Executive Magazine

Bank BEMO – Samih Saadeh (Q&A)

by Soraya Darghous August 1, 2009

written by Soraya Darghous

Samih Saadeh is general manager of Lebanon’s 18th largest bank, Banque BEMO, and has been with the bank since 2003. He started working in the banking industry in 1978 and has been a senior executive at American Express Bank-Beirut, Bank of Beirut and ABN AMRO Bank.
Bank BEMO has total assets of $1.05 billion, and if the bank’s Syrian affiliate is included, some $3 billion. In the first half of 2009, the bank’s total assets grew by 15.6 percent. Executive sat down with Saadeh to talk about his bank’s success and gain insight into the role smaller banks play in Lebanon today.

Samih Saadeh

E As a medium sized “beta” bank, how does your strategy differ from an alpha bank? What are the top priorities on your agenda?

This is a board decision, it’s the oversight of the bank. We compare our private banking to Bank Audi Saradar sometimes, yes, [but] on a smaller case though, because they have larger capital and client base. Certainly when you have a universal bank you have a larger client base, which allows you to make more money and to be more exposed.

What we’re trying to do on a smaller scale is have a boutique bank, instead of having a universal bank. I respect everybody’s strategy, I probably agree with other’s strategy sometimes — because it’s faster to make money and grow — and you come to BEMO and you see it’s very little and a bit slower.

If you want to be a private bank in this country, you really have to have political stability. If people want to believe in putting money with you, you don’t have to rely on the locals. I hope one day the political stability arrives, but this is one of the missing links in the chain to complete the services of Lebanon as a financial center. All of the potential that Lebanon has is not prospering because of the political instability. People want to trust this bank in 10 or 20 years, and this is what we are betting on. We want to build this; we want to complete this closed chain in Lebanon.

E Now, how to survive? Bank Audi, for example, has built a lot of things around their vision and one of them is private banking.
Corporate banking and retail banking need a lot of capital. You need to either open capital or get other investors. Private banking, in reality, doesn’t need a lot of capital. It needs a lot of know-how, conservatism and trust.

E What kind of customers do you cater to?
We as BEMO have a different strategy than Lebanese banks. We don’t want to play volume. We would like to grow, certainly, but if you want to grow you have to have large capital and to possibly go into retail banking. You also have to have a strategic vision for the bank, which allows you to be like any other bank. In Beirut, we’re very specialized. Our motto is ‘corporate and private banking.’ We don’t do retail banking — we do to an extent though.

Recently we started to buy some Lebanese government sovereign paper. If you want to collect deposits and you don’t put it in a sovereign bank, you have to lend it. You are bound by ratios as well, on how much you lend. There is a limitation to how large we can grow in volume. So we always look at how much we can grow in fee income, not how much we can grow in volume. Even if I get a large deposit today, I lose a lot of money. Either you put it in the government, outside, or with the central bank. Even if the central bank pays for you half a point — you lose a lot of money.

Originally Lebanese banks collected deposits — they lent around 50 percent and placed with the government and the central bank up to 55 percent. We, on the contrary, have 25 percent with the central bank, and with the government we have 3 percent to 5 percent, not more. This is why growth is a limitation to us. If you compare us to the rest, we are a beta bank in volume, but our strategy forbids us from being an alpha bank, even if we wanted to.

E How has the bank’s strategy changed since the global financial crisis struck and now after?
Banque BEMO has always had the strategy to grow to be a private bank whereby we would be acting as a financial advisor for every high net worth individual throughout their life — no matter what stage they are in. If you want to act as a financial advisor, you need to build the reputation. Building this reputation takes decades actually. We’re building on the heritage the Obegi family has, for the last 50 years. Now we have another decade to work on, to earn this trust from the people. Also, we use a business model of relationships. That means every client has his own financial advisor or relationship manager.

When the financial crisis came — and this is an approach to private banking — people stopped dealing and we make a lot of money on people making deals. So part of our income was hurt… Now, it’s catching up, thank God, the trust is starting to be rebuilt. People are getting into the market.

