The Energy Regulation and Markets Review: Lebanon
Lebanon has been plagued by a chronic electricity crisis since the end of the 1975–1990 Civil War, with successive governments failing to make large investments to regain a sustainable position in the ailing sector and its outdated infrastructure. Most of the country's regions experience 10 to 12 hours of electricity rationing a day, and these power cuts increase dramatically in the event of malfunctions in any of the ageing plants. It is common for residents to pay additional costs for external generators to compensate for frequent power cuts. The electricity sector in Lebanon has long suffered from the lack of a global strategy aimed at revitalising it by addressing the needs with respect to infrastructure, generation capacity, operation and maintenance. The large influx of Syrian refugees in recent years has exacerbated this crisis.
The energy sector is mostly controlled by the government and other public sector institutions, namely the state-owned Electricité du Liban (EDL) founded in 1964. EDL is an autonomous public institution operating under the tutelage of the Ministry of Energy and Water (MOEW), and is vested with certain prerogative rights with respect to the transmission and distribution of electricity throughout Lebanon. Generation of electricity in Lebanon is mainly produced through thermal power plants constituting 80 per cent of the total generation capacity, while hydroelectric power plants provide around 10 per cent of the capacity. Also, and until 2010, additional electricity was purchased from neighbouring countries.
The year 2010 was a turning point for the electricity sector as it witnessed the approval by the government of a Policy Paper for the Electricity Sector initiated by the MOEW (the Policy Paper). The Policy Paper comprised a comprehensive plan and a realistic implementation programme for the radical rehabilitation and development of the electricity sector to respond to the economic and social needs and aspirations of Lebanon. It covers three strategic areas: infrastructure, supply and demand, and legal framework. The electricity sector requires drastic reform of the wider energy sector. The Policy Paper addresses renewable energy and energy efficiency, Lebanon being one of the wealthiest countries in terms of renewable energy resources, notably, solar and wind. Accordingly, and with the support of the Lebanese Center for Energy Conservation (LCEC),2 the MOEW launched a number of tenders for solar and wind energy projects.
Although the MOEW initiatives and action plans provide for a series of solutions as part of a national energy strategy, the Lebanese electricity sector still requires reform in the long term.
The first attempt to organise hydrocarbon resources in Lebanon in line with international standards occurred in August 2010, with the enactment of the Offshore Petroleum Resources Law (OPRL). This law established the Lebanese Petroleum Administration (LPA), which, with the Lebanese Council of Ministers and the MOEW, participates in the regulation of the oil and gas sector.
In 2012, the Council of Ministers approved the launch of the first offshore licensing round for hydrocarbon exploration. In 2017, two long-awaited decrees were finally published in the Official Gazette, governing respectively:
- the delineation of the Lebanese maritime waters into 10 distinct blocs; and
- the tender protocol for the award of exploration and production agreements.
The first exploration and production agreements were signed on 9 February 2018 between the Lebanese government and a consortium of France's Total, Italy's Eni and Russia's Novatek for bloc No. 4 and bloc No. 9.
To identify the environmentally and archaeologically sensitive areas offshore from Lebanon and the existing marine conditions, an environmental baseline survey was conducted between March and April 2019 by a specialist scientific vessel by taking samples and video recordings from Lebanese deep waters covering bloc No. 4 and bloc No. 9. The environmental impact assessment study for petroleum activities was conducted by Total on bloc No. 4, in line with Lebanese regulations, and was approved by the Ministry of Environment in February 2020.
As per an international tender, the drillship Tungsten Explorer, owned by the company Vantage Drilling, was contracted to start drilling activities in bloc No. 4. The drillship reached Lebanese waters on 25 February 2020. Drilling activities have started in the Lebanese exclusive economic zone (EEZ), for the drilling operations of the first exploration well3 within bloc No. 4. Scheduled to last approximately 60 days, the aim of this drilling phase is to evaluate the possible presence of hydrocarbons.
On 4 April 2019, the Council of Ministers approved the launch of the second offshore licensing round for hydrocarbon exploration. The deadline for submission of applications for the second offshore licensing round for hydrocarbon exploration was initially set for 31 January 2020.4 The deadline was later postponed until 30 April 2020.5 Given the implications of the spread of the coronavirus worldwide, the deadline to submit applications for the second offshore licensing round has been extended to 1 June 2020.6
Regarding onshore hydrocarbon resources, a draft law is still being discussed at the level of parliamentary commissions.
