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Lebanon approves extra-budgetary fuel spending to avert blackouts

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BEIRUT (Reuters) – Lebanon’s parliament on Monday approved over $400 million (£311.3 million) in extra-budgetary spending on power station fuel, avoiding a new electricity supply crisis but adding to a gaping budget deficit.

With no sign of a final deal to form a national unity government led by Prime Minister-designate Saad al-Hariri six months after elections, parliament began a two-day legislative session on Monday to process urgent laws.

Last week Algerian oil company Sonatrach agreed to unload fuel needed to avoid more power cuts on the promise that parliament would meet this week and authorise payment from the finance ministry.

Finance Minister Hassan Ali Khalil had said he was unwilling to implement extra-budgetary spending without parliamentary approval.

Lebanon has the world’s third largest public debt as a proportion of the economy and stagnant growth. It is in dire need of a government able to make economic reforms – including to the power sector – that are seen as more pressing than ever.

Khalil said subsidised state power provider Electricite du Liban (EDL) needed an extra 642 billion Lebanese pounds ($430 million/331.4 million) above the 2,100 billion allocated in the 2018 budget to cover fuel needs for the rest of the year.

Lebanon has suffered chronic daily power shortages of between three and 18 hours since the end of the civil war in 1990. Those that can afford to, pay for costly and polluting private sector generators to fill the supply gaps.

An EDL source on Monday said the fuel had been unloaded.

Before the deal with Sonatach was reached, EDL had begun reducing power production and had said it would have to gradually shut down power plants if a payment solution was not found.

The number one task facing a new Lebanese government is to reduce the twin budget and current account deficits and tackle the country’s rising debt, which the World Bank estimates will be around 155 percent of GDP by end-2018.

The first step on this path should be reforming the electricity sector, the World Bank says, describing EDL subsidies as a “staggering burden” on national finances.

Last year the government spent $1.3 billion on EDL – 13 percent of primary expenditure.

At a meeting of international donors in April in Paris, where more than $11 billion of investment was pledged in return for reforms, Hariri promised to reduce the budget deficit as a percentage of GDP by five percent over five years.

(Reporting by Lisa Barrington, Editing by William Maclean)

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