Talking to the reigns of energy policy

By Sami Halabi

Lebanon’s Energy Minister Gebran Bassil offers an in-depth look at his new power plan

The Energy Minister tells all in a one-on-one (Photo: Sam Tarling)

Gebran Bassil is the minister of energy and water and the former minister of telecoms. In June, the cabinet unanimously approved Bassil’s five-year plan to reform the energy sector. I sat down with the minister for an exclusive interview to discuss how he plans to deal with the private sector, corruption and political interests.

Q: You are looking for a large investment from the private sector, around $2.3 billion as a start, but how are you going to strike a balance between your commitment to not increasing tariffs for another three years, and asking the private sector to build a number of power installations before that?

The tariff structure will be fixed in a way to serve two targets: first, to relieve the government’s subsidy of the electrical sector, and second, to take into consideration the poor people and productive sectors. Buying electricity from the private sector [independent power providers] has a direct effect on the final cost of providing power [to the consumer], because the cost [of producing power] changes.

It will not affect the private sector because the government will buy the electricity from the private sector for an agreed upon price [which accounts for costs]. This will only constitute 1,500 megawatts out of the 4,000 planned, and will affect the total cost the government pays by 35 percent.

Q: But what about the distribution side? The concessions [private electricity distributors] are saying they want to be service providers but without the ability to change prices, are they going to be willing to make the investments?

The distribution side is not taking a risk and this is not fair. We are not asking them to pay us for the quantity of electricity production. We are asking them to pay us what they are collecting on the end-user side, not on the generation side. This is a major guarantee for them but the state also needs a guarantee that they should pay us what we have been collecting, plus a certain margin, plus an incentive for any margins they would add to us. This should give them enough will to rehabilitate the distribution sector and to speed up the installation of the ‘smart grid’ [which distributes power more efficiently].

Q: Are you asking them to enter into a four-year partnership regardless of the cost structure?

Of course. But this four-year partnership will, later on, allow them to be real partners in the distribution sector. Because later if we decide to sell the network or to license it out, then they will be the most adapted to bid.

Q: So you are looking to annul their concession agreements and move them into service providers. How are you hoping to achieve this?

Yes, we will give [existing concessions] the chance to enter. But there will be other companies that will be willing and they will have to compete. If we can give them enough incentives or a priority, in return they would give up on the concessions. We will see, in a fair way, how we can help them. We are looking to solve a problem that is costing the state a lot of money. We cannot afford it. They are making money, so they can make a little bit less. This situation will not go on as is.

Q: There are a lot of public administrations and politicians that are not paying their bills. You said you would publish their names. Are you going to do this? When is the accountability going to come?

We have already cut the power to 50 percent of them and we made the others pay. This is something that is 90 percent done, we are still closing the file on the other 10 percent because they claimed other rights and protested in front of the courts. Now we have another problem between regions and villages, where in some of them we have a high rate of collection and on others we have a very low one.

In the technical losses we also have a large discrepancy where in some places we have 15 percent losses and in others we have 78 percent. We are trying to achieve a certain level of equality between all regions and people. This will be a real sign of reform and send the right message to the people that they should pay because the state cannot pay anymore. We are asking them to contribute in exchange for relieving them from the private generators.

Q: Unbilled electricity is estimated by some experts at as much as 40 percent of the total. Are you looking to re-enact a principle set by former president Lahoud to allow police to accompany search teams and collectors?

We are approaching it in a quiet way. I know there is a lot to be done and I am following up with judges, the police and everyone involved. Arrears are now paid in installments that reach 72 months. We are facilitating this in order to encourage people to pay their dues. The smartest thing is to have a ‘smart grid’, because this is where you are unbeatable. Now they beat you, and we cannot make the police walk with every collector, it is not possible. In order to have 99 percent efficiency we have to have a system that is controlled by us and not by the consumer.

Q: You have stated that you would like to change Law 462 [the electricity law] in order to accommodate for the new plan, In your opinion what needs to change with regards to Law 462?

This is not the place to specify all the amendments that need to take place. But in principle, do we need to unbundle transmission from distribution? Is it possible in a small country like Lebanon? Are we able to liberalize the distribution sector? In some places we cannot reach more than a 5 percent rate of collection, so how will the private sector come in? There are major strategic questions that need answers.

