Report No. 4434-LE Lebanon ReconstructionAssessment Report Public Disclosure Authorized
March 25, 1983 Europe,Middle Eastand North Africa RegionalOffice Country ProgramsDepartment II ProjectsDepartment FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized
Public Disclosure Authorized Documentof the World Bank
This document has a restricted distribution ard may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization CURRENCY EQUIVALENTS
Currency Unit Lebanese Pound = 100 Piastres
Lebanese Pound per US dollar
Period End of Period Period Average
1973 2.5163 2.6104 1974 2.3338 2.3278 1975 2.4500 2.Z946 1976 2.8947 ... 1977 3.0465 3.U686 1978 3.0309 2.9554 1979 3.3773 3.2428 1980 3.6938 3.4358 1981 4.6352 4.3139 1982 March 4.8506 4.7385 July ).1579 December 3.9267
Source: Banque du Liban
LISI OF ABBREVIAIIONS
BCAIF Banque de Cr6dit Agricole Industriel et Foncier BNDIT Banque Nationale pour le Developpment Industriel et Touristique CAFP Conseil d'Administration de la Formation Protessionnelle CAH Caisse Autonome de l'Habitat CBD Central Business District (Beirut) CDR Council for Development and Reconstruction CEGP Conseil Executif des Grands Projets CEGPB Conseil Executif des Grands Projets de Beyrouth CNSS Caisse Nationale de Securite Sociale DGETP Direction Generale de l'Enseignement Technique et Professionnel DGRB Direction Generale des Routes et Batiments EDL Electricite du Liban HB Housing Bank LFPA Lebanon Family Planning Association MDC, Municipal Development Corporation MOYC Ministry of Housing and Cooperatives MiER Ministry of Hydraulic and Electric Resources MOE Ministry of National Education MOH Ministry of Public Health MOLSA Ministry of Labor and Social Affairs NIGI National Institute for Guarantee of Investments OEB Office des Eaux de Beyrouth PWT Ministry of Public Works and Transport P&T Ministry of Posts and Telecomununications FOR OFFICIAL USE ONLY ABSTRACT
The protracted warfare since 1975 bas bad a devastating impact on Lebanon's economic and social development. Many people have either been displaced or left the country. Physical destruction has been considerable in all sectors. As a result, the country's production capacity has been significantly reduced, and the efficiency of public services, impaired.
The Government began preparing for reconstruction in 1978 but, because of internal conditions, it was not possible to implement many of the policy decisions and projects. The Government's main objective remains to reconstruct damaged public infrastructure, strengthen the public sector, which had a limited role before 1974, and assist the private sector to recover its prewar level of activities.
To assist the Government in the process of planning reconstruction, the Bank, in cooperation witb the Lebanese administration, identified a reconstruction program whicb could be started in the 1983-85 period. The program is composed of priority projects in public infrastructure and credit programs to assist the reconstruction of housing and industry; it is accompanied by recommendations on studies, technical assistance and institutional measures needed for the program to be executed in a timely manner.
The proposed reconstruction program is described in an assessment report wbicb includes a review of tH¶emain sectors, except for agriculture, and a list of the main projects. Because of the unavailability of up-to-date statistics and the uncertainty of making projections under current circumstances, economic analysis was limited to the public finance situation and prospects. Because of internal conditions, the public sector accumulated a large domestic debt to finance sizeable current deficits. In spite of rapidly increasing external trade deficits, but owing to large inflows of foreign transfers, the level of foreign exchange reserves was maintained for the last eight years and will constitute an indispensable cushion against unforeseen or speculative financial movements during the critical process of normalization. In the next ten years, however, the Government will have to mobilize large amounts of foreign and domestic funds to finance both the reconstruction program and public sector deficits, which will require some years to be eliminated. This report could serve as a basis for discussion witb potential donors.
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS
Page Social and Economic Indicators Summary and Conclusions .1...... i-iv
I. General Background ...... 1
II. Macroeconomic Situation ...... 4 Recent Developments and Trends ...... 4 Public Finance: Issues and Trends ...... 7 Balance of Payments: Issues and Trends ...... 13
III. The Reconstruction Effort ...... 18
IV. Recommendations for a Medium-Term Reconstruction Program ...... 22 A. General ...... 2z B. Sectoral Programs, Policies and Institutions ...... 27
V. The Reconstruction Program Financing. 40
VI. Reconstruction Programming and Development Planning ...... 45
Attachment: List of Proposed Public Investment Projects by Sector for the 1983-85 Reconstruction Program ...... 49/55
List of Tables in the Text
Table 1 Estimated Public Sector Deficit: Trends and Structure, 1977-82 . 11 Table 2 Ongoing Public Sector Reconstruction Program (Commitments) . . . . 21 Table 3 Annual Commitments by Sector for the Public Sector Reconstruction Program Proposed for 1983-85 ...... 23/24 Table 4 Annual Disbursements for the Public Sector Reconstruction Program Proposed for 1983-85 ...... 25 Table 5 Public Investment Project to be Started after 1985 .b...... 2b Table 6 Financing the 1983-1985 Public Investment Program ...... 42 SECTORAL ANNEXES
I. The Education Sector
II. The Healtlh Sector
III. The Housing and Urban Development Sector
IV. The Port Sector
V. The Power Sector
VI. The Road and Airport Sector
VII. The Telecommunications Sector
VIII. The Water Supply and Sewerage Sector
IX. A Note on the Beirut Central Business
X. Industria L Credit
Maps
This report was prepared by members of a mission which visitea Lebanon during November 1982. This mission was composed of: Roberto M. Fernandes, Mission Cbief; Abdallah El Maaroufi, Sectoral Staff Coordinator; Herminia Martinez,, Loan Officer; Messrs. Rene Vaurs, Country Economist; George Hadjicostas, Speci-al Studies; Peter Long, Highways; Jean Grosdidier de Matons, Ports; Gerard Tenaille, Water Supply and Sewerage; Marcel Scoffier, Telecommunications; Niall Corwell, M.A.T. Flandre (consultant), Education; David Pearce, Health; Ismail Serageldin, Albert Peltekian, Urban DevelQpment. This draft was completed and discussed with the Government by a seconci mission which visited Beirut during February 1983 and included, in addition to part of the above team, the following members: Michel Loir and Iona Sebastian, Transport; Aziz Kassab, Water Supply; Noel Lindsay (consultant), Education; Willy de Geyndt, Hfealth; Jean-Francois Landeau, Urban Development; Davici Hutchins (consultant), Power; and Abhay Deshpande and Anil Gore, Industrial and Development Finance. Page lof 5
LEBANON- SOCIAL INDICATORSDATA SHEET
LEBANON REFERENCEGROUPS (4EIGHTED AVERAGrl AREA (THOUSANDSQ. KM.) - MOSTRECENT ESTIMATE) TOTAL 10.4 MIDDLEINCOt AGRICULTURAL 3.6 MOSTRECENT NORTHAFRICA 6 MIDDLE INCOME 1960 /b 1970 Lb ESTIMATE/b MIDDLE EAST LATIN AMERICA& CARIBBEAN
GNP PER CAPITA (US$) ...... 1253.6 1902.0
ENERGYCONSUMPTION PER CAPITA (KILOGRAMSOF COAL EQUIVALENT) 537.2 768.2 1027.7 713.5 1259.9
POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 1857.0 2469.0 2658.0 URBAN POPULATION (PERCENT OF TOTAL) 44.4 61.8 75.9 47.3 65.7
POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 3.9 STATIONARYPOpULATION (MILLIONS) 6.1 YEAR STATIONARYPOPULATION IS REACHED 2070
POPULATION DENSITY PER SQ. EM. 178.6 237.4 256.0 35.8 35.2 PER SQ. EM. AGRICULTURALLAND 663.2 737.0 743.6 420.9 92.5
POPULATION AGE STRUCTURE(PERCENT) 0-14 YRS. 40.8 43.9 39.7 44.3 39.7 15-64 YRS. 53.4 51.2 55.4 52.4 56.1 65 YRS. AND ABOVE 5.8 4.9 4.9 3.3 4.2
POPULATION GRO.YTHRATE (PERCENT) TOTAL 2.5 2.8 0.7 2.8 2.4 UR3AN 7.1 6.2 2.8 4.6 3.8
CRUDEBIRTH RATE (PER THOUSAND) 43.1 35.4 29.9 41.2 31.4 CRUDEDEATH RATE (PER THOUSAND) 14.3 10.6 8.3 12.2 8.4 GROSS REPRODUCTIONRATE 3.1 2.7 2.0 2.9 2.1 FAMILY PLANNING ACCEPTORS, ANNUAL(THOUSANDS) .. .. USERS (PERCENT OF MARRIED'WOMEN) .. ..
FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 102.0 99.0 90.0 100.4 110.0
PFR CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 104.2 99.0 112.4/c 108.5 108.5 PROTEINS (GRAMSPER DAY) 73.3 67.8 76.2/c 71.9 66.0 OF WHICHANIMAL AND PULSE 26.0 23.1 21.0/ 18.0 34.0
CHILD (ACES 1-4) MORTALITYRATE 5.4 2.9 1.9 15.1 5.6
HFALTH LIFE EXPECTANCYAT BIRTH (YEARS) 57.6 62.1 66.0 56.9 64.2 INFANT MORTALITYRATE (PER THOUSAND) 67.5 50.0 41.2 104.3 64.2
ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 92.0 .. 59.1 65.6 LRBAN .. 95.0 .. 83.1 78.9 RURAL .. 85.0 .. 39.8 43.9
ACCESS TO EXCRETADISPOSAL (PERCENT OF POPULATION) TOTAL ...... 59.3 URBAN ...... 75.3 RLRAL ...... 30.0
POPULATIONPER PHYSICIAN 1212.9 1299.5 .. 4015.5 1617.3 POPULATIONPER NURSING PERSON 2084.7/d 1102.2 .. 1802.2 1063.5 POPULATION PER HOSPITAL BED TOTAL 212.1 230.2 .. 641.7 477.4 URBAN 128.8 327.4 .. 538.3 679.8 RURAL ...... 2403.3 1903.4
ADMISSIONS PER HOSPITAL BED ...... 25.5 27.3
HOUSINC AVERAGESIZE OF HOUSEHOLD TOTAL .. .. URBAN .. .. RURAL .. ..
AVERAGENUMBER OF PERSONS PER ROOM TOTAL .. .. URBAN 2.2 2.1 RURAL .. ..
ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 82.0 98.0 UR5AN 95.8 .. RURAL 71.0 .. Page ? of 5
LEBANON - SOCIAL INDICATORS DATA SHEET
LEBANON REFERENCE GROUPS (WEIGHTED AVERAG/A - MOST RECENT ESTIMATE) - MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b 1970 /b ESTIMATE lb MIDDLE EAST LATIN AMERICA 6 CARIBBEAN
EDUCATION ADJUSTED ENROLLMENTRATIOS PRIMARY: TOTAL 102.0 118.0 97.0 88.7 104.3 MALE 105.0 127.0 .. 104.5 106.4 FEMALE 99.0 109.0 .. 72.0 103.3
SECONDARY: TOTAL 19.0 40.0 50.0 39.7 41.3 KALE 25.0 47.0 .. 49.3 40.4 FEMALE 13.0 32.0 .. 29.0 41.8
VOCATIONAL ENROL. (2 OF SECONDARY) 1.8 1.6 .. 10.1 33.7
PUPIL-TEACHER RATIO PRIMARY 23.2 12.5 .. 34.1 29.9 SECONDARY 14.5/d .. .. 23.7 16.7
ADULT LITERACY RATE (PERCENT) .. 68.3 .. 43.3 79.1
CONSUMPTION PASSENGER CARS PER THOUSAND) POPULATION 25.3 55.1 80.6/d 17.8 42.8 RADIO RECEIVERS PER THOUSAND POPULATION 53.9 243.0 751.3 131.3 270.5 TV RECEIVERS PER THOUSAND POPULATION 4.3 105.3 225.4 44.1 107.7 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSANDPOPULATION .. .. 101.7/f 31.5 63.7 CINEMA ANNUALATTENDANCE PER CAPITA 23.0 18.0 .. 1.7 2.7
LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 521.4 643.3 718.4 FEMALE (PERCENT) 13.4 17.4 19.8 10.6 24.4 AGRICULTURE (PERCENT) 38.0 20.0 11.0 42.4 31.3 INDUSTRY (PERCENT) 23.0 25.0 27.0 27.8 23.9
PARTICIPATION RATE (PERCENT) TOTAL 28.1 26.1 27.0 26.0 33.6 MALE 48.4 42.8 44.1 46.2 50.4 FEMALE 7.6 9.1 10.5 5.6 16.8
ECONOMIC DEPENDENCY RATIO 1.7 1.9 1.7 1.9 1.3
INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 35.0/g 26.0/g,h HIGHEST 20 PERCENT OF HOUSEHOLDS 62.0/g 55.0/R,h LOWEST 20 PERCENT OF HOUSEHOLDS 7.0/g 4.0/g,h LOWEST 40 PERCENT OF HOUSEHOLDS 18.0/g 11.0/g,h
POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN ...... 279.2 RLURAL .. .. 219.0/i 178.6 184.1
ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN ...... 403.6 518.0 RLURAL .. .. 280.0/i 285.6 371.1
ESTIMATED POPULATION BELOWABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN ...... 22.1 RURAL * - * 30.9
Not available Not applicable. NOTES
/a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availabiLity of data and is not unifo.rm.
/b Unless otherwise aoted, data far 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980.
/c 1977; /d 1962; /e 1974; /f 1976; /k Personal disposable income; /h Beirut and outskirts only; /i 1975.
May, 1982 Page 3 of 5 DEFINITIONSOF SOCIALINIDICATIU
Net-a Altheagh the data are dran fro sourcestI genera.lly judged the meat aath-rtt-v and reliable, it sbsid aloe he noted that they ey sa he inte- natiasaly coprble hnoc of the lack of taodadleod detfieitioa and -aopta -ad by different conaties in collecting the data, Thon data te,mte rhelena. aaefal to describeoder of agncoe,tdictet treads, ead chrnelecran-jar dtffeteune hetwees couri
The refeenc ...... are (11 the ..a coty.. grpof the -nhj.ec cocryad (2) acstygroap with somwht higher-t9aveag to.n .tia the -- otey group of coctrythe anj ccc(excet f or 'Hgh boom Il Eopottrs" groop where "Middle Incs North Africa ad Middl tout" Is t .b..e heceam offoeae noi-otrlafnicleio). In the eetc g-roo data the vrge r poa-tic eihted aeithsatic a for each idInu... and show only whrt maoit f the,ece in aIro oodn o chatP ind ltehe.a.r covrag of -ateia amon nhe tidict-r- dcpecdu on the Ivala.bltity of data asd In ca a .cuinmo eeecadIn relating averges of ace indictor to acnthcr. The.oae- e r uyoeulicaaigtevlea
ditto (Tbo tal -fa. PeliopaHsitled - .tota, nta,ad rorat -. popolatia (total. Toa-oa ufo area -oPrining land are od inland wact-; 1979 data. ora,adrrl iwidrd by their enpecJ- ionoohe of bam-Pito1 beds AgIi-ot.tora - totinete cf agicooorlar dos-teporatily or PeI an_ly avilbled Inpbc adpisegealmdncale hpItal aod- farcrpo patoe,aket -td kitchen gard-o or totebalw;1) dat. ahliat'eI'drs opitals are e - ptah ioenoprmanntl staffe byI atlat ooeIpt..e..fcttao . -ualibetsbroiding principallycota-. GNP PER CAPITA (US$) - GNPP?pt capica esti_ota atcretaktpie .ca- dial nvaest-1-1--Phimlo.ded-. E.ru.~.lihbo.pit.ia..ls oneeb,y.rl.d-. g.pi.-1p. heath. colatedcoovertine by samemethod a Horld Pooh Atlas (t9PH-Hf haain);196H, akd medicaldi.munily neniera9nor snuffed hy a physician (hotbh 1970,..ad 19H0 data. meia minn, oa,mdie tc.)wIchoffrl-ainacos- datms and PIovida a lisltcd range of medina1 focil itlem. Par tatis- ENEtGit CONSUMyTIONPER CAPITA - -.. I ....oncption of too ioil energ (coal ticu1 p-rposes orba hospitals ilutde WOH.PrItcipal/genera hospitals. and lignite, PonroIon, naa a.. and hydon-.,.. cc-a and geothra ele- and natal hanpitals,lecrralh..nitltolsad medicaltand maternity trinity) uo bilogeama of cool cI ioetpro noipin;106.I1970,..ad 1979 cantar. Sp_ ialinoId h.sptat sonImoodad oly od-r total. dat. Aasin o Heapica1 Hod - Total estert of adutusioun to 00 dimoharge
POyULATIiN AND VITAL STATIiTICSPt .ptl iidb h .bIo .. Total Poonlation, Hid-Year (tbn--odn( - An of Jaiy I; 1960. 1970,. ad 1900 HOUSJING data. A-eege Sian of Honeheld (porn... per hoosehod - nta.t1 urbac, andtrt Urban Poouin(percent of -oto) - Patio of orban to nata poynlatios; A h..nehold .... mc of, a cupo idvi l eho shar living querterm differntdetitioao ro ra o fot-cpa-bility of dota and hbIr mai na. A bnrdcr or lodgr may or mop cot he inrladd In tmncatoios;1960, 190,Gad190dat. the householdfo attiticapross PpulaItion yrnecinvta A-rrag. notar of per..en pe rom- total, orbas, ad eural -avr ge am PPpotaicol in fear Pi0 - Co-re- popolation projection r bada 1910 hoe nf Persons par room n lloan and meal ..copied to-oetioa1 Htotl popolation hy agr and se od hIr- neoicy andfer tilt rae- deIliugs, re-p-clvely. Dwellinge -aclde o-pronn ttucturs aud Projection poramonr for ortlity I=ce c-nyilac o threetevel asso- ouccopied partn. loH life e-pcst-y an birch i-nc.e.siogeicb coontry's per 00pita Income Access no Ele1tricic (pt cn of" deolna) - total achas sad ... sl - lronl,. and femaPe Ife1I Inetny -bhlielcg at 77.5 onoes. The para- Coveinldnellogs aih eIet-tity i ll~ivig qar spe-cntge maesfrfcIiy rc loht hree 1-1 aoaic decline ts oftta.aro, aod rnra1 dnllig.t-epecttiely. fertility noding no inoe Ieeand past fonly Plann.ing p-rfor-n. toh c cyIs then anoigoed ac of thes nic onhvtosof mortaity tODUlATIONf sod forcility ltrodo forpnccicp-rpo-- AdjostedHollntotu btaioacypopolso - in a sttionay popoletioc chore Is no growh sin- trmr tho oal aead temale-i-... total, male and female the. bith... rt in4 Ignaltothr deathroe ad aloo thc age atotoret- - aroloem of ull ages at the etmry leve at pereta.ges of resporti- manuconstnt. Tin iuIahied onlIy afctv ftttJitiY ra-c decline to primary cb1-age population; normaly tncludea childe- eged h-Il nha relc ee-ot of oitc net rcp-od-tcl- pate. h-n each geneatosyearn bus adjusted for differcn- lovgths of primary education; for ci rplacnmoen itelf oacty. Thc ottoion..ry popclation si-awa cotrles wttb -niv--a odaatios enrollmet map -nced 100 p--net -ntimatd on the honlo of-the tprojected caotrst of the po at ince sam popiltare below or abov the officio1 unbool age, inthe year 2000, aud the atet of decline of fertility rate to nepluc.- teoay urhoo - tota, mob an tamale -C.poted as above; secodary met le-. edocatioseqoitem at te..st fon yearn 0g syproved primary lunteu1tian Year tatito.ay popoloitoit, coached - The y,on abe stationar y populatine provides gcoeeal' .voaiol, or teahe Itraining ls sf-r Pupils sloe ntll herar e-11oll of 10 to 17 yas fa o oreyednc orssar corly Povoatico Peo-icy ..cloded. Par so. ha. -Mid-y-a popu1acico par a...ore kilometer (100 hecttares of Vucac-Itomlerllmoot (procont of tootodsryl - Vocational si-to-ti.. tonol ara;19 19196 and 1979 date. itoeniisdstio, hi or other Programs which operte iedeped- Pc- so. n. agricultural lod - Coop ted so above for agicltota1 land ostly re drpa- so seodary lonti-oi-e. only; 19600.1971 and 1979 data. Poel-eah ht u.tin rrimry,..ad ... covdary - Toca -tdeuto mor1lled In PopoloticoASi itoctctSn (pec-ut -_ Chil dren (i-li yna.rul, -ektsg-oe (15- primo-y and aec-dary level divided by number of teat.hhrs In the 00 ho y-orol and vrtirnd (65 yeacu and overI) petce-no 0 e of oid-y-a popo- corepooding eval.. lotion; 1960. 197i, o 90 at.Mlt 1 lit-raty rate (pe-tte - Literate du1to (shmt ra ndwie Popolatino GI-th R-a"cdpl9r8oscl - ntot - donna orceh raten of total old- nPercentage of total adult popoctioc aged 15 yeoos aed over. yea population tot 0601910 6f0lk-70,cod 1970-80. yapuLetlon GIrnth tot (percent - och_an - 1cagro-th raten of orhan popo- CONPIPtTION Iati-n for 1950-60. 