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The $600m deal that Lebanon made for additional power could have a significant impact on the country's economy

World Bank loan to finance deal with Egypt and Jordan on gas and electricity

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The $600m deal that Lebanon made for additional power could have a significant impact on the country's economy

Officials from Lebanon are close to securing a loan from the World Bank of up to $600m to finance a regional power deal. This would provide Lebanon with six hours more electricity per day over the next months, Energy Minister Walid Fayad said.

Mr Fayad stated that Egypt has pledged to sell a minimum amount of gas to Lebanon of 650 million cubic meters per year in order to produce 450 megawatts electricity. Jordan will transfer 250MW from its electricity grid to Lebanon.

The loan will be paid over the next two-years and is intended to alleviate Lebanon's worsening electrical shortages.

However, the plan faces long-term problems. Experts agree that it may be beneficial in the short term but does not address the long-term reforms required by the Lebanese government to end the country's power crisis.

The reforms include the establishment of an independent Electricity Regulatory Authority to fix tariffs and lay the legal foundation for resolving disputes between private and public companies. They also encourage private investment in this sector.

Experts believe that only then can Lebanon have sustainable and long-term electricity generation.

The World Bank had been working on the $300m gas premise and is now raising additional funds to finance the Jordan electricity deal. The funding for the combined deals is likely to start between $500m-$600m," Mr Fayad said to The National Tuesday evening.

The mapping of the Arab Gas Pipeline will require that Egyptian gas sent to Lebanon go through Syria. The deal will allow countries to bypass US sanctions against Syria, which were issued in 2019.

"Jordan, Egypt received letters from the US administration [regarding US sanction] but they need continue the due diligence process in order to ensure that all companies are properly categorized," stated Mr Fayad.

According to Mr Fayad, Egypt will pay Lebanon $7-10 per million for each British Thermal Unit (BTU) -- which is used for energy sources such as natural gas. Syria would receive the equivalent of $0.75 per TTU.

It is not clear if the gas pumped to Syria will be included in the total of 650 million cubic meters.

Both Iran and the US seek to ease Lebanon's power crisis in a struggle for influence in this country. Iran's tankers arrived at Baniyas, Syria in mid September. Hezbollah brokered the deal and fuel was then transferred to Lebanon by lorries.

Private generator owners are using Iranian fuel oil, but it has not been integrated into Electricite du Liban, the state-run utility company.

In a speech last week, Hassan Nasrallah, leader of Hezbollah, stated that more lorries would arrive in December. According to him, the group has spent $10m since September to provide fuel cheaply for the country.

The US supports the current regional power agreement between Lebanon, Syria and Egypt, which includes Lebanese officials like Electricite du Liban or the Energy Ministry.

Amos Hochstein (US special envoy, co-ordinator international energy affairs), told CNBC Tuesday that there is "a lot of work to get electricity stabilized".

He described the Iranian fuel that was delivered to Lebanon as "very dirty" and "bad for air quality."

"I am very optimistic that [the deal] can mature and work. The World Bank is diligently working on the deal. "I think there is a lot more technical work that needs to be done," stated Mr Hochstein. He visited Beirut in October to meet Mr Fayad, and other Lebanese officials.

Since 2003, large parts of the Arab Gas Pipeline are in disrepair.

According to Mr Fayad, the Egyptian-owned Technical Company for Gas Pipeline Operation Services (TCGPOS) will begin this week to repair the section that crosses Lebanese territory. The $1m payment will be made by the Lebanese central banks for the work. It is expected to take about a month.

"I'm now preparing the budget with the central bank with approval from the prime minister, and the presidency," stated Mr Fayad. It's already paid at this stage, because we need to move quickly. It cannot be delayed. Without fixing the network, we cannot get the gas."

Although Mr Hochstein stated that he expects the deal to be in place within two to three months, Mr Fayad was less confident about a date.

"Technically we can do it quicker, but some decisions like funding or Caesar Act Reassurances are not in my control."

Hochstein stated that importing electricity from Egypt or Jordan is not the best solution.

"Those two projects will give you many hours of power per day."

Marc Ayoub, a researcher in energy policy at the American University of Beirut’s Issam Fares Institute for Public Policy and International Affairs, suggested that a longer-term solution is to invest in a new plant in Lebanon.

He said that a 1,000MW power station could be built for between $800 and $900m, which is up to 50% more than the World Bank loan currently being discussed.

"This would be an effective long-term solution. While I don't deny that a deal is possible with Egypt or Jordan, it is not sustainable.

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