The party parade

Lebanon’s nightlife industry booms while its regulation lags behind

by Sami Halabi

Beirut party goers take in the night at Gemmayze’s Torino Express

The festival season is in full swing. American rapper Snoop Dogg is scheduled to play Beirut in August. Visits by Michael Bolton and Paris Hilton, despite one’s personal feelings for the crooner or the spotlight-hungry heiress, are indicators that Lebanon’s summer season is, so far, the most secure since 2004.

The country is expecting “the best tourism season we have ever seen,” says Nada Ghandour, director general at the tourism ministry. According to figures released earlier this year by the ministry, the total number of tourists in 2009 is expected to reach two million, with the majority arriving in the summer months. And Lebanon’s political stability translates not just into a party, but also into cash flowing into the coffers of the country’s quickly expanding nightlife industry.
“Given the amount of people that there are going to be [in Lebanon], everybody will benefit from the season, that’s for sure,” says Oliver Gasnier-Duparc, co-owner and manager of Behind the Green Door, a popular lounge bar in Beirut.
Bars and nightclubs began lighting up Beirut’s nightscape in the mid-1990s on one particular street on the fringes of Beirut’s central district, Monot Street. The allure of untapped market space supplemented by the unquenched thirst of a city without a vibrant nightlife was the perfect recipe for an industry boom. Monot came of age around the turn of the century, with new bars and nightspots sprouting almost weekly.
The phenomenon gave birth to a business model that has been replicated by entrepreneurs looking to make a quick buck.
“You would have a group of five to 10 friends who were ambitious and party animals, and thought ‘let’s each put in $10,000 and open our own bar, and if each one of us brings in just five people every day we will fill up and make money,’” says Ziad Kamel, co-owner of bars Gauche Caviar and Cloud 9 in Beirut’s trendy Gemmayze district. “You see a lot of these kinds of places shutting down and selling off.”
The bars eventually closed and the Monot of today is a skeleton of the once lucrative nighttime hotspot.
“Monot boomed around 1999 to 2000 and now there are only a couple of places left which were the original ones,” says Mark Mouraccade, a long-time bar manager and co-owner of Ferdinand’s bar in Beirut’s Hamra district.
The neighbors were one reason the district ceased to be the epicenter of Beirut’s nightlife — noise complaints forced many clubs to shut down. And then there was the nightlife migration to an older, quainter neighborhood a few blocks away: Gemmayze.

Gemmayze was once a quiet residential area but now has more than 90 bars and restaurants operating in the district. Makram Zeen, president of the Gemmayze Development Committee (GDC), a collective of bars and restaurants in the district, estimates that total yearly revenues of all the bars and restaurants in the area comes to $36 million, or around $400,000 a year for each venue. Zeen, who also owns Le Gardel pub and La Estancia restaurant in Gemmayze, claims the hospitality sector in the district has created between 1,200 and 1,400 jobs and has generated $15 million to $16 million in investment.
The total revenue generated by the nightlife industry in Lebanon is currently not available. When Executive asked Paul Aris, head of the association of restaurants, bars and pastry shops for figures relating to the industry, he laughed and said, “Figures? You must be joking. Even the Ministry of Tourism waits for General Security to give it figures.”

Real estate on the rise
While the nightlife industry has become a welcome addition to Lebanon’s economy, the economics of proximity have also galvanized the real estate sector in areas like Gemmayze and Mar Mikhael. Property in the Gemmayze area is being sold at around $3,000 to $3,500 per square meter, a significant increase from a few years ago, according to research conducted by real estate consultants RAMCO.

“Real estate in the area was being sold for peanuts,” says Zeen. “Now, because of us, the real estate value has increased three-fold.”
While the rising price of property may be one reason most bar owners in Lebanon prefer to rent rather than own, there are other more technical issues to consider. “It’s very complicated to buy properties because usually a building is owned by 15 or 16 people,” says Paddy Cochrane, a bar owner whose family also owns property in Gemmayze.
Sensible or not, the inability or reluctance to buy property has left bar and restaurant owners grappling with soaring rental costs by landlords eager to capitalize on the industry boom. A source who advises bar and restaurant owners on administrative issues said that when one of his clients wanted to renew their rent in Gemmayze, the landlord increased the yearly rate from $40,000 to $120,000.
“There are no rent ceilings imposed by the government,” says Kamel, who is also the treasurer and head of marketing at the GDC. “So if you rented five years ago in Gemmayze for $200 per square meter per year — which you could have easily done — now that your five years are up, the landlord can say ‘you know what I want is $800 to $900.’ [Rent] goes up 400 to 500 percent and all of a sudden it is not feasible for you to run your business.”

The other Gemmayzes
At present the cost of renting a venue for a bar or restaurant in Gemmayze can be “over $900 per square meter [per year],” according to Zeen. As a consequence many entrepreneurs looking to open a nightspot are opting for the adjacent district of Mar Mikhael. “The place was cheap,” says Gasnier-Duparc of Behind the Green Door, who opened last December at the beginning of the Mar Mikhael district. “Most of the people opening up here are doing so because it is cheaper.”

Right now the going rate for a bar or restaurant venue in Mar Mikhael sells at around $450 per square meter per year according to various sources in the nightlife industry.
Another up-and-coming venue for new bars and nightlife is the Hamra district, which housed many bars and restaurants before and shortly after the Lebanese Civil War.
“I ran away from Gemmayze to open here,” says Ferdiand’s Mouraccade. Despite having to pay less rent than bustling Gemmayze, Mouraccade opened his bar in Hamra because he believes the area is “experiencing a revival” and offers a more sustainable business model than other locations. “Hamra is different from the rest because you don’t feel the effect of high season or low season as much,” he says.
Haytham Nasr, who owns and manages the Juniper bar in Gemmayze, believes that because of the district’s increasing costs, entrepreneurs looking to enter the market are now considering other areas. “Any bar owner should maintain their rent at a maximum of 5 to 10 percent of annual revenue and make the initial investment back in a year,” he says. “I don’t see how they are going to profit in Gemmayze.”
Nasr’s new project, called “myBar,” is set to open on the outskirts of Gemmayze around the end of this year. The project is unique in Lebanon because of its business model, operating somewhat like a private equity fund or a public company whereby investors buy “barnotes” that are valued between $2,000 and $20,000 and carry dividends of 0.2 to 2 percent. Nasr’s expected return on investment for co-owners is 274 percent. So far the project has raised more than $650,000 and intends to raise $1 million. “We are very confident that we will reach the $1 million and we are closing off funding in six to eight weeks,” Nasr says.

Saturation point
Although the nightlife industry is currently booming, not all the news coming out of the sector is good. The sheer number of venues opening up has created a substantial increase in the supply of nightspots while rising costs are forcing weaker business models out of the market space.
“Lots of people see that the market is booming, they think it’s easy, open up, and after six months they see that they are not making money and they sell it,” says Mouraccade. Chafic el-Khazen, co-owner and manager of Sky Bar, one of Beirut’s most prestigious sea-side rooftop venues, agrees.
“You know the Lebanese: It’s all about ‘copy-paste’ so there is no creativity,” he says. “The market is over-saturated because it is a lucrative business and everyone will try to get into this industry to make more [than] a little money.”
When a bottle at Sky Bar costs a patron between $200 and $3,000, more than ‘a little money’ becomes a lot of money. Still, Khazen insists that the prices are not unreasonable given the costs he has to cover, which include “over $750,000 a year on fireworks and entertainment.”
For now the alcohol and the money seems to be flowing in Lebanon. However, the industry’s growth is highly volatile and connected to the political situation in the country. “If I showed you a graph of my businesses, in terms of sales and revenues, it looks like a heartbeat,” says Kamel. “Every single time there is a dip, the reason for that dip is political instability and that is true of all the businesses here.”
If the political situation in the country remains relatively stable however, the growth of the industry will show no sign of abating. “It really doesn’t matter who is in power as long as there is stability, security and both parties are in agreement, then everyone benefits,” says Kamel. “This is what the Lebanese have to get into their heads.”

Neighborhood party
But the sector could benefit from an overhaul of regulations that have caused problems as the nightlife sector has blossomed.
“Gemmayze is a residential area” read the signposts that line the streets of Beirut’s Gemmayze district, where some bars and restaurants operate till the early hours of the night.
The loud music, gridlock and rude valet-parking attendants have pitted angry and politically connected Gemmayze residents against equally connected bar owners. The result is that no one has the connections to trump the other, and the law is weak: the regulations regarding the nightlife industry date back to the early 1970s. Thus, a multi-million dollar industry that is a major pillar of the all-important tourism sector suffers from ineffective regulation at almost every level.
“There is nothing in Lebanese law that constitutes a bar and this is where the issue lies,” says Juniper bar’s Nasr.
Now that the nightlife industry is booming and entrepreneurs are eager to enter the market, the economic growth seems to have overstepped the ability of local authorities to effectively regulate the sector within the confines of the old laws.
“You have so many places that open without any licenses and don’t abide by any regulations or law,” says Sky Bar’s Khazen.

Nobody’s law
The existing law that governs the restaurant sector classifies establishments as either restaurants or nightclubs. The law also prohibits nightclubs from opening in residential areas or within 100 meters of a religious building. As a consequence, many bars located in residential areas operate using a restaurant license without actually serving food but having to fulfill all the requirements of Lebanon’s antiquated restaurant laws. What’s more, this also places the establishments at the mercy of the evaluation of inspectors from the tourism ministry or the municipality.

A string of cocktails line the bar at Mar Mikael’s Behind the Green Door

“It’s very hard to meet the requirements that were set in the 1970s for a restaurant,” says Gauche Caviar and Cloud 9’s Kamel. “You are in this gray area which allows the government to blackmail you to decide whether you are legal or not, which results in corruption, bribery, bad regulation and places being shut down that thought they were safe.”

One of the main causes of these ailments is the process by which restaurants obtain their licenses. Licensing proceeds in stages with the first stage constituting a “feasibility study,” says Nada Ghandour, director general of Lebanon’s tourism ministry, one of the government bodies charged with regulating the sector. Bar owners apply to the ministry in order to receive a first stage license on the condition that they will actively seek a second stage license to make them completely legal.

“The first stage [license] is pretty easy to get but almost nobody has the second stage [license] and nobody knows why,” says Ferdinand’s Mouraccade. “We apply and we wait and wait.”

The official line
Tourism ministry Director General Ghandour says that it is not the ministry’s fault that establishments do not receive their final licenses, and lays the blame on Lebanon’s building code implemented by local municipalities and the intransigence of owners.
“They take the first stage license… open and say ‘merci, au revoir ministry of tourism. We don’t need you anymore’,” she says. “The [other] major problem in Gemmayze and Beirut is the building law, because the places that are open in the old buildings are not places that were made to become restaurants.”
In order to “help” the establishments, Ghandour has in the past given out “temporary secondary licenses.” A legal expert who spoke on condition of anonymity says the practice goes against legal procedures. “The secondary license is your final permit so legally it cannot be temporary,” says the source. “The first stage is ‘temporary.’”
Local municipalities also regulate the health and safety of Lebanon’s bars and nightclubs. However, even these important issues seem to have been neglected.
“The law states that the straws at the bar must be protected but nobody does it and for fire, nobody checks,” says Gasiner-Dupar of Behind the Green Door. “They always find something, but after that you deal with them [financially].”
The lack of adequate legislation and enforcement to regulate the sector finally culminated in the ongoing dispute between Gemmayze’s local residents, bar owners and government authorities. After several protests in April 2008, one of which featured residents in pajamas blocking traffic and demanding their right to sleep peacefully, the former Tourism Minister Joe Sarkis finally acted, issuing a decree imposing a curfew on all bars and restaurants. The move required many establishments to close during some of their most profitable hours of operation, substantially hurting their businesses.
Kamel claims that the law was completely illegal because it was only applied in one area of the country and was enforced without the consent of the interior ministry and the municipalities, who are responsible for imposing closing times.
“These fanatic residents got together and lobbied against the minister,” says Kamel. “The main people who are bothered are the people on old rent and not benefiting [from the establishments]. If the real residents of Gemmayze, who are the landlords, are bothered then why are they renting the space to everyone?”
During that time, many bars and restaurants were forced to close or threatened with punitive action because they lacked second stage licenses or didn’t have any licenses to begin with. The curfew lasted for around two weeks and eventually dissipated, much to the distress of many local residents and organizations.
“We managed to calm them down for a week or so but they just come back and its worse,” complains Georges Abi Khalil, head of management and coordination at the Gemmayze Development Association (ADG), a local non-governmental organization that works on the preservation and development of the Gemmayze district.
Earlier this year, the current tourism minister, Elie Marouni, along with Interior Minister Ziad Baroud, issued a joint decree reinstating the curfew across Lebanon.
The move set off a wave of protests from local bar, restaurant and nightclub owners who blamed the lack of law enforcement in Gemmayze by local police.

No controls
“The street is the busiest street in Lebanon and we don’t even have one security officer in the street, not one traffic cop,” Kamel says of that time. “We don’t have the support of the government to stop double parking or cars going up one way streets and these are all causes of noise.”
After the curfew was reinstated, a delegation of nightlife industry owners visited the interior and tourism ministers and pleaded with them to reconsider. Reports then surfaced about the interior minister standing on the main road in the Gemmayze district asking party goers to reduce their noise levels.

Local band Mashroua Layla performing at the Fête de la Musique in Beirut Central District in June

“We saw him stopping cars, himself,” says Kamel. “Imagine the minister of interior peeps in your window and asks you to lower the music. People apologized to the minister and put their music down.”
Around two weeks after the reported policing by Minister Baroud, the interior ministry issued a clarification to the decree stating that the curfew did not apply to establishments that sound-proofed their bars and restaurants. The party was on again, but the problems didn’t disappear entirely.
On July 10 some residents of the Gemmayze district staged another protest in the main street demanding tougher regulation of establishments.

Problems to solve
“A decision has been taken by the Ministry of Tourism and the Ministry of Interior to let them [entrepreneurs] open as many bars as they like,” claims Fadia Kiwan, a local Gemmayze resident who took part in last month’s protests. The protest eventually turned violent when another local resident, Hadi Souaid, claims he was attacked and beaten by the entire staff of a local bar in Gemmayze. “When the police arrived they did nothing,” says Souaid.
In an attempt to pacify the situation, the Gemmayze Development Committee (which represents the bar owners) has issued a 15 point plan to address the issues facing the district. One of the most important of these is the problem of parking an estimated 1,800 cars that enter the district on any given night. To address the problem, the GDC and the tourism ministry have been lobbying to open the Charles Helou station’s three-floor parking lot and turn it into parking space for Gemmayze’s residents and visitors. Minister of Transport Ghazi Aridi has agreed to the proposal in principle but bar owners say the ministry of transport has yet to act.
“All we hear is talk and empty promises,” says GDC president and local bar owner Makram Zeen.
For now the regulation of the industry remains in disarray and, from the lengthy list of reforms Lebanon’s post-war governments still has to implement, it doesn’t seem likely the sector will receive much attention from any new government. “We are in Lebanon,” says Khazen. “Before [improving the regulation of] this industry, there are so many other things that are [so] much more essential that the [Lebanese] need to do.”

