Lebanon’s first mobile phone auction took place at the Movenpick Hotel on October 3, although it wasn’t the auction Lebanese have been waiting for.

In a scene more evocative of recent auctions for license plates in the Gulf, more than 100 deep pocketed individuals and their proxies paid $200 for the opportunity to bid on 33 ‘platinum’ MTC Touch phone numbers.

The crowd was mostly male and Lebanese, with a sprinkling of Emiratis, Qataris and Kuwaitis. They smoked cigars and munched on free sushi during the auction registration. After the national anthem signaled the auction’s start, the auctioneer announced the first “beautiful” phone number and bidding kicked off to whistles and applause as young women in taut black dresses carried card board signs announcing the number offered.

The highest bid went to an anonymous buyer, who paid $450,000 for the mobile number 70.707070.

Many buyers declined to identify themselves, or their clients, and some came for personal reasons. A buyer named Eli paid $80,000 for the number 70.696969. As he wrote a check for the $20,000 deposit, he said it was a number that was “special” to him — and supposedly not for the nefarious reasons the number brings to mind. “It’s like a work of art,” he said. “It’s unique. It identifies you forever, like a license plate or a domain name.”

Numbered investment

Other bidders bought the numbers as an investment. “It’s like the real estate,” said one bidder who asked to remain anonymous.

“Somebody might have corporate reasons — like tele-shopping,” said one representative of a telecommunications company, who also declined to give his name. “You can sell the number to a company, and then they put it on TV or billboards. It’s easy to remember; it has commercial value. “

Businessman Abdul Rahman Bandakji purchased 70.666666 for $225,000, and said he will not have to advertise to find potential buyers.

“They will come to me directly,” he said. “They will try to call this number and then they will know who the owner is.”

Fabio Al Khoury stood nearby and watched as buyers paid their deposit and received their receipts. He said he paid $200 to attend as a spectator, not to buy a number. But he knew plenty of wealthy Lebanese who would shell out hundreds of thousands of dollars for a phone number because it’s a status symbol.

“Some people, they got the money and want to show off,” he said.

Gilbert Najjar, head of the Ministry of Telecommunication’s Owner Supervisory Board, said he did not feel odd about the government pandering to peoples’ vanity.

“If they’re willing to put money into it, we’re willing to help the whole community through your vanity,” he said.

By evening’s end, the auction had raised approximately $2.5 million, Telecommunications Minister Jebran Bassil said. According to MTC Touch, if the numbers had been sold outright, they would have gone for $550 dollars apiece, and netted a total of $18,000 — but that system had become corrupt. A secondary black market developed around ‘platinum’ numbers involving pay-offs to employees at the telecom companies and ministry officials. Bassil said the goal of the auction was to squash that black market and make the telecom sector more transparent.

“We can say, now it’s a clean system,” Bassil said. “It’s a cleaner environment for the cellular, for the telecom and this is a first step; we will do a lot more in the future.”

Ministry officials say it is also a first step toward installing faith in the transparency of the much bigger auction that is expected to be held in the coming months for Lebanon’s two mobile network licenses. But for now, Bassil said the $2.5 million raised from the ‘platinum’ number auction will be used to improve the mobile network. He said he hopes Alfa will hold a similar auction in the coming months.

MTC touch auction results:

• 70.707070: $450,000
• 70.777777: $400,000
• 70.666666: $225,000
• 70.888888: $170,000
• 70.666999: $40,000
• 70.666333: $35,000
• 70.666600: $20,000
• 70.711117: $16,000
• 70.688886: $9,000

When people discuss the electricity problem in Lebanon, they often accuse Électricité du Liban (EDL), the fully government-owned electrical utility, of being mismanaged, corrupt and needing years to reform. Some even avoid opening the subject saying that EDL is like Ali Baba’s cave, and its problems are too complicated to discuss.

Now, is true that EDL is deep in debt and needs structural reforms to get back on track. Nevertheless, it is important to find out if all these complications are due solely to its internal mismanagement, or also to external factors that EDL has no control over and are the responsibility of the government.

