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Comment

Street smart in Gemmayze

by Paul Cochrane August 1, 2009
written by Paul Cochrane

Lebanon’s tourism advertising campaign presents the country as a paradise of pristine mountain landscapes, beautiful shorelines and night time cavorting. What the ads don’t show are the effects of the apparent lack of interest by Lebanon’s public institutions to regulate waste management, protect the environment or deal with the perpetual gridlock on the country’s streets. Such images would not be good for Lebanon’s brand identity.

This is quite understandable; no country would highlight such downsides. But with tourism projected to contribute directly and indirectly an estimated $7 billion to the Lebanese economy this year — equivalent to 28 percent of gross domestic product — such images should be embarrassing to the sector. Resolving Lebanon’s environmental woes requires comprehensive efforts and capital to invest in infrastructure improvements. But there are also other initiatives that can be taken on a more local level.

Take Gemmayze street (the official name is “Rue Gouraud”). To drive the one kilometer long, one way street that runs from the edge of Martyrs’ Square to the Éléctricité du Liban building, it can take anywhere from 20 minutes to an hour as people search for parking or hand over keys to a valet. For an essentially straight and flat street, near areas with ample parking, like downtown and Charles Helou Station, such a log jam would seem a major urban planning oversight.

But in Gemmayze’s case, an area of ‘traditional character’ according to the signage, the street transformed into a nightlife hub haphazardly, bar by bar, restaurant by restaurant. The nightly traffic jam is also not solely due to a lack of planning. A big contributor to the jam is the Lebanese penchant for valet car parking, which combines a propensity for showing off with a reluctance to walk.

What if Rue Gouraud were to follow the example of cities as far apart as Shanghai, Cape Town, York, Copenhagen, Montreal and Curtiba, Brazil? What all these cities have done is “pedestrianize” streets or whole blocks, whether for retail, nightlife or areas of historic interest.

But Gemmayze would not need to look abroad to see how pedestrianization was implemented; half a kilometer away is pedestrian friendly downtown Beirut. With the upcoming opening of the Beirut Souks, the pedestrian area will be extended even further, and it could spread eastwards if Gemmayze followed suit.

The municipality could install rising bollards at either end of the long street, making Gemmayze pedestrian but also accessible at specific times for delivery trucks and residents with parking permits.

Parking space could be found in Martyrs’ Square, and if Charles Helou was given a lick of paint, fumigated, and linked via a bridge, several hundred more vehicles could be parked. For those unwilling to walk, a fleet of golf carts could be added to the current half dozen that ply downtown to transport people. Pedestrianized, bars and restaurants could spill onto Rue Gouraud, and there could be live music, dancers, street artists and performers. People would mix and mingle, no-one would be aggravated from a traffic jam or altercation with a valet, and air pollution would undoubtedly be reduced.

While this sounds desirable, there are always obstacles. In other cities, when streets have been pedestrianized, gentrification has also occurred, changing demographics. Lebanon’s ‘old rent’ laws, where rents were frozen at a particular monthly rate prior to the civil war, has prevented this from happening. It has also meant elderly residents need vehicle access. Noise pollution is another potential issue, although if the demographics changed, would be less of a problem, with those moving in aware of the neighborhood’s lively night time atmosphere. The valet car parking “mafia,” which attempts to control the parking spaces that line Gouraud street and surrounding roads, could also oppose such a move to pedestrianization.

Then the party-goers themselves may very well resist such an idea, too accustomed to valet parking and reluctant to give up a perceived convenience — although it may take 40 minutes to get to the valet, as opposed to a 10 minute walk from parking lots on the eastern edge of downtown or, if it were renovated, Charles Helou.

But there are indications some nightlife patrons are willing to forgo their valet. A bar owner, not overly in favor of pedestrianization, admitted that out of the 150 cars usually valet parked every Friday, on one particular night there were only 15, as people shunned their cars to walk. While anecdotal, this does suggest that people are willing to forgo the valet to save time.

For access to Gouraud to improve — whether by improving parking or opting for pedestrianization — this would require a united front by residents and business owners to surmount the biggest obstacle, bureaucracy and vested political and economic interests.

PAUL COCHRANE is the Middle East correspondent for the International News Services

August 1, 2009 0 comments
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Executive Insights

The efficiency of centralized network management

by Mahmoud El Ali August 1, 2009
written by Mahmoud El Ali

Faced with pressure to increase network capacity and performance while saving money, information technology managers have often been quite content to simply add more hardware as required.

However, this results in a disparate network that is hard to manage, imposing an extra burden on IT staff and adversely impacting business efficiency. Ad hoc network expansion may have coped in the past, but the need for end-to-end network visibility to assure compliance with global security and privacy mandates and to streamline business processes means that this approach is no longer acceptable.

The past few years have also seen an increased need for speed in deploying new enterprise-wide applications — a capability that is severely impeded when systems are disconnected from each other. It’s clear that chief information officers and their IT teams need to grab hold of their networks and manage and secure them as a unified whole.

Bringing order to chaos
As a first step to solving this problem, chief information officers and their teams have consolidated infrastructure and staffing into datacenters that provide applications, storage and expertise to remote and branch sites from centralized resource pools. However, without centralized management to automate deployment, configuration and oversight of datacenter and remote operations, consolidation inevitably falls short of its promise. The answer is efficient network management.

Instead of trying to handle environments individually, centralized tools ease the network management burden. Deploying a centralized management tool automates not only performance monitoring, but also change, configuration, policy and patch management throughout the network.

Network management tools are critical to understanding how the network operates today and how new applications or procedures will impact it in the future. It’s a way of future-proofing your IT network.

Because these tools are integrated across a heterogeneous environment, IT teams can model how the network will react to a new application and determine whether they will need to make adjustments, such as provisioning more bandwidth, changing the priority of delay-sensitive traffic on the network, or adding more processing power.

Doing more with less
More efficient network management also helps address the biggest challenge network managers face at the moment: how to do more with less. There will always be more projects and users for IT to support, but staffing and budgets will not increase to accommodate these demands. Managing basic infrastructure and integration is hard enough; then you add in privacy and security requirements, and that increases the network management burden. Some have tried to accommodate ad hoc networks by buying an overarching management platform, but that makes it very difficult to apply critical policies consistently across the enterprise and to create compliance audit trail. They also struggle because they don’t have the in-depth, in-house knowledge to manage some of the more management-intensive technologies, such as voice over Internet protocol. Also, there are so many applications fighting for the network that, if handled incorrectly, things start to break down.

