The shadows of power

By Sami Halabi

Up close Lebanon’s energy overhaul looks like a boon for the sector; but in the distance an uglier reality awaits

Zouk, Lebanon (Photo: Sam Tarling)

Promoting one’s own vested interests has always been the mantra of Lebanese policy makers, and we’ve become accustomed to seeing them endlessly tie up progress until they come to an agreement on how to divvy up the spoils. So alarm bells ring when our so-called leaders finally agree on something.

On the surface the announcement that our cabinet agreed to Energy Minister Gebran Bassil’s 5-year electricity plan looks like a step toward reform. Ostensibly, the plan aims to end the country’s chronic blackouts and relieve the sector’s deficit burden from the government, which amounted to $1.5 billion last year.

But it is likely intended to preserve the minsters’ own interests — such as reinforcing the pillars of the sectarian system through which they secure their influence — before it serves the needs of the people.

What needs to be done is obvious. In production, transmission and generation the sector needs a complete overhaul, and there needs to be a purging of the political patronage systems endemic at Électricité du Liban, Lebanon’s state-owned electricity provider. To his credit, Bassil’s plan addresses these elements in detail and proposes fixes that, according to most experts, could alleviate our short-circuited sector. But before we start to borrow and spend $4.8 billion, we should ask ourselves if this time we do it by the book, or ‘a la Libanaise’.

The convoluted and dysfunctional process by which decisions in the electricity sector are currently made — or more accurately, not made — between the cabinet, the ministry and parliament, is not going to produce decisions that are free from political and sectarian influence.

For all the positive elements of Bassil’s plan, he is advocating against setting up a regulatory body to oversee the overhaul of the system until many of the changes have been implemented. Without the proper checks and balances we risk repeating the same type of ‘sector suicide’ we experienced with telecommunications, which now plagues our economic competitiveness and makes us the laughing stock of the regional telecom industry.

Allowing government to regulate the sector cannot continue, and yet the cabinet has approved the plan in question, provided that it also has the authority to oversee it.

Aside from the opaque manner in which public borrowing and spending of $2.5 billion to reform electricity is being carried out, if the cabinet is allowed to chaperone implementation, the other $2.3 billion being requested from the private sector will also likely be farmed out to sectarian interests, effectively slicing up our electrical pie. Without conflict of interest legislation and a truly independent regulatory body (not one that is also appointed through sectarian patronage,) the provisioning of electrical production and distribution will be subject to the same nepotistic tendering and distribution of power that typifies our existing institutions.

What’s more, if the practice of local distribution is adopted without ensuring that regional leaders do not monopolize the provisioning of electricity to local populations, there will be nothing to stop them from subjugating the people through greater dependency on them for basic services.

Some have suggested that sectarian loyalties are the only way to guarantee customers actually pay their power bill, but if the cost of tariff collection is strengthening an institution that tore this country to shreds and continues to stunt its potential, then I would personally prefer to live in the dark.

With new legislation covering public-private partnerships (PPP) now making the rounds to include the private sector in electrical reform, we have the opportunity to start protecting our economy from conflicts of interest, not just the “principles of transparency and equality among participants,” as the new PPP draft is proposing.

If we are to take the long strides we need to in order to solve our structural problems, such as electricity, once and for all, we cannot do so while ignoring what produced our predicament in the first place — unless of course we want to protect the candle-makers.

A similar version of this article was published in Executive Magazine’s August 2010 issue

Leaving the dark ages

By Sami Halabi
Lebanon’s cabinet approves a plan for an electricity overhaul and opens the door to sectarian influence
There's a long road ahead to reform the Zahrani power station (Photo: Sam Tarling)
Today the Lebanese pay for electricity four times: when the bill collector comes knocking, when the government has to use money collected from the citizens or borrowed in their name to cover losses in the sector, when they pay for private generation, and when the television fizzles out due to power surges.

The situation has persisted since the end of the civil war, with plans to reform the sector coming and going as quickly as Lebanon’s post-war governments.

As such, it would be easy to dismiss the most recent plan issued by Energy Minister Gebran Bassil and approved by the Council of Ministers, Lebanon’s cabinet, as just another chapter in the long running saga that is Lebanese electricity. But given the relative stability of Lebanon’s political scene of late and the broad nature of the new plan, at least comparatively speaking, this time could be different.

