Hariri and Khalife have a laugh at our expense (Photo: AP/Bilal Hussein)
It is often between the headlines, rather than the headlines themselves, that the essence of conflict resides. As any seasoned observer of Lebanon knows, the country’s media outlets will tug at either side until they have sufficiently stretched the people’s patience so thin that they can be scared into submission and again accept the age old constructs of sectarianism, patronage and a non-functioning state as the only way to avert all out war. And so paying too much attention to what this or that politician says during these tense times is not going to yield an accurate nor useful analysis of what the impetus is for the last, or the latest round of political bickering.
A more pragmatic approach would be to observe what has been taken off the agenda. The previous period of tension, albeit less problematic than this one, was characterized by reverting to the root causes of civil strife itself. The suggestions made by parliament speaker Nabih Berri and others, however disingenuous, concerning the abolition of sectarianism and electoral reform where aimed at diverting attention away from Hezbollah’s weapons as much as anything else. The issue of false witnesses and the STL indictments are similar in that they also divert attention away from weapons and towards an Israeli plot to destabilize the country, which in turn allows the argument for Hezbollah keeping its weapons to remain all the more salient.
But since the post-election stalwarts opposing Hezbollah’s weapons have in effect accepted that they will have to keep them in some capacity, there is little reason to address that subject with such fervor. But it is also convenient for the likes of M14 to latch onto aggressive acts by the party and its allies as sure shot signs that they are not the ones to blame for the stagnancy of the state amongst their power base. In the meantime, those same parties can run their institutions and bodies of patronage without scrutiny from the media or from the public at large.
Considering that the STL has not uttered one word, and there have been countless conflicting reports about the indictments since it began, it seems like folly to believe any reports coming from the Arab or international press over their contents. Obviously the ifs, thens, and buts will dictate the course of the media’s rhetoric, but to repeatedly lead with a non-issue and drag the country into a state of sectarian fear is in itself an objective clearly achieved by all sides of the political playing field. It was quite obvious that when all of this started, the talk was of a compromise between Hariri and Hezbollah over the issue which is surely being hatched right now despite what we see on our TV screens.
This is in no way a conspiracy; its as plain and predictably deceitful as the smiles on the faces of politicians all over the country; it is the default strategy that has typified every political period previous to the assassination of Rafik Hariri and looks to be the post 2009 election strategy as well. To focus rhetoric on sectarian fueled issues for sustained periods of time allows for the substantive issues affecting the country to be put on the back-burner indefinitely. To be sure, as soon as the issue of electricity, water, poverty and even traffic, began to receive some traction amongst the population, there was a sudden surge in the level of talk about the STL kindled by the rumors that the indictments would be issued in September. This has not happened, and yet the same pundits and politicians continue to insist, as they always have, that they know what the essence of the tribunal holds and the media continues to carry their reports.
In the meantime, the problems afflicting the country remain, as do those who hold the reigns of power. Right now the national budget is being debated for 2010 and 2011 and money allocated to each ministry is still not disclosed to the public in either. The news reports brush over the discussions in the cabinet and the parliament as being “technical,” meaning they will not wast precious air and advertising time discussing them for fear that the public begins to understand where their money is going. They then promptly move onto the next linguistic sparring match between the so-called opposing forces while ministries themselves have no performance indicators, are stacked with political appointees and use the UNDP to conduct their work while they and their patrons take their salaries from the public purse. It is beyond me on what technical basis, other than who gets a larger piece of pie, anything is being debated.
Thus its little surprise that such practice is not condemned with the same fervor as the non-existent indictment. If that were the only thing politicians were doing, then it would be business as usual. The difference this time is that gasoline is being poured on the ground by all involved in order to pose a concurrent threat to and by both local and external interests who know all too well that it is the latter’s prerogative to light a match.
Lebanese security soldiers pander around with Hezbollah in front of the home of Jamil al-Sayyed. (Photo:AP/Hussein Malla)
For the moment, there seems to be little interest from the regional and international players in plotting such a course given the effects it would have on their agreed upon standing in the Lebanese arena. That the Lebanese stand for such provocation is becoming less and less of a certainty to those in power and thus the stakes are being raised more and more as the days pass.
The only way out of this vicious cycle is for the population and the media to not buy into the rhetoric and not be afraid even if one party or another does take action militarily on the streets. The recent Burj Abi Haidar incident both supports the ‘distraction hypothesis’ and the fact that such actions are not having the desired effect of scaring the Lebanese into abject submission given that the public has tired of the issue.
Progress towards demanding more useful and functional government therefore hinges on this: whether the Lebanese can be distracted or scared enough to keep avoiding core issues. The answer to that question looks to be far off for the moment but reading between the headlines will most likely lead us to the answer rather than over-analyzing the minutia of Lebanese politics.
The legions of an increasingly ineffectual force (AP Photo/Hussein Malla)
The security situation last month has been so telling of the dearth of reform and progressive policy that it’s high time we to stand to attention. The Addisieh incident, which left two Lebanese soldiers, one Lebanese journalist and an Israeli officer dead prompting the American’s to withhold $100 million of aid to the Army was just the start of the rolling security snowball. Then, in a move which should be regarded as mostly a public relations stunt, Defense Minister Elias Murr and his father both placed $667,000 in an account to equip the Army hoping the Lebanese would fall in.
