Leaders

Throw open the doors

by Executive Editors
written by Executive Editors

There’s a glaring contradiction between the privately owned plots on the cadastral map of Beirut and legislation regarding ownership along the coast. A 1925 decree — still in force today — says that the coast is public property. It defines coast, or “maritime public domain,” as the “seashore until the farthest distance that the wave[s]could reach in winter and sand shores and pebbles.” This should automatically mean that the sandy beach of Ramlet al-Baida is unquestionably public property. Yet the cadastral maps for the area show that the sandy beach has been divided into parcels, which are today almost entirely privately owned. Executive has not yet been able to ascertain how this happened, but the fact remains that it did. And this is not just an esoteric legal incongruity: it affects one of the city’s last undeveloped coastal areas, including its only sandy beach. Clearly, a reasonable solution is needed to balance the public’s right to enjoy the coast with the substantial sums of money private owners have invested in the land.

One option would be for either the city of Beirut or the Lebanese state to buy the land, thus preserving it for the public. Such a move would work best in the context of a larger, well studied urban plan for the city, and should not be a knee jerk reaction to public anger. After all, both the city of Beirut and the government currently own land along Beirut’s western coast, yet we see no sign that either is currently managing its trash-strewn parcels to maximize public use and benefit. A parallel and more immediate solution would be to make the process of obtaining exemptions from coastal zoning laws more difficult and — crucially — more expensive. Exemptions are, after all, deviations from duly enacted public policy. They should be neither easily obtainable nor wildly lucrative.

The best and most efficient way to do this would also be one of the simplest: bring the exemptions process into the light. Currently, developments requiring exemptions receive only a technical review before being sent to the Council of Ministers for political approval behind closed doors. The public has no say in this process — a highly problematic fact when developments abut or encroach upon lands used by many citizens, such as those along Beirut’s western coast.

The public must be allowed to evaluate and comment on project exemptions. At a minimum, that means better disclosure of aberrant development plans, and public hearings open to all citizens with an opinion to air. While not a panacea, this minor reform would introduce a higher standard of scrutiny that is sorely lacking at present. And while it would not address all coastal developments, it would place greater constraints on the largest — the Eden Rock Resort on Ramlet al-Baida, currently in the excavation phase, would have been affected, for instance.

Bringing the exemptions process into the light should only be the first step to better mediate between private landowning interests and those of the public, but it is a necessary one. Policymakers, throw open your doors.

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Comment

Feeling the heat

by Nicole Purin
written by Nicole Purin

The sight was electrifying: a solar powered flying machine ascended into the desert morning in order to probe a new frontier for ecology and sustainability. Venturing far beyond the conventional concept of an airplane, Solar Impulse II is a science adventure to test and develop new practical technologies that can deal with the urgent, global problem of climate change.

Hatched by two Swiss celebrity explorers, Andre Borschberg and Bertrand Piccard, the experimental aircraft intends to circumnavigate the earth in a five month-long flight that is divided into 12 segments. To optimize its chances of success, Solar Impulse II took off last month from Abu Dhabi.

The ultimate problem the flight seeks to address — climate change — is defined as the modification of climate patterns, both regionally and globally, and has been attributed to the increased level of carbon dioxide in the atmosphere due to fossil fuel consumption. The general consensus is that a continuous buildup of emissions will have dire effects on the planet, such as seas submerging cities and extreme weather patterns.

The environment has always been a highly important topic in the world’s agenda but the current environmental protection campaigns seen around the globe are unprecedented, as Hollywood actors, top politicians and ordinary people have made climate change their personal crusades. Leonardo DiCaprio, actor and UN representative on climate change, stated at the 2014 UN Climate Change Summit in New York that “climate change is not fiction … droughts are intensifying, our oceans are acidifying … we’re seeing extreme weather events in the west Antarctic and Greenland ice sheets melting at unheard of rates.”

These statements characterize the mood of the public at a time where saving the environment is the only way forward. While the global debate over climate change is today as heated as ever, Gulf Cooperation Council countries — highly scrutinized due to their roles as some of the top carbon emitters in the world due to their heavy energy consumption — are beginning to take action against climate change.

The actions

“The planet has a fever. If your baby has a fever, you go to the doctor. If the doctor says you need to intervene here, you don’t say, ‘Well, I read a science fiction novel that told me it’s not a problem.’ If the crib’s on fire, you don’t speculate that the baby is flame retardant. You take action.” — Al Gore

When we burn gas, oil or coal, the infamous fossil fuels, carbon dioxide (CO2) is released into the atmosphere, leading to an overall increase in the planet’s temperature. It is indisputable to say that at the heart of the matter of climate change is carbon emissions production. Hence, the decrease of carbon emission is regarded as a crucial factor in controlling the planet’s temperature.

The effort to control climate change is a not a recent phenomenon. In the last decades, the governments of many countries have agreed to enter into numerous treaties to achieve this target. In 1979, the pioneering world climate change conference took place, hand in hand with the oil crisis and realization among many nations of their oil dependency. In 1988, the Intergovernmental Panel on Climate Change (IPCC) was set up.

Until then there was no framework to monitor climate change, hence the IPCC and the second World Climate Conference called for a global treaty to be put in place. The United Nations General Assembly called for the swift implementation of a framework convention. As a result, The United Nations Framework Convention on Climate Change (UNFCCC) was implemented in 1992 and although countries adhered to it (by considering what to do to limit global temperature increases and the resulting climate change), it required fine tuning. By 1995, countries realized that emission reductions provisions in the Convention were inadequate. It was a turbulent time for climate change. The measures were not successful, and some argued insufficient, to fulfill the required goals.

New landmarks

In 1997, the Kyoto Protocol was adopted. It was seen as a very positive development, especially after the Convention. The effect of the protocol is that it legally binds developed countries to emission reduction targets. The protocol’s first commitment period started in 2008 and ended in 2012. The second commitment period began on January 1, 2013 and will end in 2020. There are now 195 Parties to the Convention and 192 Parties to the Kyoto Protocol. The protocol entered into force on February 16, 2005. To ensure targets are met, the parties to the protocol have continued the negotiations and have amended the protocol to achieve more tangible and increasingly ambitious targets by 2030.

Other highly significant developments have been the COP15 (Copenhagen Accord), the Cancún agreements, the Doha amendments and most recently the COP20 Lima Climate Change Conference in December 2014. The effect of these recent developments is to give the required ‘legality’ to all these agreements, to ensure pledges are officialized, binding and structured. A lot of progress has been made at international level that has great implications on economic and sustainable development, the management of resources and population demographics.

The UAE and GCC climate change players 

It is common knowledge that Gulf countries are amongst the higher producers of carbon emissions with the highest per capita carbon footprint in the world, which has been driven by the vast number of resources, ambitious projects and economic developments in these countries. Currently, the UAE annual per capita footprint amounts to roughly  7.8. hectares per person. Kuwait is now ranked as the world’s worst footprint and Qatar is the second, according to the 2014 WWF’s Living Planet Report.

However, there is a growing awareness of environmental and sustainability matters amongst Gulf Cooperation countries and in the Middle East, which is paving the way for a ‘greener future’ in this part of the world. The UAE especially has been at the region’s forefront of environmental friendly projects such as the zero pollution, zero waste city and Masdar’s carbon emissions reductions strategies under the various protocols and conventions.

To name recent legal measures with positive implications for reducing emissions, the UAE launched via its Supreme Council of Energy a mandatory energy efficiency standardization and labeling scheme designed to improve energy conservation and maximize energy utilization in residential properties. The energy consumed by ventilation devices and air conditioners is truly significant and the labeling system introduced in 2012 has enabled a more efficient control of power consuming devices, in line with international standards focused on decreasing electrical power consumption.

The UAE’s progress in this field has been gradual but consistent, as it has also introduced ‘green city’s concepts’ while government buildings have to adhere to energy savings programs including new buildings (2011 Supreme council of energy initiative with the Dubai Municipality and DEWA). This initiative becomes even more powerful in light of construction projects being developed for the 2020 Dubai EXPO.

On the international stage, the UAE sent a high level delegation to the 20th COP 20 meeting held in Lima, Peru, in December 2014. The conference is a central forum where countries can communicate their strategies to reduce climate change, paving a way to the new global agreement in Paris in 2015. The UAE’s participation was very well regarded and it emphasized its strong commitment to climate change control, via major commercial renewable investments through Masdar (up to $2 billion of projects), carbon capture storage and funding of renewable energy projects in developing countries via IRENA and the Abu Dhabi Fund for Development.

In January 2015, UAE vice president, prime minister and ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, announced the launch of the Green Economy for Sustainable Development strategy. This plan focuses on environmental preservation as well as establishing the UAE as a world leader in green technology, renewable energy and reduction of carbon emissions (carbon capturing and storage technologies).

Projects, policies, legislation and international collaborations are seen as the pillars of this national initiative that will certainly transform the UAE’s economic infrastructure and provide parameters to the other GCC nations. The Abu Dhabi Sustainability week that took place from January 17–24, 2015, brought together politicians, leaders and investors, to shape the future of climate change and the world’s green economies.

According to Masdar, Abu Dhabi’s Executive Council could give Masdar permission to build Nour 1, a 100 megawatt photovoltaic plant. As the organization points out, the project has been put on hold since 2011, but it is a necessary step in Abu Dhabi’s goal to source 7 percent of its powers from renewable energy by 2020.

