Paying the hospitals

After much back-and-forth in the media, in mid-July an agreement was finally hammered out between the Syndicate of Hospitals and the various government entities and public employee groups that collectively owe almost LL500 billion in unpaid hospital bills. The terms of the deal stipulate that the hospitals

Among globally active real estate funds, investment firm Colony Capital has made their mark after over 13 years of investing in real estate to the tune of almost $1 billion annually and managing equity capital on behalf of leading institutional investors. By identifying and buying real estate, real estate-dependent companies, distressed assets and non-performing loans, the firm’s funds year after year realized internal rates of return in excess of 20%.

With leisure-related projects in hospitality, resorts and gaming strong in the list of participations, the company’s pedigree of past or present investments in high-profile properties includes names such as the Las Vegas Hilton, the Savoy Hotels chain in the United Kingdom, the Fukuoka Dome baseball arena in Japan, and the Costa Smeralda resort of Agha Khan fame on Sardinia. Last month, Colony made headlines by being in negotiations over acquiring several casinos in the United States.

Earlier this year, Colony Capital set up an office in Beirut, the 13th branch in their global network. Also notable from a local perspective is that Colony’s founder and chairman, American entrepreneur, Tom Barrack, has roots in Zahle, and that one of Colony’s 12 principals is Lebanese Naji Boutros, who joined the firm last year after acquiring a strong reputation as head of Middle East and European real estate at Merrill Lynch. EXECUTIVE talked to Boutros about the regional and local financial market in real estate investments, and about what it takes to be a Lebanese success story in global finance.

Why is real estate so very important for Middle Eastern financial markets?

Middle Eastern investors have always acquired real estate and globally are today among the most important investors in this field. I think that three factors make real estate a favorite asset class for Middle Eastern investors. For Islamic investors, if it is structured properly, real estate is SHARI’A-compliant. Secondly, real estate is not volatile; it is a hard asset. The third reason is what happened during the tech crisis, where a lot of money was wiped out.

How does the Middle East figure in Colony’s investment strategy? Are there projects that you would qualify as totally off market?

We are working with top decision makers in the Middle East who are offering us a lot of incentives to be with them, because we bring brand recognition to their local market. These economies range from monarchies to pluralist secular democracies. You can imagine which one that is, Turkey.

Is the participation of Middle Eastern investors in Colony Capital evolving positively then?

A year ago, we had zero participation of Middle Eastern investors in our worldwide operations. Today, it stands at 5%. That is fantastic. They like it and want more and more and more. I anticipate this participation to quadruple within 24 months to then be in the 20% of our global operations. We would like to become the vehicle of choice for Middle Eastern investors globally investing in real estate. By aligning our interests with theirs’ and by having such a sophisticated global experience platform at their service, we are doing well.

The current economic environment seems to correlate once again high revenues for the Middle East with somewhat subdued outlooks for many developed markets. Do you see another wave of Arab investments flowing out of the region?

I think what we are seeing is a recalibration of Arab investments. You have some repatriation of money back from the US. We don’t really know the number but it is a lot of money. That money went back to the Middle East, plus you have the generation of additional capital from oil prices and other factors. Smart Arab investors are channeling this money towards productive investments in their own countries. I cite what Dubai has done, which is incredible. Chapeau bas, there is one decision maker and so much attention and focus goes towards productive investments in his own country. I am today an amazed believer and supporter of what is happening in Dubai. We are talking about medical tourism in Lebanon but Dubai goes out there and proactively attracts the Mayo Clinic and the Harvard Medical Institute.

The presence of Colony in the region is relatively recent. When did you open your office here in Beirut?

We started our institution and moved in about five months ago.

How many staff do you have?

We have six highly qualified staff, and we are hiring the best out of Lebanon and bringing back the best Lebanese from outside to Beirut. We looked in Lebanon unsuccessfully for five months before bringing people back from the outside.

Is Lebanon a great location where you as real estate funds or financial firms in general can work on a Middle Eastern scale?

It is not a great location. The one attraction is that Lebanon is closer to Middle Eastern clients and the more these clients will come to Beirut, the more financial services will locate here. The second attraction is that Lebanese like to be back here. There are top financiers around the world working with investment banks and investment companies like ourselves, who are willing to come back to Beirut. They are ready to make huge sacrifices to be in Lebanon. But if you were to approach it objectively, why would Lebanon be better than a place like Dubai or Switzerland, where you have so many incentives for firms to operate in?

How do you evaluate the local market conditions for real estate investments?

To us as global real estate investors, the most important thing is who is behind a particular project and which asset management company is doing the work. We find it extremely disturbing that you have many briefcase salesmen in Lebanon, but very few long-term driven, institutional transparency-type of asset managers and real estate brokerage houses. That is what is missing. Recently we start to see global powerhouses like Coldwell Bankers coming here and we like that.

But is there not an overemphasis on real estate in Lebanon’s investment landscape?

