Some preliminary questions regarding your Electricity Plan, Minister Bassil

7/2/2010

Your Excellency,

We have carefully studied the Electricity Five Year Plan that was published in An Nahar on the 22th June 2010. We undertook to translate it in English and publish it on our blog.

Since 2005 our Center has regularly called upon the successive governments in Lebanon to draw five year Plans for every sector of the economy and every section of the National Budget.

During the past decade, Minister Aly Hassan El Khalil, Minister Mohammed Fneich, and the late Minister Pierre Gemayel drew up National Plans for the Agriculture, the Electricity, and the Industry respectively.Unfortunately, for a number of reasons, none of these plans got the necessary support from the government and none was executed.

Minister Bassil, we congratulate you for succeeding in getting the Electricity Plan approved by the Council of Ministers.

Of course the hardest part is yet to come. First the Plan must be voted upon by Parliament, then it must be implemented. Finally, and that is the most important aspect of the project, the execution must be jointly monitored by Parliament and by Civil Society to ensure that the rights of the citizens are fully protected and that the Public and the Private sectors cooperate transparently to ensure the success of the Plan.

Bearing in mind these points, allow us Mr. Minister to put forward some preliminary questions and remarks:

1. We were pleasantly surprised when we read in An Nahar about your initiative.We hope that other Ministers will follow your lead and adopt similar initiatives. Nowadays most developed countries around the world have adopted some form of national planning that they use to guide their social policy, and the development of their economy..

2. In the Statement of supply and demand based on the Plan’s estimates a shortage of supply appears in 2012 that is expected to grow up to 1,113 MGW in 2014 (see our next blog). Is there an explanation or have we omitted anything?

3. The accounts of EDL for the period 2002 to 2009. How can we start a new project that will involve billions of dollars without at least satisfying the citizens with an audit of the operations of EDL during the past nine years? How can we insure that the previous confusion and lack of control will not reappear in future?

4. Why the Government does not revive the “Conseil Economique et Social” to allow some form of monitoring by Civil Society?

5. The technical terms should have been explained in the Report or provided in an annex.

6. Why the Council of Ministers has requested a progress report only every six months? We need it every month.

7. We need more transparency about how the five billion US dollars will be spent and how the bid will take place. We know that in Lebanon, the private sector has generally succeeded while the public sector has often stagnated. However we shall need more transparency and an efficient monitoring mechanism in which Civil Society will be directly involved.

8. How about the positive effects of an improved electricity supply on: Agriculture, Industry, Environment (less pollution by private generators and the fuel turbines)? How much reduction in CO2 exhaust is expected? Can it be evaluated? How much energy will be extracted from waste disposal? Do we have any estimate?

9. To highlight the national aspect of the Plan it would have been interesting to include in its presentation a list of all the state institutions, the private enterprises, the NGOs, the electrical engineers, the specialists and others who have participated in the elaboration of the Plan. The Irish government did it in their four successive five year Plans since 1990 to demonstrate that their Plan was truly a National Plan in which all the citizens were invited to participate.

10. Minister Bassil, considering that PPP (Public Private Participation) is one of the most significant and innovative aspects of your Plan, may I ask why the Irish experiment of public/ private participation that can be accessed at http://www.cer.ie/cerdocs/cer06237.pdf was not referred to and commented upon?

11. May we suggest that you appoint, soon after the Plan goes into effect, a “monitoring commission” composed of members of the public and the private sectors and some foreign experts to monitor the execution of the Plan every month and issue a monthly inspection report and a progress chart?

Having raised the above points, allow us, your Excellency, to congratulate you heartily on this achievement and wish you, the Council of Ministers, and the people of Lebanon full success in implementing a project that is vital for the measured development and the growth of Lebanon's economy.

Respectfully yours,
CPI The Lebanese Center for Public Information
George Sabat, ACMI (founder and Director)

EDL - Electricité du Liban
STRATEGIC PLAN (2010-2014)

Presented to the Council of Ministers on the 21/6/2010 by H.E. Gebran Bassil, Minister of Energy and Hydraulic Resources




Table of Contents

INTRODUCTION

THE TIME FRAME OF THE PROJECT

1.- THE INFRASTRUCTURE
1.1 Electricity Generation
1-2 Electricity Transmission
1-3 Electricity Distribution

2. - THE SOURCES AND THE DEMAND
2.1Sources of energy
2.2 Renewable Energy
2.3 Managing the Energy Demand and channeling the Supply
2.4 Tariffs

3.- THE LEGAL FRAMEWORK
3.1 Evaluations and assessments
3.2 Corporatization of EDL
3.3 The legal approach

CONCLUSIONS


INTRODUCTION

The Council of Ministers examined the policy paper on the electrical sector prepared by HE Gebran Bassil, Minister of Energy and Hydraulic Resources. This paper considers in depth the shortages in the Energy sector affecting both the supply and the costs.