It is within the UAE’s drive towards change its position and reputation to a clean future that Abu Dhabi welcomed Solar Impulse II and its pilots and supported the team’s attempt to fly around the world using solar energy. Within the first 11 days from their takeoff in Abu Dhabi, Borschberg and Piccard — whose international team also includes UAE volunteers and a Lebanese nutritionist — already experienced weather related delays, bureaucratic obstacles and even the temporary breakdown of the Solar Impulse II website. But more importantly, their attempt is to demonstrate that clean energy can achieve things that have been previously thought impossible. They have completed their first four flight segments successfully and with a few new records.

This is a futuristic initiative that might change the history of aviation and clean energy and the UAE is at the forefront of it.  However, the UAE still remains one of the world’s worst carbon emitters and it is necessary for the country’s and the whole region’s population to adopt an energy saving and conservationist approach in order to reduce the per capita footprint. Education and high scale initiatives will assist in this plan and the UAE is on the right track.

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Leaders

Hungry for change

by Executive Editors
written by Executive Editors

Food safety has become a national spectacle over the past several months. While there have been no recent foodborne epidemics, Health Minister Wael Abou Faour has incessantly reminded us that much of what we eat “violates health standards.” Yet despite this cringeworthy thought, it is refreshing to see the minister taking food safety so seriously — notwithstanding our nagging suspicions about his true motives for waging this campaign and disappointment over his lack of hard numbers to reinforce how serious the risks we face are. Abou Faour has repeatedly pledged not to let food safety fall off the radar when he leaves office, but we need much more than a pledge. We need serious institutional reform.

[pullquote]We need much more than a pledge. We need serious institutional reform[/pullquote]

For far too long, Lebanon’s elected officials have known there are serious problems with the current system for ensuring that what we eat is safe and clean. That said, Abou Faour is the first minister of public health to name, shame and promise change in over a decade. His efforts are laudable, but the problem is overlapping authority — the ministries of agriculture, public health, tourism, economy and industry, as well as each of the country’s six governors all play a role in monitoring food safety, not to mention the municipalities. When multiple government agencies have responsibilities for something, it is all too easy for everyone to do nothing but blame each other if and when an epidemic happens.

In recent years, intermittent reports of warehouses full of expired meat or potato chips have surfaced time and again. Last year, Executive reported that farmers facing a water crisis were diverting wastewater to be used for irrigation. There is no legitimate reason why negligent food handling has continued for so long. We understand that business owners on any link of the food chain might try sneaking expired products into the market rather than counting them as losses, but this is absolutely unacceptable.

Today, according to the director general of the ministry of health, there are only 70 health inspectors working for the ministry, which is underfunded and understaffed. If, as the director general claims, other ministries are not doing their jobs properly vis-à-vis food safety, the chances that this crusade will end with Abou Faour’s term are far too high for us to be comfortable relying only on a pledge that Wael’s war will outlast him. We need institutional change and concentrated authority. We need a new law, and a draft approved in January 2015 by parliament’s joint committees seems like the best start.

[pullquote]The chances that this crusade will end with Abou Faour’s term are far too high[/pullquote]

Chapter three of the draft calls for the creation of a centralized body, the Lebanese Food Safety Commission, that would have full control of food safety from inspecting imported food before it is distributed, to visiting farms and slaughterhouses to make sure best practices are being implemented. This is a good idea provided the commission is fully staffed with enough inspectors to routinely conduct randomized safety checks throughout the country. While article 30 of the draft delineates 21 tasks the commission will be responsible for — such as overseeing the ‘traceability’ process, i.e. tracking food through all stages of production to analyze any potential risks — the exact details will come in future bylaws.

Parliament Speaker Nabih Berri reportedly wants to convene a legislative session in mid April, and this draft should be on the agenda and given an up or down vote. On top of that, the cabinet must swiftly pass any necessary implementing decrees to ensure the food safety commission is created quickly, given proper authority and fully funded. The unfortunately common practice of reforms being stillborn because the cabinet fails to follow up with the necessary implementing decrees cannot be allowed to happen in this case. Food safety is a must, and the only way to avoid more scandals in the future is to properly monitor and regulate the sector. Ensuring safety is a day-in and day-out job, not something that will happen when someone raises a stink every few years. Better to turn the current spectacle into something productive, lest we have a true food safety issue in the future.

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Beirut's private coastReal Estate

Seashore, Inc.

by Matt Nash
written by Matt Nash

There is a map of Beirut’s private coast from Dalieh to the southern city limits accompanying this article. You can find it here.

***

On February 10, 1966, Inmaa Tourism and Hotels bought two plots of land on the sandy shores of Ramlet al-Baida. Eight years later, the company bought seven more plots, bringing its total land holdings on the coast in this area of Beirut to around 30,000 square meters (m²). The land is still owned by Inmaa. Who owns Inmaa, however, is another story entirely, one which reflects the confusing ownership structure of the land stretching from Dalieh near the Pigeon Rocks to the end of Beirut’s southern city limits. Individual people own only around 27 percent of the Dalieh-Ramlet al-Baida land. The public sector — via the Beirut Municipality and the Lebanese government — each own three plots which represent around 5 percent of the land. Corporations own the rest. The three with the largest holdings are Sakhrat Al-Bahr Real Estate, Al-Bahr Real Estate and Inmaa. On a human level, however, Rafik Hariri’s heirs and Wissam Achour are the most important players on Beirut’s private coast.

Who owns Inmaa

In 2005, Inmaa’s majority shareholder, Kuwait’s General Investment Authority, was trying to sell the company to divest from the land, according to a news report carried by MENA FN. However, this attempt failed, claimed the report, so Inmaa would again try to put itself up for sale.

[pullquote]On a human level, however, Rafik Hariri’s heirs and Wissam Achour are the most important players on Beirut’s private coast[/pullquote]

In Beirut, Raja Makarem stood behind his large wooden desk, using a laser pointer to highlight plots on a giant map of the city on the wall. Nine years ago, he says, he was on the cusp of brokering a deal for an American company to buy 70,000 m² of land for $140 million — including the nine Inmaa plots, which he says accounted for 30 percent of the total land on offer. For the Inmaa land, the buyers were slated to purchase the company’s shares, not the land it owned. The deal, he says, fell through.

In 2007, Stow Capital Partners, a real estate company registered in Bermuda with offices in the UK and Lebanon, announced they’d bought 40,000 m² of land “on the outskirts of the city of Beirut.” Stow’s website explains “[t]he plot was identified in early 2005 as a site with legal problems where value could be added. An option was taken on the land allowing for a window of opportunity to sort through the legal hurdles and investigate if resolutions could be facilitated, while locking in a very competitive price.” A 2014 document from Lebanon’s commercial registry shows no reference to Kuwait’s General Investment Authority’s ownership in Inmaa. Instead, Walid Daouk, a nonexecutive director at Stow and former information minister, owns 21.2 percent of Inmaa, while Stow itself owns 8.1 percent. Inmaa’s largest shareholder is a company called Barbara Bay Ltd with 32.3 percent. Executive believes Barbara Bay is registered in the Cayman Islands, but could not retrieve documents showing definitive proof. Nazem el-Khoury, Stow’s executive director and a former minister of environment, tells Executive that Stow kicked around ideas for a large scale development a few years ago, but believes the plans are on hold. He suggests Farouk Kamal, Stow’s executive chairman, is the best person to ask about the company’s current plans for the land and the companies that own Inmaa. Kamal did not respond to phone messages left at his office nor an email seeking comment. It is unclear why Stow says it bought 40,000 m² of land when the company is only associated with the 30,000 m² owned by Inmaa. Kamal, who is also chairman of Beirut Waterfront Development of Zaitunay Bay fame, told Executive in January 2014 that a project on the site had been “fully designed — but I don’t know if we will launch it.”

Jumping down the rabbit hole 

Over the course of the past six months, Executive has connected the 51 plots of land stretching from Dalieh south to Beirut’s city limit to actual human owners. Nahnoo, a local NGO, shared nine of the land ownership documents with Executive, the rest came from the DGLRC and the Commercial Registry. The process was slow moving at points in part because companies own the vast majority of the land — 90 percent of the approximately 290,000 m² — not individual people.

Corporate ownership of land is legal under Lebanese law and useful for a variety of reasons, explains Eddy Sakr, a partner with the auditing and tax advisory firm Sarkis Sakr & Partners. One reason, he says, is for succession planning, as dividing a company among one’s children is often better for future development purposes than dividing the land. In Lebanon, every plot of land consists of 2,400 shares, and if a plot has multiple shareholders, all must agree on how to use the land before it can be developed. The records show that ownership in many of the Dalieh plots was passed from parents to children, resulting in miniscule holdings and multiple owners. For example, plot number 1116 is the fifth smallest of the 13 Dalieh plots with a total area of 1,458 m². Yet it has 26 owners. Records show Al-Bahr Real Estate owns almost all of the plot (with 2133.6771 shares) with the 25 remaining people having inherited a number of shares ranging from 66.6667 to 0.7292. If land is passed to children via a company, Sakr says, the children have more flexibility as shareholders in a company to brush aside dissenting voices when the time comes to develop the land.