The five-year plan, which was intended to start at the beginning of this year, allocates some $4.87 billion to reforms aimed at halting power rationing by 2014 and bringing the sector into the black by 2015, plus a further $1.68 billion investment for the “long term.”

At present, between generation and imports Lebanon effectively has 1,500 megawatts (MW) of electrical capacity, while average demand ranges between 2,000 and 2,100 MW, peaking in the summer at 2,450 MW. To accommodate for expected growth in demand, the new plan proposes to increase generation capacity — which is technically at 1,875 MW but cannot be fully utilized due to technical inefficiencies — by 47 percent to 4,000MW. Demand for electricity between 2008 and 2009 grew by 7 percent, up from 6 percent growth the previous year.

To fund the new plan, the private sector will be asked to put up $2.32 billion to take part in the production and distribution of electricity, while the public sector will retain its infrastructure and control the transmission of electricity from plants to local districts. The rest of the money sought to implement the reforms is to come from the government ($1.55 billion) and international donors ($1 billion). The initial figure does not include the longer-term plans, which are contingent on the private sector shelling out a further $1.2 billion and international donors putting up another $450 million.

“The plan is beautiful, the minister knows where he wants to get,” says Albert Khoury, deputy general manager of E-Aley, an electricity concession that distributes electricity to the district of Aley. “But the devil is in the details.”

Part of Khoury’s reservations stem from the long-standing debate between the energy ministry, the concessionary companies, and Electricite du Liban (EDL), Lebanon’s state-owned electricity provider. The conflict centers on the rate at which the state sells to the concessions and how much the government spends producing electricity, epitomizing just how fiendishly difficult of a task it is to unravel and reshape Lebanon’s medieval electricity sector.

According to Bassil, electricity costs the government $0.17 per kilowatt hour (KWh) to produce and is sold to the concessions — which serve the districts of Bhamdoun, Aley, Zahle and Byblos — at a loss-making rate of $0.05 per KWh. It is then sold onto consumers at around $0.08 per KWh.

Khoury disagrees with the latter figure, protesting that “the government forces us to sell [to consumers]” at between $0.02 per KWh and $0.05 per KWh, which corresponds to the existing tariff structure at EDL, for power consumption of up to 300 KWh monthly.

A World Bank paper that addressed the situation in 2008 stated that “it is unclear how this agreement is regulated and by whom.” What is clear, however, is that the government is losing money to the tune of $20 million per year based on estimated average sales of between 900 to 1000 gigawatt-hours annually, according to the World Bank. This figure is estimated to rise to $40 million per year by 2015 if the situation persists.

“Gebran Bassil is attacking us and he’s misunderstanding the situation,” says Elie Bassil, chairman and managing director of Electricite du Jbeil, the concession in the Byblos district. “They say we’re buying electricity for low prices. Meanwhile, our overhead is increasing. If the cost of energy increases, we’ll be forced to shut down.”

With the government and the World Bank saying one thing, the concessions saying another and no one seeming to know exactly how the whole thing works, the concessionary issue alone would be enough to stymie reform. But it’s just the tip of the iceberg when you consider that last year alone, the government had to pay out $1.5 billion, or around $375 per person, to cover the deficit of the sector.

Paying the real price

For the electricity sector to even become economically feasible, let alone become an attractive investment to the private sector, supply and demand curves will need to reach equilibrium.

At present the price floor set by the existing tariff structure — which was set when a barrel of oil cost $21 dollars in 1996 and has remained unchanged since — has prevented this from happening. The power to change the tariffs lies with the cabinet, which has been unable to address issue because of political squabbling and the sensitive social implications.

The pre-tax tariff structure for low voltage consumption, the type used by most residential consumers, is divided into six price categories for every 100 KWh consumed per month. The lowest amount charged is $0.02 per KWh and the highest is $13.3 per KWh for consumers who used more than 500KWh a month. Public administrations and “handicraft and agriculture” industries pay $9.33 and $7.67 per KWh, respectively.

Under both the scenarios envisaged in the current plan, tariffs will start to rise in the third year. Under the first scenario, tariffs will be increased on average by 43 percent to break even in 2015; the second will increase the price of electricity by 54 percent to start making money in 2015. However, both of these scenarios face potential hurdles.

