The IMF, the World Bank and all the major economic institutions,
both public and private, have been constantly lowering their forecasts for expected
global economic growth during 2014-15.
Add to the above not so bright news the fact that Lebanon is situated in
a neighbourhood that has been rocked by war and political instability for over
3 years and it becomes evident that the Lebanese economy needs economic growth
if for nothing else but to service its international sovereign debt.
Obviously, tourism a major sector for hard currency earnings
and a substantial employer is not the magnet that it used to be. Not many
people will make war torn areas their destination of choice no matter the
climate and the other physical endowments. The volume of international funds
that flow into the country from Lebanese abroad have also declined with the
relative decline in the rates of economic rates of growth in the rest of the
world. Luckily there is a way for Lebanon to make a substantial sum of funds
available for consumption expenditures that can be guaranteed to stimulate the
level of economic activity.
The idea that I chose to highlight is not new but it is time
for the government to undertake immediate reform of the electricity sector
since the financial burden, besides the economic productivity implications,
carried by the Lebanese private sector is becoming intolerable.
Just take a look at these figures: The official rates
charged by EDL are fictitious, fictitiously low. If an average household is to use about 7200
KWH per year (600 KWH per month) then the monthly charge would be under $50.00.
That would be a phenomenal bargain except for the fact that the national
electricity company (EDL) does not supply even half of that and whatever it
supplies is provided at a loss of over $1 billion a year. It is clear that a
state cannot aspire to be a tourist destination and yet have severe electricity
rationing every day of the year. That, however, is not even half of the story.
Since no household, rich or poor, large or small can afford not to have
electric power 24/7, the Lebanese had to improvise. They did that by setting up
small private electricity generators for every neighbourhood that kicks in as
soon as the government electric power is cut off. These private generators use
the infrastructure of poles and cables of the official grid and are run on diesel
power which is dirty and expensive. Currently it is estimated that the price per
Amp is about $100 and most homes need about 15 Amps and some need 30 Amps or
more. Since neither the Lebanese government nor EDL provide any up-to-date
information about the number of residential subscribers and their estimated
annual consumption this brief analysis assumes that the cost of electricity per
household is about $375.00 per month. (BTW, that is more than twice what a
typical NY family pays for the same amount of electricity although its average
income is probably four times as much).
Based on the above the average annual cost of electricity for
that typical Lebanese household is around $4500.00 which is at least 15% of the
annual earnings of that household. If the Lebanese government can take steps,
and it should, to provide that electricity at an average saving of say $300 per
month per household then the sum for about 1 million households will be $3.6
billion a year. If one is to assume that only half the household are affected
then the annual savings will still amount to $1.8 billion dollars. All such
hypothetical savings will be spent on other consumer goods and thus would help
revive the economy.
So what can the government do about this situation that has
been allowed to fester for over 20 years?
At least 3 things:
(1) The government can open the field for private
investors and encourage competition. The new field should be tightly regulated
to prevent consumer abuse. If electric utility firms in some of the highest
wage countries in the world can deliver reliable electric power in the range of
$0.1 -0.15 then the average bill for our typical customer should drop to about
$75.00 per month.
(2)
Encourage through a major well-advertised and well-funded
program the installation of solar collectors on roofs of individual units.
Again such installations are being provided by profit seeking free market
companies in many parts of the developed world at a cost of under $3 per watt.
Our typical household would need a 3.5 KW system in order to produce the
approximate 7200 KWH per annum. This means that an outlay of about $11000.00
would supply the 7200 KWH of electricity for that household for a period of 20
years. That would amount to a payback period of under 21/2 years. No new
buildings should be given permits unless such a PV system is included in the
structure.
(3)
Construct an offshore wind farm funded by the World
Bank to supply at least 500 MW.
(4)
Phase in a doubling of the current rate
structure charged by EDL over a period of 2 years.
(5)
Outlaw any private electricity production by
private contractors that use diesel power.
(6)
Adopt a delivery charge from each of the new
private large suppliers as a compensation for their use of the present grid.
A program styled around the above parameters
would find EDL operating at a zero deficit, consumers spending less for their
electric needs, a cleaner environment with less CO2 emissions and a more
reliable electricity and competitive electricity. Just the savings from
eliminating the EDL deficit and the excessive unwarranted current payments by
the consumers would provide the treasury with a savings of over $1 billion and
the consumers with about an additional $2 billion of discretionary income. This
sum of about $3 billion represents a 10% in consumer spending based on the
estimate that total consumption amounts to about $30 billion a year. It is also
to be noted that no new funds from the government are called for except to
build an offshore wind mill farm plus adopt a program to spread fund
residential PV systems. I am almost certain that funding for the above programs
can be easily arranged through an international agency since both are self-financing
and thus make no claims on the limited finds of the state.