The paper describes the situation of EDL and its needs in terms of management, and human and financial resources. The paper deals also with the necessity to review the electricity tariffs to lighten the load on the public treasury.

Minister Bassil considers that this five year plan is a document that provides a comprehensive framework to the sector and covers ten basic interconnected and complementary initiatives within the three main approaches to the sector. These are the infrastructure, the supply and the demand, and the legal aspects.

The paper includes also the schedules of implementation, their estimated costs, the envisaged funding sources, and an execution time table.

Minister Bassil considers that overlooking any of these aspects or allowing any delay in their execution will prevent the realization of the project's objectives, namely salvaging the sector and securing a constant electricity supply at reasonable cost and effective quality.
Regarding the cost of the project, Minister Bassil has estimated it at approximately $1.5 billion US dollars. That amount is currently paid annually by the citizens to cover the sector's losses. Minister Bassil pointed out that "any decision that is taken with regard to the sector of electricity would be better than the present status quo".

The project focuses on the use of gas in electricity generation and the renewable energy sources as they are more economical and more respectful of the environment.

Minister Bassil also pointed out the necessity for the revision of tariffs to avoid further increases in budget spending while seeking to lighten the burden to the consumers. This can be achieved by gradually eliminating the need for the use of private generators and providing a 24/24 electricity supply by EDL.

The project also refers to the revision of the legal framework of EDL
The plan includes a total revision of the conditions under which EDL has operated until now and the reorganization of its management, financial and human resources during the change over period preceding the corporatization process. These reforms will take place with the participation and the assistance of the private sector and the funding partners who will provide the necessary financial resources and the expertise.

The project provides for the generation of four thousand Megawatts of electricity in 2014 and five thousand Megawatts after 2015 in addition to the installation of a safe and reliable distribution line and an effective supply that will be commensurate with the national economic and social developments.

This reform will be implemented in three phases, in the short, medium, and longer terms.
It will require an investment of four thousand eight hundred and seventy million US dollars to secure the four thousand Megawatts (1.5 billion US$ to be provided by the State, 2.3 billion US$ by the private sector and 1.0 billion US$ by the foreign funding sources. To this will be added 1.6 billion US$ in the longer term period.

It is expected that the total electricity losses that have reached $4.4 billion US$ will be completely wiped out in 2014 and electricity will be supplied on a 24/24 hours basis. In addition it is expected that EDL will be able to generate some profits in 2015.
If the proposed plan is not implemented the losses incurred by EDL are likely to reach 9.5 billion US$ in 2015.

This ambitious and realistic policy has been set up after a detailed review of all the previous studies in association with all the parties concerned, internally and externally, political and legal. It will require naturally the approval of the Council of Ministers.

The report points out to the failure of previous governments to address the electricity reform that has been responsible for an annual public deficit of $1.5 billion US dollars in addition to $2.5 billion US dollars in losses to the country's economy.

The causes of all these losses are attributed to a lack of sovereign investment in adequate infrastructure, the high fuel costs and the poor state of the plants which are either not economical or ineffective. Other causes are technical and trading losses in transmission and distribution, a bad tariff set up and the waste of financial, human, and managerial resources at EDL.

All these problems must be addressed in depth and their treatment must be function of their degree of importance and urgency.


THE TIME FRAME OF THE PROJECT

The project will consider the following three main aspects:
1. - The Infrastructure (Electricity generation, transmission and distribution)
2. - The sources and the demand of energy
3. - The legal framework
The project will cover the execution in the following three phases:
1. - The short term phase (immediate and urgent) – two years (2010 to 2012)
2. - The medium term phase- two years (2013 to 2014)
3. - The longer term phase (long and future) five years and over (2015 and after)

1 - THE INFRASTRUCTURE

1.1 Electricity Generation
4,000 MGW in 2014 and 5,000 MGW after 2015 (see attached statement)
1.1.1 Renting or “istijrar” of 250 MGW to cover the summer 2010’s demand and to support the overhaul and the gradual replacement of the old plants during the next two to three years.
1.1.2 Add further 600/700 MGW urgently through state and private and foreign financing: 400 to 500 MGW through CCGT plants and 200 to 300 MGW through reciprocating engines during the period end 2010 to early 2011.
1.1.3 Overhaul, repair, replace and increase the old plants to add 245 MGW.
1.1.4 Start building the new plants to provide 1,500 MGW and additional 1,000 MGW after 2014 on an IPP basis with the cooperation of the private sector and 20% financing by international lenders.
1.1.5 Increase hydro-electric capacity by overhauling or replacing the old plants through BOT including the construction of hydroelectric dams (120 MGW according to Electricite de France).
1.1.6 Encourage the private sector to use “energy to waste” and geothermal energy.