[pullquote]Another reason to register land in the name of a company is to avoid fees related to both selling and bequeathing it[/pullquote]

Sakr says that another reason to register land in the name of a company is to avoid fees related to both selling and bequeathing it. “If land is owned by a person, and that person wants to sell or give it to their kids, they have to go to the real estate directorate and pay a 6 percent fee for the sale [or transfer].” If the land is corporately owned and the corporation is a joint stock company (a société anonyme libanaise or SAL in Lebanon), “you can transfer shares from one person to another without having to pay any tax,” says Sakr. As the Inmaa example illustrates, land in this part of Beirut has often changed hands via corporate deals rather than land sales. Sakr warns that developers who buy a company only for the land it owns may avoid a registration fee in the short term, but could end up paying more in the long run should they want to develop the land. On the books of the original land-owning company, he says, the land will have a certain value that has no doubt gone up by the time the buyer acquires that first company. When that buyer wants to sell units in whatever project gets built on the land, the land itself will have to be revalued and the developer will pay a capital gains tax on the difference in valuations — an amount that more often than not exceeds the registration fee.

So who owns what?

The Lebanese government owns three of the plots, clustered south of the Mövenpick hotel on a curve in the land, for a total area of 5,729 m². Beirut’s municipality also owns three plots. One is a slender strip of 246 m² wedged between two privately owned plots, which are themselves surrounded by the government’s land. The city’s other two plots — 5070 and 5069 — are prime, sandy beach property right on the water at the northern edge of Ramlet al-Baida and total 8,568 m². Almost all of the human owners of shares in a plot inherited their land. Exceptions include, but are not limited to, Kamal Sadr — who purchased the 3,987 m² plot 1554 north of the city’s land in 2014 — and Salwa Beidoun. Beidoun today owns 100 shares in each of four Dalieh plots (1113, 1117, 1118 and 1119). The purchase is registered on July 31, 1990. Al-Bahr Real Estate owns the remaining shares in each of the plots Beidoun partially owns. Whether she only bought a small amount of shares in 1990 or bought them all and sold most to Al-Bahr later is unclear from the records. Executive was unable to reach any of the individual human owners.

The Hariris

While Rafik Hariri is today ‘known’ for having bought up much of the Dalieh land, he actually first acquired seafront property in Ramlet al-Baida, not Dalieh. And he did it indirectly. It all started in 1981 when Hariri bought 73 percent of the shares of Méditerranée Investors Group (MIG), which in turn owned 59 percent of BankMed, according to a 2005 BankMed annual report. The next year, the annual report says, Hariri bought all of MIG and in 1983 BankMed “became a wholly owned subsidiary of MIG.” In a 1994 interview published on his website, former Prime Minister Fouad Siniora explained that when Hariri bought BankMed, he also became owner of one of the bank’s “sister companies,” as Siniora puts it, called Mediterranean Real Estate, which owned plots 4026, 4027, 4285 and 2233 (a total of 15,703 m²) — all beach properties between the city of Beirut’s land and the land currently under development for the Eden Rock Resort. Additionally, in the interview Siniora says that in 1991 Hariri bought shares in a company called National Company for Land and Buildings (NCLB), which then owned plot 2231, the largest of the Dalieh–Ramlet al-Baida plots with a total area of 29,073 m². Today, over 99 percent of NCLB is owned by a holding company founded in 1984 called Irad Investment Company. Irad also owns 200 of Mediterranean Real Estate’s 5,000 shares (or 4 percent).

The land ownership documents do not provide a detailed history of how the land has changed hands, rather they show only the current owners. For four plots, the documents did reveal who a company bought shares from, but that is the exception, not the rule. Ditto the commercial registry documents. They only show current shareholders, not the history of share purchases. That said, there are several land owning companies that purchased land within years or — in the most extreme case, days — from when they were founded which are today owned by Irad. For example, Irad owns 99.9 percent of the National Company for Land and Buildings 2 (NCLB2). NCLB2 was founded on July 10, 2002 and bought three plots in Ramlet al-Baida on July 13, 2002. Two of the plots, according to the Siniora interview, were at one point owned by Mediterranean Real Estate. Al Bahr Real Estate, founded in 1994, purchased shares in two Dalieh plots in 1998, bought more shares in another Dalieh plot in 2000 and then acquired MP Michel Murr’s shares in four others on May 26, 2007. Irad owns 99.9 percent of Al Bahr. A third company, Sakhrat Al-Bahr, was founded in 1994 and on December 30 1995 purchased shares in three Dalieh plots and, on the same day, bought all 2,400 shares in three other Dalieh plots. Irad does not own Sakhrat Al-Bahr. In fact, only 89 of the company’s 26,500,000 shares have listed owners on its commercial registry document. Among them, however, are BankMed Investment SAL (BMI), MEP Investment SAL (99 percent owned by BMI) and Med Propterties SAL (99 percent by Bank Med Group SAL Holding).

Wissam Achour

In 2011, Wissam Achour made what appears to be his first foray into purchasing land in Ramlet al-Baida through a contract with a company called Eden Rock Tourism and Development. His lawyer, Bahij Abou Mjahed, told Executive in January that Achour will pay $175 million for the 22,295 m² of land — or $7,849 per square meter, quite a jump from the $2,000 per square meter Raja Makarem was about to sell land right next door for in 2006. The money has not been fully paid, Mjahed said, and only will be once the two tower resort complex currently in the excavation phase starts drawing in capital. In 2013, he made another purchase more closely in line with the tradition of the area.

[pullquote]Achour did not buy land directly, but rather he bought companies that own the land[/pullquote]

Achour did not buy land directly, but rather he bought companies that own the land. Commercial registry documents show that Achour now owns 80 percent of Mediterranean Real Estate (the company Hariri owned via his purchase of BankMed, according to the Siniora interview), and thus plots 4027 and 4026. He also bought Al-Bahr Real Estate 2, which owns plots 1388 and 1389 — smaller plots near the Lebanese government’s land — as well as 5071 and 2369. The latter two, 4027 and 4026, are in a line of plots that stretch across much of Ramlet al-Baida’s sandy shore and the two cover a total area of 30,265 m². The documents do not show who Achour bought the companies from, but Irad has a 4 percent stake in Mediterranean Real Estate as does FRH Holding, 99.9 percent of which is owned by Fahd Rafik Hariri. Irad and FRH Holding also each have one share out of 30,000 shares in Al-Bahr Real Estate 2. Achour’s 30,000 plus square meters of contiguous beach is not far from the Eden Rock Resort. Four plots stand between the two parcels — plots which are all owned by companies of which Irad owns 99.9 percent.

Manal Dana, Achour Development’s marketing manager, tells Executive, as she has told other news outlets, that Achour has no big development plans for the 30,265 m². “The land will be renovated so people can go down on clean sand without any garbage. There will be small fees at the entrance to preserve it and [fund] small entertainment activities, like in Europe. But there will not be any towers on it, it will not be constructed, this area.”

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Economics & Policy

Thinking ahead

by Mona Sukkarieh
written by Mona Sukkarieh

Since 2010, policymakers in Israel have had to repeatedly intervene in the energy sector to deal with challenges — not just opportunities — presented by the discovery of large gas fields.

[pullquote]Since 2010, policymakers in Israel have had to repeatedly intervene in the energy sector[/pullquote]

In December 2014, Israel’s antitrust commissioner David Gilo 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 threatens the development of Leviathan, expected by 2018, and risks delaying it for an undetermined period of time.

The decision comes after the results of a report, commissioned by the Public Utilities Authority, were made public on December 18, confirming previous worries, including an ongoing increase in the price of natural gas sold by the Tamar consortium (the Noble and Delek led partners in Tamar, another large field) and anticipating an increase in electricity prices, as a result of “monopolistic contractual demands,” locking Israeli consumers into artificially high and perennially rising prices. The Israel Electric Corporation (IEC) is currently paying around $5.70 per million British Thermal Units (mmBtu), perceived as a reasonable price, but the concern is about future developments and trends. The starting price for IEC’s long term supply agreements was $5/mmBtu but would eventually reach $7.70/mmBtu.

The decision, which triggered a clash with the Ministry of Energy, also comes amid a mood of economic populism in Israel, relayed at the highest levels of state institutions (including by certain members of the cabinet and the Knesset), and fueled further by the March 17 national election.

Noble has threatened to freeze “additional exploration or development investments” in Israel until the resolution of this and other regulatory matters. Regulatory uncertainty is perceived as a deterrent for foreign investments in Israel, particularly in the oil and gas sector. Gilo’s decision to renege on a previous agreement is not an isolated event. Since 2010, (i.e. after the discovery of Tamar and Leviathan), Israeli authorities have repeatedly intervened to regulate the sector. First, through the Sheshinski committee — a special commission whose recommendations, including a major tax increase, were approved by the Knesset in March 2011 — and second, through the Tzemach committee and the decision in 2013 to put a cap on gas exports, upsetting companies who argue that the Israeli market is too small and exports are needed to justify huge development costs. With such regulatory uncertainty finding a potential buyer for Leviathan might prove to be challenging, although the field retains enough appeal for investors.