I think the focus should be productive real estate versus real estate that you trade, which is totally unproductive for the economy. It should be operating real estate where you employ people. The focus of investors should be channeled towards hotels, not towards residential accommodations. We’d also like to see world-class urban planners to come and help in setting the right regulations that are essential for the long-term benefit of the country. What really annoys me in this country is that people think that a plot of land has the more value the more meters you can build on it. This is absolutely wrong, because values are driven by demand and not by supply. People should ask, ‘how can I attract the most value for my land, how can my land be competitive versus somebody else’s land’?

How can one increase the competitiveness of land?

In Sardinia, for example, we went to the urban planning authorities and told that them we want to build less than what is allowed. By doing so, we created a scarcity of buildable land. When you create that rarity factor you attract the crème de la crème. The billionaires will come to you. Lebanon is not doing that. What we have to address is the competitive edge of Lebanon. To me it is very simple: We have a beautiful mountain area, which is green and attracts our tourists. We have cultural heritage, and a few unspoiled beachfront spots. What we have to do is optimize the value of these places.

Is Lebanon then a good market under the perspectives espoused by Colony, namely to focus on undervalued properties and apply a “cautiously contrarian” approach?

Yes and no. Yes, because we can find value investments in Lebanon. There are distressed sellers in Lebanon, be they distressed individuals or banks, who would like at attractive prices to dispose of their non-performing loans and real estate owned. What is unfortunately detracting us from here, is number one that we are having difficulties in finding sizeable deals. Number two, we are having difficulties in finding unique deals; number three, we are having difficulties in keeping the noise away – you can interpret that in any way you like.

Does that indicate that you have not executed projects here?

We are not yet comfortable with stability and transparency, which goes back to noise. And we haven’t yet seen the incentives that could be offered to a global group such as ourselves. All of this to date is pointing us to analyze a lot of things in Lebanon but not yet make any investments here. We haven’t found the right deal yet. What we are doing instead is using our base in Lebanon to analyze and make investments in other parts of the world.

So beyond nice buildings and nice scenery, what values do you find in Beirut and Lebanon that contribute to your performance?

We love being here, we love the culture of this place we love the beauty of this place, the human being. This is a place that has generated intellectual capital and achievers found around the world – be they doctors, engineers, or financiers. That is why I say that we’ve got an amazing brain center at Colony in Beirut.

[Colony Capital CEO] Tom Barrak has got an amazing love for this place. When we acquired Costa Smeralda, Tom said in his opening speech, “the Phoenicians are back.” and he was so proud of it. We love this place and I cannot describe how much it hurts us because we are operating globally and we contribute and add value to all these places globally and we want to do that in Lebanon and we want to see this place get better.

How does one take his or her heritage and advantage of being Lebanese to become a true real success in finance?

What you need to do is forget everything you learned at school and remember what your grandmother told you, which is walin haram, watch out from the bad people. Your reputation and credibility and long-term relationships, this is what matters, but stay away from bad people. Give it your best shot, work hard. This is not stuff they taught you at school but I think this is the basis of success. To be appreciative, and hard working and remember what your grandmother told you.

From your experience, would you endorse the statement that a Lebanese should go abroad to succeed?

I left Lebanon with $2,000 in my pocket and worked hard. I busted my chops, cleaning dishes and doing whatever. I had a scholarship at a university in the US, got educated at Stanford and Notre Dame and I did well at work. Now I work with Colony, and I am giving back to Lebanon. I like to give back more to Lebanon. Would I have had this opportunity if I didn’t leave? I don’t think so. My mind, the way I think would be different if I would have remained here. I encourage the young people to go wherever their opportunity is. Don’t forget Lebanon; be like what the cedar is like. You have your roots here, and when you find your roots, then you can grow high into the sky. This is a great place to be from, and we have a lot to give back to it. In order to give back to it, one has to find his opportunity wherever it is. If it is in shoe shining, in planting grapes, be the best shoe shiner and the best viticulturist around. Be the best; give it your best.

With those principles on your internal billboard, you yourself rose from starting out with $2,000 in your pocket to what net worth today?

My net worth is measured in terms of the friends and relationships I have, the family I have. That’s my net worth. What we must focus on are the essentials, the priorities in life. Start from the foundation up, fix the human infrastructure and let’s stop all this plastic surgery business. Let people focus on what it is deep inside that governs their lives. Otherwise you end up building a society with false expectations, starting with the children.

Less popular cruises?

While 60 cruise ships dock at Beirut each summer only one, the Ausonia, takes on new passengers, and for three years now, Lebanese holidaymakers have signed up for the weeklong Greek island cruise, organized by the Cypriot company, Louis Cruise Lines. That was until this year, when prices went up by about 5%, noted Toufic Keyrouz, general manager of the travel agency Lebanese International Tours, who feels that the budget cruise may have had its day.

Paul Zahlan, a director of Lebanon

Interminable terminal

The saga concerning the private jet terminal at the Beirut airport continues. The new terminal was supposed to open its doors last June, but until now it has not.