But before we consider shell out our hard earned cash, shouldn’t we get a sense of what we are getting in return? Currently, talk of military reform centers on weapons. In part the focus is well placed because, as the Addiseh incident proved, the Lebanese army is now capable of picking off some of the most well-equipped soldiers in the world, which was not the case during the Nahr-al-Bared battle when they lacked the weaponry they now have thanks to the Americans. The irony is however that if units had mobilized (with the intent of actually intervening) from Akkar when the gun battle in Bourj Abi Haidar erupted last month over a parking space or last year when similar clashes broke out in Aisha Bakkar, both situations could have been contained before they spread. It doesn’t take a security analyst to realize that the problem was hardly the weapons.
Both incidents produced the jittery feeling of impending war that we have grown all too accustomed too while proving that our security is bankrupt. In fact, it is philosophy of “red lines” that persists in our country and keeps us confined in our socioeconomic and political constructs that is mostly to blame.
Many of the lines are obvious, ranging from the arms of the resistance to maintaining sectarianism power structures. But when the army and the security forces can’t intervene to stop a fight over a piece of unoccupied asphalt, then its time to pickup that red pen and start drawing again.
Instead the government’s response is that weapons should be collected from citizens. While in principle it’s a laudable initiative, the government can’t even collect taxes properly, much less the arsenals. The response is typical of a political class that is used to taking painkillers instead of seeing the doctor.
The right answer is genuine reform of the security apparatus that requires both cash and a basal reassessment that extends far beyond “more weapons.” But before we are asked to keep footing the bill, we need some assurances.
Incidents like the Bourj Abi Haidar clashes require the security apparatus to take timely decisions independent of the political class; otherwise there is little point in borrowing, begging or simply taking handouts to equip that apparatus. Secondly, the Addisieh incident proves that the security aid that comes to Lebanon needs to roll in without strings attached like the American aid that was pulled when we used it to defend (at least what we thought was) our territory. Now that Iran has tabled an offer to equip the Army, if we take them up on the offer will the Army have to protract its policies in the region or face the prospect of losing support again?
Even if we can to act quickly and posses weapons to deal with our pesky neighbor or a gang of ruffians, without structural reform we will miss the target. Because post-war economic architects decided that our economy would be built almost wholly on services, productive and vocational sectors have been largely ignored. The result is that unless citizens can afford good schooling, speak several languages, and have the right connections they are boxed out of private sector employment. This pushes them onto public sector and into the ranks of the security “services.” What results is an over-bloated army of lingering servicemen lying in their undershirts performing redundant jobs while draining the state’s empty coffers.
Hence unless these are the priorities for security in the country, we cannot be expected to extend tap our wallets to support a withering institution. Money talks. A lack of it talks even louder.
MEA's pilots stage a 24-hour strike in April (AP Photo/Ahmad Omar)
For those of us who remember what it was like to fly with the national carrier in the 1990s, we recall the painful hours waiting in the plane on the runway for it to take off, the complex and tiresome ticketing process, and the unique elbowing techniques one would employ to get to the front of the check-in booth for a flight that was usually delayed. Thankfully those days are long gone. Today Middle East Airlines (MEA) has once again become a profitable and sound business representing our nation. Last year, when airlines were buckling under the pressure of the downturn, it brought in a record profit of $105 million, increased its passengers by 14.61 percent, and increased its revenue per passenger by 11.8 percent.
It wasn’t always this way. For 26 years until 2002 the airline was posting an annual loss. Ultimately this proved to be a blessing in disguise because when the airline became too much of a burden, and/or our government realized they would never ‘milk the cow,’ a political decision was finally taken to corporatize and downsize the company whilst retaining public ownership through the central bank.
The process was by no means painless and was politically charged from the get-go: around quarter of the company was chopped, routes were cut, many people lost their jobs, and we had to come to terms with the fact that our airline was not what it once was. Be that as it may, it’s better to grow into a profitable business than to whither away slowly in the red.
But to be truly Lebanese you need issues, and MEA has more than a few. Besides the one-day strike in April that cost the airline some $800,000 according to its chairman Mohamad el-Hout, the airline’s successful downsizing under his patronage left a rather dubious trail in its wake. Already this year the parliamentary opposition has lambasted Hout, for, amongst other things, appointing his relatives, friends, as well as members and MPs of the Prime Minister’s party to various positions at the carrier and turning the airline into “family institution first and an institution for the Future Movement second,” according to one opposition paper. In response, Hout argued that the MPs were technically qualified to hold their position and denied charges of nepotism. “I don’t see anything wrong if some of these staff carry the Hout family name,” he was quoted as saying. What the chairman ostensibly doesn’t see is that such statements and appointment do little to ally the fear that MEA is the ‘property’ of Lebanon’s Sunni’s, whether the accusations hold water or not.
