Hospitality & Tourism

Regulating Lebanon’s grapes

by Nabila Rahhal
written by Nabila Rahhal

Winemaking is a rapidly growing industry in Lebanon. Fifteen years ago we only had a handful of wineries to speak of; today the country boasts 42 wineries, according to oenologue and Les Caves De Taillevent General Manager Paul Choueiry.

The industry as a whole produces approximately 8 million bottles (an estimate of the Union Vinicole du Liban (UVL) since there are no exact figures), more than half of which are exported to over 40 countries across the globe. In fact, jewelry and wine are the only two Lebanese products for which the balance of trade is positive, according to Hady Kahale, general manager of Ixsir.

With such growth and global distribution come serious concerns about the regulation of the sector as well as the positioning of Lebanese wine abroad.

A good and bad year

Harsh weather in 2015 – including unusually low temperatures until April, a dust storm and heatwave in August and hail in early September – led to a decrease in the quantity of wine produced this year, explains Chateau Saint Thomas’s co-owner and winemaker Joe Assaad Touma, estimating the overall production of Lebanon’s wineries to have decreased by 40 percent this year.

“It will affect the market down the line, especially for the red wine which needs to be fermented for a few years, but for the rose and white wines, this year we will have less quantity for our clientele,” says Touma, adding that the quality of the 2015 wines “have a lot of potential” because of the lower quantity of grapes produced.

The local darling

According to Choueiry, consumption of wine in Lebanon continues to grow slowly but steadily, following a worldwide trend of interest in the beverage, and also because of the increased number of local wineries. “We have many more local wineries so people are more aware [of this product]. People are trying and discovering different wines more and more, and are also going on wine tours across the country,” he explains.

Indeed, according to Zafer Chaoui, current head of the UVL and chief executive officer and chairman of Chateau Ksara, wine tourism was very active this summer, citing his winery as an example. “Since the Syrian war started, the number of visitors to Chateau Ksara had gone down a lot. This year, we had a considerable increase in visitors; not as much as in 2010, but this increase shows that people are realizing that central Bekaa is as safe as Beirut or Jounieh,” says Chaoui. In an interview conducted with Executive in September, Kahale cited 26,000 visitors to Ixsir.

However, although Kahale sees that the local market is indeed growing, it could be doing so at a faster rate. “I know that the wine market is not growing as it should in terms of consumption in Lebanon, which remains for all of us our most important market. It’s not growing as it should because of a lack of tourists and everything else we speak about,” he elaborates, adding that despite this, Ixsir’s market share has grown by 50 percent year on year, partially due to the launching of the winery’s restaurant.

Wineries that Executive spoke to report an increased local market presence especially in restaurants and bars. “With the trend of boutique wines, some restaurant owners are revolting against the traditional Lebanese wines (Chateaux Kefraya, Ksara and Musar) and choosing to go with smaller wineries. Others say the traditional wines are imperative,” says Choueiry when explaining the increased variety of wines available to Lebanese consumers in the on-trade sector.

WINE-overview2

Going Abroad

“International visibility in 2015 is by far better than in 2014 because of the natural and organic growth of exported Lebanese wine everywhere,” says Faouzi Issa, winemaker and co-owner at Domaine des Tourelles.

Indeed, all wineries Executive spoke to cited new international markets such as Eastern Europe. Chateau Saint Thomas grew its export market in the USA while Chateau Marsyas entered Hong Kong, Japan and Singapore.

With more Lebanese wineries in the global arena, our winemakers have become innovative in reaching new markets. The year 2015 saw seven Lebanese wineries (Chateaux Ka, Kefraya, Ksara, Saint Thomas, Domaine des Tourelles, Wardy and Ixsir) collaborate with Michael Karam, author of “Wines of Lebanon”, on a two year project called the Wine Traveler.

This initiative would see Karam, funded by the wineries, take a selection of their wines to key global markets with the purpose of conducting tastings either in major restaurants or through media and consumer events. These cities, explains Issa, could potentially become hubs which the wineries would build upon to have real markets there.

“It is too soon to judge the success of the Wine Traveler but I am a strong supporter of it,” says Issa, explaining that for the upcoming year, each of the participating wineries is paying GBP 10,000 to sponsor the project which is very close to the amount Issa paid to participate in and set up his medium sized stand for the local wine festival Vinifest, except that, in his opinion, the Wine Traveler is a more effective marketing tool than Vinifest. Touma says he has already made contacts from the Wine Traveler but that there is nothing tangible yet; “these things take time,” he says.   

In the export markets as well, some Lebanese wineries have been moving out of the “ethnic” market, where the wines are primarily sold in Lebanese restaurants or labeled as indigenous wines on retail shelves, and into a more international and global market. “Our focus is on very high-end restaurants and we believe we need to convey that we don’t just need to be in ethnic restaurants. We deserve to be in high end restaurants because we are producing quality [wine] which people appreciate,” says Karim Saade, co-owner at Chateau Marsyas.

“Eighty percent of Lebanese wine in the world is sold in Lebanese restaurants which is not bad, but we want to be a good wine present in international restaurants and wine bars in London, Tokyo and New York. At first, it was hard because it was a niche that didn’t exist much but we started from a small volume which grew every year. Now people look at it as good wine coming from the old world and we are seeing the results,” says Kahale.

To quantity or to quality?

For all its growth in recent years, Lebanese wine production remains at approximately 8 million bottles. When asked why that number has remained steady, Ronald Hochar, co-owner at Chateau Musar, says land in Lebanon is very expensive, discouraging investments in planting more vineyards and also the small size of the country makes land limited.    

It is for these reasons that most winemakers interviewed for this article say that Lebanon should focus on the quality of wine and not the production number. “Lebanese wines should be a niche; it’s not about the numbers,” says Issa.

“As Lebanese winemakers, we cannot compete in volume as we don’t have the land capacity and we will never have it. We should just target and enhance quality. We need to concentrate on quality in everything as a country because we are an expensive country so the only edge we have is knowhow in many sectors and to be able to produce whatever it is in quality,” says Saade.

Where is the National Wine Institute?

If the focus for Lebanese wine is to be a niche, high quality product, then a regulatory body to guarantee this quality becomes necessary. As Choueiry explains, back when the country had only three wineries, regulation was mainly self-initiated. “With the new arrivals, some are perfectionists but some are still learning and these might end up doing something wrong and damage the sector’s reputation. Because the players have increased in the country, there should be an authority, not to dictate what they do fully, but to set guidelines,” says Choueiry.

“It is especially important to regulate production because right now the market is chaotic. We have to guarantee the quality of what gets exported or what happened to arak will happen to wine,” warns Hochar, referring to the small export market for arak which he attributes to a history of non-regulated and chaotic production with some producers making arak of questionable quality.

By regulations, the wineries interviewed for the article mean a certification similar to the French l’Appellation D’Origine Contrôlée (AOC), whereby wine is labeled according to the environmental conditions it comes from, the percentage of alcohol and so on.

Such a certification or regulatory body is the main function of the National Wine Institute (NWI), a public private partnership launched two years ago among the Ministries of Agriculture, Industry and Economy and Trade and four private sector representatives of the wineries. 

The institute’s role, according to Touma who is one of its members, is to conduct studies that would define and categorize Lebanon’s microclimate and wine production, lending structure to the sector. However, ever since it was formed, the NWI has not been able to fully operate because the budget allocated for it has not been approved by the government, explains Touma. “The guys are working and planning but the problem is they don’t have a budget and the budget should come from the government,” says Kahale.

Some wineries say market players should stop waiting for the budget and try to achieve what can be done through private funding among the wineries themselves, or through international research grants which could be available for wine studies.

In the meantime, while stuck waiting for the NWI to gain budget approval, a sector which has to date been blossoming locally and internationally could soon find itself at a standstill.