The story of Wael Hafez, the 21-year-old car dealer who fled Lebanon with reported debts of around $20 million, is a supreme HISTOIRE DE NOS TEMPS. Not only is it a story of personal greed, it also offers an insight into how the “used” luxury car market has become a magnet for those who seek glamour and a quick return on their money. Although nothing more than a insignificant footnote in history, it is a typical Lebanese story: bankers, cars dealers and private investors were all burned by a young man barely out of school, blinded by the shallow dividends that make up the modern Lebanese dream.

A scion of a respectable and wealthy family, Wael Hafez was elevated from small-time businessman to selling luxury cars bought mainly from disgraced banker Ibrahim Abou Ayache. In order to finance the purchase of these $50,000 to $250,000 dream machines, Hafez offered investors outrageous return on short-term loans.

“If you loaned him $100,000 he would immediately write you two post-dated checks for $60,000,” said one ex-associate. “He was offering the best interest rates on the planet.”

The system, essentially the final stages of an international money laundering operation, was straightforward. According to insiders, all of whom refused to be named (“These are powerful and dangerous people,” one said), Hafez would buy a car, worth say $100,000, for $75,000 from Abou Ayache, who had brought it from a dealer in Germany with money from Al Madina Bank. He would sell it at a shade under market value, take his cut and repay the loan. During its brief incarnation, Hafez’s Link Motors sold 500 between January and May 2003. “That is nearly as much as is sold by all the authorized dealers in Lebanon in a month,” said one insider. When Abou Ayache’s Al Madina bank went into receivership in Spring 2003, the boy who began his career by selling cars over the phone found himself facing millions of dollars worth of debts. In order to keep creditors at bay, Hafez resorted to check fraud. This desperate stopgap strategy, (Hafez thought his luck would turn), only delayed the inevitable. After he fled the country, his many creditors besieged the Hafez family home in Verdun demanding their dues, but his father, who is allegedly in regular contact with his fugitive son, has offered all the debtors approximately 20% of their claims. Despite the uproar from many who say they have lost their entire life savings or inheritances, many of those close to Hafez have little sympathy for those who claim they were ripped off.

“A lot of people made serious money out of Wael. If they lost on some of the final deals, so what,” shrugged one. “Anyway they were all grown up and they knew what they were doing and no one put a gun to their heads. No borrower gives those rates if there is no risk.”

Wael Hafez was born in 1982 into a respectable Beiruti family of Syrian origin. Educated initially at the International College, he later changed schools and was sent to the more conservative Al-Bayader High School. Those who know him say the move was for religious reasons, while others suggest he failed to make the grade at the hugely competitive IC and that Al-Bayader was the only school that would take him.

The family was very wealthy; reputed to be worth around $300 million, a fortune built up from the manufacturing of household appliances, refrigerators, ovens and washing machines. Life for young Wael was carefree. The family was initially liberal (Wael’s mother drove an open-top Mercedes) but in his teens the family became increasingly conservative. This new prohibition brought with it a new set of rules: no movies, no going out, and no girlfriends. However, at 17, Hafez fell in love with Zein Hrake, a 15-year-old, “open-minded” girl. Early marriage was nothing new to the Hafez family and when Wael turned 18, his mother agreed to the union.

Hafez briefly enrolled at LAU but never completed his first semester. Those who knew him then and know him now, remember him for his charm and charisma. “Wael is a genius,” said one fellow student. “Everything seems so easy for him. He is very positive and not afraid of anything.” The good news for Hafez was that his marriage meant freedom. He no longer lived with his parents and his monthly allowance had increased from $4,000 to $10,000. Leaving his by-now-veiled wife at home, he started going out at night with his friends.

According to many of those friends, Hafez found security and a sense of camaraderie in their presence, a welcome antidote to the conservatism of home life. At the height of his “reign,” he invited around a dozen friends on an all expenses paid trip to Dubai, where they stayed at the Burj El-Arab. “He paid for the lot,” said one ex-associate. “The food the booze and even the girls.” Those who were around him at this time, remember Hafez asked his friends to call him “the Prince” (IL BRINZ) and then surrounded himself with four bodyguards. He was styling himself and his lifestyle on that of Taha Qoleilat, the local businessman who seemingly came from nowhere to own five star hotels, restaurants, and luxury car dealerships. In fact, Hafez’s weakness was cars. “He was a car nerd,” said one friend. “He could dismantle and put back together any model you could name. He knew where every little nut and bolt went.”

Not surprisingly therefore, for a young man who would change his car up to four times a month, he began to get an understanding of how the car market worked, buying and selling cars. By September 2002, Hafez had established a cellular phone shop and two months later opened Savoy Café on Raouche, the motto of which was “Where friends become brothers.” Hafez would buy his cars from Highway Motors, owned by Fouad Kahwaji, who sourced luxury vehicles from Abou Ayache. In 2002, Hafez was introduced to Mohammed Doughan, Abou Ayache’s trusted fixer.

