Lebanon launches tender to swap Algerian fuel oil with gasoil for power generation

Lebanon has issued a tender to swap Algerian fuel oil with gasoil to power its Zahrani power station, as it grapples with an energy crisis that saw a country-wide blackout in the summer.

Lebanon has idled its two power plants that can process Algerian fuel oil – cargoes of which arrived in September as aid -- but will be unable to restart them for months, Walid Fayad, the country's caretaker energy and water minister said in an interview.

Instead, the 30,000 metric tons of VLSFO is being stored in the northern city of Tripoli, and Lebanon opened a bid round on Sept. 17 to swap the fuel for gasoil so that Zahrani, the country's main operational power plant, can boost its electricity generation, Fayad said. It is unclear why Algeria sent fuel oil, rather than gas oil. The country's oil ministry could not be reached for comment.

If an attractive swap bid emerges where Lebanon would receive roughly 20,000 metric tons of gasoil, "we'll take it because we can provide [electricity] from now" instead of waiting to restart the fuel oil-powered generating units at Zouk and Jiyeh, Fayad said.

If such a bid does not materialize, the country may be stuck waiting for months while political discussions on restarting Zouk and Jieh drag on.

State utility Électricité du Liban (EDL) has requested budgetary appropriation from the Ministry of Finance to restart the two power plants.

"In the best-case scenario, it could be used in January," Fayad said of the fuel oil. "They [the power plant operator] need two months to mobilize staff and begin operations from the time they're notified [that the budget has been approved]."

The Algerian fuel arrived in Lebanon after EDL announced Aug. 17 that the Zahrani power plant had exhausted its gas oil supply that led to a "total blackout" across the country including at the Beirut airport, affecting ports, water pumps, sewage systems and prisons.

Lebanon is no stranger to complicated fuel swap agreements, having entered one with Iraq three years ago. Recently, Iraq held up monthly deliveries citing payment failures from cash-strapped Lebanon.

Lebanon, whose currency has lost over 90% of its value against the US dollar since a dollar shortage sparked an economic crisis in 2019, has struggled to pay for imports for nearly five years.

The country has not had round-the-clock electricity since the end of the country's civil war in 1990 and relies on a complicated system of frail infrastructure and haphazard private generator connections. Since the onset of the crisis, the government has only supplied a few hours of power a day.

However, an emergency plan launched by Fayad in 2022, who assumed his caretaker role in September 2021, sought to double generation capacity. Fayad, like the other current cabinet ministers, operates in a caretaker capacity in the absence of a president to form a government.

Taking capacity from 600 MW to 1200 MW in the short term would supply up to 10 hours of power, using four power plants, with a goal of securing 24-hour power by 2026. As of now, only Zahrani, is operational. Similar plans to increase generation have failed previously.

Progress toward that goal has faltered as budget issues have arisen.

"We're executing the plan now," Fayad said, adding, "But there have been bumps along the way."

Under the plan, a raised tariff on electricity prices was meant to give the country greater revenue from the electricity sector, which in turn could be used to pay its debts to Iraq and secure fuel. However, according to Fayad, Lebanon is owed between $450 million and $500 million in unpaid and unissued electricity bills.