Lebanon today looks increasingly like a failed state. The country is on the verge of economic collapse, with the Lebanese pound losing 90% of its value since fall 2019 and annual GDP contracting 58% between 2019 and 2021. At the same time, government corruption runs rampant. Transparency International’s Corruption Perception Index ranks Lebanon 149 out of 180 countries on corruption. These two problems are intimately related. According to the World Bank, Lebanon’s economic crisis is due to a “deliberate lack of effective policy action by authorities.” In the midst of institutional failings, the Lebanese people suffer unreliable access to basic necessities such as food, medicine, and electricity.

The inability of Lebanon’s only official power provider, Electricity du Liban (EDL), to meet national energy demands, is emblematic of the country’s institutional failures. EDL has never been able to supply 24/7 reliable electricity since its rise to prominence at the end of the Lebanese Civil War in 1990. With the electricity supply and demand gap as large as 1 gigawatt in the small country of 4 million, EDL is known, in some cases, to shut off power for as long as 12 hours a day. Despite efforts by numerous governments to boost production, the deceit and malpractice of public officials undermines the success of new energy projects. Blackouts are thus a regular and economically harmful occurrence, costing the national economy roughly $3.9 billion annually, or about 8.2% of GDP.

Under these conditions, Lebanon’s ‘generator mafia’ has risen to power. This band of businessmen fill the country’s supply-demand gap by producing electricity from privately owned generators and selling it to citizens at a premium rate. Maintaining amiable relations with corrupt public officials and fuel importers enables the mafia’s activity. Although selling privately produced electricity is officially illegal, the practice has been institutionalized, with the government setting monthly tariffs on electricity they sell. The norm throughout Lebanon is thus to pay two energy bills each month, one to EDL and one to the generator mafia. With nowhere else for customers to turn, the mafia enjoys over $2 billion in annual revenues; funds that could otherwise be invested in more reliable and cost effective sources of energy.

The recent financial crisis further complicates Lebanon’s energy troubles. Since the Lebanese pound plunged in 2019, the generator mafia, among others, has struggled to import the diesel necessary to power generators. Reduced access to oil is a major problem for Lebanon, a country whose energy grid is uniquely reliant on the resource. Almost 100% of electricity in Lebanon is powered by petroleum-fired generators, compared to a 4% global average. These generators are also inefficient, being more expensive to operate and more polluting than natural gas generators, a common alternative. Lebanon’s oil dependence has long been economically inexpedient, but amidst the current economic strain, it has become demonstrably unsustainable.

In order to mitigate the economic crisis, root out corruption, and provide more reliable energy to its people, it is important that Lebanon prioritize energy reform. The centrality of the energy issue amidst a broader context of institutional failures presents the unique opportunity to address these numerous problems at once. And success of a recent energy restructuring in the Lebanese town of Zahle could provide a potential model for other communities across the country.

In 2015, the local authorities in Zahle arranged a licit deal between the government and a local private energy utility, Electricite de Zahle (EDZ), to lease diesel generators from a British firm and produce electricity that gets pumped directly into the local grid. Having filled the supply-demand gap, residents of Zahle now pay one, much cheaper bill each month, and the generator mafia has been largely driven out of business. The resulting cost savings and freedom from the mafia have allowed for the expansion of renewable energy use. A system of net-metering, where privately produced solar power gets sold back to the grid, has driven the installation of hundreds of solar panels across townspeoples’ homes and businesses. 

For a country that enjoys over 300 days of sunlight per year, Lebanon is ripe for solar energy development. The cost of solar technology has fallen dramatically in recent years, and Lebanon’s central bank already provides low-interest loans for solar projects, in line with its national law allowing for net metering. The Lebanese government should build on such efforts by supporting the development of local energy utilities which use renewable resources or natural gas to fill the supply-demand gap in municipal power grids, thereby providing reliable 24/7 electricity to residents, reducing reliance on foreign oil imports, and running the local generator mafia out of business.

The Lebanese government has a vested interest in supporting energy sector reform. Although public officials have historically cut deals with the generator mafia, they did so out of virtual necessity, having few alternatives to avoid ruinous blackouts and downplay failure of the state-run energy provider. The generator mafia are still a costly government investment and a common subject of public scrutiny. Subsidizing the development of local utilities in place of the generator mafia would save the government vast sums of cash over time while combating the immediate problem of public distrust. Unable to compete with the more cost effective local energy utilities absent government subsidies, the generator mafia will be economically limited.

Naturally, energy reform is bound to generate resistance from the generator mafia. Mafia apparatchiks in Zahle initially fought back against EDZ’s development, blocking streets, damaging transformers, and threatening the utility’s chief executive. Their protest was short-lived, however, thanks in large part to public support for EDZ. The generator mafia soon moved on, lacking both the financial and human resources to keep their enterprises afloat. Ensuring local energy utilities have the trust of residents is thus essential to the long term success of these projects.

A failed energy sector contributed to Lebanon’s financial crisis. Energy sector reform could contribute to the country’s economic recovery.