A draft hydrocarbon policy is currently being developed by the LPA, and will ultimately be subject to the approval of the Council of Ministers.
At the time of writing, Lebanon is facing the worst economic and financial crisis in its history, coupled with severe political instability since the nationwide civil protests of October 2019. In March 2020, Lebanon defaulted for the first time on its sovereign debt (Eurobonds). The national currency, the Lebanese pound, is officially pegged to the dollar but has witnessed a massive devaluation owing to an acute US dollar shortage in the country. Banks are applying intensive unofficial capital controls and rationing deposit withdrawals and external transfers. The covid-19 outbreak has only exacerbated the situation.
These exceptional circumstances have halted and stalled most of the MOEW's plans and projects. There is no visibility at this stage of the current status and fate of the targets and deadlines falling in 2020 that feature in this chapter.
i The regulators
The MOEW was established by virtue of Law No. 20 of 1966 and later reorganised by virtue of Law No. 247 of 2000, and is vested with the following powers,7 among others:
- setting the general policy for the sector, as well as the general master plan, and the discussion of directive studies and putting them in their final version and submitting them to the Council of Ministers for ratification;
- proposing the comprehensive rules for the organisation of services relating to the production, transmission and distribution of electrical energy and the supervision of execution activities;
- proposing draft laws and decrees relating to the electricity sector;
- proposing general safety conditions, environmental conditions and technical specifications applicable to electrical installations and equipment, provided that the same are issued by virtue of a decree issued by the Council of Ministers upon the competent minister's proposal after consulting the competent authorities;
- entering into the necessary contacts with other countries aimed at establishing electrical interconnections and exchanging electrical energy, and ratification of the necessary contracts following parliamentary approval; and
- taking all available measures, including the provision of distribution networks according to the laws and contracts ratified by the government, to remedy any defects in any of the electricity sector's activities that may have a negative effect on this sector's interests or on the rights and interests of consumers.
The OPRL vested various prerogatives relating to hydrocarbon resources in the Council of Ministers, the MOEW and the LPA. Most of the decisions taken by the MOEW are subject to the approval of the Council of Ministers and are backed by the LPA's technical advice and recommendations.
The Council of Ministers approves the state's petroleum policy and all decrees relating to petroleum activities. The Council of Ministers also approves all exploration and production agreements, appoints the LPA's board, approves petroleum licences and decides on extending the duration of the exploration or production periods after consulting with the LPA.
The MOEW is responsible, inter alia, for signing exploration and production agreements (following authorisation by the Council of Ministers), implementing the OPRL, supervising petroleum activities and protecting the environment from hydrocarbon-related pollution.
The LPA is an independent, technical, regulatory and advisory public entity in charge of regulating, managing and monitoring the petroleum sector, under the supervisory authority of the MOEW. The LPA's prerogatives encompass the preparation of strategic, economic, financial, technical, geological and environmental plans so as to ensure a prudent and efficient management of Lebanon's future hydrocarbon wealth. The LPA's goal is to ensure a successful, transparent and sustainable development process for all petroleum activities, in concert with various government bodies, international organisations and civil society.
The main laws and regulations governing hydrocarbons in Lebanon are:
- the OPRL dated 24 August 2010;
- Decree No. 9438 dated 4 December 2012, appointing the LPA;
- Law No. 163 dated 18 August 2011, identifying and delineating the marine zones of Lebanon;
- Decree No. 6433 dated 1 October 2011, governing and delineating the Lebanese EEZ;
- Council of Ministers Decision No. 41 dated 27 December 2012, opening the first offshore licensing round for hydrocarbon exploitation;
- Decree No. 9882 dated 16 February 2013, on the pre-qualification of companies;
- Decree No. 10289 dated 30 April 2013, providing for rules and regulations governing petroleum activities, as amended by Decree No. 1177 dated 31 July 2017;
- Decree No. 42 dated 19 January 2017, on the delineation of maritime blocs;
- Decree No. 43 dated 19 January 2017, approving the tender protocol for the award of exploration and production agreements and the model exploration and production agreement;
- Petroleum Tax Law No. 57 of 12 October 2017; and
- Council of Ministers Resolution No. 32 dated 14 December 2017, granting two petroleum licences over bloc No. 4 and bloc No. 9 and mandating the MOEW to sign the corresponding exploration and production agreements, in accordance with the OPRL provisions.
