Algeria’s much-vaunted fuel gift to Lebanon unlikely to be usable immediately

Lebanon, which plunged into another state blackout a week and a half ago, may not immediately be able to use a desperately needed fuel shipment from Algeria despite government fanfare over the delivery, sources told The National on Thursday.

The country is battling a severe economic crisis and struggling to pay for its fuel delivery, making state electricity available only for a few hours daily. The donation from Algeria, around 30,000 metric tonnes of fuel oil that could provide 250 megawatts of electricity for around 20 days, came after the only remaining operating power plant, Zahrani, ran out of gas oil ten days ago.

The fuel specification must be tested to ensure it is compliant with Lebanon's power plants. But even if it meets the specifications, Lebanon may not be able to use it immediately because the power plants that use this fuel type are too old or no longer in operation.

The new fuel oil power plants in the northern Zouk region and southern Jiyeh have been shut down since February 2022 due to fuel shortages and a dispute between the contractor and the state. Since then, MEP, the private operator, has only maintained the plants under a conservation contract to prevent them from disrepair.

A new operation and maintenance contract, which is being prepared and has yet to be signed, would allow the power plants to restart in November. This means that Algerian fuel can only be used after at least two months if it meets the specifications and the contract is signed.

Lebanon Energy Minister Walid Fayad told The National that he expects the fuel to be compliant with Lebanon's power plants. He said his confidence came from the fact the fuel is produced in Algerian refineries and is a "well-known" product.

Earlier this week, he stressed during a visit to oil facilities that the fuel "has one of the best qualities in the market in terms of the amount of sulphur in it," and that it will be "supplied" to be used soon.

However, sources in the sector and energy experts suggest that the reality is far more complicated because most of the power plants are inoperative. Experts also warn against short-term fixes to keep a crumbling sector afloat, as fuel deliveries from Iraq and Egypt are also expected to boost production temporarily.

Lebanon's electricity sector has been crumbling for almost thirty years amid a lack of investment and rampant corruption, failing to provide round-the-clock electricity. The latest economic crisis only intensified the power crisis, with many Lebanese relying on expensive and polluting private generators.

The "failure to acknowledge these root causes and pursue expensive short-term plaster solutions instead would be troubling,” Mike Azar, a senior energy finance professional, told The National.

Dilapidated power plants

Besides the two power plants operated by MEP, which are not operative, the other plants that could run on fuel oil are old, inefficient, and environmentally damaging. The main ones are the old Zouk and Jiyeh plants, built in the 1970s and 80s, which have been completely shut down for years amid Lebanon's economic crisis.

If the fuel does not meet the specifications, it could be swapped for gas oil to run in other power plants, Deir Ammar and Zahrani – a mechanism Lebanon has relied on since 2021 as part of a contract with Iraq.

The Lebanese Ministry of Energy launched a tender to find an intermediary in charge of the swap on Monday. If Lebanon's public procurement laws are followed to the letter, it could take up to a month to reap the benefits of the delivery.

This is not the first time Lebanon has dealt with Algeria’s Sonatrach for fuel delivery. At the end of 2020, Sonatrach ended its contract with Lebanon after a fuel scandal, which exposed a vast network of corruption involving the Ministry of Energy and laboratories, resulting in Lebanon paying a steep price for poor-quality fuel.

The deal, whose terms were kept secret for 15 years, was initially thought to be a state-to-state agreement. However, a Lebanese judicial investigation revealed that Sonatrach's subsidiary actually subcontracted the delivery to private companies, which were accused of falsifying laboratory results and bribery.

Temporary measures

In the meantime, a series of temporary measures have been introduced to keep Lebanon’s lights on.

Earlier this week, around 30,000 tonnes of gas oil arrived from Egypt. It was procured by state provider Electricite du Liban (EDL) and can be used in the Zahrani power plant, increasing the electricity supply by four to six hours a day. A well-informed source said that it could produce 400 megawatts of electricity for 15 days. The delivery has yet to be unloaded, but once this is done, it can theoretically be used almost immediately.

Separately, some 60,000 tonnes of gas oil will arrive in Lebanon next month under the terms of a complicated swap deal with Iraq. Half will arrive on September 9, the other half on September 15, Mr Fayad said.

The initial blackout earlier this month was blamed on a delay in fuel shipments from Iraq, under the deal that supplies Lebanon's power plants. A senior Iraqi government official said last week that the delay was because Lebanon had not paid for the fuel provided under a previous contract. According to Iraqi sources, Lebanon has accumulated around $700-900 million in unpaid bills.

Deliveries from Iraq are now also being resumed under a temporary resolution. It remains unclear how the cash-strapped country will pay the rest of the debt –$1.4 billion is due by November – and will find new sources of fuel in the long term without reforms.

Mr Fayad blames the current blackout on an international blockade on investments.

“This step contributes somewhat to breaking the international blockade on investments in Lebanon, and we want this initiative to continue and to have a prospect for investments in the energy sector in Lebanon, whether in fuel, gas or infrastructure,” the minister explained.

But Mr Azar stressed that “hasn’t been serious investment in Lebanon’s power sector for decades" due to "poor governance of the sector, an over-indebted and bankrupt public treasury, and an insolvent financial system, all of which deter investors from making large, long-term investments".

In a report released on Thursday by Human Rights Watch, it said the state's “continued mismanagement of the electricity sector and its failure to carry out key reforms is diminishing the public’s already-limited access to electricity”.

“The government’s continued wilful mismanagement has plunged the country into complete darkness as residents are left to pay the price,” said Ramzi Kaiss, Lebanon researcher at HRW.