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Hospitality & Tourism

A tale of family and tradition

by Nabila Rahhal
written by Nabila Rahhal

Chateau Musar celebrated its 85th anniversary in October 2015 in style with a grand party. Despite the festivities, however, the winery has suffered a solemn year, with the death of winemaker and co-owner Serge Hochar, one of the sons of Chateau Musar’s founder Gaston Hochar, on the last day of 2014.

Ronald Hochar, Serge’s brother and co-owner of Chateau Musar who is in charge of the winery’s marketing, reveals the main reasons he decided to throw a lavish celebration at the Palais du Msar, their wine estate in Ghazir, Mount Lebanon.

First, he wanted to celebrate the fact that the winery has been in the same family for 85 years with no dispute or division. “They say brothers usually meet for Christmas, Easter and court, so I wanted to celebrate a company staying in the same family and so agreeably for so long with the third generation still working in it,” says Hochar, proudly outlining that Serge’s son Gaston has been training as a winemaker for 20 years and is now Chateau Musar’s winemaker, while his son and nephew are in London and Paris, respectively, in charge of operations there.

Continuing the legacy

The second cause for celebration was closely related to the first, according to Hochar: the idea of continuity. “I am reassuring everyone that I am here to ensure the continuity of Chateau Musar through preparing the third generation to take over despite the pain I am feeling,” he says.

Eighty-five years of winemaking has allowed Chateau Musar to reach several milestones, the most significant of which was arguably its decision to establish a logistics and distribution company, which Hochar calls “the operations hub”, in England in 1979, which has since led to Chateau Musar having 80 percent of its distribution and business abroad.

This move came after a rapidly growing interest in Musar, following its “discovery” at the Bristol Wine Fair in 1978 by international clients who wanted to try the “high quality wine produced under the terrible conditions of a civil war,” Hochar recounts, recalling how surprised people were at the fact that wine could be produced under such conditions.

“It wasn’t an easy decision, especially since we were one of the key wineries locally, but had we stayed here we would have had to adapt to the chaotic situation, sacrificing the reputation of the wine, and we weren’t prepared to do that. It’s true, however, that we lost our local market share to the other wineries,” recalls Hochar, explaining that they chose to establish a company, with his son in charge, rather than go with an international distributor because it’s a more personal approach than simply selling wines.

Aside from ensuring the transmission of Chateau Musar’s philosophy of excellence in winemaking to his nephews and son, Hochar says that investing in owning more vineyards for the Chateau’s wine is foremost among his future priorities. Currently, Chateau Musar uses its own grapes in production but also buys grapes grown by farmers under controlled conditions. “When you control the fruit itself and know what goes in the soil then it’s different and you can secure the quality and autonomy of your wine,” explains Hochar.

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Hospitality & Tourism

Spreading Lebanon’s wineries across the globe

by Nabila Rahhal
written by Nabila Rahhal

The Union Vinicole du Liban (UVL), Lebanon’s association of wine producers, was founded in 1997 to defend and promote Lebanese wineries’ interests and image abroad. It was established at a time when Lebanon was just beginning to export its wine in significant quantities, according to the association’s website.

Today, the UVL represents 23 out of 42 of the country’s wineries and has achieved some good results in expanding the export market for Lebanese wine through initiating and funding generic campaigns such as the “Wines of Lebanon” promotion in the United Kingdom in 2010.

Executive sits with Zafer Chaoui, current head of the UVL and chairman and chief executive officer of Chateau Ksara, to learn more about the UVL’s role in promoting Lebanese wine and its views on the wine-making industry’s growth.

E   The UVL has been working hard to promote Lebanese wine abroad. Can you give us a little summary of the activities you have done or participated in this past year? 

The UVL is a very united organization; we work [as a team] and we have, for the third consecutive year, a budget which has been allocated to us from both the Ministry of Agriculture and the Chamber of Commerce, Industry and Agriculture (CCIA) of Beirut and Mount Lebanon. Here I would like to extend my thanks and gratitude to the president [of the CCIA] Mr. Mohamed Choucair.

This budget allows us to participate in various events because, as you know, the producers in the union are uneven in size and some of them cannot afford individually to go to exhibitions. So when financing is provided and when there is a common stand, which is what we usually do, then expenses are much lower.

We used this year’s budget for many activities including the production of a DVD about the Lebanese wine industry in both English and Arabic which is shown in all exhibitions and conferences we participate in.

Moreover, with the support of this funding from the CCIA, 19 Lebanese wine producers were able to go to Megavino, an important wine exhibition held in Brussels, to exhibit their wines. This was the first time we participated in an exhibition in Belgium and it was a success as a number of professionals came to taste our wines and we organized eight professional master classes about Lebanese wine. We were astonished to realize that many people in Belgium didn’t know Lebanon as a wine producing country and this is very serious as we are one of the oldest producers in the world.

Then, also with financing from the chamber, we sent a representative who knows our wine well to conduct tastings in various targeted cities. This year, this took place in three locations: in Bern, Switzerland, where the chargé d’affaires, Jeffrey R. Cellars, hosted a two-day tasting event at his home, in New York where the Lebanese American University office donated their premises and finally in London where Michael Karam, Lebanese journalist and wine expert, talked about our wine.

Knowing well that the situation in Beirut is not the best, we are trying as much as we can within our financial limits and with the assistance of the CCIA to make the most of events abroad and I can tell you I am proud and satisfied with what we are doing with our small budget.

E   You mention the budget from the CCIA. How big a budget does the UVL have and where does it come from?

Well, we have three kinds of income. The first income comes from the winemakers themselves as we pay a contribution to be members of UVL and for each event. The events are never financed 100 percent by X or Y; we contribute to them [ourselves] and this is very important because every member has to feel that they are contributing. For example, at Megavino the common budget paid for the stand but every member also paid for their travelling expenses and their wine shipments. When we send a speaker abroad, he or she is paid for by the common budget but every member handles their other expenses alone.

Occasionally, we get financial assistance from the Ministry of Agriculture which covers an event. In 2013, we had a big event in Paris and in 2014 we went to Berlin and both were covered by the ministry’s budget. This year, due to the paralysis of the government, we couldn’t get any financing.

The third budget, which we have been receiving for three years now, is an amount of $15,000 from the CCIA for the activities I mentioned earlier.

E   To what do you attribute this increased interest in and support of the Lebanese wine industry?

First of all, wine is on top of the list of products which are comparable to the best production on an international level and Lebanese wine is easily comparable to the good wines of Spain, Italy, Chile or any other wine producing country.

Second, there has been political awareness regarding this product. A year and a half ago, Minister of Foreign Affairs and Emigrants Gebran Bassil requested that the embassies, ambassadors and heads of mission give more importance to the economic development of Lebanon abroad and one of the products which they can work on is certainly wine.

Third, there is a common desire from the industry and from wine producers to work together and perform to the highest degree possible. Lebanese entrepreneurs are the best in the world and Lebanon is a unique attraction. We just need security, stability and peace and we will sell and produce 10 times more wine than we do now.

E   Which brings me to my next question. Lebanon produces roughly 8 million bottles per year which is a very small number when compared with even neighboring wine producing countries. What is needed to grow this number further?

The production is very small. We can grow it but it will be expensive; Lebanon is expensive. Land is extremely expensive and the equipment is brought from abroad: all that we call habillage from bottles to labels and corks are imported from abroad.

We have excellent knowhow and a microclimate which is ideal for wine production but we are expensive and that’s why we target quality and not quantity.

E   So do you think Lebanon can market itself further as a boutique wine producing country focusing only on quality?

Well it is a fact that we are a boutique producing wine country and we hope to be able to grow and we should increase production somehow but we need stability and we need cheap land values. It’s no secret that Cyprus is producing 30 million bottles of wine per year. Certainly we can never be a huge producer like that but we can increase the level of production we have today.

E   Now that the National Wine Institute has finally been formed, when can we expect it to start its work and what is its added value to the industry?