ii Regulated activities
EDL is a public establishment with an industrial and commercial vocation. It was founded by Decree No. 16878 dated 10 July 1964, and is responsible for the generation, transmission, and distribution of electrical energy in Lebanon.8
Currently, EDL controls more than 90 per cent of the Lebanese electricity sector (including the Kadisha concession in north Lebanon, which is owned by EDL) with a standing monopoly despite the enactment of Law No. 462 in September 2002 (Law 462) providing, inter alia, for the privatisation of electricity production and distribution activities. Some private companies hold a concession to generate or distribute electrical power. EDL's capacity to generate electricity stands at approximately 1,800MW, leaving a gap in the actual market demand that is currently filled by unregulated private generators, mainly in residential and commercial sectors.
Other participants in the sector include hydroelectric power plants owned by the Litani River Authority, concessions for hydroelectric power plants such as Nahr Ibrahim and Al Bared, and distribution concessions in Zahle, Jbeil, Aley and Bhamdoun.
To ensure equality and competition, Law 462 provides that licences and permits are granted to those who satisfy the prerequisite conditions specified by the National Regulator for the Electricity Sector Organisation (NRESO), an establishment affiliated to the MOEW. Preferential treatment and imposing uncodified restrictions on the provision of services is explicitly prohibited by Law 462.
Although Law 462 entered into force in 2002, the privatisation process and the formation of the NRESO have not yet been implemented for various reasons, mostly political.9 The long-awaited Law No. 48 regulating public-private partnerships (the PPP Law), which was enacted on 7 September 2017, applies to government and municipality projects such as infrastructure projects, and to electricity production and distribution projects.
The licence is an official document issued by the NRESO to joint-stock companies that are granted a concession for a maximum duration of 50 years to (1) establish, equip, develop, appropriate, operate, manage or market equipment within the scope of public services in the fields of production, transportation and distribution of power exceeding 10MW, or (2) use the aforementioned equipment by virtue of a financing leasing contract.10 Since the NRESO has not yet been established, the Lebanese Parliament enacted several laws granting the authority to the Council of Ministers to issue the licences and permits for a specific period of time until the establishment of the NRESO.
The OPRL requires the performance of petroleum activities to be licensed. The term 'petroleum activities' encompasses planning, preparation, installation and implementation of activities associated with a subsea reservoir, such as reconnaissance, exploration, production and exploitation, laying of pipelines, development of facilities, production and transportation. The OPRL singles out the following licences:
- Reconnaissance licence: The general conditions and scope of this licence and the corresponding fees are determined by the Council of Ministers by decree upon the proposal of the MOEW based on the opinion of the LPA. This non-exclusive licence is granted by virtue of a MOEW resolution, based on the opinion of the LPA, for a period not exceeding three years.
- Construction, placement and operation of transportation or storage facilities: the Council of Ministers may grant such a licence if the corresponding works are required as part of the approved plan for development and production.
- Production licence: The general conditions and scope of this licence and the corresponding fees are determined by the Council of Ministers by decree upon the proposal of the MOEW based on the opinion of the LPA. This licence is granted by virtue of a MOEW resolution based on the opinion of the LPA.
The OPRL also provides that the Council of Ministers awards exclusive authorisation to carry out petroleum activities in a specific bloc by virtue of an exploration and production agreement, setting out the right holders' authority to explore, develop and produce oil and gas offshore.11
iii Ownership and market access restrictions
There are no major ownership and market access restrictions in the energy sector. However, EDL has a monopoly on the market, controlling approximately 90 per cent of the electricity generating capacity in Lebanon, save for the few above-mentioned concessions.
There have been instances in which private sector companies were granted the right to generate electricity. Most notably, two power ships owned by a Turkish private company have been leased by the Lebanese government since 2013 to compensate for the shortage in the electric supply resulting from the lack of proper maintenance of existing plants. The two power ships are anchored at a specially constructed dock off the coast of Beirut, and have a total output of 370MW, with an output to the national grid of an extra two hours' electricity each day.
The transmission of electrical energy remains exclusive to EDL, but it is possible, through a decree issued by the Council of Ministers upon the proposal of the Minister of Energy and Water, to ratify contracts with the private sector for the management, operation, development or equipment of the transmission's activities.