1960-70, and 1970-HP. Passenger Cars (per tlnasand population) - P:ogs-oe cots copiemtor Ceude Btrth Pate (rot th-o...od( - Anocal live hirtho Par th....d of mid-year cane seating lens tban ight Pev..n. oclude .ab.1..c... heacses und populonico; 1967, 1970, and 19801duta. mttrvetl Crode Peoth Pac (ccv thncd nolduh rronn fmdya Poia Hoclvrn(pe thounaod pplto)-All cyppe of rct sfor Iraio popalotion; 1960, 1970, nod 1900 data. broadnon o eea pbipetooodof ppltn;ntoe n frst tirdccoRtoc-orag9 our of d"olht,rs a ncsI oil Ima in linusd coIversin cooottric ad wh.eansftreittulto ut her rcrodcnivorml peiodIt h trine rsc gr-peific Her- neswniIffc;dc .o recentyearn may not betosgarable ti.c. "tctly--e;an-a;ly fie-carun g-c o.daog it 196I. 1970. sod1980. most cootrti- abolished c ug yamily P.....og -Accptorn. Panol (tho....ods) - Ao--l camber of acceptarn TV Rtoceteer (per thousan.d popalatice) -TVreevs for bn-dcan- to of hirtth-cotol d-vict onde ... yto- of national.family plonniog program geu.Ill public Per thoamandppani; -oluenotic-od TVreien Vamilv Plonig -lCset (Pec-to ofua__ledwmo n) -Pnt--ncge ofmaroed inta_teteman d in year nheo EcIuteIooof T nersta -Ieffect. none of chll-nrn gIL-iyor)ncnnhrhoucldevcn o NewnperI Circolatico (Por th-auod ... colotton) - Shnen the averag tie- all macrind sn Iin -am oge groap. oan of "daiy Ienra ,iteet newspaper", defined am artdia pabli-attun devot pImarly to lcoing genva news. It I. con-idmeed FOil ANtDNUiTRITIO no be "dIl"if It apeasa, es tnniansaane todoo ot Food Poductino per dapito (99-7l=100) - Indec of pec capittao Ia Cinem oo-l Atteudance per Capita per feat - tased no tha oute of yr-d-cto..ofc i fdroo voIoitI Pvdctn ldeu sedId I feed and ticketbisold daing9 the year. inclodiog odeinsio.t to drlne-incine.-s is on .c..edor y-a bnsiu. totoditio. coerpimary good-(e. " . Isgrcn ad ble _mitu. issteod of M Ionrwhich or ediblIt and cottaot uu(e.g. toffee and tea aro elded). Affregato pv-d_ctino of each eo_try In bauId tonLABORO FOtCE ntoaavceagv prodocer prIce stighto; 1961-65. 1970, and 19H0 data. total Labor Pore (tho.....ds) - fcn-nelclly active Pon...os, ioclodiog Pee capita uopplp ofclorlos (percent ofcgtrsne - Conpu-d fens arod forces and moeployed hot ... cluding hasoi-es -`dnt.et. etergy eqoivolant of ne fond unppliot avilableIncot e- -npita cov-fiog Populattoo of all agea. hefioillts in... o oati r per day. Available supplieu coprise dometic -rd-culo, i~ports less not co -arable;1960. 1970 acd 1980 da.t. enport;. and ohangonin. stc Noct soPplin etc lade animal teed, nedn, remin (reeen- - Pomadelabor force. as P ...osrge of totel loboI forte. _-onittc ud oo tIvovn-lgd an..dlosses in di-clbocioc. Poquir- horinoItaro (percen) - Labor forc In fosthog fooor hooing and met -wr eut imcd by Ph'A. e nPhyololegicol -edn fav normal aci- fishing as pereotage ot total labor foce 960, 1t97,0and 1900 data. vity and heulcb conidorlog nrvaetltmnao body weighto, age Industry loence..t) - Laborfrei iin,cncoton aootr and ... distribctioc of popolat.on, end a11wico 1i percot C-or wate at adectityoteand Ea tpoecaeo oa lbrfre ..s.ehold level 1961-65, 1970 mad 1977 data. 1960. 1970 Iad1990 data. Pet capita nurply of evosin goua_erdoy) - Protein contet of yet capica Pric.to Hto (penc..nt) - total, male, and team - Portlipati_ or -ec spply of food per day. Ne no-Pply of food Is defined as abnee Re- acivity rae .ae cop ned au total, mate, and female labor forc us qornusforal cIountries stahtihcd by lObA provide f.o mclu- percotages of tcts, malo and female pupuluti-nof eli gt respectively; allomu.ce- of 60 grom of total proteIn per .day oodIP reao ta sd 1960,-1970, and 1900 dato. Theseat pbinndi on 0LO's parc,icyatioor-anen pulse proten- of which 10 grama uh.oId heb ima prtein. Phea. otand- reflcttgag-ontct ofth popatlo.ad ln timeted-
aciml proreic oa neaefor thtcvd -proycediby-PA tothy T'htrd fononmic Oepede-o atio - Patio of poyalotlen modno15 ad 65 and nvOt W1rld Food S o.vey; 1961-65, 1970 and 1977 dane to the teta1 laber force. Per toelto protio sspply from suimal. endcoln-Protin -opyly of food dc- miedtemvias ndpuac o ra endy; 964. 95 n 197) data. INfCOMEDPISTRIBUTION Child (ages 1-4) Poah tte pee thgasn)" '- ooa dcaths per hosand ie e-t-ag of Privae on (ohicnbadkd) - Rcei-ed by richest age ge-a I-hyas tohildreo In thia age grouP; for -on develop.lo on Pprtest.iches 20 pret poc 0 Peren, and Peorest 40 p-rc-t trios dots d-ri-d tea life tahlen; 1960, 1970 and 19t0 data. of he...eholda.
HEALTH POVERTYTARGET iGROPS -. Life Eopnttancy at- ith (snort) Av-ro 0 -uhe of years of life -cmioing The following etiatsr very uppronlate esoe of povrty levels, un, birch;.1960,.197 and 198 dut and should be int-pretd sithcnidrbeauo. efunt HcItty Hte (ret thoau-d( - donoal dooth of inofots aeden one y... tanimate-d Abm_lute Povetploon lee (I0 e nara - -ranadenrol- of age pr tho....d hoc births; 1960, 19170and19H0.dat.-bolt pverty noe nlIs tha income level below which a mtim1 Accees to af Water (ve-ce of porcLatos toal.rbn Iadrua- um utlt s ,doateditplas eIsetia1 tee-fond rqiemnsIs net her of popl (ttl,obu,ad rcn-I) with rnasosbleacosta.fe affordabe water supply (i-oldee treated norfacowntna ot untreated ho t onEca atd ti_tmed telati- Poverty uc- Level (US$ perc ia ra a ua water -ab a thanifrom prtected.bebnl prings, and sanitary wells) an Rural relative poverty Innon level Ia ea-thtrd offaverage PernePita percantages, othireptiepplto. v0ubsaapbtcPernoma Ioenm of the t-atry. irhes 1-1t i drnd fer terua f...ulaia or ut_dpotn .or.e not more tha200 neters fcs .e n n he-levlwitbah asntfI orhigher cos of ltvtsg In rbaustms c...aidered as helug wtnhio IIcnmbl access f tht hOus... In ra atimted Ferulattos gel_ Ahelute Povety I-om ee pret ea renoabeccn .ooId imply thath the ossien ebr -of- the .. hoshld and esea1 Peroent at popolaniom (ohsad natal)nb sea "aalte do mat haet pend a diaprop-tniemat Put.oI tedsp Infthing the Pear. Aeen t Pcrt Oju pecetMol of ...pulatioof - tonl,l arb, and rural1 OuterI of people (tonal, unhao aedeurl1) nervd by encrtat dinpo...as P S.of thetre-pectine pepolti-v.tor disposaImay intud the tilnno aed dispos.. w.ith or nitmat entme-t, of bamscrt and .aate-ater by etrbon yntem or the ua of pit privie and .in-
FPalaItiem ear Physinis - Popolattom divided by ... bIofe penetiiteg phyet- uEmnelefand Ounta1 Oats Dtetala otes qli te o .a mdiosl snhoal as anierty level. c.-.si ea-lysia sa Frojenttama Dnpamtmet Fesans Pe LOegaFersa - Papn1atiam diwded by uobee of penIs:Lasg Hay 1982 sale sod female godnata -area asa.tatn sor, proetina. ses a Page 4 of 5 LEBANON - ECONOMIC INDICATORS I/
GROSS NATIONAL PRODUCT IN 1980 2/ ANNUAL RATE OF GROWTH (%, constant prices)
US$ Million % 1963-74 1974-80
GNP at market price 419:3 100.0 5.5 -5.0 Gross Domestic Investment 727 17.3 5.3 -13.5 Gross National Saving 564 13.4 Current Account Balance -163 3.9 Exports of Goods & Net NFS 1686 40.2 7.6 -12.2 Imports of Goods 2910 69.3 4.6 -6.9
LABOR FORCE IN 1974 AND 1979 OUTPUT AND PRODUCTIVITY IN 1974 3/
Value Added in 1974 Labor Force V. A. er worker 1974 US$ Mln % Thousands % US Ratio 1974 1979 1974 1979
Agriculture 325 9.3 147 84 19.8 20.2 2,211 47.1 Industry 773 22.1 193 80 25.9 19.2 4,005 85.3 Services 2394 68.6 404 252 54.3 60.6 5,921 126.1 Total/Average 3492 100.0 744 416 100.0 100.0 4,694 100.0
GOVERNMENT FINANCE 4/
Central Government (LL Mln) % of GDP 1981 1982 1972-74 1978-80
Current Receipts 2880 1680 14.4 13.6 Current Expenditures 4590 5860 9.2 17.8 Current Surplus -1710 -4180 5.4 -4.2 Capital Expenditures 1260 1000 3.2 4.3 External Assistance (net) 1260 250 - 1.5
MONEY, CREDIT AND PRICES
1974 1977 1979 1980 1981 1982 (LL million, outstanding end period)
Money and quasi money 7,686 11,778 16,262 19,829 25,610 37,023 Bank Credit to Public Sector (net) -849 -880 139 1,343 2,389 10,848 Bank Credit to Private Sector (net) 5,771 8,064 13,141 16,295 21,441 26,007
(Percentages or Index Numbers)
Money and quasi Money as % of GDP 94.5 171.4 139.9 137.8 Cost of living index (1980 = 100) 5/ 35.1 59.3 80.8 100 119.4 141.6 Annual Percentage change in Cost of living index 11.9 19.3 23.8 23.7 19.4 18.6 Bank Credit to Public Sector (net) -62.2 -23.8 34.9 866.2 77.9 354.8 Bank Credit to private Sector (net) 22.2 10.6 30.3 6.0 31.6 21.1
NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered.
1/ The table contains unofficial estimates, which are given for information. 2/ For data prior to 1974, based on the World Bank Economic Report on Lebanon, no. 670a-LE, May 20, 1975); for data from 1974 to 1980 based on Dr. Nazhat Chalak's estimates of Lebanon's National Accounts, in a document prepared in 1982 for the use of UNDP and the World Bank; and for data after 1980, on estimates gathered by the 1982 World Bank Mission. 3/ Based on Dr. Nadim G. Khalaf's estimates, published in the Bank of Lebanon's Quarterly Bulletin, no. 11, December 1981. 4/ Based on Budget law estimates and applying an implementation ratio of 100 % for receipts, 95% for current expenditures, and 65% for investments. Current expenditures include all defense expenditures and interest paynments. Capital expenditures include Treasury assistance for financing investments. 5/ Indices prepared for the National Commission on cost of living.
