x Abu Dhabi, UAEWednesday 17 January 2018

Lebanon urged to privatise more

Government official warns Lebanon is heading the way of Greece unless Beirut keeps to its promise to privatise more, especially in the telecoms sector.

Ziad Hayek, the secretary general of the Higher Council for Privatisation of Lebanon, is concerned about the country's future.
Ziad Hayek, the secretary general of the Higher Council for Privatisation of Lebanon, is concerned about the country's future.


Lebanon risks going the way of Greece and Cyprus because of the lack of privatisation, warns a senior government official.

High public spending, conflict of interests and a constrained economy affected by the Syrian crisis is fuelling problems that could lead to chaos, especially after Najib Miqati's resignation as prime minister on Saturday.

"I worry very much we are heading with increased speed the same way as Greece and Cyprus have headed before us," said Ziad Hayek, the secretary general of the Higher Council for Privatisation (HCP) of Lebanon. "We are following in their footsteps and the main problem of both countries was high expenditure of the public sector. We are doing the same thing.

"Now they are having to privatise and enact PPP [public-private partnerships]. We should have been doing these things when our economy was strong as to maximise the benefit, but the conflict of interest is so great that we will only do them under duress."

The HCP was set up nine years ago to help Lebanon on the path to privatisation with focus on the telecoms and energy sectors.

To date, the telecoms sector remains firmly in government hands and the energy sector still faces many problems.

As a means to press ahead for calls to privatise the telecoms sector, the telecoms ministry and the industry regulator have proposed a delayering of the sector in Lebanon, whereby the government retains control of the infrastructure and private companies run and offer services on top.

While the former telecoms minister Nicolas Sehnaoui (the government resigned at the weekend) is confident that his proposal is the best solution for the sector, the council of ministers has yet to give it the green light and a decision on the subject has been delayed as the plan conflicts with Law 431, the telecoms legislation.

"Law 431 outlines the requirements to create an entity called Liban Telecom and privatising that entity within two years. It calls for creating a regulatory authority. It defines the responsibilities and obligations, what they can and cannot do and the infrastructure cannot remain in the hands of the government," said Mr Hayek.

"Law 431 does not talk about delayering the sector and creating various companies at different levels. The proposal does not conform with the law."

Mr Hayek blames ministers for the lack of privatisation in the country.

"The [privatisation] law has not been implemented because it hasn't been in ministers' best interest to implement it. They have wanted to continue to control sectors such as telecoms because they can employ their own cronies and give contracts," he said. "It is a conflict of interest that's at the heart of why ministers have not wanted to privatise, or even involve the private sector except in management contracts.

"In Lebanon, we always have a tendency to cut corners, but this is the law. If they don't like the law and if they don't think it's the right legislation, they should work to change the law, not do something different," he said.

"Either we are a government and a state that respects our laws or we don't. This [proposal] is the concept of ministers who are not elected officials. They have been appointed.

"The concept of a minister deciding on his own this is a law they want to implement or not is preposterous," said Mr Hayek. "If everybody decides which laws they want to apply or not, then that leads to chaos and a failed state, and unfortunately we're heading in that direction."

The telecoms sector is one of the government's main sources of income. Last year, the two state-owned operators posted revenues of about US$1.6 billion (Dh5.87bn), of which $1.4bn went directly to government coffers.

The earnings of Alfa Telecommunications and Touch, which are operated by Egypt's Orascom Telecom and Kuwait's Zain under management licences, contribute about 40 per cent to the national income. With a debt of $60bn, the country has been reluctant to open up the telecoms sector and risk damaging a guaranteed revenue stream.

"Management contracts, which ministers love to enter into, are the worst type of relationship between private and public sector. In management contracts the private party bears no risks. They get the management fee, a margin on the equipment they sell to the government and they get paid for labour. They have three revenue streams, " said Mr Hayek.

The cost involved in building, equipping and maintaining the networks was not considered when talking about the current state of the sector, he added, and neither was the potential for revenue from corporate taxes.

"Then there are the opportunity costs that are not considered, fostering competition, allowing private sector companies to invest in platforms for all sorts of services we don't have today. It is an incredible attack which is levied on mobile users and telecoms users that constitutes the main source of income for government.

"It is a disguised tax, which in reality does not even benefit the country. The ministry of telecoms and energy end up cancelling each other out," said Mr Hayek.

According to Oxford Business Group, the state-owned provider Électricité du Liban (EDL), is struggling to maintain output on the country's ageing plants.

Daily output is currently about 1,500 megawatts, but demand is estimated at about 2,500MW.

Last year the government injected $2.2bn into EDL to help maintain its operations, which analysts think will lead to a shortfall of $460 million this year.

In fact the situation is so dire that in some areas outside of Beirut, people get on average three hours of electricity a day, less than Baghdad. "The energy ministry refuses to raise tariffs, which costs the government $2bn a year in subsidies. The revenue from telecoms barely covers the cost of subsidy.

"This is not a healthy situation and is bound to eventually change. In the meantime the country is paying the cost of this aberration of pricing," said Mr Hayek.

PPP has been outlined as a reasonable solution to the problems faced by the energy ministry, but so far matching legislation has not been passed by the government.

"There is no doubt in my mind that we will have PPP legislation. When I took this job in 2006, nobody was talking about PPP, the concept didn't exist.

"Now the prime minister, president, speaker of parliament and business associations are talking about it. Parliament has taken up discussion of the PPP law and has formed a sub-committee that is following up on the text that was already presented," said Mr Hayek.

When or if this legislation will be passed, however, still remains uncertain.