“The amount that is being asked from the private sector will not come, for the simple reason that tariffs will not change for three or four years,” says Hassan Jaber, energy consultant and vice president of The Lebanese Association for Energy Saving and for Environment (ALMEE).

Asking the private sector to enter into an unprofitable industry is in itself a tall order, let alone one whose eventual profitability is contingent on factors such as a sustained period of peace and political stability, donor willingness, streamlined political decision making and a steady supply of hydrocarbons.

However, Minister Bassil believes that as the private sector is only being asked to provide about a third of new power generation, the impact on retail costs will be limited. Within a few years of the plants being built, the government will be able to make up the difference through the planned tariff increases, he claims.

Ziad Hayek, secretary general of the Higher Council for Privatization (HCP), the government body in charge of planning, initiation and implementation of privatization programs says that these agreements should not be thought of as all debt or all equity but rather a combination of the two. This, he believes, might make private sector involvement attractive to a certain degree.

The specter of EDL

Supposing all the pieces related to additional generation fall into place, the existing electrical framework will still have to be managed by the EDL, which employs “2000 contractual and daily workers, many of whom are political appointees and unqualified workers,” according to the plan. As to which political parties are impeding progress, “you can never be sure,” says the energy minister.

EDL is supposed to have 5,027 full time employees, but today 3,125 of those posts (63 percent) are vacant, and with an average staff age of 52, the organization suffers from an attrition rate of around 8 percent every year due to retirement. One electricity expert who spoke on condition of anonymity described EDL’s situation “as if you cut off a man’s legs and then tell him to run.”

According to ALMEE’s Jaber, EDL is in such disarray that it “has 200,000 [electricity] meters missing and they don’t have the money to buy them, which means you have 200,000 users that are paying a standard price.” This and other instances where people steal or underpay for electricity are classified as “non-technical losses” and are estimated to constitute half of the $300 million in EDL’s operational losses each year, according the energy ministry.

Uncollected bills, a much heralded and politicized argument for the decrepit nature of Lebanese electrical infrastructure, account for only 12.5 percent of revenue loss; technical losses constitute around 37.5 percent.

Getting the private sector involved in these areas looks like it will be a tough sell for the government. “In some places we cannot reach more than a 5 percent rate of collection, so how will the private sector come in?” asks Bassil.

What adds insult to injury is that if existing electricity legislation passed in 2002 was applicable, EDL as we know it today would not exist. Law 462 mandates that the company be turned into a corporate entity, which would result in the management having control over day-to-day business functions such as hiring and firing of staff, and eventually be partially sold to the private sector in a period of less than two years. Eight years later, not one part of the law has seen the light.

“If someone wants to hinder the process of corporatization, politically they can because it is mostly related to the employees,” says Bassil, whose plan allocates $15 million to reforming human resources at EDL.

Legal issues

Rather than amending law 462, the new plan calls for setting it aside and creating a new structure for the private sector to participate in during the interim period of the plan’s application.

The new arrangement will adopt the principle of Independent Power Producers (IPP), which, in Lebanon’s case, allows private sector players to bid for contracts to enter into Public Private Partnership (PPP) arrangements with the government.

However, a PPP law will have to be passed before any private production of electricity can take place.

Moreover, legislation covering a law for new power plants, effectively breaking the monopoly of EDL, will also have to be passed either as a law on its own or as a part of the PPP law. A draft PPP law has already been submitted to parliament by Amal MP Ali Hassan Khalil and is currently making the rounds in the halls of government.

Applying Law 462 would mandate the unbundling of the sector into production, transmission and distribution segments, which must be up to 40 percent privatized within two years through an international auction. Notably, the plan does include the corporatization of EDL, which should be completed by the end of the third year of implementation at a cost of $165 million.

Having committed to apply the corporatization part of Law 462, Bassil’s position, and ostensibly that of the cabinet who ratified the minister’s new plan, is that Law 462 will be ignored until after the new electrical regime is in place.

The minister is not happy with the prospect of a regluator while he implements his plan (Photo: Sam Tarling)

“It is fair to say that the minister is not interested in implementing Law 462 as it is because his concerns center on the creation of a regulator [Electricity Regulatory Authority],” says the HCP’s Hayek, whose permanent members are the ministers of finance, economy and trade, justice and labor — all of whom are part of the same political camp opposed to Bassil’s.

