Executive Magazine

Leather master

by Nabila Rahhal August 7, 2014

written by Nabila Rahhal

After a 20 year career designing leather goods in New York, Johnny Farah permanently moved back to Lebanon in 1996 and plans to stay here, for better or worse. Executive sat down with him to learn more about his experience working with leather and hardware craftspeople who produce his luxury leather bags, shoes and belts, known for their simplicity and functionality.

Everything started in 1968 when he was studying mechanical engineering in Denmark. As part of his studies, he had to spend four years in a factory producing hardware. Farah spent his free time designing chandeliers and art pieces in the factory, quickly discovering that he had more affinity for design than for engineering.

Upon returning to complete his college degree, a friend of Farah’s taught him how to work with leather. This led him to take the final decision of abandoning his studies and focusing on his passion, design.

Antebellum highs

Farah made a name for himself in Copenhagen, designing canvas and leather bags for a company called Form and Colors. In the 1970s, on what was supposed to be a brief visit to Lebanon, Farah found the energy of the country “fantastic” and decided to stay. He opened IF Boutique in 1972, the first in a series of retail stores that sell Farah’s creations as well as items from select designers, on Hamra’s Abdel Aziz Street. IF Boutique sold Farah’s designs of shoes, clogs and jeans, but he was best known for the last two, selling around 40 pairs of jeans and 30 pairs of clogs per day to Lebanese and the region’s fashionistas. “I consider this period my best to date,” he says.

At that time, recalls Farah, the second biggest export in Lebanon was leather shoes and handbags produced mainly in Bourj Hammoud. “They were good quality handbags, not luxury but good, but you have to remember they were doing well because it was before the rise of India and China in mass goods production,” says Farah, explaining that as these countries began producing similar quality leather goods for cheaper prices, Lebanese exports suffered.

With the onset of the civil war, many leather artisans left the country and set up shop in California, where their leather producing skills are still sought after today, Farah notes. He himself left the country for New York, but kept Lebanon’s IF Boutique running despite the war.

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In 1979, Farah opened an IF Boutique in Soho, New York, in what was considered a bold move at the time since the area was just starting to develop into the design hub it is today. “At that time, I chose the location because it was where I could find a big space I could afford,” laughs Farah, remembering how IF Boutique was one of the first clothing shops in the neighborhood. The Soho boutique still exists today.

At first Farah sold only clothing, but when he couldn’t find handbags to suit his taste, he, along with two men, began designing their own in IF Boutique’s basement. “The public’s interest grew. At first I was doing it only for the shop, but buyers would see the bags and ask who did them, and so I got into designing leather handbags,” says Farah. He then moved his workshop to Brooklyn and designed from there for 10 years.

Back to Beirut

Although Farah was successful in New York, he always had in mind to return to Lebanon. And so he did in 1996, moving his entire production with him as well. Farah now produces his designs from Lebanon and exports them to New York where they are sold at IF Boutique. “It might not be a wise decision financially because had I stayed in New York, my sales would have been much higher as I would have been more in touch with my buyers there — but I wanted to be back here,” he says.

When comparing his two luxury leather production experiences, Farah says it’s easier for him to do a collection in Lebanon than it was in New York. Lebanon, says Farah, has more experienced craftspeople with many families having worked in leather or metal hardware for more than 30 years, while in New York, craftsmanship is generally more impersonal and is reliant on factory workers. Farah also finds logistics and mobility easier in Lebanon: he’s able to reach his hardware and leather artisans in Bourj Hammoud, his offices in Mar Mikhael and his restaurant in the Port area all in just a few hours — which is not the case in many other places, where it can take an entire day to get between the office and the factory. Farah adds that production is finished faster in Lebanon.

Supporting craftsmanship

Farah finds the quality of leather, wood and hardware craftsmanship in Lebanon, when working with skilled craftspeople, to be at the international luxury level. “Lebanon has an incredible amount of people who are really artisans. The problem is that they need help and support,” he says.

Craftspeople in Lebanon today face many challenges, according to Farah, primarily the lack of governmental leadership and an absence of a national strategy to support artisans and develop their expertise. Faced with a significant decrease in exports of their goods, many artisans are not passing their skills to their children. So, as they grow older, and with no one to carry on the trade, the future of craftsmanship looks bleak. In practice, according to Farah, governmental support for all producers could manifest itself in tax incentives, regulations that would provide craftspeople with skills development workshops, social security — something that most artisans can’t afford based on what they make in their small workshops — as well as help in exporting goods.

Another way government could help both designers and artisans, according to Farah, would be to lower taxes on imported goods which are not available in Lebanon, such as machinery or products needed for certain crafts such as leather work or jewelry making.

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Though some would see the current taxes as offering protection for Lebanese produced goods, Farah does not agree with this and says those taxes might make importing items too expensive for an emerging designer or entrepreneurial artisan who would end up pursuing other career options. “If you really want to be a competitive luxury economy, you have to be able to import what you don’t have,” says Farah, who now has to pay 10 percent in taxes for the machinery and leather he imports from Italy. He thinks 5 percent would be more fair.

In the absence of any governmental action on the above points, those in power could still do some basic things that would offer support, such as providing the industrial areas in Lebanon with electricity during the day and holding off scheduled power cuts until the evening. Farah explains that his craftspeople’s electricity is cut off several hours during the day and since a generator’s bill is more expensive than what they pay for the government provided electricity, they opt not to subscribe to one. This delays their work at times.

The design side

Farah sees that Beirut is becoming a design hub with many emerging talents on the scene. “I like Beirut more now in terms of creation than I did in its pre-civil war golden days because, in difficult times, people get more creative in order to survive,” he says.

For these designers to produce what could be called luxury goods, Farah advises them to stay away from copying others and to develop a unique style of their own. “Imitation is what mass producers do, and Lebanon cannot hope to compete in that area; we need to be innovative.”

According to Farah, Beirut has the capacity to produce luxury-quality leather goods and furniture in small quantities and at prices 30 to 40 percent lower than Europe or the US. This is so because labor is cheaper here — even when social security and a decent paycheck are added — and laws are more lenient.

“To sum it up, this country has great designers, good craftsmanship and the facilities to get to factories and places where they do things. All they need is support and help because right now they are struggling all the time,” Farah concludes.

August 7, 2014 0 comments

Crafting luxury

by Matt Nash August 6, 2014

written by Matt Nash

In the first century, the name Sidon meant something.

The city is believed by scholars to be the birthplace of glassblowing, and it had a reputation for fine glasswork throughout the Roman Empire. In “Roman Mold-blown Glass: The First Through Sixth Centuries,” author E. Marianne Stern writes that evidence of Sidon’s fame exists today in the form of “surviving signatures of glass blowers who added the toponymic ‘Sidonian’ in Greek and Latin to their names.”

Stern speculates, “the addition to the names of the toponymic Sidon was probably meant to convey an assurance of quality by invoking associations with the city’s fame, not only as a glass-making center but also as a glass-working center.”

Today, there are no more glassblowers in Sidon. The Khalifeh family is keeping the ancient tradition alive about 15 kilometers further south, in Sarafand. Aside from a family in Tripoli who do not practice the tradition full time, the Khalifehs are the only glassblowers left in Lebanon, says Aline Naufal Zalloua — director of Maison de l’Artisan. The institution, which works with Lebanese artisans and offers them platforms to sell their wares, was initially founded in 1963, but has been part of the Ministry of Social Affairs since 1993.

While the numbers are incomplete, scarce and dated, anecdotal evidence suggests that many other Lebanese craft traditions — like leatherwork, metalwork, intricate woodwork and embroidery — are similarly becoming less and less popular with time.

