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Wednesday 17th November 2021
What lessons can Électricité du Liban learn from EDZ to provide 24/7 Electricity

Over the last decade, Électricité du Liban transfers averaged 3.8% of Lebanon’s gross domestic product (GDP) per year and accounted for around half of the overall fiscal deficit. This means that the more electricity Électricité du Liban produces the greater the public debt it loads on to Lebanese people. However, this doesn’t mean that Lebanese should get used to living with staggering electricity cuts.

Electricity is what makes humans feel civilised and gives dignity to our lives. It is one of the most essential attributes of modern life. Without electricity, we are engulfed in the dark abyss of Neverland. Our options of progress and development are linked with the availability of electricity. Failure of EDL to provide electricity also is reminiscent of the post-war failure of the state formed after the Taif Agreement. It also reminds the Lebanese of the period of the Civil war. 

The constant pressure of adapting to the rhythm of electricity cuts has a spiralling effect on their livelihoods. Freedom from this stress is one of the most prominent effects experienced by the Residents of Zahle who get 24/7 electricity from Électricité de Zahle (EDZ).

In the paper From dysfunctional to functional corruption: The politics of reform in Lebanon’s electricity sector. The authors explain how Électricité de Zahle functional corruption works in favour of a 24/7 electricity supply. They argue whether the concession of EDZ should be duplicated so as to provide 24/7 electricity to other parts of the country. I highly recommend you read the paper from which this blog post is inspired. I try to interpret the various ideas presented by the authors here.

 

Électricité du Liban (EDL) - Dysfunctional Corruption

Before proceeding with the case study of Électricité de Zahle, let us formulate what is wrong with Électricité du Liban (EDL).

The post-war political economy divided power and rents between recognised and intertwined religious and political groups, allocating each group a share of public sector jobs, services, and contracts to distribute to its loyal followers. The Taif Accord created a more balanced arrangement of sectarian power-sharing arrangements; however,  this resulted in a larger, more patronage-based and more corrupt public sector.

​Électricité du Liban (EDL) operates far below cost-recovery levels. This has led to EDL's constant need for cash transfers, which for decades have contributed to burdening the state budget and a widened fiscal deficit. Between 2010 and 2018, transfers to the EDL amounted to more than $14 billion.


A 2008 World Bank report identified four key performance indicators for the electricity sector that can provide a "first-order signal" of potential corruption.

1. Electricity Coverage
The state-owned electricity utility - Électricité du Liban (EDL) - covers only 63% of electricity demand, resulting in regular outages.

2. System Losses
The high technical and non-technical losses, which together account for one-third of EDL's total electricity generation. These losses make Électricité du Liban (EDL) the least profitable utility in the Middle East. The substantial 20% non-technical losses reflect corruption through theft, the provision of free electricity as a favour, poor governance and failure to enforce laws

3. Collection Ratio
The EDL has experienced low collection rates in recent years (66% in 2017). This low rate could be due to several reasons, such as political actors not paying their bills and other public utilities not paying.

4. Cost Recovery
The EDL's low average tariff (9 cents/kWh) is well below the cost of generating electricity. This means that the EDL has to curb power generation to reduce its losses. This leads to profit-seeking by the power generators.

 

What can Électricité du Liban learn from EDZ?

1. Exceptional Service

EDZ has an exceptional collection rate of 100%, compared to EDL's low collection rate of 66% (2017). From the authors' interviews, it appears that EDZ was already providing exceptional service before they entered the power generation business in 2014. (Prior to that, they were only distributors).

2. Community

EDZ received an extension of its concession in 2018 and then again in December 2020. They have built broad support by working with local groups, NGOs, and women's groups.

3. Employee Morale

Unlike other public sector companies, employee incentives are perfectly aligned with the company's values and vision. It is useful to know that employees are less likely to be corrupt if their job offers a greater social status associated with the job.

 

EDZ's Functional Corruption?

Since the 1990s, when the average selling price of EDLs to their customers was 147 LBP/kWh, there appears to have been considerable rent collection. Prices for most concessions were at LBP 75 LBP/kWh and for EDZ supply it was as low as 50 LBP/kWh.

Even after some reforms in 2018 that increased EDL's electricity price, which reduced revenue from EDL electricity sales by about $6 million, EDZ compensated for this by charging a fixed fee of LBP 15,000 for new connections.

The paper also suggests that in addition to selling EDL power, EDZ likely made significant profits from selling the power it purchased from Aggreko. In summary, therefore, EDZ made a profit on the sale of both its own electricity purchased from Aggreko and the electricity purchased from EDL.

 

Conclusion

It remains to be seen how Électricité du Liban will solve its deficit problem. A middle ground would be a public-private partnership rather than awarding more concessions that already exist. The private companies will maintain the level of service, while the public partnership will prevent rents from being collected by private companies.

This is my summation of the paper.  Do let me know what are your thoughts and insights on this complex issue of corruption with regards to Électricité du Liban. It would be helpful for my research as a Board Member of Lebanon Certified Anti-Corruption Managers.

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