We will have to look at the law after reading the results of the experience that we will go through during the next four years, where we will see if it is possible to have Electricité du Liban (EDL) as three companies or as one. What is more important is that, as it is now, the law is not applicable. If you want to apply it you have to wait a few years. It’s already been eight years and we have done nothing. The law itself talks of a transition period, so we consider this as the transition period: we work according to the law and amend it, taking what is good from our experience and putting it in the law. We need to give it a high priority because it relates to the future of the sector.

Q: Are you for the creation of an Electricity Regulatory Authority (ERA), as stipulated in the law?

It depends on what are our choices in the sector. If the private sector is involved it would need to be regulated by an ERA. So are we able to appoint it now, then wait two to three years until it has its structure and its bylaws?

Q: You seem like you are describing the Telecom Regulatory Authority now.

We don’t want the same thing to happen. We would be mixed up with two sets of prerogatives and have EDL still working and fixing prices. We need to prepare the ground for the ERA to come in later on and see what it will need in terms of regulation, then we will decide when to launch it. Do you think that anyone can take the decision now to change tariffs?

Q: Well, the Council of Ministers could do it.

Of course. But this is a major political and social decision that you cannot take when you have a sector that is completely paralyzed. You need to bring it up, restructure it, and then you might say ‘this is what we need and this is what we don’t need.’

Q: In your plan you note that many of EDL’s employees are “political appointees and unqualified workers.” Which political parties are you talking about and how are you going to make sure that these parties will not block the corporatization of EDL?

You can never be sure in Lebanon, and you need to be strong enough to forbid them from doing this. It’s much better to have a consensus on the issue just as we had with the plan. Because we cannot be sure, we are not relating everything to the corporatization or unbundling. If someone wants to hinder the process of corporatization, politically they can because it is mostly related to the employees. Once we have all actions moving together, definitely we will have problems and obstacles that stop some, but the other actions will be moving ahead.

Q: If there is political interference, will you move to expose who is responsible by name?

Yes of course. Now I have a plan that is approved and I am accountable for implementing it.

Q: One of the three zoning scenarios you have outlined has caused concern among many people, including the European Union, because it seems to break up the country into sectarian pieces to be split up between the power brokers of Lebanon. Are we planning the sectarianization of electricity in Lebanon?

Is it the job of the EU to determine how we want to distribute electricity? This was based, only, on the electrical distribution that is adopted now in EDL; it has nothing to do with other issues. You have to work based on what you already have. I cannot decompose them and recompose them now.

Q: The fear is that if you use independent power production (IPP) and the large sectarian influences get involved in each area, they will control electricity provisioning to their respective populations.

For me, when I work in a transparent way, I don’t see things in that way. I don’t see a problem once we create a transparent tender for a company to win. If it is politically backed or not; it is not my problem. My problem is to get the best price, and if we don’t get the best price I won’t accept to proceed with IPP.

Q: Why did you forego the option of coal, seeing as it is the cheapest option and it can be cleaned to limit some of its environmental impact?

I did not exclude it. In a sense it can always be adopted if it proves to be possible. First of all, the main pillar of this policy paper is gas, because we will need gas not only for electricity, we will need it later on for industry, transport and domestic use. Once we expand investment on building infrastructure for gas, we will have the power plants working on them as well. It’s complementary. This is what makes the paper not only a policy paper for electricity but also for energy. Gas is not expensive, and it is the least pollutant, which is not the case with coal. Coal has so many complexities in affording the coal and storing it in a country where you don’t have good monitoring on environmental issues. Another issue is that a coal factory is expensive to build and very long term.

Q: What about the potential of local gas, as we have extraction legislation now that is current being considered?

This is another reason we should rely on gas. If we have gas in our seas, let’s take it out and use it. The law will be adopted the way we are presenting it with minor changes. But we will adopt the law and we will stick to two main rules that can be described as political.

First is to have a committee that is under the minister and reports to the minister, who will report to the Council of Ministers. The decisions will be formed technically and transformed politically through institutional means. This will give a guarantee to both the state and the investor that it is a fair, well controlled and monitored process. Secondly, the revenues coming from gas will be put in a sovereign fund to secure its value.

Q: The plan has been approved by the Council of Ministers but parliament has not yet voted on the new laws to be passed. When do you think this will happen?

What we need now is only one law — and we might not even need it — for the production of energy. For this we prepared a small draft. Or we wait for the public-private partnership (PPP) law, which might include this inside it.

First published in Executive Magazine’s August 2010 issue

Liberty on the line

By Sami Halabi

The Lebanese Parliament seeks to strip the people of their rights before granting them their long overdue privileges

Lebanon's lawmakers need to be reminded that now is not the time to take advantage of the people (Photo: AFP)

As most of us head to our beaches and balconies in the hopes of catching a summer breeze and perhaps a much-deserved siesta, our Parliament seems to be bucking the trend, having apparently awoken from its years-long slumber.

