A least costly but most efficient stimulus for the Lebanese Economy

by Ghassan Karam

The IMF, the World Bank and all the major economic institutions, both public and private, have been constantly lowering their forecasts for expected global economic growth during 2014-15. Add to the above not so bright news the fact that Lebanon is situated in a neighbourhood that has been rocked by war and political instability for over 3 years and it becomes evident that the Lebanese economy needs economic growth if for nothing else but to service its international sovereign debt.
Obviously, tourism a major sector for hard currency earnings and a substantial employer is not the magnet that it used to be. Not many people will make war torn areas their destination of choice no matter the climate and the other physical endowments. The volume of international funds that flow into the country from Lebanese abroad have also declined with the relative decline in the rates of economic rates of growth in the rest of the world. Luckily there is a way for Lebanon to make a substantial sum of funds available for consumption expenditures that can be guaranteed to stimulate the level of economic activity.

The idea that I chose to highlight is not new but it is time for the government to undertake immediate reform of the electricity sector since the financial burden, besides the economic productivity implications, carried by the Lebanese private sector is becoming intolerable.

Just take a look at these figures: The official rates charged by EDL are fictitious, fictitiously low. If an average household is to use about 7200 KWH per year (600 KWH per month) then the monthly charge would be under $50.00. That would be a phenomenal bargain except for the fact that the national electricity company (EDL) does not supply even half of that and whatever it supplies is provided at a loss of over $1 billion a year. It is clear that a state cannot aspire to be a tourist destination and yet have severe electricity rationing every day of the year. That, however, is not even half of the story. Since no household, rich or poor, large or small can afford not to have electric power 24/7, the Lebanese had to improvise. They did that by setting up small private electricity generators for every neighbourhood that kicks in as soon as the government electric power is cut off. These private generators use the infrastructure of poles and cables of the official grid and are run on diesel power which is dirty and expensive. Currently it is estimated that the price per Amp is about $100 and most homes need about 15 Amps and some need 30 Amps or more. Since neither the Lebanese government nor EDL provide any up-to-date information about the number of residential subscribers and their estimated annual consumption this brief analysis assumes that the cost of electricity per household is about $375.00 per month. (BTW, that is more than twice what a typical NY family pays for the same amount of electricity although its average income is probably four times as much).

Based on the above the average annual cost of electricity for that typical Lebanese household is around $4500.00 which is at least 15% of the annual earnings of that household. If the Lebanese government can take steps, and it should, to provide that electricity at an average saving of say $300 per month per household then the sum for about 1 million households will be $3.6 billion a year. If one is to assume that only half the household are affected then the annual savings will still amount to $1.8 billion dollars. All such hypothetical savings will be spent on other consumer goods and thus would help revive the economy.
So what can the government do about this situation that has been allowed to fester for over 20 years? At least 3 things:
(1) The government can open the field for private investors and encourage competition. The new field should be tightly regulated to prevent consumer abuse. If electric utility firms in some of the highest wage countries in the world can deliver reliable electric power in the range of $0.1 -0.15 then the average bill for our typical customer should drop to about $75.00 per month.
(2) Encourage through a major well-advertised and well-funded program the installation of solar collectors on roofs of individual units. Again such installations are being provided by profit seeking free market companies in many parts of the developed world at a cost of under $3 per watt. Our typical household would need a 3.5 KW system in order to produce the approximate 7200 KWH per annum. This means that an outlay of about $11000.00 would supply the 7200 KWH of electricity for that household for a period of 20 years. That would amount to a payback period of under 21/2 years. No new buildings should be given permits unless such a PV system is included in the structure.
(3) Construct an offshore wind farm funded by the World Bank to supply at least 500 MW.
(4) Phase in a doubling of the current rate structure charged by EDL over a period of 2 years.
(5) Outlaw any private electricity production by private contractors that use diesel power.
(6) Adopt a delivery charge from each of the new private large suppliers as a compensation for their use of the present grid.

A program styled around the above parameters would find EDL operating at a zero deficit, consumers spending less for their electric needs, a cleaner environment with less CO2 emissions and a more reliable electricity and competitive electricity. Just the savings from eliminating the EDL deficit and the excessive unwarranted current payments by the consumers would provide the treasury with a savings of over $1 billion and the consumers with about an additional $2 billion of discretionary income. This sum of about $3 billion represents a 10% in consumer spending based on the estimate that total consumption amounts to about $30 billion a year. It is also to be noted that no new funds from the government are called for except to build an offshore wind mill farm plus adopt a program to spread fund residential PV systems. I am almost certain that funding for the above programs can be easily arranged through an international agency since both are self-financing and thus make no claims on the limited finds of the state.