The OPRL and Decree No. 43 of 19 January 2017 regulate the terms of exploration and production agreements to be entered into between the Lebanese state and a consortium of at least three right holders. The various right holders form an unincorporated joint venture in which each of them has an indivisible interest. However, the OPRL and Decree No. 43 unequivocally provide that the Republic of Lebanon has title to all petroleum resources in the seabed of Lebanese waters and the exclusive right to their management.
There are no specific restrictions on the award of licences pursuant to the OPRL, except for qualification requirements with which any prospected licensee is required to comply.
iv Transfers of control and assignments
Licensees and permit holders are not allowed to waive or assign their participating interest or permits to any other party, unless they have obtained the prior approval of the NRESO (currently the Council of Ministers) and provided that the transfer or assignment conforms with Law 462 and the regulations issued for its implementation.12
The OPRL provides that the interest of a right holder in an exploration and production agreement is a non-transferable participation interest.
The OPRL further provides that:
- the rights and obligations pertaining to a petroleum right may not be transferred or assigned in whole or in part except to a company qualified according to the provisions of the OPRL, and only after obtaining the approval of the Council of Ministers;
- the same shall apply to the direct assignment of any right in a company that enjoys a petroleum right, including, inter alia, the transfer of shares or other rights that may grant the holder thereof decisive control over the company; and
- no ownership or usage right in any facility upon which a petroleum activity depends shall be transferred, except after approval by the Council of Ministers.13
Finally, the OPRL14 provides that the conditions for the sale or transfer of any interest in petroleum shall be set out in a Decree issued by the Council of Ministers.
Transmission/transportation and distribution services
i Vertical integration and unbundling
As has been stated above, the Lebanese electricity sector is monopolised by EDL, which currently controls more than 90 per cent of the sector (including the Kadisha concession in north Lebanon). Moreover, the sector includes hydroelectric power plants owned by the Litani River Authority, concessions for hydroelectric power plants such as Nahr Ibrahim and Al Bared, and distribution concessions in Zahle, Jbeil, Aley and Bhamdoun, each of which serves a particular geographical area.
According to the 2010 Policy Paper for the Electricity Sector, this structure should be subject to several changes with the aim of a partial liberalisation of the electricity sector. After the Paper was announced, investors became interested in the electricity sector, and in engaging in the production and distribution of electricity according to the regulations in force. An important focal point is the collaboration between the public and private sectors since 2012, which consists in outsourcing to private sector companies some of EDL's activities relating to the design, implementation, operation and maintenance of a distribution network with the customer and metering services. This is encouraging for private entities to invest increasingly in the Lebanese electricity sector.
In relation to natural gas, there is no market regulation yet; the only relevant instrument issued to date is Law No. 549 dated 20 November 2003 governing the design, financing, development and reconstruction of two refineries; building a terminal for the import and export of liquefied natural gas (LNG), building facilities for the storage of LNG and establishing networks for its sale and distribution.
Currently, no LNG terminals or facilities have been erected. Accordingly, there is no effective market for the sale or distribution of LNG.
ii Transmission/transportation and distribution access
As stated above, the transmission of electrical energy remains under EDL's monopoly and it is possible, by a decree of the Council of Ministers upon the Minister of Energy and Water's proposal, to ratify contracts with the private sector for the management, operation, development or equipment of the transmission's activities. The private sector includes any privatised company or any company owned by the private sector.15
In relation to natural gas, these issues have not been addressed yet.
The rates of the distribution and sale of electricity for all voltage levels are set by EDL according to its investment and financing needs in order to develop its activity.16
In relation to natural gas, these issues have not been addressed yet.
iv Security and technology restrictions
The MOEW is entitled to take any measures, including those aimed at ensuring that all distribution is executed according to the laws and contracts ratified by the government, to remedy any defects in the electricity sector's activities that may negatively affect the sector's interests or the rights and interests of consumers. The MOEW may also propose general safety conditions, environmental conditions and technical specifications with respect to electrical installations and equipment, provided that they are issued by virtue of a decree issued by the Council of Ministers upon the competent minister's proposal after consulting the competent authorities.17
Similar considerations to those outlined above govern petroleum activities. Chapter 9 of the OPRL (entitled Health, Safety and the Environment) outlines the safety and security obligations imposed in conjunction with petroleum activities. These include ensuring the highest levels of safety, having in place a 'health, safety and emergency response plan' and efficient emergency preparedness. The competent authorities also have the right to request that the right holder place a determined facility at their disposal and facilitate any specific measures for the purpose of protecting health, safety, security or the environment.