Bringing everything under one umbrella gives an amazing amount of control and helps deliver quality of service for all your local and remote voice, video and data applications. You can set business appropriate thresholds to alert you to network problems before users are impacted. And you can use comprehensive metrics to do forecasting, modeling and capacity planning. All these things help save time and money and make your enterprise far more efficient.

A comprehensive network management platform gives visibility to the status of your resources, services and users. The savings that can undoubtedly be made can either be returned to the business, or used to fund more strategic value-added services from IT.

Mahmoud El-Ali, 3Com general manager, Middle East

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

August 1, 2009 0 comments
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Executive Insights

IPTV could be good enough to pay for

by Hadi Raad August 1, 2009
written by Hadi Raad

Telecom and media companies used to operate in their own silos, with clear divisions between what each offered to consumers. Media players produced or managed content; telecom companies provided telephone and broadband services. With increasing competitive pressures, as well as technology-driven industry convergence, players on each side are moving into each other’s space. Media companies have moved into content and voice delivery; for example, Comcast, a cable TV media player in the US, currently offers Internet and phone services. Likewise, telecom operators have responded to declining fixed voice revenues and saturating broadband markets by stepping into multimedia services.

One promising such move by telecom operators is their venture into Internet protocol TV (IPTV) — a digital television service delivered over a broadband connection with a dedicated IP address. IPTV’s greatest value proposition to customers is its offering of premium content, in addition to greater control over that content. IPTV allows customers to personalize their TV experience with features such as time shifting, in which viewers can record programming to watch it later or pause, rewind, or fast-forward during a movie, and rich and user-friendly electronic program guides that allow them to navigate programming more easily. Operators also offer access to tens of thousands of video-on-demand titles that can be watched at any time. Aside from television services, IPTV applications include TV gaming, music, text, commerce and user-generated content. For example, viewers could have one-touch access through their remote control to real-time local weather, traffic updates, stock market fluctuations and horoscopes on their TV screens, without interrupting the program they are watching.

Verizon’s IPTV service offers a good example of IPTV’s features. It has a library of 14,000 video titles and its TV program guide provides viewers with integrated on-screen control of several applications. Customers can find and manage a vast array of digital content, including television programming, movies, Internet video, games, music and photos. This allows a customer, for example, to watch a movie about an action hero, play a video game about the same character, and buy retail items associated with the character, all on the same home system.

All of these features have contributed to IPTV’s popularity with subscribers, whose numbers are slated to reach approximately 40 million worldwide in 2012. This represents approximately 11 percent of broadband subscribers.

IPTV’s Prospects in MENA
In the Middle East and North Africa, the existing television landscape presents both a challenge and an opportunity. It is dominated by free-to-air (FTA) satellite service and illegal distribution. On one hand, these free options could make it difficult to convince consumers to pay for TV; on the other hand, these services offer consumers no real interactivity. Video on demand and pay-per-view, especially, could be popular in the region and convince consumers that IPTV is worth the money.

Cable TV, which offers many of the same services as IPTV, has limited network reach in the region with penetration of only around 5 percent. By contrast, the number of broadband connections is expected to multiply, with household penetration forecasted to increase from 9.4 percent in 2008 to around 30 percent in 2012, driven by telecom incumbents’ asymmetric digital subscriber lines (ADSL) and fiber optic networks. A large broadband subscriber base will position the MENA region to leverage the advantages IPTV offers. A few telecom operators have recently launched basic IPTV ventures, and more are in the pipeline. Yet IPTV household penetration at the beginning of 2008 was still low in the region — just 0.2 percent, representing approximately only 2 percent of broadband connections.

However, IPTV may not be the right choice for all operators. Ventures are expensive and complex and, as noted, IPTV requires consumers to pay higher monthly bills than they are used to. Most homes receive television services from FTA satellites or through illegal distribution; these represent as much as 90 percent of TV subscribers in some MENA countries. Moreover, many FTA channels are able to transcend national boundaries, since MENA countries share a common language and culture; as such, there has been huge growth in their number, which reached around 500 channels in 2008. According to a recent survey, a majority of viewers are satisfied with FTA offerings.

Operators that decide to launch or expand IPTV ventures will face several additional challenges. First, although broadband penetration in the region is slated for growth, it is still low, except in Bahrain and the United Arab Emirates. Speeds are also slow, with insufficient bandwidth to support streaming television service.

Second, IPTV providers will need to offer premium content to attract subscribers. There’s little regional premium content production in MENA, so shows must be produced elsewhere — a considerable investment.

Another consideration is competition. Television over the Internet can offer non-linear services similar to IPTV’s, such as time shifting and video on demand. These competitors not only steal market share from IPTV operators, they do it using the operators’ own resources. By transmitting content using the operators’ broadband data connections, they are taking operators’ bandwidth while generating revenues for themselves.

Getting IPTV right in the MENA region
Telecom operators that decide IPTV is right for them must consider the following factors critical to successful rollout. For those that don’t have the ability to meet these criteria, IPTV is probably not a viable option.

  • Hybrid solution: Operators should position IPTV as a complement to the FTA offering rather than a substitute. A hybrid IPTV-satellite set-top box could provide the dual benefits of IPTV services with FTA programming.
  • Features: Innovative interactive services will have significant appeal and should be a key part of any IPTV offering. Digital video recorders, time shifting, video-on-demand and pay-per-view could be popular. Operators should constantly define, prioritize and introduce innovative interactivity features.
  • Content: Successful IPTV entry requires operators to secure exclusive or premium content that can differentiate them from their competition. Premium content acquisition is expensive, but the investment is justified, so long as content is carefully chosen with the audience’s needs in mind so that they will be willing to pay for it, and if the operator has sufficient scale and a large enough customer base to secure a viable return. Operators need to carefully define their role along the content delivery value chain and establish the right partnerships accordingly.
  • Operational and infrastructure readiness: IPTV imposes new requirements in customer care and field and video operations, which must be appropriately handled via in-sourcing, outsourcing, or “managed services” models. It is paramount that operators ensure they have the necessary access and core network resources in place for a high-quality customer experience.

Conclusion
IPTV presents a unique opportunity for MENA telecom operators. With little competition from cable on the supply side, careful positioning will boost IPTV significantly. On the demand side, consumers are likely to be receptive to IPTV and its benefits. To be successful, operators need to provide consumers with attractive content and significant control over it. They must make sufficient investments in premium content and infrastructure, and ensure they deliver a consistently high quality service. In a region where viewers are used to hundreds of free channels, only a compelling package will persuade consumers to start paying for IPTV.

Hadi Raad is a senior associate and Mahmoud Makki is an associate at Booz & Company

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

August 1, 2009 0 comments
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Executive Insights

Beyond cost reduction

by Rami Nazer August 1, 2009
written by Rami Nazer

An economic crisis is too good an opportunity to waste. It is an ideal time to step off the treadmill and ponder improving your business, your core offering and your cost structure. This year could very well be the year when financially sound and forward-looking organizations actually make their fortunes.