In Lebanon once the sectarian ball gets rolling, there is little chance of stopping it. To avoid such a scenario, what should be done is simple: take action that draws MEA away from the sectarian government back to the people of Lebanon. In business terms, that means making good on a promise to offer the people a stake in the company through a public listing. The decision is the central bank’s to make and its governor, Riad Salameh, has already said that he plans to raise $250 million through the sale of a 25 percent stake. What he also told me after the cabinet was formed in November was that he is waiting for “moral approval from the government.”
That approval has not been forthcoming, and neither has the promise of allowing other players to participate in the market once MEA’s monopoly on domestic traffic is up 2012. Indeed the current transport minister is seeking to extend it. But this market distortion makes little sense considering that our “Open Skies” policy allows foreign airlines to fly in and out of the country without restrictions while local airlines cannot. Moreover, Hout expects profits to dive 40 percent this year as a result of increased competition from foreign airlines.
Before that occurs and investment looks less attractive, it would seem logical to start pulling our national carrier away from narrow political and sectarian interests and, eventually, bring it fully into hands it belongs in—those of the people. What better time than now, when our economy is growing and investment is on the rise? If we start with our airline, we may, one day, finish with our country.
UPDATE: According to Bloomberg, on September 7 2010 Riad Salameh, Lebanon’s Central Bank Governor, announced that he was delaying the listing of MEA’s shares because of “unfavorable market conditions” in Arab markets and (for some odd reason) the greek debt crisis. Given that the shares were meant to be listed on the Beirut Stock Exchange, which performs independently of Arab bourses and is so small that it needs large institutional listing, this should be seen as a sure-shot sign that MEA’s patrons have no intention of allowing the people to participate in the ownership of their airline. No surprise there.
Up close Lebanon’s energy overhaul looks like a boon for the sector; but in the distance an uglier reality awaits
Zouk, Lebanon (Photo: Sam Tarling)
Promoting one’s own vested interests has always been the mantra of Lebanese policy makers, and we’ve become accustomed to seeing them endlessly tie up progress until they come to an agreement on how to divvy up the spoils. So alarm bells ring when our so-called leaders finally agree on something.
On the surface the announcement that our cabinet agreed to Energy Minister Gebran Bassil’s 5-year electricity plan looks like a step toward reform. Ostensibly, the plan aims to end the country’s chronic blackouts and relieve the sector’s deficit burden from the government, which amounted to $1.5 billion last year.
But it is likely intended to preserve the minsters’ own interests — such as reinforcing the pillars of the sectarian system through which they secure their influence — before it serves the needs of the people.
What needs to be done is obvious. In production, transmission and generation the sector needs a complete overhaul, and there needs to be a purging of the political patronage systems endemic at Électricité du Liban, Lebanon’s state-owned electricity provider. To his credit, Bassil’s plan addresses these elements in detail and proposes fixes that, according to most experts, could alleviate our short-circuited sector. But before we start to borrow and spend $4.8 billion, we should ask ourselves if this time we do it by the book, or ‘a la Libanaise’.
The convoluted and dysfunctional process by which decisions in the electricity sector are currently made — or more accurately, not made — between the cabinet, the ministry and parliament, is not going to produce decisions that are free from political and sectarian influence.
For all the positive elements of Bassil’s plan, he is advocating against setting up a regulatory body to oversee the overhaul of the system until many of the changes have been implemented. Without the proper checks and balances we risk repeating the same type of ‘sector suicide’ we experienced with telecommunications, which now plagues our economic competitiveness and makes us the laughing stock of the regional telecom industry.
Allowing government to regulate the sector cannot continue, and yet the cabinet has approved the plan in question, provided that it also has the authority to oversee it.
Aside from the opaque manner in which public borrowing and spending of $2.5 billion to reform electricity is being carried out, if the cabinet is allowed to chaperone implementation, the other $2.3 billion being requested from the private sector will also likely be farmed out to sectarian interests, effectively slicing up our electrical pie. Without conflict of interest legislation and a truly independent regulatory body (not one that is also appointed through sectarian patronage,) the provisioning of electrical production and distribution will be subject to the same nepotistic tendering and distribution of power that typifies our existing institutions.
What’s more, if the practice of local distribution is adopted without ensuring that regional leaders do not monopolize the provisioning of electricity to local populations, there will be nothing to stop them from subjugating the people through greater dependency on them for basic services.
Some have suggested that sectarian loyalties are the only way to guarantee customers actually pay their power bill, but if the cost of tariff collection is strengthening an institution that tore this country to shreds and continues to stunt its potential, then I would personally prefer to live in the dark.
With new legislation covering public-private partnerships (PPP) now making the rounds to include the private sector in electrical reform, we have the opportunity to start protecting our economy from conflicts of interest, not just the “principles of transparency and equality among participants,” as the new PPP draft is proposing.
If we are to take the long strides we need to in order to solve our structural problems, such as electricity, once and for all, we cannot do so while ignoring what produced our predicament in the first place — unless of course we want to protect the candle-makers.
A similar version of this article was published in Executive Magazine’s August 2010 issue
Lebanon’s cabinet approves a plan for an electricity overhaul and opens the door to sectarian influence
There's a long road ahead to reform the Zahrani power station (Photo: Sam Tarling)
Today the Lebanese pay for electricity four times: when the bill collector comes knocking, when the government has to use money collected from the citizens or borrowed in their name to cover losses in the sector, when they pay for private generation, and when the television fizzles out due to power surges.