In addition, the Israel Boycott Act enacted by the Lebanese parliament on 23 June 1955 prohibits, under penalty of criminal sanctions, any natural or moral person from conducting, directly or through an intermediary, any agreement with or in the interests of bodies or persons residing in Israel.
The Council of Ministers may, pursuant to a recommendation of the Boycott Bureau (a stand-alone body operating at the Lebanese Ministry of Economy and Trade), record the name of any company breaching the provisions of the Israel Boycott Act on a blacklist and prohibit any dealings with that company.
Renewable energy and conservation
i Development of renewable energy
There is an obvious trend to increase the level of production of renewable energy as part of the implementation of the national electricity strategy. The MOEW encourages public, private and individual initiatives to adopt the use of renewable energies to reach the 12 per cent target in the generation of electricity by 2020. In an initiative launched in partnership with the MOEW, the UNDP established the Country Energy Efficiency and Renewable Energy Demonstration Project for the Recovery of Lebanon (the CEDRO Project) in 2007, with an initial budget funded by the government of Spain to enhance the national energy strategy by contributing to achieving renewable energy projects.
Further, the LCEC works closely with the MOEW by putting in place action plans and national strategies in terms of energy efficiency and renewable energy. In an effort to reach the 12 per cent objective, the LCEC instigated two consecutive four-year action plans, known jointly as the National Energy Efficiency Action Plan (NEEAP).18 The 2011–2015 NEEAP comprises 14 initiatives of which seven were dedicated to renewable energy. The 2016–2020 NEEAP includes 26 initiatives, setting targets and strategies for the achievement of the energy-saving targets. The LCEC, with support from the MOEW, has further put in place the National Renewable Energy Plan (NREAP) 2016–2020, a follow-up report to the 2011–2015 NEEAP specifically dedicated to renewable energy strategies and their implementation.
The following projects have already been implemented using renewable sources that are connected to the grid via EDL:
- Wind energy: Lebanon is a viable country for energy wind production. In 2013, as part of the implementation of the national strategy for renewable energy development leading to achieving the 500MW wind generation target by 2020, the MOEW launched a tender to private corporations to build the first wind power farm in Lebanon with a capacity of between 50MW and 100MW. Under its first power purchase agreement, signed on 1 February 2018, the Lebanese government agreed to purchase 200MW in total from three Lebanese companies. In March 2018, the MOEW launched a second bid round to build additional wind farms for a total capacity of between 200MW and 400MW. The electricity generated by the wind farm will be sold to EDL by means of offtake agreements.
- Solar energy: a first of its kind on a national level, the Beirut River Solar Snake, consisting of a photovoltaic (PV) farm with a total planned output of 10MW, was part of the NEEAP to instal 200MW of solar farms by 2020. The first phase of the project has been achieved, connecting an extra 1MW of electricity to the grid. Also, the MOEW declared its plan to instal around 30MW of solar farms for the public sector by 2020. In 2017 and 2018, the MOEW launched two consecutive bids for 12 and 24 PV farms, respectively (of between 10MW and 15MW each). A further bid was launched for three PV farms (of between 70MW and 100MW each) to include for the first time electricity storage of 70MW/70MWh. The development of PV farms is becoming more appealing, especially with the decrease in prices of related solar installations, the decentralisation of PV farms and the growing involvement of the private sector.
- Water energy: although 75 per cent of Lebanon's market demand was covered by electricity generated from hydroelectric sources in the 1970s, the production of hydroelectric power was seriously affected during the civil war and afterwards. Opportunities in the hydropower sector are numerous, as the General Directorate of Hydraulic and Electric Resources at the MOEW envisages a promising strategy encompassing rehabilitation of the existing hydropower plants, the development of dams and the construction of new hydroelectric plants and micro hydropower systems. The current hydropower installed capacity is approximately 221MW, the main plant being the Litani station located in the Bekaa Valley. Also, as part of the NREAP 2016–2020 action plan, the MOEW launched the implementation of the Janna dam,19 which will include a hydroelectric power plant supplying the grid with approximately 100MW of hydroelectricity. In 2018, the MOEW launched a bid for hydroelectric power plants based on studies carried out by leading European engineering firms, aimed at identifying potential sites for such projects. The expected generation from hydroelectric sources by 2020 was approximately 300MW.