not available not applicable
March 1983 Emena CP II-C Page 5 ofS LEBANON; TRADE PAYMENTSAND CAPITAL FLOWS
BALANCE OF PAYMENTS 1/ EXTERNAL DEBT, December 31, 1982 2/
1974 1977 1980 1981 1982 (US$ Million) (USS Million) Public Debt, inc. undisbursed 342.4 Non-guaranteed Private Debt Exports of Goods and net NFS 1,941 820 1,686 .. .. Total Outstanding and Disbursed 258.0 Imports of Goods (fob) 2,397 1,402 2,910 Resource Gap -456 -582 -1,224 -1,500 -2,000 DEBT SERVICE FOR 1982 2/ Workers Remittances (net) 39 75 116 .. .. (Us$ Million) Other Factor Services (net) 185 251 613 .. .. Public Debt 69.3 Net Transfers 366 361 654 .. .. Non guaranteed Private Debt Balance on Current Account 134 105 159 - Total Debt Service 69.3
Net Public Borrowing -8 -2 196 45 -15 Disbursments 1 6 109 99 54 RATE OF EXCHANGE Amortization -9 -8 -13 -54 -69
Other Capital (net) 677 163 -199 .. 1974 1977 1979 1980 1981 1982 Increase in Reserves (-) -803 -266 -56 72 -1,092 US01.00 Annual Average = 2.33 3.07 3.24 3.44 4.31 4.74 SDR 100 (end of period)= 2.82 3.64 4.29 4.65 5.38 4.20 Total Official Reserves 1,665 1,958 1,977 1,905 2,997 of which gold 4/ 386 389 389 389 389
Cormercial Banks Assets 1,730 1,924 3,674 4,337 3,776 Liabilities 881 853 1,577 1,595 1,947
MERCHANDISE EXPORTS 3/ MERChANDISE IMPORTS 3/ % of Distribution Z of Distribution 1974 1977 1980 1974 1977 1980 Food 15.9 22.4 25.1 Food 18.5 22.8 15.8 Energy 14.5 1.9 0.5 Energy 5.0 11.7 14.8 Equipment 16.9 14.3 12.3 Equipment 25.2 20.2 24.7 Intermediate goods 27.6 35.3 30.6 Intermediate Goods 32.8 25.8 23.5 Other Merchandises 24.1 26.1 31.5 Other Merchandises 18.5 19.5 21.2 Total 100.0 100.0 100.0 Total 100.0 100.0 100.0
1/ Based on Dr Chalak's estimates except for foreign reserves shown in International Financial Statistics (IMF). 2/ Based on World Bank External Debt Division's report. 3/ Based on f.o.b. values recorded by trade partner countries of Lebanon in GATT's External Trade Statitics. 4/ Valued at $42.22 per ounce;
Not available Not applicable
March 1983 EMENA CF Il-C SUMMARY AND CONCLUSIONS i. The Government of Lebanon began planning reconstruction in 1977 with the creation of the Council for Development and Reconstruction (CDR). Because of poor security conditions, it was not possible to implement many ot the proposals made at that time. The Government is now in the process of updating a list of projects prepared in 1978 with a view to providing the country with a modern, efficient physical and social infrastructure and an environment conducive to the private sector's reconstruction etfort. This report was prepared by a Bank mission which visited Lebanon in November 1982. The report was discussed with the Government in February 1983. It identifies high priority projects at a fairly advanced state of preparation which could constitute a medium-term reconstruction program. The report also discusses the constraints -- financial, institutional, and sectoral -- to the rapid start and successful execution of such a program. The overall framework and the main policy recommendations for the reconstruction program are described in the main text. Annexes include a detailed analysis of each sector covered by the mission. ii. No reliable assessment of total damages to physical assets sustained by Lebanon over the past eight years is available. The mission was unable to investigate in detail the extent of damage; it consiaers that a breakdown between what is required for reconstruction stricto sensu (to restore facilities as they were) and what is required for development (to provide the assets needed for long-term sustained growth) would be a largely academic exercise. Moreover, damages sustained by physical infrastructure resulted in a large measure from the lack of maintenance over the last decade. The mission reviewed documents available and interviewed personnel responsible for the reconstruction effort and considers that CDR's estimate of a reconstruc- tion cost of about LL 70 billion in 1982 prices is reasonable. This estimate should, nevertheless, be firmed up through more detailed sectoral surveys. iii. The mission recommends that the Government consider as its highest priority, after the emergency reconstruction efforts are under way, the adoption of an organizational and financial framieworkfor the reconstruction program. To assist in this effort, the mission, in cooperation with the CDR and the executing agencies, prepared a preliminary list of projects which, given their priority and state of preparation, could start within the next three years provided that adequate financing can be secured (AttachmenitI). a three year period should allow for the beginning of the most urgent reconstruction projects and for the preparation of other projects in the context of a comprehensive reconstruction program. The analysis indicates that projects with a total cost of about LL 25 billion in 1982 prices (about $6 billion) could be implemented in the 1983-85 period (Table 3), of which LL 13 billion could be disbursed during that period (Table 4). A first tranche of about LL 11 billion could be funded in 1983 consisting of LL 4 billion for ongoing projects and LL 7 billion for new projects. This list is to be adjusted as progress is made in the assessment of damages and needs and as the planning of reconstruction, especially in the presently occupied areas, proceeds. iv. The projects are concentrated on a) assisting the rehabilitation of destroyed or badly damaged housing and schools and implementing a planned network of new public schools; b) managing urban development and land use; c) providing special credit facilities for viable industrial and tourism - ii -
projects; d) renovating and expanding physical infrastructure; and e) rehabilitating social infrastructure, with special emphasis on vocational training. Figures on the health sector only include the investments needed to put basic facilities back in operation because it was impossible to project investment requirements in the absence of any sectoral plans. Requirements in the agricultural sector may be added to the list on the basis of studies being prepared by FAO.
v. The rate of implementation of the program will depend, foremost, on the progress achieved in restoring the Government's authority and security throughout Lebanon, as well as on the domestic and external financing available and on the adoption by the Government of urgent measures to deal with serious technical, institutional and financial constraints. A number of policy measures designed to increase the public sector's effectiveness are recommended for adoption during the early stage of reconstruccion. vi. The financial prospects of the public sector are a subject of serious concern. Because of the difficult situation which the Government has confronted, large current deficits have accumulated in the central budget and public enterprises. The elimination of these deficits is a matter of the highest priority at a time when substantial resources will have to be devoted to meeting the country's security and reconstruction requirements. The main issues are : a) improving budgetary revenues; while a fiscal reform is being prepared, collection of existing taxes should be strengthened; b) reforming the budgetary process; there is a need to prepare a consolidated budget covering all public sector current deficits, transfers and capital expenditures; c) reviewing the Government's budgetary transfer policy to progressively eliminate price support subsidies and to target social assistance to the truly needy; and d) assessing the financial capacity of public enterprises to cover all their current expenditures and finance a reasonable share of their investment program. In a country such as Lebanon wbere the direct fiscal burden on economic activities and private citizens remains low by international standards, it is imperative that public enterprises be financially self-sufficient. vii. The mission has tentatively outlined a financial framework for the public sector for the period 1983-85 (Table b). The Government will neec to mobilize unusually high amounts of domestic and external financing resources not only for the reconstruction program but also to cover current dieficits. The mission estimates that up to LL 16 billion in current prices could be disbursed for the 1983-85 reconstruction program, provided suitable financiLng can be mobilized.. Added to preliminary estimates for current deficits, total resources required for the 1983-85 period were projected at a minimum of LL 26 billion in current prices (close to $6.5 billion). Over 1983-85, foreign borrowing should be limited to financing reconstruction projects (with commitments estimated at LL 19 billion and a net capital inflow at about LL 8 billion); in addition, the public sector may be able to mobilize LL 7 to 8 billion in domestic resources, mostly in the form of special reconstruction or long-term bonds, without encroaching on the financing needs of the private sector. The balance of the public sector requirements (excluding military equipment) amounting to LL 10 billion should be secured in the form of external grants in order to preserve the long term financing viability of the public sector and the country's creditworthiness. In this context, a close - iii -
monitoring of the financial requirements of the public sector should regularly assess the short-term need for Treasury bills and loans from international financial markets; excessive reliance on this type of borrowing would add a heavy debt burden which could require a delay in the implementation of the reconstruction program at a substantial cost to the economic recovery of Lebanon.
viii. To address technical constraints, the mission identLfied a list of pre-investment studies to be started as soon as possible (Chapter IV). Some of these studies would be limited to updating existing technical reports on large programs (e.g., Beirut Central Business District) in order to enable the Government to decide on the specific componients and implementation priority. For others (agriculture, education and health), more fundamental studies are required to review the sector as a whole prior to defining investment projects. In order not to delay project implementation, preparation and supervision sbould be contracted to private consulting firms wherever possible; this particularly concerns highway maintenance, ports, water supply and sewerage.
ix. To alleviate the institutional constraints, four main groups of actions are suggested: a) strengthening the capacity of public departments, particularly in preparing, implementing, and supervising projects; this would be the case for highway maintenance (Direction Generale des Routes et Bgtiments), health (Ministry of Public Health), ana general education and technical education/vocational training (Ministry of National Education); b) streamlining the Government's supervision of public sector agencies, particularly for airports and ports; c) consolidating sector agencies, particularly for water supply and sewerage; and d) establishing autonomous public enterprises such as in telecommunications.
x. The mission's suggestions are concentrated on the public sector reconstruction program. It assumes that with political stability the private sector's economic recovery will be spontaneous. Nevertheless, it will require the formulation, by the Government, of adequate macroeconomic and sectoral policies (land use, export promotion, skill training, incentives and fiscal reform). A major deficiency at this time is the lack of medium- and long-term credit. While the Government considers that it should temporarily provide special credit facilities, it is important that longer term efforts to mobilize the resources of Lebanon's dynamic banking sector for the reconstruction task not be undermined by subsidy schemes that the public sector's finances can ill afford. xi. To meet the challenges that the Governmnentwill have to face in the reconstruction phase, measures to strengtben Lebanon's public administration are vital. The Administration, with a nucleus of devoted civil servants, has kept essential services running throughout the years of upbeaval. However, it is largely overstaffed witb underqualified personnel which greatly need rejuvenation; there is also a need to reassess the budget allocation process. Besides the measures directly required for an orderly implementation of priority projects, the report identifies those required to build a strong economic management capacity. This would entail reactivating the Department of Statistics, restructuring the Ministry of Finance, strengthening the Bureau - iv - of Economic Policy Coordination, and recruiting new personnel and consultants for the Council for Development and Reconstruction; the strengthening of the latter is crucial for the effective planning, implementation and monitoring of the reconstruction program. xii. Many donors have expressed an interest in supporting the reconstruc- tion effort, but technical assistance and financing requirements are very large. It will thus be essential that the aid be coordinated to ensure ttnat donors are familiar with the details of the reconstruction program and its state of preparation and are able to express clear interest in programs and projects. This would avoid duplication of efforts and ensure maximum support from abroad. To this end, the Government may wish to call a conference of donors once it has developed and approved the list of programs, projects, studies and technical assistance needs suitable for external financing. This report, as well as the list of projects prepared by the mission, could serve as a basis for preparing a reconstruction program which would be suitable for presentation to potential donors. I. General Background
1. A Bank mission visited Lebanon from November 2 to November 20, 1982, to (a) assess data available on war damage; (b) advise the Government on reconstruction program formulation, including required technical assistance; (c) identify a first package of priority reconstruction projects and technical assistance suitable for financing by external donors; and (d) carry out a preliminary assessment of the economy. The report prepared by the mission was discussed with the Government in Beirut from January 31 to February 18, 1983 and revised to reflect their comments.
2. The mission was well received by the Government and had several meetings with the President of the Council for Development and Reconstruction (CDR) and the Ministers of Finance; Public Works, Transportation and Agriculture; Economy, Trade and Tourism; Hydraulic and Electric Resources; Housing and Cooperatives; Health, Labor and Social Affairs; Defense and Education; and Telecommunications, Industry and Petroleum; and witb the Governor of the Central Bank. In addition, mission members met with the relevant technical staff of the above ministries and of public sector agencies for in-depth discussions. Mission members visited all of Beirut and traveled south as far as Tyre and north up to but not including Tripoli. The mission covered, in varying degrees of detail, all the sectors of the economy except agriculture, where previous and current studies by FAO are expected to provide the elements of a reconstruction program.