1.2 Electricity transmission
The program is to eliminate the bottlenecks and the technical transmission losses, ensuring high regularity in supply, and reducing the costs. It is also intended to balance the supply of electricity of the plants with the demand of the centers.
1.2.1 The high frequency 220 KV line in Mansurieh is to be completed by 2010
1.2.2 Complete the infrastructure of the Arab Connection of 400 KV in Ksara
1.2.3 Complete the Lebanese National Center for Control LENCC in 2011
1.2.4. Build regional stations, strengthen the old lines according to a plan and a budget by EDL to reduce the technical losses, eliminate the obstacles, and enlarge the distribution line to cater for the additional output.
The distribution policy aims at eliminating the bottlenecks, reducing the technical losses in distribution and achieving a balance between supply and demand, a regularity of supply and an overall reduction in costs.

1.3 Electricity Distribution
The policy is to adopt a step by step realistic program of distribution in partnership with the private sector within the existing legal framework. The aim is to review the planning, the execution, and the maintenance procedures of the electrical distribution system including the metering, the invoicing, the collection and the prevention of theft and all kinds of waste of current.
1.3.1 Improve the distribution in 2010 to ensure a balanced distribution among the different regions. Prepare for the partnership participation of the private sector in 2011 and follow it with some urgent measures to improve the collection and to reduce theft and waste.
1.3.2. Prepare tender documents and execute transparent tender operations to select the specialist companies that will provide the necessary electrical distribution services and secure higher revenue to the State (2011 to 2014). This operation will be conducted, under the supervision of EDL, by an appointed “program manager”.
1.3.3. Install some distance meter reading systems and a management system to ensure the balance of supply and demand.
1.3.4. Introduce some new services to the consumers, such as easy payments, new feed-in tariffs, prepaid cards, nett-metering etc.
1.3.5 Consider setting up a center to balance the distribution within the Greater Beirut area initially extend it to cover the entire country.

2 – SOURCES AND DEMAND

2.1 Sources of energy
The policy will be based on the principle of diversity and protection with a view to use gas to cover 66% of the demand and 12% from renewable energy. The balance will be provided by different other sources. Techniques will be used to allow transfers between gas and fuel oil.
A detailed statement of the different energy sources that will be used is enclosed together with the proposed calendar of introduction.
2.1.1 Study and installation of the infrastructure for the supply and the distribution of natural gas through a land station in Beddawi and a port for the LNG, and connecting them with all the generating plants in Lebanon to ensure a constant and regular supply of natural gas across the country.
2.1.2 Transform gradually all the generating plants to gas using a variety of sources and sign the agreements with the supplying countries such as Turkey, the former USSR, Russia, Syria, Egypt (cancel the gas agreement), Qatar, Algeria and others, without omitting the possibility of discovering gas within the Lebanese territorial offshore borders.
2.1.3 Complete the feasibility study and launch the construction of the LNG gas station in Selaata (2011). The location of the plant will be determined on the basis of this study..
2.1.4 Build the gas pipe lines on the Lebanese coastal front and offshore whenever necessary to feed all the generating plants from Beddawi in the North to Tyre in the South to reduce the operating costs and encourage competition. The gas will be used to feed the industrial sector and the homes of the citizens (City Gas) and the vehicles that will operate on gas (NGV) in 2010-2012.
The gas pipeline will follow the railway line to reduce the costs of expropriations.

2.2 Renewable energy
The program is to launch, support and execute all public, private, and individual initiatives to use the renewable energy sources to reach 12% of Lebanon’s needs in electricity and heating.
2.2.1 Complete the wind Atlas and the wind farms with the private sector on IPP basis in 2010
2.2.2 Start the feasibility study on the solar farms
2.2.3 Encourage the public and the private sectors to adopt the initiatives in heat disintegration and extract the electricity from the treatment of waste.
2.2.4 Encourage the initiatives of the private sector and the individuals in producing hydro energy, including the micro hydro projects.
The Ministry will seek to secure a large part of the investment through CDM in cooperation with the Ministry of Environment and the institutions of carbon financing. Furthermore the Ministry the Ministry will set up a tariff system with regard to the use of renewable energy (net metering feed-in) introduced in the electrical lines.

