Lebanon’s gas monopoly

Five companies dominate the gas market in Lebanon (Photo: Marwan Tahtah)

By: Mouhamad Wehbe

Published Tuesday, March 4, 2014

Security concerns now largely determine the behavior of Lebanese citizens and the authorities. However, thanks to the latter’s sectarian and factional composition perhaps, Lebanon has a corrupt economy with monopolies in many sectors, weakening the immunity of institutions to risk, be it economic or security in nature.

“You have to shut down, no discussion. Empty your inventory and by Monday, no employee can enter the premises.” This is what Minister of Interior Nuhad al-Machnouk told workers in Sidaco, and minutes later, to those in charge at Moussali, both major distributors of gas canisters based in Bir Hassan in Beirut’s southern suburbs.

The closure of the two gas distribution centers will have huge implications on the market. But more importantly, it exposes a deeper problem in a country where the state allows the monopoly of basic commodities and sees it as an ordinary affair.

Minister Machnouk visited the two gas storage and distribution companies in Bir Hassan, not to discuss his decision with the workers there, but to notify them of the agreement he made with the owners, including MP Walid Jumblatt, to shutdown both companies. It appears that Machnouk had told Jumblatt, who controls a major stake in Sidaco, that there is a credible security threat to both gas plants in Bir Hassan, “so Jumblatt did not mind agreeing to the decision [to shut down],” according to Jamal Aoun, director of marketing at Sidaco.

However, addressing security concerns with closures will have disastrous repercussions for the company, which employs 130 people, according to Aoun. He said, “If we shutdown, this means that more than 60 workers at the company will be redundant.”

Aoun added, “Around 80 employees have outstanding loans, and three of them have been diagnosed with cancer…what are we going to do with them in this situation?”

This is not the end of the story, but perhaps only the beginning. There are reports that a third company based in the southern suburbs will also be told to shut down. The decision was taken about 10 days ago, and came into effect on Monday, the gap being the period of time given to the companies to dispense of their stored supplies, according to Aoun.

The mayor of Ghobeiry notified the management of the two companies of the decision nearly a week ago. This decision is supposed to be temporary, but the management in both companies do not know how long the decision will remain in effect.

Ghobairy Mayor Mohammed Said al-Khansa said, “Based on the instructions of the Ministry of Interior, I contacted the two companies and told them there were security threats involving them. I asked them to stop importing gas and to empty their stock.”

Khansa stressed that he was aware of the economic interests at stake and that he appreciated the companies’ circumstances, but said, “Can we not make some sacrifices for the public good? This is an exceptional situation, and neither one of the companies can bear the consequences of any terrorist act close to the gas tanks.”

However, the talk about security concerns riles Aoun, who said, “The Saudi ambassador left Lebanon when he felt there was a threat. So why doesn’t the Iranian ambassador leave the area?” The director of marketing at Sidaco continued, “We built a concrete wall with a thickness of 70 cm, and we have a large tank with a hollowness of 8 cm protecting the main gas tank. We have taken additional measures to limit retail sales to individuals, and now, only distribution agents – who number 37 – are allowed into the premises,” he added.

Following the decision in question, Beirut and its southern suburbs now have to rely on a single source for its gas supplies, the supplier based in the Choueifat region. True, gas distributors can get supplies from farther regions like Dora, Jiyyeh, and Naameh, but according to insiders in the gas market, this will not be without an additional cost.

The insiders say that distributors could engage in more fraud in bottling gas cylinders to take advantage of the situation and increase their profits. This is particularly plausible since the distributors cannot increase prices, as the Ministry of Energy sets these; therefore, the distributors could compensate for the additional transportation cost through fraud.

Already, some distribution agents sell bottles that they claim to weigh 10.5 kilograms of pure gas, that is, without the weight of the empty bottle, when in reality contaminants in some bottles may weigh up to 2 kilograms.

This does not mean that fraud by distribution agents, which is practiced in collusion with some gas suppliers, will end if the two (or three) companies in question resume operations. Other companies could also take advantage of the chaos to do the same. Indeed, there are 76 distribution companies in the market, most of them operating without a license or any oversight related to standards and specifications for filling gas canister.

Lebanon's major gas companies

In light of what has happened, and what is expected to happen in the gas market in Lebanon, many questions have been raised regarding this market and the fate of the major players in it. First, why are as many as three gas distributors concentrated in Beirut and the southern suburbs? Why did Walid Jumblatt readily agree to shut down the gas company? Do these companies intend to, or can they indeed, open branches elsewhere?

Any answers to these questions should not overlook the nature and composition of the local gas market, which is the product of the Lebanese sectarian, classist, and corrupt system that places a basic commodity like gas in the hands of a single entity.

The entity in question is Naftomar, a company owned by Talal Zein. Naftomar is nearly the sole supplier of domestic gas in Lebanon, accounting for no less than 95 percent of domestic consumption.

According to the data available, Naftomar supplies gas to a conglomerate of five major companies in Lebanon, which are: Medco, United, al-Sharq Gas, Cogeco, and Uniterminals. The five companies, led by al-Sharq Gas and owned by former Minister Naameh Tohme- Walid Jumblatt’s business partner – monopolizes gas in Lebanon and together own all gas storage facilities on the Lebanese coast. This makes them the only companies with the capability to store large volumes of gas in the country.

The gas conglomerate is also in the business of re-exporting gas to Syria, a particularly lucrative business these days. In Lebanon, this conglomerate stores gas and distributes it to the 76 distribution companies in Lebanon, which have only small tanks that can accommodate up to 40 to 50 tons of gas – compared to 25 thousand tons for the tanks along the coast.

It seems that it is forbidden to anyone to enter the gas sector and compete with the existing monopoly. In the past, Michel al-Khawwam tried to do exactly this, triggering a price war that drove al-Khawam to bankruptcy. Ultimately, he had to sell his tanks to the conglomerate.

Lebanon’s state-owned oil installations also tried their luck, but the political authorities did not help them compete with the gas tycoons in the Middle East. The Lebanese government refused to impose quotas for imported gas on the conglomerate and have a quota for itself and its oil installations to cover a specific proportion of domestic consumption.

To put it simply, it is forbidden for anyone to enter the gas import and distribution sector and threaten the existing monopoly.

This article is an edited translation from the Arabic Edition.

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