[pullquote]Artisans across the country are finding their work is not financially rewarding enough to keep many in business[/pullquote]

More often than not, Lebanese artisans either wind up selling their goods at relatively low prices in tourist shops or abandoning their trade. Zalloua says that the municipality of Zouk Mikhael tried to revive the city’s once-renowned silk looms by teaching the trade to young men, but these men now look at silk work as a hobby because of economic realities.

“You have to spend hours weaving,” Zalloua says. “The price would have to be [very high] to compensate for the work.” Unable to find a market for what they produced, the apprentice weavers largely gave up, she adds. Artisans across the country are finding their work is not financially rewarding enough to keep many in business, she says.

But historically, it was decorative, handcrafted products that defined luxury, and top luxury brands today are sought-after in large part because their watches, handbags and clothing are expertly crafted by hand. Some Lebanese companies and designers are capitalizing on the one-of-a-kind nature of local handicrafts by working with artisans to adopt traditional techniques for contemporary designs. To date, these are largely individual initiatives but there is potential to widen the scale of production and bring Lebanese handicrafts back to the luxury market.

Aiming high-end

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In 2004 the US Agency for International Development (USAID) published a “Global Assessment of the Market for Handicrafts.” In part, the agency found that the nature of the products — which are labor intensive and often take days or weeks to create — make them unappealing for many low-and mid-price-range retail outlets. These outlets tend to buy stock in such quantities that artisans couldn’t hope to fill orders. Fair-trade shops — or other outlets specifically geared toward consumers who want to buy products because they think the purchase will help alleviate poverty somewhere in the world — are an option for artisans’ work, but such shops are limited in number. Given that, the report concluded in part that, “rather than competing for access to the limited market for purely indigenous products, handicraft producers can adapt traditional designs and skills to complement the broad offerings of the expanding luxury market, where larger profit margins and distinctive world styling often converge.”

Zalloua, from Maison de l’Artisan, sees the luxury market as “the future” for Lebanese handicrafts. She says that she has been trying to turn her shop in Minet al-Hosn into more of a boutique, working with artisans to modernize their designs.

She works with approximately 500 families, she says, unsure of how many people are actually employed. As for how much artisans make off of sales, she says that she doesn’t negotiate when they sell her the products. “They have to live.” Zalloua wouldn’t put an exact figure on how much of a margin the store makes on products, saying it depends on the product and how much the artisan charged her.

[pullquote]“Nobody wants lumpy, badly designed, ill-fitting products”[/pullquote]

Quality is key

Jason Steel, head of the Lebanese American University’s fashion design program, is working with Lebanese–Armenian designer Angelique Sabounjian on creating something called Artisan Initiative, which aims to help craftspeople in Bourj Hammoud bring their work up to luxury standards. Steel says a large part of the initiative’s focus will be on “design over a charitable cause.”

Saboujian tells Executive that while Artisan Initiative has found a space to work, the fledgling non-governmental organization is still looking for investments to get the project started.

“Though we tried several sources, funding is difficult because there is a focus on the Syrian refugees now but still we don’t want to be discouraged,” she says. Funding is necessary to bring experts from Italy to help train artisans in producing the highest quality goods possible, as this is a fundamental necessity for selling handicrafts as luxury goods, both Steel and Saboujian say.

“Nobody wants lumpy, badly designed, ill-fitting products,” Steel explains. The pair is eyeing the luxury market precisely because, aiming to sell a product that is desirable exclusively because it has a sob story behind it has a limited market. “We don’t want to tap into the market that already exists, we want the other 95 percent of the population.”

The key, Steel says, is making a product people actually want, which hinges on modernizing the design. Camille Tarazi, manager of Maison Tarazi, a Lebanese artisanal shop that has been in the market since 1862, agrees. “That’s what we need to make the tradition attractive, an update,” he says.

When one talks luxury, quality and consistency are key, everyone interviewed for this special report said. The problem is that artisans themselves often do not have the eye for what distinguishes a luxury product from an otherwise high quality product. “There aren’t as many artisans and ateliers working to the very highest level as one would find in Italy, for example,” Steel says.

Needed: A business model

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Ayesha Mustafa, founder of Fashion ComPassion, is working with Byblos based Lebanese designer Alice Eddé and helped her launch a new brand of luxury handbags called Bradley Bags. Mustafa’s company is based in London, but works globally bringing artisans’ products to the luxury market via a website and occasional pairings with luxury retail outlets. Branding, she says, is essential to entering the luxury market. “If people don’t see a brand, they won’t buy it,” she tells Executive in a telephone interview.

Like Steel, Mustafa isn’t interested in running a charity program. “You have to look at this like a business,” she says. “You want to help [these artisans], but if you don’t look at it as a business and something that will create profit for you and them, it won’t work.”

As for how the artisans’ benefit from partnering with Fashion ComPassion, Mustafa says the company pays “double or triple the price [for labor] of what’s given in the local market.” On top of that, the artisans are shareholders in the brands they’ve created and Fashion ComPassion has a bonus structure. “The better you do, the more you get,” she says. Additionally, the company invests in the artisans’ local communities and, through a partnership with the United Nations, helps improve access to education for girls in various communities.

Widening the scale

Marketing handicrafts as luxury goods is no easy task for an individual artisan. One traditional route for bringing new products to market is displaying at a well known luxury trade fair. Doing so, however, is neither cheap nor quick. Sarah Thelwall, a consultant and strategist who has worked in Lebanon and focuses on helping people in the creative industry with business and marketing plans, tells Executive that “to take a stand at [the annual luxury trade fair] Maison&Objet in Paris, you would spend anywhere between €5,000 and €50,000 [$6,770–$67,700]. You can do it on the cheap, for a few thousand, a tiny stand, one-off-ish,” but no one will buy the products.

Not only is initial entry expensive, Thelwall says that buyers aren’t interested in “a supplier that’s there once and never again. You have to commit to three or four years’ worth.”

[pullquote]“We need to create an ecosystem for these small companies. Success will breed success”[/pullquote]

In some countries, she says, governments have intervened to help artisans bring their products to market. Aside from the Maison de l’Artisan, which for now only sells products in Lebanon, no such assistance exists in Lebanon. As for the private sector’s ability to step in, Thelwall says, “If it’s the private sector, it comes down to demand. The reason you get government or [nongovernmental organizations] is because there’s a market failure that needs to be fixed. The private sector cannot afford to fix market failures.”

Tarazi, whose family has been selling both luxury and non-luxury handicrafts for generations, says that local artisans need support more than anything. Zalloua, whose shop is part of the Ministry of Social Affairs, complains that she has no budget and has had to put any plans to expand on the shelf until sales pick up again.

On the private sector side, Nicolas Chammas, president of the Beirut Traders Association, says the BTA is willing to help artisans, but will not run after them. “It depends on solicitation, who comes asking for what,” he says, noting that artisans have never asked the BTA for help. He adds that the BTA and Chamber of Commerce cannot push artisans’ work onto the luxury market alone.

“[You] need financing. We don’t have venture capital here. There have been some attempts, but it needs to be systematized and needs to be the rule, not the exception,” he says. “We need to create an ecosystem for these small companies. Success will breed success.”

Chammas adds that the Central Bank could play a role in helping artisans and points to Circular 331, which the bank issued last year as a way to help startups secure financing. Asked if a similar model could be used for artisans, Chammas says, “Why not?…We can create something.”