  • arzatna1

    Ghassan
    As usual a great article that is intended to fix one of the Lebanese problems.
    As you know the issue here is the fact that EDL in its present form cannot perform .
    It can produce some power but it cannot collect from nearly one third of the population.
    So no matter what EDL does it will always be broke and Lebanon will always have to continue to subsidize it .
    The solution lies in privatizing it in order for it to perform as a business and to allow new investors to start up larger scale utility companies, be it in the fossil fuel area, wind , solar ,or any combination that could also include cogeneration.
    If EDL as a company cannot be privatized ,it should be shut down, its facilities should be auctioned and Lebanon should start afresh . There is absolutely no future for Lebanon if EDL remains in the hands of the lebanese politicians .

    • 5thDrawer

      Privatization ??? Anathema to the working man. All you need is 10 more gangs demanding you use THEIR electricity. Imagine the adverts ????
      ‘Sunni Electric – Cleaner than ALL the others’.
      ‘Shia Electric – The MOST resistant to breakdowns’.
      ‘Christian Electric – Pure and Loving to your wires’.
      ‘Shmoose With Druze Power – A Grid you can lock.’
      ‘Ali’s Power … You BUY NOW – Or We pay later with highest calibre electric.’

      (That last one by ‘Ali’s-Power’ comes from experience … One day, the electricity came on … literally blew the main fuse right out of the box in a friend’s apartment … but even by the time that occurred some wires were smouldering behind the cracked plaster.)
      (See how fast a fat wire we call a ‘stove burner’ heats up … let alone a 12-gage in the wall.)
      (Ali also runs the fire department … call him for electrical repairs too.)

    • MekensehParty

      “Lebanon should start afresh”
      True on all levels

  • MekensehParty

    So many great solutions are out there, for the electricity sector and many other sectors, but Lebanese are known to see the solution and yet choose to apply its opposite. I hate to say this Ghassan, and with all the respect I have for your study, you have unfortunately wasted your time writing all this.

    • arzatna1

      I respectfully disagree. We all know there is a problem . If we remain silent about it , it will never get fixed . Creating awareness is extremely important here …may be one of the smart politicians may pick this issue up and run with it. I applaud Ghassan for his efforts in solving the problems of Lebanon

      • 5thDrawer

        I always applaud him trying.
        Today there’s another story we can’t comment on … The EDL tyre-burning stupidity.
        Read THAT one carefully.

      • MekensehParty

        Arzatna dear, the problem is not remaining silent about it, the problem is daring talking about it (on the ground).
        When bill collectors are sent to “some” areas to solve the problem, or sent to remove electricity theft from those same areas, they are being shot at and killed and guess what the killer is protected by politicians, protected by none other than the energy minister.
        Lebanese need to be introduced to a much more basic awareness, like the ten commandments awareness (a table of laws that is 3,500 years old). If Ghassan runs for election, how many Lebanese will vote for him? a handful? a hundred? a thousand?
        The rest, as mentioned above, are busy with other plans.

        • arzatna1

          You gave me more reasons why we should not remain silent about the issue
          Rest assured Ghassan will not run for election in Lebanon, because he is not the type who would beg Aoun or Geagea to put him on their list and as you know this is the only way to get elected in Lebanon based on the current system . Ghassan ( like many of us here) wants to fix Lebanon’s system first.

    • 5thDrawer

      I don’t agree it was wasted time. It is great to see someone actually punting a viable set of thoughts on it. As I say to Tripoli friends when they talk about having to pay their electric bill, ‘does it come with the case of candles?’, since there isn’t enough to even charge a phone up most of the time.
      Of course, now that their house has burned down thanks to a street-bomb, it hardly matters. They could charge the phone with a portable sun-collector.
      Portable collectors even do their work while running from the hail of bullets.
      Which is perhaps, Ghassan, a reason not to add 11,000$ to the building of a house for the purpose of collectors. The ‘Pay-back’ period of 2 ½ yrs. is a happy thought when it’s panels need replacing every 6 months – or in my friend’s case, the whole house.
      But at LEAST we can say there IS a PLAN … Let’s vote on it. Cabinet can’t.

      • MekensehParty

        “It is great to see someone actually punting a viable set of thoughts on it”
        It is great!!!
        And I am personally grateful for Ghassan taking the time
        But the majority of Lebanese aren’t and they don’t care what Ghassan or hundreds of clever people have said or wrote before. They’re too busy planning how to run to Turkey to join ISIS, or how to go fight ISIS in the Qalamoun, and the rest are too busy planning how many champagne bottles they can “nazzil” in Crystal (if that place still exists).
        Proof of it is how many bloggers are participating in this conversation. 3 and the writer.
        Now mention Nasrallah or Aoun and you get flooded with comments….