Abou Ayache needed a new outlet for his cars. Both Highway and Quatro Motors (owned by Taha Qoleilat) were beginning to raise eyebrows. He needed a front man who was young, ambitious, wealthy, and above reproach. Wael Hafez fitted the bill and in March 2003 Link Motors was established at the UNESCO intersection on an already established car lot rented from Abdel Salam Al Wazzan, whom Hafez would later rip off for $400,000. Hafez sought investors to finance the purchase of the cars. With the kind of returns he was offering, they were queuing up to give him their savings or inheritance.

One car dealer recounted how Wael once walked in his showroom carrying a paper bag filled with money. Emptying the bag on the floor, Hafez counted the bills, the total of which came to $500,000. He then called Tarek Issa, his Kurdish office boy, who came on a moped, threw the bag in his face and told him to go and deposit the money at the bank. Without a receipt, the boy put the bag between his legs and zigzagged his way through the traffic.

These vulgar displays of wealth convinced investors that Hafez was somehow connected with a money-laundering ring. “We assumed that he was well-protected, that’s why we trusted him with our savings and the savings of our relatives,” said one investor.

Hafez was a one-man money machine. Sitting in his office he would go through a checkbook in less than half an hour. This impressive movement of funds did not escape the attention of the Al Ahli International Bank, which by now had identified Hafez as a blue chip client.

In late April 2003, with the indictment of Abou Ayache, Hafez’s mini empire began to crumble. “The cars dried up and there were loans to be paid back,” said one associate. “He had been overspending, which didn’t help matters.” He certainly had. In the fine tradition of Lebanese excess, Hafez had displayed rare vulgarity. On one occasion, he ordered four Quads worth $12,000 each from Itani, and which were only used once and then given away. On another, after his morning jog, he went into Aïshti in Verdun, where none of the sales staff paid him much attention. Hafez, presumably irked at the lack of respect, proceeded to spend $17,000 and ordered the shop manager to carry the bags up to his apartment.

But by now the chickens had come home to roost. As a stopgap Hafez resorted to check kiting, a process whereby a person with accounts in two banks can create an illusion of money in his account. A check drawn on the first bank is deposited with the second bank and before the check reaches the first bank for payment, a check drawn on the second bank is deposited to the first bank. If that bank is willing to give immediate credit in the interim, the person can use the bank’s money without first providing collateral and without paying interest. This scheme can go on as long as the person keeps depositing checks in both banks and both banks believe there is money behind the checks. However, instead of using two banks Hafez is alleged to have used two accounts in the same branch, a claim that casts doubt on the bank’s later contention that it was unaware of his activities. Using this method, Hafez was able to hold off creditors. The bank, which until that point had been satisfied with the millions that he allegedly passed through his account, was presumably cutting its star client some slack. During this period he was able to generate enough money, thorough gullible investors, to pay the alleged $20 million dollars he is thought to have owed Abou Ayache. By this time, the checks to his investors were being broken down into smaller amounts and post-dated over longer periods. In the last weeks Hafez was working long hours and living on Red Bull, while staying at the presidential suite at the Mövenpick Hotel. Friends said that he was looking stressed and tired. Then, when the checks started to bounce and with only the clothes on his back, he and his wife fled the country on June 2. “His family told him to go,” said one close friend. “They need time to sort out his affairs and this is why they are handling his debtors”

The fallout has been considerable. The Al Ahli International Bank, with whom Hafez deposited up to $45 million over a period of less than six months, were quick to place any knowledge of Hafez’s check kiting scams on the shoulders of its branch manager Samir Tutunji. For his part Tutunji claims that the incriminating bounced checks found in his possession were given to him by the bank to follow up on and that the Hafez account was handled from the head office in Bab Idriss. Either way, the bank appears to have been negligent in its surveillance of Hafez’s banking activities.

Hafez’s brief incarnation as a small time tycoon had come to an end. Those of his debtors who have not accepted the 20% pay-off are seeking, through the Lebanese courts, an international arrest warrant to be issued. Khaled Dairaki, one of Hafez’s two trusted associates (the other was Tarek Issa the office boy), was approached by the family to retrieve the post-dated checks. The family promised that all monies owed to Dairaki – a reported $600,000 – would be honored. The well-connected Dairaki was able to get back a reported $11 million worth of checks but is reported to have been given the runaround by the Hafez family when it came to his own debts. Finally Dairaki’s patience ran out and, through his lawyers, issued seven writs against Hafez, one of which led to the sealing of his apartment and the selling off of assets. A nation’s moral compass can be gauged by the caliber of its heroes. In more developed nations, heroes set the benchmark for those to come. They may have suffered for a cause, encouraged the underprivileged, set new standards of sporting excellence, pushed back artistic boundaries or simply demonstrated such distinction in their individual fields as to have left us gasping and inspired at their accomplishments. In Lebanon, it seems that our heroes can be crooked, corrupt and downright nasty, just as long as they are rich.