3. The protracted warfare since 1975 has bad a devastating impact on Lebanon's economic and social development. It has left deep scars on the population. Casualties have been very high. An unknown number of people left the country and large numbers were displaced, resulting in the withering ot some economic centers and the creation of a number of squatter settlements. The efficiency of public institutions has been seriously impaired by the loss of talented personnel and the disruption of activities over an extended period of time. The physical damage wrought by the events bas also been very extensive. A number of cities, including Beirut, Sidon, Tyre and Tripoli, and many towns and villages throughout the country have been seriously affected. Destruction has been considerable in all sectors, but especially in housing, education, health, industry and public services. The country's production capacity was significantly reduced, and some of it totally destroyed.
4. No precise and reliable assessment of total damages to physical assets sustained by Lebanon over the past eight years is available. The mission reviewed in some detail various estimates it obtained for damage sustained in those sectors where it had expertise. Detailed results wbich appear in the sectoral annexes include damage mainly in Greater Beirut and in the South. Damage to public schools in the Greater Beirut area and the South is estimated to be at least LL 314 million in 1982 prices. Damages sustained by public health facilities are estimatea to be at least LL 140 million. Since many facilities are owned and operated by the private sector, these figures constitute a significant understatement of damages in the social sectors. The housing sector is one where surveys of damage have been the most extensive and the most thorough. Experts from at least four different agencies 1/ carried out separate detailed surveys of damage, ranging trom l/ The Council for Development and Reconstruction, the Ministry of Housing and Cooperatives, the United Nations Department of Technical Cooperation and the Islamic Social Welfare Institute. - 2 -
general visual surveys to detailed measurements and costing. The final count of damaged units is reasonably close in all four cases, but the costing varies considerably, depending upon the assumed average cost of construction. Based on these various surveys, damage in the housing sector is estimated at approximately LL 4.6 billion. Damage in the port sector is estimated at LL 72 million on the basis of preliminary surveys limited to Beirut. Damage for the Beirut airport is estimated at LL 90 million. Damage to roads has resulted primarily from the fact that maintenance could not be carried out on a regular basis due to the events of the past eight years. The mission used as a proxy for damages a figure of LL 500 million for deferred maintenance. In the water supply and sewerage sector, while many facilities were damaged or destroyed, the major damage sustained by the sector has again stenmed from the lack of maintenance over the past decade. Reconstruction requirements in this sector are estimated at about LL 350 million. In the telecommunications sector, evaluation of the damages and consequent reconstruction requirements is similarly complicated by the fact that the lack of adequate maintenance and repair and the excessive use of all facilities during the past eight years have caused considerable deterioration of most installations; the total estimate obtained from officials of the Ministry of Post and Telecommunica- tions and manufacturers is LL 410 million. The cost of repairing damage sustained in the power sector is estimated by Electricite du Liban at about LL 241 million. Finally, with respect to the Beirut Central Business District, which was totally destroyed, detailed estimates of the cost of its reconstruction were prepared by consultants on behalf of the Government. These estimates, originally put at LL 3.4 billion in 1978, are now put at LL 7.5 billion, of which the cost of infrastructure would be about one-quarter. These estimates of damage per se are not comprehensive eitber sectorally or countrywide; however, they do give a rough order of magnitude.
5. There is little doubt that Lebanon's economic recovery will be rapid once the Government's authority and security bave been fully restored. Paramount in this context is the resilience and dynamisnm of the Lebanese private sector. Individual initiative is already, under difficult circumstances, beginning the reconstruction of damaged and destroyed housing. However, government policies to control the use of scarce land resources and to provide new housing for the lower income groups, including squatters displaced by the political upheavals, are urgently needed. Banking, a major component of the service-oriented economy, has continued to grow, as reflected by the size of commercial bank deposits ($11 billion at the end of 1982). Tourism and the entrepot trade can be expected to recover once security is restored. Industrial reconstruction will have to simultaneously overcome the consequences of seven years of low activity, wbich created a pressing need for working capital, and undertake substantial technological changes to recapture foreign markets. Therefore, recovery cannot be expected to occur as easily as in the service sector. It will require the formulation by the Government of industrial policies relating to export promotion, rationalization of taritfs, training of skilled labor and land use planning. A major deficiency at this time is the lack of medium and long-term credit facilities, given the overwhelmingly shiort-term nature of the resources of the commercial banks and the weakness of the development banks. Similarly, agricultural development will require strengthening of the government's services, especially of those in the neglected, largely rural, northern and southern areas of the country, promotion of agricultural credit, regulation of landlord/tenant contracts, and rehabilitation and better utilization of the country's irrigation potential in the South and the Bekaa Valley. 6. Unless measures are urgently taken to strengthen Lebanon's public administration, the expected economic recovery may perpetuate the social and regional imbalances which already existed prior to 1975. Priority must now be given to (a) improving the quality of the public service by increasing salaries of qualified staff, instituting training programs for those needing to be upgraded and retiring those who are clearly redundant; (b) strengthening the planning and project preparation capability of CDR and key ministries, such as Housing, Public Works, Transport, Agriculture and Education; (c) rationalizing budgetary processes and strengtbening tax administration and collection in the Ministry of Finance; and d) improving economic iniormation by revitalizing the Department of Statistics and the formulation and coordination of economic policies by strengthening the bureau of Economic Policy Coordination (a committee comprised of the Minister of Finance, the President of the CDR, and the Governor of the Central Bank wbich gathers on a regular but informal basis). The improvement of public finances is particularly urgent. On the one hand, Government revenues presently cover only part of current expenditures. On the other hand, the Government will be faced with the need to service a rapidly growing domestic debt, to expand the level of military outlays to consolidate security conditions throughout the country, to extend its administration over the whole country, and to step up investment in line witb reconstruction requirements. -4-
II. Macroeconomic Situation
Recent Developments and Trends
7. The analysis of the macroeconomic impact of the reconstruction program is highly tentative given the unavailability of economic data and the uncertainty of making projections under current conditions; for the 1983-8i period, the mission focused solely on the financing aspects of this program. Because of the acute scarcity of data, the reconstruction program and its financing requirements were not directly linked to domestic production, production factor availability, and financial resource balances- however, the financial situation of the public sector was found to be the most pressing issue for future economic policy. The current situation reflects the traditional dichotomy, aggravated by the recent events, between a resilient private sector, well backed up by an efficient banking system and with strong links to foreign economies (Middle East, West Africa, Western Europe) and a weak public sector suffering from shortages of qualified personnel and increasing financial deficits.
8. Assessing recent economic developments accurately is not possible because of the unavailability of up-to-date statistics on the official economy and because of the existence of a sizeable "underground economy". The Department of Statistics has not functioned since 1975, the Ministry of Planning was abolished in 1977 and the control of the Mi-nistry of Finance was weakened. Overall economic management and reliable economic information, which had always been limitea, virtually disappeared. Anmong the data currently available, only financial and monetary statistics published by the Central Bank (Banque du Liban) are reliable and issued at regular intervals. Budgetary figures are estimates, not actual accounts, and the public sector's financial position cannot be consolidated. External trade data are available from foreign sources only and probably understate the actual trade flows. 1/ The mission used estimates of National Accounts from 1974 (last year published) to 1980 compiled in a document prepared in 1982 for the use of UNDP and the World Bank. 2/ Various indicators of output trends by firms and products were collected, mainly by direct interviews and micro-level estimates; these were reconciled within the tramework of the Niational accounLs existing up to 1974 and the estimates of the 1977 National Accounts. 3/ Although highly tentative, these estimates give a rough order of magnitude for the main macroeconomic trends over the 1975-80 period. Macroeconomic data subsequent to 1980 are mission estimates.
9. The various economic indicators available suggest that domestic production has recovered only part of its 1974 pre-war level. GNP per capita in current prices is estimated at about $1,500 to $1,800 in 1980, equivalent to 45 to 55 percent of the 1974 level in 1980 prices, depending on the assumptions made for population (between 2.6 and 3.2 million) and the percentage of net factor services in total foreign transfers (between Lo ana 25 percent). This estimate does not have the pretense of retlecting a true economic assessment; as mentioned above, the exact role of the "underground"' economy cannot be quantified at this stage. Two sectors, agriculture and
1/ The Beirut Chamber of Commerce publishes data on exports which required certificates of origin. 2/ By Dr. Nazhac Chalak, retired Chief of thse StatistLcs Division of the UN Economic Commission for West Asia. 3/ By Dr. Robert Kasparian, presently Advisor to the Cenitral Bank. - 5-
industry, were particularly affected by the 1975-76 war and seemed to have further declined during the 1977-80 period. 1/ Their share in GDP, alreacy at a low 31.5 percent in 1974, may have declined to about 25 percent. The National Accounts structure indicated below is highly tentative:
1974 1977 1980
GDP in LL million in current prices 8,140 8,200 14,40U in 1980 prices 1/ 23,190 13,830 14,40U
As percent of GDP: Resource Gap 13.0 21.b 29.2 Gross Fixed Investment 21.9 21.0 17.4 Final Consumption 91.1 100.8 111.8
1/ Assuming inflation rates as in para. 32.
With an estimated inflation rate of about 20 percent p.a. over the 1974-80 period, final consumption in 1980 prices appears to have declined by 25 percent between 1974 and 1980. The overall structure of domestic resource uses was distorted by large foreign resource gaps and negative domestic savings; both have increased further since 1980. Economic activity in 1982 declined as a direct result of increasing insecurity.
10. Besides the destruction of productive capacity, events since 1975 have had a major impact on the labor force (estimated at 744,000 in 1974 of which about 600,000 in non-agricultural sectors). The reauction in domaestic activity may have reduced labor requirements by a significant amount between 1974 and 1980. However, the impact on unemployment was minimal due to the large migration of skilled Lebanese (estimated at up to 200,000) to the Gulf countries and Western Europe while the large number of foreign unskilled and skilled workers was reduced drastically after 1975. There are, in fact, indications of present shortages of skilled workers, particularly for construction and maintenance. While stable conditions may bring back some of the Lebanese working abroad, labor sbortages could become acute when reconstruction efforts accelerate. Other causes for potential shortages include war fatalities among young people, reduced number of graduates froim technical and vocational schools as well as a lower participation in the labor force. To deal with this problem, the Government intends to launch accelerated training programs for certain categories of technicians (skilled workers and instructors). It will also have to define a new irmigratLion policy and/or enter into agreements with contracting firms for the supply of foreign workers for specific projects on a fixed-term basis. In the longer-term, the "open," export-oriented Lebanese economy will have to solve labor shortage problems by shifting progressively towards the use of relatively capital-intensive production methods.
11. The abrupt decrease in the domestic supply of gooas ana, to a lesser extent, of services resulted in disruptions in the traditional marketing structure. Imports tbrough clandestine ports and, more recently, through the southern border have entered the country with no Customs control or duties and, thus, sold at prices with which Lebanese farmers and inuustrialists find difficulty competing. Lebanese exports lost markets in neighboring countries, in particular to the highly competitive exports coming from the Far East.
1/ See Annex X for more details on recent developments in the industrial and tourism sectors. -6-
This shift particularly affected textiles and furniture, the traditional basis of the Lebanese export industry. In the future, export promotion efforts will have to identify new, more technologically-sophisticated product lines.