Having a regulator would necessarily take away many of the powers of the minister, who states in the last words of the plan: “Exceptional powers should be  given to the Minister of Energy and Water and the Council of Ministers.” In his previous post as telecom minister, Bassil was constantly at loggerheads with the Telecom Regulatory Authority over prerogatives in the sector, something he says he wants to avoid while the energy plan is being implemented.

“We would be mixed up with two sets of prerogatives and have EDL still working and fixing the price. We need to prepare the ground for the ERA to come in later on and see what it will need in terms of regulation, then we will decide when to launch it,” he says.

Regulation or sectarianization

Without a regulatory body to uphold the general rules and regulations of the sector, the country and the private sector risk having any plan annulled or changed when a new minister comes in. The constant shuffling of ministers has long been blamed for the discontinuity of policy and reform in the sector; since the beginning of 2008, Lebanon has had three energy ministers.

“Regulatory authorities allow us to transcend the individualization of power, especially in sectors that involve the provision of services because they should not be politicized,” says Hayek.

Another area where a regulator could prevent undue influence is in the distribution sector. Many fear that if local and sectarian leaders are allowed to enter the distribution market, as is being proposed under service provision arrangements, then they would have control over power to local populations, in effect increasing their constituents’ dependence on them.

Under the current plan, three scenarios have been proposed for the break up of Lebanon’s energy distribution into 15 zones. Scenarios one and three have non-contiguous parts, which could make any assessment of individual service providers’ performance difficult, according to Hayek.

The break up of the country in the second scenario seems loosely based on the geographical distribution of Lebanon’s major sects. According to a source involved with the negotiations with foreign funders, European Union representatives working in Lebanon on infrastructural reform are “not happy at all” with this scenario and will have reservations when asked for funding if this sort of distribution is adopted.

“The fewer regions there are the better because these regions should not become local fiefdoms,” adds Hayek. “Once you have vested interests in companies managing these regions, and if money comes to the hands of influential people, we will never be able to reform further.”

Bassil rejects the idea that he formed the areas on the basis of a sectarian break-up and says that the only consideration was the current structure at EDL.

He also added that he has 12 other scenarios that could be employed, giving the feeling that the plan is more of a “roadmap,” as Jaber calls it, than a detailed plan.

Some, however, believe that Lebanon’s fractious sectarian nature makes this kind of arrangement a more viable option than global best practice.

Although Chafic Abi Said, an energy consultant and former director of planning and studies at EDL, also disagrees that the plan was to break up distribution along sectarian lines, he says “it ought to be [this way] because people will stop stealing if they know, for instance, that Hezbollah in a certain area is responsible for the electricity.”

“In the Chouf during the war they were paying [the] Jumblatts’ civil ministry and it was running because Jumblatt was taking care of it,” he adds.

Need to regulate

Another concern is political interests vying for pieces of the generation portfolio that will be up for grabs. Currently there is little to stop influential politicians and their acolytes from using their favorable positions and economies of scale to offer bids that undercut regular market players.

For instance, Prime Minister Saad Hariri and his allies already control the Sidon dump and garbage collection in the greater Beirut area, making them prime candidates to bid for the waste-to-energy project on offer.

Amal and Hezbollah’s influence in the south and the former’s history with the Litani River Project also put them in a good position for the plan’s private-sector hydropower offering. In fact, the former head of the Litani River Authority, Nasser Nasrallah, became an Amal MP in 2005 shortly after leaving the post, according to a source who spoke to Executive off the record.

“I don’t see a problem once we do a transparent tender for a company to win,” says Minister Bassil. “If it is politically backed or not, it is not my problem. My problem is to get the best price, and if we don’t get the best price I won’t accept to proceed with the IPP.”

Better than nothing

For all its potential faults, the plan to reform Lebanon’s most outdated sector can be seen as progress of some sort, considering that this is the first time since the Paris III reform initiatives that a real overhaul of the sector has received the official stamp.

The promise of that earlier reform plan has today faded away, with some $3.8 billion in pledges tied up because Lebanon’s policy makers are not on the same page.

The current electricity reform plan will also need the cabinet, parliament, the HCP and the energy ministry to work hand in hand to rid the Lebanese of what is perhaps the greatest impediment to becoming a modern state — a functioning power grid.