Any distribution network is subject to losses. There are two types of losses, technical and non-technical. By losses are meant the difference between the energy that is generated by the power plants or bought from external sources and the energy billed to customers. Technical losses result from difficulties in the physical properties of the network. They represent 15% of total production and over the last few years have been constant. These losses are due to the inefficiency of the old power plants, like Zouk and Jiyeh, which causes severe losses in the transmission and distribution process.

Non-technical or commercial losses are the main cause behind EDL’s deficit. They are mainly due to the fact that EDL has been selling energy for much less than it costs. Additionally, these losses results from unpaid bills by water treatment and pumping stations, hospitals, ministries, residential customers and electricity theft by tapping into lines and manipulating meters. Non-technical losses are around 20% of total production, which is huge comparing to international standards that are around 3-4%. Earlier this decade it had even been higher, reaching 30%.

High cost

If EDL collects 100% of its bills, has no loss of energy and operates under perfect managements, it will still be losing money. 89% of Lebanon’s electricity is generated by gas oil and fuel oil, the remainder by hydropower plants. In the 1990s, when the price of oil was below $30/barrel, the cost of production was around LL100/KW ($0.07). On that basis different tariffs were set for residential customers, public institutions like hospitals and churches, industrial firms and administrations. When the price of oil started to rise and the cost of electricity went up to LL350/KW ($0.23) EDL was not allowed to change its tariffs, and thus profits turned into huge losses that the government was obliged to subsidize.

In early 1990s, concessions were given to four private companies in Zahle, Aley, Bhamdoun, and Byblos to buy electricity from EDL — for a lower tariff than residential and commercial customers — and handle distribution and bill collection in their areas. Due to political pressure, these contracts were not changed, even when it became more expensive for EDL to produce electricity and thus today these four companies still buy electricity for very low tariffs and sell it to consumers at current prices, making big profits at EDL’s expense.

Industrial firms are also abusing the facilities given to them in the contracts signed with EDL. They pay the highest price during peak hours that vary between summer and winter. In order to save money, firms use their private generators during these hours, leaving EDL with revenues that would not cover even half of the production cost. Since the government did not change these contracts either, EDL has no choice but to bear these losses and hope for the price of oil to decrease.

Billing

Even although the tariffs are already very low, some costumers, especially in the public sector, fail to pay their bills. EDL has a separate billing section for the public sector, which includes public administrations, public institutions and water treatment stations. During the Civil War and until the early 1990s, the whole public sector was using electricity for free. When EDL took the decision to cut electricity to these institutions, they started to pay. However, things did not improve much. Currently, unpaid bills add up to LL200 billion ($133.3 million). EDL tried to suggest a payment plan to facilitate the procedure, but the government showed no interest.

Water treatment stations are causing the biggest loss. Out of five stations, each located in a different governorate, only the ones in Beirut and Mount Lebanon are paying. Their debt amounts to LL160 billion ($106.7 million). Second come hospitals, which are considered public institutions and are the biggest debtors in their segment. They do not enter the government’s budget and therefore are not subsidized. EDL cannot cut electricity to these institutions for both political and moral reasons.

In the case of public administrations (ministries, city halls, etc), even though their debt is lower than that of water treatment stations or hospitals, they are causing losses to EDL. They are also paying fewer and fewer of their bills. In 2005 they paid around 64% of their bills, In 2006 that rate fell to 57%, and to 50% in 2007.

The government tried to settle its situation with EDL by declaring that it should collect its bills in exchange for the subsidies it receives. However, that is against the law, since while EDL has the right to collect its bills in full, but not the means to do so, the government has the obligation to subsidize the electrical utility that might otherwise collapse both physically and financially.

The collection process for the private sector, including residential and commercial customers, is more successful, if only for the sole reason that EDL can cut electricity in case these costumers fail to pay. Eighty-five to 90% of bills are being collected. In Beirut, only 1% of the bills are unpaid, in Antelias 4%, and around 12% in Chiah. In some areas the rate of unpaid electricity bills goes up to 25%, usually because bill collectors are not able or are not allowed to enter. Each week, cases of assaults and physical attacks are taking place and usually remain unreported. In 2003, former President Emile Lahoud allowed police escorts to assist EDL in bill collection, but that decision did not last long. Currently bill collectors are facing their challenge alone without any protection.