The loss of [wine-maker] Serge Hochar affected the development of this institute and also the lack of budget for the institute to begin operating. The government could not meet to allocate its budget and so they are handicapped by a lack of funding.

It has a lot of added value. I always compare the institute for wine producers to the central bank for commercial banks. It has a controlling role which it has to play and it has to adapt and adjust Lebanese regulations to conform with international standards.

E   Could you share some of the UVL’s plans for 2016?

The UVL will continue to do its best and increase its activities, to raise its budgets and be present whenever and wherever possible.

We are already committed with the Consulate General in Dubai for March 2016 where he will open the [Lebanese] embassy for professional wine tasting, and this is very important as we are not alone there selling our wine. The ambassador in Abu Dhabi suggested that we do the same event there the next day and we will.

The UVL’s name has certainly developed a lot recently and Lebanese wine as a whole is much more known than it used to be. We have a lot of opportunities which are not costly and we make the most of them to be present as Lebanese wine.

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Hospitality & Tourism

New wines on the block

by Nabila Rahhal
written by Nabila Rahhal

Although 2015 did not see the launch of any new wineries in Lebanon, two existing wineries have nonetheless expanded their product offerings to introduce new labels to both local and export markets.

Executive provides further insight into these new vintages in the profiles below, including their positioning within the wineries’ product lines, their target clientele and the market’s response.

B-qa de Marsyas

According to Karim Saade, who co-founded Chateau Marsyas and Domaine de Bargylus along with his brother Sandro, new wineries typically begin their productions with entry or mid-range wines before adding high-end wine to their portfolio. However, he explains that he and his brother chose to do it differently by starting their winery with Chateau Marsyas, their high-end wine, before launching B-Qa de Marsyas, a mid-range wine, in April 2015.

“It made more sense to us as we were focusing on quality, and having B-Qa de Marsyas now will not only provide consumers with an easy to drink wine but, at the same time, this process will allow Chateau Marsyas to perfect itself because our younger vines will go in B-Qa and the estate’s older vines in the Chateau,” he says, explaining that mid-range wines such as B-Qa de Marsyas are only aged for four to five months as opposed to a year and a half or more for Chateau Marsyas, and so are more readily available to the consumer.

The target production number for B-Qa de Marsyas is a total of 100,000 bottles which will be realized by the end of 2016. The wine is distributed both locally and in Chateau Marsyas’s export markets in restaurants, supermarkets and wine shops.

Saade describes B-Qa as a “cool wine”, an image which is communicated through the bottle’s minimalistic labeling and packaging which was designed internally, according to Saade. The pronunciation of the wine’s name was also designed to evoke curiosity around the brand as French speakers pronounce it one way and English speakers another. The Saades launched an advertising campaign for B-Qa early in November 2015 with billboards promoting the wine across the city.

For now, B-Qa is only available as a red wine, but Saade says plans for a white B-Qa are on the way. Entry range wines, however, will not be part of the Chateau’s future, insists Saade.

Obeidy by Chateau Saint Thomas

In 2013, Joe Assaad Touma, winemaker and owner at Chateau Saint Thomas, was approached by Wine Mosaic, an international association for the protection and preservation of local grape varieties of wine producing countries, who inquired whether a monovarietal wine [wine made with just one kind of grape] could be produced from indigenous Lebanese grapes. 

After some brainstorming, Touma thought of experimenting with the Obeidy grape typically used for the production of arak in Lebanon. While some Lebanese wineries, such as Chateau Musar or Massaya, had used Obeidy in their white wine blends, no winery had yet produced a monovarietal wine from it (Wardy later produced one in 2013).

Still, Touma was excited for the project and sent a trial quantity of the Obeidy-produced white wine to Wine Mosaic. “I wanted to do it because I wanted to preserve the local grape variety of Lebanon,” enthuses Touma.

The wine was met with a lot of appreciation, recounts Touma, especially since Wine Mosaic already has a database of those who enjoy local wines and promoted Obeidy among them. This success encouraged Touma to produce a bigger number (around 8,000 bottles) for the export market in 2014.

In 2015, Touma introduced Obeidy to the Lebanese market during a launch event held at the winery’s premises midyear.

Touma says the Lebanese responded well to the wine because it is light and refreshing, which makes it good for food pairing, and also because of the grape variety’s origin. “People appreciated that it’s a local variety. They liked this idea and liked the wine because of it,” says Touma, explaining that he is marketing the wine as representative of Lebanon’s people and land.

Today, Obeidy is available at supermarkets, restaurants and wine sellers both locally and abroad.

Touma complains that the Obeidy grape variety is hard to work with as only 60 percent of its juice can be used for wine, and also because it is becoming very hard to find since farmers prefer planting more lucrative and well-used wine-producing grape varieties.

Still, he says he will continue to produce Obeidy white wine and is eager to experiment with other local grape varieties to see what else he can come up with.

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CommentOpinion

Cleaning up and going green

by Pierre El Khoury
written by Pierre El Khoury

Between 2011 and 2015, the overall direct investments in renewable energy, energy efficiency and green buildings in Lebanon exceeded $450 million. According to Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, more than 10,000 direct and indirect jobs were created in this sector during that same period. The records of the Lebanese Center for Energy Conservation (LCEC) at the Ministry of Energy and Water echo the statement of Governor Salameh: the number of companies working in the very specific field of solar water heaters rose from 25 in 2010 to more than 170 today. The number of companies working in the green or energy audit business, meanwhile, rose from four to more than 30 in 2015. Finally, the number of companies working in the solar photovoltaic sector increased from around five in 2010 to more than 70 today. Most of these companies are expanding their activities, thus offering new job opportunities to engineers, technicians and administrative staff. There is no doubt that the sustainable energy market in Lebanon is booming.

There is no magic recipe making this sector evolve, but rather a set of well-orchestrated national steps and initiatives that have paved the way toward its development. For once – or at least rarely for an economic sector in Lebanon – there is a vision, a strategy and an action plan for the sustainable energy sector.

Back in 2009, the Lebanese government had committed itself to reaching 12 percent renewable energy by 2020 and to curbing the demand on energy by introducing energy efficiency measures. This political commitment announced by former Prime Minister Saad Hariri during the Conference of the Parties climate change meeting in Copenhagen set a clear vision to develop the sector. One year later, the Ministry of Energy and Water developed a national strategy for the electricity sector in the country, setting renewable energy and energy efficiency as key milestones in the implementation of the strategy’s initiatives. Based on these two cornerstones, LCEC built the National Energy Efficiency Action Plan (NEEAP) for the years 2011 to 2015. The NEEAP was approved by the Council of Ministers in 2011, making Lebanon the first Arab country to develop an NEEAP.

This public framework opened the door for a vibrant private business sector in the country. A new kind of public-private partnership was on the rise. While the energy ministry, through the work of LCEC, strived to develop policy support actions, capacity building activities and awareness raising campaigns, the private sector was developing capacities, establishing companies and looking for investments. It soon became clear that the real development of the sustainable energy sector needed financing.

While BDL issued Circular 197 in June 2009 to help finance environmental projects, a more dedicated approach was needed. The real breakthrough came in 2010, when BDL issued Circular 236, and then in January 2013 with Circular 313, laying down concrete plans for the application of the National Energy Efficiency and Renewable Energy Action (NEEREA) – the government’s approach to finance energy efficiency and renewable energy projects to reach objectives set out on the NEEAP plan.

Between October 2012 and October 2015, NEEREA alone has financed more than $350 million worth of investments in sustainable energy projects. More than 321 projects used the subsidized loans of NEEREA. On the request of BDL, LCEC has worked to set high quality measures to monitor and control the market.