- Bioenergy (including waste to energy): 23 bioenergy streams have been identified as potential resources for energy production. All action plans stated in the National Bioenergy Strategy for Lebanon set in 2012 by the MOEW with the UNDP as part of the CEDRO Project were reinstated in the NREAP 2016–2020, as the Ministry recognised that the future of bioenergy is promising. On-ground surveys and assessments have been carried out to identify the most efficient and promising biomass streams. As regards waste to energy, the process for producing electricity was launched in 2015 through the establishment of a 7MW plant in the Naameh landfill to produce electricity.
ii Technological developments
The LCEC has drafted energy conservation legislation, the Renewable Energy and Energy Conservation Law, which sets the legal framework for implementation of the NREAP and addresses production by the private sector of electricity from renewable energy, the management of energy supply and demand, and the computation of renewable energy tariffs. The proposed Law also covers topics relating to energy efficiency in connection with the electricity grid. It provides for mandatory audits and certifications while catering for incentives to promote green solutions.
Notwithstanding the foregoing, a series of initiatives are being carried out with respect to the development of smart technologies in respect of energy demand management. The launching by EDL of the advanced metering infrastructure, comprising the installation by three private distribution service providers of smart meters across the Lebanese territory, is expected to provide energy efficiency in terms of monitoring and synchronisation of wide area networks. A wider pilot project is now being carried out in some Lebanese regions to test the responsiveness of the Lebanese network, whereas the smart metering system is fully applicable to some key institutions and establishments, such as shopping malls and schools, in some regions.
i Development of energy markets
Law 462 was expected to liberalise the sale and distribution of electricity in Lebanon and create a competitive free market for electricity. The NRESO, which was supposed to play a leading role in regulating the electricity sector, has not been established yet. The Policy Paper for the Electricity Sector provides for (1) the implementation of a programme to cover the traditional power supply infrastructure whereby international private companies have carried out the rehabilitation of existing power plants and construction of new plants, and (2) a promising renewable energy programme under which qualified developers will build and operate solar or wind power stations and sell the power generated to EDL, which retains the exclusive right of transporting the electricity to end users. However, until Law 462 is fully implemented, the supply and sale of energy remains primarily controlled by EDL. Some flexibility has been witnessed on that front since the management of EDL's distribution business was handed over to three distribution service providers under service contracts. Further, the sale prices of sources of energy are fixed by the state, and investors can engage in the production of electricity subject to applicable regulations using the tariffs and fees mandated by EDL.
In relation to natural gas, no markets have been developed or regulated yet.
ii Energy market rules and regulation
With regard to electricity, EDL is solely entitled to transmit and distribute electricity to end users in Lebanon. However, and as stated above, other parties have a partial role in the sector, such as the concessions for hydroelectric power plants of Nahr Ibrahim and Al Bared and the distribution concessions in Zahle, Jbeil, Aley and Bhamdoun.
It is important to mention that, until full liberalisation of the electricity sector in Lebanon, the tariffs and rates are set by EDL even for the above-mentioned concessions. As for any electricity production activities carried out by the private sector, the transmission of electricity produced in this way remains the sole right of EDL.
In relation to natural gas, no markets have been developed or regulated yet.
iii Contracts for sale of energy
Electricity producers and distributors are permitted to have individual contracts for the sale of electric power to EDL, since the latter possesses the sole right to transmit the electricity. Hence, electricity producers are required to connect their production to EDL's grid in order for it to reach the end users, while the rates and other charges are mandated by the government.
In relation to natural gas, the corresponding guidelines are yet to be developed.
iv Market developments
The full implementation of Law 462 would be considered a huge step forward in the liberalisation and encouragement of private investments in the energy sector. However, this Law presents some flaws pertaining to the tendering process for the operation and management by independent power producers (IPPs) of existing power plants, as a prelude to the IPPs entering into power purchase agreements with the Lebanese government.
The PPP Law will undoubtedly create new prospects for the implementation of power projects in Lebanon. This Law introduces a new legal regime, replacing the traditional procurement processes, which suffered from weak transparency, competitiveness and accountability standards. It renames and grants the High Council for Privatisation and PPP the authority to evaluate potential PPP projects. The PPP Law stipulates the main mandatory provisions that must be included in any PPP agreement.