Electricity theft

Electricity theft can occur by tapping into network lines or manipulating meters. It represents the unbilled electricity, which amounts to up to 40%. In some areas, EDL conducts search campaigns — up to twice a week during the night and more often during daytime. No specific number of violations can be assigned to different areas, since it can dramatically increase or decrease depending on the frequency of the search campaigns. There were talks about a law stating that anyone who steels electricity or water is sentenced to jail for a period ranging from three months to two years, but that law was never implemented. In every case a fine is issued depending on the period and amount of electricity stolen. If the fine is unpaid, it is redirected to the police and then settled by agreement without reaching court.

Solutions

The main solution suggested by both EDL and government is privatization. It would involve selling EDL or one of its sections — generation, transmission or distribution — to the private sector, leaving the government free of any obligations. However, while waiting for privatization to take place, EDL officials think that the government should undertake basic actions to help the sector survive its crisis. First, the billing system should be set to at least cover the cost of production. Old contracts with private distribution companies and industrial firms should be changed and brought up to date to reflect today’s oil price. It should be EDL’s right to set a bill that would cover its expenses with a small profit margin to be able to renew its power plants and supply more electricity.

An alternative to raising prices would be using natural gas instead of gas oil and fuel oil, since it is much cheaper and would lower the production cost. The government should also encourage customers to use alternative sources of energy, like wind or solar energy, by offering low-interest loans for this kind of investment. The perfect solution would be if EDL itself used alternative sources of energy by constructing small dams in different areas and using them to generate electricity. However, that would need huge amounts of funds that the government is unwilling to supply.

The minimum wage in Lebanon has been the center of dispute between the General Labor Confederation (GLC), the private sector and the Lebanese government for the last couple of years. This dispute was agitated by increased inflation of consumer goods caused by the depreciation of the US dollar against the euro, as well as other internal and external factors. Each side has pulled in its own direction throughout the negotiations and refused to take no for an answer. The GLC wanted to increase the minimum wage to LL960,000 ($640) and to increase all other salaries by LL200,000 ($133.33). The private sector disagreed and the government was trapped between the two, trying to make social and economic reforms without causing further chaos in the economy.

The law

Before the new wage law was passed, Lebanon’s minimum wage had been LL300,000 ($200) since 1996, despite continuous pressure from the GLC. Ghassan Ghosn, the president of the GLC, stated that “the last raise in 1996 was insufficient, it did not represent a real match between the minimum wage and inflation, it was lower than the optimal number by 15-20 percent, as I remember, and we carried on with our demands since then.”

In early September this year, the cabinet finally decided to raise the minimum wage to LL500,000 ($333.33). It was further mandated that all salaries — with no exception — should also be increased by LL200,000 in both the private and public sector. The raise was to be retroactive on all salaries paid since May. The cabinet also decided to increase transportation subsidies from LL6,000 to LL8,000 as well as to add LL150,000 to the retiree’s pensions. The public sector raised their wages in October. On September 10 the law was finalized — signed by the prime minister and the president — and implementation should begin in the private sector as of November.

Economist Elie Yachoui considered the additional LL200,000 “a bonus for workers in both private and public sectors.” The salary increase should be a percentage and not in fixed amount. He added that there is no study as to why the government chose LL500,000 as a practicable minimum wage and to why it added LL200,000 to all salaries. “We can not randomly fix or present figures. Any figure should be justified and should have an acceptable rationale behind it. Our country is very far from being scientific in steps and decisions taken,” said Yachoui.

General Labor Confederation

The GLC’s Ghassan Ghosn is not happy with the new minimum wage. He wanted to raise it to LL960,000. “The raise is not enough, but we do not refuse to receive a part of our right, we take it and we continue with our movement,” he said. Many criticized his suggestion and said that it is rather unrealistic and prices would skyrocket. Ghosn pointed out, however, that LL960,000 is not a random figure. He explained that studies were done by economic experts based on a recent UNDP report on poverty in Lebanon. The report was published in conjunction with the collaboration of the National Labor Organization to determine the basic needs of the family. These studies showed that a Lebanese should earn LL960,000 in order to support a wife and two children. If a family is receiving less than LL960,000 then it is below the poverty line.

