Lebanon's gas contract with Egypt awaits US approval

Washington must determine whether scheduled deal breaches sanctions against Syria

Lebanon's Energy Minister Walid Fayad, left, speaks with Syria's Electricity Minister Ghassan Al Zamil during the signing ceremony for deals to bring electricity from Jordan to Lebanon through Syria in Beirut on January 26, 2022. APShow less

Lebanon is scheduled to sign a deal with Egypt in Beirut on Tuesday to import gas for electricity generation but the contract needs to be examined by the US Treasury to determine whether it breaches sanctions before Cairo opens the taps.

The 10-year contract is part of a US-backed arrangement to supply electricity to power-starved Lebanon. The deal with Egypt, which is expected to allow Lebanon to generate four more hours of electricity a day, is due to be followed in the near future by a second contract to purchase electricity from Jordan.

But US sanctions on Syria, with whom Lebanon shares its only open land border, have complicated the deal.

Anyone working with Syria is subject to US sanctions under the Caesar Act, enacted in 2019 in an attempt to force Syrian President Bashar Al Assad to find a political solution to his country’s 11-year-long civil war.

“The US special energy envoy asked the Lebanese Energy Ministry to finalise the details of the contract so that it can decide on a sanctions waiver,” said Marc Ayoub, an energy policy researcher at the American University of Beirut’s Issam Fares Institute for Public Policy and International Affairs.

Mr Ayoub was referring to statements made by US global energy envoy Amos Hochstein during his recent two-day visit to Beirut.

“We've given pre-approval for the project and as soon as Egypt and Lebanon can agree on the terms, which hasn't happened yet, then we can evaluate the project” for compliance with the sanctions regime, Mr Hochstein said on Wednesday in an interview with US-based Al Hurra TV.

Assuming the deal is in compliance, “then I believe we will be in a place where we can say it doesn't violate the Caesar sanctions and have the gas finally flow”, he said.

An employee at the commercial office of the Egyptian embassy in Beirut said they were unable to confirm plans for the signing of the deal.

Lebanon’s Energy Minister Walid Fayad did not answer a request for comment. In a policy statement released in March, the ministry said Egypt would export 650 million cubic metres of gas a year to Lebanon.

The gas will not flow directly between the two countries.

Mr Fayad previously told The National that he expects Egypt to send the gas to Syria, which will distribute it internally and then export gas from its own fields to Lebanon.

Syria will send to Lebanon slightly less gas than it receives as a form of in-kind payment. Direct cash payments to Damascus may trigger US sanctions.

Three years into Lebanon’s worst-ever economic crisis, the state-run supplier Electricite du Liban (EDL) currently provides only about two hours of power a day.

Gas imports from Egypt are expected to be financed by a World Bank loan worth $300 million. The bank has reportedly attached stringent conditions to the loan’s disbursement, including a highly unpopular increase of EDL's tariffs, which have been frozen since 1994, and an audit of the utility.

The National reported last week that an auditor was appointed but will not start working before the World Bank and Lebanon agree on the loan.

The gas deal between Lebanon and Egypt is not expected to be enacted immediately after the signing ceremony. It remains unclear how much time the US Treasury needs to examine the contract.

“Signing the agreement with Egypt doesn’t mean anything. It’s buying time,” said Mr Ayoub.

Mr Fayad signed a deal in January with Jordan for electricity exports via Syria equivalent to 200MW but little has moved forward since.

The minister — as well as his predecessor — has been working on purchasing gas from Egypt and electricity from Jordan since last summer.

In an attempt to explain delays in the contract's implementation, Mr Fayad said on Tuesday that they occurred “due to financing from the World Bank”.

“The World Bank had said that they would enter negotiations about financing at the same time as we negotiated the contract’s signature,” he said.

“The World Bank then changed [its position] and said that we need to decide on the contract before we talk about financing.”

Mr Fayad said in April that the World Bank was “still studying the political feasibility of the project”.

A World Bank representative did not answer a request for comment.