E: When you say you are looking for the best, what defines ‘the best’?

RM: A quality that I especially like to see it is the passion to make an impact on the world that goes beyond making individual gains. It begins with developing the professional side and the personal side and then reaching out to the community, in terms of giving back to society.

E: How do you spot these special qualities in applicants?

RM: They have that drive, that energy, that special electricity. When you see it, you know it.

E: Was it in any way a political or economic decision for the school to intensify your presence here?

RM: Not necessarily. We started in the Middle East about five years ago. Then all the disruptions occurred and we just pulled back. I feel the disruptions in the region will continue for quite some time, but I decided that it is time to come back, regardless, and be part of an answer to some of the problems instead of leaving things stay as they are.

E: Wharton does not have a shortage of student applications. What is the average academic level for students who gain admission?

RM: We use the GMAT score, and the average score is 714. But I think the range is much more important. It is from 640 to 780. You don’t have to have the highest score. It is everything else that really makes the candidate stand out.

E: Can people easily recoup their investment if they attend Wharton, which is an expensive program?

RM: The MBA is a long-term investment. In light of that, Wharton has created a number of programs for financing your MBA that help student to gain access immediately, through loans given to students based on their needs. We hope that students come with a contribution of some small percentage, 10% or 20 %. But if a student can’t do that, it really is the responsibility of the school to provide grants. Students might face short-term pain in terms of servicing loans. But longer term, they will be fine. The gains to society, themselves, and their company will greatly outweigh the short-term pain of those first initial years of loan repayment.

E: But in order to be able to pay back those loans, they almost automatically will have to take a job with an American or multinational corporation?

RM: There is an advantage in working in a different nation for a year or two in order to broaden the experience of the MBA. If a Lebanese student would opt for working in London or Paris to gain diverse experience in the first years, and then come back, usually the salaries and bonuses from those first years do a lot towards paying back the loan.

E: Do you have the impression that anti-American bias has grown in the target group that you approach?

RM: There is no anti-American sentiment when it comes to education.

E: How about visa?

RM: This last year, I had no problems getting visa for my students from the Middle East. They went through an additional screening process but they had no problems because they did things correctly.

E: It is then safe to assume that people coming to Wharton from the Arab world will not experience an anti-Arab bias stateside?

RM: Not at Wharton. After 9-11 and the whole student body was very protective of our Arab students.

E: How many Arab students does Wharton have at present?

RM: Probably 1 to 1.5 %; that is something I’d like to increase.

E: How high is the percentage of non-acceptance of applications?

RM: If we have about 7,000 to 8,000 applications and a class of 800, there is a lot of it. We use a structure where we view the application first and then evaluate these twice, dividing them into two groups, one of about 40 % whom we want to interview and another group whom we don’t want to interview and will deny at that point. We then weed the first group down. It works out fairly well.

E: But you would advocate Wharton as offering a better opportunity than a local school?

RM: Students, who really have aspirations to create value and provide leadership, need to get abroad. The MBA is much more than a functional skill at learning. It is an experience of other cultures, worlds. It is the intensity of the experience. But some people just want to be functional experts that don’t want to leave. There are those who want to make money and therefore are interested in taking the credentials. To them I would say, stay, don’t take that risk; don’t spend the money. It really depends on the needs.
 

On September 30, Ayoub Humayed met with Executive for a political reality check on EDL, during which he answered questions on recent accusations leveled at EDL over corruption and criminal waste of public funds. In doing so, minister Humayed provided Executive with much anticipated answers on the issues of graft and transparency at EDL.

E: EDL has been specifically named in recent allegations of disappeared funds and inefficient management. Can you provide us with a precise figure on the cost of corruption at EDL?

AH: Lebanon is not an exception in the world. Corruption does not only affect developing economies. We should differentiate by looking at the causes of corruption. One cause of corruption is the lack of sustained and continuous supervision and accountability. Another factor is the lack of fair compensation that forces many EDL employees to supplement their salaries. Since I took office EDL and the water authorities have agreed to full transparency in any investigation. I am committed to facilitating the job of the investigative authorities in apprehending those who have abused the trust placed in them. The recent EDL crisis was purely financial. We needed money to buy fuel in the face of a global price hike. However, the debate became muddied by unhelpful side issues. [The minister then detailed how several measures were tried and abandoned until an agreement was reached under which $200 million could be borrowed from the central bank for the purchase of fuel.] In the course of these developments, the debate focused to the corruption and wastefulness that contaminated EDL in the past. Even though the director general of EDL and I have vowed to forward any information on irregularities we uncover, the ministry and EDL have no part in determining the direction of any investigation. Files on all previous activities at EDL have been made and are being investigated.

E: What about the stories that corruption was proven in these files?

AH: This issue does not concern us. A lot of noise has been made saying there is corruption, with people asking where the money went, and where wastefulness occurred. These questions have nothing to do with our present concern of finding money to buy fuel. These questions concern the past.