The country’s legislative branch, a collection of 128 sectarian officials representing a flawed and arcane electoral process, has been unusually busy of late. The 69-odd draft laws recently thrown at the foot of its door have been picked up by the corresponding committees and subcommittees, which comprise one of our most inefficient branches of government.

With so much work to do, one would think that Parliament would be a bustling hub of deputies and their staff scurrying from one office to another at all hours of night and day. But last April, as an experiment, I decided to knock on the office doors of each of the members of the subcommittee mulling a piece of legislation I was reporting on. Not one of the MPs was present in their offices after lunch, nor were there any staff on hand to receive me.

Eventually, a lonely lingering soldier on guard asked me what I was doing rushing back and forth through the building. After explaining myself he just laughed and said “god help you.”

Considering such utter disinterest in keeping functional working hours, or at least having some staff to do so, it’s a marvel how quickly laws are being put before parliament. This discrepancy would appear to be down to one of two things: either lawmakers have been too indifferent to take a look at proposed legislation, or they have been relying on their respective party’s policy buffs and intend to rubber stamp whatever their party tells them is best — neither of which is going to produce the reform we need.

Take the recent information and communications technology (ICT) law that, thankfully, has been put off for another month. The law, like most of those pending ratification, was intended to bring Lebanon into step with minimum international standards, in this instance relating to payments and accountability in electronic transactions. Instead, the administration and justice committee which oversees proposed legislation, used the opportunity to push a law to the floor that would stem our already limited freedom of expression, by calling for the formation of an authority — subject to a sectarian appointment system for executives — that would have the power to carry out unwarranted searches of any and all electronic information through a “specialized judicial police.”

The fear is that this authority will function as little more than an electronic Stasi, and perhaps unsurprisingly, concerned civil society and private sector actors were not contacted before the law was presented. If they had been, they would have certainly reminded our public officials that government does not just exist to take away people’s freedoms without offering them something in return. It’s no coincidence that the laws being pushed through are of the ‘take’ and not ‘give’ nature. Currently, long awaited and necessary legislation covering freedom of information and whistleblower protection still lies in a drawer somewhere in the quiet halls of Parliament. Taking people’s freedoms away rather than granting them seems to be the priority, before lunch of course.

The ICT law is but one example of the constant and ongoing attempts to curtail the rights that we Lebanese have come to enjoy, in many cases only because governments have either been absent or uninterested in lawmaking. But since the nature of being a public official is to be held accountable by the public, we should not be content with merely electing a Parliament. Perhaps we have become so accustomed to a government in crisis that we have lost sight of the goal of institution building and our inalienable right to question our officials, rather than allowing them to hold closed invitation-only sessions to mull legislation and hide behind layers of opaque sectarian bureaucracy. That age-old habit needs to come to an end.

And now that we have a semi-functioning parliament we cannot, and should not, simply bask in the sun while they run rampant over our rights. Government is not a one-way street, and at this point more ‘give’ and less ‘take’ is in order. The beach may have to wait.

First published in Executive Magazine’s July 2010 issue

Running out of steam

By Sami Halabi

A lack of a unified vision leaves an inter-GCC railway standing in the station

Right now the old Hejaz Railway looks far from being eclipsed as the Middle East's most famous railway

Of the five pillars of Islam, making the pilgrimage to Mecca was perhaps the most testing for those who lived in the time before planes and cars. Each bodily able Muslim who sought to enter heaven would trek through the sands of the Arabian Peninsula by camel caravan, braving the scorching summer sun or the freezing winter nights; from Damascus, this pilgrimage could take two months.  Then, in 1864, at the height of the Ottoman Empire, the Arab world’s Turkish masters proposed a grand idea. A waqf, or sacred Islamic donation, would be opened to all Muslims of the world to fund the Hejaz Railway, which would extend from Damascus to Mecca and allow travelers to make the trip in four days, and for less than 10 percent of the price.  Fast-forward to today, and the thoughts of current Arab rulers are on the same track as their northern predecessors. The Gulf Cooperation Council has decided that they will build a joint railway to link their countries. While the advantages of such a scheme would be enormous, especially in the commercial sense as the project is envisioned to be a cargo route first and a passenger route second, deciding that something should be done and actually doing it are proving to be very different matters.

