Hezbollah, ally embroiled in Lebanon’s ‘defective fuel’ scandal as electricity fails

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Hezbollah and its Free Patriotic Movement (FPM) allies have become embroiled in a “defective fuel” scandal in Lebanon, despite the two parties initially promoting the case to try and deflect blame for their failure to bring 24/7 electricity to the country.

Lebanon’s defective fuel scandal began with allegations that bribes and gifts were accepted to unload inadequate fuel delivered by Algerian state-owned company Sonatrach, but has quickly turned into a political scandal as parties accuse each other for their involvement.

Central to the scandal are the FPM and Hezbollah, who have for more than a decade controlled Lebanon’s Ministry of Energy and Water, which still fails to provide 24-hour power to citizens.

Read more: Daily power cuts, expensive generators: Electricity plays into Lebanon protests

On March 25, a fuel shipment arrived in Lebanon from Sonatrach that was refused after it appeared the fuel did not meet the criteria stipulated in the contract.

Shortly after, an FPM-aligned lawyer filed a complaint with the Lebanese judiciary, launching an investigation. The lawyer, Wadih Akl, is a member of the FPM Political Bureau, according to his Twitter account. As of now, 12 people, including government officials from the energy ministry, have been charged.

The logo of the state energy company Sonatrach is pictured at the headquarters in Algiers, Algeria November 20, 2019. (Reuters)
The logo of the state energy company Sonatrach is pictured at the headquarters in Algiers, Algeria November 20, 2019. (Reuters)

The FPM, which says it exposed the case, has long controlled the energy ministry, and questions have been raised as to how those high up in the ministry were unaware of the gifts and bribes.

Hezbollah, whose minister signed the original contract for the fuel, is attempting to use oil companies as the scapegoat for institutional failures, according to several MPs and political sources who spoke to Al Arabiya English.

Former Prime Minister Saad Hariri said that Hezbollah was supporting Bassil’s latest attempts to place the blame for his failures on others. Late last month, Hariri said that it was Bassil who racked up $42 billion in losses for the state in the electricity sector during the FPM’s control of the ministry.

Read more: Coronavirus: The US will not fund Lebanon's Hezbollah-run hospitals, says official

The case dates back to a contract signed between Lebanon’s government and Sonatrach in 2005 to import fuel to generate electricity beginning in 2006, under then Energy Minister Mohamed Fneish, a Hezbollah minister.

Lebanon’s ramshackle electricity sector continues to drain the country’s annual budget deficit of an estimated $1.2-$1.8 billion, while still utilizing diesel fuel oil – which is more costly and environmentally harsh than other energy sources – for its power plants. In some areas, state-run power only provides a few hours of electricity today, and citizens are forced to rely on costly generators to make up the rest.

The contract, withheld from the public for years under a provision saying it was not to be released, recently was leaked and local outlet Lebanon 24 reported on the contract, which lays out specifications, the level at which fuel will be accepted and rejected, and the method of testing.

Sonatrach and ZR Energy

Despite the FPM’s attempts to take credit for the investigation into the scandal, a second company headed by Teddy Rahmeh – who is reportedly close with the FPM’s Bassil – has also been charged in connection with the scandal.

Rahmeh, who denies allegations he is close to Bassil, runs ZR Energy.

ZR Energy SAL Holding (ZR Energy) is 50 percent owned by ZR Group, founded by Teddy and Raymond Rahmeh in Lebanon in 2005, according to the country’s commercial registry.

A statement provided by ZR Group to Al Arabiya English said that “There are no contracts between ZR Group and the Lebanese government, and there never have been. ZR Energy SAL’s main commercial activity is the distribution of diesel for residential sectors in the north of Lebanon.”

Judge Ghada Aoun – who Wadih Akl has filed multiple cases to, including complaints over social media posts critical of FPM leader Gebran Bassil – has charged ZR Energy in connection with the scandal, and authorities raided the offices of ZR Group on May 2. ZR Energy won a contract in December 2019 to supply 150,000 tons of fuel on an emergency basis.

Teddy Rahmeh has failed to appear for questioning, despite the issuance of an arrest warrant in his name, while Ibrahim Zaouk, ZR Energy’s CEO, has likewise been issued with an arrest warrant.

Zaouk is also connected to a Dubai-based company, ZR Energy DMCC.

Lebanon's ZR Group has issued an announcement noting that while the ZR Group offices were raided, the Dubai-based firm is wholly separate from the group, noting that company is “fully owned by Mr. Ibrahim Zaouk.”

ZR Energy DMCC issued a statement, declaring that the former company has no contractual relationship with the Lebanese government concerning the provision of fuel oil.

In response to request for comment, ZR Group stressed that ZR Energy DMCC is a separate entity and that ZR Group does not have any political affiliation with the Lebanese government.

