Walid Fayad appointed Energy Minister in the new Mikati government

Prime Minister Najib Mikati announced his cabinet lineup on September 10 after a 13-month deadlock.

The cabinet is the result of a delicate balance of power between the major political forces. It is confronted with a herculean task: addressing the severe financial and economic crisis the country is facing, amid a stubborn pandemic and following an explosion that destroyed much of the Beirut Port and the surrounding area.

Yet, the cabinet was formed, after months of negotiations, with the various actors prioritizing shares and seeking influence within the government over any other consideration. All sides have their eyes on two important milestones: a parliamentary election in spring 2022, and a presidential election by fall 2022, none of which is certain to be held on time. These considerations mean that the government will struggle to secure political consensus for reforms, particularly as we get closer to elections. The government will aim to do the minimum required to unlock funds, and will probably be most productive in the first few months of its lifespan.

The government’s priority is to contain the economic meltdown. Soon after presenting his cabinet lineup, PM Mikati announced that he will seek to restart talks with the International Monetary Fund and other international partners to unlock foreign aid.

Once again, the Ministry of Energy and Water is the focus of all attention given the burden it places on the state’s budget and the economy. Walid Fayad will lead the ministry. He was appointed as part of President Michel Aoun’s share in the cabinet, the same political side that has been at the helm of the Ministry of Energy and Water since 2009, thereby ensuring a certain level of continuity. But, unlike his predecessors, Fayad does not hail from the Ministry, and may need some time to get acquainted with its staff and projects.

Fayad’s top priority will be the power sector. The needed reforms to unlock foreign aid are well-known, but political will has long lacked, as the needed measures could disturb a web of interests that has flourished over the past three decades. Lebanon’s default on its foreign debt payment in March 2020 has hindered the ability to close or pursue the tenders planned by the Ministry, and dollar shortages have restricted imports, including fuel, leading to severe power outages. Iraqi fuel offers a breathing space, but Fayad will be expected to bring in sustainable solutions. In the coming weeks, he will pursue talks initiated by his predecessor to allow the import of Egyptian gas via the Arab Gas Pipeline to feed the Deir Ammar power plant, another move that offers respite but does not bring a comprehensive solution to the crisis that the sector is facing.

Fayad will also look to breathe new life into the oil and gas sector. Over the coming weeks and months, a decision will have to be made regarding a potential resumption of the second offshore licensing round. When the tender was postponed in May 2020, it was announced that a new date for the submission of applications would be set by the end of this year. Clarifications should also be sought from the Total-led consortium, which holds exploration and production licenses for blocks 4 and 9, over its program in the coming year, knowing that the first exploration period for both blocks has been extended until August 2022. In particular, Total is expected to conduct a second exploratory drilling, this time in Block 9, a small part of which is claimed by Israel. Although the area Total is interested in lies in the northern part of the block, the maritime border dispute raises the uncertainties surrounding the operation.

The rest of this report – including a profile of the new Minister and an overview of the Ministry’s main projects in the coming period – is reserved for our clients.

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