Unless a compromise is found — which seems to be a possibility — the Noble–Delek partners will be required to renounce one of their two major fields, Leviathan or Tamar, prompting, by the same token, a lengthy legal battle with the state. A potential compromise could include retaining Tamar and Leviathan, in exchange for selling Tanin and Karish, in addition to a requirement to sell the gas separately, thus creating competition. Another compromise might involve establishing a public company to buy the gas and sell it domestically at ‘reasonable’ prices, or even imposing controversial price controls. The latest plan proposed by Gilo involves breaking up the monopoly into several entities, each of which would sell the gas separately. The plan bars Noble from selling Tamar gas in the domestic market. In Leviathan, each partner would sell its share of the gas separately. In addition, the plan calls for Delek to sell its stakes in Tamar and requires Noble and Delek to sell their stakes in Karish and Tanin. The plan was reportedly rejected by the concerned parties. The Antitrust Authority — which initially said the plan was final and failure to abide by it would lead it to declare that the current ownership structure constitutes a restraint of trade, prompting unilateral action — has delayed its decision until the end of April to allow enough time to reach an agreed solution.

The debate surrounding the way the sector is being managed is so intense and widely backed by the public that a possible change in the institutional framework and the establishment of a regulatory authority cannot be ruled out.

The uncertainty over Leviathan’s ownership and possible development delays might jeopardize gas supply deals currently in discussion, including:

• A letter of intent with Britain’s BG, operator of an LNG plant in Idku, Egypt, to supply 7 bcm of natural gas per year over a period of 15 years. The deal is estimated to be worth around $30 billion.

• A preliminary deal with Jordan’s National Electric Company to supply 45 bcm of natural gas over a period of 15 years, for approximately $15 billion.

• A $1.2 billion deal with the Palestine Power Generation Company to supply 4.75 bcm of natural gas over a period of 20 years. The PPGC already declared in early March that the deal will be canceled within 30 days unless regulatory issues are solved.

[pullquote]Stability and the ability to anticipate the regulatory framework are particularly vital for the energy sector[/pullquote]

The US is a firm supporter of these deals, which it perceives as helping secure regional stability by fostering mutual interests, and has been instrumental in facilitating the negotiations. The Israeli move is therefore perceived by the Americans as an obstacle to the policies they are pursuing in the region. Special Envoy for International Energy Affairs at the Department of State Amos Hochstein, who visited Israel following Gilo’s announcement that he is revoking the deal with Noble and Delek, had two main messages to convey: first, the dispute will have consequences on the investment environment in Israel, and second, gas agreements with potential regional clients are an opportunity that must not be discarded.

Stability and the ability to anticipate the regulatory framework are particularly vital for the energy sector, one that requires major investments at the initial phase with the expectation of a return on investments. Regulatory uncertainty is already affecting the attractiveness of the sector and more difficulties are to be expected if the process drags on. Italy’s Edison, which prequalified for Lebanon’s first licensing round, is now reconsidering its decision to acquire the two small Israeli gas fields close to the Lebanese border, Tanin and Karish. But energy is also a strategic sector. If unchallenged, a monopoly would emerge supplying energy to broad sectors, and any change in future prices would affect the entire economy.

The desire to prevent that is understandable. But adapted measures should have been taken long ago if Israel wanted smooth sailing through the extractive process. The problem is the failure to anticipate any of the developments and always being a step behind: failure to anticipate the possibility of large discoveries and develop an adequate fiscal framework; the lengthy period to make a (first) decision on Noble and Delek forming a possible monopoly; making a decision that failed to address monopoly concerns (forcing them to sell Tanin and Karish, which together hold up to 3 tcf of natural gas, compared to Tamar and Leviathan’s approximately 32 tcf); and finally deciding, a year later, to retract that decision.

Recent developments in Israel are a case in point, demonstrating how important it is to set a policy as early on in the process as possible to avoid regulatory uncertainty. This is worth pondering in a country like Lebanon where de facto monopolies are tolerated.

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Business

A roller coaster ride

by Nabila Rahhal
written by Nabila Rahhal

When Lebanon’s Civil War ended in 1990, Hamra was at a standstill in terms of nightlife, with almost no pubs or restaurants in operation on Makdessi, the street just north of the main road. In 2005, the roller coaster ride began its slow ascent with the opening of De Prague, a cross between a pub and a coffee shop, located next to HSBC bank. It was followed two years later by Le Rouge, a French restaurant.

But it was with the opening of Danny’s in 2009, a pub on what is now called the Alleyway, the narrow street connecting Makdessi to Hamra’s main road, and the neighboring outlets shortly after, that the street really took off. In less than two years, 32 pubs or restaurants had opened on Makdessi Street and its immediate vicinities, excluding Hamra’s main road, and it was considered a top destination for nightlife.

“What made Hamra so successful was that everyone knew it. It wasn’t a local destination but a national one. I had people coming to my venue Clé — on Wardieh Street, perpendicular to Makdessi — from Jounieh or Metn, saying that this was the first time they come to Hamra but they had heard so much from their parents about the nightlife here in the 1960s that they wanted to see it for themselves,” says Ussama Makarem, CEO of Makarem Group, which operates BistroBar on Makdessi Street among other hospitality venues in Beirut.

The descent

Although Makdessi Street began to lose some of its luster in mid 2013, when the street became too crowded and the outlets on it too loud, the venue operators Executive spoke to say Makdessi Street’s plummet began in earnest in early 2014, mostly because of the country’s security situation.

[pullquote]“Political issues really affected the street and many people got scared to come here and cut it off completely”[/pullquote]

Makarem recalls that 2014 started off on the wrong foot, as suicide bombings rocked the country, including at a Raouche hotel, and security forces raided the Napoleon Hotel just off Makdessi Street. “Political issues really affected the street and many people got scared to come here and cut it off completely,” he says.

Charles Frem, owner of Garcia’s in Hamra and Central Station in Mar Mikhael, also believes that the security situation, and specifically — according to him — the rumors which circulated regarding a possible explosion in Hamra, scared people from coming to Makdessi.

Those interviewed for the article all blamed the high concentration of beggars on Makdessi Street as another reason people started going elsewhere. “The other factor that also played a role in the slight decline of the area is, unfortunately and not to be prejudiced, the beggars that flooded to Hamra from the conflict in Syria,” says Saadi Hamady, owner of Poly Project Inc. which operates Bricks on Makdessi Street. “It is true there are beggars in many other areas in Lebanon but there was a high concentration in Hamra and Makdessi which annoyed the local clients who then preferred to go elsewhere,” said Hamady, adding that, on a positive note, the Syrian residents residing in the area helped support many of the businesses on the street, including his own.

In parallel to people growing uncomfortable with the climate surrounding nightlife on Makdessi Street, other areas such as Mar Mikhael or Badaro — which were similar to Makdessi initially, but newer and therefore more exciting for some — brought competition, according to Frem. Since the number of people living in Lebanon who can afford to go out is not that high, Makdessi Street understandably felt the strain. “We are all competing for the same piece of cake and that is why it is [survival of] the fittest in management, cost, quality and service,” explains Frem.

Hamady believes that the declining economic situation, both globally and locally, is also to blame for the decreased activity, not only in Makdessi but across Lebanon as well. “We definitely have less business than before but you have to understand people are living from paycheck to paycheck,” he says, adding that while there are venues that are able to attract wealthy customers who can go out every night, he is talking about the average, middle income Lebanese.

An indication of this difficult period is that, according to Anis Rbeiz, the real estate agent who brokered most of the rental deals for the Makdessi outlets, around thirteen venues on or in the immediate vicinity of Makdessi Street shut down within the last two years. Rubeiz also added that he had difficulty renting out these venues again.

On the way up

But nightlife on Makdessi Street is not over yet — in fact, it is slowly going uphill again with the opening of the Courtyard, a cluster of four resto-pubs under one roof just next to Alleyway, in October 2014.

According to Makarem, who operates BistroBar, one of the four venues in the cluster, all the venues are full on weekends and quite busy during weekdays. BistroBar, as an example, has a capacity of 120 people seated during the day and 220 people at night, when it turns into a bar style environment. “The new cluster, with its high ceilings and open design, has created some extra traffic to the area, but we have to see if it will be able to compete with the rooftops when they open in the summer,” says Frem.

Meanwhile, Hamady also agrees that the Courtyard has brought increased footfall to the opposite end of Makdessi Street, but says that Bricks has its own loyal client base and does not really depend on that extra activity. “We might get extra clients if the whole area is booming, but that would be the cherry on the cake, not something we would depend on,” he says.

[pullquote]“Makdessi … [is] no longer a national destination which people come to from all areas, like Mar Mikhael now is, but a regional one”[/pullquote]

Catering to the residents 

While Makdessi Street is on the rise again, the nature of its clients is changing. “Makdessi is catering to the residents of Hamra and the close surrounding areas. We are no longer a national destination which people come to from all areas, like Mar Mikhael now is, but a regional one,” says Makarem.

The purchasing power of those who frequent Makdessi has also changed according to Frem. “Makdessi now attracts those who get one drink each and appetizers to share. The places are indeed full but they are not making money,” he says, adding that this does not apply to some venues in the Courtyard which are attracting the big spenders. The average bill for a small dinner and two rounds of drinks for two people at Palma, one of the outlets in the Courtyard, is approximately $100 while a similar order at the other end of Makdessi Street would cost you half that amount.

