Lebanon to pay debt to Iraq amid criticism over fuel contract handling

Plans to pay a small portion using unpaid electricity bills from public administrations

The Lebanese Electricity Company 'Electricite du Liban' will ask state institutions to pay their bills, then pass the cash to Iraq, a minister said. EPA

Lebanon said on Wednesday that it will require state institutions to pay their electricity bills in order to raise cash for its accumulating unpaid bills to Iraq for fuel imports.

Lebanon's caretaker Energy Minister Walid Fayad announced that Électricité du Liban (EDL), the state-owned electricity company, would pay about $150 million to Iraq for its fuel imports – a small part of the total dues, which could reach more than $1.6 billion by November 2024, according to The National's calculations based on official figures.

“The positive impact of this will be to facilitate the Iraqi relationship with Lebanon, ensuring there are no issues in this regard,” Mr Fayad said.

The funds will come from public institutions and administrations that have not paid their electricity bills to EDL since November 2022.

Mr Fayad did not explain why the institutions, which he did not name, have not payed their bills until now, especially as the cash had already been allocated for that purpose in their budgets.

It comes amid growing criticism on how the cash-strapped country has handled its fuel contract with Iraq, signed in 2021, leading to repeated shipment delays and power cuts.

Maj Gen Abbas Ibrahim, the former head of Lebanon's General Security service, who brokered the deal with Iraq in 2021 to supply Lebanon with fuel under terms of payment facilities, told The National that he feels “disappointed” with the way the Lebanese are handling the file.

“I do not believe that the Lebanese side has fulfilled any of its obligations, which raises questions about the reason, and indeed one feels disappointed by this indifference, if I may say so,” he said.

But Maj Gen Ibrahim said he believed the current Iraqi government would continue to supply Lebanon “but under conditions that obligate the Lebanese side to fulfil its commitments”, he said, without specifying what they were.

It remains unclear how Lebanon, which is suffering from an economic crisis and has few natural resources, will pay the total dues.

“It is certain that the Iraqi state will continue to stand by us no matter the circumstances,” Maj Gen Ibrahim said.

Blackouts

Over the weekend, delays in fuel shipments caused a blackout in Lebanon in state-electricity, which affected the ports, airport, and key infrastructure such as water pumps.

Most Lebanese were not significantly impacted, as they already rely on generators to compensate for the shortfall from EDL, which provides only four hours of electricity per day.

The National revealed on Tuesday that the blackout occurred after Lebanon attempted to renegotiate its mounting debt to Iraq.

Iraq has officially given “technical and logistical reasons” for the shipment delay, renewing its “sincere commitment” to Lebanon, Bassim Al-Awadi, the government's official spokesman, said.

A senior Iraqi official confirmed to The National that the contract is not “cancelled”.

The next fuel shipment to be delivered as part of a Iraqi fuel deal is scheduled to arrive on August 26, Mr Fayad said on Monday.

“If the financial issues are resolved, everything will be easy,” the Iraqi source said – implying that it is not supply issues causing the delay, but complications related to payments.

Iraqi sources differed on the total amount owed to Iraq as of today, estimating it between $700 million and $900 million.

Lebanon relies entirely on a swap deal with Iraq to supply fuel for its power plants. The Iraqi oil is incompatible with Lebanon's power stations due to its high sulphur content, so Lebanon swaps it on the international market through intermediaries, which make a profit in the process.

Under the terms of the agreement, renewed twice, Lebanon pays the Iraqi government in US dollars deposited in an account at the Lebanese central bank under the condition that Iraq only use the funds purchase goods and services within Lebanon.

'Brotherly' countries

Algeria has said it will help to Lebanon overcome the current crisis by “immediately” supplying fuel. On Wednesday, Algeria's Sonatrach said it will send first shipment of 30,000 tonnes of fuel to Lebanon.

“Don't ever say that we're begging, we're lending the world dignity. Today, Algeria is standing with us not by mistake, because we are an ally to Algeria,” Mr Fayad said.

This is not the first time Lebanon has dealt with Sonatrach. The country's 15-year contract ended in late 2020 following a scandal over “adulterated fuel” supplied to Lebanon.

Mr Fayad thanked Algeria on Sunday for “contributing to [Lebanon's] rescue and assistance in its crises, just like brotherly Iraq”.

Lebanon’s electricity crisis has dealt a huge blow to the already crumbling sector. In a 2023 report, Human Rights Watch condemned Lebanese authorities for “violating the right of Lebanon’s population to electricity as well as secondary rights to an adequate standard of living, education, health, free movement, and a healthy environment”.