E: But the situation has become very heated and many people are stressing on the issue of corruption at EDL.

AH: Yes. Why we didn’t switch our power plants from oil to gas? Why are our networks and the tertiary links incomplete? Why can’t we erect power lines that would save millions? These are all legitimate questions, but some might have political reasons for raising these issues. Their motives may not be innocent. Today, these issues are in the hands of the judiciary whose responsibility it is to deal with any past irregularities. I am not in a position to pass judgment.

E: Could we talk about the underlying causes of the problems that are reflected in the situation of EDL. When did the problems start, and what was their effect on the plants, the networks, the grid, and power lines?

AH: We have a general problem in that there is too much ad hoc implementation of works with no proper planning. This is the main reason for irregularities in the public administration. This problem surfaces in every nook and cranny of our administration. You see a network of sewage pipes and no wastewater treatment plant and ask why do we need sewage pipes if we don’t have a treatment plant? I am not condemning nor am I excusing anyone. I am just not in the position to judge.

E: But we don’t want judgments.

AH: There are irregularities. I am not in a position to justify irregularities and mistakes. The issue of why there was an accumulation of factors that brought us to this explosive reality has aspects one cannot fathom with total objectivity and without bias or prejudice.

E: What is being done to remedy the problems at EDL?

AH: There are a lot of aspects to this topic. When EDL is suffering from the inner burnout of its administrative body and when one considers that there are 2,400 employees with an average age of 57 years, one can see that EDL cannot deliver what is required. For that reason, I said before that there are two sides to this issue. On the one side is the need to pump new blood into EDL through the activation of its human resources department. On the other side it is necessary to compensate employees fairly and give them incentives to work professionally.The reinforcement of human resources will mean that the administrative situation will improve, and so will the supervisory situation. It will also save money when compared to procedures currently used at EDL. It would bring great benefits if EDL can implement a system of bill collections, advanced meter readings and even prepaid cards. Completion of the 220 KV network and its connection to a six nation regional network should also provide energy at a lower cost.

E: Why weren’t these steps taken in 1994? What were the obstacles at the time?

AH: I cannot answer that. What I can say is that the funds that were received were destined for the reconstruction and rehabilitation of the power plants. These plants were destroyed more than once during the Israeli aggression, and the costs were prohibitive. If there had been no Israeli aggression, a lot of money would have been saved. Before the civil war and the Israeli aggression, EDL was profitable and productive. It is important to evaluate the entire set of circumstances in order to remedy the situation and not look back to the past and bring up corruption and waste. Our focus is the current operations at EDL, which are being handled in a scientific and practical manner to achieve a better future.

E: As many people feel no remorse over tapping into electricity lines or not paying their bills, how are you going to change the perception of EDL and produce an image of transparency?

AH: I already answered that in part. We always say that two matters go hand-in-hand. The first is the right of EDL to collect its dues, either from the citizen or from other administrative and public institutions. Secondly, EDL has to offer the citizen continuous electricity at reasonable rates. I gave directions and issued many statements to EDL staff that stressed an ethical interaction with customers. This very important at a time when the public sees EDL as corrupt and unable to provide a value for money.

E: If today there were no more theft at EDL, would the utility be working normally?

AH: When Italy’s power supply broke down the other day, the reason was traced to a power line between Italy and France that had become neglected. When electricity networks broke down in the US, it was also due to the age of the system. These are giant developed nations. It is easy to pass judgment in Lebanon but we have to be objective. We have to look at the circumstances that EDL is working under and consider the past.Due to severe space restraints in the magazine, Executive had to edit portions of minister Humayed’s sweeping answers. The Executive team made every effort to ascertain that no loss in content occurred as result of the editorial cuts and that the integrity of the answers was preserved to entirety.
 

Lahoud summed it up better than most. Speaking to the cabinet during a discussion on the EDL file, the exasperated president turned to the ministers and raised his arms. “What do you expect me to say when you tell me that $3 billion has gone missing from EDL. I am speechless.”

EDL is indeed in a miserable state. It continues to be riddled with corruption, wasteful spending and mismanagement. By this summer, the company was in debt to the tune of $950 million with little to show for $1.5 billion of government investment. Since 1992, it has lost over $600 million in uncollected bills and another $230 million to illegal connections and technical problems. Things could hardly get worse – or could they?

In August, it emerged that arch-wheeler dealer Ahed Baroudi publicly admitted to bribing public officials on all levels and on numerous occasions to secure lucrative contracts worth around $750 million in the early 90s. His involvement in these deals has allegedly cost the state millions and is responsible for the dilapidated state of the national grid. Baroudi has not been officially investigated; probably because of his threats to disclose the names of high profile officials he claims took bribes. Ahed Baroudi has always worked the shady end of business. His name appeared in the murky demi-monde of dealmakers in 1974, when MEA bought three 747s from Boeing. The American aircraft manufacturer paid $3.6 million in commissions to a Swiss bank account in the name of a Rosera, on behalf of MEA executive (and future chairman) Assad Nasr and other parties working for or connected to the airline.