Over the past 12 months, market conditions have been eventful for some and extremely difficult for many. Firms have been taking steps — preventive and remedial — to cope with the recession and emerge stronger. Their responses have been varied, as there is no universal or one-size-fits-all solution. Nonetheless, businesses must ensure that steps taken are both appropriate for their business models and sustainable in the long run.

Most sectors of the economy are vulnerable to the effects of the downturn, but our global research indicates that risks are even greater for sectors like banking and capital markets, real estate, biotechnology, asset management, telecoms, utilities, manufacturing, consumer products, automotive and media and entertainment.

To effectively address the economic downturn, enterprises must also remain adequately responsive to the expected upturn in growth and demand after the recession ends. They need to clearly understand the macroeconomic causes and the microeconomic means to manage profitability during these times while also planning to profit during the revival.

Opportunities in adversity
Ernst & Young’s recent report on corporate priorities titled ‘Opportunities in Adversity’ revealed that insightful enterprises focus on how to effectively reduce costs by acting on decisions that must be sustainable in the long term. This means reducing costs without compromising revenue streams, and reducing operational costs without burdening the business with heavy implementation costs. However, the central message of the study is that cost reduction has become essential, with more than 85 percent of over 300 top level executives polled citing it as a key issue for their business. Overwhelmingly, they have focused on four major areas: number of employees, information technology, employee benefits and real estate.

But is cost reduction the only initiative that corporations need to undertake? Is employee reduction the most effective in reducing costs? A pool of institutional knowledge is beginning to indicate the fallibility of most cost-reduction initiatives: that these are not sustainable in the long term.

While the first response to a more difficult market is to seek to improve efficiency by reducing costs, slowing recruitment and reducing inventory, the risk of reduced effectiveness is real. Cost cutting is frequently a short term solution.  The challenge is to ensure that the organization is robust enough to face new market conditions without weakening its business mission and to take advantage of opportunities that will undoubtedly emerge later.

Amongst cost reduction initiatives, two measures stand out from all others: business process improvement was cited by 77 percent of those surveyed, and supplier cost reduction was cited by 60 percent of respondents. At 47 percent, employee reduction came in after info-tech optimization (49 percent).

Managers need to understand the psychology of cost and treat sustainability as the key focus at the very outset, ingraining cost optimization behaviors in the organization while attempting to ‘take the pain of change’ out of the process.

While businesses evolve mechanisms to withstand an economic downturn, educative examples of what is really happening in businesses are already available, for example a global investment bank reengineered its product control and identified savings initiatives of $8 million, compared to an earlier target estimate of $5 million. A pharmaceutical manufacturing company strengthened an existing cost reduction program, conducted a ‘health-check’ and identified cost savings of between $45 million to $73 million per year from a total cost basis of $410 million. A global telephone company also implemented a new global purchasing organization to reduce annual costs by 22 percent on average.

Based on research and interviews with our clients, we have developed the ‘stress pendulum’ which focuses specifically on the issue of cash. The primary driver of management action is the amount of cash that the company has and is generating. If you are burning cash during a credit crisis, your priorities are clear. If you are generating cash through operations, the opportunities are many. In any case, the need for management action is paramount.

Rami Nazer, Partner, Ernst & Young Middle East

The authors of Executive Insights have been invited by this magazine to offer their professional opinions and analysis to you, the reader. Executive Magazine does not endorse the analysis of Insight authors, nor should the Insights be interpreted as reflecting the views or opinions of Executive or its editorial staff.

August 1, 2009 0 comments
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GCC

Cityscape in Jeddah

by Executive Staff July 31, 2009
written by Executive Staff

Saudi Arabia, the largest and the fastest growing real estate market in the Middle East, hosted the kingdom’s first ever “Cityscape Saudi Arabia” at the Jeddah Center for Forums and Events between the June 14 and 16. Although the event came amidst the most severe global recession in recent years, Cityscape was a success. More than 100 companies and organizations exhibited and there were an estimated 5,000 visitors.

“I didn’t expect such a big success in June,” said Ahmad Al Hatti, chairman of Cayan Investment and Development, the main developer of Jeddah’s $600 million Lamar Towers.

Exhibitors believe that the show was more a business-to-business event rather than a business-to-consumer event. The event allowed company representatives to meet with their existing contacts and establish new business partnerships. For example, Yasser Abu Ateek, general manager at Dar Al Tamleek, said one indication of the nature of the event was that there were no products for sale.

“There are no products, and when there are no products there is no retail,” he said.

Abu Ateek said he expected Cityscape to be bigger, but he still found it to be well organized and a big success considering it was the event’s first showing in the kingdom.

The Gulf’s powerhouse

The real estate market in Saudi Arabia is still growing fast, and continues to be ‘the Gulf’s Powerhouse,’ as stated in a 2008 report by global real estate services firm Jones Lang Lasalle. This growth is fueled by the increase in its population and the massive investments by government. According to a construction report released by market research firm Proleads, the number of real estate projects in the kingdom is 812 and are valued at $543 billion. A total of 460 projects valued at $289 billion are under construction, 30 projects are canceled (1 percent), 23 are on hold (3 percent), and the rest are in the design or planning process.

“In Saudi Arabia there is a slight slowdown in the real estate activity, but there are not fluctuations, at least not to the extent we are seeing in the United Arab Emirates,” said Al Hatti.

The real estate industry is expected to grow by around 6.7 percent over the next five years, according to a Saudi Chamber of Commerce 2008 report. Its share of gross domestic product is also expected to grow as the country continues to diversify its economy away from oil related activities — which account for some 35 to 40 percent of GDP.

Large developers absent

Despite the steady growth in Saudi’s real estate market, the global recession could be felt at Cityscape. Although more than 100 developers exhibited, some big names in the Saudi market were absent from the scene. Dar Al Arkan did not exhibit, neither did Arriyad Development company, Jabal Omar Development nor other important developers.

John Harris, head of KSA Jones Lang Lasalle, said that this first Cityscape was a trial for the Saudi market, and the developers were testing the waters to see if they should participate next year.

“Cityscape is relatively new [in Saudi Arabia] so there is a wait-and-see approach from the big players who were absent this year. They want to see and observe what could be achieved from Cityscape to decide if they are going to be in next year or not,” Harris said.

Amro Nahas, acting chief executive officer of Al Oula International, said starting slow is normal.

“I didn’t find any big names at Cityscape, but even in Dubai, it wasn’t better when they started,” Nahas said. “Yet people showed much interest for the first time and the footfall was quite respectable.”