On the corporate side, we didn’t suffer at all. We had a certain amount of money lent, and we had lent it. In percentage, we are the highest lent bank to corporates in the country. We are lending around 45 percent of our total assets to corporates. We don’t go into the government too much.

Private banking income was a little bit on a standstill. We hope that it will catch up again.
We didn’t change our strategy, it stayed the same… we just weren’t aggressive in pursuing it in the last year. But the board decided that strategically this is what they want. They want to stay as a private, corporate bank.

E Since the financial crisis, how has your advice to your clients changed? What are the most common investments you tell them to make?
Frankly it’s not easy to let them come back. Everybody lost, depending on the extent of the loss — nobody can claim they didn’t lose… If they bought their portfolios five, 10 years ago or two years ago they probably didn’t lose — the starting point is most important [factor]. We are inviting them to come back because the markets are starting to pick up, there’s a lot of opportunity. But, be prudent at least. You have the safe investments, if you go into medical and commodities. There are aggressive and risky investments like financials. Depends on your profile. We always split our client base into categories.

E Recently, the International Monetary Fund said Lebanon’s economy could grow much faster than their previous projection of 4 percent. But, the IMF emphasized that the top priority for Lebanese banks should be dealing with the public debt. What is your take on this?
This is quite a thorny issue. Who is right? Imagine if the banks didn’t give money; what would have happened? Also, imagine that we didn’t have this flagship of the economy — the banking sector — nobody would have heard of it. The economy is built on the financial sector.

Certainly, the financial sector is benefitting from lending to the government, but it’s also to the benefit of all stakeholders. We were saved from the financial crisis because our debt was local. Lebanese banks cannot stop financing the government; it’s in their interest now.
For me, the public debt is the least thing we should worry about. If we spent the same time talking about the debt on increasing productivity, the GDP of the country would soar.

Recently, Lebanon’s GDP increased to $33 billion; it could be $50 billion! This year we have a growth of 6 percent, when everyone else around the world is suffering negative growth. Imagine if there was political stability; the growth could be far higher.
Debt is not a problem as long as you generate productivity!

August 1, 2009 0 comments

Lebanon

Forestry – Firefighting reinforcements

by Executive Staff August 1, 2009

written by Executive Staff

The first week of July saw an unprecedented number of wild fires rage across the country: 185 in three days. The Lebanese authorities struggled to contain the unexpected fires; the three firefighting Sirkosky helicopters, acquired this year, still weren’t ready to be used so early in the dry summer season.

From Beirut, smoke from two fires could be seen billowing off the Chouf and Metn, leaving black scars in its wake. From Zgharta to Tebnin, the fires burnt fruit groves, olive trees, grassland and pine forest. The damage costs farmers and others millions of dollars per year — up to $10 million to replant 2,000 hectares of land. The fires are suspected of being started by farmers, charcoal collectors, trash burners or campers, despite a law that comes into effect every summer banning fires in rural areas.

It was the same in 2007, when fires destroyed 4,031 hectares of forest and agricultural land, or more than triple the annual average of 1,200 hectares. To the Lebanese government, this number symbolized far more than just the immense physical and fiscal damage that the fires caused. This time, change needed to happen.

“The fires of 2007 following the damages caused by the summer war of 2006 brought to light not only to the Lebanese citizens, but also to the government, the rapid decrease of forestry in Lebanon,” said Dr. George Mitri, research and development program coordinator at the Association for Forests, Development and Conservation (AFDC), a Lebanon-based non-governmental organization collaborating with the government to find a more effective long-term solution to Lebanon’s forest fire problem.

“In 1965, the percentage of forestry in Lebanon, and we’re talking about mostly pine trees, was at 35 percent of the country. Today, 34 years later, it’s at only 13 percent,” continued Mitri. According to an AFDC report, 5.6 percent of Lebanon is at high risk of fires and 25 percent at medium to high risk.