The situation has persisted since the end of the civil war, with plans to reform the sector coming and going as quickly as Lebanon’s post-war governments.
As such, it would be easy to dismiss the most recent plan issued by Energy Minister Gebran Bassil and approved by the Council of Ministers, Lebanon’s cabinet, as just another chapter in the long running saga that is Lebanese electricity. But given the relative stability of Lebanon’s political scene of late and the broad nature of the new plan, at least comparatively speaking, this time could be different.
The five-year plan, which was intended to start at the beginning of this year, allocates some $4.87 billion to reforms aimed at halting power rationing by 2014 and bringing the sector into the black by 2015, plus a further $1.68 billion investment for the “long term.”
At present, between generation and imports Lebanon effectively has 1,500 megawatts (MW) of electrical capacity, while average demand ranges between 2,000 and 2,100 MW, peaking in the summer at 2,450 MW. To accommodate for expected growth in demand, the new plan proposes to increase generation capacity — which is technically at 1,875 MW but cannot be fully utilized due to technical inefficiencies — by 47 percent to 4,000MW. Demand for electricity between 2008 and 2009 grew by 7 percent, up from 6 percent growth the previous year.
To fund the new plan, the private sector will be asked to put up $2.32 billion to take part in the production and distribution of electricity, while the public sector will retain its infrastructure and control the transmission of electricity from plants to local districts. The rest of the money sought to implement the reforms is to come from the government ($1.55 billion) and international donors ($1 billion). The initial figure does not include the longer-term plans, which are contingent on the private sector shelling out a further $1.2 billion and international donors putting up another $450 million.
“The plan is beautiful, the minister knows where he wants to get,” says Albert Khoury, deputy general manager of E-Aley, an electricity concession that distributes electricity to the district of Aley. “But the devil is in the details.”
Part of Khoury’s reservations stem from the long-standing debate between the energy ministry, the concessionary companies, and Electricite du Liban (EDL), Lebanon’s state-owned electricity provider. The conflict centers on the rate at which the state sells to the concessions and how much the government spends producing electricity, epitomizing just how fiendishly difficult of a task it is to unravel and reshape Lebanon’s medieval electricity sector.
According to Bassil, electricity costs the government $0.17 per kilowatt hour (KWh) to produce and is sold to the concessions — which serve the districts of Bhamdoun, Aley, Zahle and Byblos — at a loss-making rate of $0.05 per KWh. It is then sold onto consumers at around $0.08 per KWh.
Khoury disagrees with the latter figure, protesting that “the government forces us to sell [to consumers]” at between $0.02 per KWh and $0.05 per KWh, which corresponds to the existing tariff structure at EDL, for power consumption of up to 300 KWh monthly.
A World Bank paper that addressed the situation in 2008 stated that “it is unclear how this agreement is regulated and by whom.” What is clear, however, is that the government is losing money to the tune of $20 million per year based on estimated average sales of between 900 to 1000 gigawatt-hours annually, according to the World Bank. This figure is estimated to rise to $40 million per year by 2015 if the situation persists.
“Gebran Bassil is attacking us and he’s misunderstanding the situation,” says Elie Bassil, chairman and managing director of Electricite du Jbeil, the concession in the Byblos district. “They say we’re buying electricity for low prices. Meanwhile, our overhead is increasing. If the cost of energy increases, we’ll be forced to shut down.”
With the government and the World Bank saying one thing, the concessions saying another and no one seeming to know exactly how the whole thing works, the concessionary issue alone would be enough to stymie reform. But it’s just the tip of the iceberg when you consider that last year alone, the government had to pay out $1.5 billion, or around $375 per person, to cover the deficit of the sector.
Paying the real price
For the electricity sector to even become economically feasible, let alone become an attractive investment to the private sector, supply and demand curves will need to reach equilibrium.
At present the price floor set by the existing tariff structure — which was set when a barrel of oil cost $21 dollars in 1996 and has remained unchanged since — has prevented this from happening. The power to change the tariffs lies with the cabinet, which has been unable to address issue because of political squabbling and the sensitive social implications.
The pre-tax tariff structure for low voltage consumption, the type used by most residential consumers, is divided into six price categories for every 100 KWh consumed per month. The lowest amount charged is $0.02 per KWh and the highest is $13.3 per KWh for consumers who used more than 500KWh a month. Public administrations and “handicraft and agriculture” industries pay $9.33 and $7.67 per KWh, respectively.
Under both the scenarios envisaged in the current plan, tariffs will start to rise in the third year. Under the first scenario, tariffs will be increased on average by 43 percent to break even in 2015; the second will increase the price of electricity by 54 percent to start making money in 2015. However, both of these scenarios face potential hurdles.
“The amount that is being asked from the private sector will not come, for the simple reason that tariffs will not change for three or four years,” says Hassan Jaber, energy consultant and vice president of The Lebanese Association for Energy Saving and for Environment (ALMEE).
Asking the private sector to enter into an unprofitable industry is in itself a tall order, let alone one whose eventual profitability is contingent on factors such as a sustained period of peace and political stability, donor willingness, streamlined political decision making and a steady supply of hydrocarbons.
