Middle East Intelligence Bulletin
Jointly published by the United States Committee for a Free Lebanon and the Middle East Forum
  Vol. 5   No. 8-9 Table of Contents
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August-September 2003 


The Corruption Behind Lebanon's Electricity Crisis
by Ziad K. Abdelnour

electricity

While the recent power outage in the United States was an abrupt shock to a nation that has come to take electricity for granted, blackouts are a way of life in Lebanon, where most of the well-to-do own personal generators. The month of August was worse than most, however, with daily rolling power outages ranging from eight hours in Beirut to 20 hours in parts of north Lebanon.

While Americans are still searching for answers, the cause of Lebanon's electricity crisis is not a mystery. Electricite du Liban (EDL), the state-owned company that provides power to most of the country, is $3 billion in debt and cannot afford to purchase enough fuel to keep the lights on 24 hours a day. With yearly losses totaling a third of annual government expenditures, EDL would seem to be an attractive candidate for fast-track privatization. On August 22, however, Minister of Electricity and Water Resources Ayoub Humayed announced that plans to privatize EDL have been postponed indefinitely.

That Lebanon's political elites are so protective of a state enterprise that ranks as one of the world's least profitable companies may seem puzzling to outsiders, but the reason is not difficult to discern. In addition to being the country's primary conduit for electricity, EDL has been a conduit for distributing billions of dollars in kickbacks to pro-Syrian political figures in Lebanon over the last decade. As public uproar over the blackouts intensified in August, some of those involved in this embezzlement have leaked new details of the scandal to local media. What emerges is a tale of corruption and brazen disregard for the public good that is astonishing even by Lebanese standards.

Lebanon's power problems date back to the 1975-1990 civil war, which devastated the country's electricity network. After the end of the war, a succession of Syrian-installed governments spent over $2 billion on the rehabilitation or construction of ten power plants and their accompanying grid. In the early 1990s, government officials boasted that the rehabilitation would boost EDL's capacity from 800-1,000 megawatts to over 2000 megawatts by the year 2000. A decade later, its capacity stands at around 1,400 megawatts, well short of the country's needs, estimated by experts to be around 1,800 megawatts.

One reason for the short return on this investment is that much of the money was siphoned off by corrupt politicians. "More than $500 million ended up in the pockets of leaders, ministers, and entrepreneurs," one minister recently told Agence France Presse on condition of anonymity.[1] Druze leader Walid Jumblatt broke a long-standing taboo on this topic on August 14, telling a reporter that responsibility for the crisis belongs to "the Baroudis" in the Ministry of Electricity and Water Resources.[2] Although he did elaborate, Jumblatt was referring to Rudy Baroudi, a senior advisor to the ministry since the early 1990s, and Ahd Baroudi, an entrepreneur whose company is contracted to carry out maintenance of power-generating equipment. Three days after Jumblatt's comment, a local newspaper quoted sources close to Ahd Baroudi as saying that he has been "paying millions of dollars in kickbacks to influential Lebanese politicians" to keep its maintenance contract. In addition, the sources said that Baroudi acted as a go-between in a $750 million contract for the purchase of power-generating equipment in the early 1990s that was "not commensurate with the price paid by the state."[3]

Not only were enormous sums of money siphoned from EDL through illegal kickbacks from such deals, but the profiteering motives of Lebanon's political elites led them to approve purchases of equipment that were redundant or otherwise ill-conceived. For example, two natural gas-based power plants were built in the north and south of the country, but the government failed to build a network connecting them to the rest of the country.

The tale of corruption in the energy sector does not stop with the rehabilitation of Lebanon's electricity infrastructure. One of the reasons why EDL has run such massive deficits is that the company has a bloated staff of administrators who earn astronomically high salaries and obtained their jobs through connections to senior politicians. They did not get these handouts for free. The aforementioned cabinet minister who spoke on condition of anonymity charged that EDL funds have long been "diverted by employees to the accounts of their political mentors."[4]

An even bigger problem is that EDL has been used by political elites to distribute free electricity to their constituents. According to official sources, around 55% of EDL bills are not collected. Moreover, around 45% of electricity generated by EDL is not even billed - it is estimated that tens of thousands of people get electricity free by illegally tapping into power lines. As Beirut MP Muhammad Qabbani, who heads the parliamentary Energy and Water Committee, recently observed, many of those who get electricity free enjoy "political protection."[5] In the southern suburbs of Beirut - the stronghold of the militant Shiite group Hezbollah - and in certain areas of the eastern Beqaa Valley controlled by Syrian forces, 80% of electricity users do not pay for it. Those who do not enjoy political protection, on the other hand, are obliged to either pay the highest price for electricity in the Middle East or bribe EDL bill collectors (who are easily corrupted, since they are expected to pay back their political patrons for giving them jobs).

Since all of the above dimensions of corruption at EDL (if not the precise details) are public knowledge in Lebanon, the government has occasionally sought to deflect criticism by launching investigations and anti-corruption campaigns. In early 2002, for example, Lebanese Prosecutor-General Adnan Addoum opened an investigation into corruption at the Ministry of Electricity and Water Resources and media reports indicated that Rudy Baroudi and Fadi Saroufim would be called in for questioning. Nothing ever came of it. In April 2002, the Lebanese cabinet approved a plan to eradicate electricity piracy by assigning police units to escort EDL bill collectors and technicians on visits to residences, but it was not implemented.

In the face of pressure by the International Monetary Fund and other international donors to pull the plug on EDL, in August 2002 the government approved a draft law to privatize the production and distribution of electricity within two years. The $4.4 billion in low interest loans that Prime Minister Rafiq Hariri received at the Paris II conference two months later was conditioned in part on implementation of this plan.

However, bickering among political elites over the privatization process has caused it to stall. As with plans to privatize the mobile phone sector, the fundamental issue of contention is who benefits. Due to the lack of government transparency and reliable contract enforcement in Syrian-occupied Lebanon, private sector investors (whether Lebanese or foreign) only enter the market if they have cut deals with influential politicians. Since Hariri, a billionaire construction magnate with strong connections to Saudi and European investors, would stand to gain more from privatization (both politically and financially) than President Emile Lahoud and Lebanon's military-intelligence elite, the latter have sought to obstruct privatization at every turn.

With public uproar over the electricity crisis mounting, Lahoud recently began allowing police escorts to assist EDL in bill collection (which, according to local media reports, resulted in thousands of subscribers paying off arrears), but this appears to have been a stopgap measure to deflect criticism for obstructing privatization of the electricity sector. The indefinite postponement of plans to privatize EDL was not well received by international agencies that rate emerging market credit risk. "The main thing we have been looking for in Lebanon is privatization, and it continues to disappoint," said James McCormack, a senior official at Fitch.[6]

Notes

  [1] Agence France Presse, 15 August 2003.
  [2] The Daily Star (Beirut), 16 August 2003.
  [3] Al-Diyar (Beirut), 17 August 2003.
  [4] Agence France Presse, 15 August 2003.
  [5] The Daily Star (Beirut), 7 August 2003.
  [6] Reuters (Beirut), 29 August 2003.


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