A spark of renewable energy

In 2015 alone, around 20 megawatts (MW) of solar photovoltaic systems were installed, mainly thanks to NEEREA. Large and small systems are being installed all over the country, and LCEC expects that more than 50 MW of new projects will be installed in 2016. In that specific sector, the government is leading by example. The first phase, comprising 1 MW from the Beirut River Solar Snake (BRSS), is now connected to the national grid, setting it as the landmark project for solar development in the country. Since the launching of the BRSS project in 2013, the market has witnessed big momentum. The 1 MW BRSS has stimulated more than 20 MW of solar photovoltaic installations within the private sector.

Meanwhile, green buildings are also expanding. While in the past many real estate developers would avoid adding environmental and energy-saving measures to their projects, the new subsidies by BDL have created a huge shift in that regard. More and more investors are now implementing the American LEED or the British BREEAM certification systems, environmental and sustainable assessment methods, in the construction sector. Currently, the annual green building investments in Lebanon exceed the $60 million ceiling.

On the other hand, the solar water heater market continued to evolve throughout 2015, with the involvement of more than 170 companies. The annual market size is currently estimated at around $20 million.

In 2009, Lebanon launched a national initiative aiming to install 190,000 square meters of solar water heaters over a period of five years. The initiative was launched by the United Nations Development Programme (UNDP) and the Ministry of Energy and Water, with funding by the Global Environment Facility. The initiative received the full support of the ministry, and by 2011, then Minister of Energy and Water Gebran Bassil launched the much-publicized slogan “a solar water heater for every house”. By 2014, the installations of solar water heaters exceeded the 190,000 square meter target.

The European Union has also contributed a great deal to the development of sustainable energy in Lebanon over the past few years. Whether through regional projects and initiatives, or through the projects managed by the EU delegation to Beirut, the impact of the EU has clearly been highly positive. Among the EU initiatives and projects implemented were MED-ENEC, SISSAF, MED-DESIRE, SHAAMS, SOLAR MED, Foster-in-Med, CES-MED and SUDEP. All these acronyms may seem a little incomprehensible, but needless to say the efforts and activities of these projects have resulted in a positive environment toward the development of the sustainable energy market in Lebanon.

For instance, the MED-DESIRE project has supported LCEC in the development of solar ordinances to be adopted by local authorities and municipalities. Another activity by MED-DESIRE has echoed the work of BDL to develop a special financing vehicle dedicated to municipalities.

According to LCEC, 2016 will witness concerted efforts to target municipalities and their unions. In fact, the EU recently launched a new regional initiative called SUDEP, offering financial support to municipalities around the Mediterranean area. Out of the 12 projects awarded under the SUDEP initiative for all cities in the Mediterranean, Lebanon was awarded four projects (in the regions of Akkar, Koura, Chouf and Zgharta). This is quite an achievement for one country alone, and is an indicator that sustainable energy is indeed becoming a priority for Lebanon.

While the current year witnessed an unprecedented growth of decentralized renewable energy systems (in hospitals, industries, residential houses and commercial buildings), the potential for major renewable energy power plants has not yet been explored. The energy ministry is striving to encourage private entities to invest in independent renewable energy power plants. For instance, three years ago, former Minister Bassil launched an invitation to bid for wind energy development investments. Following a thorough analysis by an inter-ministerial committee of the different offers received, the current minister of energy and water, Arthur Nazarian, forwarded the report of the technical committee on wind to the Council of Ministers for its consideration. Ideally, the government would sign three agreements with three different private sector entities to build wind farms in the country. It is expected that these wind farms would add between 150 and 180 MW of wind energy capacity to the national grid.

Helping hands supporting the change

Similar efforts are also being invested to promote privately-owned large solar photovoltaic farms. While little progress has been achieved so far, there is certainly great potential in the field. 

With 2015 coming to an end, the sustainable energy market has proven to be growing rapidly, gaining a good reputation and positive feedback. While LCEC is now in the brainstorming phase of its 2016 activities, the outlook seems promising, especially considering that the main players are on board, including the energy ministry, BDL and the EU. During a session in November 2015, the Lebanese Parliament ratified two agreements with the European Investment Bank and the French Development Agency (Agence Française de Développement), to receive a new credit line of 80 million euros to be added to the NEEREA financing mechanism.

In 2016, more international agencies and institutions are expected to join the national momentum of sustainable energy in Lebanon. In his statement in late November 2015, Governor Salameh committed to offer a ceiling of $1 billion in 2016 to support the productive sectors of the economy, including sustainable energy. Realistically speaking, the sustainable energy market will not reach this mark by the end of 2016. LCEC believes the market size will be around $300 to $400 million in 2016 alone, which should still be considered a very healthy target.

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Economics & Policy

An unquantifiable tragedy

by Matt Nash
written by Matt Nash

In January 2015, Lebanon put new visa rules in place for Syrians entering the country with an aim of stemming the flow of refugees crossing the border. In May, the government ordered the Office of the United Nations High Commissioner for Refugees (UNHCR) to stop registering new refugees. As a result, the total number of refugees has been declining in 2015. As of October 31, 2015, there were 1,075,637 Syrian refugees. The number of registered refugees from Syria in Lebanon was 1,166,760 on September 26, 2014, according to UNHCR’s website. Executive speaks with UNHCR Lebanon Representative Mireille Girard, who arrived in the country in July, about the new policies and the increasingly difficult life for Syrian refugees in Lebanon.

E   Reading through various UNHCR reports throughout the year, it sounds like life for Syrian refugees in Lebanon got much harder in 2015. For example, in the first nine months of the year, you report that 15 percent more refugees are living in substandard conditions compared to the same period in 2014. Why is that?

It’s the impact of four to five years in exile. People who came with savings have no savings anymore. People are paying a number of bills every day which is difficult to afford over a long period. They pay rent. And the international community does not have the capacity to cover all of refugees’ needs. We cover as much as we can for the most vulnerable, and that amounts to over $800 million per year, but it is still largely insufficient if you look at what is needed. They’re chipping in themselves a lot. Average rent is $200 per month. They pay electricity and water. People need to renew their residency permit every year and it costs $200 for each person over the age of 15. If there are five people over that age in a family, it costs $1,000.

E   What are refugees doing to cope with this shortfall in assistance?

They are reducing the number of meals they have per day, and we see that increasingly. In addition to this, [the World Food Program] had to reduce the amount of food aid per refugee they were giving by half in the middle of the year, which was extremely traumatic. Fortunately, thanks to a recent contribution, the amount went up again, but is still below earlier levels. And the WFP only has funding to continue until January. After that, what happens? We don’t know. So with the unpredictability of humanitarian assistance and the fact that the size of it only covers the most vulnerable, a larger and larger segment of this refugee community cannot make it any more. They’re falling into the most vulnerable categories. For example, last year 40 percent of the refugees told us they had to borrow money to cope and were reducing food intake or buying less nutritious food because it’s cheaper.

E   In May, the government announced a new policy saying that UNHCR could not register any new refugees. What impact is this having; are Lebanon’s borders closed to Syrians?

No. People can come under the allowed visa categories – students, for example, or if you are here on business or for medical treatment – this is allowed. However, to enter as a humanitarian exception, you really have to have a very compelling situation – like a child alone whose parents are here or a person with disabilities whose caretaker is here.

E   Do you have a number for how many humanitarian cases have been allowed in since the new policy went into effect?

Very few.

E   What communication do you have with General Security to make sure the most vulnerable are not turned away at the border?

We have very good communications with them. We also work closely with the Ministry of Social Affairs, which has the mandate to handle the Syrian refugee crisis. We have a framework and you’re not seeing students deported or migrants deported.

E  Has Lebanon been deporting refugees?

No. The government of Lebanon is upholding its international law obligation not to push people back to a war situation. But many refugees are not able to renew their residency permits because of both the cost and the documents they have to provide – such as a lease agreement. You don’t have a formal lease agreement for a tent. Over 60 percent of refugees are incapable of extending their residency permits. They live with fear that they will get in legal trouble or deported, but deportations are not actually happening, to our knowledge.

