Interview with Ziad Hayek, Secretary General of the High Council of Privatization and PPP

The future is data-driven

Photo by: Greg Demarque/Executive

One observation that the World Bank’s latest economic monitor publication for the Middle East and North Africa conveyed to its faithful readers was that the internet infrastructure in MENA countries needs to be brought up to speed in order to facilitate better transitions into the digital economy. Published in early October, the monitor highlighted the need for “digital public goods,” first among them reliable and fast broadband internet access. It chastised markets in the region for not providing enough high-speed internet access at low cost and for containing barriers that limit data centers and “hurt the environment for a data-driven economy.”

Lamentations over the weakness of national internet infrastructure are very common in Lebanon and many failures in the implementation and growth of online businesses over the past two decades must be attributed to the poor and politicized state of this particular infrastructure (if you do not know this, you have missed years of Executive’s analysis). However, several remedial actions have appeared on the map and some of them, stakeholders in the internet and communications sectors tell Executive, will be felt as early as next year. Others are slated to become reality further down the road.

While there appears to be no reason for Lebanese businesses and households to expect an impending tsunami of internet infrastructures, allocation of blame on the absence of such infrastructures as all-purpose excuse for delivering a business project late or missing an important spec can  no longer be the go-to.

What should strike happiness into collective hearts, however, is what the arriving framework of public-private partnership projects on the national scene has in store. One of the first three PPP projects under preparation is a national data center, which appeals both in terms of affordability and positive implications for the digital transition and entrepreneurship in Lebanon. Executive was eager to learn more from Ziad Hayek, the secretary general at the High Council for Privatization and PPP (HCP). 

(Details for the other two PPP plans—a $500 million construction of Terminal 2 at Hariri Airport and the implementation of a $3 billion toll road from the southern edge of Beirut all the way through to the Nahr Ibrahim area—also solidified in October, and will be covered in the end-of-year outlook next month).    

E   When compared to these two projects of airport expansion and toll road construction—which are rooted in historic transportation knowledge and structures—the project of a national data center is perhaps a little different, given that it pertains to digital economy infrastructure, which has a history of around 10 years for most of its global iterations. What is your approach to the national data center?

We talk a lot about building the knowledge economy in Lebanon, and this makes a lot of sense because we all know that Lebanon has good education [systems], people that are multilingual, and that—from designers of [leading global tech products] to owners of major mobile networks—Lebanese are involved in the tech industry all over the Middle East, not to say all over the world, in a big way. The is: How can we enhance the knowledge economy in Lebanon? One way to do this is to provide Lebanese companies with access to data center services that are close to them, whether for co-location, or so that people can have [nearby] access to their servers or their disaster recovery, but do so in a professional way. Today, most Lebanese companies are either small, and therefore have their data stored outside of Lebanon on some website or something—but these are not the companies that are providing employment. If we look at larger companies today, they are inadequately served. They either have in-house servers, but you do not always know if you have the best technical people [in in-house IT departments], or you are hosting with a small data center that may or may not provide you with all the services that you need.  We, thus, are looking to build a world-class data center that can provide multiple levels of encryption and that has multiple redundancies so that you have safety and security for storing your data, that can withstand earthquakes up to a magnitude of 8.5 [on the Richter scale], and that has multiple high-speed fiber connections. You are firstly looking to provide Lebanese companies with a better service. Secondly, such a data center, with people in customer service that can speak Arabic, could serve neighboring countries, where the same level of ability might not exist to create and manage data centers. Thus, this would be a contribution to the region. Thirdly, we think that such a data center is an infrastructure that can create jobs and contribute to growth in the private sector. For all these reasons, we need that data center.

E   Can you say anything about the planned dimensions, such as server capacity? 

Right now we are thinking obviously about having multiple locations, so maybe two or three locations to facilitate better securing the data. Overall, we are looking at the combined capability to account for about 6 megawatts in power consumption, and at power utilization efficiency to be about 1.6 times. We are looking for [the data center] to have about 500 [server] racks, and to be Tier 3 plus, meaning Tier 3 as a minimum. With power supply, it should be Tier 4 level, if not better. At minimum, we are looking for it to provide IAS, which is infrastructure as a service, but also additional things. We are establishing certain criteria that are not yet set in stone and will not be until we have a chance to not only go to the Council of Ministers, but also to discuss these issues with potential investors. What we do in the feasibility study phase is to try to figure out what the size of the market is, what technology is to be used, etcetera. While they are not final, these are the points where we are heading, more or less.