When forests are lost, ecosystems are destroyed. Certain species of plants, animals and different kinds of wildlife continue to be classified as endangered in Lebanon. Forests act as somewhat of a ‘filter’ for air. With less forests, the effects of pollution are more severe. Additionally, forests serve economic benefits, with the average hectare of forest in Lebanon generating gross benefits of $381 per year according to the AFDC. This figure rises when fruit trees are included. For instance, one hectare of oilve trees generates an estimated $13,300, according to the World Bank. Overall, the total gross losses of the October to November 2007 fires were estimated at $31.1 million.

So when the smoke cleared, plans were put in place to develop a new strategy to better manage and combat forest fires in Lebanon. ‘Lebanon’s National Strategy for Forest Fire Management’ was introduced this spring as the new official tool to combat forest fires in the future. The most important aspect of the strategy, according to Mitri, was that it signified the first time the Ministries of Interior, Environment and Agriculture were to collaborate jointly, alongside the Civil Defense and a number of local and international NGOs.

The working plan
Lara Samaha, head of the Department of Ecosystems at the Ministry of Environment, believes that the strategy is a positive first step and can succeed in effectively bringing down the annual damage caused by fires in the long term.

She says the strategy specifies what needs to be done to combat forest fires in Lebanon, as well as “determines for each national action, on all levels, the concerned and appropriate administration for its implementation.”

The strategy emphasizes the three important steps of forest fire management: prevention, combating the fires, and restoration and rehabilitation of the land. Within the strategy are the detailed responsibilities of each ministry, and the best method for each to execute its role.

The hurdles that the new strategy must overcome, however, remain immense. The Lebanese climate is often compared to that of California, where pine tree forest fires prove to be a consistent and difficult problem. In California, the average loss of forest has been 105,000 hectares per year over the last five years.

“When the committee was put together to come up with the new national strategy, we went to California to speak to experts in the field, knowing that we were going to need to learn more,” said Samaha.

Year after year
Thousands of fires threaten Lebanon’s forests every year, and the Civil Defense’s fire fighters — up to 4,000 of them unpaid volunteers — struggle to contain the destruction during the dry summer months, between late May through September. Among the most difficult factors in combating forest fires is their unpredictability once the flames are out of control.

“Some of the factors contributing to spreading forest fires are wind speeds and distances from the nearest Civil Defense stations,” explained Mitri. “As long as the Civil Defense can make it to the area of the fire within the first 20 minutes, they can probably contain it before it grows.”

George Abi Musa, the head of operations at the Department of Civil Defense, agreed that getting to the fire early is key to properly managing and combating it, but adds that this is often difficult.

“When you have 15 or 20 fires which are burning at the same time, it’s nearly impossible to get to all of them in proper time,” explained Abi Musa. “In late June, did you know that there were 683 fires in a span of five days, with 45 of them coming in a two-hour span?”

Abi Musa believes that the Civil Defense has one of the largest, if not the largest role to play in managing forest fires in Lebanon, and is excited about the three new Sirkosky helicopters purchased by the Ministry of Interior to be used by the Civil Defense. The helicopters, which can carry up to 3,500 liters of water per trip, are estimated to have cost a total of $13 million, according to The Daily Star, and are the first such helicopters to be owned and used by Lebanon.

“I’ve been with the Civil Defense for 25 years now, and up until this point, owning such helicopters was just a dream,” said Abi Musa. “Now we can reach the fires which were previously nearly impossible to reach.”

Armed with the new strategy, confidence within the Lebanese government is high in regards to managing forest fires, but Mitri, Samaha, and Abi Musa all insist that none of what is to be accomplished can be done without the help of every Lebanese citizen in aiding the government to protect the forests of Lebanon.

“When you have a single fire, then that could have been started by natural causes. But when you have 50 or 60, it means that these are started by people, whether harm is intended or not,” said Abi Musa.
All three spoke of the need for citizens to contact the Civil Defense in cases where they see a fire, or anyone about to start one.

