Algeria offers Lebanon fuel lifeline for power plants

Algeria said it will supply Lebanon with fuel for its power plants after the last operational unit was forced to shut down, leaving the country without electricity. But the initiative is at a preliminary stage and the full details are still to be thrashed out, sources said.

Algerian president Abdelmadjid Tebboune commissioned the prime minister to inform his Lebanese counterpart of a decision to "immediately supply Lebanon with quantities of fuel to operate power plants and restore electricity supply in the country", Algeria's state radio announced on 18 August, without disclosing details on volumes or delivery dates.

A Lebanese source with knowledge of the matter told Argus today that the initiative is still at a "diplomatic" level. "The prime ministers have spoken but the energy ministries have not gotten in touch yet," the source said.

Lebanon's electricity ministry said on 17 August that the last operational unit at the country's Zahrani power plant was "forced to shut down... due to the complete depletion of the plant's fuel oil reserves, resulting in a total power outage across all Lebanese territories". The shutdown affects essential facilities including "the airport, port, water pumps, sewage systems and prisons", the ministry added.

The Lebanese source clarified that Algeria's offer is a form of aid and not the prelude to a supply agreement. "This is not an agreement. Why would we have an agreement with Algeria if we already have one with Iraq?" the source said.

Lebanon imported fuel oil under an agreement with Algeria's state-owned oil company Sonatrach for almost 15 years until 2020. But the deal was suspended following claims that a subsidiary of Sonatrach, sub-contracted to deliver fuel oil to Lebanon, had provided adulterated product. Sonatrach denied any wrongdoing and informed Lebanon that it would not renew the agreement after its expiry in December 2020.

"This isn't the first time Algeria has offered to help Lebanon in recent years," the source said. "They have an interest in seeing the relationship take a turn after what happened," the source claimed.

Iraqi connection

Lebanon signed a rolling agreement with Iraq in July 2021 that allows Beirut to buy fuel oil from Baghdad and resell it for products it needs. Lebanon's power plants can run on certain grades of fuel oil and gasoil but not the sort of heavy fuel oil that Iraq provides.

Lebanon sells the Iraqi fuel oil to private-sector companies, which in return provide on-spec spot cargoes for the Lebanese power sector. Lebanon said it would set up a fund at its central bank to pay Iraq. The agreement includes a deferred payment mechanism for one year from the date of receipt.

Iraq agreed in May last year to continue supplying fuel oil for another year and to increase the quantity, in a bid to help alleviate an acute power shortage in Lebanon. The Iraqi government said at the time that it would increase supplies to 1.5mn t/yr (26,000 b/d) from 1mn t/yr, effective from October 2023. Baghdad also agreed to supply Beirut with 2mn t/yr (40,000 b/d) of crude.

"The agreement between Lebanon and Iraq is an official one that was ratified by the Lebanese parliament," the Lebanese source said, adding that it is unclear why parliament has not addressed renewing the agreement in recent months.

Lebanon's acting central bank governor Wassim Mansouri has been refusing to transfer funds to pay Iraq from emergency foreign currency reserves, saying such a move requires parliament's authorisation.

"For now, the Lebanese government is looking to buy a spot cargo of 30,000t of fuel oil to address the current situation," the source said.

By Bachar Halabi