“The company has commercial and business relationships– such as the exchange of expertise – with numerous companies, one of which is ZR Energy DMCC,” the statement given to Al Arabiya English said.

In the statement, released on its website, ZR Energy DMCC says the company has supplied Sonatrach, in connection with “Sonatrach’s government-to-government agreement with the Lebanese Ministry of Energy and Water since 2018.” Sonatrach has been providing fuel since 2005 on a three-year renewable contract basis, with the next renewal set for December this year.

“ZR Energy DMCC takes no responsibility for the fuel cargo that was proven to be off specification upon discharge at the Lebanese ports,” the statement read.

Testing company Bureau Veritas “acted as an independent third party,” issuing a certificate of quality following the loading of fuel at the port of Augusta Italy, it added.

This process confirms “that throughout the time ZR Energy DMCC handled the cargo, it was on-specification,” the statement alleges.

Following the delivery of the flawed fuel, Sonatrach has backtracked, ZR Energy DMCC said.

“It is ZR Energy DMCC’s understanding that, as a gesture of good faith, Sonatrach has acknowledged the defective cargo and offered to replace the cargo at no cost to the Lebanese government,” ZR Energy’s statement said.

However, this offer only applies to the most recent shipment, a source told Al Arabiya English.

“Therefore, ZR Energy DMCC has taken steps to suspend its contractual relationship with the original seller of the cargo until further tests can prove that the quality of the cargo from source was to the specification required, and is considering all options, including launching legal proceedings against such original seller,” the statement on ZR Energy’s website said.

On Wednesday, Algeria said it would begin an investigation into the matter.

“The issue of Sonatrach’s involvement in financing a commercial deal with Lebanon is primarily a Lebanese problem,” said a spokesperson for the Algerian president according to Algerian media reports.

Fuel scandal becomes political

The case has now seen over 12 people, including government officials that work under the Energy Ministry, charged over the latest fuel shipment. Fneish and Nada Boustani, the FPM-appointed energy minister in the last government, both appeared for questioning. Boustani was also a longtime adviser in the ministry dating back to 2009, when FPM leader Gebran Bassil was the energy minister.

AFP reported that warrants had also been issued for general manager of the Lebanese Electricity Company Kamal Hayek for negligence of duty. The ministry’s chief of oil installations, Sarkis Hlaiss, and director of oil, Aurore Feghaly were charged for bribes and negligence of duty. Sonatrach’s Tarek Fawal was also issued an arrest warrant, as were lab workers who allegedly provided false reports on fuel samples.

This Monday, July 16, 2018, photo shows Mamdouh al-Amari oiling privately-owned diesel generators that provide power to homes and businesses, in the southern suburbs of Beirut, Lebanon. (AP)
This Monday, July 16, 2018, photo shows Mamdouh al-Amari oiling privately-owned diesel generators that provide power to homes and businesses, in the southern suburbs of Beirut, Lebanon. (AP)

For her part, Boustani, who now says she is a “Free Patriotic Movement Activist,” noted that it was the FPM who exposed the defective fuel case. She claimed that when she was at the ministry, she never received information or test results that said the imported fuel did not meet the necessary criteria.

Hlaiss was staunchly defended in a press conference by Sleiman Frangieh, the head of a former Christian militia. Although Frangieh and Bassil are both pro-Syria and pro-Hezbollah, the former is seen as a threat to Bassil’s ambition to succeed his father-in-law and Lebanese president, Michel Aoun.

Aoun beat Frangieh in the 2016 presidential elections after Hezbollah, the Lebanese Forces, Future Movement, and Amal Movement reached an agreement to elect Aoun, despite the constant political bickering between the political parties.

Frangieh lambasted Bassil and Aoun’s presidential term, holding them accountable for the decrepit situation Lebanon has reached.

Frangieh also said Hlaiss would appear in front of the judiciary, but not “Gebran Bassil’s” court, in reference to Ghada Aoun. Frangieh called the lawsuit “politically motivated.” It is unclear how much impact the latest developments will have on Frangieh’s relationship with Hezbollah.

In ZR Group's statement to Al Arabiya English, the company said that Frangieh and the Rahmeh brothers have been friends since 1989.

The group added “an on the record quote from Ruwan Al-Rejoleh, the founder and CEO of a geopolitical advirosy firm and a former analyst at the Tony Blair Institute.”

“Hezbollah, the Free Patriotic Movement, and their allies in Iran, are coming under significant pressure to deal with anger and resent [sic] on the streets of Lebanon… Hezbollah and the Free Patriotic Movement have a history of fabricating acts of corruption to avoid facing up to the fact that the real problem in Lebanon is Hezbollah," the statement quoted Al-Rejoleh as saying.

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