First published in Executive Magazine’s August 2009 issue


No better, no worse

Elections only fortify Lebanon’s sectarian politics

by Sami Halabi

Phalange party supporters in Beirut celebrate the March 14 alliance's victory in Lebanon's June elections. (Matthew Cassel)

Lebanon’s elections last month confirmed yet again that in this tiny Mediterranean country, sectarian politics are paramount. Long gone from the collective consciousness are the lessons of the 15-year civil war that began as a political and class dispute and descended into sectarian enmity. Forgotten also are the post-war years that led up to the recent elections and were characterized by the ebb and flow of civil strife.

Many would argue that digging up the past, runs the risk of repeating it. But in Lebanon’s case, allowing the issues that propelled Lebanon into civil conflict to fester has not proved useful, either.

The Taif agreement, which effectively ended Lebanon’s civil war, stipulates that all of Lebanon’s civil war militias disband. Even though many of the country’s sectarian militias still hold onto some of their weapons, only Hizballah maintains a sizable military arsenal. Lebanon’s continuing occupation by Israel remains the main justification for Hizballah’s armed presence outside of the state’s apparatus. Hizballah’s arms are a particularly precarious issue that came to a head in May 2008 when Hizballah and its allies faced off with pro-government forces in the streets of Beirut.

It’s also no surprise that today many of those who take issue with the group’s weapons outside the state’s apparatus are members of sects that resent the growing political, economic and military power of the Shia in Lebanon. Much of this enmity towards Hizballah stems from the constituents of areas that have suffered considerably less from recent Israeli aggression against the country. This includes former supporters of the Phalange party, which was supported by Israel during the civil war, and openly backed Israel’s invasion in 1982 and the occupation of Lebanon’s south that ended in 2000.

Another dimension of the confessional mishmash is the sentiment among wide swaths of Lebanon’s Christian community that they are becoming demographically marginalized by an increasing population of Muslims, particularly the Shia and supporters of Hizballah. Since the last elections, held in 2005 on the heels of the assassination of Prime Minister Rafiq Hariri, different factions within the Christian political elite have chosen to deal with the issue by either allying themselves with the ballooning demographic reality of Lebanon’s Shia, or opposing it.

Michel Aoun — a former military commander and acting president — is supported by many Christians in Lebanon. Recently he sarcastically thanked US President Barack Obama for “likening the Maronite [Christian] protectorate in Lebanon to that of the pandas,” referring to the US president’s speech in Cairo. Aoun’s party, the Free Patriotic Movement, is part of the Hizballah-led parliamentary opposition. In turn, some have pointed to the schism within the Christian community as evidence that the political dynamics of Lebanon are beginning to overcome their sectarian deficiencies. The reality of the matter however is much less encouraging.

Aoun’s alliance with Hizballah is based solely on sectarian principles. At no point since he forged the alliance did he forgo the opportunity to remind anyone who would listen that he represented the “majority” of the Christian population, thus reinforcing the nature of the alliance as one between sects and not political partners. When I asked an MP in his coalition why he is allied with Hizballah when their platforms contradict on many points relating to reforms, he laughed and said that there are “no issue politics in Lebanon.” Even though Aoun’s party gained more seats than in the previous elections, mostly due to Lebanon’s archaic electoral law, that “majority” turned out to be nothing more than wishful thinking and selective analysis facilitated by Lebanon’s reluctance to conduct polling or a population census, for fear of upsetting the sectarian “balance” in the country.

Moreover, many of Aoun’s Christian supporters who were initially disenchanted with the party’s alliance with Hizballah opted to support the March 14 coalition, a loose allegiance of former warlords and business magnates who won the recent election in a landslide through monolithic clannish voting. Hizballah’s actions did not assist Aoun. Shortly before election day, Hassan Nasrallah, the head of Hizballah, made an inflammatory speech addressing the issue of last year’s 7 May events and called them “a glorious day.”

What was so glorious about Beirut being taken over by masked gunman from Hizballah and its allies? Or their pro-government rivals setting up ad hoc checkpoints, making sure that no “undesirables” with Shia first or last names entered their sectarian enclaves? Such a declaration defies the bounds of common sense. That is, unless you are of the camp that believes Hizballah never wanted to win the election in the first place. While that may seem illogical to most, it is a real possibility that Hizballah would rather not deal with a debt-ridden economy that currently holds a debt-to-gross domestic product ratio of 170 percent.

Instead, what is increasingly becoming evident is that Hizballah will be satisfied, at least for the time being, with “assurances” that any new government will not attempt to rid it of its military arsenal or infrastructure. Whether it was intentional or not, Hizballah certainly dampened the support for Aoun amongst Lebanon’s Christians, even if that support didn’t reach his purported “70 percent” in the first place.

For its part, Hizballah is as keen as any to embrace the sectarian realities of Lebanon for its own purposes. The Party of God completely overwhelmed its opponents in its strongholds of Lebanon’s southern and western regions with the practically uniform voting of the country’s Shia. What’s more, Hizballah continues to provide social services solely to its constituents, further cementing the dependence and loyalty of many in the Shia community on the party, not to mention adding fodder to its detractors’ “state within a state” argument.

Somewhere in the middle of all of this are Lebanon’s Sunnis. Although they never had a formidable militia of their own, Lebanon’s Sunnis do possess one discernible weapon that everyone in Lebanon recognizes very well — money. Propped up by Saudi petrodollars, the Sunnis have managed to “buy” their way into power. The Saudis — who have many interests in Lebanon, ranging from fighters sympathetic to their tutelage in the north to real estate investments all over Lebanon — put forward large amounts of money (estimates range from $400 million to $1 billion) in Lebanon’s recent elections to ensure that their piece of Lebanon’s sectarian pie would not be eaten up by anyone else. It proved to be a worthwhile investment for the kingdom as their local patrons, the Hariri family and its allies, won a decisive election victory. Saad Hariri, the son of the assassinated former prime minister and head of the party that holds the largest share of seats in the new parliament, has just become Lebanon’s prime minister-designate after only four years in politics and never having assumed a ministerial portfolio or having been involved in implementing any of Lebanon’s much-needed reforms.

As the sectarian wheels of Lebanon continue to turn, they pull along the ability of Lebanon’s political elite to rule through a perpetual hand-me-down system. Hereditary inheritance of political power occurs across party lines, especially in the new parliamentary majority. The ruling March 14 coalition now includes five sons of deceased politicians, one sister, one wife, one brother and one 26-year-old daughter, Nayla Tueni. Tueni, who has never held any occupation other than working at her father’s newspaper, An-Nahar, is against a minimum quota for women in parliament. Moreover, when asked what she was going to do about 28.5 percent of Lebanon’s population living below the poverty line, she requested to send me a response by email. In her response, which was a superficial one at best, she said she would focus her “efforts” on her electoral district — one of the most affluent districts in the entire country.

Who is to blame for this situation? Essentially, it is the people who continue to reinforce the system by electing the same representatives or their progeny time and time again. Yet, it is the people of Lebanon who suffer the most from the lack of basic services or a functioning state, not the “leaders” they continue to elect. The reluctance of most of Lebanon’s population to admit to themselves that the core issue hampering progress in their lives is not which tribal lord rules over them for the next four years, but an unwillingness to keep God, and the absolute truth that he embodies, out of government. This is what is keeping them and their country on the brink of disaster, and surely this new government will be no different.

First published in Electronic Intifada on July 7, 2009

Like oil and water

Hydrocarbon politics in the Eastern Mediterranean

by Sami Halabi

There’s an old saying in the oil industry: “Oil is like a wild animal. Whoever captures it has it.” The late American oil magnate, Jean Paul Getty, may have been talking about the oil and gas market of the 1950s, but his words continue to ring true. Ever since a joint US-Israeli exploration group headed by Texas-based Noble Energy discovered a large natural gas deposit at Tamar (90 kilometers off the coast of Haifa) in January, the proverbial animal has been officially let out of its cage in the Eastern Mediterranean.

Seismic survey vessels like this one, owned by Petroleum Geo-Services, have located vast hydrocarbon prospects in the Eastern Mediterranean

Analysts estimate reserves at Tamar of around 142 billion cubic meters (BCM), valued at around $3.6 billion, with a $1.5 billion extraction cost. The discovery has been heralded by Noble’s Chairman and Chief Executive Officer Charles Davidson as possibly “the largest discovery in the company’s history.” For a company like Noble that boasts assets of more than $12 billion, that’s no passing phrase.
A few months after the initial discovery, Noble found another deposit of gas at Dalit, 13 kilometers east of Tamar. That discovery is expected to yield reserves of around 14 BCM, or around 10 percent of the Tamar find. Noble declined to comment on the finds and Executive is legally forbidden to correspond with Noble’s Israeli partners.
The amount of gas present in the two fields could potentially serve Israel’s gas demand for a decade, or even longer.
“We are witnessing an historic moment in Israel’s energy market,” Israeli Infrastructure Minister Binyamin Ben Eliezer said at the time of the Tamar find.

Source: Noble Energy.
Noble Energy’s operations in Israel and Cyprus

A thorny relationship
At present Israel depends on Egyptian gas exports to run its power plants. The agreement for Egypt to supply Israel with a constant stream of gas comes under a clause of the Camp David accords, signed in 1979, and stipulates that the two parties will set a fixed price for each million thermal units (MMBTU), the standard unit of measurement for commercial gas exports, which corresponds to around 28 cubic meters of gas. The export of Egyptian gas to Israel has been the cause of much controversy in Egypt where anti-Israeli public sentiment is pervasive 30 years after the two countries’ leaders signed a peace treaty.
The issue of Egyptian gas exports to Israel remains a thorn in the side of both governments; politically for the Egyptians and in terms of energy planning for the Israelis. Hence, while energy independence for Israel would constitute a negative for Egypt’s current account, it could also translate into some much needed wiggle room for Egypt’s autocractic government.
“The opposition parties are always questioning the wisdom of supplying Israel with gas,” says Ibrahim Saif, resident scholar specializing in the political economy of the Middle East at the Carnegie Middle East Center. “Egypt is [always] trying to downplay that subject because there is a sentiment in Egypt that is against supplying Israel with gas.”

How much do they really have?
While Israel’s estimated gas reserves seem promising, they are still just that, estimates. The numbers currently available only indicate a ‘geological reserve’ based on seismic surveys conducted from above the seabed. The fields still have to undergo an appraisal phase to ascertain how large the ‘proven reserve’ is and exactly how much of the gas can actually be extracted.
“The initial discovery does not provide a clear picture as to the structure of the field. You need a year until it becomes a proven reserve and only part of it can be extracted,” said Ziad Arbahe, a Syrian energy consultant.
Arbahe explained that commonly only 30 to 40 percent of a geological reserve can be extracted. There have been rare cases where up to 50 percent has been extracted, but this usually requires that a company inject water into a field, increasing operational costs and often damaging the field itself.
“In general, when there is a find, countries and companies are optimistic about the amount. But when you start to produce… the initial estimation is usually much higher than the actual amount,” Arbahe adds.

On the Lebanese side…
The recent discoveries have “caused a flurry of interest in the Lebanese offshore area,” says Charles Harmer, executive vice president of multi-client services at Spectrum Geo, the company that previously performed preliminary seismic surveys for the Lebanese government between 2000 and 2007.
Fawaz Mourad, the regional representative of Petroleum Geo-Services (PGS), agrees. His company  and Spectrum Geo have both conducted seismic surveys in Lebanon’s offshore area, which is part of the “Levantine basin.”
The Levantine basin is the underwater geological structure that is located beneath the territorial waters of Lebanon, Israel, Cyprus and Syria. The basin itself has “similar structures and formations” in both Israeli and Lebanese waters which makes “offshore Lebanon even more interesting and more prospective,” says Mourad.
Lebanese oil and gas exploration began in the late 1960’s and early to mid-1970’s with the drilling of several wells across the country. Then, like many things in Lebanon at the time, exploration came to a grinding halt when Lebanon’s civil war began in 1975. After the war, Syria and Lebanon formed the “Committee of Cooperation between Lebanon and Syria for Oil Exploration in Lebanon,” which lasted until Syrian troops pulled out of Lebanon in 2005 after the assassination of the former Prime Minister Rafiq Hariri.
“The order from [current Syrian] president Assad’s father was to help Lebanon by all means possible, even for free, to get oil out of Lebanese ground,” says Ali Haidar, a former member of the committee and current petroleum studies professor in Beirut. “There were some favorable interpretations of this behavior on some Lebanese sides and on others there were unfavorable [interpretations].”
During the run-up to Lebanon’s parliamentary elections, Nabih Berri, the country’s speaker of parliament and member of the current opposition, stressed the importance of “encouraging the exploration of [oil and gas] prospects in all the Lebanese territories,” ostensibly referring to the continuation of onshore exploration.
However, little headway has been made in Lebanon since pre-war drilling, despite the fact that Lebanon is part of the same geological structure where proven gas deposits have been found in Syria “only 40 kilometers from the Lebanese border,” says Haidar. Today, Lebanon’s old wells still sit idle and efforts to resume exploration have been “postponed” according to a senior executive at Lebanon’s Ministry of Energy and Water.
Ghazi Youssef, a member of Lebanon’s new ruling parliamentary coalition who used to manage the oil and gas file as an advisor to former Prime Minister Rafiq Hariri in the earlier part of this decade, is nonetheless pessimistic about the prospects of oil and gas aground in Lebanon. He says that the issue of exploring these wells should be put on a “back burner” because “all the reports I have seen in the past do not really show the possibility of a major find [onshore]. It’s mostly tar and other residue but not hydrocarbons. Things point more to the offshore fields than they do onshore.”

Move to water
Indeed, since 2000 the focus of the Lebanese government and international oil and survey companies has been on offshore exploration. In 2002, the Lebanese government entered into an agreement with Spectrum Geo to perform a two-dimensional seismic survey off the coast of Lebanon to supplement a survey completed in 2000, which did not require government permission “because of the location and the fact that there was no previous work in the area,” says Harmer. Two-dimensional seismic surveys are used to identify breaks and possible traps in geological formations where there is a high possibility that oil or gas may be present.
The agreement gave Spectrum Geo the right to gather data off the Lebanese coast at its own cost and to later sell the data to prospective oil companies on a licensing basis. The Lebanese government would then receive a percentage of the license agreement and get a copy of the final data.
“We had to try to sell it as many times as we could to cover our costs and then make a profit on it,”says Harmer.
The agreement itself, however, ended in 2007, and the government says Spectrum Geo has requested another five year agreement with the Lebanese state.
In both 2006 and 2007, the government commissioned another Norwegian survey company, Petroleum Geo-Services (PGS), to perform three-dimensional seismic surveys off the coast of Lebanon. Three-dimensional studies subject geological formations to sets of waves which then ‘bounce back’ off these structures to provide a clearer view below a surface.
But several experts have questioned the manner in which the three-dimensional studies were conducted. “Normally when you have such a huge possibility… you do a lot more than this,” says Haidar. Harmer of Spectrum agrees. “It is very unusual to shoot a [three-dimensional seismic survey] like that. I still don’t understand why they have shot those.”
Mourad of PGS, however, insists that the data acquired was “comprehensive” and that “there is enough data to allow the companies to drill. They don’t need to do more 3-D surveys. So if a bid-round takes place over the areas which are covered by the 3-D survey, then the oil companies are able to drill immediately, thus saving a lot of time,” he says.
According to Sarkis Hlaiss, general manager and head of Lebanon’s gas and oil installations committee at the Ministry of Energy and Water, the main reason that a more extensive survey was not done is that the Lebanese government and PGS are currently performing another two-dimensional survey on Lebanon’s Exclusive Economic Zone (EEZ), which was only delimited — the process by which a country defines its borders — in May by a committee at the energy and water ministry. A source at the United Nations, who spoke on condition of anonymity, said that the issue of border demarcation between Lebanon and Israel has yet to be officially resolved by the UN and stressed that maritime borders would only be addressed once the border delimitation on the ground has been completed. PGS insists that the issue is inconsequential.
“Even if they haven’t officially delimited it, it doesn’t mean that it is disputed. There is no dispute,” said Mourad.
In any case, most experts agree that it is premature to consider the possibility of common resources before all the results of Lebanon’s seismic surveys are completed to ascertain if there are fields shared with Israel. The results of the survey are expected to become available within four to five months.
“By the end of September we will have the complete data in two-dimensions and three-dimensions from PGS,” says Hlaiss.
The new survey will employ seismic technology developed by PGS that enables seismic waves to overcome the distortions caused by layers of salt present across the Levantine Basin. The results of the survey will provide data that is much clearer and more useful to prospective oil companies and the Lebanese government, who can negotiate better if a bidding round ever materializes.