As such, Makarem explains that his business approach to BistroBar was — keeping his target clientele in mind — to create a casual and laid back venue which can be enjoyed both day and night. BistroBar has a full French–Italian menu, which includes a salad bar during the day and live performances three nights a week. “It is a place that can be enjoyed by all age groups at any time,” he says.

The eternally charming Hamra

The food and beverage sector on Makdessi Street specifically, and in Hamra in general, does indeed have its ups and downs but all those interviewed insist that “Hamra will never die.” Being in close vicinity to AUBMC, two major universities and two international high schools — not to mention numerous businesses and banks — ensures that the area will have a steady flow of visitors, according to Frem and Hamady. “A lot of my customers are university students or foreign professors in these institutions who usually live around the area,” says Hamady.

Perhaps a show of good faith in Makdessi Street is that hospitality projects are still being developed there. A hotel and furnished apartments project facing Bricks is nearing completion, and Caramel, a boutique hotel with a restaurant bar called Propaganda in its lobby is under development by Frem himself and set to open in August (though Frem admits that he already owns the hotel and had begun the investment in its renovation before 2012).

[pullquote]The association is also collecting money for improvements on the street[/pullquote]

Hamady speaks of the recently founded Makdessi Traders’ Association which organized the Makdessi Street Festival last April and are organizing another edition for this May with the aim of bringing added activity to the street. According to Hamady, they are also collecting money from the businesses on the street for improvements and beautification projects, which include fixing the pavement and municipality street lights and adding some greenery. “They are working very seriously and have the support of the municipality and governor,” he says.

Whether riding high during 2010–2012’s peak years, or on a downward slump with half empty venues — or even something in between like we see now — Makdessi Street is still hanging on.

makdessi-pub-crawl-0.3

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Economics & Policy

One man’s army

by Matt Nash
written by Matt Nash

On a crisp February morning just before dawn, two boys walk down the narrow street leading to the center of the Sabra meat market with short knives tucked away in sheaths attached to their belts. Just a few months earlier, Health Minister Wael Abou Faour had told a press conference, “I’m embarrassed to show the media what the inspectors discovered at Sabra.” According to a writeup in The Daily Star on the conference, the minister said he’d also ordered the closure of a few butcher shops in the camp. When Executive visited in February, evidence of closures was nowhere to be found. One butcher — who asked not to be named — said the camp’s slaughterhouse had long been shuttered. Indeed, the daily Al Mustaqbal reported the closure back in 2003. Today, predawn Sabra is an open air market for wholesalers selling to retailers. Beef sold in the market is slaughtered elsewhere. For Hassan Merhi, a young man who only recently joined the family business, elsewhere is privately run slaughterhouses in Choueifat or Fanar.

[pullquote] “Actually, all over Lebanon they are slaughtering outside of the slaughterhouses”[/pullquote]

Merhi’s uncle used to ply his trade at the Beirut slaughterhouse. He says his family has been slaughtering for generations — claiming his great-grandfather used to walk sheep from Medina, Saudi Arabia, to Beirut. Refusing to be too specific or offer exact figures, he confides that transportation costs involved in moving operations from outside Beirut to Sabra are high so the family sometimes clandestinely slaughters somewhere in the city. Knowing that’s illegal, he won’t say where. Merhi’s cost saving scheme is not, however, unique. 

As is often the case in Lebanon, Executive was not able to get exact statistics on illegal slaughter practices, but Bassel Al-Bazzal, head of animal health services at the Ministry of Agriculture, knows it’s happening. “Actually, all over Lebanon they are slaughtering outside of the slaughterhouses,” he says, as he takes Executive on a virtual tour of the private and public slaughterhouses in the country. Repeatedly referring to a list compiled in 2013, which he says is confidential, Bazzal explains that there are a total of 14 licensed private slaughterhouses in the country — 12 of which are in Mount Lebanon. “But there are some [private] slaughterhouses that are not registered yet, so we can say there are more than this,” he says. Additionally, there are 13 public abattoirs run by municipalities.

[pullquote]“We inspect the places, not the process of slaughtering. It’s not possible to go at night”[/pullquote]

Monitoring mishaps

Licenses, he says, come from the Ministry of Industry while the Ministry of Agriculture provides a health registration number, which he explains is not exactly a license, but is necessary for a slaughterhouse to run legally, as per Law 949/1 from 2011. The Ministry of Agriculture has veterinarians on site to inspect meat post slaughter to ensure it is ready for market. The ministry also has inspectors who visit abattoirs to see if they comply with technical and health criteria, Bazzal explains. They visit during the day, after the actual killing — which takes place in the wee hours of the morning — is finished.

“We inspect the places, not the process of slaughtering. It’s not possible to go at night,” he says. 

Not seeing the process also decreased the usefulness of a recent and well publicized visit to the Beirut slaughterhouse by the UN’s Food and Agriculture Organization (FAO). Maurice Saade, the FAO representative in Beirut, tells Executive in a telephone interview that the body is refraining from making specific recommendations until members can see the abattoir in action. “We need to come back and visit once it’s reopened,” Saade says. He explains that the FAO has prepared a report and, as of mid March, planned to hand it over to the Ministry of Agriculture. He says that because the ministry commissioned the report, it will be the ministry’s call whether or not to make it public. 

Murky mandate

Both Bazzal and Walid Ammar, director general of the Ministry of Public Health, place the responsibility of regulating unlicensed slaughterhouses at the doors of the country’s various municipalities. Ammar explains that the ministry has 70 inspectors spread throughout Lebanon (which he says is too few, pointing to the 170 inspectors employed by the Ministry of Economy and Trade). These inspectors are under the administrative control of the governors of the country’s six governorates, meaning it is the governors who should be sending them out on inspections on a day to day basis, Ammar says. If ever there is a ‘health event’ — such as a concentrated outbreak of food poisoning — Ammar notes the ministry’s role is to order inspectors to investigate. Further, the ministry can send inspectors to do preventative investigations if authorities have reason to suspect a health event may be imminent. As an example, Ammar points to swimming pools, saying that last summer children got sick after visiting certain pools, so this year inspectors will monitor them before they open for the season.

[pullquote]Existing legislation does not directly address food safety, which means different ministries have overlapping authorities[/pullquote]

When it comes to food safety, Ammar recognizes there are problems in Lebanon, but admits it was not his first priority as an issue that needs to be addressed. He says that when a new minister takes office, he presents a list of priority interventions based on his own research for the minister to consider (unlicensed ‘beauty clinics’, for example). In the case of Wael Abou Faour, Ammar says the minister was the one to push hard on food safety. Ammar does argue, however, that the country needs a unified food safety law. Existing legislation does not directly address food safety, which means different ministries have overlapping authorities. Cabinet approved a draft law earlier this year but it is unclear when Parliament will consider the draft.

And while there has been no shortage of media hype surrounding a handful of serious cases of food poisoning, the numbers — while slightly outdated — paint a different picture. According to statistics compiled by the Ministry of Public Health, foodborne diseases are by no means an epidemic in Lebanon. For example, in 2011, there were only 311 cases of food poisoning reported to the ministry and only 15 documented cases of parasitic worms. In 2012, the most recent data, there were 319 food poisoning cases, and the number of people with parasitic worms jumped to 36, but that still represents 0.0009 percent of a population of 4 million.

[pullquote]“The health inspectors are the army of Abou Faour now”[/pullquote]

Numbers aside, Abou Faour seems determined to continue with his crusade, which Ammar says is putting stress on the ministry’s inspectors. “The health inspectors are the army of Abou Faour now,” he says. “It’s his own army,” he adds with a laugh. Asked if that army will outlive its general, Ammar is far from optimistic: “We need a bigger budget; we need more resources; but what we [really]need is other ministries [and the municipalities] to do their work.”

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Leaders

Light a fire

by Executive Editors
written by Executive Editors

Lebanon is far from a bastion of fast and cheap internet. But stacked next to bumpy disorganized highways, intermittent electricity and a recent proliferation of private water companies that distribute water of questionable quality when the state runs out, internet infrastructure is probably the best infrastructure that the country has aside from air and seaports.

This is very bad news, considering it is more an indication of poor infrastructure than the relatively positive state of the internet. Internet speeds are still very slow compared to other countries. Download speeds averaged 3.3 Mbit/s, according to Ookla Net Index calculated over a period of 30 days ending March 24. This compares to a global average of 22.6 Mbit/s calculated over the same period.

If you think that such slow internet has a marginal impact, think again. Sluggish speeds not only hinder streaming YouTube videos; they drag down the growth of the entire economy. And conversely, a 10 percent increase in broadband penetration has correlated to an additional 1.38 percent in GDP growth in low and middle income countries, according to the International Telecommunications Union. To spark growth, fire up your internet. Frustratingly, the country’s internet could be sped up almost immediately by activating the brand new fiber optic backbone to carry traffic from local central offices to international exchanges. Other obstacles to fast internet, however, will likely take longer to overcome. These include upgrading the ‘last mile’ capacity from the country’s internet backbone to homes and businesses, licensing more capacity to internet service providers and bringing down the steep prices for a decent connection (see “Four reasons Lebanon’s internet is so slow“).

