Lebanon's petrol stations close amid subsidy cut row

Fuel prices will increase fivefold when cut comes into effect

Lebanon’s Central Bank governor has refused to back down from a decision to drastically cut fuel subsidies, despite the country’s prime minister calling the move illegal.

Central Bank governor Riyad Salameh was summoned to meet Lebanese President Michel Aoun on Thursday afternoon after announcing in a statement late on Wednesday that fuel imports would no longer be subsidised at the rate of 3,900 Lebanese pounds to the dollar.

The Lebanese pound traded at more than 20,000 to the dollar on the black market early on Thursday.

In the statement, Mr Salameh, the long-running governor of the Banque du Liban, said that dwindling foreign currency reserves meant the bank could no longer afford to provide lines of credit to fuel importers at a heavily subsidised rate. Instead, lines of credit would be offered at the day’s market value – meaning a fivefold increase in the cost of a tank of fuel.

The price increase will leave many in Lebanon unable to afford a tank of petrol.

Yet his summons to the Baabda palace to meet President Aoun failed to force a U-turn, despite Mr Salame reportedly being warned that he would bear responsibility for the repercussions of the subsidy cuts.

The announcement prompted hundreds of petrol stations across the country to close, leaving many motorists unable to fill their tanks, and making an ongoing fuel crisis even more acute.

Julien Gharib, who manages a petrol station in the Doura neighbourhood of Beirut – one of the few stations to remain open – said that his competitors were holding off selling their fuel until the increase came into play.

“Why would you sell it today when you can sell it tomorrow or the day after at five times the price? There has been zero communication from the central bank with providers like me, we don’t know what is happening, only from the news – like everyone else."

In the glare of the afternoon sun, Mr Gharib, an engineer by trade, was forced to turn away dozens of angry motorists who had spent hours searching for one of the few open petrol stations. He had no answer for when or how the crisis might be alleviated.

“This crisis will go on, with our without, subsidies,” he told The National.

The decision to lift fuel subsidies has been on the cards for months, although its announcement prompted angry responses, with protesters storming one of the country’s main power plants in Zahrani late on Wednesday, while dozens of major roads across the country were blocked on by angry motorists on Thursday.

Caretaker prime minister Hassan Diab described the cut as illegal and called for an emergency Cabinet meeting on Thursday.

He said: "The governor of the Banque du Liban has taken the decision to lift subsidies, which is against the law, and also does not take into account the reality of the deep living and social crisis.”

The Cabinet meeting, which Mr Diab attended online because this week he came in contact with someone with Covid-19, agreed to look at new legislation that would allow Mr Salame and the central bank to reduce the bank’s mandatory reserves of foreign currency to maintain the subsidies.

The Central Bank said it had spent more than $800 million on fuel in the past months, and its overall reserves are believed to have dropped into the mid-teens since a financial and economic crisis blighted the country in October 2019.

The state has so far been unable to significantly reduce its subsidies bill – which extends to food, medicine, and fuel and costs about $6 billion a year, half of which is spent on fuel.

Banque du Liban said new fuel prices would be set by Minister of Energy Raymond Ghajjar.

Lebanon previously maintained some of the lowest fuel prices in the world, thanks to a generous subsidy programme based on foreign currency reserves. An economic and political crisis in the country, however, has caused those reserves to dwindle since 2019.

Chronic fuel shortages have plagued the country in recent months, with long queues at petrol stations a common sight.

Power supply in much of the country is limited to two or three hours a day.

Updated: August 13th 2021, 7:14 AM
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