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Electricite du Liban loses whopping $662 million in first five months of 2008

Officials fear deficit could reach $1.4 billion by end of year

State-owned Electricite du Liban (EDL) losses reached $662 million in the first five months of 2008 and officials fear that the deficit may exceed $1.4 billion by the end of the year if oil prices continue to climb.

In a statement to the press on Tuesday, the Finance Ministry said that EDL losses up to May of this year rose by $304.2 million to more than $662 million.

This huge loss boosted the budget deficit in the first five months of 2008 to 33.56 percent of total spending, compared to a deficit of 24.58 percent in the same period last year.

The Finance Ministry regularly issues letters of credit to finance the purchase of gas oil and fuel oil to run Lebanon's power plants.

EDL was forced to increase electricity rationing in most areas this summer, claiming that power consumption more than doubled this season.

Raymond Ghajar, the adviser to acting Energy Minister Mohammed Safadi, said he did not see a quick fix to Lebanon's electricity problems.

"The high prices of gas oil and fuel have further exacerbated the losses of EDL and I don't think the picture will change if the prices of crude continue to climb," he told The Daily Star.

The official did not rule out the possibility of seeing EDL losses exceed $1.4 billion by the end of the year if the prices of crude oil do not drop below the $140 threshold.

Finance Minister Jihad Azour told reporters recently that EDL losses are literally wiping out all of the revenues of the value added-tax (VAT), which is the largest source of revenue for the state.

He urged the next government to draw up a national plan to save the electricity sector.

Successive governments since 1994 failed to tackle the mounting problems of EDL, despite numerous studies by the World Bank and other international organizations on how to reduce the deficit of the electricity sector.

"The actual price of kilowatts of electricity is costing the government four times more than the rate we are selling to the consumers," Ghajar said.

"We used to pay $25 per barrel four or five years ago but now this commodity is costing us more than $140," Ghajar said.

He added that no government would dare to revise the prices of electricity under the current political conditions.

"We have one of two choices: either continue subsidizing the cost of electricity or find alternatives to the expensive fuel oil," Ghajar said.

He also revealed that deliveries of Egyptian natural gas were scheduled to arrive to Lebanon in June or July, but added that these deliveries might be delayed for months.

The official said the reason for the delay was that Syria has not yet completed the gas pipeline network which is supposed to deliver the Egyptian gas to Lebanon.

"Syria may need between three to six months to complete the gas pipeline network," Ghajar said.

According to the Energy and Water Ministry, the Egyptian gas is supposed to be delivered to the Beddawi power plant in Tripoli. The project is expected to save up to $200 million a year in electricity costs.

But EDL officials say that the natural gas will be insufficient to meet Lebanon's power needs. They point out that Lebanon would need to build another gas-operated power plant near Tripoli in order to provide the North with enough electricity.

"Our studies showed that Lebanon still needs 1,700 megawatts in addition to the existing 2,000 megawatts," Ghajar explained.

He added that some plants are so outdated that they should be scrapped, while the others need to be modernized.

"No government can raise billions of dollars to build more power plants and modernize existing ones," he said.

"The only solution is to allow the private sector take over this enormous responsibility," Ghajar added.

The government pledged to privatize the distribution and production sectors of EDL during Paris III donors conference.

Beirut 02-07-2008
Redaction
The Daily Star



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