Top 10 Saudi civil projects under construction or in design

Source: Proleads

Cityscape Awards

On June 14, Cityscape Saudi Arabia Real Estate awards were held and five prizes awarded to the most innovative and sustainable projects.

“Across all the awards..all we wanted [was] to recognize projects that had innovative and sustainable design, functionality with efficiency and we wanted to reward designs that showed cultural as well as environmental sustainability,” said Deep Marwaha, exhibition director at Cityscape Saudi Arabia, according to the exhibitor’s press release.

Emaar the Economic City seized two of these awards, the first being “Best Future Waterfront Development” for its project Waterfront Village at Baylasun. The second award for “Best Future Residential Development” was for the Hawadi project.

“Best Built Commercial / Retail Development” was awarded to Alandalus Property Company and Mohammed Ahabib Real Estate Company for their Al-Andalus Mall project.

The fourth award was for “Best future commercial / retail development” and was won by RA-YEK Real Estate for their project Al Ajlan Tower. The fifth and last award was for “Best Urban Design and Master Planning,” given to the developer Davis Brody Bond Aedas for the project The New Jeddah Master Plan.

Affordable housing needed

The issues Saudi real estate stakeholders stressed the most at Cityscape were the need for affordable housing and the new mortgage law in the kingdom. The Saudi population is expected to increase 32 percent and reach 33 million in the next 10 years, according to the Department of Economy. With no attention given by developers to the middle income segment — which constitutes the biggest chunk of the market — the housing shortage is increasing significantly.

According to the Saudi Arabia Investment Fund (SAIF), the housing sector accounts for more than 75 percent of the real estate activity in the kingdom, and 2.5 million housing units have to be delivered by 2020 to meet the demand. In value, SAIF says that $20 billion will be needed yearly to bridge the shortage gap.

“Saudi Arabia needs to consider the right balance between the development of high-end, medium and low-end,” said from Al Oula’s Nahas. “Municipalities have to play a role in planning and providing the right information for developers. Definitely the residential mid-market needs special attention.”

Currently, real estate developers are offering properties too expensive for the middle income segment. On the other hand, the low-income  market does not have that problem because it can benefit from government support through the Real Estate Development Fund, the King Abdullah Housing Program and other means.

“The government has to find a solution [for the middle income segment]” said Abu Ateek.

The awaited mortgage law

The lack of affordable housing is not the only reason Saudis cannot buy a home. The shortage is also caused by the absence of a mortgage law, which makes long-term loans very hard to obtain. Until now, buyers had to either pay cash for their homes or take personal short-term loans to be able to pay. Sky high property prices and the lack of a mortgage law helps contribute to the fact that 60 percent of Saudis still do not own a house, according to the National Society of Human Rights in Saudi Arabia.

The country expects to implement a mortgage law by the end of the year, much to the delight of developers, banks, buyers and real estate agents.

 “With the regulations, banks will be more comfortable in securing and guaranteeing financing for buyers,” said Al Hatti from Cayan Investment and Development.

The mortgage law is not the only initiative that the government has undertaken to protect the kingdom from the effect of the crisis. An Escrow law was also issued in February this year which prohibits the sale of off-plan properties without approval from the Real Estate Commission.

“The Escrow 2009 plan is not applied yet but it will guarantee for all parties, customers, financiers, developers and others a lot of work and that real estate will play a bigger role in the kingdom’s GDP,” Abou Ateek said.

“The good steps will pay back…and hopefully in the next six months we will see the fruits of all efforts made,” said Nahas.

Despite the crisis spreading its effect on the regional real estate market, Cityscape remains one of the most important property shows where real estate players gather and interact. And even though Cityscape in Saudi Arabia was not as vital as it possibly could have been, it is considered a good start, given the conditions.

“Taking the crisis into consideration, it was a fair turnout and a respectable success,” said Nahas.

Al Hatti added that “It feels like the end of the crisis and it is a positive feeling.”

July 31, 2009 0 comments
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Levant

Stitching the economy

by Peter Grimsditch July 31, 2009
written by Peter Grimsditch

Last month Turkish Prime Minister Recep Tayyip Erdogan announced economic stimulus measures designed to put the nation back to work and the economy on the path to recovery. Tax cuts, exemption from social security payments, relocation expenses and subsidies for intern on-the-job training were part of what Erdogan described as turning a “crisis into an opportunity.” On paper, the plan looks sound.

For investment purposes the country has been carved into four zones, from the least developed east to the most developed north-west. As an incentive for new investors to  set up shop in eastern Turkey, start-up businesses will see corporate tax rates cut from 20 percent to 2 percent, social security contributions exempted for seven years, and a subsidy of 5 percentage points on the interest rate for Turkish lira loans for business start-ups, to a maximum of TL500,000 ($325,000). Smaller versions of the same formula will apply to the other three regions.

Sweetening the pie

The textile industry, a chunk of which has been exported to Egypt, is among several areas singled out for special treatment. Any company owner willing to transfer their operations, lock, stock and barrel from either of the two richer zones to either of the two poorer zones will have the corporate tax rate slashed from 20 percent to 5 percent, all relocation expenses paid and be exempted from social security payments for five years.

There are, inevitably, some conditions. The move has to be made before the end of next year and the company has to employ at least 50 people. The name of Erdogan’s game here is to spread the productive economy more evenly around the country. With the state subsidies and lower salaries paid in eastern Turkey, overhead operating costs would be cheaper for those who take the plunge. What they also face in parts of the region is a transport infrastructure in need of a vast overhaul and a local labor pool drawn from the least educated slice of the Turkish population. In any case, no one has explained how creating jobs in one area by making people redundant in another can be counted as a net gain.

Indeed, the unemployment rate has reached a worrisome 15 percent. For that reason, the prime minister included in his announcement an employment package that will pay 200,000 people $9.70 a day to join on-the-job training program, while providing jobs for another 120,000 others in school and health center maintenance, tree planting, erosion control and caring for parks.

“The government is determined to turn around the economy whatever the costs,” Erdogan said.

Perhaps mindful of continuing talks with the International Monetary Fund on a new standby agreement and differences between the two sides on tax and spending policies, he added that none of the measures would involve the “slightest concession to fiscal discipline.”

The IMF appears unconvinced. Later in June, director of the IMF’s European Department, Marek Belka, said Turkey may need to cut its spending levels to achieve financial sustainability. Speaking in Washington, Belka was quoted by the Reuters news agency, saying, “No matter if there is an IMF program or no program, the Turks themselves have to make the necessary adjustments, fiscal cuts if necessary or longer-term reforms both on the expenditure and tax side, so that we can both agree that the fiscal situation is under control in the longer term.” The last agreement expired in May 2008.