Hard to decide

Planning for the railway began to gain steam in 2004, when the GCC Technical Committee’s (GCCTC) transport department, the body overseeing the project at the regional level, commissioned a preliminary study carried out by the American firm Parksons Brinkerhoff and the Kuwait-based Global Investment House. The study eventually proposed two routes for the project. The first would have run from Kuwait through Saudi Arabia to Bahrain, connect to Qatar via a new bridge over the water, then reach the United Arab Emirates and Oman. The second route ran from Kuwait to Oman overland and through Saudi Arabia and the Emirates, with a connecting track to Qatar and Bahrain; the latter plan eventually won out.

In February 2007, a consortium led by Systra of France, Khatib and Alami of Lebanon and Canrail of Canada was asked to perform a feasibility study covering topographical and statistical data, integration, financing and development options, legal models, as well as passenger and freight configurations.

The study, described as an “economic feasibility study” by a source who is part of the consortium and spoke on condition of anonymity, did not cover the potential problems that could ensue from the fact that every nation, which would be designing, funding, and implementing their own part of the project, also had the right to change specifications in its own territory.

“It was the case that the design would be done under the supervision of the GCC, but now the countries are seeking to design their own respective projects,” says Ibrahim al-Sbeiteh, director of transport at the GCCTC.

This is not the only issue that has led some to question the project’s feasibility.

“The multiple delays that we are seeing right now in the GCC rail network are probably also due to some liquidity problems that are down to the [financial] crisis,” says Philippe Dauba-Pantanacce, senior economist on the Middle East and North Africa at Standard Chartered investment bank.

The freedom to delay

Unlike the Ottomans, who had the luxury of administrative control over the entire area of the Hejaz, the authority of each country over their segment of track and the fractious nature of GCC decision making has made progress less than steady. Since the feasibility study was completed and approved by the GCC in December 2008, little headway has been made and divisions have begun to appear in other areas.

For example, the Gulf countries have still not implemented the common customs union that was agreed in 2003. Meanwhile, the prospect of a GCC monetary union that has been in the works for more than a decade was dealt a severe blow last year when the UAE decided to pull out, ostensibly angered when the council decided to host the Gulf central bank in Riyadh instead of the Emirates. Oman decided not to commit back in 2006.

“As we have seen in the GCC monetary union project, there are a lot of political hurdles within the GCC that constitute barriers to progress in these projects,” says Dauba-Pantanacce.

So, if track record is anything to go by, the planned completion time of 2017 may be little more than a chimera. The source on the consortium said the current completion date in 2017 would be pushed back. Construction was slated to start this year, but the project is still in the engineering design phase and, according to Zawya, companies are only expected to be prequalified for contracts this September, with detailed design contracts to be awarded in December during the GCC summit in Abu Dhabi.

The devil is in the details

In order for detailed design contracts to be awarded however, each country will still have to decide on the route that the track will take through their respective territories. Except for Saudi Arabia, which has already started its own national railway development, GCC states have yet to define the parameters of their respective railway segments.

A further cause of concern is the status of the world’s longest marine causeway between Bahrain and Qatar, which is jointly funded by both nations. In June, Reuters reported that the 40-kilometer, $3 billion project had been suspended “amid escalating costs and increased political tension,” with a sizable portion of that extra cost due to the decision to fit the causeway with a railway as part of the GCC common rail project.

The report was later denied by the assistant undersecretary for financial affairs at Bahrain’s Ministry of Finance and chairman of the Qatar-Bahrain Causeway Foundation, but such complications do little to inspire confidence.

Diesel or gas: fuelling the divide

Because the railway was envisioned as more of a freight project than a passenger one, the speed and volume at which goods can be moved through countries is of utmost importance to the eventual linkage and completion of the project.

According to the consortium source, the $25 billion estimated cost was based on a diesel powered standard speed across the railway. But the newest proposals by Qatar and Oman to opt for an electric line could throw a spanner in the works and bring the project back to the drawing board.

The shift is significant because of several factors. Despite sitting on some 23 percent of the world’s know gas reserves, the GCC, with the exception of Qatar, is facing a gas shortage due to rising demand primarily associated with power generation. Qatar opting to run an electric train is precisely the kind of wildcard that could see the project’s financial and technical scope become increasingly more complex to implement, not to mention the political tensions such a move would stoke.

“They [GCC nations] will have some difficult tasks to resolve, mainly on the processes, the support, the interoperability, and potentially on investment priorities. Interoperability will be the most important thing to agree on, at the GCC level,” says Ulrich Koegler, partner and member of the leadership team for Booz & Company’s Middle East transport and infrastructure practice.