2.3 Managing the energy demand and channeling the supply
The project aims at introducing a culture of power consumption and distribution that relies upon the execution of a national program based on demand management. This will include the channeling of power supply to reduce the peaks in transport and distribution and control the development of the demand for electrical energy. All these actions will be undertaken in order to ultimately reduce by 5% (five per cent) the total energy demand.
2.3.1 Adopt a law for the production of energy and the Center for Energy Protection (LGEC) and launch a national plan to channel energy in 2010
2.3.2 Widen the usage of CFL home lighting systems starting from 2010 with a view to end up with the abrogation of all energy wasting appliances in the future.
2.3.3 Raise “matrad” SWH and introduce financial incentives, in participation with the banking sector, to reach the target of “one solar heater in every home”.
2.3.4 Organize the public lighting system with a view to reduce energy consumption
2.3.5 Introduce NEERA and ESCO

2.4 Tariffs
Review the tariff set-up and increase the rates progressively to absorb the losses of the electricity sector and encourage the citizens to do away with the expensive private generators
2.4.1 Increase the charges progressively in proportion with the increase in power supply with a view to ultimately reach a 24/24 hours electricity supply to every home.
2.4.2 Allow special rates to the low income classes of the population and to the productive sectors of the economy
2.4.3 Implement time-rates TOW (low night rates) and long distance reading meters (AMR)
2.4.4 Rates will be continuously reviewed on the basis of the cost of sources of energy and operations to ensure that the interests of the national treasury and the citizens are both protected.


3 – THE LEGAL FRAMEWORK

3.1 Legal regulations and assessments
The project’s principal goal is to guarantee an adequate electricity supply to the citizens and their right to a safer and constant energy service at the lowest cost and with the highest quality.
3.1.1 Settle the franchise problems by getting the State to recuperate all its rights and compensate the current owners of franchises by allowing them to participate in independent production and service distribution operations
3.1.2 Draw up new regulations to promote the construction of green homes G.B. and effective energy E.E. with the cooperation of the international institutions concerned with such programs.
3.1.3 Respect international standards and measurements to regulate the consumption, protect the environment and the safety of the citizens.

3.2 The corporatization of EDL
This project can only succeed provided Electricite du Liban, the nerve center of the entire operation, meets the challenge financially and has adequate human and managerial resources to bring about the necessary improvements.
3.2.1 Gradually increase the human resources of the company through direct hiring and the cooperation of the private sector through outsourcing contracts for management, engineering, operational and power supply and maintenance.
3.2.2 Complete the legal process to corporatize EDL (production, transmission and distribution):
- Put together a road map for corporatization in 2010 and begin implementation.
- Introduce all necessary legal amendments.
- The organization of EDL must be modified to allow for reform of the electrical sector. A decision to this effect must be taken at the end of the transition period.
3.2.3. Implement the road map to identify the assets, the capital that will be required, the formalities of hiring the personnel, the dismissals of redundant employees, the indemnities, the management and the financial rules etc. All these operations must be started in 2011 and end as soon as possible.
3.2.4 Corporatization must be undertaken calmly and gradually to avoid any upheavals during the transition period. The Ministry will gradually introduce “independent production”, “service agreements”, and “operating and maintenance contracts”, leaving the company responsible for overseeing, controlling and managing all these contracts in addition to the regular production and distribution operations.

3.3 The legal approach
The project seeks to eliminate the state of confusion surrounding the legal and the administrative functions at Electricite du Liban. It aims at setting a clear legal framework that will be supported by the political parties as well as by the employees of the company.
This means that the project should be adopted by the Council of Ministers in its entirety bearing in mind all the legal, the administrative and the financial commitments that may be related to it.
3.3.1 Amend Law 462 by common consensus among all the parties involved and define the strategic options that ought to be adopted for the sector.
- Amend Law 462 to allow for implementation after correcting the defects and the contradictions that appear in it taking into consideration all the observations presented regarding this Law.
- Prepare all the executive decrees and resolutions for the amended Law including the modernization of the organization chart and the operational aspects.
3.3.2 Start on the basis of the current dispositions of decree 4517 to take advantage of its positive aspects and to prevent any delay in the execution of the project, considering its urgent aspect.
3.3.3 Adopt a Law for the introduction of the new generating plants that will cover all the technical aspects and encourage the participation of the private sector (PPP). This Law will serve as a link between the current laws and future developments.
It is essential to link the corporatization of EDL with the development of the legal framework of the sector. However this operation should not prevent or delay the implementation of the project and the supply of electricity in Lebanon. The discussions over the legal amendments and their adoption should not delay the implementation of any steps of the project particularly the transitional ones.
The study of the amendments and their adoption should be undertaken gradually and in step with the progress of the transitional period in order to reach the final goals in 2013-2014.
The reorganization of EDL (corporatization, restructuring, independent energy etc.) should be accomplished harmoniously in line with the execution of this project.

4 – CONCLUSIONS

We recommend that the above policy that applies to the transitional period should be considered as exceptional emergency and rescuing measures undertaken for the sake of correcting and ensuring the development of the electrical sector.
Exceptional authority should be granted to this effect to the Council of Ministers and to the Ministry of Energy and Hydraulic Resources.