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French Version

The only way to save EDL is to sell it: Energy experts back privatization calls

Conference participants urge reforms aimed at attracting investment

Lebanese energy experts from across the political spectrum agreed this week that the country's electric utility, Electricite du Liban (EDL), is in shambles, and that the only solution to the crisis is the eventual privatization of the company, which is responsible for a big chunk of the country's bloated public debt.

"Really it is a miracle that we have electricity in Lebanon," said Raoul Nehme, a senior adviser to former Energy and Water Minister Maurice Sehnaoui. "EDL is a company like any other, with employees, a balance sheet, and a lot of problems, infrastructural, managerial, and IT, but each of the problems is at such a level that a normal company would have died long ago."

Nehme's comments were delivered Wednesday at the Dbayyeh Convention Center, where energy advisers, EDL representatives, and political figures gathered for the two-day Lebanon Opportunities Convention to debate EDL's privatization strategy.

They also discussed the reforms needed to convince the private sector to invest the $1.2 or $1.3 billion needed for EDL to provide reliable electricity to the country.

Nehme argued that the managerial structure of EDL is the most significant deterrent to foreign investment, and consequently the biggest obstacle to providing better service, since technical and maintenance problems cannot be solved without the help of the private sector.

Zakkaria Rammal, an adviser to Energy and Water Minister Mohammad Fneish, said that at least $600 million is needed to recover initial underinvestment alone. He said the ministry needs the private sector to invest in renewable energy, new generators, and the rehabilitation and expansion of the Zahrani and Beddawi power plants, as well as the introduction of a "smart monitoring system" to crack down on electricity theft.

As it stands now, 90 percent of electricity production, generation and distribution are controlled by a non-corporatized, vertically integrated monopoly. EDL is a billion-dollar company with no accounting records after 2001, no financial manager, and no effective nationwide bill-collecting mechanism.

Rammal also called on the judiciary to take action against the illegal consumption of power.

"We need political consensus, but we also need to convince a neighbor who is going to spend millions generating and distributing power in this country that they will make money. This means collecting bills from private citizens as well as public utilities, and getting the World Bank and other international institutions to endorse our plan," he said.

The key, speakers agreed, is creating a corporate code and structure that is independent from public bureaucracy.

Both Nehme and EDL chairman and managing director Kamal Hayek advocate restructuring management by creating at least one independent entity to assist EDL in contract management, and adopting performance indicators and an interim five-year management contract for employees.

On the technical side, corporatization entails "unbundling the transmission, distribution, and generation activities at EDL," and adopting a "single buyer concept" for each, Hayek said. He added, however, that EDL has made progress in this direction, by reducing non-technical losses from about 30 to 17 percent from 2001-2005, and by exploiting steam turbines for power generation at the Zahrani plant, which saved $240 million.

But he said that before moving toward privatization and a free-market power sector in Lebanon, it is crucial to introduce an energy tariff that is related to the international price of crude oil.

"This magic sentence has not been discussed in Lebanon so I'll say it again: All proposed solutions demand a tariff based on an international index of crude oil prices, especially in the absence of direct gas supplies to Lebanon, to allow financial stability and long-term sustainability," said Hayek.

In an earlier presentation on Prime Minister Foaud Siniora's five-year economic plan, Finance Minister Jihad Azour, and the Economy and Trade Minister Sami Haddad, said they hoped to launch the privatization of EDL by 2007, even though none of the prerequisites are in place and no licenses have been granted.

The ministers said that energy legislation is in place - though Law 462 has not yet been applied - and there has been progress in drafting an overall sector strategy for the energy industry, creating a regulatory body, and corporization.

They called on EDL to expedite structural reforms and adopt a medium-term expenditure framework, improve budget coverage, and entrust the auditing of 2001-2005 financial figures to an external auditor.

Jihad and Azour said that Lebanon's energy sector, along with EDL, were the sectors most in need of reform, and Omar Razzaz, the World Bank country officer for Lebanon, agreed.

"In no other country in the Arab world is the energy sector perceived as an investment constraint except Lebanon," said Razzaz, referring to the World Bank's Doing Business Survey.

"EDL has become a litmus test of the ability of Lebanon to take the bull by the horns, and a symbol for what government is actually capable of delivering," he said.

Beirut 27-06-2006
Lysandra Ohrstrom
The Daily Star

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