12. In spite of the destroyed production capacities, lost skilled labor and disrupted marketing, Lebanese entrepreneurship has remained strongly resilient in the international transport, trade and banking sectors. Less known is the resilience of the farmers who developed greenhouses and poultry industries and of industrial entrepreneurs who iaaintained, rebuilt or transferred their production capacities in spite of several waves of destruction. Nevertheless, the financial situation of numerous enterprises is precarious. The industrialists whom the mission met during its visit to Lebanon insisted ithat consideration should be given to some torm of government assistance to those entrepreneurs who are ready to reinvest in economically viable projects. The mission considers that the Government, in consultation with the private banking system, should seek to develop medium and long-term lending facilities, which aside from special Government programs, are at present practically nonexistent in Lebanon. On the other hand, the mission believes that given the precarious state of public finances and the low level of fiscal revenues compared to the level of economic development, the Government should weigh carefully the costs and benefits of interest and price subsidies and of the protection given to local industries, even more so for an economy which was and should remain freely open to external economic and financial relations.
13. Because of the limited data available and the uncertainties of the immediate future, it is difficult to project the recovery path of the economy from the present Low level of economic activity. As the main issue analyzed in this report is the feasibility, particularly financial, of the reconstruction program for the 1983-85 period, the mission attempted to relate that program to some macroeconomic reference. It can be assumed that, with security reestablished and the basic economic infrastructure rehabilitated, the private sector would bring back production to the pre-war level by 1985. Financing, physical and labor constraints may, however, make it aifficult to achieve more than 20 percent growth per annum in the period. Rough projections of gross domestic production levels (GDPs) for 1983-85 between these two limits could serve as an indication of the potential economic activity for 1983--85. Projections at this stage cannot be baseu on any assumption of potential growth by individual sector. It is assumed that GDP levels could vary as shown below:
1983 1984 1985 Total 83-85
Inflation (1980-100) 166 190 215
GDP in LL billion (1980 prices) (current prices) Assumption I Slow recovery 12 14 17 84 II Regaining pre-war level 14 20 23 110
With the inflation assumptions made in para. 32, total cumulative GDP for the 1983-85 period in current prices could range between LL 84 and 110 billion. In the rest of the report, a level of LL 100 billion will be used as the average cumulative GDP in current prices for 1983-1985.
14. In determining the resource balance and allocation which may take place during 1983-85, two macroeconomic items are crucial for the financing -7- scheme: the external trade deficit (para. 27) and fixed investmnent(public and private). The ratio of investment to GDP could be increased to 25 percent, a level which is average by international standards 1/ but which is higher than the 22 percent estimated for Lebanon in 1974; a 25 percent ratio was assumed in the 1978 Reconstruction Program. This ratio is not the result of a detailed study of the Lebanese economy's absorptive capacity, but we assume that, in a reconstruction period, it could be a feasible objective. With cumulative GDP of about LL 100 billion during the L983-85period, iixed investments on the order of 22 to 25 percent of GDP would result in about LL 22 to 25 billion in current prices, roughly equivalent to the 1972-74 level in 1980 prices. A ratio of 35 to 40 percent of total fixed investments is assumed to be allocated to the public sector (Administration and public enterprises). This takes into consideration the traditional limited role of the public sector balanced, however, by the effect of a special reconstruction effort. With these assumptions, an investment program in the public sector of about LL 8 to 10 billion in current prices could be accommodated with the projected domestic output growth; it would, however, require the strengtbening of the Government's role in the economy. The feasibility of financing such a program is analyzed in Chapter V.
Public Finance: Issues and Trends
15. The public sector is composed of the Administration and public enterprises or agencies with or without revenue-earning capacity. The Government does not include all its economic activities within the Central Budget framework. It is also misleading to limit the study of the need for domestic financing to the Central Budget. For instance, some public agencies have separate accounts with the Treasury which are excluded from the Budget. It is, therefore, extremely difficult to ascertain the exact situation of total public finance in the absence of a consolidated presentation. The mission first analyzed the contents of the Budget Law and then tried to identify various government transfers and to estimate the financing of the public sector deficit using the public sector accounts at the Gentral Bank. 2/
16. The annual budget or Budget Law is prepared by the Ministry of Finance and approved by Parliament. It is an estimate of revenues and expenditures for the coming year, but no attempt is made to link it to actual data for preceding years. The Ministry of Finance assumes that amounts are collected at a rate close to Budget Law estimates, although, since 1977, the Ministry of Finance has not been able to provide actual figures on budgetary receipts, either globally or by type of revenue. Assuming a 100 percent implementation ratio, 3/ revenues in 1980 prices, excluding foreign exchange gains transfered from the Central Bank, declined from 1974 to 1980 but increased in 1981. The same revenues, according to the 1983 Budget Law are projected to increase by 78 percent, equivalent to about 50 percent in constant prices. Budget Law figures indicate the following breakdown for Central budgetary revenues (in current LL million):
1/ The average ratio of fixed investments to GDP for oil-importer, medium-income countries was 27 percent in 1979-81; see World Development Report 1982, World Bank. 2/ For 1983, the mission used a revised version ot the Budget Law, as of February 1983. 3/ These implementation ratios were estimated by comparing Budget Law estimates with actuals before 1977; they reflect the pre-war performance. Budget Law 1980 1981 1982 1983
Total Budgetary Receipts 2192 2878 2926 5006
Direct taxes 340 385 435 615 Fees and dues 240 468 571 612 Indirect taxes 1105 1271 916 2430 Customs duties (800) (900) (500) (2000) Others (305) (371) (416) (430) Revenues from properties 82 189 224 234 Retirement Fund 55 65 100 115 Subtotal (1822) (2378) (2246) (4006)
Income from Central Bank I/ 370 500 680 1000
Memo Item: Receipts in 1980 prices 2/ 2192 2410 2066 3021
1/ Including regular dividends (profit sharing) only; gains on exchange variations are not revenues but financing means (Table 1, page 11). 2/ Assuming inflation rates as in para. 32, and I00 percent implementation ratio.
The mission considers actual implementation ratios for 1981-82 to be overstated; for example, Customs offices indicated that import duties did not exceed LL 400 million in 1982 compared to LL 5U0 million estimated in the Budget Law. On the whole, the mission estimates that because of security conditions actual revenues (excluding incornefrom the Central Bank) did not exceed LL I billion. Compared to these estimates for 1982, revenues for 1983 would increase by four times in current prices. This assumes a sharp but somewhat unrealistic recovery of tax collection coupled with rapid economic growtb.
17. Actual budgetary outlays have not been estimatea since 1977. The breakdown by ministries in the Budget Law, therefore, is only indicative of expenditure allocation by functions; these are shown below (in current LL million): Budget Law 1980 1981 1982 1983
Current Expenditures 2639 3384 4327 5913
General Administration 478 550 678 973 Defense 458 654 769 1039 Social expenditures 636 871 1249 1500 Economic activities 229 344 321 448 Debt and Pension Fund 1/ 362 392 481 I11U Reserves 476 573 829 843
Memo Item: Actual expenditures in 1980 prices 2/ 2507 2692 2903 3390
1/ Interest payments are incomplete (Table 1). 2/ Assuming inflation rates as in para. 32 and a 95 percent implementation ratio. The Ministry of Finance considers that about 95 percent of Budget Law estimates are effectively disbursed. If this is so, current budgetary outlays, expressed in 1980 prices, sligbtly declined from 1977 to 1980 and roughly reached their pre-war level in 1982. One cause for r.aintaining a high level of current expenditures stems from the Government continuing to pay civil servants even when absent. A 37 percent increase is forecast for 1983, equivalent to about 17 percent in constant prices. The main cause arises from interest payments which more than doubled to service a fast-growing domilestic debt; it also reflects a more accurate estimate of interest payments in the Budget Law. Excluding interest payments and defense, current expenditures are projected to increase at 22 percent in current prices.
18. Investment expenditure data is known even less. Allocations by ministry in the Budget Law were as follows (in current LL million):
Budget Law 1980 1981 1982 1983
Investment Budget (LL million) 1229 1692 1972 2622
General Administration 67 105 160 275 Defense 1/ 503 729 476 425 Social infrastructure 64 ill 126 180 Economic infrastructure 595 747 1210 1742
Memo Item: Investment, net of defense, in 1980 prices 2/ 472 524 687 862
1/ Defense is excluded from the reconstruction program estimated in Table 6; it should be considered a current expenditure as per the UN National Accounts classification. 2/ Assuming inflation rates as in para. 32 and a 65 percent implementation ratio.
The Ministry of Finance considers that 65 percent of budgeted investments were effectively disbursed over the period. If this is so, the contribution to investment through the Central Budget, in 1980 prices, grew from 1974 to 1982. However, even more than the implementation ratio for receipts and current expenditures, the assumed maintenance of a continuous 65 percenitratio for investment implementation would seem unlikely given the instability of the past few years. For 1983, the forecast of a 26 percent increase in constant prices for investments, net of defense, reflects the intended objective to start the reconstruction effort. The Central Budget, however, comprises only part of the Government's capital expenditures, which are also financed through annexed budgets, 1/ Treasury advances and by Special Accounts. The latter include several public agencies with separate investments; some of them, like CDR, are not revenue-earning but can borrow on their own. Furthermore, allocations for capital outlays in the Central Budget are often general and
1/ Annexed budgets include the budgets of the following agencies: Telecommunications, National Lottery, and Agency for cereals and sugar beet; these agencies should be treated like the others on an autonomous financial basis. - 10 -
seem to include items more akin to current expenditure or transfer than to investment (by national accounts definition). The mission could not estimate the share of the public sector investment executed by the Central Budget.
19. Changes in budgetary procedures are recommended so as to classify expenditures by economic functions. Combined with a better management of budgetary transactions (particularly faster compiling of actual data), it should allow for a better budget preparation and monitoring in relation to policy objectives. At present, wages and salaries, purchases of goods and services, transfers and social assistance are mixed. A more difficult issue is to assess the adequacy of the civil service in terms of numbers and skills. This issue combines two elements: the impact of recent events on personnel (departures or displacements) and the Administration's efficiency. Such a review could not be carried out by the mission; nevertheless, some recoimmendations on institutional reforms are made in this report; they cover departments directly linked to the reconstruction program preparation. It should be stressed that the Civil Service has continued to operate creditably during the war. However, its overall efficiency is low because of the interrelated factors of selection criteria, inflated numbers and low wage structure, to which should be added the wear and tear of the war. A reduction in staff combined with a wage scale adjustment and forced retirement may be difficult to implement for obvious political and social reasons but is needed in the long term; such a reform most probably will not reduce current budgetary expenditures.
20. The Government is increasingly involved in financial transfers, the outlays for which are not always budgeted directly but channeled through various Treasury operations. Because the Treasury Department could not produce actual consolidated accounts, the mission could not make a comprehensive analysis of nor quantify the main transfers, sumriiarizedbelow:
- social transfers: Retirement Fund for public servants, assistance for health and education expenditures.
- price support. Fund for petroleum products, Agency for cereals and sugar beet, Agency for tobacco, and subsidized credit for various reconstruction and incentive schemes (in particular, housing and industry). 1/ - transfers to public enterprises: Indirectly through Treasury advances and/or unrepaid loans with no distinction between current deficits and capital financing.