Although an open secret since the deal was signed, the payments officially came to light in 1979, when MEA sought to buy another 19 aircraft at a cost of $1 billion (the commissions on that deal would have been a whopping $30 million). An investigation by the US Securities and Exchange Commission (SEC) into the 1974 deal, forced President Elias Sarkis to call off the purchases, and created a scandal that reached the higher echelons of the Presidency and Intra Bank. The debacle effectively ended the career of Nasr, who had to leave the country, only to be allowed back after much string pulling.

However, one man, believed to be the architect of both deals, lurked in the shadows, relatively untouched by scandal. No one can say whether this secretive character was in fact Baroudi, but those on the inside believe he was the only one to hold onto his share of the fees paid by Boeing in 1974 Ð around $1.6 million Ð and point to the close ties he cultivated with President Sarkis. In 1982, Baroudi was himself famously exiled by Bashir Gemayel after an encounter at Au Vieux Quartier, when Lebanon’s youthful new leader, who had vowed to wipe out corruption, allegedly strode over to Baroudi’s table and gave him 24 hours to pack his bags, telling him, “the country is sick because of people like you.” Baroudi claims he left because the food was not to his liking. Baroudi returned in the late 80s to Amin Gemayel’s Lebanon expecting to carry on where he left off. He found Roger Tamraz and his advisors had become the favored dealmakers. Professionally, the two men were chips off the same block, but while Tamraz sought the limelight and gained notoriety, Baroudi bided his time, working diligently in the shadows, courting the patronage of those in power. It was a policy that paid off. Tamraz’s star waned, while Baroudi fought his way back into the game, recruiting Tamraz’s team along the way. After leaving during the Aoun war, he returned in the early 90s to carve out a lucrative niche at EDL, one of the few ministries not blocked to him. His calling card at EDL’s Mar Mikhael’s offices was his trademark $1 million gift.

In his new-found role as a key player in the state’s ten-year plan to rehabilitate the national grid – one which, among its many aims, sought to convert from fuel to gas – Baroudi set about beating off all other international bids to secure the contracts for the building of the Zahrani and Baalbek power stations, contracts worth a combined total of $300 million.

A senior EDL consultant at the time remembers the irregularities. In a letter to the board of EDL, sent on December 10, 1994, he protested that the 200-page rehabilitation plan was drafted in secret, outside the official framework of EDL, over a period of ten days. He went on to complain that there was no time for him or his colleagues to review the plan, which was, for the most part, devoid of page numbers, figures and tables. In a very sketchy financial plan, it was stipulated that all payments be made to Ansaldo, a company that had been earmarked for both the Badawi and Zahrani stations, even before the jobs had been tendered. The consultant was further mystified by the fact that only three years’ work was outlined in what was supposed to be a ten-year plan, and the cost estimates appeared to have been reached without due diligence. ”This is what we were told to do,” an exasperated colleague told him, when he was questioned about the report. It became clear to the consultant that the plan was imposed and not meant to be contested. The extent of the conspiracy was reflected in the speed at which the plan was rushed through parliament on the night of Saturday, December 10, 1994 (those who are convinced of Baroudi’s involvement in the 1974 MEA deal, point to the same way that agreement was rushed through on the eve of the meeting of the MEA board of directors on May 30, 1974. Baroudi, it seemed, liked a fait accompli.)

Baroudi was part of the EDL deals from beginning to end. After the signing of a $600 million Italian-Lebanese loan (one that he personally negotiated), earmarked for electrical equipment, three contracts were awarded to Baroudi, who was still the representative of Ansaldo.

The first deal involved the buying of new heavy equipment that was later discovered to be used and obsolete. The second was for the installation of $50 million worth of equipment for the Zahrani and Baalbek stations. Through its inside contacts, Ansaldo, via Baroudi, ensured that all other bidding companies never got a look-in. Such was the extent of Baroudi’s impudence that he installed the equipment, generators and machinery before the contract was officially awarded. The third deal was a $17 million maintenance contract, which was signed even though the equipment was under warranty. The $17 million was allocated for the maintenance of Lebanon’s gas-powered power plants – a system that was allegedly 30% cheaper, environmentally friendlier and more efficient. In 2000, after rumblings within EDL, the contract was re-awarded to the Italian company INNEL for $9 million a year, a saving of 40%. INNELÕs agent in Lebanon at the time was none other than Ahed Baroudi. The signing of the three contracts took place outside the supervision of CDR, which was supposed to, according to the protocol signed with the Italians, oversee all bidding, installation and maintenance.

