51803 November 2009 . Number 14 LEBANON: Social Impact Analysis For the Electricity and Water Sectors Sebnem Akkaya, Nils Junge, and Wael Mansour1 service. A striking aspect of the electricity sector is its heavy dependence on informal Introduction: This Quick Note, is based on the private generation operating outside any state report "Lebanon: Social Impact Analysis for the supervision or guiding framework. In both the Electricity and Water Sectors", issued by World formal and informal water sector, quality Bank's Middle East and North Africa Region's concerns are of paramount importance-- Social and Economic Development Group in quality is a public health issue and there are June 2009. The report considers implications for serious additional socioeconomic consequences. the consumer of current service provision and impending reforms in Lebanon's utility sector. The report points to the following key It assesses: i) how different categories of similarities and differences between the two households, and especially the poor, are sectors from a social impact perspective: affected by deficient electricity and water service; ii) the potential social impact of Both sectors suffer from inadequate supply. alternative reform scenarios, including tariff In the electricity sector this takes the form changes in the case of electricity and metering of highly uneven rationing. Water supply in the case of water; and iii) implications of on the other hand, is constrained in every better cost recovery measures in both sectors. region by limited infrastructure capacity, population density and demand. Both The findings are based on analysis of primary sectors experience high commercial and data collected from households ; sector technical losses. Beirut households enjoy assessments undertaken recently by the World good electricity supply, with rationing Bank and by other domestic or external limited to three hours a day, but the city agencies; and from consultations with receives the lowest water supply per stakeholders. Relatively little research on the household in Lebanon. energy and water sectors in Lebanon has been conducted to date on the household/consumer A key problem in the water sector is a perspective2. disconnect between supply and demand. The absence of a metering system means The Electricity and Water Sectors in Lebanon: households pay a fixed fee for a fixed The electricity and water sectors face major amount of water supply (or allotment). challenges in increasing supply and improving Solving this issue would rationalize water 1 consumption to a degree. There appears to S. Akkaya (Lead Economist, MNSPR); N. Junge be an informal understanding between (Consultant, MNSED); W. Mansour (Consultant, MNSPR). 2 water companies and households: many The report should be read in conjunction with the households don't receive their water "Republic of Lebanon Electricity Sector Public Expenditure Review, Report No. 41421-LB, Washington DC, January allotment, and the water companies often 31"; and "World Bank (forthcoming), Republic of Lebanon don't pressure households to pay their bills. Water Sector Public Expenditure Review, Washington DC" The key problem in the electricity sector is which provide in-depth analysis of technical and high cost of alternative supply, which is institutional issues. utilized by 58 percent of households. levels without introducing commensurate Virtually all households are connected to service improvements would likely meet with the electricity network. Connection rates for resistance. Consumers must feel that the water are 80 percent. However, given that burden of reform is not placed entirely on their water supply is inadequate in terms of both shoulders but is shared with EdL. quantity and quality, connected households tend to purchase from alternate sources. Reduce rationing, especially in the areas outside Beirut which experience long blackout hours. Households have limited choice (on Among other things, this will have the effect of quality and cost) when it comes to readjusting the burden imposed by rationing electricity generation, with most buying from the poor to the non-poor. Although there from generator companies operating in the may be good reasons for keeping rationing in grey economy. There is a somewhat larger the capital to a minimum, it gives rise to social menu of options for purchasing water, inequities. Beirut households have higher available from tanker trucks, to wells, to welfare levels and they are most able to afford large gallon bottles, and small bottles. paying for expensive substitutes. Most households in other regions must choose between going without electricity and spending Willingness to pay for improved electricity significant amounts on private generation. service is much higher for electricity than for water, reflecting the high cost and Establish operating guidelines for the informal limited choice of electricity alternatives. electricity sector. The informal electricity sector, served by hundreds of private generator Conclusions and Recommendations: The businesses, provides up to 30 percent of overarching challenge facing Lebanon's public Lebanon's electricity and is an indispensible electricity and water sectors will be to establish service to many households. Yet the sector lies trust with consumers. Major investments in entirely outside the legal framework and does each sector targeting infrastructure, not pay taxes to the state. It must be management and while simultaneously acknowledged that private generation will play improving performance human resources will a significant role in electricity generation for need to take place while increasing revenue years to come. Hence, identification of proper from consumers who have little faith in the operating guidelines that will protect and system and want to see concrete results or benefit consumers while ensuring continued credible action. The following remarks consider availability of this alternative source should be each sector separately. given consideration and merit additional research work. Without dampening private Electricity: Design a more effective and simplified sector activity, or generating layers of tariff structure. The current tariff structure is bureaucracy, the guidelines should attempt to: regressive and will do little to shield the poor from any future tariff increases. The inverted bring private generator businesses into tariff block is not progressive--this is partly the formal sector so that customers because it subsidizes all households and partly have access to means of redress for because effective kWh prices differ markedly losses or damage incurred through from the quoted prices. This is especially so for faults on the supplier's side; low electricity consuming households. enable the state to tax the sector like other businesses; Ensure proper sequencing in implementing set technical standards for service; policy measures. The burden resulting from EdL's (Electricite du Liban) service decline has Water - Invest in improving water quality. In increased significantly, despite the fact that the Lebanon, the burden on poor households cost of electricity purchased from EdL has comes from poor quality and low water supply, remained relatively low for consumers. rather than high expenditures. Water However, increasing tariffs to cost recovery expenditures by the low income households are November 2009 · Number 14 · 2 in line with World Bank recommendations of 3 contractual agreements with households, to 5 percent of household budget, but could be raising tariffs and installing meters to link reduced if households relied less on alternative supply with demand, while also investing in sources. Although compared to other problems improvements in quality. They will also need to in water provision, reducing expenditures for strengthen collection enforcement mechanisms. consumers is not the top priority, the costs To be successful, the new contractual which consumers bear in terms of quality of arrangement will need to spread the benefits service--poor reliability and potential health and costs between consumers and water risks--are significant. A focus on improving companies in a manner acceptable to both. quality and reducing losses, if accompanied by a public awareness campaign, would have a direct effect on welfare. Contact MNA K&L: Emmanuel Mbi, Director, MNA Operational Expand metering - The current flat fee system is Core Services Unit: not serving providers or consumers well. Water David Steel, Manager, MNA Development companies cannot charge the marginal cost of Effectiveness Unit: production, and consumers do not get what they pay for. Pilot programs show that Regional Quick Notes Team: metering can be introduced, but unless Omer Karasapan, Roby Fields, Najat Yamouri, metering is either region-wide or metered and Aliya Jalloh households are able to pay by volume, the Tel #: (202) 473 8177 benefits of metering will be limited. The MNA Quick Notes are intended to summarize lessons learned from MNA and other Bank To increase revenues, RWAs will need to Knowledge and Learning activities. The Notes do not address household concerns. RWAs can necessarily reflect the views of the World Bank, its increase revenues in two ways, through board or its member countries. improved bill collection and through tariff increases. In either case, RWAs will need to revise the informal and formal contractual November 2009 · Number 14 · 3