Additionally, finances are an important part of any effective fire-management system, with some $1.4 million spent firefighting in 2007. Replanting is a further cost, estimated at $6,300 per hectare. Sufficient funds are a luxury the Lebanese Civil Defense does not have. Support has trickled in more consistently since the fires of 2007, the year when the problem was recognized globally. Much of what can be accomplished with the new strategy will depend on the continued support of other countries, as well as local and international contributions.

Ultimately, time will tell whether or not Lebanon’s new national strategy will effectively counter the forest fire problem, but for once, there’s optimism in the government that they are one step closer to finally snuffing out the flames.

August 1, 2009 0 comments

Companies & Strategies

Samsung – Sunny Hwang (Q&A)

by Executive Staff August 1, 2009

written by Executive Staff

Samsung, the South Korea-based electronics manufacturing giant, announced the official launch of its regional Levant office this summer, to be based in Amman, Jordan. Executive was invited to attend the opening of the office on an all-expenses-paid trip, and had the opportunity to speak with Sunny Hwang, the President of Samsung’s new Levant Operation Office.

E Why did you decide on a regional office?
The Samsung brand in the global market is at this moment pretty much enjoying its status. So we are doing very well in the TV businesses and the cell phone businesses and all other business areas. For example, in the TV business we have been in the number one position since 2006 and our position is getting stronger. But in the Levant area, Samsung’s business compared to our global standard is very weak. Lebanon is a little bit stronger than any other Levant area. We are devoted to our weakest point and we want to attack it, and actually at this moment this is just the beginning. We put our head office here and by next month we will open an office in Damascus, and in the first quarter of next year we will also open an office in Beirut. That is our target.

E How can you evaluate the regional market given the current circumstances?
Before I came, I worked in Sweden, in the Nordic area. And it was the first region hit by the recession. So I know what the global recession is and I know what can be influenced by the global recession in our operations. But I feel that the Levant area is the least affected. If I want to divide by country, I think that Jordan is hit the most.

E What about internationally? How are you affected as Samsung?
In the last quarter last year, we made a big loss. The important thing is that we also expected the first quarter to be terrible. But when the results came, it proved that we had already recovered. It didn’t show a strong profit, but in the first quarter we turned the direction to profit. The market is recovering at a very slow pace. Nobody is expecting the market to recover within this year — it will very slowly recover until the end of next year. When the Korean-Asian financial crisis came in 1999, we restructured everything, and Samsung stood very tall at the time. So thanks to that we could make this very strong foundation. During most of this time we did restructuring and all the changes helped. So we did a lot of changes since the second half of last year. We restructured ourselves and strengthened our organization.

E Now in the region, what challenges are you facing to keep clients?
What I found in the last four months when I came here is that the only problem is that we did not communicate successfully with the consumers, so they do not know what Samsung is, and what Samsung products can give them. So the lack of knowledge about Samsung products is why there is so much of a gap between the global level and the level in the Levant.

E What is your strategy? What are the steps that you are planning to take in the near future?
We had great difficulty to communicate because we did not have our organization here. So what we could do before is to rely on our partners. But by nature, their interest is to sell and make profit. They do not [want] to put money [into] the Samsung brand [to see benefits] over the next 10 years, so it is a short-term profit. Only Samsung as an owner of the brand can work for 10 or 20 years later. That is why we have not done the right marketing communication or investment in the last 10 years. This is the first time we are marketing and public relations will be managed by Samsung ourselves. So we can carry our investment for the long term.

E What is your current share of the market in the Levant region, compared to Nokia?
When we are talking about mobiles, Nokia is about 70 percent, and Samsung is about 20 percent. And Sony-Ericsson is getting weaker and weaker.

E What about other regions?
In some countries, Samsung’s share can be less. But in most countries it is about 25 percent.