E   You are saying that the data center will serve corporate Lebanon and the private sector, but one would assume that it would also be intended for public sector usage. Do you have a ratio or mix of public and private usage that the data center would aim to achieve?

It will compete for business, and hopefully will be attractive enough to various government entities and provide enough security for these government entities as well as the private sector. But we don’t have a preset view [on the ratio of government usage].

E   There seem to be many issues that need to be considered from the perspective of cybersecurity when building and operating such a center. Some might claim that using contractors from certain countries might result in them installing back doors in your data center. Is this not a totally new field for Lebanon, as far as developing cybersecurity?

This is exaggerated. People think that when somebody builds a data center they have access to the data. This is not true. There are many technical aspects to this, but to put it in the simplest form: At a data center, you have your servers in a room, the key to the room, and the key to the servers, with your own encryption keys. If somebody wants to get access to your data, they can by hacking into it, but hopefully your encryption levels at a data center are much more secure than at a server in the basement of your building. The risk is not that the data center operator would have access to your data. The threat is hackers getting access to your data. In this regard, you will be more secure at the data center than at your own premises.

E   However, when talking about cybersecurity, isn’t it true that we do not even have all the requisite legislation in place regarding cybersecurity in Lebanon?

We are working on that.

E   And we also don’t yet have a national cyberattack threat detection center or response center in Lebanon, with all the required experts on 24/7 basis. Will a sort of national cybersecurity protection system, or threat and intrusion discovery and response system, be included when a data center is created?

The data center will have the capability to detect threats. This is not the problem. But in terms of legislation, let me point out that we already have the law for data privacy and for e-transactions, which is very good.

E   These were passed in September?

Yes. And we are working with lawyers as we speak, and there might be some enhancements that we can bring into this and suggest additional legislation.

E   If one considers the political sensibilities that exist in the fragmented Lebanese political and communal landscape, would you expect to see demands that one portion of a distributed data center has to be built in the Druze mountains, another section in Akkar or in the south or in Keserwan, or wherever?

I don’t doubt that the minds of many people who are not well informed, and who tend to politicize everything, will tend to have that angle. But anybody who knows what they are talking about will know that it makes no sense to say [the data center] has to be built in such or such area. The important thing is that it is built where there is access to proper power supply, to redundant fiber optic connections, and so on.

E   Power supply is important in a country with the climate of Lebanon, since it relates to the need for cooling the servers, as well as to the power needed for running them and all adjacent infrastructures. In Lebanon, power supply is, to date, not an easy topic. So if we are talking of 6 megawatts for the data center, how will this additional power be supplied? Will it be integrated in the national grid under a plan with EDL?

Ideally, there would be some contract with EDL for 24/7 power supply. It would probably be at higher rates [compared with supply to households], as we are not looking to get electricity cost subsidies for the center. But of course such a center would have to have a redundancy power supply of its own that has to be up at 99.99 percent of the time under service level agreements. Power supply is a challenge, and it is more expensive compared with power supply in other countries, but on the other hand, having a data center has other advantages, of being in the region, of having customer service in Arabic, and all those things.

E   Would ownership of the data enter under the PPP contract be shared between the public and private investors?

No, ownership would be 100 percent private, as with all other PPP projects. The government is not a shareholder, and they are not sitting on the board. It is meant to be a 100 percent private project where the government is providing land that is located where access to fiber optic connections is best, and our role [as the HCP] is to facilitate the building of such a facility in Lebanon. The benefit of this facility to the government is largely economic, as opposed to financial. In other words, the government is not necessarily looking to achieve a [financial] return on this as much as to facilitate [economic benefits].

E   As Executive understands it, there are many mandates and requirements in order for CEDRE-supported PPP projects to activate and tap into credit lines. Do any of the three projects have conditions that are related to requirements for specific reforms?

Not much. CEDRE was mostly about pledging money for Capital Investment Plan projects—with the majority of funding going through the government. Perhaps $1 billion of the amount pledged would be used to enhance credit for PPP projects. Whether the data center project would benefit from any concessional financing or not, I don’t know. We will see.

E   In terms of timeline, are you looking at the data center project to be implemented in between the airport expansion and the toll road construction, or concurrently with one of them?

It would be earlier.

E   When do you think it will start?

We are hoping that we could tender it by the end of next year, or perhaps early the following year.   