Dollars for data
According to Mourad, PGS has invested “tens of millions of dollars” to acquire data off the Lebanese coast. The company “hopes to recover its investment by selling the data” to oil companies looking to enter any Lebanese oil and gas market, once the government starts a bidding round and offers licenses to companies to start drilling offshore.

Visualization showing how seismic surveys allow geophysicists to see beneath the surface and map areas that are not visible

“PGS has not sold any data for the simple reason that companies, when they own data, need to know that they can do something with it, like participate in a bid round,” said Mourad.
But in order to open up a bidding round, Lebanon would need to have a law that dictates the terms and obligations of both the Lebanese government and prospective oil companies — something the Lebanese government has been dragging its feet on for decades.
“Until now we don’t have a law, it’s a disaster,” says Hlaiss. All the countries of the Eastern Mediterranean who have access to the Levantine Basin have legislation that apportions their maritime territory into blocs, ready for sale to prospective oil companies looking to explore their offshore prospects. Cyprus opened its first bidding session in 2007, as did Syria.
Fortunately for Lebanon, they have some friends in high places within the oil and gas industry. Since 2007 the Norwegian Agency for Development Co-operation (NORAD), as part of its ‘Oil for Development’ program, has been assisting the Lebanese energy ministry to draft a new law to the tune of “several million dollars to start putting legislation in place [and] actually start a bid round,” says one oil and gas industry executive who spoke on condition of anonymity.
Martin Yettervik, counselor at the Norwegian Embassy in Lebanon, says that the program is about institution building as opposed to drilling and is aimed at helping the Lebanese avoid the pitfalls of an energy dependent economy.
“For any country that is new to petroleum, it is important to take into account the economic effect of the petroleum economy, because it is different from other kinds of economic factors,” says Yettervik. “There are examples around the world where, when the petroleum economy dominates, it is to the detriment of the other fields in the country.”
Countries such as Nigeria and Iran have felt the pain of an economy overly dependent on petroleum resources. However the risk to Lebanon is not just economic. The potential for oil and gas revenues to play into Lebanon’s polarized and volatile sectarian political mixture is very real. One look at the electricity or telecommunications situation in the country and an ineffective or politically tainted oil and gas industry could be “another killer,” according to professor Haidar.
Nonetheless, Yettervik insists that the program has not become “a tool for one or another power factor in a country” and that “since the beginning we have seen a trans-political cooperation, even when the country was in the deepest of crisis,” referring to the 18-month political standoff that led to the May 2008 conflict in Lebanon.

Norway’s helping hand
The Oil for Development program is set to carry on until 2011, at the behest of the Lebanese government. In order to expedite the process of drafting the still non-existent law, the Norwegian government has contracted an international law firm to assist the energy ministry with setting up a bidding round and has trained several officials at the ministries of energy and water, and finance and environment. Both Spectrum Geo and PGS’s head offices are located in Norway, but Hlaiss insists that the Norwegian government “didn’t ask for anything in return.”
Yettervik admits that the program “gives the Lebanese authorities familiarity with the Norwegian system,” but insists that any collusion between the Norwegian government and its companies “would be contrary to the spirit of the program.”
The government has confirmed that the new law will allow Lebanon to alter the output of any firm that extract’s oil or gas, which, if done hastily, could damage any potential field and substantially reduce its long term productivity. Moreover, the law will oblige future oil companies to adhere to the Lebanese labor law, which compels them to hire a majority of Lebanese citizens if qualified persons are present in the country.
According to the energy ministry and the Norwegian embassy, the draft exploration law is all but completed. The text, which is still in English, is complete and is in the translation process. Once in the Lebanese Parliament, it will be subject to the scrutiny of the country’s conflicting political interests.
“We are trying to push [the law] through this government,” says one government official who spoke off the record. “If we don’t, and the minister [of energy and water] changes, it will take us another three months to explain to the new minister what we are doing and then who knows [how long it will take].”
MP Youssef expressed his coalition’s desire to depose the current minister, whose party is part of the opposition, but insists that it will not derail the process.
“We believe that when someone comes to power you don’t just take everything and throw it down the drain; there’s continuity. We have to deal with [the law] and try to finish it as soon as possible.”

Sharing with the enemy
Perhaps the most important point to consider in Lebanon’s energy saga may be that if Tamar, Dalit or another field is a common field between Lebanon and Israel then the latter is currently usurping Lebanon’s natural gas.
“Whoever starts before gets the resources because of drainage,” says Haidar, adding that the clock is now ticking down on the Lebanese government’s opportunity to tap this resource before the Israelis do.
Contested borders have always posed a problem in the Middle East, especially when it comes to hydrocarbon resources. The “neutral zone” between Saudi Arabia and Kuwait that was demarcated by the Anglo-Turkish convention in 1913 still exists today. It has been a source of ongoing disputes over maritime borders between Kuwait and Iran for some time, although Kuwait and Saudi Arabia have come to an agreement over how to share the resources present in the area. Lebanon and Israel however remain in a state of war, and Israel still occupies some of Lebanon’s territory. Hence the issue of sharing resources, if indeed they do exist, seems far-fetched at best; more likely, perhaps, is the prospect of further conflict between the countries over energy.
“This is not going to be an easy issue,” says Saif. “If Israel starts to pump and utilize [any common resource], it would be a source of contention and Lebanon will find itself forced to move and to block any Israeli unilateral move.”
Most experts agree that it is highly improbable that the recent finds at Tamar and Dalit constitute a common field because of the distance between the finds and the border area, but that does not preclude the possibility of it being one or that one could exist, given the commonalties between the Lebanese and Israeli areas of the Levantine Basin. Just to make sure Israel is aware of Lebanon’s territorial concerns, the  prime minister’s office has sent a letter to Noble demanding that the company does not encroach upon Lebanese maritime territory, according to a government source who spoke on condition of anonymity.
Even if Lebanon does manage to pass a law, starts the bidding process and brings in the oil companies in to begin drilling, the economic benefits will not be felt until much further down the line. The Tamar field is not expected to produce commercial quantities of gas until at least 2013. One energy consultant offered to bet this journalist $1,000 that commercial quantities would not be extracted before 2015. Moreover, any potential Lebanese field may take even longer enter production.
“In eight years, if we find something, we can actually open the lid and start making some money. Whoever wakes up first gets the money and the resources,” says Haidar.
If the Lebanese don’t wake up soon, they may well find themselves snoozing through yet another regional boom and lose the chance to revive their debt-ridden economy.

First published in Executive Magazine’s July 2009 issue

The ballots bought

Vote fraught with fraud, corruption and coercion

by Sami Halabi

Lebanon's landscape was littered with election posters in the run-up to the June 2009 elections

Lebanon’s June 7 parliamentary elections are expected to be a close affair, pitting the March 14 coalition against the opposition parties of Michel Aoun’s Free Patriotic Movement, Hezbollah and Amal. The elections are unprecedented in many respects, not least of which is the introduction of a new electoral law.
Lebanon’s new electoral law is unique in the region, addressing core issues such as media objectivity during the elections and campaign finance. The reforms are a step towards adopting legislation that would bring Lebanon’s elections in line with international standards. But the current legislation is “diluted by significant loopholes,” said Madeline Albright, the former United States Secretary of State, when she touched down in Beirut to head a delegation to monitor elections from the National Democratic Institute (NDI).
The loopholes are many, but certain reforms that did not exist prior to this year’s elections have been adopted. Not least of which is Lebanon’s newly formed Constitutional Council that can adjudicate contraventions of the electoral law.

Spending caps skirted
In theory, the new election law stipulates that an “electoral campaign account” must be established for each candidate and “all electoral contributions and expenses shall be exclusively made through this account during the period of the electoral campaign.”
The law restricts each candidate to a campaign spending limit, including pay-in-kind expenses, of approximately $100,000, plus a variable of around $2.66 per registered voter in an electoral district, which is measured by the Ministry of Interior’s list of registered voters. But the actual number of eligible voters in a district is impossible to calculate because Lebanon has not conducted a census since 1932.
“Candidates are required to do all their spending from their electoral account, but they can make transactions from their personal accounts or their family’s accounts and no one can know,” said Lynne Ghossein, the campaign finance project manager at the Lebanese Transparency Association (LTA).
One possible solution to this skirting of the law would be to monitor candidate’s personal accounts or those of their families. But this provision is not included in the new electoral law.
“I gave my opinion while discussing the draft electoral law and I said very openly that we cannot limit banking secrecy to the campaign account,” said Lebanon’s Interior Minister Ziad Baroud at a press conference for the Supervisory Commission on the Election Campaign (SCEC). Baroud is responsible for insuring the SCEC fulfills its mission of implementing the new electoral law.
Lebanon is one of the only countries in the world that maintains a policy of banking secrecy on personal accounts. Banking secrecy can only be lifted by the Special Investigation Committee (SIC) of the Lebanese Central Bank.
“We have not lifted banking secrecy on any candidate’s accounts nor received any request to do so,” said Hisham Hamzeh, director of the audit and investigation unit at the SIC.
Hamzeh explains that banking secrecy is only lifted in order to investigate suspected “terrorist” activity, as well arms and narcotics trafficking and money laundering. Even if candidates are found to have violated the campaign spending clauses of the electoral law, the public would not find out about it until after the elections, when many of the candidates will have already assumed office.
“The only thing that can happen is when the election is over someone does the inventory and campaign auditing for a candidate. [Then] they can see that there is more money spent than what was in the [electoral campaign] account,” said Nadine Farghal, legal counsel and coordinator at the Lebanese Civil Campaign for Electoral Reform (CCER). “This way they can see that [the candidate] has used another account.”
Violations of campaign financing regulations are to be submitted to Lebanon’s Constitutional Council, whose formation has been delayed for years. On May 19, a group of 55 Lebanese civil society organizations and eight universities sent a formal letter to President Michel Sleiman demanding the creation of the Constitutional Council.
On May 26 — less than two weeks before the election — Lebanon’s cabinet finally appointed its half of the council’s membership (five out of the 10 seats). The council is Lebanon’s highest judicial body that can rule on the constitutionality of the elections and is seen as an essential judicial organ providing an alternative to violent conflict over electoral contentions.
In addition to being prevented from tracking the personal accounts of candidates, the SCEC can only begin to monitor campaign accounts from the point when candidates officially submit their eligibility, a period that ran from March 2 to April 7. Hence, supposing that candidates do follow the letter of the law and only use their campaign accounts to fund their campaigns, there is still no adequate mechanism in the law to account for the total amount spent on a campaign, which began well before the submission period.
“The monitoring time is [too] short and we didn’t get the time we wanted,” Baroud said.
Yara Nassar, executive director of the Lebanese Association for Democratic Elections, said that long before the monitoring period began, candidates used their own accounts or that of their party. She said the lack of an official commission to report violations in the run-up to the election period is another significant shortcoming of the new law.
“This is the first time the SCEC is here,” she said. “They haven’t been around for four or five years and this is part of the problem.”

Foreign influence
In theory, Lebanon’s new electoral law specifically prohibits candidates “from accepting or receiving, whether directly or indirectly, contributions or aids from foreign states or from a non-Lebanese natural or legal person.”
But without oversight on candidates’ personal accounts, there is technically little to stop candidates from ignoring the law and accepting the support of foreign entities willing to dish out cash to support their interests.
“Candidates can receive money in other accounts then transfer it to their electoral account,” said Gaelle Kibranian, programs director at the LTA. “We cannot know where this money is coming from.”
Lebanon’s role as a battleground for regional and international players makes it a prime candidate for illegal money entering the country to support one side of the political divide more than another.
“Can you say that Hezbollah doesn’t take money from Iran or Saad Hariri doesn’t take money from Saudi or [Michel] Aoun from Qatar,” added one legal expert who spoke on condition of anonymity. “It’s all around the media and no one is investigating it.”
The practice of accepting foreign money has become so commonplace in affecting the course of Lebanese politics that many politicians have heralded it as a necessary element to achieving their political aims. Ahmad el-Assad, a candidate running for the Shiite seat in the Marjayoun electoral district and founder of the Lebanese Option Gathering (LOG), said he has “no problem” with accepting financial help from Saudi Arabia or the US “because if we don’t do that things don’t move forward.” However, he denied receiving any funding for his campaign from foreign sources.
His organization aims to provide an alternative to Hezbollah’s influence over Shiites in the south of Lebanon. Assad accused Hezbollah and its allies of intimidating the residents of Lebanon’s south and of receiving “tens of millions of dollars” from Iran. Hezbollah declined to comment on Assad’s accusations.

Vote buying
International and local election watchdogs say the biggest obstacle to preventing vote buying is the balloting system in Lebanon. Ballots can be printed or written out on any piece of paper and parties usually hand out their pre-printed “list” before a voter enters a polling station.
A party can hand out a variety of ballots, with candidates listed in any order and any font. This in turn allows political parties to trace the ballot back to a particular voter or bloc of voters.
Despite repeated calls by civil society and some government figures like Minister Baroud, the proposed introduction of standardized, pre-printed and government distributed ballots at the polls was not included in the 2008 Election Law, due to opposition from parties on both sides of the political spectrum.
“We know that the buying happens at the ballot because it is just a piece of paper and they [candidates and parties] put signs on it and pay for the votes afterwards,” the LTA’s Kibranian said.
She said each party has representatives at the polling station during vote counting who, in turn, monitor the number of votes cast for each candidate or list of candidates.  CCER’s Farghal said the markings are usually simple alterations in the lists of candidates, such as having the “second name in italics or the third name in a different font.”
Election observers agree that most of the ballot rigging happens at the ‘family level,’ whereby large families in electoral districts agree to arrange for their family members to cast votes for a certain candidate or list of candidates. Once the ballots are counted, each family then receives cash or pay in-kind services according to the number of counted votes.
“We have witnessed representatives of the candidates marking each name when they count the votes,” said Nassar of LADE.  “They see the ballots they need to mark and then they mark their own register.”
But it’s not just families that take part in vote buying corruption. An anonymous source working with one of the major Christian opposition parties in Lebanon said his party  recruited through an “electoral pyramid scheme,” whereby the amount of money ‘recruiters’ make increases with the number of people they ‘recruit.’ The source has agreed to vote for the party in question and act as a representative at the polling booth.
“All they wanted was a photocopy of my ID,” the source said. “If you have a car they need your driver’s license and you can get more [money] because they ask you to transport people.”
The source said he was receiving $100 for his vote and $100 to man the polling station come June 7.
Candidates and parties are also looking to bring votes back to Lebanon from abroad, and with it the voters, because current legislation does not allow Lebanese citizens to vote outside the country.
An anonymous source in Dubai with links to a prominent Sunni party said the electoral pyramid scheme that applies to local vote buying is also being put to use abroad. The source said that parties are giving voters abroad, especially those from tightly contested districts, either airline ticket vouchers or sending them tickets directly.
While this is not technically an illegal practice, the electoral law specifically states that transportation costs must be deducted from a candidate’s electoral campaign account.
“If you can prove that the candidates themselves are paying for people to fly in from abroad to come and vote for them, then it can be counted as campaign spending,” said Farghal.
As for the foreign staff in charge of recruiting voters, the payment of their salaries will not pose much of a problem in circumventing the law.
“If I am a candidate and I have a lawyer, even if he is not a very smart one, I will find a way to make it seem like these people [foreign staff] are volunteering to get me more votes abroad,” added Farghal.
The current law allows for volunteers to provide services for free which are not counted as campaign expenditures.

