Chronicle of the Middle East and North Africa

Arab Region’s Electricity Sector: Mismanagement and Lack of Funding

Finding solutions to the Arab region’s electricity sector is difficult without first ensuring security and stability to protect potential investments.

Arab Region’s Electricity Sector
This picture taken on October 11, 2021 shows a sunset aerial view of the Électricité du Liban (Electricity of Lebanon or EDL) building in Lebanon’s capital Beirut, in darkness during a power outage. AFP

Ali Noureddine

This article was translated from Arabic.

Several Arab countries experience persistent crises in their electricity sectors, resulting in prolonged rationing throughout the year. Syria, Lebanon, Iraq, Sudan, Yemen and Libya top the list of nations currently grappling with deficits in electricity production, while others encounter occasional interruptions at certain times of the year. Although the causes of electricity rationing may vary from nation to nation, its effects are felt broadly, having an impact on people’s livelihoods, the economy, and society as a whole.

The electricity sector is a critical component of society, providing essential services to families and supporting local economies. As such, it requires effective management, regulation and oversight by governments. Additionally, the sector needs significant investment in the construction and maintenance of infrastructure, as well as the enhancement of productivity. Achieving financial and monetary stability is also crucial to securing a consistent energy supply, particularly in cases where the primary sources of energy are non-renewable.

The sector is particularly vulnerable to the adverse effects of economic, financial and security instability, which can significantly impact governments’ solvency and ability to develop infrastructure and operate public utilities.

Moreover, distressed economies may face difficulties in attracting foreign investment to establish electricity production facilities through public-private partnership models, further exacerbating issues within the sector. Sharp depreciation in the local currency exchange rates can rapidly result in financing problems, leading to difficulties in securing the necessary fuel to power the factories, even if the infrastructure is in place.

In order to predict future production needs and consumption rates, governments must also plan long-term for the electrical sector. The locations and types of factories that are required, as well as the infrastructure, distribution networks, and electrical connections that are needed, must all be identified in precise blueprints. Governments must create transparent investment terms for public-private partnerships in order to support competitive bidding procedures.

The electricity sector is often the first to bear the brunt of administrative failures and poor governance at the state level. It is frequently impacted by inadequate planning, corrupt tendering and award processes, and ineffective public administration. In countries experiencing political tension or frequent changes in government, the conditions within the electricity sector tend to be particularly unstable, resulting in a confusing mix of policies.

There are numerous and distinctive causes behind the faltering state of the electricity sector in Arab countries. Security issues, financial crises brought on by a lack of liquidity, ineffective leadership, disorganized operations, and the execution of failed plans are just a few of the contributing factors. Whatever the underlying causes, the result is a major decline in access to fundamental human rights like the capacity for access to education, safe food keeping, and consistent water supplies.

To address the electricity-supply challenges present in all Arab nations experiencing issues within this sector, an understanding of the specific causes and levels of electricity rationing in each country is crucial.

Lebanon: The convergence of several factors

A number of convergent circumstances have led to the electricity crisis in Lebanon. The weak capacity for production is a result of inadequate power plants and failing electrical distribution systems in various regions. The lack of funding to buy fuel for power plants is another effect caused by the financial crisis. The situation has been exacerbated by low collection rates, excessive waste rates, intrusions into the electrical grid, and inefficient financial management in the industry.

When compared to Lebanon’s energy needs, which stand at approximately 3,000 megawatts, the maximum production capacity of its power plants is currently 1,600 megawatts. This means that the maximum daily amount of electricity that subscribers can receive is 13 hours. The low production capacity is ascribed to political disputes, ongoing debates over the sites of facilities, and discussions about which businesses will profit most from constructing and investing in these factories.

The primary issue today is that existing power plants are currently operating at only a quarter of their maximum capacity, reducing power supplies to less than four hours per day for subscribers. The country’s monetary crisis has reduced the Central Bank’s ability to sell dollars to Electricité du Liban in exchange for the Lebanese liras collected from subscribers. Additionally, half of the current electricity supply is dependent on fuel shipments from Iraq, with payment facilities that allow the Lebanese state to pay the value of the fuel in Lebanese lira after a grace period of over a year.

