Jordan's Energy Policy Key to Its Economy

Al Zaatari Refugee Camp in September 2013. (Photo: Bidna Capoeira)

The crisis in Syria and the challenges of a changing Egypt continue to drive Jordan's politics and economics related to energy. Jordan is a flambeau of stability in a turbulentregion, but repeated and extensive disruptions to natural gas deliveries from Egypt due to the damage of the Sinai pipelineas well as the continuing flow of Syrian refugees have pushed Jordan to the verge of a financial crisis. These factors have compelled the kingdom to use more expensive fuel to maintain domestic energy supplies, and have complicated the roadmap for economic development.

Rising energy consumption coupled with decreasing security of energy supply, alongside the Syrian refugee crisis, have impacted Jordan's annual budgets and broader development goals. Pressure has increased on scarce national resources, especially with the influx of Syrians, who need electricity and gas, commodities considered as basic needs. According to official estimates, subsidy allocations are expected to rise to $1.79 billion for electricity and $180 million for household gas annually.

Additional pressures on energy systems are expected in coming years. As result of the Syrian crisis, Jordan's national resilience plan for 2014-2016 foresees an additional power demand in cities with an estimated capital investment of $337.5 million. New electricity power allocations valued at $14 million in capital costs and $5.6 million per month in operational costs are predicted for the Zaatari refugee camp. For expanding access to water in the camp, which sits over Jordan's largest aquifer, there is demand to power two artesian wells that have already been drilled, under a monthly operational cost of $122,000. To avert power shortages on a national level, the need for additional capacity for electricity in 2013 led Samra Electric Power company to set up a gas turbine with an installed capacity of 146 MW at an estimated cost of $110 million.

Jordan's economy has been hit hard by exogenous shocks that have adversely affected energy and foreign direct investment, thus widening the budget deficit and slowing growth. For the return of fiscal and energy policies to a sustainable path, with simultaneous protection against additional shocks, Jordan has exercised a multi-fold policy in coordination with international institutions and allies. Jordan pledged for financial assistance from the IMF under a 36-month Stand-by Arrangement (SBA), which provides liquidity of $2 billion between 2012 and 2015 and supports a socially acceptable fiscal consolidation. Under the IMF program, to achieve energy pricing reform and liberalization of the entire energy sector, the kingdom minimized fuel subsidies, raised electricity prices for industrial consumers and began raising power prices for households through a phased program. Concurrent measures, however, were taken to protect low- and medium-income households with the raise of public-sector wages and pensions, while low-income earners in the private sector received a separate compensation scheme.

The United States stood solidly behind Jordan's efforts to weather the Syrian crisis and its negative impact on fiscal and energy policies. Last year the U.S. Congress approved a $1.25 billion loan guarantee for Jordan, and is expected to authorize an additional $1 billion in loan guarantees for 2014. Under a loan guarantee, the United States essentially acts like a co-signer on loans, and would be responsible for repaying the principal and interest should Jordan default. Overall, the traditional annual supplemental funding, the cost of the loan guarantees and U.S. funding to the kingdom for 2013-2014 will reach nearly $2 billion, which translates into a 3 percent spur in per-capita GDP.

Signs of recovery appeared in 2013, with a 20 percent rise in investment, improved confidence in the currency, a near doubling of reserves to $12 billion in one year alone and a revival of exports. Jordan's economic growth rate is expected to climb to 5 percent in 2016 from an estimated 3 percent for 2014. The budget deficit is expected to be slashed to 4 percent of GDP in 2014 from 8 percent since 2011, excluding foreign aid. Enforced economic policies aim to reduce the public debt to a manageable 60 percent of GDP, equivalent to Jordan's level before the 2011 crisis, which elevated debt to the current level of 75 percent. 

Jordan's case shows the importance of applying structural reforms with the support of international institutions and major allies. The kingdom's objective to increase energy security and diversify energy resources, as envisaged in the 2013 National Efficiency Action Plan, focuses on the expansion of renewable energy from 1 percent of the energy mix in 2010 to 10 percent by 2020, with 20 percent energy efficiency expansion by 2020. Renewable energy options will support solar lighting solutions, thus minimizing electricity operational costs. For the period 2014-2016, the plan calls for deployment of 38,000 solar water heaters in residences, 3 million energy-efficient lights in buildings and the construction of a 10MW solar facility.

A liquefied natural gas terminal will be constructed in Aqaba that will reduce dependency on gas supplies from Egypt and reduce the costs of electricity generation starting in 2015. The construction of modern conventional generation plants is being fast-tracked. Jordan aims not only to alleviate economic pressures from the growing domestic energy consumption, but also to become a major energy transit hub between the region and Africa. Jordan recently signed a deal with Egypt and Iraq to extend an oil pipeline from Iraq's Basra to Egypt via Jordan's Aqaba. Egypt is allegedly prepared to receive Iraqi oil at its refineries and facilitate exports to Sudan and other African countries. Under the agreement, an additional pipeline will be built to connect the under-construction LNG terminal in Aqaba with the Arab Gas Pipeline that stretches from El Arish in Egypt to the north of Jordan and continues through Syria to Lebanon. The pipeline willtransfer gas to power-generation plants in Jordan along the pipelineas early as 2015.

On a separate deal with Iraq, the existent pipeline linking the two countries is projected to export 2.25 million barrels of Iraqi oil per day through Jordan, thus generating $2 billion to $3 billion per year in revenues for the kingdom, while Iraq is committed toprovide Jordan with oil at preferential prices. Additionally, Noble Energy, a heavy U.S. investor in Israel's fields, signed a contract worth $500 million to supply 66 billion cubic feet of gas from Israel's Tamar field to Jordan's Arab Potash and its affiliate Jordan Bromine. The sale of Israeli gas to Jordan falls within the kingdom's broad strategy for transformational change in energy supply, including the diversification of liquefied natural gas imports from alternative sources in the region. 

Undoubtedly, energy can serve as game changer, at the nexus of economics and geopolitics. Jordan's pursuit of economic reforms and energy security present a major challenge. But with the challenge comes an opportunity that could lead to a better future for the kingdom's people and its coming generations.

View the Worldpress Desk’s profile for Antonia Dimou.