Pay-in-kind and your vote is mine
Apart from candidates merely paying people in cash to further their campaign, many parties and candidates are blatantly disregarding the illegality of pay-in-kind services to further their campaigns.
In May the March 14-affiliated Kataeb party advertised on its website that it had distributed free medicine and healthcare in a “special for the campaign.”
El-Assad’s campaign also “distributed health cards that were conditional upon voter choices,” according to a report issued by LADE. El-Assad admited to this violation but says that it pales in comparison to Hezbollah’s violations. Hezbollah declined to comment.

The media’s bark
The new electoral law aims to restrict Lebanon’s sectarian media landscape from unbalanced reporting on the elections. Given that each major media outlet in Lebanon belongs to one political party or another, this is turning out to be an uphill battle for the SCEC.
“Our media landscape is controlled by people who are running in the elections and obviously they will use their media outlets for their own purposes,” said Roula Mikhael, executive director of the Maharat Foundation, a local NGO that is monitoring the media during the elections.
The SCEC’s first report in early May identified 293 media violations of just one article of the electoral law committed over 14 days, from April 14 to April 28. The report covers several categories of contraventions across different types of media that include libel, slander, defamation and broadcasting that triggers sectarian tensions.
The first report contained no specifics as to who committed which media violation because of what head of the SCEC Ghassan Abu Alwan, called “a period of forgiveness.” Minister Baroud added that “we should not consider that it is impossible for the media to follow the law.”
The media organizations however seem to be above the law as they enjoy widespread support among large swaths of the Lebanese public because of their political and religious affiliations. Nassar of LADE explained that the issue of addressing what the media are allowed to do is “something that the authorities in Lebanon are afraid to tackle or take action against,” because “even if the court says you are right, you are well documented and you have everything you need to do this, public opinion could sway against you.”

Piles of posters
The new law also lays out the explicit terms for displaying political posters by which each municipality must assign spaces for display.
But given Lebanon’s municipal elections are scheduled to be held next year, municipalities have a lot to consider if they are to take down illegal posters of a candidate who could represent them in government after June 7.
“Municipalities are usually politicized so they will not, in most cases, forbid people from hanging posters of a certain figure,” said Tony Mikhael, lawyer and legal expert at Maharat. But since the beginning of May, reports have surfaced that the law is being applied in some areas of Lebanon, but “if you go outside of Beirut you see the chaos when it comes to hanging pictures,” said Mikhael.
This practice has greatly impeded any monitoring body’s ability to track campaign expenditures on campaign posters. The SCEC has declared that the cost of any promotional material that even alludes to a candidate or their party will be counted against their campaign account. On the ground, however, there are always ways around such rules.
“You cannot forbid people from placing posters on private property,” Tony Mikhael said. “If you put a picture on the roof or balcony of a building, the municipality can do nothing.”

Abusing public office
Public officials have been accused by various monitors and NGOs of abusing their public offices to promote their campaigns. One of these is the telecommunications Minister Gebran Bassil who recently sent out a voice recording to mobile phone subscribers advertising Lebanon’s recent deduction in phone tariffs.
The message started out by saying “This is not a lie, but the truth” mentioning the minister’s name, but not that of his ministry, which prompted a flurry of accusations. His office said that he recorded the message on April 1, before he submitted his candidacy. Gebran’s office said “technical reasons” caused some subscribers to receive the message later.
Even Parliamentary Speaker Nabih Berri, an opposition leader, has been criticized by LADE for promoting himself and his electoral list by giving speeches at the opening of public events.
Ali Hamdan, a senior adviser to Berri, said that the SCEC has approved of all of the speaker’s speeches, and in turn accused LADE of being biased.
“The US is supporting this NGO so how can they be neutral,” said Hamdan. “They are not neutral anymore and [hence] they should be phased out.” LADE declined to respond to the allegation.
The mudslinging will most likely continue well into and past the elections. But with the legal body to prosecute violations in place, the law now has some teeth. And, with some key reforms advocated by civil society already enacted, there is a sense that the ball has at least started rolling on the path to a democratic process that is in line with international standards.

First published in Executive Magazine’s June 2009 issue

Lebanon’s empty notion of justice

by Sami Halabi

In November 2007 one of the many clocks around Beirut counted 1,000 days since the murder of Rafiq Hariri and 22 others. (Matthew Cassel)

On 1 March 2008, the Special Tribunal for Lebanon came into effect pursuant to the request of the Lebanese government and United Nations Security Council resolutions 1644 and 1757. The trial is intended to bring to justice to those who carried out the assassination of former Prime Minister of Lebanon Rafiq Hariri and 22 others.

Throughout his time in government, Hariri enjoyed close ties to western governments and figures, the most notable of which being the former French President Jacques Chirac who now occupies an apartment on the Seine formerly owned by one of Hariri’s sons. In addition to courting western governments, Hariri was also saddled with the task of weighing the interests of regional powerhouses like Syria — who many inside of Lebanon blame for Hariri’s killing — and those of his western allies. Ultimately it was a balancing act that proved to be too daunting for the late PM.

Lebanon itself is no stranger to violence or political assassinations. Two presidents and three prime ministers in total have been assassinated since Lebanon’s independence from France in 1944. To boot, during its 15 year civil war (1975-1990) thousands of civilians were murdered and tortured by many of the same individuals that currently occupy some of the highest posts in government and control the country’s political arena. The country’s civil war finally came to an end upon the signing of the Taif Accord engineered in large part by the late Rafiq Hariri himself.

Given this small Levantine republic’s violent past, the explosion that ripped through the heart of Beirut on 14 February 2005 that claimed Hariri’s life may not seem worthy of a tribunal with an “international character” or the invocation of Chapter VII of the UN Charter. Chapter VII authorizes the use of force “by air, sea, or land forces as may be necessary to maintain or restore international peace and security” including “demonstrations, blockade and other operations by air, sea, or land forces of Members of the United Nations” and is usually reserved for events that threaten global stability such as the Korean War and the 1948 call for a ceasefire in Palestine.

Under such circumstances one would think that the inauguration of the court would have been welcomed with the usual fanfare that typifies political events in Lebanon.

However, on a fateful morning in March of this year, Beirut’s residents awoke to a day just like any other.

Apart from a few news blurbs and newspaper headlines, there was little feeling that justice had been duly been served. The only marked difference on that windy March morning was the discontinuation of a long-running series of digital clocks positioned around Beirut marking the days that had passed since Hariri’s death. The clocks adorning the facades of the late Rafiq Hariri’s many commercial and real estate possessions are accompanied by slogans that boldly and simply exclaim the need for “the truth for Lebanon’s sake.” The clocks are strategically positioned around Beirut in places such as Hariri’s own piece of Lebanon’s sectarian media landscape (each confessional group in Lebanon has a TV station dedicated to its cause) and even on the graveyard built to house the victims of the bombing in the center of downtown Beirut.

The cessation of these clocks signifies more than just a passing occurrence in the tumultuous history of Lebanon. For months, these clocks were a reminder to every citizen of Lebanon that their grievances have not yet been addressed. For 1,476 days (to be exact) someone wanted the Lebanese to believe that this time it would be different. That somehow Lebanon — a country with no constitutional court, and a legislative branch so close to the executive they might as well be the same body — could possibly achieve something as fleeting as justice.

The slogans proclaiming the need for “the truth for Lebanon’s sake,” still stand next to the fizzled-out timepieces and the world’s interest in supporting the raison d’etre for the tribunal seems to have abated all the same.

To understand why these events have taken place requires a memory that spans longer than the 100-odd days Barak Obama has been president of the United States. Finger-pointing in the Middle East was a simple and logical political task at the time Hariri was murdered. His stature with the West made it easy to blame (rightly or wrongly) Lebanon’s pro-Syrian security officials for his killing.

In August of 2005, four of Lebanon’s top security officials were detained and held without charges of any kind brought against them. The decision to arrest them came in the midst of the Bush era, a time when, as former Secretary of State Condoleezza Rice once said, the region was still suffering from its “birth pangs.” That same month, John Bolton was appointed as US ambassador to the United Nations. John Bolton later added Syria to the infamous Axis of Evil list because of the country’s possession of the still chimerical “weapons of mass destruction.”

Again, none of this seemed surprising at the time. The western world, and especially the US, was on a voluntary collision course with the Iranian Republic over its alleged nuclear weapons program. Syria was (and still is) Iran’s main ally in the region and the Lebanese were all too ready to prostrate themselves to an imposed idea of justice. The UN and the powers that control it were so intent on seeing the tribunal come to fruition that they subverted the Lebanese parliament — which was in a state of stalemate due to the petty political squabbling of Lebanon’s leading factions — to acquire the legal footing to go ahead with the tribunal. The UN even sat by and watched while the accused sat in jail without being charged for more than three and a half years.

Many things have changed since then. The US, Iran and Syria are now flirting with the idea of rapprochement, albeit for their own regional interests. The Syrian President Bashar al-Assad has since broken out of isolation to the point where Jimmy Carter “wouldn’t be surprised” if the US and Syria restored full diplomatic ties by the end of this year.

On 27 April 2009 the special tribunal made its first decision but did not inform the press. Two days later the court ordered the Lebanese authorities to “release with immediate effect” the four security officials held since August 2005 because they cannot be “considered suspects or accused persons.” The move is seen by many to be a victory for Lebanon’s opposition coalition headed up by Hizballah.

The only “truth” in this anomalous turn of events seems to be Lebanon’s unabated eagerness to embrace the interests of other nations. First, it was the Hariri-led anti-Syrian parliamentary majority who heralded the tribunal as proof of Syrian involvement and brutality in Lebanon (which was evident during its nearly 30-year-long occupation of the country). Today, the Hizballah-led pro-Syrian opposition is pointing to the verdict as a victory for “justice.” The opposition has long claimed that the tribunal lacked credibility due to its politicization.

Indeed, when one looks at which nations actually bank-rolled the whole affair, which was expected to cost over $190 million and last more than three years according to Robin Vincent, the former registrar (another name for chief administrative officer) of the special tribunal, it is little wonder who is putting their money where the interest is. To date, most western countries and a collection of “regional states” who have “exercised their right to remain anonymous,” says Vincent, have put forward over $65 million already.

Vincent resigned less than three weeks ago (16 April). When I spoke to him in March he was glad to inform me that the holding cells for the four accused in the Dutch seaside resort of Scheveningen were all too ready to accept them. He did however seem rather annoyed that the request to transfer the accused had yet to be made. Now I realize that Vincent’s resignation was linked to the latest decision to release the security officials. After all, who would want to run a tribunal with no one to try?

Sometime between March and 27 April it seems that the decision was made to let Syria off the hook, whether they committed the act or not. This has left the door open to a multitude of potential targets. Who will now be blamed for the killing will depend on when global powers can come to a decision on who their “terrorist of the day” is.

In the meantime, the Lebanese have proven that they are still not ready to make their own decisions about the future of their nation. In approximately one month, Lebanon will go to the polls to vote for its next parliament and it is expected to be a close affair. Whoever wins will bear little consequence on the ground since both sides of the political spectrum are neither free nor independent of their external backers. The best case scenario seems to be a hung parliament; the worst case scenario is another war.

More than 15 years have passed since its civil war and Lebanon still does not have a nation to speak of. Its institutions are corrupt black holes of bureaucracy. Its people, divided by the aspirations of others, still lack a sense of common purpose. Their political discourse remains one of sectarian rivalry instead of public interest. Their impetus for voting remains the prevention of “the others” from taking power. And, if the recent events are anything to go by, their notion of justice will remain as empty as it ever was.

First published in Electronic Lebanon on May 4, 2009

Lebanon’s tortuous telecom tangle

Communications network a mess and a national shame

In a country where people seem to do more fighting than talking, the need for an efficient telecommunications sector could hardly be more essential. But like many things in Lebanon, the possibilities are often overridden by reality.
“The [telecommunications] situation in Lebanon in many respects, if not all respects, resembles a disaster zone,” says Riad Bahsoun, telecom expert at the International Telecommunications Union (ITU).
The country’s government-run telecommunications sector lags far behind the rest of the region, with customers suffering exorbitant fees, bad service, poor governance and policies based more on political considerations than economic impetus.
In Jordan for example, the purchase price of a postpaid mobile line (around $12) is about one-fourth the cost of its $50 Lebanese counterpart. Lebanon’s mobile rates per minute are three to four times higher than the world average. The mobile market penetration rate stands at around 32 percent in a region where the penetration rates of some countries are over 100 percent. Lebanon still does not have access to broadband Internet.
The problems started in 1994 when the Lebanese government began rebuilding the telecommunications infrastructure destroyed during the civil war. That is when the government issued four decrees that dictated the manner and direction the telecommunications sector would take.

Calling in the dark
“The government arbitrarily decided to separate the telecom industry, without any knowledge, into fixed services, mobile services or data and internet services,” explains Bahsoun, who is also vice-chairman of the South- Asia Middle East & North-Africa Telecommunications Council.
The resulting governance structure is what Lebanese see today when they look at the tangled web of telecommunications institutions, agencies, regulators and companies.
The decrees resulted in the creation of two general directorates within the Ministry of Telecommunications (MoT). It also created OGERO, the government-owned company that, confusingly, contracts with the government to provide fixed line and internet services. It also created the Global System for Mobile (GSM) office to operate the mobile market.
Bahsoun says the government’s creation of the telecom sector left much to be desired.
“In each segment [the government] started to interfere — govern wrongly with wrong political decisions — in operational decisions,” he says. “Enormous amounts of money and chances were lost.”
In terms of potential however, Lebanon is a telecommunications pot of gold. Its strategic location, educated population and low penetration rates make it a prime candidate for a thriving telecom sector. But it has not come to pass.
“There is a direct correlation between government ownership… and inefficiency,” says Ghassan Hasbani, vice president and partner at the consultanting firm Booz & Company.
Nearly all telecommunication revenues go directly to the government. The only exceptions are providers of end-user Internet and data service such as Inconet Data Management (IDM), Cyberia and others. But even these providers are dependent on the government- owned infrastructure and are subject to revenue sharing agreements with the government. That said, no one seems to know how much money the providers and data operators are making, and how much they are paying to the MoT.
“The Ministry of Telecommunications has something like a dozen revenue sharing agreements with data operators where by the government receives 20 percent. They have never been audited,” says the ITU’s Bahsoun. “Those who may decide to audit are those who receive the money.”