While infrastructure upgrades to the ‘last mile’ are a matter of investment and time, licensing capacity and lowering prices are purely political and administrative tasks. The fact that they are unlikely to happen anytime soon is a categorical indictment of government leadership on the issue. The person with the biggest stake in this leadership is Abdel Moneim Youssef, simultaneously the head of state owned telecom company Ogero and the director general of operations and maintenance at the Ministry of Telecommunications. Youssef has not only failed to improve the country’s ICT sector, he is stridently — and ridiculously — unapologetic (see “Master muddler“). He must be replaced by competent and hard working individuals.

Youssef’s departure will not, however, be enough. The post of telecommunications minister has long been warped into that of a mini-finance minister by perverse fiscal arrangements. Finance ministry estimates for January–November 2014 peg telecom revenues as making up the majority of the state’s nontax revenue (where customs revenues are counted under tax revenues) at $1.2 billion. As such, anyone overseeing the sector sits on a certain amount of power — certainly much more than those heading any other non ‘sovereign’ ministry.

This corruption of the function of the telecoms minister has stymied real reforms in the sector since at least 2003 when then-Minister of Telecommunications Issam Naaman warned that privatization of the sector would lead to a serious loss in annual revenues. Only when political chieftains stop fighting over the telecoms post and agree to undo the current distortion of the office will Lebanon have a chance at true competitiveness in communications and all the sectors that rely on it.

This, however, will take comprehensive detente and agreement among Lebanon’s parasitic politicians. So start by firing up the internet backbone. Then fire Youssef.

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Leaders

A prescription of order

by Executive Editors
written by Executive Editors

When word broke earlier this year that physicians and pharmacists have been treated to new prescription forms by order of Health Minister Wael Abou Faour, the matter seemed pale — perhaps even byzantine — when compared with the minister’s flashier preoccupations. Who wants to bother with discussing some bureaucratic, procedural reform when there are so many daring indictments of food villains and patient-rejecting hospitals to drum up, replete with photo ops?

Even with the prospect that the new prescription regime might save citizens and the state some pretty pennies on drug expenditures — 30 percent ought to be possible, according to officials (see “Waiting for (re)forms“) — and at the same time stimulate local production of generic pharmaceuticals, almost everyone ignored examining the new measure and its significant, albeit not short term, implications.

Everyone except Executive, that is. Even more shocking than the malnourished attention given to pharmaceutical issues that each year represent, give or take, 5 percent of our painfully high total imports bill, is another healthcare cost problem. Lebanon may spend much more than it needs to on branded pills but as a society we spend far too little on health overall, it appears, whether on primary healthcare or on preventive medicine.

Data shows that Lebanon spent a mere 7.2 percent of its GDP on health in 2012. This sounds good when compared with an exorbitant expenditure of 12.4 percent of GDP back in 1998 but when compared with the average of 9.3 percent share of healthcare in the GDP of the developed nations in the Organization for Economic Cooperation and Development (OECD), this is far from enough. It means we and especially our younger generations may be sitting on a medical time bomb. 

This explosive potential has two components. The first is underfunding and under-investment. According to the Economist Intelligence Unit’s Healthcare outcomes index 2014, the Lebanese currently get good value on money spent on healthcare, as spending per individual amounts to $684 and ranks higher in outcomes than for spending.

[pullquote]The index unsurprisingly shows a correlation between healthcare expenditures and outcomes[/pullquote]

However, the index unsurprisingly shows a correlation between healthcare expenditures and outcomes. Maintaining a developed healthcare system typically requires total expenditures to hover around or above 10 percent of national GDP and countries that do so demonstrate advanced efficiency in health outcomes. Not investing sufficiently in the universal provision of advanced healthcare — and such underspending is implied by the sinking share in GDP — means that the national bill is in danger of blowing up from an eruption of accumulated health risks.

The second component of Lebanon’s health gamble is the combination of an aging population and a general increase in lifestyle diseases.

The evidence for this is as strong as it is shocking, even when examining just one massive lifestyle risk. More than one third of Lebanese adults smoke cigarettes, according to a 2008 survey. The survey cautions that “11.3 percent of the adult Lebanese population suffers from smoking-related heart disease [while] smokers with heart disease make up 6.6 percent of the total population.” 

Aging and correlated demographic change is also an established fact. A Lebanese male born between 2005 and 2010 can expect to live 76 years, while a female can expect to reach 80. While longer lifespans are not at all a bad thing, experience from developed economies such as Japan shows that population aging has massive implications for healthcare and state spending needs.

If the inevitable rise of lifestyle diseases and the increasing needs of an older populace come to a point of confluence with underfunded and underinvested health safety nets and woefully insufficient pension structures, the cost bomb could be mindblowing for a state that has made it a habit to exist on the financial edge. Conventional economic wisdom is that countries with debt issues — and boy do we have one — will be hit harder by increases in health and age related spending needs.

Making healthcare more efficient in Lebanon, as in the case of the prescription form reform, is a step in the right direction. The latest view is that the notorious fragmentation of Lebanon’s healthcare landscape could even be a positive for the sector by adding resilience. But the piecemeal reforms and small improvements that have been achieved in the past 20 years cannot and must not detract from the overriding need to address the future of Lebanese healthcare with what has been lacking in the past decades: political vigor and administrative rigor. 

[pullquote]Two urgent issues demand proper and immediate care: health investments and implementation of legal frameworks[/pullquote]

Thus far, healthcare reform packages had to be slipped onto the desks of incoming ministers with cautious hopes that one or another component — like the implementation of prescription forms — might find favor with the new politico in the building. This makes the historic pattern of healthcare restructuring and development in Lebanon into the most pathetic excuse for the lack of a national strategy that one can imagine.

Henceforth, thus, two urgent issues demand proper and immediate care: health investments and implementation of legal frameworks. In addition to reforming healthcare financing, the government must explore options to spur investment in health infrastructure. The only way to maintain and further improve the quality of Lebanon’s clinics and hospitals is through a consistent flow of investment injected into the medical system. Ways for achieving this, whether through state funding, public–private partnerships, or new and inventive methods have to be researched and discussed in inclusive dialogue. Neither behind closed doors nor in popularist political announcements and not even in reliance on generous donors can our health network leap into the 21st century.

One good news of the recently initiated reform of prescription processes for pharmaceuticals is that it adds a vital, and hitherto missing, component: data. The new process will allow authorities to track how doctors prescribe and pharmacies dispense medications — making clearer not just how one of the major components of Lebanon’s healthcare system works, but also allowing the identification of perpetrators of bad and wasteful practices in the medical field. This, in turn, will over time inform the contours of further financial and insurance reforms. And that is the genius hidden in the new prescription pad.

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Economics & Policy

Waiting for (re)forms

by Jeremy Arbid
written by Jeremy Arbid

Note: On April 2, 2015, the Ministry of Public Health announced that Minister Wael Abou Faour had issued a decision to adopt the final form of the unified prescription and to begin printing the new forms immediately, stipulating that use of the new forms will be obligatory starting June 1, 2015.

[pullquote]The new regulation might encourage greater prescribing of generic medication[/pullquote]

The Lebanese people’s preference for the expensive over the reduced price, for the label over the no-name brand, is one based on perception. The thinking goes that a ridiculous price tag distinguishes financial and class superiority. Instead, it is name recognition that serves towards authenticating quality and trust, so companies register trademarks to maintain that recognition and separate themselves from the rest of the pack. In Lebanon, brand name drugs dominate the market, but off label generics are frequently just as effective in reducing pain, alleviating symptoms or curing the sick — oftentimes for a fraction of the price. In Lebanon, new unified prescription forms authorize pharmacists to substitute prescribed medication for generics under specified conditions: the substituted drug must be on the list of comparable medicines published by the Ministry of Public Health, the substituted medicine must be cheaper than the prescribed medicine, the doctor must indicate acceptance of substitution and the patient must give consent.

MEDICAL MARKET

Pharmaceutical sales, according to projections from market research firm Business Monitor International (BMI), amounted to $1.5 billion in 2014, a projected increase of 8.4 percent over the previous year. Imports made up 95 percent of those sales. Going into further detail, BMI estimates nearly 74 percent of total sales in 2014 ($1.1 billion) were for prescription medication and that patented drugs accounted for almost 46.2 percent ($700 million) of total spending on pharmaceuticals and 26.6 percent ($400 million) spent on generics with the remaining sales attributed to over the counter medicines. Put another way, their projections highlight patented drugs as 46 percent of pharmaceutical expenditure in 2014. Meanwhile, generics remain low as a percentage of prescribed medications. Walid Ammar, director general of the ministry of public health, says the figure lies somewhere between 15 and 20 percent by volume. To determine the nominal value of Ammar’s percentages, one must rely upon BMI projections due to the unavailability of government data and the unwillingness by both the Order of Physicians and the Order of Pharmacists to share these numbers.
Local manufacturers’ contribution to pharmaceutical sales, according to BMI, accounted for about 5 percent of total pharmaceutical sales in 2014. Much of the production by local manufacturers is exported mainly to countries in the Arab region, with Saudi Arabia a leading consumer of Lebanese medicine. The government supports Lebanon’s pharmaceutical manufacturers by giving tax incentives on exports. In 2014, Lebanon exported 936 tons of pharmaceutical products worth $38 million.

