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 & Fadi El-Jardali
written by Fadi El-Jardali & Fadi El-Jardali

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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LeadersOpinion

A rubbish decision

by Matt Nash
written by Matt Nash

Lebanon has never gotten nation-wide waste management right. In 1971 the government hired a local consultant to help write a plan for treating and disposing of the country’s waste, according to the consultant’s website. While the company declined an interview request, the existence of hundreds of open dumps around the country attest to the fact that it was never implemented. Even if it had been put into practice, it would have been a casualty of the civil war. In the quarter of a century since the war ended, policy makers did very little to soundly manage the nation’s garbage.

In 1997, cabinet enacted an emergency plan for Beirut and its immediate suburbs. It awarded contracts for waste collection and disposal to companies founded by Maysarah Sukkar, a Lebanese who had been successfully operating waste incinerators in Saudi Arabia. His local company began operations which it is still conducting under the name Sukleen. A lesser known sister company, Sukomi, treats and disposes of the waste Sukleen collects. The companies’ service areas expanded to include the capital and five nearby districts (namely Keserwan, Metn, Baabda, Aley and Chouf). By Ministry of Environment estimates, the Sukleen/Sukomi service area accounts for around 50 percent of the nation’s garbage. The vast majority of this waste – over 80 percent according to Environment Minister Mohammad Machnouk – ended up in the Naameh landfill, some 20 kilometers southeast of Beirut. While the most common thing one reads about Naameh is that it was filled beyond design capacity, what few report is that new sanitary cells were added as more space was needed. Naameh was not an environmental disaster. It was a properly managed, modern sanitary landfill. The fact that it was receiving 125 trucks of garbage per day – including putrid, rotting organic materials – however, meant it stank. Executive stood on top of the sanitary landfill after it closed and noticed no foul odors. Residents living near it have long wanted it closed and became more forceful in their demands in January 2014. That year, they blocked access to the landfill and uncollected waste piled up on the streets of Sukleen’s service area as there was no place to put the garbage if the company collected it. The result of this street action was a government promise to close Naameh in one year’s time. Simultaneously, cabinet appointed a committee to find an alternative waste management plan for the country. Neither happened as planned.

Looking for solutions

Naameh’s closure was slated for January 2015. Cabinet extended that deadline to July, but dragged its feet on finding a solution. The plan was to tender waste management for the entire country while relying on the tender winners to decide how and where to treat and dispose of waste. As Executive noted in March, the initial tender deadline was far too close to the deadline for closing Naameh for a real solution to be in place in time. Further, finding a location for a new landfill or other waste treatment facility has always been problematic in Lebanon because no one wants to live near them. This problem is only compounded by the country’s sectarian diversity – sect A does not want to accept the waste of sect B. After extending the tender deadlines, Minister Machnouk announced winners on August 24, more than a month after Naameh closed. The following day, after an uproar over the supposedly high fees winners would have charged, the tenders were cancelled. In early September, cabinet approved a new plan that has not yet been implemented at time of writing.

While garbage piles were a common site in administrative Beirut in July, the city soon found a temporary solution and began depositing its waste in a parking lot in Karantina. Indeed, according to the Ministry of Environment’s website, Machnouk instructed all of the nearly 300 municipalities in Sukleen’s service area to inform the company where to dump. Those that could not find land were deprived of collection services and trash continued to pile up on roadsides. The ministry did not compile a comprehensive list of “temporary” dumping grounds, but activist photos and Executive’s observations reveal that municipalities were disposing wherever they could, with no thought of the environmental repercussions. On top of that, open burning of garbage became a national phenomenon. Again, numbers don’t exist, but the Ministry of Environment recognized trash burning as a problem outside of Sukleen’s service area before Naameh closed, and visual evidence, photos and inconsistent reports from Lebanon’s firefighters – the Civil Defense – suggest the problem only worsened after the landfill closed.

What none of the decision makers who closed Naameh with no alternative in place seem to understand is that the trash crisis has serious associated costs. It will be all but impossible to fully clean this mess. The long-term environmental and human health costs will be paid for years to come, even if measuring their exact amounts is impossible. What we do know from Tourism Minister Michel Pharaon is that the opportunity cost in the tourism and hospitality sectors is significant. 2015 could have been a much better year if not for the filth now spread throughout the country.

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LeadersOpinion

Resource wealth buried under paperwork

by Jeremy Arbid
written by Jeremy Arbid

Another year of waiting has come to pass and yet there is still no movement for Lebanon’s oil and gas sector. Is it a regional conspiracy to prevent the Lebanese government from taking its own decision, or is it the fault of American diplomats, as Speaker of Parliament Nabih Berri claimed in November 2015? Almost a year after a ministerial committee was formed to reach consensus on two needed implementation decrees, the Council of Ministers has not yet placed the items on its agenda. Parliament, meanwhile, has to approve an adjustment to the tax regime to account for oil and gas and must debate a law to combat corruption in the sector.

