Lebanon’s EDL harnesses the power of ‘dollarisation’

February 20, 2024, 11:07 AM

A man pushes a shopping cart near a screen showing the exchange rate of Lebanese pound to U.S. dollars inside a supermarket in Beirut, Lebanon March 9, 2023. REUTERS/Mohamed Azakir — Critics say dollarisation of the Lebanese electricity market will increase pressure on embattled consumers

Option to pay bills in dollars
Potential ‘positive impact on finances’
Latest stage of ‘de facto dollarisation’

Lebanese citizens will soon be able to pay their electricity bills in US dollars as the unofficial “dollarisation” of the nation’s economy continues.

The decision by Électricité du Liban (EDL) to allow customers to choose to pay their bills in USD instead of Lebanese lira was ratified by the electricity provider’s board of governors this month.

Senior managers at the state-owned company, which has the legal monopoly on electricity production in Lebanon, say that it will come into effect across Lebanon gradually over the following weeks.

Speaking to AGBI, EDL general manager Kamal Hayek said that “the move is expected to have a positive impact on EDL’s finances”, which were in the doldrums even before the country became wracked by economic crisis in 2019.

Hayek said that the decision could “significantly enhance EDL’s capacity to make seamless payments for fuel purchases” but added that this is “contingent on the Lebanese Central Bank (BDL) permitting the unrestricted use of the soon to be collected amounts in USD”.

Speaking off the record, senior officials at EDL bemoaned BDL’s control over the company’s purse strings. Last February, EDL made the controversial decision to hike tariffs on electricity for the first time since 1994.

Amid criticism from civil society groups that the tariff increase puts further pressure on people already suffering from triple-digit inflation and a breakdown in state services, EDL defended the decision as necessary to increase electricity production beyond a meagre four hours per day.

In November 2022, EDL told reporters that the change would allow it to provide up to 10 hours of electricity a day.

In the last 12 months, Hayek says that the new tariffs have brought in the equivalent of $131 million in Lebanese lira, yet most of the country still receives around just four hours per day of state-provided electricity, except for select areas of Beirut which have had their supply increased to six hours.

EDL insiders say that the central bank has refused the company’s attempts to exchange lira for USD to buy fuel on international markets.

According to one senior official, who asked not to be named, whilst a year ago EDL had just “peanuts” in bank deposits, it has now built up a sizeable pot of lira, but BDL is essentially blocking access to the funds. BDL did not respond to requests for comment.

A popular accusation is that the central bank is essentially using the electricity company to suck lira liquidity out of the market to help maintain a stable exchange rate.

“We feel as if we work for the central bank,” the official said.

Collecting dollars directly could offer the firm a way around BDL’s restrictions and buy much-needed fuel.

“Now, EDL does not have a penny to purchase fuel,” said lawyer and energy consultant Christina Abi Haidar, who believes the new law “will help us get another source of fuel”.

Even if this results in just an extra hour of electricity supply for consumers, she said, it is a step in the right direction: “In time, this will help”.

De facto dollarisation

EDL’s decision is the latest chapter in the de facto dollarisation of Lebanon’s economy. In its latest country report, the World Bank described Lebanon as “overwhelmingly dollarised”.

The bank estimated in 2022 that cash dollars make up almost 50 percent of the total national economy, although economic analysts believe that this proportion has since grown substantially.

An early draft of the 2024 national budget was accused of contributing to dollarisation through provisions mandating the payment of particular fees and services in US dollars.

These proposals were subsequently dropped following a backlash.

Layal Mansour, an economist specialising in economic crises in dollarised economies, is one of a growing number of voices in Lebanon calling for the official dollarisation of the economy.

Despite 12 months of stability, Mansour says that the lira’s value is likely to shrink further, saying “this is the normal track of the Lebanese pound”.

She shares the central bank’s belief that the collection of electricity tariffs in USD will put further pressure on the lira and contribute to its continued decline. But, she says: “If the government doesn’t want to pay at least its basic needs like fuel and diesel, it will be a catastrophe.”