E   Is General Security detaining Syrian refugees for not having residency papers?*

The General Security Office detains non-Lebanese persons including Syrian refugees for their irregular status. Most are released within a day or two.

E   How many are currently in detention?*

Please refer to the Lebanese authorities for an accurate figure.

E   What’s the general trend in detention you’ve seen since the crisis started and has there been a spike in 2015?*

The percentage of Syrians in prison has slightly increased from 2010 to 2015, a reflection of the increased size of the Syrian population in Lebanon.

E   Was there any spike after the May decision on no new registrations?*

No.

E   During the summer of 2015, hundreds of thousands of Syrian refugees began entering Europe. Do you have any sense of whether refugees in Lebanon left the country for Europe given the worsening conditions here?

There are two categories of movements that are arriving in Europe. Departing from the region, you have legal movements and illegal movements. The large, large majority from Syria are legal. People cross the border [into Lebanon, for example], get a transit visa, show their travel documents which they’ve paid for legally – whether travelling by air or sea – and go to a country where they don’t need a visa: Turkey. And at the moment, we are seeing the middle class in Syria leaving. We’ll have a better idea once more interviews are conducted with the refugees arriving in Europe, but the snapshot so far is that many were people who had things to hold on to and were reluctant to leave but have decided they cannot live another year in Syria. Once they arrive in Turkey, this is when they get into contact with smugglers and all of the movement from there is illegal. 

E   Where does Lebanon fit into this equation? We’ve heard that there are many Syrians transiting through the country but there are also reports of smugglers illegally taking refugees out of the country. Do you have an idea about the scale of smuggling?

Here, there are some people who do not have up-to-date residency permits, so they would have to regularize themselves to be able to leave legally. That can be expensive because you have to pay for each year you were here without papers. So, refugees either choose to do that or pay a smuggler.

E   How do you get this information about refugee smuggling out of Lebanon?

We get information from different sources to try and triangulate the information. We do random surveys among the refugee population and speak to people when they come to ask for assistance. Here we try to gauge intentions, whether they plan to leave for a third country. We also measure the number of people who are not showing up [for meetings with UNHCR], and try to find out where they are.

E   When UNHCR cannot reach a refugee for a period of time, that person is deregistered. There were 149,000 deregistrations in the first nine months of 2015. Is this a significant increase from last year?

It’s more than last year, but not a significant increase. Last year we deregistered 125,000 for the whole year. This year, by September there were 149,000.

E   Do you attribute that increase to smuggling or legal movement with the aim of getting to Europe illegally?

It includes everything: formal resettlement, death or return to Syria. We do try to find out if there are any indications of people who tried to go to Europe. We did a random survey recently and found around 40 percent of people said they either knew someone or heard of someone who has left. Then we asked where. There was a big proportion that stayed in the region. It depends on connections people have, relatives who can help them. It depends on where they can get a visa.

E   It seems Lebanon is trying to disincentivize Syrians from coming here. Are there still large numbers of people unfamiliar with the process here who are trying to enter as refugees?

In general, people know. The number of people that come to the border under the humanitarian category is very low. This means that people know there are not many being let in. By now the word has spread. People who are coming here know what they need and bring the right documents. In the past two years, we’ve seen a lot of people that came to Lebanon with savings and didn’t feel the need to register as refugees with UNHCR. As their savings diminished, or if they lost jobs they had, they would come and register even though they’d already been here for one or two years. These are the people we’ve had to stop registering since May when the new government policy went into effect. Now, we don’t see as many of these people coming, so I think the word has spread.

E   If they do come, can you refer them to partners? Are these people able to get any aid?

In education, the government doubled the amount of space available for Syrian refugees, so now the target is 200,000 – which is still half the number of those who need education, but it is double the number from last year. We’ve so far registered 160,000 but 200,000 spots are available. Kids don’t have to be registered or have proper residency papers to go to school.

*This portion of the conversation was conducted via email after the face-to-face interview.

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CommentOpinion

Renewed dynamism

by Mona Sukkarieh
written by Mona Sukkarieh

After a year riddled with difficult market conditions, dry wells and regulatory hurdles, the offshore oil and gas sector in the Eastern Mediterranean finally has good reasons to look forward to 2016.

In Egypt, the August 2015 discovery of the so-called “supergiant” Zohr offshore natural gas field could not have come at a better time for Egyptian authorities. While the exact size of the field will only be clear after appraisal drilling, Zohr is hoped to bring Egypt some balance between supply and demand, and extricate the country from its energy crisis. That said, and based on what we currently know, more gas is needed to restart exports. All the more reason to ensure a favorable climate for investors, and encourage exploration and production. Although tempting, it would be unwise for Egypt to halt reforms at this stage. Pricing reforms, plans to phase out subsidies and paying down debt owed to international companies (now standing at $3 billion, down from $6.5 billion) have all contributed to restoring confidence in the sector. There is still more to be done, yet policymakers are already backpedalling on earlier promises. On December 14, Prime Minister Sherif Ismail cancelled the previous government’s decision to fully eliminate subsidies within five years; now we are talking about a much less ambitious 30 percent reduction.

Cyprus too received a boost from Zohr after several disappointments in the first half of 2015. France’s Total relinquished its rights to one piece of the country’s offshore acreage (Block 10) in February 2015, one month prior to Italy’s ENI having drilled a second well that failed to find exploitable hydrocarbons. After Zohr, however, Total looks set to extend its soon-to-expire license in Block 11 for another two years. The company, and others, has also recently been inquiring about areas along the Cypriot-Egyptian maritime border. This renewed interest has prompted some to consider the possibility of organizing a new licensing round. The end of 2015 brought more good news for Cyprus: On November 23, the UK’s BG announced it was acquiring a 35 percent stake in Block 12, where Aphrodite is located. This is a major development, which will see the entry of another big player in the Cypriot gas sector (BG is about to complete a merger with Shell). But its main advantage could well be the stake that BG holds in the Idku export facility in Egypt, improving the prospects of sending Aphrodite gas (from Block 12) to Egypt, although some difficulties could persist. A breakthrough in the negotiations between Greek and Turkish Cypriots, resumed in May 2015, could lead to gas cooperation with Turkey and the laying of a pipeline carrying Cypriot (and possibly Israeli) gas to Turkey and European markets, if conditions are right.

In Israel, Prime Minister Benjamin Netanyahu, acting in his capacity as Minister of Economy, approved a gas  framework deal on December 17, after invoking national security. A year earlier, the antitrust commissioner David Gilo had revoked a previous agreement that allowed US based Noble Energy and Israeli company Delek to retain ownership of Israel’s biggest offshore field, Leviathan, in return for giving up two small fields, Tanin and Karish. The decision brought the Israeli gas sector to a halt and both delayed and complicated development of Leviathan, the country’s largest offshore gas field. The gas deal outlined by the government was approved by the Knesset in September, but to bypass the Antitrust Authority, the Minister of Economy – at the time Aryeh Deri – would have had to activate clause 52 by invoking national security. Deri refused. However, he resigned from his post on November 1 and was replaced by Benjamin Netanyahu who proceeded with the gas framework deal soon after. A petition was filed at the High Court of Justice against some of the clauses in the deal, and the Court will examine the case in early 2016. Once the process is complete, it is hoped to bring some stability to the regulatory framework. The authorities are building on that to resume offshore exploration, and are hoping to organize bid rounds in 2016 or 2017.

Also, on December 17, a major breakthrough in the negotiations between Israel and Turkey was announced. A normalization of relations between the two countries would pave the way for gas cooperation. The frequently discussed laying of a gas pipeline between the two, however, will have to go through the Cypriot Exclusive Economic Zone, a considerable obstacle for now, unless progress is indeed made between Greek and Turkish Cypriots.