“If you don’t have interoperability, at the end of the day you have truncated networks,” adds Koegler.

That prospect would also entail some costly fixes in order to accommodate a common network that meshes with individual country needs. Ostensibly, the reason Qatar and Oman need electric trains is because they are more interested than the other countries in the high speed passenger oriented options that such trains offer.

The economic feasibility study which was approved by the GCC was prepared on the basis of a speed of 200 kilometers per hour, which is around about the maximum speed possible with a diesel-powered train. Anything above that will require electric power. And the faster you go, the more you pay.

Speed or strength

The hitch is that ‘double stacking’ — the rail industry term for having two containers stacked on top of each other as opposed to one — is not possible on electric trains. Since the project was only deemed viable because of its economic advantages relating to freight, the use of electric trains throws the entire economic feasibility of the project into question.

Possible solutions to this issue include switching trains and containers at stations, or building separate tracks to accommodate for high-speed electric trains that would be used for passenger transport; the former would add significantly to time spent passing between stations on opposite sides of a border, while the latter would entail considerably higher costs. “The most important thing for us at the GCC project is that the specifications are the same and the timing is agreed upon — that’s all,” says Sbeiteh. “The tendency now is that the GCC line will be diesel with the exception of Oman and Qatar. The Qataris are envisioning that they will need another track for diesel.” The increased expense of the double-track plan could cause total costs to mushroom and threaten the overall scheme’s completion.

“Do we want to first put more money in a common railway system instead of, for instance, diversifying our economy?” asks Standard Chartered’s Dauba-Pantanacce.

Paying for it all

Ultimately, without a concrete cost figure, governments in the region will be hard pressed to allocate large amounts of money to projects that are contingent on others doing the same, though if the regional railway is to work at all, they will have to do just that.

“Rail is a massive investment and you will find very few companies willing to fund it, even if there is a subsidy or [service] availability model over many years because the amount of uncertainly… is transferred to the private sector,” says Fares Saade, principal with Booz & Company and member of their transport, engineering, and services practice.

The liquidity situation is also not homogenous across the region. Saudi Arabia is still flush with liquidity and knows that it will have to put up the lion’s share of the cash, according to Koegler.

Foreign funds

Countries with tighter liquidity conditions, such as the UAE, may consider offers such as the one made in June by the International and Commercial Bank of China, in conjunction with Beijing’s railways ministry, to offer financing, export credit and advisory services to the UAE. It now seems likely that they may use this option, as the UAE National Transport Authority and the Chinese government signed a memorandum of understanding to develop technical and regulatory aspects of the country’s railway in May.

Qatar has also signed a joint venture with Deutsche Bahn International to form the Qatar Railways Development Company (QRDC), which boasts initial capital holdings of $25 billion and constitutes the largest offshore commercial deal for the German railway giant. The Qatari government will own 51 percent of the company through Qatari Diar.

Kuwait seems to be the only country in the region that will opt for public-private partnership (PPP) arrangements, after starting an office to begin tending for such projects, says Koegler. “A rail system will have low or negative returns if you don’t take the socioeconomic benefits into account; and of course private players cannot play on socioeconomic benefits,” he concludes.

Then there is always the option of another waqf, but unlike the Ottoman attempt to fund its rail, this one might carry interest.

“If they don’t finance it through a direct injection of money and they go through issuing bonds, I think that would be creatively the most appropriate way to do it,” says Dauba-Pantanacce. “Having longer-term bonds in line with long-term cash generation projects like a railway is the most sound, recognized and applied methodology that we have seen elsewhere.”

Getting people to use it

Even if the technical, financial and political hurdles are overcome, the challenge of getting people out of their cars and onto the train will be a formidable one. Today, the only piece of mass overland transit in the GCC, the Dubai Metro, is still eerily empty for most of the day.

“There will definitely be a cultural reluctance from the local population to heavily use public transportation to make a long distance trip [of] more than two hours, because they have not been used to that,” predicts Dauba-Pantanacce.

Without the religious allure of the Hejaz railway’s final destination (which it never reached, getting only as far as Medina), a passenger element to the GCC railway will be little more than a convenient ‘add-on’ to the cargo element. But like the Hejaz, time and money will be the defining factor of how successful the project is.

It took the Turks and the rest of the Muslim world 44 years to build their most famous railway. The question is: how long will it take the Arabs to agree to do the same?

First published in Executive Magazine’s July 2010 issue