Hope makes for happy markets

Belka’s remarks came the day after IMF First Deputy Managing Director John Lipsky held talks with Turkish authorities in Ankara. The agenda was ostensibly preparations for the annual meetings of the World Bank and IMF governors to be held in Turkey in October. Although there were no substantive talks on a new loan agreement, both the Istanbul Stock Exchange and the currency improved simply on the possibility of a deal.

The current talk in Ankara — that an agreement could be signed by August — is reminiscent of the political gossip put out every month since last October. This alternates with suggestions that the Turkish economy is sound enough to survive without an IMF loan anyway. Certainly, the Turkish government appears in no mood to don an IMF straitjacket and abandon its current policies.

Peter Grimsditch is Executive’s correspondent in Istanbul

July 31, 2009 0 comments
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Levant

Water from a desert well

by Executive Staff July 31, 2009
written by Executive Staff

Jordan is to construct a $1 billion pipeline to transport drinking water from the Disi valley in southern Jordan to thirsty Amman in the north. Most experts welcome the project, yet wonder what will happen to agriculture in Disi, which has depleted its aquifer by almost one third. And, even if agriculture is halted, will there be enough water to make the costly pipeline worthwhile?

First initiated in the late 1990s, the Disi Water Conveyance Project (DWCP) aims to supply Amman with 110 million cubic meters (MCM) of water annually. The project was long regarded as too costly, yet the Jordanian government in 2007 contracted Turkish construction firm GAMA to implement it. Construction will commence in early July 2009 and is due to be completed by 2013.

“The project costs close to $1 billion,” said DWCP manager Othman al-Kurdi at the Ministry of Water and Irrigation in Amman. “It includes drilling some 55 additional wells in the Disi area and the construction of a 325 kilometer long pipeline to Amman, as well as two pumping stations and water reservoirs near Amman.”

The project is funded by low interest loans from Europe and the United States, and some $300 million from the Jordan treasury. Upon completion of the DWCP infrastructure, GAMA is entitled to exploit the system by collecting water tax revenues for some 21 years, after which the government will take over.

“I can say with a high level of confidence that Disi will supply us with 110 MCM of water annually for some 50 years,” said Al-Kurdi. “If all circumstances work in our favor, it may even supply us with water for an additional 10 to 15 years.”

Asked what will happen to the use of Disi water for agriculture, he replied sharply: “No politics. I told you before: no politics. All I can say is that our priority is drinking water.”

Disi’s aquifer

On the main road through Disi, the significance of water in the desert valley becomes clear.  While land on one side of the road is blessed with melons, grapes, olive trees and cypresses, the other side is a barren sandy plain that seems to have fallen straight off the moon.

The striking difference between the two sides of the road is due to irrigation. In the 1960s, a fresh water aquifer with a depth of up to 1,000 meters was found in Disi. The  mixed layer of sand and water measures some 360 square kilometers and stretches well into Saudi Arabia. Since the 1980s, both Jordan and its bigger neighbor have increasingly used the water for agriculture.

“I’ve been growing olives, grapes and potatoes for about 30 years,” said Abu Mohamed, a wrinkled 50-something-year-old with hands the size of spades. “Our products are first sent to Amman and then to markets in Jordan and abroad, mainly Europe and Iraq.”

Not all agriculture is in the hands of local Bedouins. All along the road, signs indicate the presence of the “Rum Agricultural Company.” According to Abu Mohamed, Rum and other firms are owned by people from Amman and Aqaba. “They mainly grow fruits like apples and apricots further inside the valley,” he said.

Deeper inside the valley one also finds the hilltop palace owned by the ruler of Dubai, Sheikh Mohamed bin Rashid al Maktoum, and his wife Princess Haya of Jordan. To liven up the view from the palace, Maktoum created an artificial lake in the valley below, which every winter attracts flocks of migratory birds. The Dubai billionaire has left his mark on Disi in more than one way, as he revived the ancient tradition of camel racing. Every Friday, animals, jockeys and spectators gather on a dirt track outside Disi village.

Next to the race track, surrounded by a layer of red mud, one of the valley’s 55 wells is under repair.

“There is a lot of sand in the water, which harms the pumping installation,” one worker explained, adding that he had heard about the upcoming pipeline to Amman. “We’ve seen the pipes along the road, but so far we have not been told anything.”

One of some 55 water pumping stations scattered around the Disi valley

In 1946, every Jordanian had access to some 3,600 cubic meters of drinking water per year. Today that amount has dropped to 160

More people with less to drink

Water is a scarce commodity in Jordan and, consequently, a highly political one. Not only is Jordan one of the world’s poorest countries in terms of water resources, it also has one of the world’s highest population growth rates. What’s more, throughout its history, the kingdom has had to absorb wave after wave of refugees. While in 1946 every Jordanian had access to some 3,600 cubic meters of water per year, today the water per capita ratio has decreased to a meager 160 cubic meters per year.

Due to the presence of illegal wells, exact figures are hard to come by. It is estimated however, that current demand is some 1,350 MCM per year, while annual water supply amounts to but 1,000 MCM per year. An estimated half of Jordan’s supply stems from groundwater extraction, which takes place at twice the rate of what is regarded as ecologically sustainable. At least 65 percent of Jordan’s water goes to agriculture, while the remainder is used for drinking water, industry and tourism.

“Disi water is good quality water from a non-renewable source and therefore should be used as wisely as possible,” said Elias Salameh, professor of hydrogeology and hydrochemistry at the University of Jordan, who has long been a vocal critic of agricultural practices in Disi and welcomes the pipeline to Amman.

“The wisest way is to first use it as drinking water and then collect and treat the wastewater to reuse it for agriculture and industry. Of every 100 MCM some 80 MCM can be used again.”

A quarter century drained away

According to Salameh, the past 25 years have been extremely wasteful. The Disi aquifer contains an estimated 7 billion cubic meters (BCM), up to a third of which has so far been used for agriculture. The problem with growing crops in Disi, where summer temperatures may soar well above 40 degrees, is that the evaporation rate in southern Jordan is twice as high as in north Jordan. In addition, most agricultural products are exported, which means Jordan is virtually exporting water. 

Currently, some 80 MCM of Disi water a year is used for agriculture, while some 16 MCM is used as drinking water in the rapidly growing city of Aqaba. The government has pledged to get rid of agriculture in Disi, yet that may be easier said than done. Certainly the local Bedouins will not want to give up their new-found agricultural wealth, for Disi does not exactly offer a wide range of alternative sources of income.