Meanwhile, the vulnerability of offshore installations is still a matter of concern for Israeli authorities. Israel is reportedly planning to install the Iron Dome missile defense system on navy vessels, a temporary measure until German offshore-patrol vehicles are delivered in 2019.

For its part, Lebanon stands exactly where it was a year ago, with only negligible progress, including data interpretations and reinterpretations. The offshore tender, launched in the absence of basic documents to actually close the bid round, is still on hold. Delays in the sector are largely a part of the overall political deadlock, although a possible breakthrough in electing a new president could have positive ramifications elsewhere, potentially even unlocking the oil and gas file. However, the opportunity cost of procrastination was entirely neglected. International interest, currently at its lowest, would have to be revived. In current market conditions, this is easier said than done.

Finally, while the war is still raging in Syria, post-war reconstruction and opportunities, including in the energy sector, are on everyone’s mind. Identifying offshore prospects is a process that can take place before the arms are silenced. The opportunities, on the other hand, depend on the outcome of the war. In December 2013, Russia’s state-controlled Soyuzneftegaz was awarded an exploration and production license in Syria’s block 2. In September 2015, its chairman Yuri Shafranik decided not to proceed with the project because of the risks involved at this point, and announced that the project would be passed to another Russian energy company. The current Syrian regime would like Russian involvement in offshore Syria, but does not perceive this involvement as exclusive.

All told, 2016 looks like a promising year for offshore oil and gas in the Eastern Mediterranean.

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CommentOpinion

Irrational drug prescription in Lebanon

by Fadi El-Jardali & Racha Fadlallah
written by Fadi El-Jardali & Racha Fadlallah

Irrational use of drugs is a major problem worldwide. The World Health Organization (WHO) estimates that over half of all drugs are prescribed, dispensed or sold inappropriately. Inappropriate drug prescriptions have a negative impact on quality and safety of treatment, promote drug resistance, diminish patient trust in the healthcare system and increase the economic burden on the patient and the healthcare system at large.

A lucrative business

Inappropriate prescribing practices for certain prescription drugs is a common problem in Lebanon. A recent study by the Ministry of Public Health (MoPH) and the WHO shed light on the serious issue of antimicrobial resistance which was attributed to the inappropriate use of antimicrobials, overuse of injections and failure to prescribe in compliance with clinical guidelines and inappropriate self-medication of prescription-only medicines (WHO, 2015). Another study found that 40 percent of all prescriptions in seven hospitals in Lebanon contained an error, of which 9 percent were unnecessary medication prescription, 7 percent were non-indicated medication, 6 percent had a deficiency in the prescribed medication dosage, 3.5 percent had an inadequate duration and 2.8 percent had an inadequate rate. All rates have been found to be high compared to other countries such as Germany (Al-Hajje, 2012).

These inappropriate prescribing practices have contributed to the high costs of pharmaceuticals in Lebanon. For instance, the National Health Accounts published by the MoPH in 2012 shows that almost 33 percent of the total health expenditures in Lebanon is spent on pharmaceutical goods. The per capita spending on pharmaceuticals is considered one of the highest in the Middle East and the seventh highest globally at 3.1 percent (International Federation of Pharmaceuticals Manufacturers, 2012; Sobeh and Sobroneva, n.d.; The Lebanon Brief, 2012). In addition, the pharmaceutical sector is dominated by imported medicines and patented brand names, which constitute more than 80 percent of the total market (WHO, 2010).

Drug promotion gone wrong

One of the main factors contributing to poor prescribing quality and pattern of drugs in Lebanon is unrestricted drug promotion and advertising to health professionals. Currently, there are no laws or legislation regulating drug promotion and advertising to health professionals, qualification and training of medical representatives, conferences and scientific meetings, post-marketing scientific studies, speakers’ fees and consultancies, and restrictions and limits on gifts and promotions. This gives physicians a “quasi-absolute” freedom in prescribing medications which in turn increases their power over the demand side. In addition, it gives pharmaceutical organizations a vast influence over post-university medical education and sponsorship of seminars and medical conferences, which may create a conflict of interests. The situation is aggravated by the negative attitudes of health professionals, patients and the public towards generic drugs.

Although it can be claimed that physicians may benefit from their relationship with the pharmaceutical industry through access to information and evidence on new medicines and products, there is a growing body of evidence which suggests that even gifts of minimal values can hold powerful influence on physician behavior in the spirit of reciprocity. Indeed, the evidence from several systematic reviews suggests all forms of physician-pharmaceutical industry interactions have an impact on increased prescribing frequency for newer and more expensive drugs, “irrrational” prescribing and lower prescribing quality. Similarly, there is concern that industry-sponsored continuing education will influence physicians’ behaviors for the financial benefit of the industry.

Regulating the pharmaceutical industry: A global perspective

As a result of these concerns, countries worldwide have tried to regulate and improve the transparency of relationships between healthcare professionals and the pharmaceutical industry. These include measures at the governmental, organizational and individual level.

At the governmental level regulations include outright or selective bans on gifts to healthcare professionals, disclosure of interactions between healthcare professionals and the industry on publicly accessible websites, limits on the sale of prescribing data for marketing purposes and public funding of academic detailing programs (Grande, 2010). The Sunshine Act, enacted in the US in 2010, marked the first Congressional involvement in regulating the disclosure of payments made by pharmaceutical and device companies to physicians and teaching hospitals. The law requires manufacturers to annually report on payments or transfers of values exceeding $10 per instance or $100 per year along with the receiver’s identity and the payment purpose on a publicly accessible website. Although government regulation may not be a perfect solution, the pharmaceutical industry and medical profession have fallen short in decreasing the influences of industry gifts through self-regulation (Grande, 2010).

At the organizational level, the Institute of Medicine (in 2009) and the Association of American Medical Colleges (in 2008) both recommended eliminating industry gifts, meals and speakers’ bureaus as well as urged strict control of industry payments for consulting, honoraria and educational purposes. Restrictive institutional policies governing the interactions of healthcare professionals with the industry have been shown to positively affect the prescription behavior of healthcare professionals and increase their support for banning contacts with pharmaceutical representatives.

At the individual level, interventions to educate healthcare professionals and raise their awareness on how industry interactions could influence their behavior have been recommended. Specifically, well-designed seminars, role-playing, focused curricula and evaluations of pharmaceutical representatives’ presentations have been shown to enhance the awareness of health professionals of such influences, increase their skepticism toward information presented by the industry and influence their behaviors to some extent. Equally important are empowering and raising awareness of patients and the general public on how such interactions can affect health providers’ prescription behaviors with subsequent negative implications on the quality and cost of care.

Implications for Lebanon

In Lebanon, regulatory measures to restrict, control and improve the transparency of relationships between healthcare professionals and the pharmaceutical industry have neither been implemented nor enforced. However, a proposed code of ethical standards for drug promotion has been posted on the MoPH website in 2011 and updated by the general director of the ministry in 2014. The code will allow for surveillance of promotional and prescribing patterns and for appeal mechanisms as well as provide for disclosure of complaints and non-compliance files to the MoPH and health professional associations in case corrective measures are not taken.

Approval and subsequent implementation of the proposed code of ethics is crucial as it could provide an opportunity to address some of the challenges pertaining to drug promotion and advertisement targeted at healthcare professionals in Lebanon.

Another regulatory measure worth highlighting in Lebanon is the recently implemented unified prescription form law, which allows pharmacists under certain conditions to give patients the choice between a patented medicine and a matching generic, as it has implications for rational prescribing. Specifically, it is critical to monitor such an initiative to ensure it does not act as a “game changer” by shifting the focus of pharmaceutical promotional activities from physicians to pharmacists.