It is in the larger context of healthcare reform that the Ministry of Public Health attempts to implement these prescription forms — the new regulation might encourage greater prescribing of generic medication thereby improving affordable access to quality healthcare service. At least that is the intention. According to the 2007 Household Survey conducted by the Central Administration of Statistics, 51.7 percent of those residing in Lebanon have no health insurance. While the Ministry of Public Health functions as the insurer of last resort — according to a 2012 report on Lebanon’s health statistics by Université Saint Joseph, it counts approximately 1.6 million Lebanese as beneficiaries (as of 2005). Total healthcare expenditures in 2012, the latest statistics available from the ministry, amounted to just over $3.1 billion, 7.17 percent of the nation’s GDP. Based on those figures, Executive calculates that out of pocket expenses — what individuals without health insurance pay — in 2012 reached nearly $800 million. The ministry, meanwhile, paid nearly $430 million in 2012 on total healthcare expenditures with the National Social Security Fund (NSSF) doling out nearly another half a billion dollars in reimbursements. Medication accounts for a large portion of this spending as the country imported $1.1 billion in pharmaceutical products last year, according to figures from Lebanese Customs. The nominal value of drug sales will likely also be affected by implementation of the unified prescription forms — the volume of imports is projected to rise steadily in coming years but an increase in the share of generics would impact those importing drugs or manufacturing locally (see medical market box).

Furthermore, the new forms supposedly allow the tracking of prescriptions, where statistics could point out anomalies in prescription bias toward certain drugs or pharmaceutical companies, and — perhaps to a certain extent — would allow for the monitoring of incomes of those writing and dispensing prescriptions. There is common agreement among those Executive spoke to that implementing the forms will be a positive measure, promoting public health while also saving money for the patients and the government — which by some accounts could be dramatic. Strangely, however, this acclaimed step has been years in the making, and its future implementation remains in question.

Delays, opposition and shrinking profits

“All the administrative obstacles were solved,” says Minister of Public Health Wael Abou Faour, speaking to Executive about the unified prescription forms. Yet even with all the hurdles out of the way, Abou Faour admits that as of late March the forms were not yet being used to prescribe medication and have yet to be printed.

The legal framework needed to implement the prescription forms was prepared years ago, according to Mohammed Karaki, director general of the NSSF, in a written response to Executive’s interview request. He writes that the adoption of the unified prescription form “came within the framework of applying the Law on the Practice of the Pharmacy Profession,” ratified by parliament in March 2010 amending articles of a previous law. Afterwards, in December 2011, then Minister of Health Ali Hassan Khalil issued ministerial decision 1295 publishing the sample prescription form and the conditions under which a pharmacist could substitute medicines.

[pullquote]Even with the law passed and the implementing decision issued, the prescription forms are not in use[/pullquote]

Yet even with the law passed and the implementing decision issued, the prescription forms are not in use. Until recently, much focus had been upon an administrative hurdle at the NSSF — the fund needed to amend their internal rules. Antoine Boustani, head of the Order of Physicians, had said in February his syndicate could not begin printing the prescription forms until the NSSF amended Article 42 of its bylaws that stipulated pharmacists could only dispense medicine as written in the doctor’s prescription. Karaki confirmed the fund would amend the article noting that the minister of labor had already given approval. Indeed, on March 9 — the day Executive spoke with Nabil Semaan, an advisor at the Ministry of Labor and former administrative director of the NSSF — Minister of Labor Sejaan Azzi announced the fund had ratified the amendment.

There has been opposition, as the four year gap between the issuance of the decision and its supposed near implementation indicates. Abou Faour has all but stated the obvious, that commercial interests of the various stakeholders impeded the process.

According to Walid Ammar, director general of the Ministry of Public Health, recent delays are due to the hesitancy of the Order of Physicians. They were “not convinced for different reasons. Some of them don’t trust the generic [medications], some have their own interests, and some are afraid that this prescription form [enables] the Ministry of Finance [to] have a more accurate figures about their income so they should have to pay more taxes,” Ammar says. Karaki corroborates the notion of taxes as an important aspect. “This is considered a method the Ministry of Finance could adopt to follow up on doctors’ incomes, so doctors will limit the unwarranted prescriptions they issue,” he explains. The forms would facilitate the calculation of a physician’s income since written prescriptions indicate patient consultations, for which income should be taxed.

Taxable income is also likely a sticking point for the Order of Pharmacists, which collect duties on the import of pharmaceutical products. “It is worth noting,” reads a report by Ministry of Public Health official Rita Karam, “that drug importers pay a fee of 0.75 percent of the import bill to the Lebanese Order of Pharmacists, of which 0.25 percent is deducted from the pharmacist’s profit. An additional fee of 0.25 percent of the import bill is also paid to the Lebanese Order of Physicians.” Executive had requested these data points from the Order of Physicians, which deferred to the Order of Pharmacists; the latter declined to share the statistics.

CONTROLLING COSTS

Walid Ammar, director general of the Ministry of Public Health, explains that the ministry set out to mitigate spending by first working towards limiting import prices and profit margins. The ex-factory price is the main target, he says, where ex-factory is the price of the product if it were bought at that factory, e.g. without costs of transportation. The ministry determines the local price by looking first to the product’s country of origin for ways to reduce the profit margin, then to those importers and pharmacists in Lebanon. “We have issued several decisions over the years that have reduced the profit margins gradually and the most recent one is to have categories where you have different profit margins depending on the category. The higher ex-factory price gets lower profit margins — this is to encourage the generics mainly,” Ammar adds.
The ministry also compares prices of medicines in other countries’ markets and prior to 2005 based the local price of a given drug on its mean value across markets, though now the government sets the price to the lowest found in a comparison survey of other markets. What has had a big impact, says Ammar, is the ministry’s altering of the profit allowed to the pharmacists — rather than receiving a percentage of the retailing price for a given medicine the pharmacist now can only calculate their profit by a flat rate lump sum. Ammar gives an example of how the ministry has altered the pharmacists’ profit margin for medicines that fall into the highest category on the drug public price list — instead of allowing the pharmacist to mark up the retailing price of a given medicine by a certain percent the ministry has capped expensive drugs with a flat rate lump sum. “We have transformed the profit margin of the pharmacists from a percentage to a lump sum; everything that has an ex-factory above $300 the profit margin of the pharmacist is $86,” Ammar says.
Additional measures to reduce the cost of drugs have focused on the primary healthcare network — local clinics and public hospitals — where generics are dispensed when prescribing medication. But Ammar says that the primary healthcare network has reached capacity, so this is no longer an area that can squeeze profit margins. The alternative has been to shift attention back to the market, where “more than 80 percent of sold drugs are branded, and most are originators [brand name],” says Ammar. A strict registration mechanism validates, among multiple quality controlling factors, the manufacturing conditions and drug bioequivalency, enabling the government to control comparisons of generics to originators and to clearly indicate the equivalence.
In combination, these regulations are meant to reduce the cost of healthcare in Lebanon by controlling profit margins and promoting greater use of generics where those medicines can be appropriately substituted in lieu of the expensive brand name drug. Factoring in the soon to be implemented unified prescription forms might further restructure the share of generics prescribed and the landscape of Lebanon’s pharmaceutical market.

The new prescription form would seem to be a good development for pharmacists — the forms would integrate the pharmacist into the consultative process with the doctor and the patient. It is, according to Abdalla el Lakany, dean of the faculty of pharmacy at Beirut Arab University, a needed step towards improving the doctor–pharmacist relationship. “This reform benefits the pharmacists to clarify their role as a medication therapy expert.” Traditionally, he says, the role of the pharmacist has been limited to the dispensing of medications rather than a direct role in patient care vis-à-vis doctors. In Europe and North America the practice is a patient centered, holistic approach where the pharmacist is a cornerstone in a patient’s treatment regimen, says Lakany, because of their drug expertise. “It is very normal for doctors to ask the advice of the pharmacist,” in Western countries, Lakany says, adding that Lebanon’s new prescription forms might be one step towards changing the culture.

The Order of Pharmacists is backing the implementation of the new prescription forms, Rabih Hassouneh, head of the syndicate, tells Executive, but it is not enthusiastic. “Financially, it is negatively affecting the pharmacists, but we have agreed to abide by it and implement this law because we know this should be a huge benefit to the community, public and to the government budget for pharmaceutical expenditures,” he says. He adds that the government should put in place a system to incentivize physicians and pharmacists to prescribe and dispense generic prescription medicine. Hassouneh would not elaborate as to what such an incentive scheme might look like, saying only, “We have to follow what is happening in other countries.” When Executive asked whether the Ministry of Public Health would compensate any of the stakeholders for potential losses in revenue, Abou Faour retorted, “Everyone is going to lose, but the one who is going to win is the Lebanese patient and the state. [Other stakeholders] are gaining a lot of profits — why should they be compensated?”

For the pharmacists, the profit margins have been squeezed at their expense — the government determines the price at which a drug can be imported whereby both syndicates collect duties as a percentage of the import bill. Concerning the pharmacists, the government decides the price at which medicine can retail for. The 2010 law meanwhile also requires that the pharmacist, upon consent from both the doctor and patient, substitute the equivalent, and cheaper, generic in place of the more expensive brand name drug. And, as Ammar explained to Executive, for the most expensive drugs the pharmacist now receives a lump sum as profit rather than a percentage of the cost.

