Public-Private Partnership on Energy

GDP would gain stimulus if electricity reform plan was fully implemented, says report

The implementation of Public-Private Partnership schemes will contribute to addressing the country’s fiscal imbalances and public debt burden, according to Credit Libanais’ Public-Private Partnership Report.

The report said that implementing the PPP would help enhancing government revenues, improving efficiency, and curbing corruption. However, it highlighted the importance “to ensure an atmosphere of transparency throughout the various stages of a PPP venture, particularly during the bidding and implementation phases.”

The report said that if the electricity reform plan was implemented, the GDP would gain stimulus, as the reform would increase the two GDP components of investment and government expenditures.

The report projected the GDP to rise to $46.8 billion in 2012 compared to a $45.4 billion projection if the reform plan failed to materialize. It said that the GDP increase will surpass the expectations of an increase in public debt on the backdrop of higher government investments in electricity infrastructure. This, according to the report, may lead to a lower debt to GDP ratio. Under the “no reform” scenario, the debt to GDP ratio forecast for 2012 is around 135 percent, but the report said this figure is likely to drop to an average of around 131 percent if an electricity tariff increase (between 25 and 32 percent) was adopted.

The reform plan, originally based on electricity Law 462, proposes breaking up Electricité Du Liban (EDL) into three different companies tasked with the production, transmission, and distribution of electricity. The transmission function shall be retained by the government, while production and distribution companies shall put up to 40 percent of their shares on the stock market. The plan also involves raising the tariffs for energy consumption, which currently is less than the production cost. EDL is thus compelled to gradually raise tariff increases, reaching 43 percent by 2015, to around $0.1375 per KWh.

“It is imperative to financially reengineer the EDL in a bid to position it more favorably in the eye of the foreign investors prior to opening the bidding door for privatization,” the report stated.