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LeadersOpinion

Jbeil’s power pursuits

by Jeremy Arbid
written by Jeremy Arbid

In 2010, everything was looking up for Lebanon’s electricity sector. Gebran Bassil, then minister of energy and water, had put forth a master plan that by 2015 would have delivered 24 hours of uninterrupted electricity generated cheaply by clean burning natural gas. The plan, needless to say, did not fully materialize, leaving individual areas to come up with their own plans to produce electricity – starting in Zahle in 2014, with plans announced for Jbeil (Byblos) and Tripoli in 2015.

There is uncertainty in the legal framework governing the electricity sector; Law 462 from 2002 remains unimplemented, but a parliament resolution from April 2014 allows cabinet a two-year window to grant production licenses. Time may be running short but that has not stopped Byblos Bank subsidiary, Byblos Invest Bank, from investing in the capital of the newly formed company Byblos Advanced Energy (BAE), which plans to build a 64 megawatt (MW) power plant in Jbeil. The project is shovel ready, pending the results of an environmental impact assessment and license approval by cabinet.

State inadequacy

Lebanon’s state-owned provider, Electricité du Liban (EDL), is not capable of generating enough electricity to meet the country’s demand. Lebanon currently has 1,500 MW of installed capacity, with that number set to rise as new reciprocating generators are scheduled to come online at the Zouk and Jiyeh power plants by spring 2016. Demand, however, exceeds production capacity by an average of some 800 MW, causing daily blackouts throughout the country.

At the same time, EDL is a huge drain on the state’s coffers because of the significant subsidy at which electricity is generated. Since 1996, the government has helped cover the cost of generation, capping the purchase of fuel by EDL at $25 per barrel, with the treasury covering the difference. This partly explains why the treasury transfers some $2 billion per year that Alain Bifani, director general of the Ministry of Finance, says has been mitigated in the short term because of the decrease in the cost of oil. But EDL also sells electricity at the fixed rate of LBP 75 ($0.05) per kilowatt hour to distributors, while subscribers are charged on average only LBP 133 ($0.09). “This decision has to be changed – we are simply unable to continue to subsidize the sector in the same way,” Bifani tells Executive.

Because EDL is not able to reliably supply electricity, customers must resort to costly private generators. Every month the ministry of energy circulates a list suggesting a price at which to offer 5 and 10 amps to subscribers – and the ministry of economy has a hotline for consumers to report price violations – but it is not clear how well the policy is enforced. The business of private generation is a lucrative one which, according to a 2011 ministry of energy study, was worth $1.7 billion per year.

With large amounts of money on the line, however, comes trouble. In 2015, Zahle implemented a local plan to bring some 53,000 subscribers 24 hours of electricity by generating 48 MW of power. Assaad Nakad, chairman of Electricité de Zahle, did not respond to Executive’s requests to fully understand the plan. Generator owners’ demonstrations on the streets of Zahle escalated in February 2015, shutting down four transformers operated by Electricité de Zahle. Since then, however, there have been no more security incidents and the company has delivered on its promise to provide 24-hour electricity.

The Jbeil plan

Following on from the success of Zahle, BAE announced plans to install generation capacity for the area of greater Jbeil. Mario Chelala, board member of BAE, insists that the days of paying twice for electricity are over. “Today if you are living in Jbeil you are receiving two [bills] – one from Electricité de Jbeil (EDJ) and one from a separate company that has multiple generators all over the region. We have maybe 80 percent of the generators under our control,” says Chelala. Jbeil has some 350 generators – local institutions like the universities and some factories having their own, with the rest for the public. Chelala says that a sister company of EDJ began consolidating ownership of the public generators over the course of the past 10 years so taking those generators offline will not be an issue.

BAE’s plan is to build a 64 MW power plant in the industrial area of Blat, outside of Jbeil, on land leased from the Maronite church for $500,000 per year, according to a plan prepared for potential investors; Chelala says that amount may end up being lower and that the terms of the lease would be valid for at least 40 years. In the study, Chelala calculates that customers of EDJ – the concession distributing EDL-generated electricity in the Jbeil region – receive 30 amps and, with a generator subscription for 10 amps, pay on average $150 per month. “We are aiming to have [customers] pay less than $95, [a] 37 percent decrease in the bill.” The investment study also calculates the current kilowatt per hour at $0.09 for electricity from EDL and $0.49 for electricity provided by private generators with a total average cost calculation at between $0.20 and $0.30, depending on variations in fuel price.

In 1964 a decree created EDL, establishing it as the sole producer of electricity in the country since. EDJ was producing electricity prior to 1964, as were a few other concessions. EDJ has the exclusive right to distribute electricity through a concession that expires at the end of 2020. The distribution area covers nine municipalities in the Jbeil area with 27,890 customers as of September 2014. Chelala says that since EDL is breaching its contract, EDJ has the right to produce. “Our engagement with EDL is that it provides us with enough capacity for 24-hour electricity, which has not happened, so there is a breach of contract. That’s why we think we are entitled to produce,” Chelala says. His legal argument is bolstered by Parliament passing Law 288 in 2014, amending article 7 of Law 462 allowing the cabinet – at the recommendation of the ministers of energy and finance – to grant production licenses within a two-year window. Chelala says their proposal has been sent to cabinet for approval, and that it responded with a request to conduct an environmental impact assessment which Chelala says will be completed before the end of 2015. “We hope [cabinet will approve] but if it doesn’t we are continuing with our project,” Chelala says, adding that “legally, either way, we think we are entitled to [build] our power plant.” Once it moves forward he says Jbeil can expect a maximum of two years before full delivery of the power plant.

Uncertainty over the legal framework has not deterred investors. In October, Byblos Invest Bank announced it would buy approximately 35 percent of shares in BAE – the company owning the project – alongside Vectra Holding sal, whose primary shareholder is Elie Bassil, chairman of EDJ. Chelala says Byblos Bank will provide loans to finance the initial investment.

The investment study for potential investors forecasts an estimated funding requirement of $68.4 million. The funding source follows an equity-to-financing mix with 30 percent, $20.5 million, to be raised, with an additional $38 million in long term loans and another $10 million in working capital loans. “We aim – once [the power plant is completed] – to go public with this company and to sell up to 60 percent of the shares to the public. We want each subscriber to have the option to have one share, be present in the company and [be represented by] the board of directors,” Chelala says. He also says that they have not yet decided whether BAE would list on the Beirut Stock Exchange, though he indicated it as a likelihood. Chelala also says IFU – a state-owned Danish investment fund for developing countries – has expressed interest and has greenlit the project for investment once it receives a license.

BAE’s client, EDJ, as the bill collector, secures the source of revenue. “What we’re forecasting is a net profit [margin] after amortization, loan repayment, interest and maintenance between 10 and 15 percent – that’s what the shareholders [can expect],” Chelala points out.

But when cabinet might meet again, and whether Jbeil’s plan will surface on the agenda, is anyone’s guess. Chelala’s confidence in the plan moving forward is underlined by the broad consensus that has been built among the various local stakeholders – religious institutions in the area have extended their support. At the government level, the political forces that approved Law 288 in 2014 are the same ones that reside in cabinet at the end of 2015. The minister of energy, Arthur Nazarian, is a board member of Byblos Bank, which, leaving conflict of interest issues aside, suggests some prospect that the license will be approved.

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Economics & Policy

Troubled financial waters

by Jeremy Arbid
written by Jeremy Arbid

The complications posed by the refugee crisis and stagnant legislature found Lebanon’s public finances in troubled waters. There have, however, been some positive developments. The Ministry of Finance has again issued Eurobonds – the purchasing of which has demonstrated a local appetite to continue financing public expenditures; it moved closer to reconciling public accounts and Lebanon’s bid to join the European Bank for Reconstruction and Development may soon be approved. Executive sits down with the director general of the Ministry of Finance, Alain Bifani, to discuss the impact of these developments on state finances.

E  In April 2015, you met with the United States Under Secretary of State for Economic Growth, Energy and the Environment. Can you tell us about your talking points for the meeting and if there were any practical results from that meeting?

