A group of men push a van that has run out of fuel outside of a gas station. (Credit: João Sousa/L’Orient Today)
BEIRUT — Aiming to tackle fuel shortages, Lebanon’s Energy Ministry issued a decision this week that will allow businesses to purchase unsubsidized diesel imports using their own fresh dollars — a move poised to create a third market for fuel in an already chaotic sector.
While the marketplace for diesel and gasoline had already been in the process of de facto removal of subsidies via the black market, where prices are several times higher than in the subsidized market, the move appears to signal that an official end to the subsidy regime is gaining momentum, despite the government’s recent decision to subsidize fuel imports at the exchange rate of LL8,000 to the US dollar.
The rate was declared as a compromise measure after the central bank announced an end to fuel subsidies, causing panic among consumers.
Diesel will be sold for industrial needs and “economic sectors” at a maximum price of $540 per kiloliter, in addition to a LL112,000 transportation charge per kiloliter, the ministry’s decision, issued Monday, says. The decision became effective as of Tuesday.
The head of the Federation of Tourism Syndicates and the Syndicate of Hotel Owners, Pierre Achkar, announced Wednesday that, following an agreement with the Ministry of Water and Energy, hotels would be able to avail themselves of this decision, allowing them purchase unsubsidized diesel.
Achkar could not be reached for comment. A memo circulated to members of the syndicate, a copy of which was obtained by L’Orient Today, indicates that hotels may participate by writing to the syndicate with the amount of diesel needed and paying for the quantity in advance in fresh dollars.
George Fayyad, head of the oil importers syndicate, told L’Orient Today his understanding was that such arrangements could be made between companies without the involvement of the Ministry of Energy and that the new price structure would extend to businesses beyond the industrial sector.
“Any economic sector can request to buy non-subsidized diesel from the companies that are importing such products,” he said.
In response to a question about whether allowing companies to import at the market rate by agreement with an importer constitutes a de facto liberalization of the market, a ministry spokesperson said, “Everybody knows that we will arrive to the liberalization of the market within [a] few weeks.”
Jean Tawile, an economist who served as an adviser under former Economy Minister Alain Hakim, warned that creating parallel subsidized and unsubsidized markets heightens the risks of cronyism and favoritism, since businesses will maneuver politically to be among those getting the cheaper, subsidized fuel.
“The Ministry of Energy has proved that they are not able to control the market,” he said. “People who want to get the diesel at a subsidized rate will have to go back to the political class, and this opens the door for clientelism and nepotism and privileges.”
There is also a risk that some importers could import subsidized fuel, but then illegally sell it to businesses for fresh dollars, earning exorbitant profits at the expense of the central bank’s shrinking dollar reserves.
Staff writer Omar Tamo contributed to this report.