- 15
- July
- 2024
When the Lebanese State Embraces Mendicancy
modified on 19 Aug. 2024 à 09:28 Read : 6 minute(s) A A A
On Thursday morning, caretaker Minister of Energy and Water Walid Fayad announced that he received a call from the Director General of SOMO, the Iraqi Oil Ministry's company, informing him that the Iraqi Prime Minister, Mohammad al-Sudani, had permitted to load a fuel ship in solidarity with Lebanon and its people, allowing for the unloading of two gas oil trucks at the Zahrani and Deir Ammar plants. This came after a call between Lebanese Prime Minister Najib Mikati and his Iraqi counterpart, as well as several contacts that Fayad had with his Iraqi counterpart, Minister of Oil Hayan Abdul Ghani, the Iraqi Prime Minister’s office, the Iraqi embassy in Lebanon and Brigadier General Shuqair to address the fuel payment crisis and spare Lebanon total blackout.
Following Fayad’s announcement of reaching an agreement with the Iraqi side, Electricité du Liban (EDL) began the process of unloading the first part of the Iraqi fuel shipment at the Deir Ammar plant, filling the plant’s tanks with about 21,000 metric tons of Iraqi gas oil. The ship will later unload the remaining quantity of approximately 9,000 metric tons at the Zahrani plant, while efforts continue to secure the unloading of the second part of the shipment, which amounts to about 30,000 metric tons. The agreement between Lebanon and Iraq, signed in 2021 by former Minister of Energy and Water Raymond Ghajar and facilitated by former General Security Director General Abbas Ibrahim, came in response to Lebanon’s difficulty in securing the necessary funds to continue purchasing fuel for EDL to operate the plants. The agreement provided for Iraq to supply heavy fuel to Lebanon, which would then be exchanged for various types of fuel suitable for operating Lebanese plants, such as Grade A fuel oil, Grade B fuel oil and gas oil, in exchange for facilities provided by Iraq, including a one-year payment deferral. Lebanon committed to transferring amounts into a special account at the Iraqi Central Bank opened at Banque du Liban (BDL) in “local dollars” (lollars), which Iraq would use to finance services from Lebanon for the benefit of Iraq.
In recent months, doubts have risen on the Iraqi side about Lebanon’s ability to repay these amounts and the mechanism to be adopted in light of the absence of substantial reforms in the electricity sector, particularly at EDL, and Lebanon’s failure to implement any required reform measures to restore financial order. Despite it all, Iraq did not halt the agreement. Each time questions arise about the fate of these dues, Lebanon and its officials revert to “begging” and appealing to prevent Iraq from suspending the agreement, ignoring the fact that they have not undertaken any reforms for years, especially in the electricity sector, which has consumed billions over the years in burnt-out plants. The problem is much bigger: it is rooted in the corruption that has plagued EDL and the Ministry of Energy for many years, with a persistent insistence on managing the sector in the same way that led to the squandering of billions of dollars, leaving EDL in a dire financial state, and the Ministry relying on treasury advances to secure fuel costs. Ultimately, EDL finds itself unable to fund its needs from its financial revenues, prompting the Ministry of Energy to request non-repayable treasury advances, contrary to public accounting law. Whenever these advances and credits stop, the threat of total darkness looms as a form of blackmail.
The Banque du Liban used to intervene each time to secure fuel costs from the state's treasury account, but things have changed with the decision of acting BDL Governor Wassim Mansouri to stop funding the state and any of its expenses outside the state's accounts at BDL. EDL now has to secure funds from its own accounts, but when it is unable to do so, the Ministry of Energy quickly blames Mansouri and BDL for the “total darkness,” with Fayad arguing that the delay by BDL in transferring funds from the public finances account to the Iraqi Central Bank to pay for fuel under the agreement with Iraq affects Lebanon’s fuel supply for operating power plants. However, Mansouri insists to Fayad that BDL’s acceptance to pay the financial obligations of the agreement with Iraq is conditional upon passing a law specifying the legal framework for payment, the amounts and how they will be repaid, reiterating that BDL will not back down from its decision to stop funding the state.
Once again, the Ministry of Energy and Water is requesting BDL to fund new shipments of Iraqi fuel without any legislative justification or legal provision in the 2024 budget allowing for this, a demand that Mansouri firmly rejects. Mansouri sent a series of letters to the Ministry of Energy and Water, the Presidency of the Council of Ministers and the Ministry of Finance on how to address the outstanding dues in the Iraqi Central Bank account at BDL, cover the cost of Iraqi fuel and open letters of credit for Iraqi gas oil shipments. The Ministry of Energy and Water urgently requested BDL to credit an amount of $164.727 million in the Iraqi Central Bank account at BDL, stating that it continues to receive Iraqi fuel regularly, while the outstanding amounts recorded in the Iraqi Central Bank account at BDL for covering the cost of Iraqi fuel reached $531.7 million as of June 26, 2024. BDL expressed readiness to cover the cost of Iraqi fuel shipments on the condition that the law is issued by Parliament and that appropriate credits are allocated in the 2024 budget.
On November 29, 2023, a Cabinet decision approved the documentary credit formula proposed by the Ministry of Finance concerning the Iraqi fuel contract, committing the government to secure the amounts for the documentary credit and include them in the 2024 budget supplement, with BDL bearing no responsibility for paying these funds. Additionally, on December 19, 2023, a Cabinet decision approved the payment of all dues arising from fuel oil sale agreements between the Iraqi and Lebanese sides from the treasury account in “local dollars” (lollars) to the Iraqi Central Bank account, to be paid according to the contract terms with Iraq, with BDL bearing no responsibility for paying these funds. In response to a letter from acting BDL Governor Mansouri to caretaker Minister of Finance Youssef Khalil dated February 27, 2024, Khalil expressed readiness to cover the cost of Iraqi fuel shipments on the condition that a law is issued by Parliament and the 2024 budget includes appropriate credits for covering these shipments.
Despite this agreement, the 2024 budget law did not include sufficient amounts to cover the documentary credit following the Cabinet decision of December 19, 2023, and Parliament did not issue the law related to the “fuel oil sale agreement between the Iraqi and Lebanese sides.” Thus, Mansouri and the central council at BDL confirm there is no legal basis for BDL to pay the documentary credit amounts for Iraqi fuel, rejecting the notion that the government’s referral of the draft law to renew the Iraqi fuel agreement to Parliament constitutes legal cover. Mansouri insists on the law being passed to implement government decisions, stating that “pressures will not help and efforts to hold the central bank responsible for the darkness are rejected and the central bank is not involved.”
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