Parts of the amounts involved appear in various Treasury accounts, but not completely; for example, the CDR and the Fund for petroleum products have separate accounts at the Central Bank. For Treasury advances (in theory, loans), allocations by enterprises are known; actual dilsbursements and repayments (if any) are unknown. There are also Treasury advances to ministries, e.g., Defense, Housing, Health; this procedure disperses and complicates budget managemenit to no obvious advantage. To estimate the Government's total contribution to the country's investment program, there is a need for consolidating outlay data of the various Ministries and the four
1/ Although there is nio subsidization scheme per se at present, Decree Laws 20 (para. 80) and 131 (para. 84) include indirect subsidies by providing loans at a rate lower than market rates. - 1l -
Table 1: LEBANON: ESTIMATED PUBLIC SECTOR DEFICIT TRENDS AND STRUCTURE 1977-82 (LL million, current prices)
1979 1980 1981 1982
Central Budget 1/
Receipts: Budgetary Revenues 1,660 1,820 2,380 1,000 Central Bank's Profits 260 370 50U 680 Outlays: Civil Expenditures -1,310 -1,980 -2,b60 -3,210 Total Defense 2/ -630 -960 -1,380 -1,500 Interest Payments -120 -270 -610 -1,150 Budget Current Deficit -140 -1,020 -1,710 -4,180
Annexed Budgets Current Surplus 8U 100 160 240 Public Enterprises Current Deficit 3/ -690 -1,110 -1,82U -2,500
Current Public Deficit -750 -2,030 -3,370 -6,440
Public Investment 4/ Budget (incl. annexed) 430 570 780 b50 Others (preliminary) 230 250 480 350
Need for Financing (Overall Deficit) 1,410 2,850 4,630 7,440
Forei n Assistance (250) (1,040) (1,160) (250) Tunis Pledge/Grants 100 720 1,040 300 Net Loan Disbursement 5/ 150 320 120 -50
Domestic Financing (1,160) (2,360) (3,58u) (7,650) Gains in Foreign Exchange 410 590 1,120 510 Central Bank Advances 640 460 30 -230 Treasury Bills 110 1,310 2,430 7,370
(Adjustment) 6/ (-) (-5)O) (-110) t-460)
1/ Actuals based on Budget Law figures and implementation ratios (paras. 16-18), but corrected if direct estimates were available to the mission. 2/ Including current expenditures and equipment. 31 Based on Treasury advances and assuming no current surplus of the main public agencies. 4/ Reestimated by the mission. 5/ Government-guaranteed debt (para. 30). 6/ Residual reflecting Treasury position at the Central Bank and errors and omissions.
Source; Ministry of Finance, Bank of Lebanon, and mission estimates. - 12 - agencies in charge of implementing development projects (CDR, CEGP, CEGPB, Conseil du Sud). A comprebensive picture of public sector finances would also need to encompass a variety of autonomous public enterprises and agencies (Electricite du Liban, Office du Litani, Social Security Fund, etc.).
21. The global deficit of the Treasury Accounts at the Central Bank, which is one of a few reliable sources of information, has increased at an alarming rate. Up to December 1982 the public sector accumulated a domestic debt of about LL 14 billion (equivalent to about $3.5 billion), made up of Central Bank advances (LL 1.8 billion) and short-term Treasury bills held by commercial banks. As of December 1982, 70 percent of the bills had a three-month maturity. This debt was generated by cumulated deficits in the public sector, both of the Administration and of public enterprises and agencies. Table I on page 11 inaicates the structure of the public sector deficit and its financing; most of the items are roughly estimated, and no firm conclusion can be drawn prior to a more in-depth analysis. This analysis should be preceded by detailed studies on actual trends and deficits of the various Treasury accounts and public agencies. In spite of this uncertainty on data accuracy, Table I tentatively indicates a sharp deterioration of the overall public sector deficit. It reached about LL 7.4 billion in 1982 (equivalent to about 40 percent of GDP). Two main causes could explain this rapid deterioration: (a) less control over budget execution and declining tax collection and (b) increasing deficits in the public enterprises wbich faced difficulties in collecting fees and revenues.
22. A major objective for the public sector is to eliminate its current deficit, a feasible objective for the second hialf of the 1980s it tthe economy recovers as assumed in para. 13. This would be a first step prior to the mobilization of savings to finance a reasonable share of public investmaents. During the 1970s, the ratio of budgetary revenues (excluding profits from the Central Bank) to GDP remained at about 14 percent, which is low by international standards. The Government has expressed its reluctance to impose a major fiscal reform while the private sector is being asked to participate actively in the reconstruction effort. For the next two years, increasing revenues, therefore, could only come from strengthening revenue collection efforts, particularly Customs duties. A fiscal reform should be prepared for implementation around 1985. 1/ It could focus on increasing consumption taxes on luxury goods and improving income tax collection on non-wage earners. For consumption taxes, implementing a value-added tax system would require a substantial improvement in the private sector's and the administration's accounting practices; a non-cumulative consumption tax may be envisaged as an inatermediate step. Changes in direct taxes should take into account the need for providing adequate incentives to targeted social or regional groups and private investors and exporters. One of the most promising possibilities in the Lebanese context is a land and real estate tax (provided improved titling and land use control). Taking into account that, besides stable political conditions, it will take time to implement the fiscal reform and increase efforts for tax collection, the mission considered that the Government could collect revenues in the range of LL14 to 16 billion; this objective is equivalent to an average of 15 percent of GDP during 1983-85; it could be considered low by international standards, but reflects pre-war performance as shown below (in current LL million):
1/ The Government has requested technical assistance from France, USA, and the IMF. - 13 -
1972-74 1977-79 1980-82 1983-85 2/
Total revenues 1/ 3,100 4,200 5,200 14 to 16,000 Total indirect taxes 1,690 2,520 3,000 8 to 9,000 of which customs duties 1,150 1,880 2,000 6 to 8.000
GDP 21,600 28,300 50,000 100,000 Imports (f.o.b.) 10,800 16,150 35,000 b0 to 70,000
Memo Items Revenues as % of GDP 14.4 14.8 10.4 14 to 16 Indirect taxes as % of GDP -7.8 8.9 6.0 8 to 9 Duties as % of imports -10.6 11.6 5.7 10 to 11
1/ Excluding profits from Central Bank 2/ See para. 12 for macroeconomic projections.
23. Current expenditures (including defense but excluding interest payments) at the cumulative 1980-82 level of LL 11.6 billion would be equivalent to LL 18.6 billion in 1983-85 prices; civil expenditures for wages and inputs were covered by current revenues only up to 1981. Future current expenditures should also allow room for financing the structural reforms urgently needed if the Administration is to improve its effectiveness, extend its authority over the whole country, and assume the recurrent costs triggered by the reconstruction investment. During the 1983-85 period, therefore, because of the potential size of current public deficits it is essential that external assistance should also include substantial provision for budgetary support linked to a program of public sector reform.
24. Reducing public sector deficits also involves reducing the Treasury's involvement in financing the current deficits of the main public agencies and enterprises; a thorough examination of the causes of deficits is therefore needed. Enterprises with productive activities should be able to charge and collect enough revenues for the services they render to enable them to cover at least current expenditures. Several public enterprises such as Electricite du Liban and Office des Eaux de Beyrouth have increased their tariffs recently. For agencies involved in price support or social transfers, deficits will be eliminated only if appropriate policies are implemented; the most urgent one is to align prices for fuel and other energy-linked products to the real cost for the economy (world prices for crude oil, domestic refining and distribution costs, and taxes). All subsidies for petroleum price support are estimated at LL 700 million for 1983 (LL 1,000 and 800 million in 1981 and 1982, respectively). Given the currently declining world price trend for crude oil and the appreciation of the Lebanese pound, fuel price support could be eliminated rapidly. Advances to the Office of Cereals and Sugar Beet are estimated at LL 174 million in 1982. The iHinistry of Economy and Trade acknowledged the weak social impact of across-the-board food subsidies such as those for cereals which it intends to phase out.
The Balance of Payments: Issues and Potential Trends
25. Since 1974, no comprehensive and reliable foreign trade data have been collected in Lebanon, and rough trends for exports and imports are estimated using data from Lebanon's trade partners. These data show a rapid increase in the trade deficit on a f.o.b. basis (in current LL million); - 14 -
9 months 1974 1977 1980 1981 1982
Imports of goods (f.o.b.) 5,077 4,373 11,614 13,977 10,968 Exports of goods (f.o.b.) 3,462 2,120 2,983 3,824 3,067 Apparent deficit 1,615 2,253 8,631 10,153 7,901
Memo Items Deficit in $million in current prices 693 734 2,509 2,356 1,607 in 1980 prices 1/ 1,238 1,046 2,509 2,474 Exports estimated in Lebanon 2/ n.a. 2,364 4,160 5,544
1/ Using international inflation, expressed in US$ in para. 32. 2/ Beirut Chamber of Commerce, expressed in LL million in current prices.
Source: For total value of imports and exports on a f.o.b basis, Direction of Trade Staitisticspublished by the IMF; for a breakdown by products, GATT's data system.
26. These deficit trends could differ from actual trade deficits for at least two reasons: a) while imports originating from developed countries are known with a relative degree of accuracy, exports and reexports to neighboring countries are subject to more errors, in particular because of lags in reporting (this may explain why the Beirut Chamber of Commerce obtained higher estimates); and b) the existence of a substantial amount of clandestine, unrecorded trade. But even with these potential differences between estimated and actual data, tlhere should be little doubt that the external trade balance deteriorated badly over the last 8 years. This deterioration is mainly due to low export perfonnance since imports in constant prices actually decreased. With the international inflation index increasing by 70 percent between 1974 and 1981 (para.32), estimated imports into Lebanon (expressed in 1980 prices and US dollars) decreased by 14 percent over the same period, and exports from Lebanon fell by two-thirds.
27. The reconstruction effort will initially tend to increase imports and the external deficit. Besides the already mentioned difficulties in projecting domestic economic activities, projecting external trade deficits for 1983-85 entaiLs separate assumptions on export growth potential and import-substitution capacities. The tentative projections made by the mission only give orders of magnitude of future deficits to be financed. The following external trade performance is assumed (in current LL billion).
1972-77 1978-79 1980-82 1983-85
Total imports (f.o.b.) 10.8 17.8 37 60 to 70 Total exports (f.o.b.) 6.2 6.9 9 15 to 25 External trade deficit 4.6 10.9 28 45
Total GDPs 21.6 28.3 50 100 As percentage of GDP Imports 50 63 74 60 to 70 Exports 29 24 18 20 to 25 Trade deficit 19 39 56 45 - 15 -
Compared to a level of external trade deficits equivalent to 19 percent of GiJP for the 1972-74 period, 39 percent for 1977-79 and possible )6 percent for 1980-82, the projected level for 1983-85 could be on the order of 45 percent of GDP. To promote exports and import-substituting activities, stuaies on the fiscal system and on incentives will have to be carried out prior to defining appropriate policies. It should be stressed, however, that the Lebanese economy being an open one, substantial and steady trade deficits could have a major impact on the exchange rate.
28. Service and financial transactions maintained the balance of payments in surplus over the last eight years. Foreign transactions can only be estimated on a global, net basis, as no breakdown by categories is compiled. This lack of information is not solely due to the recent events but to the traditional policy of secrecy of transactions in the Lebanese banking systern. The Bank of Lebanon should investigate the possibility of improving data on foreign transactions without impairing the confidence of depositors. Only data on variations in foreign exchange reserves are published by the Central Bank; global trends for services and financial transactions can be estimated as a residual category from trends estimated for external trade deficits and exchange variations, as shown below in current $ million:
1974 1977 1979 1980 1961 1982 External trade deficit -693 -734 -1727 -2509 -2356 -2500 (f.o.b.) Change in commercial banks' net foreign assets (increase -) -11 -484 -7U0 -418 -645 913 Other inflows (net) 1507 1484 2124 2983 2929 2679 Change in Central Bank's net foreign reserves (increase -) -803 -266 303 -56 72 -1092
Memo Item: Otber inflows in 1980 prices I/ 2,692 Z,116 2,300 2,983 3,076 2,80U
1/ Using international inflation as expressed in US$ in para. 32.