According to Human Rights Watch, one out of every five families in the poorest 20 percent of the population are unable to obtain electricity from private generators. This means that these families are limited to the four hours of electricity provided by Electricité du Liban. With private generator subscriptions now denominated in cash dollars and the Lebanese pound’s exchange rate continuing to deteriorate, nine out of 10 Lebanese households surveyed reported that the cost of electricity has affected their ability to secure other basic services.

Iraq: Reliance on imported Iranian gas

Iraq, being an oil-exporting country with substantial hard currency reserves exceeding $100 billion in early 2023, should have no issue purchasing fuel for its power plants or even equipping new factories. In fact, the country achieved an $18.5 billion surplus in the general state budget in 2022 due to oil export revenues exceeding $115 billion.

However, despite this, many Iraqi governorates still experience significant hours of electricity rationing, sometimes reaching up to 12 hours a day due to mismanagement of the electricity and oil sectors. Power plants were designed to run on gas, but the Iraqi state failed to invest in facilities to extract gas from its own fields. Currently, the Iraqi state relies on gas imported from Iran to operate its factories, and these supplies are sometimes cut off at various times of the year, leading to an increase in electricity rationing.

The frequent power outages in many Iraqi governorates have been one of the main reasons for recurring political unrest and street protests. Many Iraqis believe that Tehran’s influence in Iraq is linked to the government’s failure to adopt solutions that would end Iraq’s reliance on Iranian gas.

Sudan: Cash crisis and scarcity of hard currency

In Sudan, the electricity crisis is primarily caused by inflation and the increase in imported fuel prices due to the devaluation of the local currency and a shortage of foreign exchange reserves needed for fuel imports.

The lack of liquidity has led to difficulties in maintaining power stations and providing spare parts, resulting in the deterioration of the electrical network and its efficiency. Additionally, there has been a lack of investment in expanding the network, resulting in only 40 per cent of Sudan’s territory being covered.

Currently, the Sudanese Electricity Distribution Company schedules power distribution with rationing levels of around six hours per subscriber per day. The company is looking toward future projects, such as solar energy production, to reduce rationing rates. Another potential solution is the electrical interconnection project with Egypt, which would allow Sudan to purchase surplus electricity from Egyptian factories.

Syria, Yemen and Libya: Security risks and the destruction of electricity networks

The collapse of the electricity sectors in Yemen, Syria, and Libya are the result of similar circumstances. These countries have faced security incidents and military clashes, resulting in the destruction of infrastructure, interconnection and distribution networks. Additionally, they suffered from a decline in their public budgets during periods of political turmoil, internal divisions, civil wars and the presence of multiple governments or authorities claiming legitimate control over different parts of the country.

As a result, there has been no progress in developing plans to rebuild the destroyed interconnection networks, while outsourcing the construction of new factories to foreign companies through a partnership model between the public and private sectors has not been possible.

Currently, Syrian regions experience severe rationing with rates reaching up to 20 hours per day, while in Libya rates increased to 18 consecutive hours per day during the summer of 2022. In Yemen, electricity supplies are limited to around six hours per day, with some regions suffering from total power outages.

Required solutions

Finding solutions to the electricity sector crisis in any Arab country is difficult without first ensuring security and stability to protect potential investments. Effective political leadership is also needed to develop long-term comprehensive plans that consider the production and distribution needs of each region. Such a leadership must undertake structural reforms in public budgets, ensuring minimum levels of government spending on infrastructure, including the electricity sector.

Once these initial steps are taken, mechanisms can be established to facilitate private sector participation in the energy sector, especially in the field of clean and renewable energy production. This requires developing transparent governance and legislative frameworks to support public-private partnerships. To attract more investments, banks and financial institutions must offer facilities to companies operating in this sector, enabling the private sector to help meet domestic demand for energy.

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