However, Minister Bassil believes that as the private sector is only being asked to provide about a third of new power generation, the impact on retail costs will be limited. Within a few years of the plants being built, the government will be able to make up the difference through the planned tariff increases, he claims.
Ziad Hayek, secretary general of the Higher Council for Privatization (HCP), the government body in charge of planning, initiation and implementation of privatization programs says that these agreements should not be thought of as all debt or all equity but rather a combination of the two. This, he believes, might make private sector involvement attractive to a certain degree.
The specter of EDL
Supposing all the pieces related to additional generation fall into place, the existing electrical framework will still have to be managed by the EDL, which employs “2000 contractual and daily workers, many of whom are political appointees and unqualified workers,” according to the plan. As to which political parties are impeding progress, “you can never be sure,” says the energy minister.
EDL is supposed to have 5,027 full time employees, but today 3,125 of those posts (63 percent) are vacant, and with an average staff age of 52, the organization suffers from an attrition rate of around 8 percent every year due to retirement. One electricity expert who spoke on condition of anonymity described EDL’s situation “as if you cut off a man’s legs and then tell him to run.”
According to ALMEE’s Jaber, EDL is in such disarray that it “has 200,000 [electricity] meters missing and they don’t have the money to buy them, which means you have 200,000 users that are paying a standard price.” This and other instances where people steal or underpay for electricity are classified as “non-technical losses” and are estimated to constitute half of the $300 million in EDL’s operational losses each year, according the energy ministry.
Uncollected bills, a much heralded and politicized argument for the decrepit nature of Lebanese electrical infrastructure, account for only 12.5 percent of revenue loss; technical losses constitute around 37.5 percent.
Getting the private sector involved in these areas looks like it will be a tough sell for the government. “In some places we cannot reach more than a 5 percent rate of collection, so how will the private sector come in?” asks Bassil.
What adds insult to injury is that if existing electricity legislation passed in 2002 was applicable, EDL as we know it today would not exist. Law 462 mandates that the company be turned into a corporate entity, which would result in the management having control over day-to-day business functions such as hiring and firing of staff, and eventually be partially sold to the private sector in a period of less than two years. Eight years later, not one part of the law has seen the light.
“If someone wants to hinder the process of corporatization, politically they can because it is mostly related to the employees,” says Bassil, whose plan allocates $15 million to reforming human resources at EDL.
Legal issues
Rather than amending law 462, the new plan calls for setting it aside and creating a new structure for the private sector to participate in during the interim period of the plan’s application.
The new arrangement will adopt the principle of Independent Power Producers (IPP), which, in Lebanon’s case, allows private sector players to bid for contracts to enter into Public Private Partnership (PPP) arrangements with the government.
However, a PPP law will have to be passed before any private production of electricity can take place.
Moreover, legislation covering a law for new power plants, effectively breaking the monopoly of EDL, will also have to be passed either as a law on its own or as a part of the PPP law. A draft PPP law has already been submitted to parliament by Amal MP Ali Hassan Khalil and is currently making the rounds in the halls of government.
Applying Law 462 would mandate the unbundling of the sector into production, transmission and distribution segments, which must be up to 40 percent privatized within two years through an international auction. Notably, the plan does include the corporatization of EDL, which should be completed by the end of the third year of implementation at a cost of $165 million.
Having committed to apply the corporatization part of Law 462, Bassil’s position, and ostensibly that of the cabinet who ratified the minister’s new plan, is that Law 462 will be ignored until after the new electrical regime is in place.
The minister is not happy with the prospect of a regluator while he implements his plan (Photo: Sam Tarling)
“It is fair to say that the minister is not interested in implementing Law 462 as it is because his concerns center on the creation of a regulator [Electricity Regulatory Authority],” says the HCP’s Hayek, whose permanent members are the ministers of finance, economy and trade, justice and labor — all of whom are part of the same political camp opposed to Bassil’s.
Having a regulator would necessarily take away many of the powers of the minister, who states in the last words of the plan: “Exceptional powers should be given to the Minister of Energy and Water and the Council of Ministers.” In his previous post as telecom minister, Bassil was constantly at loggerheads with the Telecom Regulatory Authority over prerogatives in the sector, something he says he wants to avoid while the energy plan is being implemented.
“We would be mixed up with two sets of prerogatives and have EDL still working and fixing the price. 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,” he says.
Regulation or sectarianization
Without a regulatory body to uphold the general rules and regulations of the sector, the country and the private sector risk having any plan annulled or changed when a new minister comes in. The constant shuffling of ministers has long been blamed for the discontinuity of policy and reform in the sector; since the beginning of 2008, Lebanon has had three energy ministers.
“Regulatory authorities allow us to transcend the individualization of power, especially in sectors that involve the provision of services because they should not be politicized,” says Hayek.
Another area where a regulator could prevent undue influence is in the distribution sector. Many fear that if local and sectarian leaders are allowed to enter the distribution market, as is being proposed under service provision arrangements, then they would have control over power to local populations, in effect increasing their constituents’ dependence on them.
