of renewable energy would achieve energy security and more affordable electricity. But it also challenged all these vested interests.

Jon Alterman: From a consumer perspective, the electricity tariffs in Lebanon from the national electricity company haven't been changed in decades. It seems relatively cheap except that, as you say, you have to keep supplementing with diesel and other things because you don't have reliable electricity at that price.

Jessica Obeid: Yes, absolutely. When we look into the total electricity bill and when we account for the electricity for the utility—that is, as you mentioned, cheap—when we account for the cost of the kilowatt hour from diesel generators, that's actually very expensive. The total electricity bill ends up being expensive, not only for the average citizen, but also for the commercial and industrial sectors, which is decreasing their competitiveness as well.

Jon Alterman: So, who's making money?

Jessica Obeid: That's how we get to the political structure of Lebanon. The system was designed to safeguard power sharing of the different sects and the leaders of the parties that have sectarian affiliation. When we look at it, almost everyone has a piece of the pie. Otherwise, it would have been easier to implement reforms, but reforms get lost and get into lots of bottlenecks and gridlocks, which probably explain the system, into which everyone has no incentive to change the status quo.

Jon Alterman: Except for the people who were paying higher than normal costs for electricity, because you have this patchwork system that ultimately relies on inefficient generation.

Jessica Obeid: So yeah, the people that have been paying not only that double electricity bill, but expensive debt of that electricity utility, because it produces very expensive electricity, and it sells at a cheap cost and it has very high losses. The debt of the electricity utility has been paid for by the state and state has been covering that loss every single year from Lebanese depositors and other deposits. It's also a high contributor to the debt in Lebanon. Now we have the debt to GDP ratio at almost 194 percent in Lebanon and the economy is collapsing and the electricity sector has contributed to 40 percent, 43 percent of this public debt.

Jon Alterman: If everybody is paying a lot for electricity, and the electricity is not reliable, and it's contributing to the national debt, why is there not a broad popular movement to say enough?

Jessica Obeid: I think that's very complex because that also tackles not only the electricity service, but also this provision in the country that has been unreliable, very costly. If we look also in water, it's the same thing, all kinds of services and the people are saying enough, but they don't have a platform or mechanisms that promote accountability. They don't seem to find a way to change anything. So people have taken it to the streets. There have been so many protests that have blocked roads. There have been civil movements, but yet it hasn't resulted in any drastic change. That's because the system is very complex. What the Lebanese are facing is not just one person in power who doesn't want to have any change, but several people backed by their sectarian religious figures who do not want any kind of change. So this system has failed.

Jon Alterman: You've worked on electrical systems in countries other than Lebanon. I think in many cases in the Middle East, you do have centralized utilities often staying on that are providing electricity. How much of what you're describing—the sort of vested interests, the inefficient production, the resistance to change—how much of that is widespread in the Middle East and how much is really due to Lebanon's particular sectarian based political system?

Jessica Obeid: We find inefficiencies in the electricity sector across the broader Middle East and vested interests and procurement that does not provide a good value for money and unreliable services or expensive services across different countries in the Middle East. The closest to Lebanon would be Iraq. But then Iraq also has kind of a similar system, which explains why the system is actually a huge trouble and a hinder to any kind of reform.

Jon Alterman: The sectarian nature of governance and the inviolability of sectarian interests in both politics, economics, and government.

Jessica Obeid: Absolutely. So what we see in these two countries—especially in Lebanon, as the economic situation is much worse in Lebanon—is that every time the political figures have been cornered, they do use that element of fear and trigger that sectarian clash again to keep themselves in power or maintain their constituent space.

Jon Alterman: It seems to me from the outside that there sort of two routes forward, I'd like you to explore each one. One is there's the potential of finding really large gas reserves off the coast of Lebanon. Would that be a game-changer for the way the electricity system works?

Jessica Obeid: It might help the electricity sector in the sense that what we might be able to actually afford gas and gas would reduce the cost of electricity production because Lebanon is one of the few countries that still relies on having fuel oil and gas for power generation, which are very expensive and also very pollutant. So natural gas would help in this sense, but you cannot expect it.

It wouldn't be a huge game changer, first, because at the point we're having this talk, there haven't been any actual discoveries of gas in Lebanon. If we do find anything soon, say in 2022, the production would take at least eight years. So, it would be 2030. Countries would have diversified; Lebanon should be reliant more on the available natural resources in renewable energy. So, we cannot expect it to be a game changer, especially that's not going to happen before 2030, and we don't have the infrastructure for it as well.

We cannot expect better governance in the petroleum industry where we do not see any good governance at all in any sectors in Lebanon. I always give the example that Lebanon hasn't managed to have good governance in waste management. We cannot expect them to have good management in a high value commodity like gas.

Jon Alterman: That's not promising. The other possibility is renewables. What do you think the prospect for renewables in Lebanon is as a way to change the system?

