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A glimpse of hope…

Privatization is key to improved public services

by Firas El Husseini

There is a wide debate in Lebanon about economic eform in the context of the implementation of the decisions of the CEDRE conference and the conditions set by donor countries. The economic reform program suggested by the government of former Prime Minister Hassan Diab addressed a series of measures aimed at modernizing the economy and stimulating growth, including privatization and market liberalization. The new government formed by Prime Minister Najib Mikati is promising to involve the private sector in the services previously led by the public sector, to include electricity, telecommunication, and the likes.

Privatization aims to reduce the cost of services, improve their quality, expand their scope, increase
investments, give impetus to economic growth and stimulate the participation of citizens and the private sector through ownership of shares in privatized services’ sectors.

Of course, raising the issue provokes different reactions in political, economic, trade union, and popular circles. From welcoming and supportive, to conservative and opposing. If business circles declare their absolute support for such proposals, for example, some components of civil society may openly declare their opposition and rejection of any privatization process, and demand the restoration of previously privatized economic sectors that could provide large revenues to the state, calling for absolute adherence to the role of the public sector as a pioneer and guarantor of justice and conditions necessary for economic and social advancement. What are the reasons for raising the issue of privatization in Lebanon? What are the expected results of the privatization of some sectors?

The main objectives of privatization go beyond providing income to the treasury to deal with the public debt and, in our present case, contribute to securing the funds needed to rebuild what was destroyed. Experts unanimously agree to position the consumer’s interest and the necessity to secure public service to its best terms at the top of the pyramid of privatization goals. Most of the countries that adopted privatization aimed, in the first place, to improve the level of services provided by a publicutility or to try to address what was tainting this utility as a result of its mismanagement by the public sector. In this context, we can cite the successful experience of LibanPost, which brought about a qualitative revolution in the field of postal services
in Lebanon, yet did not bring in any direct income to the Lebanese Treasury. A public utility has exceptional powers as it is owned by the state and managed by its institutions. In most cases, these powers are monopolistic, leaving the consumer with no choice but to comply with the conditions set by the utility. In such cases, if service delivery is insufficient or unsatisfactory, privatization comes in to allow legitimate competition in the field of those services, thus giving consumers the benefit of choosing reduced costs or improved services. In the US electricity market, for example, consumers – especially industrialists – are able to choose their electricity provider (state-owned or private) based on prices traded in the Electricity Exchange. Answering most of the questions related to privatization must be done for each utility separately, in a way that dispels the fears of both citizens and experts. The ideal approach is to examine the required legal frameworks and mechanisms in order to guarantee simultaneously the interests of the state and those of consumers, in addition to determining the economic feasibility of the privatization process.


Any privatization process imposes high financial burdens on the state, especially in the preparatory stage. These expenses are often consultative and non-refundable, and aim at setting up the necessary mechanisms and legal frameworks as well as ensuring the feasibility of the privatization process. The use of some of these funds to establish regulatory bodies (a regulatory authority or committee) constitutes a smart investment for the state, whereby these bodies can advise the privatization process, in addition to monitoring the proper functioning of the public utility and taking up various other technical and administrative roles. Conferring the appropriate authority to these regulatory bodies is essential; regulators should operate according to high transparency standards and enjoy the necessary autonomy to carry out the expected work in a serious and effective manner. Therefore, securing strict legal and administrative bases are vital. These foundations should be comprehensive and cover all angles, from the mechanisms of appointing the members of these regulatory bodies to defining their powers, in order to ensure the greatest degree of impartiality and to guarantee the continuity of their operation. Protecting those bodies from any interference should start with the process of appointing its members, all the way to granting them the power of decision-making and the ability to carry out their duties in the face of opposition from partisan politics, as long as they act in compliance with the law. Determining the role of these bodies, whether advisory or supervisory, is a key factor in the stability of the privatization process and an important incentive to attract serious investors. The main role of regulatory bodies remains monitoring the operation of the privatized facilities, especially ensuring compliance with the terms of reference and securing healthy competition and preventing monopolistic activities. These bodies also help establish a financial monitoring mechanism to maintain the flow of the state’s sporadic resources. Most countries have adopted the “quality-of-service” criterion as a basis for evaluating the work of the public utility and the services provided. However, this criterion must be based on specific, clear, and precise points to avoid negligence in this area, which is often at the expense of the economically weaker party, i.e. the consumer.

Some may view the establishment of regulatory bodies for all sectors intended to be privatized as a costly and futile endeavor, since the advisory role can be assigned to private bodies, and over- sight remains in the hands of the guardianship authority, i.e. the responsible ministry. The role of control as part of tasks inserted to the regulatory body has several benefits, whether in terms of the experience of its members, or in terms of ensuring the integrity of the institution, with all due respect to successive ministers. Virtually all the necessary paperwork and studies have been prepared to establish three essential regulatory bodies for Lebanon (See box ), yet partisan political interference still prevent them from starting operations or engaging in the process of appointing members.

In order to reduce expenses, several countries have adopted the so-called “unified regulatory authority”, meaning that the regulatory powers of different sectors are entrusted to a single administration. In the case of Lebanon, however, the best solution seems to lie in the establishment of three regulatory bodies:
A Telecommunications Regulatory Authority will supervise any privatization step in the telecommunications sector, including cellular and international communications.
An Energy Regulatory Authority, whose powers include electricity, water and oil, will draw the main lines for privatizing electricity production, including electricity from renewable energies.
A Transportation Regulatory Authority, whose mandate includes transport, roads, and public works. This authority is entitled to look into the feasibility of constructing some highways or bypasses, regulate shared transportation, and study the possibility of privatizing the Beirut Port and other ports in whole or in part.

There can be no privatization without the appropriate regulatory body. The Lebanese have paid the price of haste and demagoguery in the telecommunications sector twice, the first time when cell phone licenses were granted in Lebanon, and the second time when these licenses were with- drawn. The management contracts in that case lacked any vision for the future and did not solve the problem of the monopoly of telecommunications by a few players who dictated their conditions to the Lebanese for almost two decades and wasted large amounts of money that our economy desperately needed.

Firas El Husseini

Lawyer, holding a Public Private Partnership & infrastructure degree from Kennedy School of Government, Harvard; Mini MBA in Petroleum Industry Dynamics from Euromoney. With expertise in infrastructure and Oil & Gas contracts and other areas of practice.

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