Restructuring the Lebanese Electric Power Sector. Facts, Challenges and Possibilities (Roula Abi Ghanem - American University of Beirut, Faculty of Engineering and Architecture - 2000-2001)

In view of the current economic situation in Lebanon, Restructuring of state-owned enterprises in general and the Electric Utility in particular, has become inevitable. This fact is further endorsed by the high share contributed by the Lebanese Electric Sector to the total public debt.
Studies have been done on the necessity and the benefits of privatizing/deregulating the Electric power s ystem; yet no effort has been made as to determine the optimality of the plans suggested.
This thesis develops a decision tool that enables decision makers to choose an optimal restructuring model, taking into consideration the international experience, but mainly the local facts: objectives that need to be achieved and various constraints and parameters involved in the selection process.
An Analytical Hierarchy Process (AHP) approach will be used to account for the multiple criteria and the conflicting objectives, to help define a plan that responds to all needs, and that would be valid under conditions of uncertainty.

Keywords: Privatization, Restructuring, AHP, Optimization, Uncertainty.

I. INTRODUCTION

I.1 Background

The Lebanese electric power system, like the entire infrastructure, suffers from damages caused by the war; either direct physical damages in the networks, or indirect damages resulting from the poor maintenance of the existing systems.
Electricite du Liban (EDL), is currently the main public utility responsible for generation, transmission and distribution of electricity in Lebanon. Few private generators exist, that supply power to customers in their concession areas.
After rehabilitation that started in October 1993, installed capacity increased to 2309 MW in 1998. While peak demand is estimated at 1570 MW, customers still suffer from shortages and outfalls [1].
Moreover, the electric power sector suffers from technical losses mainly in the transmission and distribution systems, as well as non-technical losses due to the non-billed and non-collected supplied electricity.
As for its workforce, EDL has a high average employees age; productivity is far below international levels and needs to be improved.
Financial results show a high annual deficit, mainly due to inadequate pricing, non-collection, frauds, operational losses, and interest on the debt.
EDL, which was once an independent profit-making institution, is now relying on the government for its survival. Moreover, it contributes to 11.4% [1] of the total public debt, hence the urgent need for a reform of this utility, in order to achieve a better performance and be able to respond to the potential increase in demand in the future.

I.2 Privatization

Privatization is becoming a worldwide trend, with the broader goal of economic development. When correctly conceived and implemented, privatization fosters efficiency, encourages investment, and frees public resources for investment in other social programs.
Of particular concern to the government is the burden that loss making state-owned enterprises, such as EDL, place on the public budget. This has seriously raised the issue of privatizating this public entity. Various scenarios of public/private partnerships are considered and will be studied in detail.
It is important to note that in the case of privatization, where a non-competitive market (due to the natural monopoly) is involved, a legal and regulatory system must be in place to protect customers.

I.3 Objectives

- To shed the light on the current situation of EDL, and present the various Public/Private patnerships
- To revisit all the work related to this issue that was done in the past by various agencies like the United Nations, the World Bank, ESCWA, EDL, etc...
- To define the needs of the Lebanese electric utility, present and future, determine estimates for the future demand in electricity, and investigate the possible restructuring schemes, together with the potential obstacles and difficulties
- Given the above, and most importantly, to design a decision tool that uses mainly an Analytical Hierarchy Process (AHP) approach, to enable decision makers to select the most adequate restructuring scheme of EDL. This tool will provide a tangible way to determine the best solution and be able to defend it.
- Finally to suggest recommendations as to how the government could participate to the success of a privatization scheme by supervising the process and protecting the consumer.