Many industry experts say privatization is the key to improving Lebanon’s telecommunication sector. But efforts to free telecoms from government control have proved futile despite attempts to corporatize and privatize the sector.
In July of 2002, the Lebanese government passed Law 431/2002, called the Telecommunications Act, which established the legal framework for the creation of a joint stock company named Liban Telecom.
“I took part in about 35 committee meetings to pass the telecommunications law and we had a dream that it would be implemented immediately,” says Yassine Jaber, current member of the Lebanese Parliament and former Minister of Economics and Trade.
Liban Telecom is intended to be a government-owned body with a corporate framework that eventually replaces the MoT. It is mandated to encourage development, approve licenses, participate in privatization and encourage transparency. But it doesn’t exist yet.
What does exist is the Telecom Regulatory Authority (TRA). The TRA was also created by Law 431 to regulate Liban Telecom’s operations and to encourage competition and investment in the Lebanese telecommunications market.
Although Liban Telecom is nonexistent, the TRA was established in April 2007 “in a sort of cloud,” says one telecom executive. Its first five-member board meeting was held almost five years after Law 431 was enacted.
Kamal Shehadi, chairman and CEO of the TRA, says Lebanon’s politicians lack the will to implement the reforms stipulated in Law 431. He points out that putting the law into action would “cut the umbilical cord between politics and telecommunications.”
The TRA to date has no legal mandate over the MoT or any of its organs, which include both mobile, fixed line telephony as well as Internet access.

“We regulate the market. We don’t regulate the internal governance of a company,” Shehadi says. “We do not get involved in the internal governance of the ministry; that is not our business.”MP Jaber explains, however, that according to the law, the TRA should be the only entity that manages the sector. “Unfortunately, because of politics [the MoT] has sidestepped the TRA.”

As Lebanon’s telecommunication drama has dragged on, the allure of maintaining government ownership has outweighed the benefits of privatizing the sector. In January, Telecommunications Minister Jibran Bassil said the Lebanese treasury earned more than $1 billion from the mobile market in 2008, and banked over $300 million from the operations of OGERO. The government’s control over the telecommunications sector is often justified as necessary to ensure a constant revenue flow into the government’s coffers and to pay its debt. But that argument has become less justifiable as the rest of the region leapfrogs the Lebanese telecom industry.
“Government ownership in mobile [telecommunications] is generally not conducive to productivity,” says Booz & Company’s Hasbani.
The idea to privatize the networks inched closer to realization in November 2007, when Lebanon was slated to auction its mobile networks. The decision was reversed only a few months later due to Lebanon’s political stalemate. After the Doha accords, privatization was again put on the table. Then the financial crisis hit, and the proposal was put on the shelf. Again.
In February, the mobile management contracts of Lebanon’s two mobile networks were renewed under a new agreement between the government and Lebanon’s two mobile operators: MTC, part of the Zain group, and Alfa, now managed by Orascom. “The contracts have to be renewed because there was simply no way for the council of ministers and the TRA to proceed,” Shehadi says.

Previously, MTC and Alfa were paid a flat fee of around $5 million a month to manage the networks. In the past, both operators paid all the operating costs associated with running the networks. This arrangement was, by nature, antithetical to encouraging growth in the sector, because any increased expansion of the networks would increase operating costs, thus reducing the bottom line of the operators.

But Claude Bassil, general manager of MTC in Lebanon, says that under the new management contracts, “the objectives of both the Ministry of Telecommunications and our own are aligned.” MTC currently receives $6.66 per active subscriber and Alfa receives $6.75 per active subscriber, drastically changing the revenue model, and giving the operators incentive to expand.
Probably the most important element of the new arrangement that will impact the growth of the mobile market is the new pricing structure put in place by the government at the beginning of April.

The plan lowers prices for prepaid monthly subscriptions ($45 to $25), prepaid minute rates ($0.50 to $0.36), monthly subscription fees ($25 to $15) and postpaid minute rates ($0.13 to $0.11) in a move that has been eulogized by many as the sector’s first shift toward a viable pricing structure. The new contracts can be renewed for a period of one year, or revoked if privatization of the mobile networks ever becomes a reality.
With a subscription-based revenue model, the interests of the mobile operators now focus on expanding Lebanon’s overburdened and aging mobile network infrastructure, part of which fizzled out in late March during the prime-time hours.
Samer Salameh, chairman and CEO of Alfa, says the problem was caused by a software bug in a faulty switch that was provided by Nokia Siemens Networks. The switch has been replaced by the company.“The network… is around 14 years old,” Salemeh says. “Imagine a car that is 14 years old and how it will run today if you don’t change the oil. This is what we have.”
As Executive went to print, both mobile operators were aiming to expand their respective networks by 400,000 subscribers each by May, to reach a nationwide total of 2.4 million subscribers. The expansion is made possible by an agreement between the operators and the government. The government has agreed to take on the costs associated with any kind of capital expenditure, purchasing everything from towers to switches to buildings. The operating costs are being incurred by the mobile operators. Such an arrangement has made their bottom line look rather dim.
“We would be lucky if we actually make any money this year,” says Salameh. “We are actually forecast to lose some money.”
So why are the mobile operators willing to accept a loss- making agreement? The answer, it would seem, is that they want to get their foot in the door if the government ever decides to sell a chunk of the mobile network.
“We are not interested in [just] managing the network,” says Claude Bassil of MTC’s unique contract in Lebanon. His company usually owns and manages all aspects of the telecommunications network it operates.
At this point the government’s privatization yo-yo has become commonly accepted practice. And further conditions are now being applied to the sale of the networks. The government changed its sales pitch in February after signing the management agreements, saying that it will only offer a minority share for sale to a strategic partner, because the “majority should be reserved for the Lebanese as investors, as individuals or as funds,” says Minister Bassil.
The idea of a minority share has been met with staunch opposition from industry experts who fear that such an initiative would be contrary to the promise of privatization. Hasbani says the move could also reduce the perceived value of the networks, and scare off potential investors. TRA’s Shehadi says the plan is ludicrous.
“These are proposals that have no basis whatsoever in the reality of the telecommunications market,” he says. “They are unprofessional proposals made by people who have never transacted in the telecom market and have never worked on a licensing effort or privatization.”
Proponents of selling a minority stake say such an arrangement is in the interest of Lebanon’s citizens.
Hizbullah — allies of Minister Bassil’s Free Patriotic Movement — has come out in favor of the minority share plan. In the party’s political platform it stresses “the preservation of this national wealth through the sector development and improving its services.”

Ought to audit
Aside from the problems with operations and debates surrounding privatization, irregularities abound in the telecom sector, especially in the auditing process, ITU’s Bahsoun says.
“For 14 years the fixed services network has never been physically audited,” he says. “The operations of OGERO have never been financially audited. And the two mobile networks that have existed in Lebanon since 1995 have never been physically or financially audited.”
The decision to physically assess and audit the networks rests with the Lebanese government, through the MoT, and there is a disagreement as to whether a full technical assessment of the mobile networks has been completed. Shehadi says that OGERO to date does not have an updated fixed asset registry, making it impossible to perform a financial or technical audit.
“There is no such thing as an audit for OGERO,” says Shehadi. OGERO did not respond to requests for comment on this allegation.
On the mobile side of things, the government has appointed PricewaterhouseCoopers (PWC) to produce an audited financial statement in order to gauge the financial position of Lebanon’s mobile telecommunications. Gilbert Najjar, head of the Owner Supervisory Board, the government entity that oversees the GSM office at the MoT, explains that according to International Financial Reporting Standards (IFRS), PWC has fulfilled its obligations and both mobile operators have provided their financials. That said, his office requires a full audit of all the major accounts of the two operators, instead of just the sampling procedures carried out under the IFRS.
“I told the auditors that I will not approve accounts on this basis because I am dealing with the accounting of government money and I need to have a proper check of all documentation,” says Najjar. “I need the major accounts checked and audited on a proper basis, I cannot do it on a sampling basis.”
The issue has been pending since the mobile operator’s contracts were signed in 2004. Only when all parties involved sign off on a final audit will the case of the mobile operators’ financial standing finally be closed.
“At the end of the day you need the government of Lebanon, the operator, and the auditor to come together and this has not happened,” says Claude Bassil of MTC.
This creates a problem for the TRA, because as Shehadi says, his agency is tasked with providing potential investors with the information they need to invest in the mobile networks. When asked about why these requests have fallen on dead ears, Minister Bassil says, “[The TRA] has nothing to do with privatization; it is something that the minister decides and a policy that has to be adopted by the council of ministers and by our parliament.”
The Owner Supervisory Board is currently in the process of an internal audit of its major accounts.

Goop in place of governance
In 2005, then Telecommunications Minister Marwan Hamade appointed then general director of operations and maintenance at the MoT, Abdulmenem Youssef, to be chairman and general manager of OGERO. OGERO is contracted to, and paid by, the Office of Operations and Maintenance at the MoT. Bahsoun says this arrangement presents a clear conflict of interest where “the right hand plays the left hand.”
Executive attempted to contact Youssef several times, but he did not respond to requests to address Bahsoun’s allegations. The Capital Expenditure Committee, called CAPEX, of the Owner Supervisory Board is the government entity that monitors the mobile network operator’s capital expenses. The CAPEX Committee also contains members of OGERO’s board.
“All the CAPEX Committee members either work for OGERO or the MoT and that has been the case for the past few years so there is nothing new,” says MTC’s Claude Bassil.
But Gilbert Najjar says only one board member of OGERO, Alain Bassil, also currently sits on the CAPEX committee.
“It was a decision taken by [former] Minister Hamade and by the general directors of telecommunications who at the time had the powers of the TRA,” Najjar says.

Internet at a snail’s pace
The cost of the telecom sector’s spider web of authority is apparent in the archaic speed of Lebanon’s Internet connections. The minister himself seems to have little hope in curing the situation.
“I am sorry to say that as the telecommunications minister, I tried to make some headway with respect to [improving Internet access and services,] but was incapable of doing so,” he said in a speech at the Arab Telecom and Internet Forum last month.
Lebanon currently buys its bandwidth from the Cypriot Telecom Authority (CYTA), effectively making it a bandwidth colony. Plans are in motion to increase Internet speeds. In June, a government project will lay 4,700 kilometers of fiber optic cables in the form of an outer ring and an inner ring to encircle the country. The project is set to be completed by 2011 and cost the government $64 million.
Shehadi says the TRA has also initiated a plan to allow private license in the broadband arena. There is also a plan to connect Lebanon to the International Middle East Western Europe 3 (IMEWE3) network, which could add more bandwidth to the country’s decrepit Internet infrastructure. But Riad Bahsoun of the ITU says the plan would require someone to cut through what may be considerable bureaucratic red tape.
“IMEWE3 is a good decision, but it has to go through Alexandria, and the internal security services in Egypt are not happy because they probably haven’t gotten their share of the corruption,” says ITU’s Bahsoun.
There is little hope that the ills of Lebanon’s telecom sector will be remedied until the results of the June parliamentary elections are in and a new government has been formed. When asked whether any headway can be made with regards to privatization or reform during the current government’s term, Minister Bassil laughed and said, “Definitely not. We can wait.”

First published in Executive Magazine’s May 2009 Issue

A tribunal’s legal tender

Hariri trial projected to cost more than $190 million

by Sami Halabi

Robin Vincent resigned as registrar of the STL (MARCEL ANTONISSE/AFP/Getty Images)

Although, many would argue that the concept of justice should carry no price tag, and indeed they may be right, anyone who has ever received an invoice form their lawyer knows very well that justice is by no means cheap.

There are however precedents that justify the costly application of justice over a frugal one. In 1999, the United Nations Security Council (UNSC) passed resolution 1272 effectively creating the Special Panels for Serious Crimes in East Timor. Only $6.3 million was budgeted for the proceedings that consisted of around 50 trials involving over 80 defendants even though initially the court originally issued indictments for almost 400 people. The trials’ creation was dogged by inefficiencies relating to recruitment, translation and the application of legal systems among other items. Ultimately, when the United Nations (UN) ceased to funding for the court approximately 1000 cases ranging including murder, rape and torture had yet to be tried and remain pending to this day. The Extraordinary Chambers in the Courts of Cambodia (ECCC) — originally budgeted at $56 million of which $13 million was to be provided by the Government of Cambodia (GoC). The trials, which were scheduled to take place between June 2006 and June 2009, came across funding issues when the GoC was not able to fulfill its financial commitments leaving the court $4 million short of its intended target size. Last month a new request for funding, as well as an extension of proceedings until March 2011, was presented for an additional $115 million. That brought the total proposed cost of the court, with only five accused, to $170 ($36 million per accused). The case is viewed as a financial disaster for international justice by many.

On March 1 2008, the Special Tribunal for Lebanon (STL) came into effect pursuant to the request of the Lebanese government and UNSC resolutions 1644 and 1757. On the surface, the explosion that ripped through the heart of Beirut on February 14th 2005 killing 23 people may not seem like an act worthy of a tribunal with an “international character” or the invocation of chapter seven of the UN charter- an action that stipulates the authorization of the use of force, “by air, sea, or land forces as may be necessary to maintain or restore international peace and security” including, “demonstrations, blockade, and other operations by air, sea, or land forces of Members of the United Nations.” Indeed, such events are not uncommon around the Middle East and have become almost synonymous with the region’s image around the world. Nevertheless, the use of such heavy-handed language is ostensibly the result of the fact that the pick-up truck filled with around 1000kg of TNT that caused the explosion killed Lebanon’s “western-backed” two-time Prime Minster (’92-’98, ’00-‘04)  and business magnate Rafik Al Hariri.

The tribunal is the legal successor to the United Nations International Independent Investigation Commission (IIC). As with almost any international mechanism aimed at seeking justice, the commission and the STL have been the subject of a great deal controversy mainly revolving around the alleged politicization of the investigation and subsequent tribunal. “There are always claims around every tribunal that there is some politicization because you only have to have the USA put money in and you will find that strait away people will say that there is politicization,” says Robin Vincent, registrar of the STL, in effect the chief administrative officer for the tribunal. The four former security officials accused of plotting the February 14th attacks have been held in Lebanon since late 2005 without trial and are currently awaiting transfer to a holding center in the popular sea-side resort of Scheveningen which, although vacant, is presently being paid for by the STL at a discounted rate.

The total cost of the STL is to date unknown due to the fact that, even though the first 3 years have been budgeted for, there is no set timeline for the completion of the tribunal. The principle reason for the open ended nature of the STL is attributed to a clause in the mandate of the tribunal that can extend the court’s jurisdiction to, “other attacks that occurred in Lebanon between 1 October 2004 and 12 December 2005 are connected in accordance with the principles of criminal justice and are of a nature and gravity similar to the attack of 14 February 2005.” If that comes to pass the current budget for the STL may also be extended. “If anything should happen during the year in terms of activities being advanced I have to respond,” says Vincent. “I am in a position where I can go back to the committee [the organ in charge of administrative decisions at the STL] and ask them to amend or revise the budget to provide me with more funds than those that actually exist.”

The funding for the STL, like that of the ECCC, is provided by voluntary donations from UN member states. The Government of Lebanon (GoL), currently led by the “pro-western” PM Fouad Siniora, is obliged to pay 49 percent of the total budget allocated to the tribunal, a compulsion they have been keen to meet. The budget for the first year of the tribunal was initially set at approximately $35 million– to which the GoL made a down payment of 49 percent against the total– by the STL’s Management Committee.