Before any investments can be made this year the national budget, which has eluded the government for the past 5 years, will have to be passed by parliament and continue to be passed for the next five years. In what may be a telling sign of things to come, the finance ministry has announced that they will be proposing the 2011 budget this month, even before the last budget has been passed.

“Success requires continuity of policy and working together, and the second one is more important,” says Hayek. “We will all, the minister included, succeed or fail by the measure of how well we work together.”

If they can’t find a way to do that, Lebanon’s electricity deficit will only increase, meaning in the years to come it will be ever more common for the Lebanese to be applying their make up by flashlight and cooking by candlelight. At least they will know who to blame, that is, of course, if they can find them in the dark.

First published in Executive Magazine’s August 2010 issue

Trapped in inertia

Lebanese telecoms remain in tatters while government dithers over reforms

By Sami Halabi

The Lebanese know little of modern telecommunications due to their governments disinterest in implementing serious reform of the sector (Photo: Sam Tarling)

Shame is a word used to describe the painful feeling arising from the consciousness of something dishonorable, improper or ridiculous. All of which seem to apply to Lebanon’s telecommunications sector — once the beacon of Middle Eastern telecommunications.

To get an idea of how far Lebanese telecommunications has fallen, a small case study can be considered. In January 1995, Lebanon was at the forefront of the regional telecom industry, with some 512,000 mobile subscribers and 612,000 land-line subscribers. At this time the United Arab Emirates had just introduced mobile telephony and had 737,000 fixed service subscribers, according to the International Telecommunications Union (ITU), the United Nations agency for telecommunications which works with governments and the private sector to promote best market practices. Last month, Etisalat, the UAE state-owned mobile telecom company announced that it had reached 100 million subscribers across the 18 countries in which it operates. Lebanon has just reached around 2.4 million subscribers, around half of the population. Fixed line penetration totaled only 750,000 in March 2009 according to the World Bank.

Riad Bahsoun, telecom expert at the ITU, said Lebanon might reach 100 percent market penetration in second-generation mobile telephony in 2014. That is just four years before the end of Global System for Mobile’s (GSM) generation lifecycle, the measure by which a technology can exist as relevant in a market. In other words, it will take Lebanon another four years to fully adopt what is, even now, relatively obsolete technology, and even that limited progress is nowhere near certain.

Bahsoun, previously identified by the media as a contender for telecom minister, estimates that because best practices have not been followed in Lebanon since 1994, some 12,000 potential jobs have been lost and between $10 billion to $12 billion in revenue squandered. Last year Etisalat made $8.4 billion in revenues and reached a mobile penetration rate of over 200 percent in the UAE alone.

“We lost money, we lost chances, we lost jobs and we lost our dignity,” said Bahsoun.

What now?

Whatever the opportunities lost, one thing is for sure: the wholly government-owned and controlled sector has been making a pretty penny off its current pricing structure, which by far exceeds prices offered in neighboring countries.

According to Lebanon’s finance ministry, $1.36 billion was transferred to the national treasury from the telecom sector’s surplus last year, which exceeds the figure of $1.27 in revenues announced to the press by the telecom minister Charbel Nahas in February. The prices of bandwidth in Lebanon are also amongst the highest in the world, with one megabit per second (Mbps) of dedicated bandwidth costing consumers and businesses $1,350 per Mbps per month.

“If an Internet Service Provider (ISP) is located in Kuwait, Qatar, Bahrain, the UAE or Saudi Arabia, the cost [of dedicated bandwidth] is $100 per Mbps per month,” said George Jaber, director of business development and partnerships in the Middle East North Africa at TATA communications.

But it is not just government ownership that impedes the telecommunications sector from achieving rates of growth similar to neighboring countries. All decisions related to pricing and revenue sharing are decided upon by the 30 member Cabinet, comprising Lebanon’s fractious political elements, while the sector’s governance structure has facilitated political interference, allowed the public sector to maintain its grapple-hold, and made decision making a long and tiresome affair.

Thus, it’s little surprise that Abdulmenaim Youssef, the head of Lebanon’s incumbent public operator, Ogero, also heads the Directorate of Operations and Maintenance at the Ministry of Telecommunications (MOT), whose job it is to oversee Ogero’s operations. Youssef has held both positions for half a decade and cannot be removed from either without a cabinet decision.

