FACING MASSIVE POWER SHORTAGE, LEBANON AGREES TO

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 001304

SIPDIS

DEPT FOR NEA/FO, NEA/ELA
P FOR DRUSSELL AND RRANGASWAMY
ALSO FOR IO ACTING A/S HOOK AND PDAS WARLICK
USUN FOR KHALILZAD/WOLFF/SCHEDLBAUER
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT

E.O. 12958: DECL: 09/04/2018
TAGS: ECON ENRG EFIN PREL PGOV EG JO LE
SUBJECT: FACING MASSIVE POWER SHORTAGE, LEBANON AGREES TO
BUY EGYPTIAN ELECTRICITY; POLITICAL INFIGHTING SLOWS REFORM

REF: BEIRUT 1199

Classified By: Ambassador Michele J. Sison for reasons 1.4
(b) and (d).

SUMMARY
--------------


1. (C) Facing massive electricity shortages that have left
residents of some regions without power twelve hours per day,
Lebanon signed an agreement for the purchase of surplus
electricity from Egypt, implementing one of the measures
pledged in the new Lebanese cabinet's ministerial policy
statement. Nonetheless, the GOL still needs to negotiate the
price, to lower the "exorbitant" rates the Egyptian
authorities are demanding, according to Lebanese Energy
Minister Alain Tabourian.


2. (C) In recent months, residents have taken to the streets
in several regions of Lebanon, burning tires and blocking
roads to protest power outages. Lebanon clearly needs the
electricity, but with losses at state-owned Electricite du
Liban (EDL) topping 2 billion dollars per year, the GOL is
desperate to secure it at preferential rates. Meanwhile,
there appears to be little or no coordination between
Tabourian, a March 8 minister, and PM Siniora, as personal
squabbles get in the way of successful energy management.
End summary.


3. (U) On August 27, Lebanese, Jordanian and Syrian Energy
Ministers, Alain Tabourian, Khaldoun Katishat and Ahmad
Al-Ali respectively, signed an agreement in Jordan with
Egyptian Energy Minister Hassan Younis for the purchase of
450 megawatts of surplus Egyptian electricity, to be divided
equally among the three countries. Tabourian also succeeded
in getting the Jordanian and Syrian counterparts to agree to
divert any surplus from their share of Egyptian electricity
to Lebanon.

MASSIVE SHORTAGES CAUSE UNREST
--------------


4. (U) Tabourian told the Embassy that demand for electricity
this summer has reached 2200 megawatts, while production is
only 1400 megawatts, leaving a huge shortage of 800
megawatts. The poor condition of Lebanese power plants and
the need for maintenance has forced national power utility
Electricite du Liban (EDL) to impose severe power rationing
all over Lebanon, exceeding 12 hours out of 24 in some areas.
As a result, people have taken to the streets in several
regions burning tires and blocking roads to protest against
severe power rationing.

UNSUSTAINABLE DRAIN ON THE STATE COFFERS
--------------


5. (U) By purchasing electricity from Egypt, Lebanon could be
able to reduce power cuts to 4-6 hours per day, according to
one of Tabourian's advisors. However, Lebanon also
desperately wants to cut its energy bill, which Tabourian
estimates absorbs 20-25 percent of GDP. "It is simply
unsustainable," he told DCM (reftel). EDL's recurrent
financial losses have been a major drain on state finances,
with losses projected to reach 2 billion dollars in 2008,
according to the government.


6. (C) The Egyptian authorities, however, have so far not
offered concessions on pricing. Tabourian claims they are
demanding an "exorbitant" rate for the electricity they are
providing, especially given Lebanon's commitment to purchase
from the Egyptians year-round. Minister Tabourian complained
that Egyptian President Mubarak had promised PM Siniora
during his August 16 visit to Alexandria that Egypt would
support Lebanon with electricity and gas, but "where is the
support?" Tabourian asked. Price negotiations are still in
progress.


7. (SBU) Jordan also has offered to sell Lebanon 50-70
megawatts of electricity, and Tabourian said he will study
the offer. Press reports, however, have indicated that

BEIRUT 00001304 002 OF 002


Jordan plans to use the Al Hussein thermal power plant (23 km
north of Amman),which it had closed because of
inefficiencies and high production costs, to provide this
electricity. Tabourian has made it clear he is not looking
for more high-priced electricity, so this initiative may lead
nowhere.

COMMENT: POLITICAL SQUABBLES PREVENT ACTION
--------------


8. (C) As electricity rationing causes more and more
frustration among the Lebanese population, its provision
becomes of increasing concern to the political actors in
Lebanon. PM Siniora has made trips to Egypt and Iraq, at
least partially in search of energy supplies, but bad blood
(reftel) between Siniora and March 8 Minister Tabourian after
the Egypt trip resulted in Tabourian's boycott of Siniora's
Iraq visit. There now seems to be little coordination on
energy initiatives between the Ministry of Energy and the
PM's office. Likewise, during his September 2-3 trip to
Qatar, President Sleiman discussed possible Qatari "support"
on electricity and the future Qatari provision of natural gas
to Lebanon, without Tabourian's participation. Though
Tabourian's office said he planned to meet with the President
in the coming days for a briefing, the Energy Ministry seems
for now to be on the sidelines, slowing action to relieve the
shortage.


9. (C) Ultimately, the capacity constraints and
infrastructure dilapidation in the energy sector in Lebanon
can only be resolved through privatization. Minister
Tabourian indicated to DCM (reftel) that privatization would
not be an immediate priority, given his short time at the
Ministry, and because of the shortages, so far he has had to
spend all his time trying to find stop-gap energy supplies
just to keep the lights on. It seems doubtful that he can
make progress in setting up the corporate structures at EDL
necessary for privatization before the end of his term. End
comment.

SISON