In November of 2008, the management committee raised the 2009 budget to the level where it stands today at $51.4 million, for which the GoL has already paid its share. The total amount of money received thus far towards the first year of comes to around $62.6 million. “We do have money over and above the budget of the first year,” says Vincent. If however the makeup of the Lebanese government does change subsequent to the June elections and the country’s leadership becomes less willing to support the tribunal for political reasons there is always the nuclear option. “If during the lifetime of the tribunal the funding situation becomes difficult then [the UN Secretary General] reserves the right to revert to the UNSC,” asserts Vincent.

The expenses of the first year will cover the logistical elements necessary for the initiation of proceedings as well as the other activities of the tribunal. “The prosecutor [Daniel Bellemare] has made it very clear that he would see 2009 as still being a year where predominately there would be ongoing investigations.” Today, there is still a small team in Beirut that is currently liquidating its operations that are not being funded by the STL but rather by the UN itself.

Although the list of contributors ranges from Austria to Uruguay, the latter contributing a symbolic $1,500, perhaps the most notable facet of the list is that only one side of the countries with a vested interest in Lebanese politics have contributed to the STL, prompting further accusations of politicization. The principal contributors to date to are the United States ($14 million), Kuwait ($5 million), France ($4.5 million) and a collection of other “regional states” who have chosen to “exercise their right to remain anonymous, ” according to Vincent. The most notable absentees from the list are Syria and Iran, the other regional players in the Lebanese political farrago, who have not responded to offers to contribute and are not included in the “regional states” mentioned previously. The Syrian and Iranian embassies in Lebanon could not be reached for immediate comment. “I would treat silence from Syria or Iran exactly the same way as I treat it from Argentina or Venezuela,” adds Vincent.

As of late March, the premises where the proceedings are to be held are still under construction and are not expected to be completed until late 2009. Furthermore, the STL is still in the process of building up the facilities to handle the logistical elements related to holding the accused, housing the organs of the court and preparing the building on the outskirts of The Hague donated by the Government of the Netherlands for a total cost of $8.8 million.

As far as further years of the tribunal are concerned, many of the existing donors have already been asked to commit money. “Of course we have gone back […] to all the existing donors asking them if they could make a pledge for year 2 particularly and year 3 if they could do,” says Vincent. “The difficulty is that, for most member states, their fiscal arrangements don’t always allow them to commit money, especially when there may be an election in the next to year or so or when there is a financial crisis,” says Vincent. But there are those who look to be in it for the long haul. “Hillary Clinton came out about a month or so ago and pledged $6 million on behalf of the US for year two. We don’t think that that will be all it is but its and indication from the US that they are committed.”

That commitment will have to be solidified in the coming year as justice’s bill is expected to go up even after the construction and logistical phases have been completed. “I was asked to forecast figures for the second and third years and the figures that I came up with were 65 million for each of the next two years,” says Vincent. “We can see that that is significant and around a 25% rise in our costs that would be attributed to a predicted change the prosecutor’s activities moving from investigation to trial and there would be an emphasis on trial teams which there isn’t at the moment.”

Today the STL looks to be in a good financial position and liquid enough to fulfill its tasks. Moreover, it seems to have learned from the shortcomings of previous tribunals by shooting high in order to avoid future financial problems. Where the money comes from and what the politics of the matter are will undoubtedly be the subject of much discussion in the years to come. What is important however is that the STL retain its objectivity throughout regardless of what criticisms are levied. That will be a daunting task to overcome, especially when the court commences proceedings and the issues of proper legal processes are surely to be questioned by the defense. Nevertheless, the only certainty of the matter is, as Vincent affirms, that “the tribunal can only be judged by its acts and not [its] words.”

This article was published in a different format in Executive Magazine’s April 2009 issue

TMA’s flight path

The peculiar politics of the cargo business

by Sami Halabi

TMA's aircraft have been grounded for years

If one were to attempt to gauge the progression of Lebanon’s economy from the 1950’s until today, one would do well to observe the trials and tribulations of the region’s first all cargo airline that ebbed and flowed with the country’s fortunes. Trans Mediterranean Airways (TMA) started out as the brainchild of Lebanese entrepreneur Mounir Abu Haidar in 1953. In 1949, Abu-Haidar reportedly gave up a career in medicine to take up a job as a junior clerk at Saudi Aramco. Working his way up the corporate ladder, Abu-Haidar eventually became the head of transportation at Aramco and was assigned the task of providing food and equipment for oil prospectors in the countries now know as the GCC.
Having identified the need for air transportation to service the expansion of Saudi Arabia’s energy behemoth, Abu-Haidar used his contacts at Aramco to obtain a letter of intent from the company to use his still chimerical air charter service to facilitate the operations of the company’s oil prospectors. Letter in hand, he flew to London where he arranged the lease of an aging transport plane — and TMA was born.

Carry anything that pays
TMA literally and figuratively took off, operating out of Lebanon under the license of then independent Air Liban. As TMA grew, it began to diversify its cargo, transporting everything from vegetables to firearms.
“Weapons to me are the same as pieces of lumber. A European government charters one of my planes and asks me to haul rifles to Algeria. What do I do, let someone else have the business?” said Abu-Haidar in an interview with Time Magazine, published June 1968. When British, French, and Israeli forces attacked Egypt in 1956, forcing the closure of the Suez Canal, the need for air transport sky-rocketed, as did TMA’s revenues, which quadrupled in one year to $1.2 million.
By 1967, TMA was operating the world’s longest all-cargo route and by 1971 TMA became the first cargo airline to offer around-the-world service. This achievement came despite the fact that TMA lost two of its aircraft in 1968 when Israeli commandos destroyed 14 civilian aircraft at Beirut International Airport to avenge the hijacking of an El-Al flight earlier that year by the Popular Front for the Liberation of Palestine (PFLP). By the onset of the Lebanese Civil War in 1975, the airline employed around 2,000 people and was a beacon of the Lebanese aviation industry.
As the civil war took its toll on Lebanon’s economy, TMA’s fortunes made an abrupt about-face, ending in the red for the first time in 1979. Faced with an increasingly unstable situation in Lebanon, the airline moved the majority of its operations to the UAE between 1976 and 1986. TMA’s prospects continued to wane as a result of the war and by 1986, after having failed to attain government assistance, the company came under the control of the Lebanese government, then headed by President Amin Gemayel. With the airline now public its fortunes — already dampened by the effects of the Lebanese Civil War — became inseparable from the corruption and nepotism that permeated the Lebanese economic and political landscape during the war-torn 1980s.
The Lebanese government later reversed its decision to bailout TMA and gave five times the amount that Abu-Haidar requested to Jet Holdings, according to Najib Alamuddin, Middle East Airline’s (MEA) chairman for more than 25 years. Jet Holdings’ chairman at the time was the infamous Lebanese business tycoon Roger Tamraz.

Silver-tongued Tamraz
By the time Tamraz took over TMA he had racked up an impressive resume of business mis-adventures, including the embezzlement of hundreds of millions of dollars from various projects, and been sentenced in absentia to 15 years imprisonment by a Lebanese court. Tamraz contested the sentence, claiming he was being politically persecuted
At the time of TMA’s purchase, Tamraz was head of the Intra Investment Company (IIC) and Bank Al Mashrek, the successors to Intra Bank. Based in Beirut, Intra Bank had been the largest financial institution in the Middle East until it collapsed in 1966. The bank — holding about 10 percent of total bank deposits and about 40 percent of Lebanese banks’ deposits — turned out to be carrying about $120 million in essentially non-existent collateral.
The scandal sent shockwaves throughout the Middle East’s financial sector and the Lebanese economy, where it held major stakes in many of the country’s largest companies, including its national air carrier MEA. Fifteen months later, the bank was re-floated by the US investment bank Kinder Peabody & Co. where Tamraz was an executive. Tamraz then took over Intra in August of 1983, three years before it bought TMA through Jet Holdings.
After years of destruction during the war, Beirut International Airport (BIA) eventually re-opened its doors in May of 1987, prompting the return of TMA to Lebanon with a reduced fleet of seven Boeing 707s.
In late 1988, rumors of a liquidity crisis prompted a rush on Bank Al Mashrek and the bank collapsed. During the fallout over Mashrek’s collapse in 1988, Lebanon’s central bank took control of Jet Holdings and, by default, TMA. TMA’s fortunes continued to falter as a result of regular closures at BIA. When the war ended in 1990, the airline was in shambles, its ownership disputed and its routes diminished. TMA had become symbolic of Lebanon’s economy after 15 years of civil war.
In early 1991, a government committee was established to decide TMA’s future. The committee estimated that the company’s debt stood at $80 million, while its assets only totaled $45 million. Under these circumstances the committee proposed that the airline either merge with MEA or be granted a substantial amount of funds in order to resume operations. “There was a concept prompted by Hariri for a merger between MEA and TMA. The concept was that Lebanon needs one airline and MEA needs to be privatized so why not merge TMA and MEA and put them on the marketplace,” says Fadi Saab, CEO of TMA from 1996 to 2008.

Landing ownership
In the end, the dispute over the airlines’ ownership was finally resolved when a 74 percent stake of TMA was bought by the Lebanese Air Investment Holdings (LAIH) in March of 1993 for $8.5 million, according to Mohamed Kabalan, the longtime head of TMA’s workers’ syndicate. The owner of LAIH was Farid Raphael, currently chairman and general manager of Banque Libano-Française (BLF).
Raphael refused to contribute to this article, stating only “the banks managers and owners do not talk about their personal investments.” At that time many rumors began to spread regarding the company; one of which suggested TMA was actually bought by the late Rafiq Hariri through Raphael and his holding company.
“The rumor has been going around ever since I came aboard that this is a Hariri company. I have not seen any proof that this is a Hariri company,” says Saab. Other factors further obscured the identity of TMA’s true owner. “The address on the letter of purchase was that of BLF, but the name registered was not BLF; it was LAIH,” says Kabalan.
All indicators, however, point to the fact that TMA was bought in order to be sold. “The idea of LAIH was to restructure the company and then sell it to a strategic partner,” explains Saab, a claim denied by his company in the past. In order to prop-up the airline’s prospects and its marketability, the government court appointed to handle the bankruptcy of Bank Al Mashrek forgave a total of $39 million that was owed by TMA to the bank, giving the airline some much needed wiggle room.

TMA time-line
1953 — Mounir Abu-Haidar founds TMA to service Aramco’s oil prospectors
1959 — TMA obtains air proprietary cargo license
1966 — TMA introduces jet service through the acquisition of its first 707s
1968 — Israeli commandos destroy two of TMA’s aircraft in an attack on Beirut International Airport and the airline establishes the longest scheduled air cargo route in the world
1971 — TMA obtains the rights for the first round-the-world all cargo service
1976 — Beirut International Airport closes for 168 days because of Lebanese Civil War and TMA moves its operations to the UAE
1979 — Rights to fly a round-the-world cargo service are withdrawn
1985 — Operations ceased as a result of Lebanese Civil war
and labor disputes

1986 — Lebanese Government takes control of TMA from Abu-Haidar and transfers it to Jet Holdings under Roger Tamraz who moves its operations back to BIA
1988 — Bank Al Mashrek collapses sending Tamraz fleeing and Lebanese Government re-acquires TMA
1993 — A major stake in TMA is purchased by Farid Raphael’s Lebanese Air Investment Holdings
1996 — TMA decides to increase its capital by $40 million as part of a new restructuring program
1999 — TMA comes out of the red for the first time in decades
2000 — Lebanese Government adopts the Open Skies agreement putting TMA at a competitive disadvantage
2002 — TMA’s planes banned from flying over Europe
2005 — The Lebanese Civil Aviation Authority suspends TMA’s Air Operating Certificate, grounding the airline’s planes
2008 — A 99 percent stake in LAIH is sold to entrepreneur Mazen Bsat for a total of $1
Under the aegis of LAIH, the airline began a restructuring program with the hope of pulling the ailing carrier out of the red. After a tragic crash of one of its 707s in 1993, the company decided to reduce its staff, despite staunch opposition from TMA’s labor syndicate. TMA’s staff went from 750 employees in 1993 to around 400 by the end of 1996. With the company again in disarray the prospects of it being sold became negligible. “[Rafiq] Hariri had previously approached Raphael [and] told him to ‘hold off on the kind of reorganization you want to do because we might buy [TMA] from you’. There was political opposition at the time and in 1996 it was apparent that this would lead nowhere,” says Saab. With the prospects of a Hariri buyout all but wiped out and the perpetually unstable labor situation looming, TMA closed its doors from July to October of 1996. The company asked a then little-known consultant to perform a complete audit and create a restructuring plan. The consultant, Fadi Saab, then spent 12 years at the helm of TMA.
At the behest of Saab, LAIH decided to prop up the company with a capital injection that totaled $40 million. “The infusion was done by Farid Raphael’s group and it was done in two phases. The first was $20 million and the second phase was $20 million,” says Saab. Accordingly, Saab promised to get the company out of the red at any cost. “He made all employees sign a two-year salary freeze without the consent of the syndicate. He said that either you sign or you don’t have a job,” claims Kabalan. “The syndicate never accepted conceptually what we were doing and so we took a management decision to freeze salaries. There was no agreement between us and the syndicate,” Saab furthers. The salaries of TMA’s employees have remained frozen ever since.

Back in the air
Nonetheless, Saab managed to bring the company into the green, albeit kicking and screaming and without the kind of support he was looking for from the LAIH injections. “The two injections of capital did not come in time; they came in bits and pieces. They ended up as funding for working capital requirements and not as an investment capital, so we were unable to use the funds ‘front end’. We had to use them to pay bills,” explains Saab. Even so, TMA’s revenues grew by $5 million from 1996 to 1998 and it started to make a profit by 1999.
However, in the typical yo-yo fashion of TMA, things started to go awry again in 2000. One of TMA’s biggest clients was Kuwait Airlines who had leased three of TMA’s 707s to operate its cargo arm. In late 1999 the Kuwaitis requested TMA install the TICAS navigation system on its planes because they needed the system installed by January 1st, 2000 in order to fly over several countries. “We made about $1 million a month from the Kuwaiti contract,” says Kabalan. “Saab didn’t install it until the last minute. The Kuwaitis said they didn’t want to take the planes two or three months later because they had obligations to fulfill in the mean time. They left us for someone else and we lost $1 million per month.” As far as Saab was concerned, Kuwait Airlines were on their way out anyway. “Kuwait Airways were shopping for a replacement for TMA because our planes were old and expensive to operate and maintain. We knew they would cancel.”
External factors and government favoritism also played a major role in TMA’s demise. In 2000, the Lebanese government decided to adopt the Open Skies agreement, effectively opening up Lebanon’s airspace and BIA to all foreign companies with no restrictions on route rights, the number of designated airlines, capacity or frequency. The agreement effectively crippled TMA’s competitive advantage in the Lebanese market and consequently nullified its attractiveness to investors. “Open Skies was one of the main factors why TMA was not able to find an investor. All the international airlines we were talking to said ‘why do we need you anymore?’” says Saab.
Compounding this decision was the government’s longstanding favoritism of MEA, of which it owns 99 percent through the Lebanese central bank, despite several initiatives to privatize the airline. Moreover, MEA still enjoys a monopoly, which expires in 2012, on scheduled air transport of passengers. MEA’s monopoly, which expires in 2012, has curbed the aspirations of many airlines — including TMA — looking to expand into scheduled passenger transport. “In concurrency to Open Skies, the government protected MEA. The government renewed the exclusivity of MEA, erased debt that MEA owed to the government and injected millions of dollars of capital,” explains a high-ranking member of the aviation industry, who spoke on condition of anonymity. “When you tell the government MEA is against the WTO and its unfair competition, they tell you it’s a private company,” the source added.
To date, MEA’s monopoly remains in place, in spite of the International Civil Aviation Organization’s (ICAO) principles, to which the Lebanese Civil Aviation Authority (LCAA) is a member. “Monopoly is out of the question when it comes to civil aviation; its not part of the formula. No one in the world encourages it anymore,” says Mazen Hamdicouk, Head of the LCAA. “However, our position is dictated by the minister [of transport] and the government has to make that decision at the end of the day.”
As far as Lebanese Minister of Transport Ghazi Aridi is concerned, there is no reason why MEA cannot continue to be Lebanon’s only national carrier for some time to come. “Some people think that MEA’s exclusive rights end in 2012, but I think of how to keep protecting the national carrier after this date,” said Aridi at the opening of MEA’s new pilot training center in November 2008. Aridi was unavailable for comment. What’s more, the EU banned TMA’s aging 707s from flying over Europe in 2002 due to requirements on emissions standards eliminating many of TMA’s most profitable routes.