August 6, 2014 0 comments

Artisanship Business

Feet not falling

by Matt Nash August 6, 2014

written by Matt Nash

The living is not easy for Beirut’s luxury retailers this summer. When adjusted for inflation, retail sales figures have been falling since the third quarter of 2012, according to an index put out by the Beirut Traders Association (BTA) and Fransabank. Nicolas Chammas, the association’s president, tells Executive that the luxury sector has been particularly hard hit. “Between the end of 2011 and the end of 2013, the retail sector has dropped by 35 percent,” he says. “That’s a huge figure.”

While Chammas had no hard data on how painful the past few years have been for Hermès, Louis Vuitton, Rolex and other international luxury brands present in Lebanon, he says “luxury has been impacted more than the other retail segments.” Executive attempted to contact the local agents and dealers of many foreign luxury brands and was ignored, denied an interview request or told the person responsible is out of the country.

The consequences of Gulf tourists’ desertion

[pullquote]“The disposable income might be there, but instability is a mood spoiler”[/pullquote]

One reason for the lack of luxury good sales is the continued absence of tourists from Saudi Arabia, Kuwait, Qatar, Bahrain and the United Arab Emirates, Chammas explains. Visitors from these five countries used to represent “up to 45 percent of duty-free purchases,” he says. “The tourists from the Gulf have high disposable incomes.”

That said, Chammas denies that Gulf tourists are the lifeblood of luxury retail sales in Lebanon. “We can say, just to give you a rule of thumb, [the luxury sector] is dependent on two thirds of Lebanese residents and one third of expatriates plus tourists. There is no quantitative evidence to support this, but this is the accepted rule of thumb.”

Asked why resident Lebanese aren’t spending, Chammas offers, “The disposable income might be there, but instability is a mood spoiler.” As for resiliency, he says that fragrances and cosmetics are “least exposed to foreign purchases.” The most recent BTA–Fransabank retail index, which covers the first quarter of 2014, makes no mention of fragrances and cosmetics. In the fourth quarter of 2013, however, the index report noted that cosmetics, perfume and clothing “maintained an almost equal level of activity” compared to the fourth quarter of 2012, which the report attributed to “the very high price discounts that these sectors have been obliged to offer.” These sales, however, likely do not include luxury brands as the very definition of luxury precludes steep discounts.

The BTA is bearish on the retail sector’s future performance, noting that “a downtrend that has started by being circumstantial … quickly turned to become intrinsically structural.” What this means for luxury retailers who carry foreign brands is unclear. Franchise agreements generally demand a certain level of yearly profit to be achieved by the franchisee. Asked if any top brands may be exiting the Lebanese market anytime soon, Chammas demurs. “I cannot get into this. It is, if you will, a private relationship.”

He adds, however, “I don’t think so because the franchisor knows Lebanon. What I can say, and I’m not talking about just these people, but commercial relationships — whether it’s business-to-business here in Lebanon or between Lebanon and abroad — have been strained due to the drop in turnover and the liquidity problem the sector is suffering in general.”

August 6, 2014 0 comments

Finance

Bemo ventures into oil

by Livia Murray August 5, 2014

written by Livia Murray

“Once you work on a specific energy industry, you will get to know it. You build a track record in it so the next time you pitch … it’s easier to get deals,” says Joude Badra, former deputy head of investment banking at Bemo Saudi Fransi Finance (BSFF).

In March, Bemo Securitization (BSEC) and BSFF announced two private placements of debt for the amounts of $21 million and $25 million for Dubai-based regional drilling rig subcontracting company Sakson Petroleum Services Holding, which they had been contracted to secure. Each debt instrument went toward fully financing a drilling rig, one in Algeria and one in Iraq’s Kurdistan. The financiers were Lebanese banks, with the debt raised for the rig in Algeria from one single bank, and the Kurdistan rig money raised as a club deal between three banks.

Sakson Petroleum Services Holding

Since its 2006 founding in Egypt, Sakson saw rapid expansion with projects from oil and gas multinationals such as Tullow Oil, Dragon Oil and Oil Search Limited. First managing drilling contracts, the company started purchasing rigs themselves and moved its head office to Dubai in 2013, explains a board member who wished to remain unnamed.

In 2011, equipped with only one rig of their own, they were thinking of growing the company, he says. In 2012 the company saw a capital increase with Capital Trust Group’s EuroMena Fund II taking a 12 percent stake in equity for a $20 million investment. According to the board member, the money was used as a down payment for two loans in 2012 that allowed them to buy two rigs that year and another in 2013. Sakson funded another rig in 2013 independently, bringing their rig arsenal up to five.

He goes on to explain that Sakson’s cash inflows mostly come from drilling contracts. The company works as a subcontractor on blocks of land for drilling or exploration commissioned by multinationals. It currently has drilling operations in Iraq’s Kurdistan region, Turkmenistan, Algeria, Kenya and Ethiopia.

The total of $46 million in financing brought Sakson’s rig arsenal up to 10, seven of which are owned by the company and three of which are rented, according to the BSEC and BSFF team (see box). The duo are currently working on a third mandate for a rig which will go to Algeria.

For each rig, BSEC and BSFF created a special purpose vehicle — Sakson 1001 Offshore and Sakson SK 605 Offshore — with Sakson as the majority shareholder, explains Nada Hilal, senior analyst at BSEC’s Investment Banking Group. The creation of these companies facilitated the process of financing and was beneficial to Lebanese banks. “You have here an opportunity that is a Lebanese company so it’s easy to lend because of the jurisdiction and legal issues, but it has activities in several other countries,” says Badra, who was with BSFF at the time of the deal.

Looking farther afield

Venturing into oil was part of a mutual strategy to get into doing deals in different sectors and with different products. Last December, the two entities announced the acquisition of a minority stake in farmland firm GLB Invest by Beirut-based M1 Group’s subsidiary M1 Harvest, a deal on which they had acted as joint sell-side advisors. BSEC also recently closed a securitization deal for Dima Healthcare.

“We are mainly strong at securitization but we are expanding to equity, mergers and acquisitions, as well as debt raising,” says Hilal. According to her, this was BSEC’s first private placement of debt and first deal in an oil and gas service company.

BSFF, for its part, is looking to diversify its offerings across various sectors. Since its establishment in Syria in 2004 as a joint venture between BEMO Lebanon and Banque Saudi Fransi, most of the BSEC team has relocated, leaving the Syrian office practically empty, according to Badra. BSFF’s investment banking team has since operated from Lebanon, collaborating with BSEC on several ventures to expand the latter’s offerings to include various financial products.

Explaining the decision for diversification, Badra says, “there’s no point [being very specialized] in a country that doesn’t have sophisticated capital markets and isn’t very competitive.” But he acknowledges that it does give them a good position moving forward as Lebanon over the next couple of years is poised to begin exploration for offshore oil and gas. Lebanon’s hydrocarbons sector is still in the pre-bidding stage for exploration and production sharing contracts, as multinational companies that have been approved to bid wait on the government to ratify two decrees that would enable the process to begin. In the event of a discovery, banks could play a role in financing oil and gas services — a role that would be made easier with experience in the sector.

August 5, 2014 0 comments

Leaders

Please, steal our money

by Executive Editors August 5, 2014

written by Executive Editors

Although it’s been nearly 18 months since Lebanon’s first licensing round for oil and gas exploration was launched, its closing date has been postponed four times — each time pushing back exploration and potential exploitation of the coveted resources. But despite the numerous opportunities afforded by these delays, the country’s nongovernmental organizations have barely feigned interest in the nascent sector.

This is a grave mistake. The industry is not only massively broad and complex — encompassing everything from geology and mechanical engineering to finance and international relations — but also notoriously dirty. Luckily, civil society may get another chance: all expectations are that the licensing round’s close will be delayed yet again. If this postponement stretches into early 2015, as some reports rumor, then civil society does have a chance to catch up. But Lebanon’s NGOs have not another moment to waste.