A jovial ceremony announcing the launch of Lebanon’s first offshore licensing round back in 2013 promised that the country would soon become an oil and gas producer. In the two years since, the proverbial train has fallen off the tracks. Lebanon’s Council of Ministers, hampered in its ability to manage the country, has failed to pass two needed decrees to move the licensing round forward – one delineating the blocks and coordinates of offshore Lebanon and the other approving the tender protocol and model exploration and production agreement. Parliament, for its part, has declined to legislate for the better part of this period, except, of course, when it risked losing key international financing. Parliament must update Lebanon’s tax regime as oil and gas is – in other jurisdictions – taxed in a higher bracket than the 15 percent corporate rate Lebanon currently has on the books, but it has not opened debate on a draft law submitted earlier this year. Since officials have publicly announced that a new tax law has been drafted, oil companies interested in bidding in Lebanon no doubt know change is coming and could well hold off on investing until the tax rules are clear.

Transparency in Lebanon is always harped on but words are rarely put into practice. With oil and gas being a notoriously dirty industry around the globe, legislation in this sector is of the utmost importance. In early 2015, MP Joseph Maalouf, a member of Parliament’s energy committee, drafted a bill pointing out where corruption might be a risk along the full lifecycle of an oil and gas project. Maalouf had told Executive in August 2015 that Speaker Berri had fast-tracked the bill but Parliament has yet to open debate on the law. In September 2015 Executive asked Minister of Energy and Water Arthur Nazarian about the draft law but the minister seemed largely unaware of the details of the transparency bill.

On a positive note, because it does not require legislation, Lebanon has made progress in further calibrating its understanding of data previously collected through seismic surveying offshore. In 2015, two re-interpretations of the data were carried out to “better understand the sedimentations and the potential reservoir parameters,” the Lebanese Petroleum Administration told Executive in September, but did not elaborate on the results of those studies. As for onshore Lebanon, 6,000 square kilometers were surveyed, providing a baseline of data to indicate where potential oil and gas reservoirs might be located. More narrowly focused studies are needed to build on the acquired data but the ministry of energy has not yet indicated what its strategy for onshore is moving forward.

Lebanon has already begun selling the seismic data collected offshore – last publicly announced at $34 million in 2013, representing the first revenues of the country’s oil and gas sector. When Executive asked the minister for clarification on the government’s share of revenues from the sale of seismic surveying data – a topic on which this magazine has, for two years, continuously sought answers – Nazarian said it was “state secrecy” while simultaneously claiming transparency.

Misinformation, or, as a lesser evil misrepresentation of information, when covering oil and gas is also very concerning – the same wrong numbers keep circulating in the Lebanese media. Lebanon is not blessed with vast energy reserves – only exploratory drilling can confirm whether oil and gas resources are present. In November 2015 Anonymous Lebanon – the self-proclaimed local chapter of a global group of activists and hacktivists – published a video arguing that the government has been intentionally misleading the public, promising the nation would soon become oil rich with revenues to be used to reinvigorate the economy, pay down public debt and build fantastic new infrastructure. The video was later picked up by popular talk show ‘7ki Jelis’. In itself a misled accusation, the numbers Anonymous quotes are based on a misunderstanding of an unclear quote. When then Minister of Energy Gebran Bassil said in 2013 that “the current estimate, under a probability of 50 percent, for almost 45 percent of our waters has reached 95.9 trillion cubic feet of gas and 865 million barrels of oil,” Bassil was speaking of probabilities based on the interpretation of seismic data, not of certainties that only exploratory drilling can confirm. In the end, Lebanon will never know with certainty if it does have oil and gas until it passes the needed decrees to bring exploration companies to drill.

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LeadersOpinion

BDL plays government

by Matt Nash
written by Matt Nash

Banque du Liban (BDL), Lebanon’s central bank, makes a curious claim on its website. Under “Monetary Overview” in the “About Us” section, the bank says that, beginning in 2013, it “resorted to unconventional monetary policy tools to stimulate internal demand and sustain the country’s growth and job creation potential.” Here the bank is referring to stimulus packages that have pumped millions of dollars into the economy over the past three years. What’s curious is the bank’s definition of its actions as “monetary policy” ‒ which the stimulus packages are decidedly not. In the absence of real governance and policy making in recent years (the only two laws Parliament passed in 2013 postponed parliamentary elections and extended lawmakers’ terms), the bank has stepped in to help spur economic growth. A stimulus package is economic policy, not monetary. Alain Bifani, director general of the Ministry of Finance who sits on the board of the central bank, admits that “in absolute terms, [one] is right” to say lawmakers should have directed the bank to offer a stimulus instead of BDL acting on its own. However, he claims that “as long as [the bank] is doing something that is good for the stability of the economy and the system, this is part of its mandate. It is not the usual tool, but it is something that is being welcomed by all players.” While the legal argument may be open to interpretation, no one is complaining about the stimulus money. Indeed, for the past few years, real estate developers have credited it with helping keep the sector afloat.