We were at the spring meetings of the [International Monetary Fund] (IMF) and the World Bank and Lebanon had already bid to join the [European Bank for Reconstruction and Development] EBRD. We had some countries that immediately provided support and others that needed to discuss the issue and reasons why we wanted to join and how Lebanon intends to use the financing of the institution. The purpose of the meeting on the American side was to talk precisely about the reasons Lebanon was bidding to join EBRD and whether they could be supportive of our bid or not.

E   What are the potential benefits of joining the EBRD?

There are many. Firstly, Lebanon is a country that needs money for development – we are always looking for new money to be injected into the system. The second reason is that when you have an institution [like EBRD] it’s always better to be inside, to be on the board, and to know what the topics of interest are and what is happening at the institution. The third reason is that when the Deauville Partnership [with Arab Countries in Transition – launched by the G8 in 2011 to support democratic reforms] started, Lebanon was left [out]. For a very long time, Lebanon was one of the few, if not the only, democracies in the region and it paid a very high price for that. Last but not least, EBRD is not an institution that only finances public projects; its expertise is related to the structure of the corporate, the ownership, access to financing [and] access to market.

E   The Ministry of Finance has been working on the closure of public accounts – an exact accounting of public spending – for years. Do you have an update?

Eight out of 10 financial accounts are completely finished which means we have been able to reconstitute accounts where possible from 1993 and from 1997 to the penny until 2011 because the stock was before 2011 and [now] the flow is being dealt with normally. For the first time ever Lebanon has accounts with absolutely no question marks against them from January 1, 1997, to date.

E   When you listen to the political rhetoric, everyone seems to be accusing the other of stealing public funds – but you’re saying this information is actually largely available now?

This information is becoming available but technically speaking before we finish the two remaining accounts – which are well advanced – it is not possible to reproduce all of the series from any given date. So what will happen now is we’ll finish the two remaining accounts and then we will produce the accounts. The reason I say 1993 to 1996 is that more than 50 percent of the documents [from that period] were lost or had disappeared.

Since January 1, 1997, we had hundreds of thousands of mistakes in each account – things that were not appropriately accounted for [or missing entirely]. The magnitude of that was extremely great. We no longer have any reconciliation accounts – we used to throw figures [out] because we had no clue what they were. This has all been [reconciled] to the penny. Then in 2014 we found the opening balance for January 1, 1993, while in 1995 people would have thought it impossible to find the opening balance [from] two years ago.

E   Were there any anomalies?

Enormous ones. The number of anomalies, the number of mistakes, of misreporting was huge. Now it is not my duty to say why this happened. My duty is to provide the country with what is needed and to build on that and continue to produce regularly. It is not the duty of the Ministry [of Finance] to make it accessible. First, this is a draft law by nature so it has to be finalized by the ministry, approved by cabinet and sent to Parliament. Normally this closure happens when it goes to Parliament because the Council of Ministers, as long as it is a draft law, is always going to say [it] does not want this to be presented and it must be changed. But of course it requires [action at the] political level to decide how to [disclose].

E   Ziad Hayek of the Higher Council for Privatization recently advised that Lebanon needed $6.2 billion for infrastructure investment. Are there any tools that the government can use to get past not having Public-Private Partnership (PPP) legislation but still investing in this much needed infrastructure?

PPP is one way of doing things and having a law that organizes and gives a framework to that kind of financing is always reassuring to investors. This does not mean that things cannot happen in the meantime – sometimes there is direct involvement by private corporates. It is not necessarily a PPP per se but this idea of mobilizing funds now even before legislation goes through is absolutely possible.

E   And are we seeing that type of mobilization of funds in the electricity sector?

The debate is biased by the fact that there is a lot of frustration. The country feels that nothing can be done – it’s been [that way] since the end of the [civil] war, a very long time, that we are not seeing significant improvement. The electricity issue is not about bringing resources in one way rather than another – the issue is that first we need to mobilize a big chunk of money that needs to be invested in production. Second, we have a major issue with distribution and the plan that was approved unanimously in 2010 takes into consideration those steps. Third, the issue of governance at the level of the company is important because it is very unfair to say that the public sector has failed in its duties here and at the same time has not provided the company with what it needs in terms of human resources, governance and capacity to act [accordingly].

E   Steering clear of the allegations of corruption in the electricity sector coming from the minister of finance – with the decline in oil prices, do you see that deficits for Electricité du Liban (EDL) will be sustained?

There is definitely an effort to be done on the pricing of utilities. The subsidies that we are providing are massive and we are losing money. The state decides on the expenditure – whether it is the operating expenditure or the buying of fuel or new investments – and the state decides on the pricing. This decision has to be changed; we are simply unable to continue to subsidize the sector in the same way. The fact that oil prices have dropped provides some breathing space. If we look at our non-existing budget we have salaries, transfers to EDL and debt servicing. This is by far the largest part of the budget – roughly more than 80 percent of the expenditure. We do not know when oil prices, or commodity prices in general, will go up again. So we have various sources of uncertainty that should be pushing us for immediate action whilst we have this breathing space.

E  In layman’s terms can you elaborate on why you consider loans to be a negative source of financing the refugee crisis?

It’s not a negative source of financing – it is a totally inappropriate way of financing. There is an issue that is short term and a lot of it is long term. A displaced person remains a refugee for an average of 17 years. So when you talk about an issue like that it cannot be only humanitarian. Of course the immediate relief is important – it is short term. [There]is also a security issue which is short and long term, and economic issues that are long term. So you have an answer that needs to be timely [and that is fitting to the] massive crisis. We are rendering a service to the world – this is called a global public service. Instead of being a reasonable cost in Lebanon, it will be much more costly outside [of Lebanon]. To put it bluntly we are presenting a bill [and] this is how much it costs. If you want us to be able to continue to do that, then you have to pay and contribute; otherwise we will reach a point where it is going to become impossible for us.

E   With the recent issuance of Eurobonds, can you elaborate how those are structured and what the impact is for state finances?

We had from the beginning a legal cap so we knew how much we wanted and we got the amount. We were able to keep very low yields given Lebanon’s rating and situation. Because of the legal situation now (early November 2015), we have a parliamentary session but at that time we didn’t know if we were going to have one. We have also started an exchange on the 2016 amounts. We [also] have issued three [bonds]: one for nine years at 6.25 percent, one for 13 years at 6.65 percent and one for 20 years – the first long maturity Eurobond for Lebanon ever, and that is very interesting knowing that it is always good to lock in as much money as you can in the long run.

E The purchasing of the Eurobonds has been driven more by local banks rather than foreign institutions – is that because of Lebanon’s credit rating?

This time we didn’t have a lot of external appetite for many reasons. Looking at the region as a whole is not very reassuring – it is not only Lebanon [but also] everywhere else – [and because of the] magnitude of the Syrian displacement issue in Lebanon. The perception [is] that nowadays Lebanon is offering interest rates that are below what it could have and therefore to go to the same level of risks investors could go somewhere that is providing [higher returns]. This is good for us because it means we succeeded in bringing in a lot of money at a very low cost. The final point is one of the most important points – we are in the midst of a situation where capital is flying toward big economies and fleeing the emerging world. We have issued [bonds] at a time when most of the big emerging economies were dying for capital to stay in the system – Latin America and Brazil in particular, but also Asia, Africa, the Gulf and here [in Lebanon].

E   Executive recently published an interview with Paul Donovan from UBS Investment Bank – he argued that there will be a global war for capital in the future. Do you agree, and how will Lebanon fare?

There are two threats that are now very significant to Lebanon; this is one of them. The reason is that we rely on a lot of our own resources. Those are large enough whether talking locally or worldwide to protect Lebanon from that kind of development in the world. Where it is going to hurt most is in countries where they have been relying on foreign financing for their immediate needs. This is not our case and never has been.

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