[pullquote]Several NGOs state they need to wait and see the closing of the licensing round and the signing of contracts before considering drafting a project proposal for oversight[/pullquote]

The sale of seismic surveys results covering most of the country’s exclusive economic zone has already generated revenue for the government. While dazzled by eager politicians with grandiose plans to spend gas revenues, which were also staggeringly estimated in the billions of dollars, the so called tiny, unimportant details of data revenues went unnoticed by Lebanese NGOs, media outlets and other civil society groups.

Since early 2013, when the last publicly announced figures emerged, the government’s share of the data sales stood at approximately $33 million. This figure is by now certainly higher. Only a handful of insiders — politicians and government officials — know the status of these funds, while almost no one else has inquired to their whereabouts. For all we know, the money may have already been siphoned off.

Meanwhile, the Lebanese Petroleum Administration (LPA) has already tendered and awarded a contract for its upcoming commercial conference in October. That’s right: government agencies are already entering into deals with no oversight from civil society.

Incredulously, several NGOs state they need to wait and see the closing of the licensing round and the signing of contracts before considering drafting a project proposal for oversight. This is not only idle, blindly irresponsible behavior — as the LPA’s conference shows, contracts are already being signed — it approaches the level of gross negligence.

Moreover, the Strategic Environmental Assessment (SEA) for offshore exploration highlighted a number of environmental concerns, but the full contents of the report remain closely guarded. While the LPA and Ministry of Environment acknowledge strict environmental protection measures will be an integral part of exploration and production contracts, without seeing the SEA, civil society has no idea what protection measures should be in the contracts. As one Ministry of Environment official put it, publishing the SEA is “essential to transparency” (see “Sailing away from responsibility“). Environmental NGOs, also adopting a lackadaisical approach, invite an increased risk of environmental disaster to Lebanon’s already massively polluted sea when they do not demand publication of the SEA.

Sure, the LPA has expressed interest in adopting transparency initiatives and engaging with civil society. That’s fine and nice, but the very same agency blocks media access to roundtable discussions and fails to respond to interview requests. If civil society does not demand a seat at the table now, the sector will almost surely sink into the pockets of corrupt politicians.

[pullquote]Monitoring activity must commence now — not after contracts are signed, but today[/pullquote]

Perhaps Lebanese NGOs simply do not grasp the complexity of this emerging sector. NGOs that are sincerely interested in advocating for contract or revenue transparency, environmental protection, workforce education, sustainable economic development — to name just a few issues — need to recognize the steep time investment, in terms of training and expertise, required to prepare their organizations.

And yet monitoring activity in this nascent sector must commence now — not after contracts are signed, but today. This is the only way that civil society can have a say in what is included in contracts, or how revenue mechanisms are set up, or question the environmental safety measures being put in place.

An example from Madagascar may be instructive. In 1998, Malagasy NGOs were included during the contract negotiation of an infrastructure project to rehabilitate roads. The inclusive bidding process resulted in an estimated 25 percent drop in construction costs. The companies did not have to waste money on bribes, while the government had no need to allocate public funds on higher bids to pay for kickbacks.

Likewise, companies recognize they can benefit their bottom line by partnering with NGOs to gain access to a wealth of knowledge about local communities, mitigating political risk and protecting brand reputation. The threat of NGOs campaigning for the environment or to expose acts of corruption and illegal activities has resulted in major oil companies embracing transparency measures as a preemptive strategy to mitigate reputational risk.

There is now an opportunity to help shape an entirely new sector and adjacent industries. Assuming the licensing round is yet again extended, NGOs will get another chance to catch up to the companies, politicians and other insiders who know and control the new sector. They must take the opportunity. Otherwise, the only chance for Lebanon’s oil and gas sector to begin transparently will slip irrevocably from sight, creating a rash of more difficult problems in the coming decades. If Lebanese NGOs are not up to the task, they should at least have the decency to tell everyone, “Hey, not our problem.”

August 5, 2014 0 comments

Iranian Interior Minister Abdolreza Rahmani Fazli speaks during press conference in which he announced Iran has seized 530 tons of illegal drugs since April 2013, on March 18, 2014 in Tehran. AFP PHOTO/ATTA KENARE

Economics & Policy

The neighbor’s exports

by Gareth Smith August 4, 2014

written by Gareth Smith

Afghan opium is contributing to Iran’s drug problem — an issue which Interior Minister Abdolreza Rahmani Fazli is being surprisingly candid about. In recent pronouncements, he said 1.3 million Iranians, from a population of 75 million, are addicts.

Drug seizures were up by 17 percent in the 11 months to February 2014 to 532 tons, Fazli has also revealed. He warned of increased use of synthetic drugs, with the police seizing 3,500 kilograms of crystal meth and discovering 375 laboratories in the Iranian year 2013–14. But while the seizures included meth alongside heroin and cocaine, opium amounted to 77 percent.

Iran has followed several strategies to combat the problem. To crack down on smuggling, the authorities are building extensive security fences along the borders with Afghanistan and Pakistan.

Opium international

The 2014 Afghan opium harvest is expected to match or exceed last year’s record, when 209,000 hectares of poppies yielded 5,500 metric tons of opium, up 49 percent from 2012, according to the United Nations Office on Drugs and Crime in Kabul.

The UN estimates the potential gross value of Afghan opiates last year at $3 billion, or 15 percent of the country’s gross domestic product, with 200,000 families involved in production. While the US has spent $7.5 billion to eradicate opium production, it has done little to offer alternatives.

The US overthrow of the Taliban in 2001 led to a rise in opium production, as the Taliban had worked with the UN to curb poppy farming. But in recent years, the Taliban has looked to poppies to help fund its armed opposition to the Karzai regime, raising around $100 million a year according to the US defense department.
This is bad news globally, as 80 percent of global heroin originates in Afghan opium, according to the Foundation for a Drug-Free World. Current global heroin consumption (340 tons) and seizures represent an annual flow of 430-450 tons into the global market, according to the UNODC’s annual World Drug Report. Opium from Myanmar and Laos yields some 50 tons, but 380 tons of heroin are produced from Afghan opium.

The Balkan and northern routes are the main corridors linking Afghanistan to the huge markets of the Russian Federation and western Europe. The Balkan route traverses Iran (often via Pakistan), Turkey, Greece and Bulgaria across south-east Europe to western Europe, an annual market of $20 billion.
The northern route runs through Tajikistan and Kyrgyzstan (or Uzbekistan or Turkmenistan) to Kazakhstan and Russia, where the market totals $13 billion per year.

Those in the drug’s final destinations are only getting more hooked. Pakistan has around 1 million heroin users, half using needles of whom 30 per cent are HIV positive, according to the UN. Russia had 5.5 million addicts in 2012, up 60 percent from a decade ago. The United States reported 669,000 users in 2012, up from 373,000 in 2007.

Of special concern to the West, Afghanistan’s role as the source of most of the world’s heroin means Iran is a major transit route (see box). Dawud Salahuddin, an African American activist exiled in Tehran, has long advocated for cooperation between Iran and the US to combat trafficking. Salahuddin fled the US in 1980 after assassinating the Shah’s press officer at the behest of the revolutionary authorities in Tehran, and he remains wanted by Washington while working as an editor in Iran.

In 1996, Salahuddin wrote to the US State Department requesting a meeting between two officials, one on each side, whom he knew. His concern was rooted in witnessing the growing use of drugs by African Americans, but after fleeing the US to Iran in 1980, he became aware of the supply coming from Afghanistan.