Under the current plan, three scenarios have been proposed for the break up of Lebanon’s energy distribution into 15 zones. Scenarios one and three have non-contiguous parts, which could make any assessment of individual service providers’ performance difficult, according to Hayek.
The break up of the country in the second scenario seems loosely based on the geographical distribution of Lebanon’s major sects. According to a source involved with the negotiations with foreign funders, European Union representatives working in Lebanon on infrastructural reform are “not happy at all” with this scenario and will have reservations when asked for funding if this sort of distribution is adopted.
“The fewer regions there are the better because these regions should not become local fiefdoms,” adds Hayek. “Once you have vested interests in companies managing these regions, and if money comes to the hands of influential people, we will never be able to reform further.”
Bassil rejects the idea that he formed the areas on the basis of a sectarian break-up and says that the only consideration was the current structure at EDL.
He also added that he has 12 other scenarios that could be employed, giving the feeling that the plan is more of a “roadmap,” as Jaber calls it, than a detailed plan.
Some, however, believe that Lebanon’s fractious sectarian nature makes this kind of arrangement a more viable option than global best practice.
Although Chafic Abi Said, an energy consultant and former director of planning and studies at EDL, also disagrees that the plan was to break up distribution along sectarian lines, he says “it ought to be [this way] because people will stop stealing if they know, for instance, that Hezbollah in a certain area is responsible for the electricity.”
“In the Chouf during the war they were paying [the] Jumblatts’ civil ministry and it was running because Jumblatt was taking care of it,” he adds.
Need to regulate
Another concern is political interests vying for pieces of the generation portfolio that will be up for grabs. Currently there is little to stop influential politicians and their acolytes from using their favorable positions and economies of scale to offer bids that undercut regular market players.
For instance, Prime Minister Saad Hariri and his allies already control the Sidon dump and garbage collection in the greater Beirut area, making them prime candidates to bid for the waste-to-energy project on offer.
Amal and Hezbollah’s influence in the south and the former’s history with the Litani River Project also put them in a good position for the plan’s private-sector hydropower offering. In fact, the former head of the Litani River Authority, Nasser Nasrallah, became an Amal MP in 2005 shortly after leaving the post, according to a source who spoke to Executive off the record.
“I don’t see a problem once we do a transparent tender for a company to win,” says Minister Bassil. “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 the IPP.”
Better than nothing
For all its potential faults, the plan to reform Lebanon’s most outdated sector can be seen as progress of some sort, considering that this is the first time since the Paris III reform initiatives that a real overhaul of the sector has received the official stamp.
The promise of that earlier reform plan has today faded away, with some $3.8 billion in pledges tied up because Lebanon’s policy makers are not on the same page.
The current electricity reform plan will also need the cabinet, parliament, the HCP and the energy ministry to work hand in hand to rid the Lebanese of what is perhaps the greatest impediment to becoming a modern state — a functioning power grid.
Before any investments can be made this year the national budget, which has eluded the government for the past 5 years, will have to be passed by parliament and continue to be passed for the next five years. In what may be a telling sign of things to come, the finance ministry has announced that they will be proposing the 2011 budget this month, even before the last budget has been passed.
“Success requires continuity of policy and working together, and the second one is more important,” says Hayek. “We will all, the minister included, succeed or fail by the measure of how well we work together.”
If they can’t find a way to do that, Lebanon’s electricity deficit will only increase, meaning in the years to come it will be ever more common for the Lebanese to be applying their make up by flashlight and cooking by candlelight. At least they will know who to blame, that is, of course, if they can find them in the dark.
First published in Executive Magazine’s August 2010 issue
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
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
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
Iran's president making his first visit by an Iranian head of state in 2007 flanked by the rulers of Dubai and Abu Dhabi (Photo: WAN)
US pressure mars an ancient partnership in the Persian Gulf
When you have been in a relationship with someone for centuries, breaking up is hard to do. Sure, you may bicker over seemingly trivial problems in your marriage, but more often than not, your history with that special someone has you running back into their arms.
Take Dubai and Iran. The two were engaged in a trading love affair long before either nation even existed.
That relationship has been blossoming of late, with trade between the two increasing threefold between 2005 and 2009 to reach $12 billion, according to the Dubai Chamber of Commerce. But with the threat of new sanctions being imposed on Iran and the financial crisis stemming Dubai’s previously inflated financial ego, that could all be about to change.
No more smooth sailing
On the surface at least, recent international developments have only brought the old couple closer together, especially for Iran which, faced with economic sanctions imposed by the United Nations and the United States, has been able to use the ports of Dubai as a forwarding station to get around such impediments.
The UN has passed three sets of sanctions against Iran which encompass a wide range of materials it deems can be potentially employed in the enrichment of uranium, in addition to freezing the assets of persons it has identified as aiding Iran in its nuclear ambitions. The US has imposed its own set of more stringent sanctions and has forbidden its companies from engaging in financial and commercial transactions with the Islamic Republic.
Notwithstanding these restrictions on trade and financial activities, Iran seems to have come out relatively unscathed — so far. In April, The Wall Street Journal reported that only around $43 million in Iranian assets had been frozen in the US, which amounts to roughly a quarter of what the country makes in oil revenues in one day.