According to Salameh however, most agricultural production in Disi is in the hands of four agricultural firms owned by a group of very influential Jordanians, among them one of the richest businessmen in the kingdom and a former prime minister.

“Their agricultural licenses have a validity of 25 years and are set to expire in 2010 or 2011,” Salameh said. “Let’s see if the government will keep its promise.”

If it can keep its promise, Salameh said, the Disi project will help to temporarily fill the gap between water demand and supply, and relieve the immense pressure on Jordan’s northern aquifers, which all suffer from over-extraction. However, seeing that Jordan’s current population of some 6 million is set to double by 2025, the Disi pipeline is no long-term solution.

According to Salameh, there is only one long-term solution for Jordan: the Red Dead Canal. “A desalination plant combined with a canal from the Red to the Dead Sea is the only way to save the Dead Sea, and provide Jordan with drinking water.”

Mainly due to the overexploitation of the Jordan River by both Israel and Jordan, the Dead Sea evaporates quicker than it is replenished. As a consequence, the Dead Sea’s water line is receding by an average of one meter per year.

Although Salameh welcomes the construction of the pipeline, given that agriculture in the desert is halted, he still wonders if Jordan’s water and money could not have been spent in an even wiser way.

“I am no urban planner, but sometimes I ask myself: instead of bringing water to the people, why not bring the people to the water?” he said. “With the money spent on the pipeline, we could build a city and industrial zone near Disi and Aqaba, which would relieve the immense urban pressure on Amman.”

With Jordan’s population of 6 million set to double by 2025, the Disi pipeline is no long term solution

July 31, 2009 0 comments
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Levant

Resurrecting the rail

by Executive Staff July 31, 2009
written by Executive Staff

It is a quirk of history that the Middle East was better interconnected 50 years ago than it is now. Train tracks laid down during the Ottoman era made that possible, with direct lines running from Istanbul to Medina in the South, and to Baghdad in the East.

Syria is now re-starting these train lines as part of a bid to become the transport hub of the region, connecting the Mediterranean with the Arabian Gulf and the Red Sea.

On May 30, following decades of inaction, a cargo train carrying 800 tons of steel left the Syrian port of Tartous on a 36-hour trip to Baghdad, running 894 kilometers through Syria and a further 429 km in Iraq. This route has now been supplemented by passenger train services to Mosul, and cargo transited from the Syrian ports of Lattakia and Tartous to the Iraqi Gulf port of Umm Qasr, via Iraq’s rail network.

“Syria has been talking more with the Turks, the Iranians and the Iraqis to develop this network,” said Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Syria is trying to see itself as a hub for the region, so it is working now towards developing a road and railway network, plus there is gas passing through Syria and up to Europe,” he added.

With bilateral trade surging between Syria and Iraq — estimated at $800 million annually — and more than 1 million Iraqi refugees living in Syria, the link is expected to bolster ties between the two neighbors.

Syrian Minister of Economy and Trade, Amer Hosni Lutfi, recently said on a trip to Baghdad that he hopes that bilateral trade will triple in coming years to make Iraq as important a trading partner as China or Turkey. Each countries’ trade with Syria amounts to $2 billion annually.

The railway has a competitive cost advantage over road transportation for the same route. According to the Syrian Railway Organization (SRO), transport costs for one ton of freight from Tartous to Baghdad are $37, compared to $69-$83 by road.

The SRO has been gradually upgrading Syria’s aging fleet of Eastern European-made trains, while signing cross-border agreements with neighboring countries for passenger trains and cargo. Cargo links to Turkey, and on to Eastern Europe, have increased, with the SRO saying some five million tons of goods are to be transported annually on the route from Aleppo to the Turkish city of Gaziantep.

In 2002, the Tehran-Damascus line was restarted, and twice weekly service primarily transports Iranian and Syrian tourists (the trip takes about 50 hours). Trade between Iran and Syria was estimated at $340 million and joint economic activities at $1.5 billion in 2008, according to the Iranian Chamber of Commerce.

Regional railways

“There is more and more talk among Arab countries that trains are the best way to link countries together,” said the Syrian Consulting Bureau’s Sukkar. “This came up at the Kuwait Economic Summit in January, with one recommendation to develop the road and railroad network among Arab countries; the lack of this has been a main deterrent to an effective, unified Arab economic scheme.”

Iraq is planning billions of dollars in upgrades and to expand its domestic rail network from 1,995 km to as much as 4,988 km.

Iran is also planning to double the size of its 8,300 km rail network, making the country a transit route for cargo heading to Pakistan and Central Asian countries.

Jordan plans to launch a $6.4 billion rail network, with a 564 km line from the Red Sea port of Aqaba to the Syrian border, where it would then connect to the Syrian network and transit on to Turkey and Europe. An East-West railway is also planned, slated to run 482 kilometers from the northwestern Jordanian city of Irbid to the Iraqi border, with a potential additional line to the Saudi Arabian border.

Saudi Arabia meanwhile is investing billions of dollars to expand its network, including the $6 billion high-speed line between Mecca and Medina via Jeddah.

July 31, 2009 0 comments
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Levant

Realpolitik in the pipeline

by Executive Staff July 31, 2009
written by Executive Staff

Egypt and Syria need gas to meet burgeoning domestic consumption and to increase their hard currency reserves. Jordan and Lebanon need it to fuel their electricity plants.

Europe also needs more gas, and from new sources. Reliance on Russia for 40 percent of Europe’s natural gas left thousands in the cold early this year when Moscow stopped the flow of gas westwards, after a spat with Ukraine over gas prices.

Both regions are now hedging on two pipeline projects that center around the Eastern Mediterranean, what is being dubbed the “Southern Corridor,” to meet demand.

The lynch pin of this “new Silk Road” is Turkey, the conduit for gas to flow through pipelines from Central Asia and the Middle East to Europe. The $10.6 billion Nabucco pipeline is the centerpiece, drawing gas from the Caspian region — Azerbaijan, Turkmenistan and Kazakhstan — as well as Georgia and Iraq. From the point where it plugs into Turkey’s pipeline network, the Nabucco pipeline will run 3,300 kilometers to a distribution hub in Baumgarten, Austria, potentially delivering up to 31 billion cubic meters (BCM) of natural gas a year to Europe.

Tying into the Nabucco project is the Euro-Arab Mashreq gas pipeline (EAM). Once completed, the 1,200 km pipeline will transport Egyptian gas through Jordan and Syria to Turkey. Lebanon will also tap into the network, having signed an agreement with Egypt for 600 million cubic meters (MCM) per year, while Iraq will be pivotal in keeping supplies of gas flowing into the network whenever a pipeline comes online.

