• Wed. Nov 24th, 2021

Can fuel subsidy cuts stop Lebanon’s descent into obscurity?

ByMary M. Ward

Sep 2, 2021

DUBAI: There was a time when the streets of Beirut throbbed with life and commerce at nightfall. But nowadays, they become ghosts of themselves as soon as the sun goes down. The reason: there is no money in the state coffers to buy fuel to run Lebanon’s power plants.

Private generator operators are also strapped for supplies, with fuel becoming the latest victim in a complex web of crises that have depleted Lebanon’s foreign exchange reserves.

Last week, the price of fuel in Lebanon increased for the second time in less than two months. The government has lifted subsidies on gasoline and diesel in an attempt to alleviate shortages, causing prices to skyrocket nearly 66% since the last hike in late June.

The Lebanese were already struggling to keep up with spending as the pound has lost nearly 90% of its value (since the mass protests began in late 2019) while wages stagnate.

Mustafa Naboulsi lives in Qalamoun, a city in northern Lebanon, and has worked as a firefighter for 11 years. On August 23, he sent his family to live in France due to the deteriorating economic situation in the country.

“Sometimes we even have to sleep in the car while waiting for fuel so that we can wake up in the morning and refuel. Often we spent two to three hours in line, being told that the fuel was finished and that we had to come back tomorrow, ”Naboulsi told Arab News.

It has been more than 10 days since Khaled Zakaria last filled his gas tank. To do this, he had to travel nearly 50 km from Tripoli to Byblos and wait in line for over an hour.

The high demand for gasoline coupled with its unavailability has predictably given rise to a black market, where the commodity can be bought seven to ten times more than its official price. Zakaria said he refuses to buy gasoline in this way because he does not want to encourage hoarding and corruption, which he believes can only make a bad situation worse.

Naboulsi, the firefighter, also treats burns, but restrictions on his mobility have left him helpless.

“Sometimes I am called to areas outside my city. These are people who are suffering and I would like to help them, but I cannot even reach them, ”he told Arab News.

A fire devours a building near where a fuel tank exploded in the Akkar region of northern Lebanon on August 15, 2021 (AFP file photo)

On the morning of August 15, an oil tanker explosion in Akkar left 28 dead and nearly 80 injured. The incident prompted neighboring countries to step in to provide aid, as Lebanon is also in the throes of a medical crisis.

“Especially after what happened in Akkar, I have no words to describe the pain,” Naboulsi told Arab News. “It’s a very hard feeling. You feel like you’re not doing enough even though the situation is out of your control.

In early August, Riad Salameh, governor of the Central Bank of Lebanon, accused local traders of the fuel shortage.

“It is unacceptable that we import $ 820 million worth of fuel and have no access to diesel, gasoline or electricity. This, and not the positions taken by us, is in itself a humiliation against the Lebanese, ”he told a local radio station.

The imported fuel was to cover the country’s needs for three months. Instead, it didn’t last even a month.

Bashar Elhalabi, senior analyst for the Middle East and North Africa at ClipperData, said the Lebanese political system of “muhasasa”, or the sectarian division of ministerial loot among 18 religious sects, has enabled each leader to take “A piece of the pie” for himself.

“Whether it’s funding allocations, projects, contracts, etc. Unfortunately, the energy sector is part of this “muhasasa”. In fact, it could be one of the biggest golden geese for cult leaders, ”he said.

As the interim government struggles to prevent mass hunger and total economic collapse, a political faction has found the opportunity to make a play.

Iranian-backed Hezbollah leader Hassan Nasrallah said on Friday he had decided to organize a third delivery of Iranian oil.

“We have agreed to start loading a third ship,” Nasrallah said, quoted by Reuters news agency. “The next few days will prove that those who doubt the cargoes arriving with fuel are wrong… and our words will be clear when the first ship reaches Lebanon.”

Hezbollah leader Massahn Nasrallah sparked an uproar when he announced his group had ordered oil from Iran, a move that could put Lebanon under US economic sanctions. (Reuters file photo)

Earlier last week, Nasrallah announced that the first ship with Iranian oil had set sail for Lebanon.

Some analysts have warned that importing fuel from Iran could expose Lebanon to something it cannot afford: US sanctions. Nonetheless, Elhalabi believes Nasrallah is serious because, whether the ships go to Lebanon or not, the movement still serves Hezbollah’s interests.

“The country and the various stakeholders are at an impasse. And that includes opponents of Nasrallah. If the tanker arrives at a Lebanese port, the staff will look really bad “if they refuse to unload the fuel, Elhalabi said.

On the one hand, if Iranian oil ends up reaching Lebanon, Nasrallah will have succeeded in presenting himself as someone capable but separate from the government. On the other hand, if the international community – most notably the United States – hits Lebanon with sanctions for importing Iranian oil, Nasrallah will reap the resulting political rewards, Elhalabi said.

Since Lebanon was plagued by economic and financial crises in late 2019, the government has continued to subsidize wheat, gas, fuel, food and other essentials at below market rates.

“The fuel shortages can be attributed to the ineffectiveness of the decades-old subsidy program,” Jean Tawile, an economist who has advised the government in the past, told Arab News.

“This paved the way for many cases of abuse such as hoarding, storage and smuggling.”

Lebanese pharmacists demonstrate in the Achrafieh district of Beirut on August 16, 2021, with their signs saying “no gasoline = no ambulance” and “no electricity = no hospital” and “no vaccine = no processing “. (AFP)

Most of the subsidized products from Lebanon are smuggled into Syria “because the prices there have skyrocketed since the start of the war,” he said.

Historical data shows that Lebanon imported 5.7 million tonnes of fuel in 2011, Tawile said. However, at the end of 2012, after the outbreak of the Syrian civil war, the figure jumped to 7.6 million tonnes.

“So essentially the Lebanese depositors were subsidizing Syria’s fuel needs,” he said.

According to Tawile, the removal of the subsidies will eliminate the differentials between the fuel prices of the two countries and end the smuggling of the goods.

Fuel hoarding will also decrease as distributors will have no reason to stockpile merchandise, which they regularly do in anticipation of price increases.

In addition, as Mohamed Ramady, a former senior banker and professor of finance and economics at King Fahd University of Petroleum and Minerals, points out, Lebanon has come under pressure from international lenders to lift subsidies.

“Lebanon is facing a difficult situation. This decision to cut fuel subsidies is not politically motivated. She is driven by the economy, ”Ramady told Arab News.

A protester carries a national flag along a blocked road during a protest against growing economic hardship near the Central Bank building in Beirut on March 16, 2021. (REUTERS / File Photo)

Ramady said cutting subsidies is also a way for the government to achieve fiscal prudence.

“The tariffs are not there. The trade situation is fragile because Lebanon no longer exports vegetables and fruits as before. Tourism income has fallen drastically. In other words, Lebanon’s sources of income have shrunk, ”he said.

Tawile says the government can cushion the impact of declining subsidies on the population by implementing a social safety net mechanism, for example by providing the poorest with direct cash payments.

The interim government offered in May to provide ration cards to the most vulnerable families in lieu of subsidies. The $ 556 million program was to benefit more than 500,000 needy families.

However, as with so many other programs in Lebanon, the lack of a clear funding source has kept the plan frozen since then.

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