In 2007, Salahuddin wrote an account of how he came to write the letter “A Super Cop, a Revolutionary Prosecutor and Dumb Diplomacy” for www.storiesthatmatter.org — now called DC Bureau — a website run by investigative US journalist Joseph Trento.

“In Bushehr [southern Iran] in 1980 I’d met Habibollah Mogheissi, a young cleric who was head of the Revolutionary Court and enormously personable,” Salahuddin wrote. “He was remarkably handsome, well built, enjoyed a good laugh and any time he walked the dusty streets in that backwater Gulf port street urchins would seemingly appear from nowhere and shout his name. I met Mogheissi again in 1986 when I started crossing into Afghanistan, when he was head of the Revolutionary Court in Mashhad, Khorasan Province [eastern Iran], then the dark heart of the largest heroin transitway in the world leading from Afghanistan.”

The American Salahuddin knew was a Washington detective, Carl Shoffler, best known as the arresting officer in the 1972 Watergate break in, and who between 1993 and 1996 as Salahuddin’s case officer had frequent telephone conversations with him discussing Salahuddin’s possible return to the US.

Like Salahuddin, Shoffler was alarmed by heroin use in the US, and in 1995 he asked if Salahuddin could set up a practical exchange of information with Iran over smugglers. Salahuddin passed the request to Mogheissi, who said he would meet Shoffler “anywhere in the world.” It was quickly established through Salahuddin that the officers were both monitoring at least one Iranian in Washington.

Shoffler could not get clearance from superiors for a meeting. Frustration at the lack of progress led Salahuddin to write to Robin Raphael, a US assistant secretary of state, who had accused Iran of sitting on its hands over heroin transshipments. She never replied, and within three years both Shoffler and Mogheissi had died, from pancreatic malfunction and cancer, respectively.

Eighteen years on, Salahuddin is sanguine about the prospects for cooperation between the two countries. “It is hard not to conclude that the idea of US–Iran collaboration against the drugs trade is beyond the vision and imagination of both sides,” he told Executive from Tehran.

Salahuddin suggested this reflects wider priorities of the governments. “First of all ‘drugs’ is a fuzzy word that means different things to different people. Are we talking about narcotics or hallucinogens? If we are talking about medically defined narcotics then both governments would be in a bind financially and politically because the outstanding narcotic addiction and cause of mortality worldwide is tobacco … [It] kills at least 2,000 percent more worldwide than all other illicit substances combined. Alcohol is another narcotic that takes away some 400 percent more human souls in a year than illicit materials. Yet both are legal.”

The financial pressures are strong, he continued: “Tobacco and alcohol are two of a dwindling number of growth industries in the US, with the boom markets being poor Americans and even poorer developing countries. And for all the talk about Iran’s narcotics problem, its being the heroin highway to the West, Iran’s tobacco industry is a state owned monopoly. Although one can’t get accurate statistics on the subject here, you can be sure cigarettes and tobacco products kill hundreds of times more Iranians than Afghan smack.”

Nor are all the economic factors related to heroin above the table. “Admittedly I don’t follow anymore in detail the long, nasty path to profitability of heroin from Kandahar to London on to Harlem and many more points north, west and south. But I realized as a US teenager during the Vietnam War that drugs, narcotics, call them what you like, rarely cross borders without whatever governments are involved getting their cut.”

Whatever allegations have been made over corruption in Iran, it has lost many law enforcement officers in the war on drugs, even if there are no reliable figures. “Iran,” continued Salahuddin, “has paid perhaps the highest price in the world with respect to dead military, police and other agents — or maybe they are third after Mexico and Colombia.”

In a book published three years ago, “Drugs, Deviancy and Democracy in Iran,” Janne Bjerre Christensen, an anthropologist at the University of Copenhagen, suggested 3,500 Iranian police officers had been killed fighting smugglers since 1979, although her figure omitted customs officers and soldiers.

Iran has also adopted draconian punishments. Interior Minister Fazli revealed that drug smugglers account for 80 percent of all executions, which he defended on the grounds that “generally, they are armed and violent people who have even committed rape.” According to the UN, at least 500 people were executed in Iran in 2013, one of the world’s highest rates, with 57 people executed in public.

The authorities have for a long time blamed the West for providing demand for narcotics, an explanation that squares with notions of Western moral decline. But such arguments sit uneasily with addiction among veterans from the ‘sacred’ war of 1980–88 with Iraq. In reality, drug use in Iran is not new.

Christensen cited an estimate of up to 3.5–4 million drug users in Iran, or around 5 percent of the population. But she also wrote that, according to government figures from the 1950s, 1.5 million of the then population of 19 million (8 percent) were drug users, with eating or smoking opium common since the 15th century.

Christensen highlighted Iran’s treatment and rehabilitation programs, in cooperation with international agencies, and noted that the Ahmadinejad government endorsed “one of the most progressive, NGO-operated drug treatment programs in the Middle East.” Debates in Iran about whether harm reduction — such as using methadone — effectively endorses drug use, she argued, are similar to those elsewhere, as are equivocal attitudes among the police.

Clarification: A previous version of this article stated that www.storiesthatmatter.org was simply a defunct website, failing to note that its content had moved to DC Bureau.

August 4, 2014 1 comment

Economics & Policy

Sailing away from responsibility

by Jeremy Arbid August 4, 2014

written by Jeremy Arbid

If the launching of Lebanon’s first offshore licensing round back in early 2013 was the dawn of the industry in the country, then only now is civil society groggily awaking to its oversight role in the emerging oil and gas sector.

This industry is operated by some of the largest, richest and most influential multinationals in the world — companies with the knowledge, means and depth of experience to get what they want when entering new markets. The sector’s intricate complexities and steep learning curve further add to the challenges facing Lebanon’s civil society, which continues to fall behind as the government struggles to articulate how and when it will engage with local nongovernmental organizations.

Even as the close of the licensing round has slipped from November 2013 to this month, NGOs have largely failed to use the extra time to prepare for their role as informal overseers of this opaque and complicated industry. However, another likely postponement may provide a fresh chance to catch up.

[pullquote]The Lebanese Transparency Association’s Barakat says “Oil and gas is not within LTA priorities”[/pullquote]

Head starts and non-starts

There are some initiatives in progress by civil society groups such as the relationship between the Lebanese Center for Policy Studies (LCPS) and the government’s Lebanese Petroleum Administration (LPA). But there are many roles that civil society must identify and fill, complex issues that must be engaged.

“It’s a high investment cost,” says Sami Atallah, executive director of the LCPS. Early on, Atallah identified the need to firmly understand complex industry issues like geology and seismic data, concessions, and economic and fiscal components, to build LCPS expertise prior to approaching policymakers.

From an outsider’s perspective, it’s still too early to tell whether the LCPS has been successful in impacting petroleum policy. Of the three roundtables it has hosted in partnership with the LPA, none have been open to the media. While LCPS has published its recommendations following each roundtable discussion, the LPA has not responded publicly as to how it might address each recommendation. The LPA did not respond to an interview request for this article.

Atallah says LCPS matched the organization’s strength, that of policy research, with an opening to impact policy — a formula that may not be easy for other organizations to emulate.

Transparency in contracting and, should it come to pass, revenue management are two of the most important issues cited by activists discussing the sector. “We are aware this field will be politicized and corrupt and we need to establish a monitoring process, at all stages and in all areas, from A to Z,” says Ronald Barakat, executive director of the Lebanese Transparency Association, the local chapter of Transparency International. Despite that realization, Barakat says, “Oil and gas is not within LTA priorities.”