The current Telecom Minister, Charbel Nahas, was handpicked by the opposition leader Michel Aoun in a long, drawn-out battle that held up the cabinet’s formation for five months. No one from the ministry, including both director generals and the minister, responded to Executive’s repeated requests to comment.

“Ogero has the capacity today to offer more than two megabits per second. [They could offer] up to 4 Mbps, but they cannot do it because they do not have the tariff structure,” said Gaby Deek, president of the Professional Computer Association of Lebanon (PCA), a non-profit ICT association. The tariff structure cannot be put in place until agreed by the cabinet.

The issue becomes even more egregious when one considers that “half of government revenue from telecom last year was taxes,” according to Deek, who is also a member of the Lebanese Broadband Stakeholders Group, a local lobby group that pushes for broadband in Lebanon. Nahas has repeatedly stated that he seeks to separate commercial activities from taxes in the sector, but ultimately it is not his decision alone.

Change price, change structure

The only recent respite for the sector came in February 2009 when the cabinet decreased longstanding tariffs on mobile communications to levels that are still well outside of regional norms.

A recent World Bank report found that “these price reductions combined with MOT investments into mobile networks, together with the new management fee structure (which creates incentives to expand the subscriber base) have resulted in renewed marketing efforts by the managers of the two mobile service providers, a shift from pre-paid to post-paid subscribers, and recent increases in mobile penetration, yet there was no improvement in the quality of service to the consumers who are still suffering poor quality of service.”

The report also stated that a 10 percent increase in broadband penetration would result in gross domestic product growth between 1.2 percent and 1.5 percent “on a recurring basis.”

The “new management fee structure” the World Bank refers to was an agreement between the Lebanese government and the country’s two mobile operators, Alfa and mtc touch, who currently manage the mobile networks. The yearly one-time renewable contracts had accorded Alfa $6.75 per subscriber and mtc $6.66 per subscriber, in tandem with an aggressive expansion plan implemented by the operators and the ministry. As Executive went to print, the expansion was still underway and a second phase “is being discussed with the MOT to increase capacity up to 1.7 million customers,” for each operator, said Claude Bassil, general manager of mtc touch.

The MOT implemented a revenue sharing agreement with the operators for a period of six months, starting February 1, whereby each firm receives a monthly fee of $2.5 million plus 8.5 percent of revenues generated by the networks. The contracts can be renewed twice for a period of three months at a time.

“Since it is a revenue sharing model, the more revenues the MOT gets, the more revenues mtc touch gets,” said Bassil. “It is, however, more challenging than the previous model because then there was latent demand which we were capturing. But now we have to maximize revenues and increase ARPU [average revenue per user], which has never been easy anywhere in the world.”

Bassil’s company has repeatedly stated that it seeks to acquire a mobile license to own and operate their network, but this has not come to pass and Lebanon’s finance minister has stated to the media that privatization would not occur this year and was only a possibility in 2011.

“Until the privatization process is activated, we will do our best to continue managing MIC2 [the official name of mtc’s network],” said Bassil, who claims his company constitutes 57 percent of the mobile market. “Like any reasonable contract, the current management agreement allows for any party to request an adjustment or a review of certain conditions in case of major changes.”

Even though both mobile operators have expressed their continuing “commitment” to the Lebanese market, one can only wonder how long the operators will have the appetite to stay in a market while not being able to own their operations and set their own prices.

A new plan, sort of…

On the surface, not all the news coming out of the sector is disheartening. In late January, Minister Nahas presented a plan to raise the legal bandwidth in Lebanon from 2 Gigabits per second (Gbps) to 120 Gbps, a dramatic increase of Internet capacity in Lebanon. Lebanon’s total bandwidth is unknown due to the presence of grey and black market participants that make up “40 to 60 percent of the market,” according to Habib Torbey, head of the Lebanese Telecommunications Association (LTA).

All of this will come at a cost. Nahas has stated that he and the finance ministry have agreed to spend $166 million on the expansion plan and include the figure in the next budget, which has yet to be approved by the Cabinet or by Parliament. Lebanon is also expecting to finally connect itself to the International Middle East Western Europe 3 (IMEWE3) network by May, according to the minster. A submarine cable extending from Tripoli to Alexandria, Egypt, would link Lebanon to the network and effectively allow the country to stop relying on Cyprus for an international Internet connection via the CADMOS cable.