What is more important is that the GLC emphasizes LL960,000 as a value and not an absolute number. “If the government improves medical care, education, transportation … and exercises control over prices and monopolies then maybe $100 would be enough,” said Ghosn. “When teachers start putting their children in public schools, then we will do the same … it is not enough to build public schools and paint them, or construct public hospitals with good architecture, there should be a high level of medical care and education.” He added that we talk about a laissez-faire economy, while we have exclusive agencies and monopolies that cannot be removed because of political pressure. This forbids any kind of competition, freezes the market and decreases the purchasing power of the consumers because of rising inflation. If the government does its job right, then the real value of people’s wages would increase and there would be no need for any significant adjustments that might hurt the economy and cause more inflation and unemployment.

Yachoui commented on the GLC’s demands saying, “perhaps they are right when they talk about one million Lebanese Lira because of the very high cost of living, but we should look at the capacity of the private sector.” He added that it is true that there are monopolies, exclusive agencies and not enough competition in the market, but Lebanon is an importing country, therefore with the increase in prices of wheat and oil in the last couple of months, it is also importing inflation. So even if there was competition in the market, there would still need to be an increase the wages because of the external inflation.

The private sector

The private sector did not reject the new minimum wage but refused to increase the salaries of employees earning more than LL500,000, saying that the government has no right to set the salary scales for the private sector. Fadi Abboud, president of the Lebanese Industrialists Association, was quoted saying that it will take their case to the Shura Council if the government forces them to abide by the increase. He added that it is against the nature of the World Trade Organization (WTO). Ghosn commented on Abboud’s statement saying that this point of view was too right-wing and that the government should interfere with or without the private sector’s approval.

Even though the private sector rejects the new law, it has no choice but to abide by it. Any worker that does not receive the new raise has the right to go to the Ministry of Labor, the GLC or his own union and file a complaint against his employer. The question is how successful will the government or unions be in forcing all the private companies to follow the new law, and will employees have the courage to file complaints or will they be too scared of losing their jobs? The lack of enforcement in Lebanon means the outcome can hardly be forecasted.

SMEs

The private sector as a whole has rejected the new legislation. Large companies operate on a large scale and should be strong enough to handle the wage increases. But how will this affect revenue, prices and employment in small and medium enterprises (SMEs)?

Ghassan Beyrouthy, an economist and the owner of Bel Azur Resort in Jouniyeh, said that SMEs will be the ones most affected by the increase in minimum wage and salaries. After having a rough couple of years due to the 2006 war and political instability, the tourism sector was able to catch its breath this summer and make some income, he pointed out. However, it is still too vulnerable to bare such increases in wages with unrelenting high prices and the unstable environment. “I cannot give LL500,000 to the man who cleans the rooms or the dishes, not to mention the National Social Security Fund (NSSF) expenses that would also increase. If the government forces the private sector to abide, I will have to either fire some of my employees or keep them if they settle for their previous salaries,” said Beyrouthy. It will be challenging for SMEs to raise the salaries of all their employees and fight rising inflation at the same time.

Additionally, SMEs cannot increase their prices infinitely. They have already raised them recently and any further amplification will lower demand for their goods and services. With prices unchanged and no additional sales or revenue, a further increase in salary costs may in fact result in higher unemployment.

Yashoui said that exporting firms are probably the only ones who will be able to bare this increase. “Exporting firms are in general profitable firms. Those who are relying on domestic markets like hotels and restaurants are too vulnerable and will have to fight to survive”.

Ghosn presented an upbeat view when he was asked about how the sector will handle the pressure. He said it is true that every law or reform has an adverse effect, but we should all bear the burden and contribute in the revival of our economy. He added that it is not only the private sector that has to bear the consequences, but the government should also boost the economy by creating new job opportunities, decreasing taxes on imports and implementing growth strategies. The GLC is in an open battle with the government to ensure more reforms will be implemented and that it will fulfill its role in enhancing the growth of the overall economy.

The government

Will the government be able to handle its part of the financial burden? Lebanon’s budget deficit reached 26.18% ($1.45 billion) of spending in the first seven months of 2008 and may exceed 37 percent in 2009 due to the increase in wages for government employees and the expected rise in Electricite du Liban’s (EDL) deficit, as reported by the ministry of finance. The higher wages alone will cost the treasury LL500 to LL800 billion ($333 to $533 million).