Today, the equipment bought by the government and provided by Baroudi is still not connected to the electrical network, while the power stations require rehabilitation worth $200 million. There has never been any gas-generated electricity from the two plants, which run on a jury-rigged fuel system that has effectively destroyed the operational integrity of both stations. A report compiled by General Electric and sent to EDL on November 29, 1999, blames the use of incorrect fuel for the blowing up of the third turbine at the Baalbek power station. No one is absolutely sure of how deep the level of corruption ran in the ‘Italian Job.’ What is known is that the EDL case, was one of many that went to the very top of Italian politics and implicated the disgraced former Italian Prime Minister Benetto Craxi. In Lebanon today, nothing has changed. Baroudi and his ilk maintain their cover by cultivating friendly relations within political and key civil servant circles at the highest level. While most corruption is a smash and grab ‘career,’ Baroudi has lasted, and has never felt the long arm of the law.

Meanwhile, EDL is in a corner. The excuse that the main problem lies with unpaid bills is as weak as it is insulting to our intelligence. The public might be more willing to pay their bills if they see that EDL is putting its house in order. Maybe when that happens, the collectors will not need armed escorts to carry out their duty.

If EDL is keen to root out graft and corruption from its core, it is going about it in a very low-key manner. Corruption is a chronic sickness in any society and requires constant treatment. As the saying goes, it’s not the man in the fight but the fight in the man. Like Fuad Chehab, who built a state of law, President Lahoud has founded his term on rooting out graft. But such a campaign will only bear fruit if there is collective political support to fight those who rob the public and private purse.

Therefore, EDL must act to right the outrageous wrongs that have taken place in the past ten years. This is the perfect opportunity for a government, committed to showing the people that it is serious about tackling the legacy of a more sordid past. Either that, or those at the very top of EDL must make what would be an honorable and memorable move: they should resign. At least then they would be remembered for something. Executive investigated and published the EDL story in the public interest. Further cases involving Ahed Baroudi and others are still under investigation.

E: Senator Dogmoch, your group has recently stepped up its local investments. How do you evaluate the investment climate in Lebanon?

YD: I believe every investor has to see the glass as half full. The Dogmoch Group of companies has a presence in all Arab countries, with activities in different sectors, be it industry, trade, Internet, transportation, shipping and forwarding, airplanes etc. As a mid-sized enterprise with a presence in several countries, we decided to establish the base of our undertakings in Lebanon.

E: Why motivated you to this decision?

YD: Lebanon offers many advantages in terms of taxation, through the flexibility of the banking system, the climate, or the high quality of human resources. You find more human capacities and resources in Lebanon than in other Arab countries. Investment in the Arab countries hinges on the security of capital. This security is provided in Lebanon to no lesser a degree than in other parts of the world. Certainly, Lebanon will be the first country to profit if there is progress in resolving the Middle East problem. These are some reasons why we have opted for Lebanon.

E: You recently acquired a major share in Bartercard Lebanon. Was that your first major investment here?

YD: No. Bartercard is one of over 30 companies in which we have invested in Lebanon. Where do you see the best current investment prospects in Lebanon, and what projects did you find rewarding?

YD: In tourism. This year is the best in a while, and the country still needs many projects in the industry. We are in the hotel business and also have recently established a company called Cruise Med, for the rental of boats. We established it three months ago and now have 11 yachts, measuring between six and 24 meters. This business was a success from the start. Some days all boats are rented.

E: When you started investing here, did you encounter difficulties?

YD: For any project you start in Lebanon, in tourism or industry, you receive support from the authorities. There are no stones thrown in your way. In tourism projects, one can request loans at a very low interest, subsidized by the central bank, and this will be approved.

E: Did you work with IDAL?

YD: We are involved in a project with IDAL in Tripoli involving the construction of a car park and reorganization of the Gamal Abdel Nasser Square in central Tripoli.

E: Overall, then, you would say that as investor you do not find it difficult here?

YD:Lebanon has ideal circumstances for the investor, better than in any European or Arab country. If you want something from the authorities here, it is processed quickly. Even as a German in Germany I have not experienced that. To acquire a construction permit, for instance, it takes a month here, and one year in Germany.

E: What is the size of the Dogmoch Group’s investment portfolio in Lebanon?

YD: I believe that it is a sizeable amount for this country. In comparison to the activities of our group, 50 percent of our investments are in Lebanon, and that is a lot.

E: Is there anything that you would wish for to be different for investors?

YD: If some German or European investors knew the conditions and environment here, they would not hesitate to invest in Arab countries, Lebanon among them. The perspectives here are better than anywhere else.

E: Do you have further plans for major projects in Lebanon?

YD: We want to launch passenger-only sea transportation between Tyre, Sidon, Byblos and Tripoli. It will combine regular transportation and sightseeing. Based on experiences with the boat rental project, I have discussed this program for coastal transport with the transport minister, Najib Mikati. This could take some pressure off the road network. I hope that we will implement it within the next two years.

E: Then it will be related to tourism?

YD: If we use hovercraft it would be a tourism project, but operate year round. There’s a small problem that can be overcome. The sea in these parts is not very calm. But with the latest hovercraft, transport can be quick and reduce disturbances. On a calm sea, it will be a very interesting affair.