I.4 Analytical Hierarchy Process - A brief description

AHP is a general problem-solving methodology, useful for complex multi-criteria decisions, with variables that do not have exact numerical consequences. It is particularly useful when the decision maker can provide a logical structure to the problem, but does not have objective data to evaluate alternatives.
AHP works by decomposing the problem into hierarchical levels using the following building blocks:

- Overall goal to be attained
- Criteria and subcriteria
- Scenarios
- Alternatives

And then establishing priorities concerning alternatives in the hierarchy. This is done by comparing alternatives in a pairwise manner to assess their relative importance, relative preference, or relative likelihood with respect to criteria at the immediately higher level in the hierarchy. Evaluation is usually made using a numerical or rating scale.
Finally assessing the consistency of judgments and synthesizing priorities at each level to obtain overall priority of each alternative with respect to the primary goal. This is the degree to which that alternative fits all the criteria, subcriteria and scenarios.
AHP helps structure complex problems, uses relative judgments, enables the full consideration of alternatives, and allows including qualitative aspects of a problem situation.

II. SCOPE OF WORK

The thesis will consist mainly of three parts:

The first part focuses on examining the current situation of the electric power sector and the reasons behind the need for privatization. Moreover, in order to be consistent, all the work done in the past will be revisited, which permits us also to assess the extent to which this issue is given serious consideration.

The second part introduces the different forms of public/private partnerships, their relevance in this particular case and the possibility of their success. Examples from international experience will be presented, in an attempt to apply to the Lebanese case, and learn from others. The conditions of a good practice will also be presented with emphasis on the role of the government in this matter.

The third and most important part, the main objective of the thesis, is to provide a tool that would allow a decision maker to choose among various scenarios. Actually, up till now, many studies and theories have been made, but none proves why one scheme would be better than another. Our objective is to investigate all the parameters related to such a decision problem, to rank the various considerations in terms of importance, from different decision makers' points of view, and then to generate optimal solutions based on these data. Our solution would then be credible, based on actual evidence, and will remain valid in uncertainty conditions, as is now the case.
This part will dedicate some room to briefly describe the multi-attribute decision problem, conflicting objectives and the AHP model.
We will complement our study by recommendations that would make successful a restructuring plan.

III. METHODOLOGY

The above described thesis objectives will be achieved by the following techniques:

1- Literature Review: General review of the public/private partnerships, their history, previous experience throughout the world determining advantages and potential problems. This procedure is very important; it will be used throughout the period of thesis preparation.

2- Data gathering: on EDL's case - the studies done by agencies such as the World Bank, United Nations and others will be investigated. These will lay the first stone in the path of this thesis, as we will try to benefit from previous work done in this field and try to add to it, rather than disregarding a good deal of investment in time and money.

3- Design of the Analytical Hierarchy Process model: defining the objectives, the options, the constraints and the possible outcomes.

4- On-site investigation: once the problem has been formulated, interviews with concerned parties will be conducted. These will help determine the variables, parameters, level of importance of each decision variable, in order to be able to assign weights to each of them and hence generate possible scenarios and optimal ones. It is to be noted that such a decision will not be purely objective as we know it will be to a great extent up to the decision maker(s) subjective reasonning.

5- Analysis of the data and running the decision analysis technique. Interpretation of the results. Presentation of the Government role and the degree of acceptance of a certain plan.


IV. SIGNIFICANCE OF THE PROPOSED RESEARCH

- The importance of this research is that it will for the first time in Lebanon provide a way to assess the feasability of a restructuring decision by providing a tool that takes as input the different considerations involved in making such a decision, from political issues to socio-economic values to environmental concerns etc... all under uncertainty conditions, and gives as output the possibilities in the feasible range. It will provide planners with a credible means to show the validity of their decision.

- It will summarize all researches and studies done in the past and use them as a basis for future development.

- It will provide an assesment of the efforts done in the past and determine the extent to which they substantiate.

- We believe it to be of use to the Lebanese government, decision makers, and EDL, in highlighting points that might have been omitted in the past. International agencies and potential investors will also benefit by having full information on this sector, the work done in this field and the importance of having a tool that makes decisions based on real-life data.

V. REFERENCES

1- G. Badelt, M. Yehia, "The way to restructure the Lebanese electric power sector: a challenge for the transitional management" Elsevier - Energy policy 28 (2000) July 1999.
2- R. Clarke, P. Kleindorfer, "Choosing an integrating resource plan for electric utilities: An Analytical Hierarchy Approach".
3- "Privatization The lessons of experience" - A World Bank Publication
4- General literature on privatization