Available data suggest that the stimulus packages have contributed to consumer demand for housing loans, but the exact amount of that contribution is impossible to identify. Real estate is only one sector the stimulus targeted. On its website, the bank says its goal is supporting “housing, education, renewable energy projects, innovative projects, research & development ventures, entrepreneurship and other productive sectors of the economy.” Data to assess how other sectors have benefited from the stimulus is nonexistent. That said, BDL claims “the stimulus packages of 2013 and 2014 proved to be successful, contributing around 50 percent of real gross domestic product growth.” The bank did not respond to an interview request seeking validation of that claim. During a November presentation to launch the fall 2015 Lebanon Economic Monitor ‒ a World Bank publication ‒ Wissam Harake, an economist with the bank, noted the stimulus packages have had a positive economic impact, which he did not quantify. When Executive pressed him after the presentation on whether the World Bank shared BDL’s view on the packages’ growth contribution, he chose a diplomatic answer. “We haven’t made an exact estimation. We’ve heard what you heard from the central bank, but we certainly think the stimulus packages [are] one of the few drivers of economic growth.”

While it may have helped growth, in both 2013 and 2014 the stimulus money was not fully deployed. Executive reported in January 2014 that, of the $1.47 billion in stimulus money for 2013, some $468 million went untapped. Speaking of the stimulus money for 2015, BDL’s website says the total amount is “$1 billion, coupled with the funds revolved from 2014.” And the stimulus is not the only central bank initiative with deployment issues. In August 2013, the bank approved Circular 331, which guaranteed 75 percent of commercial bank investments into startup companies and venture capital funds. While the decision theoretically freed up $400 million for investment, only around $20 million had been tapped by November 2015. Again, however, the private sector is happy with 331 and hopes it will significantly expand Lebanon’s entrepreneurship ecosystem.

A nudge in the right direction

In addition to pumping cash into the economy, in October 2015 the central bank also threw a lifeline to leveraged companies struggling to repay their loans in the form of basic Circular 135. The Ministry of Finance’s Bifani explains that the circular “doesn’t impose anything. It is just putting the framework for arrangements that can happen between the lender and the borrower.” He adds, “if you have an account that is not performing properly, you have here a framework for banks and borrowers under which they can agree on giving more space for the borrower to be able to reorganize its activities.” While the circular does not target a specific sector, real estate developers welcomed the news.

In late 2015, BDL governor Riad Salameh announced the bank will launch a $1.5 billion stimulus package in 2016. How much longer the bank will be alone in pushing pro-growth economic policies, however, is anyone’s guess.

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Editorial

The will to prevail

by Yasser Akkaoui
written by Yasser Akkaoui

In 2015, many of the reasons behind Lebanon’s built-in logjam came to the surface. The garbage crisis is the case in point that best illustrates how the whole system is rotten to the core. Beyond our government’s inability to preemptively devise solutions to imminent perils, we watched as priorities were often confused and demands articulated in an incoherent manner. Everyone wants a solution to the garbage problem but no one wants a sanitary landfill anywhere near them. Many believe in private enterprise but dislike the private sector. Our beautiful nation is tired of being unremittingly abused and turned into a vulgar yet frail land for politicians to continue taking advantage of. It’s of little surprise that citizens no longer wish to associate themselves with it.

Meanwhile, 60 kilometers away, the Syrian crisis keeps getting even more complicated as new players continue to join the ‘game’. Discovering water on Mars would be easier than finding Abou Bakr Al-Baghdadi. Western alliances use $1 million Tomahawk missiles paid for by the KSA to target $20,000 Toyota pickup trucks bought with Gulf money, and all the while oil tankers driven by ISIS militiamen pass through Mosul before being targeted by Russian fighter jets on their way to Turkey. We’ll spare you the rest.

Amid all this madness we are reminded again that our sovereignty is pegged to a geopolitical equation that has not yet reached equilibrium. En attendant un president, businesses still painfully survive with an outdated set of laws resonant of the 1960s. Our central bank preserves its independence to defend and keep up the pace, free to issue circulars compliant with new international regulations – an existing luxury that promising new industries, like oil and gas, do not possess.

It is out of this narrow margin of maneuver that Circular 331 was born. Regardless of all its deficiencies, it kick-started the entrepreneurship ecosystem, now flourishing with talent, innovation and creativity. Above all, it gave hope to entrepreneurs and investors alike to make and prosper.

Knowledge, coupled with freedom, always prevails in Lebanon. Both are safe from all the brutality surrounding our nation. What keeps us thirsty for more is the eternal renaissance of culture and private enterprise that is always ahead of our inherited political stagnation.

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