On 30 April 2019, the Lebanese Parliament enacted Law No. 129 which allows the contracting by the government of agreements with respect to the design, financing, construction, production, operation and transfer to the government of power plants, according to conditions to be set by the MOEW. Consequently, the MOEW issued an invitation for conventional power plants to be classified as IPPs, whereby applicants can be classified as lead developers or consortium members for the design, engineering, construction, financing, testing, commissioning, operation and maintenance of conventional power plant projects, and the sale of the capacity and electrical energy to the MOEW under a long-term power purchase agreement.
The Sustainable Oil and Gas Development in Lebanon project is being developed as part of the United Nations Development Programme (UNDP). One of the programme's components is titled 'Enabling Environment for the Use of Alternative Fuels in the Energy and Transport Sectors' and provides for the conducting of cost-benefit analyses for the introduction of natural gas and other low carbon fuels in the energy and transport sectors. These should act as a precursor for the development of the corresponding legislation, including without limitation in relation to market development.
In December 2017, the Council of Ministers awarded exclusive licences to a consortium of three companies (Total, Eni and Novatek) for the exploration and production of petroleum offshore, in the Lebanese EEZ.
The year in review
There is an urgent national momentum to implement the action plans for the electricity sector, particularly in the context of the contemplated bailout by the International Monetary Fund (IMF) to help ease Lebanon's unprecedented financial crisis. The preliminary IMF recommendations include eliminating electricity subsidies, which is an area flagged as the most significant potential expenditure saving. This would involve raising tariffs to close EDL's financial deficit as soon as possible to generate fiscal savings, possibly targeting the largest consumers first.
A 10-year reform plan proposed by the Minister of Energy and Water based on the 2010 Policy Paper was approved by the Council of Ministers on 28 March 2017. The first phase of the plan involved the lease of two additional power barges from the Turkish company that already operates two smaller ships in Lebanon, and the activation of the two recently overhauled power plants of Zouk Mikael and Jiyyeh, with the aim of increasing electricity supply to 21 hours a day. This target has been reached for Beirut, while the electricity supply in other regions varies between 16 and 20 hours a day depending on the supply capacity of the grid. The main idea behind the leasing of the barges is to give the MOEW more time to build new power plants that can provide all of Lebanon with constant electricity in the future. The two additional floating power plants will reportedly generate up to 890MW at a cost of US$340 million a year. The plan also envisions the construction of solar power plants and hydroelectric power plants in several areas of the country.
The plan was met with scepticism and controversy, with challengers alleging its high cost factor, lack of transparency and the expectancy that it would result in a significant increase in electricity tariffs.
Conclusions and outlook
1 Carlos Abou Jaoude is managing partner, Souraya Machnouk is a partner and Hachem El Housseini, Rana Kateb and Chadi Stephan are senior associates at Abou Jaoude & Associates Law Firm.
2 The Lebanese Center for Energy Conservation is an independent government organisation operating under the supervision of the Ministry of Energy and Water.
3 An exploration well does not allow the production of hydrocarbons. However, it verifies their presence and allows the collection of essential information, such as pressure, temperature, permeability, composition of the geological layers and nature of the fluid within the rocks. The data collected during this stage will validate, or not, the presence of hydrocarbons.
4 Minister of Energy and Water's Decision No. 1/M dated 10 June 2019.
5 Minister of Energy and Water's Decision No. 10 D/M dated 10 January 2020.
7 Law No. 462 of 2002, Article 6.
8 Decree No. 16878 of 1964, Article 1.
9 Law No. 462 of 2002, Article 19.
10 id., at Article 1.
11 As per the specific provisions of the draft exploration and production agreement enacted by virtue of Decree No. 43 dated 19 January 2017.
12 Law No. 462 of 2002, Article 23.
13 Offshore Petroleum Resources Law, Article 70, entitled Transfer or Assignment of a Petroleum Right.
14 id., at Article 40, entitled Sale of Petroleum.
15 Law No. 462 of 2002, Article 5.
16 Decree No. 16878 of 1964, Article 8.
17 Law No. 462 of 2002, Article 6.
18 The National Energy Efficiency Action Plan is based on the requirements of the League of the Arab States and in line with a format used by the European Union.
19 The construction of the 300ft high Janna Dam was suspended in May 2016, but was later resumed despite local ecological and environmental warnings and concerns.