Jessica Obeid: The good thing for Lebanon is that we have abundant renewable energy, whether it's solar energy, wind energy, or also others, but these are the most cost competitive. We can also implement a different kind of governance model in terms of the provision of service of electricity service. So, thermal insulation is mostly centralized, but we can decentralize renewable energy generation that would reduce the cost. We also have a very weak a grid that would reduce the cost of needed investments for the grid, which would reduce bottlenecks in the political gridlock, because it doesn't need central government approvals to have decentralized renewable energy. We do need a decentralized, renewable energy law just to provide some incentives and some sort of policy consistency for investors, but decentralized, renewable energy doesn't need approval for implementation from central governments, just like centralized utility scale, thermal projects, or renewable energy projects. It would also provide affordable electricity to the consumer, to businesses, and help the economy thrive.

Jon Alterman: So, you could have individual municipalities essentially with their own electrical companies that supply the municipalities?

Jessica Obeid: Kind of. There are different models and it could be a utility, but it could also be some sort of cooperative model where it would just... So the legal framework for this is very straightforward. The municipality and the local people can come together, form a cooperative, and have different shares of the renewable energy system, depending on how much investment cost they're willing to provide. It could also benefit from a lot of the aid that Lebanon receives from international donors and also from remittances. So there are different models to implement this in terms of legal frameworks and financing mechanisms that would bypass the entire central incompetence.

Jon Alterman: How are the operating costs of renewables? If you were to have a whole series of small electrical systems, supplying municipalities and cities, what would the operating costs be? And what would those sort of startup costs be as a comparison to relying on the current system?

Jessica Obeid: I cannot give a definite figure because it depends on the type of system that's going to be implemented and the capacity and the size of it. But the biggest costs in renewable energy would normally be if we're going to include battery storage, because renewable energy is intermittent and we need to store electricity for nighttime use, if it's the case of solar or when it's cloudy. One way to bypass this is to use or rely on the existing diesel generators. Since we do have distributed diesel generators. We find them in different neighborhoods, some municipalities have their own generators. So it would be simply to have a hybrid model where we install the solar system that would be connected to the diesel generator and to the utility. So consumers would primarily get electricity generated from renewable energy. If it's solar, when the sun is there and complimented with either the utility or diesel generator, when there isn't enough sun.

Jon Alterman: You had been a little bit dismissive of natural gas and said, “well, it'll take at least eight years to develop it.” Even if we found it, how long would it take to adopt a pretty serious system, which relied, as you say, on renewables, backed up by diesel, how long would it take to have that make a difference in Lebanon?

Jessica Obeid: This could be rolled out within six months. It's not a sustainable long-term solution, but Lebanon has gotten to the point where the economy has collapsed, Lebanon has defaulted for the first time in its history a year ago. Lebanon doesn't have enough foreign currency reserves to import fuel anymore. So we're getting to a place where we're almost going into the complete electricity blackouts, whether from the utility or the private diesel generators. So, we need to fast track any kind of solution that would rely on available natural resources. And the only available resource we currently have is renewable energy. At all times, Lebanon does need a comprehensive policy for it to renewable, for its electricity sector that takes into account or bypassing all this vested interest and improving the governance, having a solid regulator, improving the procurement. But this solution would keep the lights on when we do get to the point where we no longer have foreign currencies reserves.

Jon Alterman: Just in terms of implementation, one of the problems is making sure that the things that are built stay in Lebanon. I remember after the United States started reconstruction in Iraq after the fall of Saddam Hussein, a lot of the systems the United States built where then disassembled and trucked out to Turkey where their materials were smuggled over the border and sold. If you were to do this, what should you do simultaneously to ensure that it benefits the people it's intended to benefit? And you don't have people at the top who sell off the equipment and then say, look, we need more equipment.

Jessica Obeid: I think there's no way to one hundred percent secure the system, but when you do involve the local community, that is an asset, that's the property of the local community. I do hope that the local community is going to protect this. If it doesn't come from the government side, than there are lower steps in the value change to reach the consumer. The thing about this model is that solar energy, solar panels would last some 25 years. They could remain for 25 years as a property of the Lebanese people. That's all times, even if Lebanon did have a solid electricity policy, it would still need to reduce the cost of electricity provision because that's very expensive. One of the ways to tackle this is by promoting these kinds of systems. It's not something that's going to be implemented just for the short period. It would reduce the reliance on the utility and the cost of electricity provision over the long period of time.

Jon Alterman: You have returned to Lebanon from London and you see your country in many ways in as much disarray as any time you can remember. What do you think? What do you think the opportunities are to use Lebanon's current disarray to build a better system going forward? And what's the role of energy in creating a better and more durable system for Lebanon going forward, not just in the energy sector, but more broadly?

Jessica Obeid: Lebanon is in a place where we don't have solid foundations in sectors or in service provision. There's a huge opportunity to build better. What you can do is also, the people have lost hope that things will get better, but normally when you do get to severe crisis, there's also a possibility for reform just because the state cannot afford to not reform anything anymore. It doesn't mean that all the reforms are going to be efficient, or it's going to put the country on the right track. This is why we need all kinds of pressure from civil society and from citizens to keep moving this country forward.

The opportunity in the energy sector is that the energy sector is a great example of the dysfunction of the state, because it's nowhere more obvious than in the power sector and providing a glimpse of hope or light in the electricity sector would actually set the tone for other sectors. And the problems are similar. It's mostly governance and vested interests. So improving the sector would actually be an example to lead for other sectors as well.

Jon Alterman: Jessica Obeid, thank you very much for talking with us.

Jessica Obeid: Thank you for having me, it's been a pleasure.