That, at least, is the plan. Currently, the EAM pipeline is just beyond Homs in western Syria, awaiting a new tender to complete the final leg to Turkey, while Nabucco’s future remains uncertain. As always with such grandiose plans that span borders, jurisdictions and the interests of multiple energy players, the pipelines’ futures are hinged on political relations, finances and, crucially, gas supplies.

“Neither the Mashreq pipeline or the Nabucco pipeline are in a position to be realized, and neither has received enough financial backing,” said Graham Coop, general counsel at the Energy Charter Secretariat in Brussels.

The path of the Euro-Arab Mashreq gas pipeline

Source: Euro-Arab Mashreq Gas Co-operation Centre

Pipe dreams

Plans to develop the Southern Corridor began in 2002, after talks between Austrian energy company OMV, Turkey’s BOTAS, Hungary’s MOL and Romania’s TRANSGAZ. After the initial meeting, board members spent a night at the opera listening to Verdi’s Nabucco.

While the opera provided the name for the project, the signatories must be hoping that the pipeline won’t reflect the opera’s tragic plot, which recounts the plight and subsequent expulsion of the Jews under King Nebuchadnezzar. Yet the Nabucco project has faced numerous obstacles from the onset, with costs doubling and countries using the proposed pipeline for political leverage.

Last year, Georgia’s ill-advised move into Ossetia brought on the wrath of Russia. But with Georgia to be linked into Nabucco, the conflict provoked concerns over regional security risks and further shook the already fragile financial confidence in the project. The United States also threw a wrench in the works when it pressured the European Union to focus on Central Asia as a gas supplier for Nabucco rather than Iran due to the US-Iran standoff over Tehran’s nuclear aspirations.

Then this January, the country where half the pipeline is located, Turkey, said it may withdraw from the project if the country’s EU accession remains blocked. Coming at the same time as the Kiev-Moscow spat and the EU desperate to wean itself off Russian gas, Prime Minister Recep Erdogan’s comments did not go down well in Brussels.

Such incidents did, however, spark renewed interest in the project after a year of deadlock, and by the end of January the European Investment Bank and the European Bank for Reconstruction and Development said they were prepared to bankroll the pipeline. By May, Turkey caved in, dropping its demands for a “transit tax” and 15 percent of the gas at discount prices at a summit in Prague. The final agreement between the EU, six gas companies and Turkey is expected to be signed in early July.

But while the agreement is expected to finally see pipes being laid, question marks still hang over the project. Gas rich Turkmenistan — which exports 68 BCM of gas per year — attended the Prague summit but declined to comment, seemingly to play the Russians against the Europeans. Meanwhile, Azerbaijan has stated that it does not have enough gas to be the sole provider for Nabucco, while Russia has offered to buy all Azeri gas at market prices — an offer apparently still on the table.

Iran wants to build a ‘Persian pipeline’ to connect to Nabucco, but the EU has not figured Iran into its plans. Even if Tehran did get the green light from the EU, Iran lacks the infrastructure to export gas, last year importing 6.1 BCM from Turkmenistan.

Further adding to Nabucco being a literal ‘pipe dream’ is Moscow’s attempts to dominate all supply routes to the west by pressuring Central Asian states to side with the Kremlin. Additionally, there is a joint project between Russia’s Gazprom and Italy’s Eni, inked in 2007, to develop a rival pipeline to Nabucco. Called South Stream, gas would be piped from Russia via Bulgaria to Italy and Austria.

Adding insult to injury, Gazprom in May urged the EU to embrace South Stream and warned that if Europe does not want Russian gas, Gazprom will turn to the energy hungry Asian markets instead. Bulgaria however has backed both pipelines, saying the projects are necessary to meet European demand. And while the Europeans  seem wary of Russia, some analysts think such concerns are unjustified, with imports of Russian gas having halved from the 80 percent they were in 1980s.

Syria’s estimated gas supply and demand

Source: EAMGCC

The success of the E.A.M pipeline hinges on Egypt being able to ramp up gas output to meet demand

Is there enough gas?

It is not just Europe that is keen to see Nabucco get underway. The finalization of the Nabucco pipeline would have added value for the Levant. With Nabucco in place, gas from the Euro Arab Mashreq pipeline could feed into the Nabucco network, and vice versa. “The link up would have added value for both projects,” said Coop.

The EAM is not dependent on Nabucco to start pumping into Turkey, as once the final stage is complete, the pipeline will connect to the current Turkish grid. But down the line as demand spikes and the supply gap widens, the Levant will need more gas.

“Nabucco is not a must have, at least initially,” said Richard Kupisz, team leader of the Euro-Arab Mashreq Gas Co-operation Centre (EAMGCC) in Damascus.

For Syria and Jordan, being linked to Nabucco would have added value sooner rather than later.

The importance of the extra gas flowing into Turkey, and from there south, is that Egypt may be unable to provide adequate supplies of gas to the Levant through the EAM pipeline.

“There is enough gas [for Egypt] to meet current commitments, but for the major projects, these need to be underpinned by further discoveries,” said Craig McMahon, a North Africa analyst at energy consultants Wood Mackenzie.

Nabucco could also be a lifeline for Syria if there are potential spats with Amman or Cairo, either of which could easily stop the flow of gas. After all, Jordan and Syria have had their falling outs, at one point leaving the completion of a tiny 200 meters section of the pipeline in limbo until an unrelated political issue was resolved.

Furthermore, Jordan’s demand is spiking, and there is the very real possibility that by the time the EAM pipeline reaches Syria there will be insufficient supplies to meet the country’s needs. At present, Egypt exports 2.5 million cubic meters per day (MCM/D) through the EAM, with 2 million MCM/D to Jordan and 0.5 MCM/D to Syria.

“Officially this should be increased to 6 MCM/D and afterwards to 9 MCM/D, but nobody knows [if this will happen],” said Kupisz.

While Syria produces 21 to 22 MCM/D of gas, some 4 to 5 MCM/D is used for gas injection into fields or as burn off, leaving around 16 MCM/D for electricity generation and industrial use. At present this is sufficient, but with power plants to come online in the next few years and electricity demand growing by 10 percent per year, Syria will need to offset the supply gap (see chart). Syria could therefore easily consume more than it receives from Egypt.

“Syria can consume 3 MCM/D, but Egypt is not exporting more,” said Ziad Ayoub Arbahe, an energy consultant in Damascus.

For Turkey and Europe to access gas from EAM, the Egyptian gas Syria uses would have to be topped up with Syrian gas.

“For the pipeline to be viable, Syria would need to export 3 MCM/D to Turkey,” added Arbahe.