Even though Barakat says that civil society has an important role to play before contracts between the government and international oil companies are signed, the LTA is waiting for deals to be inked before writing an oil and gas project proposal and looking for funding.

A growing interest by NGOs

Publish What You Pay (PWYP), a global network of civil society organizations advocating transparency in the extractive industries, has been attempting to involve Lebanese civil society groups and raise awareness with the constituency since late 2012, inviting local civil society organizations to participate in regional workshops with other NGOs from the MENA region.

Two years ago, explains MENA coordinator for PWYP Diana Kaissy, it was a struggle to get one or two Lebanese organizations to attend oil and gas workshops. In June, 13 organizations were represented at a workshop organized by the LCPS and Natural Resource Governance Institute (NRGI, formed through the merging of the Revenue Watch Institute and Natural Resource Charter), another international NGO, intended to establish a knowledge hub and train NGOs in this sector.

“This is a great step forward,” Kaissy elaborates, “We would like civil society to understand what it takes to be involved in this process and what it means for them to be watchdogs.” An important next step for Lebanese NGOs is to solidify “collective efforts of interested Lebanese civil society organizations, in order to form a network that will enable [NGOs] to act as game changers,” Kaissy says.

Promoting transparency

If significant gas or oil deposits are found within Lebanon’s exclusive economic zone, the country’s revenues will increase. Transparency advocates argue it is important for citizens to see how much money their government receives for their resources and question how this money is used. One tool for doing this is the Extractive Industries Transparency Initiative (EITI) — a global effort calling on governments to make their earnings from resource sales public.

The LPA has begun discussing how Lebanon could adopt the EITI, going so far as to meet with EITI International Secretariat representatives. “We’ve had a couple discussions with the Lebanese Petroleum Administration, but in Lebanon there is no official status on Lebanese EITI yet. We’re ready to help in any way we can,” explains Eddie Rich, the director for Africa and Middle East at the EITI International Secretariat. Additionally, the World Bank has provided information and presentations on the EITI to the LPA to further its understanding of the initiative and how to implement it, according to the Bank’s Lead Energy Specialist Husam Beides.

Next, Lebanon would need to issue a clear statement of commitment to implementing the EITI. This should happen prior to the signing of exploration contracts. As Kaissy explains, “Regarding Lebanon, PWYP urges the government to follow a transparent initiative in governing its emerging extractive sector. Initiatives such as the EITI can be applied at stages as early as the [current] pre-exploration stage. This gives the government the chance to engage all stakeholders (companies, government bodies and civil society) with key decisions and apply good governance practices at the very beginning of the whole exploration/extraction process.”

If Lebanon decides to join the EITI, oil companies and civil society must also play important roles in implementing the transparency initiative. Representatives from these three constituencies will form what’s called a multi-stakeholder group (MSG), to oversee the implementation of the EITI.

Laury Haytayan of NRGI explains that civil society can already begin preparing for potential EITI implementation in Lebanon. “Civil society has to get together and they have to elect representatives” who will eventually be part of the MSG, she says. “If you don’t have representatives from civil society, you cannot start with the EITI because you don’t have the major body [the MSG] running the whole initiative.”

This means local civil society organizations should form a coalition and begin focusing on the sector, a step that has not yet been taken.

[pullquote]“Now is the proper time for roundtable discussions around the proposed fiscal terms for the [model Exploration and Production Agreement] targeting local NGOs, unions, syndicates, media and all other related civil society organizations”[/pullquote]

Lack of funds

NGOs develop programs for specific issues only when they have funding to do so. However, most international donors are not currently preparing to engage local civil society for this sector. Cyril Dewaleyne, program manager for sustainable development at the European Union’s Beirut office, says the delegation is contemplating a capacity building program at the LPA, though details are not publicly available at this time. The US Embassy in Beirut has recently received proposals from civil society organizations relating to oil and gas, but its press attaché, Geraldine Gassam, would not elaborate as to the nature of the proposals or the available funding.

Norway’s Oil for Development program does financially support local programs through its embassy, but is not funding individual NGOs. Funding for the June workshop organized by the LCPS and NRGI was provided by the Norwegians. The Samir Kassir Foundation also has a program supported by the Oil for Development program to train journalists covering this sector. The Norwegian Embassy in Beirut conditioned an interview on the basis of seeing and approving the final article in its entirety; Executive did not accept.

In the absence of foreign money, PWYP’s Kaissy says the LPA could step in. “They should set aside a certain budget to make sure they are involving properly civil society, which is a very important constituency. They understand the importance of civil society in the entire process, but now they need to showcase it and show us the practical steps of how to put it into action,” Kaissy argues.

“Now is the proper time for roundtable discussions around the proposed fiscal terms for the [model Exploration and Production Agreement] targeting local NGOs, unions, syndicates, media and all other related civil society organizations,” she says. “We do understand that the LPA is currently focusing on more pertinent issues, and rightly so, but we cannot [overemphasize] the importance of involving civil society at these stages so as to avoid future sources of conflict and mistrust,” Kaissy adds.

Corporate Social Responsibility

In January, the LPA, the Ministry of Energy and Water and the United Nations Development Program signed a memorandum of understanding (MOU) to implement social development projects utilizing corporate social responsibility (CSR) funds of soon-to-arrive petroleum companies. To translate this MOU into action, the UNDP and LPA will form a national steering committee — separate from the EITI MSG — with all the concerned ministries. A seat will be reserved for civil society. It is an industry norm for oil companies to invest their CSR money in host countries for social development, and this initiative is aimed at making sure the money is well spent. That said, the participation of oil companies will be voluntary, and a specified amount for investment won’t be a requirement of the exploration and production sharing agreements.

The UNDP’s Assistant Resident Representative Edgard Chehab explains, “We signed this [MOU] to cut the road in front of corruption. Usually politicians will call company XYZ and say, ‘Why don’t you pave a road beside my house or build a club with your CSR money.’ This way, we are protecting the companies and we are protecting the CSR money.”

Currently, the UNDP is preparing the project document, which will be signed with the LPA later this year. But to engage the oil companies, the licensing round first has to conclude. “We have to wait,” says Chehab.

[pullquote]“We cannot [overemphasize] the importance of involving civil society at these stages so as to avoid future sources of conflict and mistrust”[/pullquote]

Protecting the environment

Equally as important as monitoring the money is preserving the environmental integrity of Lebanon’s waters and shoreline as companies drill exploration wells and then throughout the exploration and production lifecycle. “Exploration and production can have a terrible impact on the environment; we have concerns about everything,” explains Samar Malek, a legal expert with the Ministry of Environment. The ministry, she says, has discussed with the LPA the findings of a Strategic Environmental Assessment (SEA), concluded nearly two years ago. “I personally asked many pointed questions, we have concerns about everything. And we convinced the LPA to have an environmentalist with them all the time. We scared them to death.”

Asked why the SEA is still not a public document, Malek says, “It should be; it’s essential for transparency. There’s nothing to hide.” Executive was allowed to view a small portion of the SEA related to which civil society groups and other stakeholders were consulted in preparing it and what their comments and concerns are. However, Executive was not allowed to have a copy and cannot view the full document until a pending request is approved. According to the portion of the document Executive reviewed, the SEA’s authors contacted four NGOs — IndyAct, Greenline, Bahr Lubnan, Byblos Ecologia — and one individual, Rabih Salem, listed as a “coordinator for Lebanese NGOs.” Only Greenline participated in the June LCPS–NRGI workshop.