Despite media reports stating that Lebanon’s bandwidth will increase to 30 Gbps upon connection, documents obtained by Executive show that the actual capacity of the cable is 300 Gbps upon connection and can increase to 3,840 Gbps. An official from one of the companies investing in the cable, who spoke on condition of anonymity, said that Ogero had invested some $45 million in the cable. The official also said that because Lebanon will only be connected via one of the three fiber pairs — a subdivision of a fiber optic cable — the initial capacity Lebanon will have access to is 120 Gbps, which can be upgraded later to 1.2 terabits per second.

Many in the country are welcoming the addition to Lebanon’s infrastructure, yet it is still “not enough to meet current demand, especially if we intend to have real broadband,” said Mahassen Ajam, commissioner of Lebanon’s Telecommunications Regulatory Authority (TRA).

The finance ministry could not confirm, however, either the cost of the expansion plan or that it did indeed include the IMEWE3 connection, as a spokesperson at the ministry said Ogero is given a lump sum each year to spend at its discretion. Moreover, several experts have contested the proposed timeframe for connecting Lebanon to the cable on technical grounds.

Despite repeated requests to the press office at the telecom ministry for details on the expansion plan, none were forthcoming.

“They haven’t given us a single detail [either] which shows you that something is not right,” said Torbey who is also president of GlobalCom Data Services, which owns Inconet Data Management (IDM), one of Lebanon’s largest ISPs. “If we are not up to speed with the details, then that means that there is not much in terms of details.”

According to the PCA’s Deek, the expansion plan is comprised of 23 projects. Contacted directly by Executive, Imad Maatouk, a department head at the general directorate of construction and equipment at the telecom ministry, would not confirm how many projects comprised the expansion plan, but stated that the ministry was still “studying” the plan. Maatouk also explained that the ministry was still in the process of issuing the tender book and added that “the minister is an economist, so surely his budgeting will be based on things that are very clear.”

Nonetheless, the lack of information has led some to cry foul.

“Because of the inaccuracy of the design it plans to use, the telecom ministry will spend a minimum of $166 million on this project, while it can build a more advanced network for a maximum of $40 million,” said Bahsoun, who is also a member of the International Telecom Council of Lebanon (ITCL), a group of Lebanese nationals in the diaspora who are high-level telecom executives and lobby for best practices.

The cost of the project is also much higher than the $64 million scheme proposed by the last Telecom Minister, Gebran Bassil, in March 2009.

Youssef — the head of Ogero and the MOT’s directorate of operations and maintenance — and Minister Bassil (Michel Aoun’s Son-in-law) were at loggerheads over implementation of the $64 million project.

An intelligence briefing document from the office of the former telecom minister, dated August 27, 2009, obtained by Executive, states: “The project is opposed…by Dr. Youssef, but this everyone knows [sic].” The document also states that, “The managers who are in charge of implementation, Naji Andraos and Aurore Feghali are apparently deliberately delaying the implementation for political reasons.”

Notably, the $64 million plan did not include details regarding the technology, or cost, of the “access layer,” the final crucial link between the telecom infrastructure and the user. Similarly, the structure of the access layer in the current $166 million plan had yet to be finalized, according to Maatouk.

Regardless of what form the access layer will take, the gap in proposed spending is still significant and unexplained. “It makes a big different because up to three-fourths of the cost of the initial $64 million of what was being proposed was related to digging; now it is $166 million and no one knows why,” said Bahsoun.

He explained that in 2002 the ITU presented the Telecom Ministry with an national backbone plan that did not apply the traditional method of creating several “rings” on the national and metropolitan levels, but instead went from the customer to existing infrastructure while allowing a redundancy buffer to ensure continuous service.

“This is what specialist’s call the cost of ignorance and this explains the large gap between the two budgets for the same project,” said Bahsoun. “As we all know, ignorance indeed is very costly.”

Without proper information, no one knows for sure when Lebanon’s telecom troubles will start to clear. The only thing that is certain is that the longer the current situation persists, the more opportunities the country misses.

“You cannot imagine after the crash of Dubai, how many companies contacted us to evaluate the possibility of switching their headquarters to Beirut,” said Torbey. “The single obstacle that prevented them from doing so was the poor performance and high prices of telecom connections.”

First published in Executive Magazine’s March Issue