The success of the EAM hinges on Egypt being able to ramp up gas output to meet rising domestic demand, other export commitments, and provide to the EAM. It is currently a matter of what Cairo considers more of a priority: using energy as a political tool within the Levant, or exporting liquefied natural gas (LNG) to Europe according to seasonal demand and for higher prices.

“For Egypt the pipeline is one option, but could equally expand LNG infrastructure, so there are a number of competing actors,” said McMahon.

Cost preferential agreements have been signed between Egypt and Jordan, Syria and Israel. But with Cairo keen to access hard currency, such markets might not be always economically preferential. Adding to this is the geological complexity and depth of Egypt’s gas fields, which seriously raise extraction costs.

“If Egypt has the potential to sell gas through LNG and at international gas prices, why not do it?” said McMahon.

Jordan’s gas network structure

Source: IPA Energy Economics

Untapped supplies

While the success of the EAM is in doubt, certain developments could secure gas volumes, namely ramped up production from Egypt’s gas fields, and if the countries involved become full members of the Energy Charter Secretariat. The Energy Charter administers the treaty ratified by all 27 EU states, Russia, Central Asian states and Turkey. The charter treaty promotes four main areas: trade on World Trade Organization principles, freedom of transit, energy efficiency and investment protection. If countries violate the treaty, sanctions can be imposed. Asked what it would mean if current observers Jordan and Egypt signed up as full members of the Euro-Arab Mashreq pipline, Coop said: “it would certainly add security to the project and for the EU.”

While some analysts question Egypt’s ability to extract enough gas, McMahon is upbeat.

“There is every reason to be optimistic, although we need further exploration success and to see those wells drilled,” he said. “But it is hard to imagine increases from Egypt in the shorter term.”

All may not be lost, however, if Egypt is neither legally required to pump gas via the pipeline nor able to meet demand. Syria could come to the rescue, with an estimated 40 percent of the country not drilled or prospected for gas.

“Potentially we could find huge reserves,” said Arbahe.

The only other options are to transport gas from Qatar and Iraq, or Iran via the Nabucco network.

“If a pipeline comes from Iraq or Qatar, there would be a principle pipeline, and a viable network,” said Arbahe. “But for Iran to join the network, [they] would need to solve political problems and technical issues first.”

Iraq is considered the most viable option, with the Akss field in the west of the country only 50 kilometers from the Syrian network.

“They have spare capacity, and the Akss region is not a big market, so it is logical to go to Syria,” said Kupisz. “A contract has been done for 1.5 MCM/D to be processed in Syria and exported or used here, but it is under a new licensing round in Iraq.”

Longer term, the pipeline could also connect central Iraq to the Euro-Arab Mashreq pipeline, potentially able to provide 30 MCM/D over time.

“International oil companies are looking at it, and attracting great interest, although Iraq’s infrastructure is not developed,” said Naeem Danhash, project director of the EAMG CC. “But the medium to long term prospects for Syria to become a gas hub are excellent.”

Whether Syria and Turkey will attain the coveted positions of regional gas hubs is still up in the air, given the questionable viability of either the Euro-Arab Mashreq pipeline or Nabucco.

McMahon, however, has his own thoughts: “The Iraqi supply could ultimately be the answer.”

“The medium to long term prospects for Syria to become a gas hub are excellent”

July 31, 2009 0 comments
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Lebanon

News in Brief

by Executive Staff July 31, 2009
written by Executive Staff

Telecoms: Broadband please

Lebanon has long been plagued by archaic Internet speeds. But that may change by the end of the year. At a recent regional telecom conference held in Beirut, Samer Salameh, chairman and chief executive officer of Alfa, managed by Orascom Telecom, announced that his company would introduce mobile broadband services to the Lebanese market by the end of this year.

If implemented, Lebanon’s mobile users will have the ability to download various types of media onto their mobile devices at speeds dozens of times faster than the current fixed service maximum. Since Lebanon’s telecommunications industry still falls under government control, the state will foot the implementation bill. The new service will compliment the recent expansion undertaken by Lebanon’s two mobile operators subsequent to renewing their management contracts with the Lebanese government. The move by the government will also allow the mobile industry to leapfrog the country’s fixed telecommunications services.

“It’s great,” says Salam Yamout, member of the board at the Lebanese Broadband Stakeholders Group. “I hope it is not a public relations stunt.”

Alfa declined to comment on the issue.

It wouldn’t be the first time mobile networks have bypassed the fixed service, said Riad Bahsoun, telecom expert at the International Telecommunications Union.

“In Lebanon, the priority and the focus has always been on mobile services rather than the fixed services,” he said.

To use the new technology, however, customers will have to beef up their mobile devices.

“Service availability depends… on the availability of handsets and data cards on a mass scale,” says Patrick Eid, board member and head of the market and competition unit at Lebanon’s Telecommunications Regulatory Authority. “Unless end users’ handsets and terminals are abundantly available at affordable prices, there will be no true mass market and true choice for consumers.”

Bahsoun, however, is confident that proposed pricing models for the new service will penetrate the market.

“Prices will be high in the beginning but… will start to drop quite immediately,” he said. The news is encouraging but nothing is assured as the formation of a new cabinet and selection of a telecommunications minister may further slow the process.

Electricity: Shorting out

With the summer months approaching, Lebanon will need more power. According to figures issued by the country’s Ministry of Energy and Water earlier this year, the demand for constant power generation peaks at around 2,200 megawatts of electricity. At present however, the country only produces around 1,500 megawatts, resulting in widespread power cuts.

But there has been some respite lately. The Ksara relay station in the west of the country, which can handle up to 400 megawatts, has recently come online. The station is connected to the ‘ring of eight’ power grid, which connects a total of eight countries in the region to the same power grid and can potentially supply Lebanon all the electricity it needs.

But the reality is not that simple.

“Now that the station has been completed, they have to agree on the price and the source [of the energy],” says Chafic Abisaid, president of the Lebanese Solar Energy Society.

The electricity provided to Lebanon will come from Egypt and royalties will have to be paid to both Jordan and Syria, according to Abisaid. On May 29, the Syrian Arab News Agency reported that power started to flow to Lebanon through Syria via the ring of eight, but there have been reports that the stream of power has been intermittent.

The Lebanese government currently spends up to $1 billion per year on subsidies to its electricity sector and experts estimate that the country will need a further $2 billion of investment to meet the country’s energy demand by 2015.

Even though the power station at Ksara can handle up to 400 megawatts, it is expected to supply only around 300 megawatts, according to Abisaid.

To import more power, Lebanon would need to build another power station, which is currently unlikely for Lebanon’s cash-strapped government. The increased demand for power in the summer months makes it likely the Lebanese will be left without air conditioning for several hours per day, despite the increased capacity.

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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