        • 5thDrawer

          Or, heaven forbid, a Nun. 😉
          But even in the West, most just know how to flip a switch and write a cheque.
          Understanding the complexity of the bill is as hard as understanding ‘why electricity’ in the first place. 😉 Our ‘Fiberal Party’ sure didn’t know either of those things. :-)))))

  • ghassan Karam

    Mekneseh/5thDrawer/arzatna1/
    We all know that the current crop of politicians is the one that is responsible for the corruption and waste and so will not implement any reforms. So maybe we can surprise ourselves by electing new, responsible faces next time around.
    The Lebanese electricity problem is not difficult to solve and does not require much funds if any. What it needs is a political will to stand up against the private mafia of electricity generation since it does benefit all those that pay their bills.It is simply unconscionable to have to pay, in some cases more than 20% of the wages just for electricity in a country that enjoys 300 days of sunshine. PV is reliable, efficient and economically feasible in countries with 25% as much sunshine as in Lebanon. No one in the ME should have to pay much for electricity. The PV panels last for 20-25 years and the home owner does not have to carry the additional cost since the government cab easily find 3rd parties that would be willing to provide all the funds for a very modest fee.
    The newest trend in Solar is to provide the home owner with the most modern system for sero down. All what the home owner has to do is agree to pay a monthly fee with fixed rates, for the next twenty years. The lease payment is also guaranteed to be at least 20% than the current utility rates. As the rates go up the savings increase. It is obvious that if such arrangements are profitable in countries with only 3.5 hours of sunshine a day vs the 7 in Lebanon that these systems are very feasible.
    These PV systems do not need to produce all our electricity for them to help solve the electricity issue in Lebanon. Ifwe can install PV systems on say 100,000 units then this will reduce the demand from EDL by about 700 MW. Remember also that a rough estimate will show that for every KWH from solar we save emissions of probably over 1.5 pounds or almost o.7 Kg of CO2.

    • 5thDrawer

      I always said: ‘The Sun-God RA has not raised rates in Many Millennia’.
      No-one listens to me either – except Germans….
      Avoid the house units … Lebanon has a bunch of bald mountains.
      They don’t get bombed as often 😉

      • Patience2

        Just keep Aoun away from this situation.

    • MekensehParty

      What you’re saying is unquestionably true. Lebanon should not have an electricity problem and the solutions are there, have been there for more than 50 years. New technologies can certainly maximize production but old technologies could have been applied long ago. Lebanon could have had at least a dozen dams by now producing electricity and distributing water long ago.
      It is not the solutions that lack, it’s the “will”.
      Let’s face it, Lebanese simply prefer the jungle.
      They despise the clever, the rational, the scientific. They despise people who have a vision, who refer to books, who study, research, innovate.
      The models they follow and vote for are the corrupts, the lousy, the showoff-ers, the gangsters… This crop of politicians are the ones who “pick up the phone” and call the Director of EDL to cancel a $30 bill. And the Lebanese can go and proudly tell his neighbors how the “za3im” fixed it for him in one phone call, and the neighbor is impressed and wants to vote for the guy, completely disregarding the $300 bill they’re all paying for private generators, completely ignoring the billion $ they’re adding in debts every year…
      And this is why I say, again with deep sadness, that people like you who write and search for solutions are wasting their time. The Lebanese do not want solutions, they refuse and resist organization of any form. They love how their country is managed or rather mismanaged and they don’t want to change all this.
      Simply put they are anti-civilization.

      • ghassan Karam

        MekensehParty, thanks for the kind words. But we have to keep on pushing. Maybe, sometime somewhere someone will have a change of heart.

  • Rafic

    You ought to forward your finding to the Cabinet and do a follow up, also have you done any studies on solar power ? I had an Engineer friend and he made some studies on solar power, to come up with i believe the deficit as to mega watts is around 1500 it will cost $ half a billion to set it up that will not use fuel and maintenance free for the next 50 years. he is doing it in Turkey and selling it the excess grid to their government.

    • 5thDrawer

      See ‘German’.

    • ghassan Karam

      Rafic,
      PV has become much more efficient and a lot less expensive to fabricate and install. One can assume that each KW will cost about $3.00 That is down from the $6-7 only about two years ago.The economics are workable although I am not yet convinced that the environmental gains are large. A few years ago PV used to be an energy sink i.e. it takes more energy to produce the arrays that the energy that they produce. That is no longer the case but the net savings are not large, not yet. But there is room for PV at the moment especially in a country like Lebanon. The international maps show that an installation of 3.5 KW would be sufficient to produce the 7200 KWH per annum Eventually one would hope that thermal solar will become efficient also. Currently thiough, Off shore wind farms are the most efficient and the least costly. Lebanon could easily construct more than one such farm to supply at a minmum 700 MW. Clean and inexpensive electricity but not free.

  • 5thDrawer

    ‘Things’ are happening so fast, Ghassan, there’s little time to think about this one.
    Prepare to repeat it in couple of months. Or, every couple of months. 😉