Major concerns included: The SEA relying in part on old data; poor enforcement of existing laws in Lebanon; potential disputes with landowners when building onshore infrastructure; and limited government capacity to respond to an oil spill. The Ministry of Environment’s Malek says this last concern was partially addressed in April when parliament passed a law restructuring Lebanon’s civil defense, granting volunteers full employment status and improving the force’s ability to respond to disasters.

UNDP’s Sustainable Oil and Gas Development in Lebanon (SODEL) program is assisting the LPA in addressing the environmental risks identified by the SEA and setting mitigation and environmental guidelines. However, SODEL’s project manager needs permission from the Ministry of Energy to comment; Executive’s request went unanswered.

In case of a spill or other environmental accident related to oil and gas exploration, it is yet unclear how the government plans to mitigate risk, which government institution would coordinate a response or how companies would be held accountable. UNDP’s Chehab says his organization provides support to the prime minister’s office to strengthen disaster risk management capacities, while a draft law in Parliament would formally establish a risk mitigation unit in the legal framework. The draft law, however, has been under discussion for years and the chances of it being passed any time soon are slim due to the current political impasse. Civil society, for its part, recognizes it has an important role to play in monitoring the environmental impact of oil and gas activities, but is waiting until contracts are signed before taking any action.

“We have to study the environmental impact according to integrity, utility and sustainability, cooperating with the Ministry of Environment and coordinating with the LPA,” explains Rana Zohbi of Environment Protection Committee, an awareness and educational environmental NGO in Lebanon.

As for finding funds for monitoring oil and gas activities from an environmental perspective, Zohbi says, “We expect the Ministry of Environment to finance our program.” The ministry’s Malek explains, “We do provide funding for NGO projects through a decree, but it is very precise criteria to select the NGOs,” referring to decree 14865 of 2005. This decree determines the conditions by which the Ministry of Environment contributes financially to nonprofit organizations to carry out environmental activities. However, like other NGOs Executive spoke with for this article, Zohbi notes that her organization will wait for contracts to be signed before drafting a funding proposal.

PWYP’s Kaissy thinks the LPA should be doing more to push civil society into action. “[PWYP] would like to see the LPA engaged more aggressively on the environmental aspect. There are numerous active NGOs in Lebanon that would be more than willing to learn more and be engaged actively,” she says.

Playing catch up

The oil companies bidding to explore in Lebanese waters will negotiate contracts with the government at the lowest cost to their business. In theory, it is the role of NGOs to complement this process by articulating their concerns — whether financial, environmental or other — so that the cost of incorporating social measures can be optimized with business interests.

The good news is that the train has not yet left the station. Another delay to the close of Lebanon’s first licensing round, yet to be formally announced but widely expected, should provide a window for NGOs to build organizational knowledge, meet with stakeholders and approach donors to fund monitoring programs. The question is whether Lebanese civil society will take the opportunity.

Correction: A previous version of this article mistakenly claimed that Greenline was the only environmental NGO to participate in the LCPS–LPA roundtable. It was the LCPS–NRGI workshop. Apologies.

August 4, 2014 0 comments

Leaders

While Rome burns

by Executive Editors August 1, 2014

written by Executive Editors

A good way to judge the efficacy of a proposed solution is to ask how, if implemented, it would alter the outcome of a situation. By this metric, the Ministry of Energy and Water’s (MoEW) proposed solution to Lebanon’s water shortage fails miserably. The plan roughly amounts to the following: households should use less water (see “Turn off the tap“). This, of course, is precisely what is already happening — because many homes are already running out of water.

Coupled with the lack of any real plan, the ministry’s call for citizens to conserve water is an insult. True, we all could and should be more responsible users of this resource, but the state seems to forget that its negligence is the reason people throughout the country are either being extorted by most likely unlicensed private water delivery services or suffering without life’s most basic necessity because they’re too poor to pay. Yes, last winter was much drier than average, but if water had been properly managed over the last 20 years, there would be no shortages now.

What makes water scarcity in Lebanon today so infuriating is that it could have been avoided. Anyone who has been to Lebanon in the winter can immediately identify the biggest problem: rainwater simply flows out to sea — sometimes after floods destroy property and lives — instead of being stored, treated and used. In the late 1990s, the MoEW penned a 10 year plan that included building 17 dams. One was built. According to a press release issued by then-caretaker minister Gebran Bassil in February, last year the ministry “started the construction of [seven] dams,” in line with a new water sector strategy approved by the government in 2012. While very long overdue, moving forward with building more dams is a welcome step. Much more action, however, is desperately needed.

Current and future ministers of energy must also focus on distribution networks. The current water sector strategy says that over half of the pipes used for transmitting and distributing water are more than 20 years old. This results in a 48 percent loss of water, according to the strategy. It will be expensive, disruptive and time consuming, but Lebanon’s aging infrastructure must be replaced and updated. In addition to new pipes, the government must also install meters for households, industry and agriculture, the largest water consumer in the country. Meters will allow authorities to monitor water usage, making it possible to bill consumers based on how much they actually use instead of charging a flat fee — as is currently the case — that provides no incentive to conserve.

But needed infrastructure work does not end there. The MoEW estimates that the country produces 310 million cubic meters of wastewater per year. Currently only 8 percent of it is treated. The rest is dumped into rivers, the sea or onto land. Not only is this polluting rivers and the sea, but in some instances this wastewater is seeping into aquifers and polluting groundwater as well. Lebanon has spent over one billion dollars building wastewater treatment plants and, based on the most recent strategy written in 2010, wants a total of 54. Of the 11 that had been completed in 2010, only four were operating. Seven were completed but unused because they were not connected to the sewerage system. Such colossal waste and mismanagement would be comic if it weren’t so tragic.

These, of course, are long term plans that will do nothing to help meet demand this summer. To address immediate needs, the ministry wants to drill more wells, which will alleviate the shortage — provided the water extracted can easily be linked in with the transmission and distribution system, a tall order for which the ministry has not articulated a plan. Moreover, digging more wells will only put more stress on aquifers already under pressure, hardly a wise long term strategy.

The state should focus more attention on inefficiencies and waste in agriculture, which uses some 61 percent of the country’s water — twice the amount households use. For instance, today over 70 percent of farmers rely on inefficient canals. A paltry 6.2 percent are using drip irrigation, which is far more efficient. These numbers must flip.

While the ministry is correct that individuals need to conserve water, this is hardly a plan. The exclusive focus on today’s households — while ignoring the real water guzzlers and the future — evidences a stunning dearth of competence. And water policy isn’t something you pass off to the B team.

August 1, 2014 0 comments

Editorial

Kings and comedians

by Yasser Akkaoui August 1, 2014

written by Yasser Akkaoui

There’s something wrong here. Protesters are supporting Palestinians in London, Paris, Berlin and even Santiago while the streets of Arab capitals are mostly quiet. Meanwhile, the American — and Jewish — comedian Jon Stewart is expressing more outrage over the accumulating atrocities in Gaza than all of the Arab leaders combined.

What is it they fear? The Americans are obviously frustrated with Israel’s heavy handedness — a point driven home by Secretary of State John Kerry’s unintentionally public quip about Israel’s ‘pinpoint’ strikes. Arab leaders can use this to their advantage by publicly and privately pressuring American politicians to more loudly condemn Israel’s actions. This may be hard given that it’s an election year in the US, but they should at least try and could even make some donations of their own.

For far too long, Arab leaders have done nothing to benefit the Palestinians. During times of conflict they keep their mouths shut, waiting to throw money at the destruction when the fighting ends. This simply must change.

There is mounting evidence to suggest Israel has been committing war crimes in Gaza, as it is suspected of doing in the past. These crimes must be properly documented. Arab and Palestinian leaders could deal Israeli propaganda a deadly blow by working to prove beyond doubt how horrendously the Israeli army batters Gaza.