In recent years however, the US and their allies have taken a sharper aim at Iranian businesses or those that have dealings with Iran. In October 2007, Washington imposed sanctions on three large Iranian banks: Bank Melli, Bank Mellat and Bank Saderat. Since then, Iranian businesses in Dubai have been taking flak.
“The Iranian businessmen in Dubai are the ones being hammered badly by the sanctions,” says Morteza Masoumzadeh, a Dubai based-shipping agent and a vice president at the Iranian Business Council in Dubai. “The sanctions have had no effect at all on the Iranian government’s nuclear activities, as we can see, they are progressing every day.”
According to Masoumzadeh, some 400 Iranian businesses have closed since the downturn in Dubai. While he admits that some of these closures were caused by the emirate’s real estate bust, he says that “the majority of them have closed their businesses due to the restrictions on Iranian banks and the subsequent restrictions applied by the local banks.”
To make matters worse for Dubai, the past few months have seen a series of calls from Western nations — particularly America — for new and stronger UN sanctions. In March, US President Barack Obama called for sanctions to be imposed “in weeks.”
Since then, a wave of international companies have announced plans to scale back or cut ties with Iran, including international oil companies Eni, LUKOIL and Royal Dutch Shell, Indian refiner Reliance Industries, US construction and mining equipment maker Caterpillar and German carmaker Daimler, as well as KPMG, PricewaterhouseCoopers and Ernst & Young. But while these international pullouts may perhaps be a significant harbinger of things to come, it is businesses closer to home that stand to lose most.
“The [United Arab Emirates] is Iran’s most important trade partner, before Germany and China, so any sanctions would hurt both sides, especially Dubai,” says Eckart Woertz, the economics program manager at the Gulf Research Center.
The US State Department has also placed the UAE in the crosshairs, threatening in 2007 to classify the country as a “destination of diversion concern,” according to Bloomberg. The pressure seems to have worked to some degree, as last August the Emirates commandeered a boat from North Korea allegedly carrying weapons to Iran.
Arms smuggling, however, is not the concern of most traders, whose legitimate business between Dubai and Iran is threatened.
“We have tried to go through local banks here to get facilities, but we have reached the point where they prefer not to get involved with Iranian businesses,” says Masoumzadeh. His main complaint is that banks in the UAE have stopped issuing letters of credit (LC) to facilitate trade between the Emirates and their Persian neighbors.
“The UAE banks…won’t issue an LC to our overseas suppliers with the name of an Iranian port in it,” said Masoumzadeh.
The worst to come
Last month, some apparent progress was made on the international front concerning Iran’s controversial nuclear program, when the Islamic Republic inked a deal brokered by Brazil and Turkey to swap outside its borders low-grade nuclear material for enriched uranium to use in its power plants, something it had previously refused to do.
Nonetheless, the move seems to have been brushed off by the West; the next day US Secretary of State Hillary Clinton announced that she had agreed on “a strong draft” for UN sanctions “with the cooperation of both Russia and China.”
For the Emirates though, much will depend on what course of action Abu Dhabi decides to take when it comes to implementing a further round of sanctions, or imposing stricter controls on existing activities between Iran and Dubai.
“Abu Dhabi is less reliant on the Iranian trade and has traditionally played a leading role in the foreign policy formulation of the UAE since its unification in the 1970s. Dubai, on the other hand, has concentrated more on its economic role,” says Woertz.
Abu Dhabi has also been vocally hostile towards Iran lately over a long-standing dispute about oil-rich islands in the Persian Gulf that are currently controlled by Iran.
“Occupation of any Arab land is occupation… Israeli occupation of the Golan Heights, southern Lebanon, West Bank or Gaza is called occupation and no Arab land is dearer than another,” said Sheikh Abdullah bin Zayed al-Nahayan to the official UAE news agency, Wakalat Anba’a al-Emarat, in reference to the islands in late April.
The burgeoning capital has already put forward some $20 billion to save its little brother Dubai from defaulting on debt repayments, with estimates of Dubai’s total debt varying from a low of $80 billion to as high as $170 billion.
“The equation for Abu Dhabi and the UAE in particular is probably the toughest equation for any country in the world,” says Hady Amr, director of the Brookings Doha Center, referring to the decision to go along with tougher sanctions against Iran. “You can’t just lend your cousin money and then tell them to quit their job.”
According to the Iranian Business Council’s Masoumzadeh, 70 percent of his business has vanished due to existing restrictions on credit facilities. “If [the United Nations Security Council] comes up with a ban restricting shipping goods to Iran, for sure the other 30 percent of our business will also go.”
But, as the old adage goes, times of crisis always breed times of opportunity. The US trade ban on Iran currently does not apply to subsidiaries of US firms dealing with Iran if they do not have an operational relationship to the parent company. Even decisions by companies like Caterpillar, which ordered its subsidiaries not to sell goods to Iran, will not have a great effect on the supply of American goods to the country, given that the secondary market can hardly be controlled.