Purge of pilots
With everything seemingly working against TMA, the blow came in 2005 when a row with its pilots over pay resulted in all but a few of its 53 pilots losing their jobs. That same year the LCAA suspended TMA’s Air Operator’s Certificate (AOC), citing the fact that they no longer had the capability to operate effectively, and so the airline ceased flying. The company’s planes currently sit amongst a pile of shrubs on the outskirts of TMA’s facilities at BIA waiting to be scrapped.
By the end of 2005, TMA’s debt stood at $85 million dollars. From 2005 to 2008, the airline managed to bring its down debt to $60 million through renegotiation with its various creditors. The company’s operations are now restricted to maintenance and handling at BIA. TMA needed new blood; it needed a new vision, which came in the form of a one dollar bill.
In late December 2008, LAIH was purchased for $1 from Farid Raphael. The new owner of TMA is Mazen Bsat. The mild-mannered Bsat started his career in his family-owned pharmacy business, which he later took over and built into one of Lebanon’s most successful pharmacy chains — Mazen Pharmacy. Bsat also owns a series of childcare and toy stores around Lebanon, as well as a mall that carries his name — Mazen City — on the outskirts of Beirut.
Bsat first entered the commercial aviation world in 2000, when he opened his charter airline and named it the Flying Carpet — Bsat al-Rih in Arabic. Flying Carpet got its start by flying to Iraq before the American-led invasion in 2003. At the time, there were no direct routes from Beirut to Baghdad and charter service was the only avenue for direct flights between the two cities. From a one plane operation eight years ago, Flying Carpet now operates point-to-point eight times per week to Baghdad, Irbil and Suleimania.
As Flying Carpet expanded in unison with the post-war Iraqi market and it too became marred by the type of controversy that has become synonymous with the country. On 15 January 2004, one of Flying Carpet’s airplanes flew into Beirut carrying $12 million in new Iraqi dinars, the same day the Coalition Provisional Authority (CPA) stopped disseminating the currency in Iraq. The plane, its passengers and its valuable cargo were all seized by the Lebanese authorities who suspected the money was part of widespread smuggling associated with the currency at the time. The authorities also arrested Michel Mkattaf, the owner of a local currency exchange business and the only son-in-law to former president Amin Gemayel. The other passengers were Richard Jusurati and Mohammed Abu Darwich.
The New York Times reported that Bsat was actually flying the plane at the time, a claim he vehemently denies. “I wasn’t flying the plane, I was in Beirut at the time. I don’t have even have a license to fly [commercial aircraft],” says Bsat. “They leased the plane from me to transport cargo and I had no idea what was in the cargo.”
The issue was finally resolved when the Iraqi Ministry of Interior — in effect under the auspices of then head of the CPA Paul Bremer — sent a fax to the Lebanese government stating that the money was being legally transferred for the “urgent purchase” of armored vehicles and “sophisticated equipment intended to confront the dangerous security situation in Iraq,” reported The Independent.
In the end, all the men and the money were released and Bsat claims the entire issue boiled down to the usual political bickering between Lebanon’s politicians. “It was basically political. Mkattaf is the son-in-law of Amin Gemayel. Amin Gemayel and Emile Lahoud [Lebanon’s president at the time] didn’t like each other and this is how it started,” says Bsat, banging his fists together for emphasis. Mkattaf’s legal council could not be reached for comment.
Bsat began his relationship with the TMA in 2001 when he contracted the company to service his fledgling airline. The relationship blossomed and allowed Bsat access to the inner workings of TMA. “I knew TMA inside and out: the structure, the facilities and the manpower. I knew that there was huge potential for TMA,” he says. The potential that Bsat refers to is rooted in TMA’s facilities at BIA, a rare and valuable asset considering the fact that the airport can no longer expand because it is surrounded by residential property and the sea. Furthermore, because Bsat already owns a functioning airline he can benefit from economies of scale by using the same back office to run both TMA and Flying Carpet. But was TMA really worth $60 million of debt?
“Perhaps the company is not worth $60 million and maybe I am buying it for more than its worth,” admits Bsat.
Upon entering TMA’s various facilities, one can clearly see that the company had been neglected by its previous owners. Old telephones and their cords are stacked behind a door in one of the buildings, chips of paint cover the floors inside and outside of the facilities and even the ceiling of the chairman’s office is beginning to cave in. Therefore, it’s little wonder that the first phase of TMA’s restructuring plan under Bsat is to renovate TMA’s buildings and facilities and upgrade maintenance and handling capabilities.

Labor storm
By acquiring TMA, Bsat took on a great deal of financial burden. He also placed himself smack in the middle of the seemingly unending battle between TMA’s labor syndicate and its management. The constant labor disputes at TMA have, in the past, seriously affected the company’s ability to market itself as a reliable carrier. While the decision to upgrade and renovate the facilities may seem to be a logical and necessary step, given their abysmal state, it has angered many of TMA’s employees as well as the country’s labor rights advocates.
“What the administration is doing in reality is making the problems of employees their lowest priority by focusing on fixing the buildings and painting them,” says Ghassan Ghosn, head of Lebanon’s General Confederation of Labor Unions. Ghosn threatened to encourage widespread strikes and protests at TMA, as well as to sue TMA’s administration “if possible,” unless TMA meets the labor syndicate’s demands.
Bsat is dealing with this threat head on. “We have sent the union a rejection letter pertaining to their demands. I told them that it’s not the time for it,” says Bsat. “[Management decisions are] not their business. Their business is to work and ours is to manage.”

The wrap up
Essentially Bsat has paid $60 million, in the form of debt, for TMA. The debt itself is owed to a number of banks and other creditors, including the National Social Security Fund (NSSF) and the LCAA. While the company has managed to make an agreement with the NSSF over how it will pay off the $15.5 million TMA owes. A Lebanese court is considering the amount owed to the LCAA. The main point of contention is whether or not TMA owes the LCAA the total amount of land rented from the LCAA based on the actual land or the built-up area. The outstanding amount has been pending for around 15 years and the difference in calculations stands at around $6 million — $15 million as opposed to $9 million. Bsat has agreed to pay the amount requested by the LCAA because he has “decided to take all the problems out of the way of TMA.” Prior to the decision, Bsat paid the LCAA $1 million dollars as a “goodwill gesture” but he cautions, “at anytime, I can ask the court to be part of the issue again.”
Given TMA’s tumultuous past, its labor issues, its massive debt and the Lebanese governments favoritism of MEA, the odds are against Bsat. Nevertheless, Bsat is determined to expand TMA’s operations, promising to take on new planes once he has completed the first phase of his restructuring program and casting off doubts about the acquisition being merely another ploy to reposition the company for a sale. “I’m in it for the long run,” says Bsat.
So far, Bsat has taken bold steps to address many of the airline’s longstanding issues. With Bsat running the show, TMA now stands to benefit from a new and inspired vision backed by a history of success in the regional aviation industry. How high and how long this new chapter in TMA’s, and Lebanon’s, history will last is anyone’s guess. The two options appear to be up or out. If Bsat’s past is anything to go by, TMA seems to have its sights firmly on the sky.

First Published in Executive Magazine’s March 2009 issue

Foundation of a state or common burden?

Israel’s strangulation of Palestinian commerce grows ever-more severe

by Sami Halabi

Palestinian farmers destroy their vegetables in protest of Isreal's closure of the produce market in Beita village, near the West Bank city of Nablus, June 2007. (Rami Swidan/MaanImages)

The consequences of Israel’s recent war on Gaza are evident to anyone with a television or Internet access. Recurrent images of civilians dying or injured in Gaza’s hospitals, smoke bellowing from distant buildings on the horizon and diplomats the world over shuttling from one photo-op to another will, in all likelihood, be duly recorded as merely another chapter of Palestinian suffering at the hands of the Israeli occupation. Those of us who live outside of Palestine can only imagine the horrors that have befallen the Palestinians in Gaza over the last few weeks. However, when the dust settles, the Palestinian people will have to deal with getting back to whatever sense of normalcy they can muster in the face of the whimsical dictates of their occupiers.

Perhaps the most nuanced aspect of Palestinian suffering that goes more or less unnoticed is the abominable state of the Palestinian economy. The systemic and perpetual economic hindrances imposed upon the Palestinian economy by the Israeli occupation are viewed by most experts to be the primary impediment to allowing the Palestinian economy to reach its full potential. The World Bank has identified three principal “paralytic effects” of Israeli policies on the Palestinian economy: access to economies of scale, access to natural resources and access to an investment horizon. It also cited physical impediments — road blocks, closures, earth mounds and the ongoing construction of the wall on West Bank land, the route of which was deemed illegal in an advisory opinion made by the International Court of Justice in 2004 — as a “paralysis confronting the Palestinian economy.” [1]

Further exacerbating this paralysis is the political and economic division of the West Bank and the Gaza Strip. The lack of a contiguous Palestinian land mass and the Israeli siege of Gaza have resulted in the divergence of the two territories in terms of the effects on total GDP which stood at an estimated $4.14 billion in 2007. [2] Palestine’s total GDP for 2008 is expected to comprise 70 percent of that of 1999, prior to the second Palestinian intifada. [3] In addition, per capita GDP fell nearly 30 percent from its height of $1,610 in 1999 to an estimated $1,099 in 2007 and is expected to decrease by 7.4 percent in 2008. [4] Furthermore, the effects on real GDP of the Occupied Palestinian Territories (OPT) cannot be accurately gauged due to Israel’s continuing economic blockade and its subsequent military offensive. However, the International Monetary Fund (IMF) and the World Bank estimate that results from the first quarter of 2008 are slightly negative and project modest growth of 0.8 percent in 2008 “due to a continued yet marginal drop in economic activity in Gaza, given its already-low base, matched with a modest rise in economic activity in the West Bank.” [5]

Prior to Israel’s invasion of Gaza, its blockade of the tiny coastal territory led to the emergence of a “tunnel economy” that was estimated to provide nearly 90 percent of all products entering the Strip worth roughly $40 million per month. Facilitated by a series of tunnels between Egypt and Gaza, smuggled goods ranged from vegetables and livestock to radios and generators and served as the main lifeline of the civilian population of Gaza. The associated costs of this improvised means of transporting goods is evident in shops and markets across the Strip where the price of everything from basic staples like rice and flour to commercial goods and products have increased dramatically while incomes have dropped precipitously during the same period. [6] The Israeli military offensive that began on the 27 December has further intensified the upward pressure on essential items such as food which has seen a 20 percent and 23 percent rise in prices in the West Bank and Gaza respectively. The price of tomatoes in Gaza during the Israeli bombardment is said to have risen from about 1.5 NIS (about $0.40) before the Israeli onslaught to 7 NIS, an increase of over 400 percent. [7]

The Palestinian economy suffers from numerous institutional restrictions resulting from more than 40 years of Israeli occupation, including no independent Palestinian currency, airport, or seaport. As a result, it is dependent on the ability to trade within its territories and with its neighbors. Trade flows constitute nearly 85 percent of the GDP, 85 to 90 percent of which is with Israel. This economic dependence on Israel can be seen as a direct result of Israel’s economic policies. Prior to 1993, Israel engaged in a policy of “integration” that, in theory, sought to eliminate the barriers that stood between the two economies. However, in practice, it codified and solidified the dependences of the OPT’s economy on that of Israel. Although there was a rise in Palestinian income as workers took up jobs inside of Israel and on Jewish-only settlements in the OPT, there were prohibitions on developing Palestinian commerce and industry. Accordingly, the dependence on the Israeli economy at the time of the Oslo Accords in the mid-1990s was immense: more then 90 percent of goods traveled to and from Israel and the trade deficit stood at 45 percent of the GDP. According to the World Bank, after the second Palestinian intifada broke out in late 2000, Israel announced that it intended to end all Palestinian employment in Israel effectively pulling the rug out from under the Palestinian economy. [8]

Since Israel imposed its siege on Gaza 19 months ago — effectively stopping all intra-Palestinian and international trade — conventional trade within the OPT has relied solely on the internal and external trade of the West Bank. The numerous restrictions and administrative blockades imposed upon the Palestinian residents of the West Bank by the Israeli occupation have crippled the means of transporting Palestinian products in a competitive manner. As a result, Palestinian exporters face enormous amounts of uncertainty thus crippling their ability to compete in regional and global markets. Therefore, the OPT has witnessed a perpetual decrease in the amount of Palestinian trade over many years even before Israel’s construction of its wall in the West Bank. Between 2000 and 2006 the amount of West Bank enterprises that made a significant amount of sales outside of their home cities decreased from 60 percent to less than 40 percent. [9]

The increased levels of uncertainty add to the anguish of Palestinian enterprises that are becoming subject to increasingly high fixed costs per kilometer within the West Bank and by default the rest of the world. A recent survey conducted by the Palestinian Trade Center (PalTrade) identified several parameters that increase costs for transporters inside the West Bank. PalTrade identified as much as a 40 percent increase in distance covered to reach key areas such as Jerusalem and the Allenby Bridge, which connects the West Bank and Jordan, due to Israeli policies that do not allow Palestinian trucks to take a direct route. The survey also noted increases of up to 70 percent in labor costs due to delays caused by road closures without announcement, flying checkpoints, unexpected variations on restrictions on cargo and movement of vehicles and people, losses due to inability to deliver on time and the waste of resources waiting, and trying to predict certain outcomes. [10]

Ultimately, trade dependency on Israel has proved to be detrimental to the Palestinian economy. In order for trade to thrive, Palestinians must have access to global markets and alternative trading routes. As of the publication of this article, the Rafah border crossing between Egypt and Gaza remains closed as it has been since the Hamas takeover of Gaza in June 2007. Although the crossing could potentially provide an enormous amount of respite to the ailing Palestinian economy, this has yet to materialize as a result of a seemingly tacit agreement between Israel and Egypt. Even when the crossing was “operational” it proved not to be a viable alternative to accessing the global market as the crossing operated only 16 percent of its scheduled working hours between June 2006 and March 2007, totaling a daily loss of $500,000 worth of exports. [11]

Trading through Jordan is also uneconomical due the fact that all goods moving to and from Jordan must first cross the Allenby Bridge controlled by Israel. According to the World Bank it is “a cumbersome and inefficient process that adds to the cost of shipping and discourages West Bank shippers from using the Jordan routes.” Jordan not only complies with Israel’s occupation policies but also imposes its own specific customs requirements on Palestinian products making it even more difficult for Palestinians to trade with Jordan and the rest of the world. Goods traded through Jordan are subject to redundant searches, parcel volume restrictions and lack of adequate storage facilities for sensitive products like vegetables and medical supplies. Due to the recent increases in Israeli restrictions, coupled with some improvements by Jordan, Amman’s Queen Alia Airport has become slightly more competitive for handling large volumes than its Israeli counterpart Ben Gurion, which charges $1,150 per metric ton for “security surcharges” on Palestinian products. Nevertheless, the World Bank states that Palestinian traders still prefer Ben Gurion because of “better service, easier access and more frequent flights.” [12]

Positioned at the heart of the Middle East, on the coast of the Mediterranean and constituting a sizable portion of “the land of milk and honey” are just some of the factors that lend to Palestine’s inherent economic potential. The promise of a thriving and prosperous Palestinian economy is as logical as it is fleeting in the face the ongoing Israeli occupation and persecution of the Palestinian people. A viable Palestinian state will require a sustainable economy without the current hindrances on trade and businesses imposed by the Israeli occupation. The people of Palestine, expelled, bombarded and starving understand that unless realities on the ground change, the economy of Palestine looks set to remain a burden shouldered by Palestinians rather than the foundation of their future state.