While Arab leaders are failing, it is refreshing to see Western media doing a better job covering the conflict this time around. It was happenstance that journalists witnessed four children murdered on a beach, but at least this time children killed while at play got more coverage than in the past. Palestinian suffering is being reported better than it used to be, which is a welcome change.

There are further signs of progress. US broadcaster NBC was shamed into returning its correspondent Ayman Mohyeldin to Gaza after pulling him for suspicious reasons. Meanwhile, CNN is being criticized for dispatching Diana Magnay from the region to Moscow after she called Israelis who were cheering as bombs rained on Gaza “scum” on Twitter. US news outlets are beginning to realize how one-sided they have been in their past coverage, and journalists are increasingly doing their part to investigate Israeli claims of Hamas using ‘human shields’ that have for too long gone unquestioned and been used to justify heinous actions. Even Israel’s +972 Magazine is heaping criticism on Tel Aviv. Arab rulers should follow their lead.

August 1, 2014 1 comment

Comment

The Cyprus solution

by Roudi Baroudi July 31, 2014

written by Roudi Baroudi

More and more people are arriving at the same conclusion: a miracle cure for much of what ails the European Union is close at hand, and Cyprus is easily the best place to dispense it.

Apart from Germany and a few other exceptions, the EU economy is in a historic slump, while its appetite for energy makes it unnervingly dependent on Russia, which supplies a third of Europe’s gas imports, and other suppliers outside its borders — thereby making the union dangerously vulnerable to factors beyond its control. The recent confrontation over Ukraine only underscored the potential precariousness of this arrangement: while Russia is not likely to damage its own interests by turning off the taps that supply its biggest customer, its pipelines cross the borders of multiple countries that might perceive an interest in disrupting the flow.

Luckily, however, all recent exploration work indicates that deposits beneath the Eastern Mediterranean seabed contain sufficient amounts of oil and (especially) natural gas to revitalize Europe’s economy for decades to come.

Cyprus, Israel, Lebanon and Palestine share what has emerged as a collection of world-class formations; Israel is the only country that has already begun to exploit its reserves, but Cyprus should follow in a few short years. Palestine’s potential can’t be unlocked until some kind of deal is reached with Israel, and Lebanon has been delayed by domestic political infighting, but the latter’s reserves now appear to be the most extensive of the four. And in the longer term, new studies show that Greece may be the real kingpin of the Eastern Mediterranean, further enlarging the region’s capacity to fuel a European renaissance with cheap, safe and reliable energy supplies.

It is difficult to overstate the potential of this treasure trove. Going by the latest estimates, Cyprus will shortly be in position to provide clean, safe and reliable supplies that will meet 20 percent of Europe’s gas needs. Throw in Lebanon and Israel, and that figure rises to 30 percent, while Greece could bring it to 40 percent by 2020. By increasing the number of competing producers, development of the Eastern Mediterranean will also lead to lower energy prices, driving growth across the EU.

For the producers, it means a new shared stake in peace and stability, massive revenues to fund socioeconomic development and permanent reductions in poverty and other needs. For the consumers, it means an economic revival on the scale of America’s ‘fracking revolution’ — with far less controversy and environmental risk.

For the EU as a whole, it can mean even more: restoring both the momentum of the European project and public faith therein, and reducing tensions among member states, particularly along the traditional North–South axis, caused by economic hardship. It can also transform Europe’s southeastern flank, turning a source of instability and refugees into one of opportunity and partnership. Nothing would more fully accomplish the goals of the Euro–Mediterranean ideal, as refined over the years at Trieste, Barcelona and other venues.

[pullquote]All recent exploration work indicates that deposits beneath the Eastern Mediterranean seabed contain sufficient amounts of oil and (especially) natural gas to revitalize Europe’s economy for decades to come[/pullquote]

Passing the pipe

These and other gains will not be achieved without first surmounting a few obstacles. The primary political hurdles include Israel’s dismal relations with its Arab neighbors, which make direct cooperation virtually impossible for the time being. Meanwhile, the main technical challenges center on getting the gas to thirsty markets on the European mainland, as well as other customers in East Africa and South Asia.

Cyprus can solve all of these problems — and more — by avoiding, simplifying or essentially erasing them. Its diplomatic position already gives it friendly ties with countries on both sides of the Arab–Israeli divide, and its geographical location makes it the only logical place to situate a new regional energy hub. If the necessary investments are forthcoming, that hub will gather the gas produced by all Eastern Mediterranean countries for distribution via pipeline, ideally via Greece’s Ionian Sea. Why the Ionian? Because that’s where Greece’s potential deposits are situated, so running the pipe through there means turn-key access when those reserves are ready to enter the European energy mix.

In the past I’ve referred to this link as the ‘Peace Pipe,’ mainly because it would almost force the Arabs and the Israelis to regard one another as indirect business partners rather than as mortal enemies. From the EU’s perspective, we could also call it the ‘Prosperity Pipe,’ since it would substantially decrease production and other costs, restoring much of Europe’s competitiveness and opening the way for the revival of its economy.

Other potential markets are far removed from pipeline routes, so the hub should also include a liquefied natural gas (LNG) plant, the output of which would be carried by ship to power stations and other customers along the African and Asian littorals, places where energy is badly needed to achieve development goals. Dubbing this the ‘Peace Plant’ sounds about right, but it’s what the facility will achieve, not what anyone will call it, that will be important. Opening access to more customers will further expand the shared stake of Arabs and Israelis, lessening the likelihood of future conflict.

Once again, the placement of these prospective LNG markets docks perfectly with Cyprus’ geographical and diplomatic qualities, further reinforcing its status as the most commercially viable site to serve as host for the region’s emerging energy economy.

But there’s more — much more. As an EU member state, Cyprus is party to its stringent environmental and competition laws, rules by which other current and potential suppliers (notably Russia and even more distant producers in Central Asia) are not bound. This means no more worries about transit rights, after-the-fact price disputes or violations of sulphur standards: gas processed, piped or shipped through the island would be bound to comply with EU standards on these and other issues.

Europe’s choice

Rarely has any undertaking, let alone one with such far-reaching ramifications, been more eminently qualified to receive official EU recognition as a Project of Common Interest, or key energy infrastructure. The EU’s uppermost governing body, the European Commission, is the rightful catalyst to bring all of these considerations together, not only by providing its own funds, but also by recruiting and coordinating other sources of financing, including the World Bank, major international oil companies (IOCs) and other public, private and multilateral actors.

There is reason for optimism. The European Commission of late has demonstrated increasing interest in the potential of the Eastern Mediterranean in general and Cyprus in particular — and greater awareness of the urgency involved. Vice President and Energy Commissioner Günther Oettinger made all the right signals at an energy conference in Malta, and his voice will be heard, not just because he hails from Germany and is therefore seen as representing the ‘North European’ perspective, but also because his personal reputation is for sober analysis rather than over-enthusiastic boosterism.

In fact, Cyprus will almost certainly become some sort of gas hub regardless of European stewardship: Halliburton and Schlumberger, the world’s biggest oil and gas services providers, have already selected the island as their respective regional headquarters, which tells us all we need to know about what industry insiders think.

The difference is that if the private sector takes the lead, the hub will be designed, developed and oriented to serve the interests of the IOCs; benefits will certainly accrue to Cyprus and the rest of the EU, but mostly as side effects. By contrast, if Brussels plays its rightful role, the entire process will be shaped in such a way as to maximize its advantages for EU citizens. More than ever, the choice is clear.

July 31, 2014 0 comments