“As far as the Dubai customs are concerned, when a printer lands at the Dubai port, whether it is an HP, Samsung or Brother; its a printer, customs officials don’t care about the brand of the product as long it is not listed with the prohibited materials,” says Masoumzadeh, who added that the same applies at ports in Kuwait, Turkey, Indonesia and Malaysia. “The American administration can send out a circular to their producers saying ‘do not ship or sell American products to Iran’… but instead of buying HP products, end users in Iran buy Samsung. The Americans have, in reality, [just] eliminated their own producers from selling more goods.”
It is easy see that short-term profits are up for the taking: given that trade between Dubai and Iran has been increasing despite the sanctions, it seems increasingly likely that as international companies pack up and move out, regional companies can take advantage of the void left behind.
“You go in, you make a lot of money and then as the political pressure mounts you make a big fuss about why you are being asked to pull out,” says Brookings’ Amr. “If you are going to be asked to pay the price, you ought to be compensated. From the world that we are in, it seems that is a pretty successful way to do business.”
So, while the West may scold Dubai for its economic infidelity in its centuries old embrace of Iran, it is likely that the Persian allure will keep the emirate close — at least until a more attractive beau comes along.
First published in Executive Magazine’s June 2010 issue.
Patrick Seale produces a 700 page epic about Riad el-Solh and the wider Arab struggle
Albert Hourani, the late Lebanese-British historian once wrote: “All states are artificial… they have been formed by specific historical processes, by human acts within a given physical environment over a period of time.” It is precisely those processes and acts that are laid out in great detail by Middle Eastern historian Patrick Seale in his latest book on the region, “The Struggle for Arab Independence.”
This 730-page history book reads more like a gripping novel, with its protagonist carrying the tale from start to finish. In addition to plotting the course of how myriad Arab provinces came to become the rigid collection of states that we today call the Middle East, Seale also chronicles the life of Lebanon’s prodigal, yet perhaps most important, son: Riad el-Solh.
The life of Lebanon’s first prime minister is recounted from the days of his grandfather Ahmad to his untimely death in Amman in 1951.
Seale, who spent six years researching material for the book, describes a dark and tumultuous period of Arab history, jumping back and forth between the life of his protagonist and the broader events happening at the time, to offer one of the most comprehensive books in English on Arab struggles against Ottoman, Western and now Zionist occupiers.
The book cites countless sources from historical works, intelligence documents and personal accounts to paint what is, at times, a rose-tinted picture of Riad el-Solh’s political life and the role he played in shaping Lebanon and the wider Middle East. Seale portrays Solh as an internationalist, an Arabist, a working class sympathizer, an anti-colonialist, a journalist and a lawyer all in one.
The only criticism he seems to have of Solh — which by the end of the book seems to be a veiled compliment of sorts — is that he was no accountant, as he squandered a large portion of his family’s fortune on his political career and the fight to free the Arab world from its occupiers. But as any journalist, including Seale, knows, there are always at least two sides to every story, and indeed to every person.
Seale also goes to great lengths to give credit to others who fought for Arab “independence.” A laundry list of Arab notables, politicians, kings, imams, and thinkers are mentioned, leaving the reader with the impression that each of these men could have their own 700-page tome.
Meanwhile, Seale gives special attention to the calculations of the Zionists and their collusion with the British in such detail that it is perhaps only topped by Ilan Pappe’s “The Ethnic Cleansing of Palestine.”
Interestingly, he describes Solh’s repeated meetings with notable Zionists such as Chaim Weizmann, Israel’s first president; David Ben-Gurion, its first prime minster; and Moshe Sharett, Israel’s second prime minister, who he first met as a young boy when the latter’s father was employed as a smallholder at one of the Solh family friend’s estates in Jericho.
Solh naively offered these men a pact with the Arabs, a fact which Seale admits, but again paints it as a politically astute calculation during the 1920s and early 1930s, despite the disastrous affects of Israel’s creation.
However, it is details such as Solh’s childhood meetings with Sharett that makes the book stand out as a work of both exhaustive research and refined story-telling. It gives due credit to a man who is described in the first half of the book as a bastion of the wider Arab, and to a greater degree Syrian, struggle — a Greater Syria which included Le Grand Liban, which became the Lebanon we know today.
Midway through the book, Seale describes Solh’s most significant change of heart, when he started to believe in an independent Lebanon, something that set him apart from his fellow Arab nationalists. From that point onward, the reader follows Solh’s every political maneuver to become the first premier of the country, as he navigates his way past colonial French occupation, hostile Maronite opponents and even his own family members. The chapter describing how he and Bishara el-Khoury, the British-backed first president of Lebanon, battled with the French in the final throws of their colonial project, is separated into rounds — 14 of them, each a page or two long.
Finally, Seale describes how King Abdullah I of Jordan, the great grandfather of the current king, who sought to end the fight with the Zionists, tricked Solh into coming to Amman to mend ties that had deteriorated, only to be assassinated in what Seale suggests was an Israeli plot.
Seale may at times overstate the importance or relevance of Solh, but he does give him more of the genuine credit he is due than the Lebanese seem to today.
Tellingly, his book ends with the commissioning of Solh’s statue in the heart of downtown Beirut — today, the statue serves as little more than an adjunct to a construction site.
First published in Executive Magazine’s June 2010 issue
Sami Halabi 