First published in Electronic Intifada on January 27, 2009

Palestine – Economy under occupation
Israel’s strangulation of Palestinian commerce grows ever-more severe

The new world economy

In wake of crisis, GCC may reshape balance of power with West

by Sami Halabi

It is easy to be pessimistic. Especially when the president of the United States, the supposed beacon of prosperity in the world, concedes that “this sucker could go down.” The question becomes, how far down can we go? Around the world, analysts, thinkers and social commentators have predicted the end of the financial and economic environments as we know them… and they are probably right. The resulting financial landscape that will prevail will be inherently different than what we knew before this all started. The financial earthquake that began in the US real estate sector has inevitably resulted in tremors being felt throughout the world’s markets. These tremors come as a stark reminder that, unchecked, the greed that caused this crisis to occur has severe ramifications for the global economy.
In the minds of most analysts the current global financial crisis has erased any doubt that the world is on its way to several years of recessionary growth rates. What remains to be seen is the magnitude of how long and hard the fall will be. “The financial crisis is a major event that has had repercussions that have brought about a [global] recession,” said Fadi Osseiran, head of BLOMINVEST Bank. “The depth and length of this financial crisis will affect the shape of this recession and it is really premature to try to understand the full impact this will have.” Marwan Barakat, head of research at Bank Audi, stated that the IMF has recently adjusted that global growth estimates for 2008 down to 3.9% from a previous estimate of 5% and predicts a 3% growth rate for 2009, indicating the commencement of a global recessionary period.
Looking out the window in the Middle East. however, one can see that the sun is still shining. And like the annual spat of rain that tarnishes the windows of the Gulf’s high- rises, this storm will soon blow over — albeit leaving a few clouds in its wake. The wider Middle East in general has managed to weather the global economic downturn of the past year relatively well. Barakat explained that this is mostly due to vast amounts of liquidity available linked to petrodollar revenues, the diversification of investments, and the conservative nature of regional banking.
On the other hand, the culmination of the subprime mortgage saga seems to have had a humbling effect on initial statements by many who previously attested to the region’s relative immunity to the crisis. What has transpired in regional markets lately shows that the troubles battering major financial institutions in the US and EU have indeed affected the status of a number of financial institutions in the region. “The Gulf markets have been hit hard,” said Mounir Rached, vice-president of the Lebanese Economic Association and former senior economist at the IMF. At the time of publication, the markets of Dubai and Saudi Arabia had thus far taken the worst beating, down by about 40% each, and the MSCI of Arabian Markets Index is down by a third year-to- date. “Regional investors and funds in general were negatively affected by the global financial crisis,” added Ziad Shehadeh, instructor of Monetary Economics at LAU and head of the Credit Department at Arab Investment Bank.
All in all, however, in these times of global recession the economies of the region look to be better off than most as the effects of the global financial crisis continue to emerge.

Liqidity flowing from the desert
The region’s massive sovereign wealth funds (SWF) and wealthy investors stand high above the dry valleys of the US and Euro-zone markets like massive reservoirs ready to burst open and inundate western markets with a flood of much needed capital. The UAE alone is estimated to hold a massive $875 billion in its SWF, followed by Saudi Arabia (at some $330 billion) and Kuwait (approximately $213 billion). SWF investment strategy has also recently been focused on diverse investment aimed at increasing capacity and a substantial amount of this investment has already gone into buying up equity in western financial institutions. Last November, the Abu Dhabi Investment Authority (ADIA), the world’s largest SWF, bought 4.9% of Citigroup for $7.5 billion. Earlier this year Citi sold off a further 7.8% ($14.5 billion) to a group of investors that included Saudi Arabia’s Prince Al Waleed bin Talal and the Kuwait Investment Authority (KIA – Kuwait’s SWF). Merril Lynch also sold a special class of stock to KIA for a price tag of around $2 billon. Both Citi and Merril stocks have been heavily damaged in recent months with KIA losing $270 million on its Citi group investment. As Executive went to press, Citi’s market price had declined by more than 50% since the SWF investments.
Despite these losses, the region’s SWFs do not seem to be pulling out of western markets anytime soon. The nature of their investment strategy is regarded as long-term, and there is an expressed notion that regional governments and their SWFs are not in the business of bailing out the ailing western financial institutions that spawned the global financial crisis. “We are not responsible for saving a bank, an economy or anyone,’’ said Bader Al-Saad, managing director of the KIA in an interview with Al- Arabiya. “We are long-term investors and we have long term social and economic obligations to our country.’’

Shoring up the markets
The obligations that al-Saad was referring to have already been fulfilled to some extent, and not just in terms of monetary policy. The moves by regional governments to shore up confidence have also come at a sizeable cost. Although minuscule in relation to the infusions of developed nations, the UAE central bank has recently promised to inject a further $19 billion into its markets, bringing the total to $32.7 billion, with other regional SWFs such as ADIA, KIA, and the Qatar Investment Authority (QIA) following suit. More importantly, we are seeing assurances being made by regional governments and their respective SWFs to maintain the infrastructure and operations of financial institutions throughout the region. Mirroring the actions of many developed countries, the UAE has issued a federal guarantee of all savings and deposits in their markets, as well as guaranteeing inter- bank lending. QIA has also announced that it would contribute between 10% and 20% to the capital of local banks in order to boost their capacity to finance developmental projects. Saudi Arabia, the region’s largest economy, also made $40 billion available to its banks and cut interest rates. While these actions are indicative of a major issue in regional markets, it has been widely accepted that there is enough liquidity, and the will to inject it, to keep the Middle Eastern markets healthy and wealthy for some time to come. “I don’t think there is a [liquidity] problem. They have enough liquidity to step in when needed,” said Osseiran, “they have accumulated reserves for a while now as a result of oil revenues.”
With everything more or less taken care of on the home front, the issue of SWFs influence and standing in a global economy is now increasingly becoming the question, as opposed to a question on the minds of politicians and economists the world over. The idea of large chunks of the American and European economic and financial landscape being bought up by regional governments is in itself an idea that is politically problematic. Even al-Saad conceded that “disasters in the United States, Europe, and Asian nations do create interesting investment opportunities, especially in the real estate and financial industries.” It is not rocket science to assume that these regional governments could use their influence over western and specifically US financial institutions to leverage their own economic, political, and strategic interests on a global stage. “The West, broadly speaking, will have to come to the realization that the global economic power equation is shifting,” said Sven Behrendt, visiting scholar at the Carnegie Middle East Center.
In order to pacify those critical of the nature of SWF investment and ownership being used for political purposes, ADIA and the IMF established the International Working Group of Sovereign Wealth Funds (IWG) in May of this year. The group, composed of a wide range of SWFs, recently published their “Generally Accepted Principles and Practices” outlining their “Objectives and Purposes”. In short, this document touts the financial impetus for the actions of SWFs but stops short of saying that SWFs will not use their influence for political ends. “The IWG report focuses heavily on SWF internal governance issues and often prescribes measures that appear to be self- evident,” Behrendt said. “They do not address the fears that western economies have with regards to foreign government intervention in their economies.” Instead, the report focuses on increased transparency and corporate governance and states that “if investment decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed.” This is hardly the language of reassurance that developed countries were looking for.
As this new economic power paradigm begins to take shape, the question is: what will the global financial landscape look like once the dust has settled? With western economies in, or on the brink of recession, and larger growth patterns in emerging markets such as the Middle East and the BRIC (Brazil, Russia, India, China) economies, it is becoming increasingly evident that things will never be the same again. “One of the things happening now is a realignment of the world economy, making the US relatively less important,” said Riad al-Khouri, co- founder and principal of KryosAdvisors.
Nonetheless, the retrenchment of the traditional players, in terms of economic power, should be taken with a grain of salt. According to Behrendt, the estimated value of the world’s SWFs is around $1-1.5 trillion, including assets managed by central banks. Moreover, Morgan Stanley estimates that the total size of SWFs could reach $12 trillion by 2015, about $2 trillion dollars less than the GDP of the US in 2007. The sheer size of western financial institutions and the amount of real output they produce will ensure that the US and the Euro-zone will remain at the forefront of the world economy in the foreseeable future. “For the time being, the US will maintain its spot at the top [of the financial world] in general as there is no real viable alternative to the US market that can sustain the global economy,” Shehadeh said.

Back to oil
Being an oil-based regional economy has certainly helped the Middle East cope with the effects of the global economic downturn and the recent financial crisis. Now that the price of oil is on the decline many observers are drawing parallels between this decrease and a worsening economic situation in the region. Indeed, the effect of a decrease in the price of oil will have a direct impact on the revenues of the regional players. “The Gulf countries will be affected by oil prices, in terms of price and volume,” Rached said. “They are going to sell less at a lower price and will behave differently with less money from oil.” However, these decreases need to be put into perspective. “All the government budgets of the GCC countries were made according to the oil price of $60 last year,” Barakat pointed out.
With oil having reached levels of close to $150/barrel it is simple mathematics to deduce that surpluses are ever present in the coffers of the oil rich states in the Middle East. Even with these surpluses, oil is still seen as the premier conduit in which the global financial crisis seeps into the real economy of the region despite the fact that governments have been diversifying their wealth in order to reduce dependency on oil revenues. “It is still the case that the overwhelming importance of oil and gas in the region mean that higher revenues from hydrocarbon exports will cause a boom and lower prices and lower exports will create a problem,” al-Khouri said. “Gulf countries have diversified their economies but they are still dependent on oil,” added Osseiran.
In any case, this substantial decrease in prices is not expected to last forever and does have good effects for the global economy as a whole. OPEC nations have called for an emergency meeting that is to be held shortly, in which supply is expected to be cut. According to Deutsche Bank estimates, different countries in OPEC require different price levels in order to balance their budgets in a time of a global financial crisis. Iran and Venezuela both require oil prices of $95/barrel, whereas Saudi Arabia needs $55/barrel. “The price of oil will go down and probably oil exports will go down,” al-Khouri said, “but not by too much because there are still parts of the world that are growing and will pay higher prices for oil and/or import larger amounts.”

The conservative nature of the Lebanese banking sector, guided by the central bank’s Riad Salameh, has allowed it and Lebanon’s economy to sidestep many of the direct effects of the global financial crisis. Barakat explained that tight regulations and conservative investments have allowed Lebanon to avert the worst of the global financial crisis and maintain the financial infrastructure to deal with the situation. Regulations in Lebanon pertaining to the restrictions on structured products, leverage requirements, and a high rate of deposits are seen to have pre-empted widespread exposure to the global financial crisis. Moreover, the ownership model of banks in Lebanon has contributed to more conservative investment models. “Banks [in Lebanon] are owned partially or totally by their managers which means that usually they are not looking for short term profits,” Osseiran pointed out. “These owners have an intrinsic stake in the bank.”
Despite a global recession in the works, Lebanon is expected to see growth of around 6% in real GDP for 2008 and around 5% in 2009, according to IMF figures. Such growth rates in times of global recession are indicative of the unique situation in which Lebanon finds itself. Much of this growth can be attributed to the recent political settlement in Lebanon that has increased confidence across the board. “According to the signals we are getting, regional investors are looking at Lebanon more and more in this period because of the political settlement that we had this year,” Barakat exclaimed. “Now Lebanon is back on the radar screen.”
Despite the advantages that come with Lebanon’s unique situation, not all of the news is good. Lebanon is expected to see a decrease in exports across all sectors due to a decrease in demand from trading partners. “There is no doubt that our exports will be affected,” Rached stated. “Exports to Europe, whose share is about 30%, will decline.” However, since the relative scale of exports is not considerable, and accordingly the Lebanese economy can manipulate it with relative ease, this potential problem will be looked upon as rather secondary in nature. “Our share in the world export markets is so tiny, it won’t make any difference really,” Osseiran said. “The Lebanese are able to adjust their products according to markets and prices.”

Who is paying and with who’s money?
Since this crisis began to take shape, there have been unprecedented calls for global coordination by presidents and prime ministers alike. “No country — not even the biggest — can make it just on their own at a time like this,” stated British Prime Minister Gordon Brown on the back of an emergency EU meeting. “We are all in it together and we have to work to solve it together,” the PM concluded. Yet, despite these words of encouragement and the rallying of global markets subsequent to actions of governments, including regional ones, by and large it is the people of the world who have to pay the bill for the greed of investment bankers.
The majority of the bail-outs have come from taxpayers’ pockets and there have been reports of money being printed and freed up by central banks and the Federal Reserve. As Suheil Kawar, senior lecturer at the American University of Beirut, pointed out, “The Bank of England has made facilities worth £50 billion pounds [$79 billion] to individual banks and the Federal Reserve is just printing money now.” According to Rached, “We have a contraction. Money is not growing in the US and this is a situation that is more important than inflation.” Add lower interest rates to this equation and the global economy is left with a situation that applies a great deal of inflationary pressure on the already prevalent problem of increasing global inflation. The UK, for instance, has recently reported a 5.2% increase in its consumer price index for the month of September, the highest level recorded since March 1992. The US has also registered a similar increase of 5.4% for the month of August, even before the major bailouts began to occur. Moreover, with all the mergers, takeovers and acquisitions taking place, issues relating to monopolies have been tossed aside as an unimportant consideration in times of crisis. “Issues related to government monopolies are not a priority now. The major concern is to provide stability,” Shehadeh explained. “The mergers we are likely to see are going to be cross-border and global in nature.”
All of these factors are contributing to the creation of a global financial environment with fewer players and less purchasing power to go around. How the world’s population ended up paying for the mistakes of investment bankers on Wall Street is a matter that will be discussed for decades to come; especially the next time a financial instrument like a toxic mortgage back security comes along and breaks the back of the world’s financial institutions. For the Middle East the next few years will be essential in proving to itself and the world that it can weather a global financial crisis, the resulting recession, and play a more relevant role in the global economy. “The challenge will be to continue to handle things better because we are just at the beginning of the economic crisis,” Osseiran said. “[Regional] governments will have to adjust themselves to the new era of lower oil prices, how much they are going to spend and how they can sustain budget deficits.”
That challenge, if overcome, will have a galvanizing effect on the region’s economy and set the stage for a Middle East that may start to set the rules of the financial world rather than follow them.

First published on the cover of Executive Magazine’s November 2008 issue