E   So we would have a tender possibly in late 2019, and would add three years in construction time?

Perhaps two years. It can be [built] quickly as it is not heavy infrastructure. [The project will involve] basically constructing a building to certain specifications and then putting in certain equipment.

E   Where else in the Middle East do we currently have capacious data centers?

Mainly in the Gulf, but we don’t have any in the area [directly around Lebanon].

E   Would you aim to have clients from all of MENA using the data center?

No, but first I have to say that it is a private sector enterprise, and it will be [up to] the private sector operator to go after business, whether in Lebanon or other countries. What we are saying is that there is potential for regional size.

E   Have you made any quantification of this potential in monetary terms?

No, and we are not able to do all that today. We can say that we are sizing the Lebanese market, but there is other potential, icing on the cake. If you want to build something that is modular and can grow, you will not make all investments from day one, so you will make a small investment for Lebanon and a certain part of the Lebanese market and grow the data center as needed.

E   So we are not talking about investments worth billions of dollars, as is common for large data centers in China and the developed world? What will the Lebanese data center cost?

We estimate it at about $100 million. But again, you don’t have to build a big thing all at once.

E   Right, small and smart is beautiful, and big is not always necessary. But it seems from what is being built around the leading data center markets, like China, that these are the largest infrastructures in the emerging digital era.

The demand is there, and we will see more and more data centers being built around the world. Data keeps increasing, it is not decreasing, as we are always storing and archiving more.

E   And all over the world we see increases in cloud computing and have artificial intelligence coming up. Are you planning for AI capacity in this data center?

We are not planning [for specific capacities]—we are putting minimums [that have to be met], and the market will dictate to what level we go.

E   Did you size the Lebanese market for its potential? How much is that?

Yes, but we are not talking about the financial modeling at this point. We keep this information to ourselves. This relates to our own ability to judge those [PPP] proposals.

E   What is the HCP’s perspective on the involvement of civil society, with organizations such as the Lebanese Transparency Association (LTA) monitoring PPP implementation?

This [inclusion of civil society] is my own personal initiative. We are not obliged to do this, but I have always been pro-openness to civil society and transparency. I thus took the initiative upon myself to call LTA and say that I would like to form a committee to audit our work, for transparency and fairness, from civil society, but I do not want this only to  involve the LTA; I want them to lead it because they are the [main] transparency association[in the country] and have links to Transparency International. I want other parts of civil society involved in this effort, but we have not yet reached a decision on the shape or form of this. But I invited civil society, at least the LTA, to the kickoff meeting for the airport project this month, for them to start early on this journey with us. There is a learning process that they need to go through to better understand what PPP is, and the difficulty of tendering PPP projects. Hopefully we will work with LTA and other NGOs on this.

E   Lastly, on the digital transformation of the Lebanese economy: How much of a role can the data center project—and improvement of knowledge economy infrastructures—play in the needed transition of the Lebanese economy into a digital economy? The Word Bank recently saw the need for a strong concerted effort in transitioning MENA countries toward the digital economy, but citizens, governmental, and private sector stakeholders on various levels of the Lebanese economy appear to be moving at different speeds toward a digital economy.   

The data center will be an enabler—perhaps the most important one, but one enabler. Another enabler is speed of connectivity, fiber optic to the home, etcetera. A third enabler is the development of content to get more people online and have them finding something interesting. We cannot say that one thing will be the magic wand to achieve the objective [transition to the digital economy]. The data center is an enabler, and we think that Lebanese society is at a level of maturity in technology and science and knowledge to benefit from something like it. We have reached a level in Lebanon where this is now needed.

E   How important do you personally think the transition to the digital economy is for Lebanon?

For Lebanon, it is huge. One major thing that the Lebanese complain about is corruption. By using technology, whether in e-transactions or for disintermediation in providing access to information, etcetera, we can hopefully combat corruption. I think this is the only way that we can combat corruption at this point in time, and the [data center project] is very important in this sense. In a second sense, it is very important to grow the Lebanese economy through digital [technology]. Our neighbor to the south has huge capabilities in IT and focused on some IT areas in ways that made them world leaders. There is nothing that prevents us [from achieving something equal]. We have no less qualified people, [no less] networked or connected people, and no less creative people. There is no reason why we can’t have [a great digital economy]. What we need is a concerted effort to provide our people with the systems, the infrastructure, and the enablers. That is what we are trying to do.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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