E Are you focusing on certain products here in the region?
We have many groups, and we cannot neglect any part of it. We have audio, video, flat screen TV, and the LSA TV is the most important one. And as you might know, we had a very good launching a week ago in Beirut in Skybar, so that is the new field of the flat screen TV market. We are creating the market at the moment. LCD flat panel TV is the strongest point and we should push that, and we should utilize it, air conditioning also. In cell phones we are number two in the world after Nokia, but we should be a stronger number two. Already in France, Samsung has been number one for the last four years. We beat Nokia in France. Benelux states are to lead, Russia also and many other countries, so why not here in the Levant?

E Last quarter demand decreased and you ended up in the red. Has this affected your pricing structure and what have you changed since?
We cannot change the pricing, because then we will be out of the market. I do not think we increased the price, but we did a lot in cost cutting, like all the executives of Samsung had to decrease their salaries by 30 percent — every executive. Instead of firing people, we chose to decrease the benefits. Today we can only travel by [economy] class.

E What are the products that were the most affected… TVs or mobiles?
It is not a certain product that is affected. We have to [differentiate between the] consumer section and business-to-business section. The global crisis immediately attacked the [latter] section, because every company is holding its purchases. So in our products there are a lot of business-to-business products like monitors and printers. They are also selling to consumers but we are talking about corporate. Consumer sales have not been affected that much, like TV sales.
People are cutting their traveling costs. So, because they are staying at home, they need a TV!

E How many people are you going to hire for this office?
That totally depends on the performance and the sales results. There will be no fixed amount of people. It will depend on the operation size. When I was in Sweden, our turnover was $1 billion, and I had 300 people.

E Here, what do you expect the turnover to be?
In three to four years our target is to reach $1 billion. [Today], for the Levant, it is around $200 million. Next year our target is $500 million.

E What are your expectations for the Levant market?
Well, my dream and my mission in the Levant is to be first in one year’s time from today, to reach the global average in TV sales and all sales, and also brand. Our branding in the Levant is quite low because we haven’t invested that much, but we will do our best to reposition ourselves. That means bringing brand preferences. Sales wise, next year will be about two times growth. And every year two times growth. That is a possibility in this market, because it is a virgin market.

August 1, 2009 0 comments

Lebanon

Reconstruction – Rebirth begins

by Executive Staff August 1, 2009

written by Executive Staff

The rehabilitation of downtown Beirut’s Magen Avraham synagogue will begin this summer, according to sources in the Jewish community. Once the largest synagogue in the Middle East, the Lebanese Civil War and the Israeli invasion of 1982 left the synagogue in ruins, a state it’s remained in for more than 20 years; but, funds have now been raised for its reconstruction.

The architect in charge of the Magen Avraham synagogue’s renovation confirmed to Executive that reconstruction is imminent. With work expected to begin in August, the site will be cleared of the trees and weeds that have grown in the partially destroyed structure.

The architect, who spoke on condition of anonymity, stated that the money for reconstruction has been raised by expatriate Lebanese Jews and private donations and will cost a total of $2 million to complete.

“The synagogue will eventually be restored to exactly how it was,” the architect said. “I will be reconstructing the synagogue using old techniques, hand-cutting the stone and so on. Currently all the ceiling, woodwork and iron work needs to be replaced. The original façade will remain but we will have to check if we need to re-do the structure.”

The Magen Avraham Synagogue Facebook group also posted an announcement that reconstruction of the synagogue would occur. This announcement was accompanied by a chorus of “Mazel tovs” and “Mabrouks” (congratulations). However, not all on the group were celebratory. David Avraham Daoud, a member of Facebook’s Israel network, wrote that the reconstruction issue is still delicate.

“I just hope it doesn’t become a death trap for the Jewish community in Lebanon,” he wrote.

Others were more positive about the synagogue’s re-development. “Let’s enjoy the integration and multi-ethnicities in our beautiful Middle East,” wrote Zainab Khalil, while Lebanese Boudi Saleh was “excited to hear that it will be renovated.” The plans for the synagogue include a museum documenting the history of the Lebanese Jewish community.

August 1, 2009 0 comments

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

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

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

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

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

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

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

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

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.

July 31, 2009 0 comments