Puzzle pieces

The new forms should theoretically improve transparency in the writing and dispensing of drugs, in part by creating a paper trail from the doctor to the pharmacist. Boustani says that doctors previously were required to purchase stamps to put on each form with the intention of more oversight of the prescription, but it remained an unenforced practice. Boustani notes the presence of barcodes on the new forms, saying, “you can monitor which doctor prescribed what, which pharmacist gave what, you can track statistics. In the past you could go to the pharmacist and get whatever you wanted. Now you can’t — theoretically you can’t. We’re going to see what happens on the ground.” 

While the new forms do create a trail, it is hard to see how prescriptions could be regulated without also implementing a computer system for the Ministry of Public Health to track prescriptions all the way to reimbursement from social security. Implementing the forms cannot be the final solution, says Hassouneh, “There should be an electronic solution starting from the Ministry of Health going to the social security [institutions] passing by [the] physician and it has to end at the pharmacist, otherwise the tracking won’t be effective. We cannot track manually thousands of prescriptions distributed in the market.” Boustani says the physicians syndicate will be fully online within the next two months. When asked whether the government might have plans to implement such a computer system to track prescriptions, Abou Faour answers only that “Yes, we are working on [the computer system], but [there is] no time frame.”

Unified prescription forms and the potential computer system are but two pieces of the healthcare reform puzzle — there have been past measures as well, according to the Ministry of Public Health. The new prescription pads are “part of a national strategy that we have been implementing for years now,” says Ammar, adding context to the latest regulation by describing previous measures (see box).

The World Health Organization in its 2010 World Health Report on Healthcare Financing found that Lebanon’s various healthcare reforms had curtailed unnecessary expenditures. “Reduced spending on medicines, combined with other efficiency gains, means that health spending as a share of GDP has fallen from 12.4 percent to 8.4 percent,” from 1998 to 2004 and by 2012 that ratio stood at 7.17 percent. No government data is available for the latest year, but projections of healthcare expenditures in 2014 by Business Monitor International reached $3.7 billion; the Institute for International Finance announced in March Lebanon’s 2014 GDP reached nearly $47 billion, thus total healthcare expenditures might approach 8 percent of GDP for that year.

Multiple people Executive spoke to pointed out that the prescription of generic medicines as a percentage lies somewhere between 15 and 20 percent by volume. Ammar says this range is not based on any published studies but instead relies upon the quantity of drugs imported into Lebanon. “We are assuming that what is imported is sold. This is not really accurate, so in terms of importation [generics] represent about 15 percent, and you add the local manufacturing [to reach] 20 percent in volume,” he says. Karaki corroborates, writing to Executive that “15 percent of medicine currently used in Lebanon is generic, while generic medicine comprises 40 percent of the list of medicines approved by the NSSF,” but notes that the NSSF has not conducted any studies as to cost savings.

The indication is that an increase in the prescribing of generics over the more expensive brand name medicines might decrease the financial burden on the government and reduce out of pocket expenses for individuals. But again, the government has not projected what effect this might have on healthcare expenditures, holistically or otherwise, leaving Ammar to speculate. “I think this will lower by 30 percent the overall bill, for everybody — the ministry, the social security [institutions], even the beneficiary,” he says. 

A changing landscape

With a retail sales volume forecasted to steadily increase in the coming years, the dispensing of generics might increase in share once the regulation is implemented, but it is the nominal value of those sales that might be subject to change. Byblos Bank, in a September 2014 issue of Lebanon This Week, summarized BMI projections noting that the market research company has “attributed the elevated expenditures on pharmaceuticals in Lebanon to the market’s high reliance on imported pharmaceuticals and on over-prescription of medicine in the country. It considered that the lack of consolidation among importers has maintained medicine prices at high levels and has reduced the competitiveness of distributors.” Byblos Bank also noted BMI’s finding that “patented drugs would account for 62.6 percent of total spending on prescription drugs,” for 2014 and said that BMI “expected the usage of non patented medicines to increase in coming years, mainly due to rising awareness about generic medicines.”

[pullquote]“We’ll never … pay less than before … but instead of having an increase of 20 or more percent each [year] you are flattening the curve”[/pullquote]

“If the market functions well,” says Ammar, discussing the role of local manufacturers and importers in shaping Lebanon’s pharmaceutical market, “everything you do is in the hope of being capable of purchasing the very expensive drugs within the resources available.” He points out that Lebanon will continue to spend lots of money on importing medication because there will always be a need — people are getting older, life expectancy is increasing and there are more noncommunicable diseases, he says. “We’ll never, in absolute figures, pay less than before,” he says, “but instead of having an increase of 20 or more percent each [year] you are flattening the curve.” 

Those importing medications tend to agree. Discussing the dynamics of the pharmaceutical market, Armand Pharès, president of the Lebanese Pharmaceutical Importers Association, says that “the dynamics include various forces. You have the generics and such a law which will bring the spending down and you have two forces that will bring spending up: one is the growth in population, access to medical services, improvement in diagnosis; the second is the introduction of highly priced and sophisticated medicines.” 

Referring to figures from the Customs agency, Lebanon imported $1.1 billion in pharmaceutical products last year — Customs does not simplify its categorization methods to represent the value of imported prescription medications or generics. Pharès points to statistics from IMS Health — a market research firm — for a picture of medicines sold in the pharmacies, “The analysis of the IMS gives us for 2013 a total retail market of $750 million at net selling prices. Add $110 million to the public institutions and more or less the same for hospitals and we end up at $970 million — approximately 77 percent at the pharmacy level, about 11 percent public institutions and 12 percent at the hospitals.”

For the importers not much might change in the interim, but Abou Faour surmises they will be affected by the new regulation, “I think they are pretending that it doesn’t affect them; I think it will affect them because you’ll be moving from brand to generic. The generic with the lower prices will have lower profits.” Pharès does not disagree, but neither does he acknowledge a potential decline to importers’ profits, “At the level of each importer, one should look at one’s profits as the reward one can get from conducting its duties properly — in accordance with public interest; you will always have your share of legal profits whether it is a generic sold or whether it is the originator [brand name].”

Just as Ammar noted that Lebanon’s healthcare expenditures will never decrease in absolute value because of a continuous need for advanced medications to treat a growing and aging population, so to does Pharès. “Bringing the newest and most efficient drugs,” he says, “happens [to be] very expensive, but if you have a drug that is life saving and is costing as much as a car, would you prefer to buy a car or save your life? If you save your life you might say ‘oh [look at] these crooks who manufactured [or] imported such expensive drugs’ instead of saying ‘thanks to those who could make such lifesaving drugs available to us’.”

The multinational company that Executive was able to interview for this article spoke cautiously. When asked what the prescription forms might mean to company strategy Fouad Jeweidi, Levant country head for multinational pharmaceutical Boehringer Ingelheim, only says, “I don’t feel it is a threat to multinational companies because at the end of the day we are trying to offer the best to the patient in terms of medication and disease management.”

Local opportunity

Bernard Tannoury, chairman and CEO of Benta Pharma Industries (BPI), a local manufacturer of generic medicines, acknowledges that the regulation will have an impact in the coming years — “Not yet, [but] it will. The unified prescription is an essential tool in any modern, regulated market.”

Perhaps local companies like BPI will help increase the share of generics prescribed in Lebanon. “It will drastically change our [strategy],” Tannoury says, adding, “Hopefully it will boost the generic business and will boost the business of all the local manufacturers — our bread and butter is the generic business.”

But given the strong reliance on imports to meet Lebanon’s medication needs, it is likely that local manufacturers will face difficulty in penetrating the market with their generics. Tannoury declined to share company data on its position in the Lebanese market with Executive, noting its proprietary nature, but did say that BPI’s “revenues rely to date mainly on the Lebanese market; however the company has been working on the development of international markets to increase its exports and revenues from abroad.”

[pullquote]Lebanon exported only $38 million in pharmaceutical products according to Customs figures[/pullquote]

It seems likely then that local manufacturers will look to the Arab region’s markets for exports. In 2014, Lebanon exported only $38 million in pharmaceutical products according to Customs figures, mainly to Saudi Arabia, Jordan, Iraq, the United Arab Emirates and Kuwait. Industry support by the government to local manufacturers is forthcoming. The Investment Development Authority of Lebanon (IDAL) refers, on its website, to the local pharmaceutical industry as immature and presenting many opportunities for growth. To encourage such growth, IDAL offers pharmaceutical companies with “financial and non-financial incentives which can run up to 100 percent exemption from corporate income tax for a period of 10 years.” Meanwhile, the Ministry of Industry is planning to “introduce 100 percent exemptions on [research and development] expenditures as well as a 50 percent exemption from all taxes incurring from export activities,” according to IDAL’s pharmaceutical industry factbook. In fact, BPI was one of several local manufacturers that benefited from such government support.

The main challenge for local manufacturers then, says Ammar, is that “they are operating in a country with a very small population so they don’t have a big market. Our help was to improve the quality of their production, to help them in our pricing strategy to export.”

The atmosphere hanging above the pharmaceutical market reflects a wait and see attitude. With the current lack of available data on all fronts, it is difficult to reach any definitive conclusion on the market’s direction or the effect on retailers — on the rise in share in the prescribing of generics, or the potential savings awaiting the government. Controlling the quality of available generics and encouraging an increase in their share of prescriptions is a step towards improving patient health and decreasing the amount they pay out of pocket. But in this case, only time will tell what impact the yet to be implemented forms might have, and how quickly change might come.

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