Source: International Finance Statistics (IMF, March 1983)
29. Comparative trends for each category of transaction in the balance of payments cannot be readily identified with the information available. For non-factor services, because of security conditions, Lebanese businesses have used local air transport, shipping and trading companies because they often were the only ones operating within the country; therefore, whlle income may have decreased, expenditures have also decreased. Net receipts from tourism probably decreased drastically. However, a sizeable corimunity living abroad, recently expanded by large migratory flows of workers, increased its remittances significantly. According to unofficial banking estimates, transfers from Lebanese abroad were in the order of LL 5 billion in 1981 (or almost half of total net transactions). An increasing role must have been played by current public transfers since 1974, although the only recorded one was payments of $417 million from the Arab aid or Tunis pledge for $2 billion for 1980-84; but, due to the war, transfers to finance numerous political and - 16 - religious factions increased. On the other hand, net capital inflows could have deteriorated because of the slowdown in investments, but speculative flows and transfers to finance the "underground economy" increased. More generally, the reasons for the steady increase in foreign transactions presumably inclu(de the creation of numerous foreign branches, the confidence of the clientele in the quality of services provided by the banking sysLem, the free convertibility of the Lebanese pound and the secrecy of transactions.
30. In 1974--80, the country's medium and long-term external public debt increased moderately. Since 1980, commitments have been negligible as shown below, in current $ million:
1974 1977 1980 1981 1982 (est)
Debt outstanding disbursed only 56.3 39.0 194.0 246.6 258.0 incl. undisbursed 97.2 190.3 425.1 384.8 342.4 of which: multilateral 53.3 135.3 169.0 170.7 161.4 bilateral 42.4 54.0 110.7 101.2 96.4 financial markets 1.5 1.0 145.4 112.9 84.6
Gross Disbursements 3.2 6.0 108.9 98.9 54.3 Debt service 10.9 8.2 12.5 53.5 69.3 of which: interest 2.1 1.9 5.6 13.0 26.8
Source; World Bank External Debt Division.
By the end of 1982, the external debt outstanding, including undisbursed, may have reached 10 percent of GDP, and debt service 10 percent of exports of goods. About $85 million (or LL 350 million) remained to be disbursed.
31. Net foreign exchange assets of botb the Central Bank and commercial banks increased steadily from $2,514 million in 1974 to $4,074 million in 1980, reaching $4,672 million in 1982. Exchange reserves of the Central Bank at $1.9 billion at the end of 1981 represented 6 months of f.o.b. imilportsof goods. In addition, however, the Central Bank holds 9.2 million ounces of gold, valued at $0.4 billion at the official price of US$ 42 per ounce. The table below shows changes during each period in the foreign accounts in the Banking System (in current LL million), as publisbed in the Bank of Lebanon's Quarterly bulletins:
1972-74 1978-80 1980-81 1982-82
Central Bank's Reserves 2.079 1.304 1.563 4237 foreign assets 2.079 1.320 1.585 4201 gold -217 252 381 63 foreign exchange 2.296 I.0b8 1.204 4138 foreign liabilities - 16 22 -36
Commercial Banks Variation in non-residents' deposits 398 4.437 5.031 -5.035 foreign assets 1.373 7.631 6.656 -5.076 foreign liabilities 975 3.194 1.625 41
Variation in residents' foreign deposits 928 6.402 5.787 -2.097 - 17 -
32. Given the openness of the economy, variations in inflation and interest rates abroad were reflected in simultaneous variations in domestic inflation and the exchange rate. The moderate depreciation of the Lebanese pound, in spite of the political situation, was to a large extent due to the continued large inflows of transfers from abroad. After a steady depreciation from 2.32 LL per US$ (end of period) in 1974 to 3.69 in 1980 and 4.64 in 1981, the LL fluctuated in 1982 from 4.75 in March to 5.10 during the summer and to less than 4.0 in December. Domestic inflation averaged 19.5 percent p.a. trom 1974 to 1982. In projecting future inflation rates, we assume an average world inflation rate in US$ of 8 percent p.a. from 1983 to 1985 and a stable exchange rate at 4LL to the US$. The latter implicitly assumes that the external trade deficit will be financed without any significant variation in official foreign exchange reserves. Domestic price levels will be under heavy pressure because of the reconstruction effort and potential shortages of products if the transport and distribution requirements are not adequately planned. At the same time, because of the openness of the economy, domestic inflation cannot deviate too long from international inflation without a depreciation of the LL. Because of this interrelation and our assumption of a stable LL., domestic inflation growth is limited to an increase of 15 percent p.a. on average from 1983 to 1985, compared to 21 percent from 1978 to 1982.
Actual Projected (Annual Average) 1974 1977 1979 1980 1981 1982 1983 1984 1985
Exchange rate LL to US$ 2.33 3.07 3.24 3.44 4.31 4.73 *.0 4.0 4.0
International inflation 1/ - in $ and % p.a. 25.3 8.4 11.6 8.3 -4.8 0.5 6.5 9.0 7.5 index 1980 = 100 56.0 70.1 92.3 100.0 95.2 95.7 101.9 111.1 119.4
- in LL and % p.a. 11.9 14.8 22.1 15.0 19.3 10.3 -5.4 9.0 7.5 index 1980 = 100 37.2 61.2 85.0 100.0 119.3 131.b 124.5 135.7 145.9
Cost of living index - in % p.a. 11.7 19.3 23.8 23.7 19.4 18.6 17.0 15.0 13.0 index 1980 = 100 35.1 59.3 80.8 100.0 119.4 141.6 165.7 190.5 215.3
1/ The World Bank's Economic Analysis and Projections Department compiles a unit value index based on manufactured exports from developed to developing countries; this index is used as proxy for an average inGex of world inflation, expressed in US$. - 18 -
III. The Reconstruction Etiort
Institutional Framework
33. The Government of Lebanon began planning its reconstruction effort in 1977, and to tbai: end establisbed the Council for Development and Reconstruc- tion (CDR). The CDR, created by Decree Law 5 of 1977, was granted broad powers. First, it replaced the Ministry of Planning and was made responsible for preparing a general plan as well as programs for reconstruction ana development, and for recommending appropriate economic, financial and social policies to the Cabinet. In the context of planning reconstruction and development, the CDR was also made responsible for maintaining relations with external aid agencies regarding economic and technical assistance. Secondly, it was empowered to contract domestic and external loans to finance development projects. The Government agreed to guarantee these loans up to LL 300 million per year in the 1977 through 1979 period, and up to fifteen percent of the total government budget thereafter. Thirdly, the CDR was given the authority to lend for specific programs with the authorization of the Cabinet. Lastly, the CDR was empowered to set up project implementation units whenever the Cabinet requested it. Thus, the CDR was not only charged with planning reconstruction, but was also given functions whicb are normally associated witb the Ministry of Finance (borrowing), with line ministries (project execution) and with development banking (credit programs). This broad authority reflected the Government's concern over the ability of the public sector to handle the task of reconstruction.
34. Until February 1983, the CDR had twelve members on its executive board. 1/ Of these, four were permanent members. In addition, it had approximately 10 professional staff. During the past four years, the CDR took a number of specific "ad hoc" actions designed to program and implement reconstruction. It prepared a "Reconstruction Project" in 1978; contracted some studies, notably the national waste management plan; began implementation of a road rehabilitation program; organized a commission to supervise the execution of the rehabilitation of the Port of Beirut and acted as a channel for reconstruction lending to housing, industry, hotels and hospitals.
35. In line with its own objectives, CDR should now focus on the medium-term Reconstruction program wbere its primary role would be planning, setting of priorities, and monitoring of implementation. During this reconstruction plhase, every effort should be made to strengthen the ministries and executing agencies so that they can assume the responsibility for assessing intra-sectoral priorities and preparing and executing the longer term development projects. In order to effectively carry out its planning role, CDR needs to strengthen its overall staff by recruiting additional qualified staff and by obtaining technical assistance as outlined in Chapter VI. Such technical assistance would also be available to help the ministries and executing agencies prepare and execute projects without the need for direct involvement on the part of CDR.
Policies for Reconstruction
36. The CDR enunciated in the context of the 1978 Reconstruction Project and in other documents the policies which the Government would pursue in
I/ A proposed new organisational structure of the CDR is under consideration by the Government. - 19 - reconstructing Lebanon. Because of subsequent events, most of these policies were never translated into action. The policies, which are listed below, are still generally valid.
(i) The private sector would continue to be the principal generator of productive activity.
(ii) The public sector would increase its role in providing education, health and social services.
(iii) The Government would provide incentives for decentralizing economic activity from Beirut to other parts of the country.
(iv) The taxation system would eventually be revised to become raore equitable and to yield greater revenues.
(v) Reconstruction would be financed largely by external loans anu grants. The stated policy is that the Government would provide 20-25 percent of total requirements on average over the ouration of the reconstruction process.
(vi) The Government would counteract the anticipated inflationary pressures resulting from the reconstruction effort by rapid expansion of the construction industry and housing supply, introducing intensive technology and training for skills while simultaneously stimulating domestic savings and the importation of the goods and services needed to overcome bottlenecks.
The CDR's Reconstruction Project
37. In 1978, a "Reconstruction Project" was prepared by CDR on the basis of 20 detailed agenda papers, each dealing with a sector of the economy. It was initially prepared for a meeting of the Finance Ministers of the principal Arab States. Although this special meeting never took place, the Arab States pledged to grant Lebanon $2 billion over five years for Government executed reconstruction projects at the Tunis Meeting of Heads of Arab States in November 1979. One half of the Arab funds were to be used for reconstruction of the South. As of December 1982, $417 million had actually been transferred to Lebanon.
38. Initially, the CDR considered the Reconstruction Project as a preliminary estimate and not as a definitive program. Nonetheless, the CDR still regards this "Project" as largely valid and its current estimates of reconstruction requirements are based on an update of the 1978 costs. The 1978 project was designed to address public sector investment requirements that go beyond the bare replacement of accumulated damage sustained during the years of conflict. As presented, the 1978 project aimed at meeting the requirements arising from delayed maintenance and investments as well as from destruction.
39. In the document, the CDR set forth criteria which would guide it in establishing the priorities for investment. Projects which would enjoy priority were those which: (i) would relieve human raisery such as the repair of damaged housing; (ii) were required to enable the reconstruction process to move forward, such as port expansion; (iii) have a long gestation period such as the Beirut water supply project; (iv) have a large multiplier effect; (v) were located in secure areas; (vi) could be given to contractors to carry out; and (vii) did not require large numbers of skilled workers. Although the CDR set forth the criteria to determine investment priorities, it did not rank - 20 - projects according to these criteria. The CDR in fact concluded that all projects in the Reconstruction document were of equal priority, a position which it has maintained throughout the past five years.
40. It is recognized in the 1978 document that there were a number of ways to eliminate the constraints caused by the administrative weakness of the Government and shortage of labor through training and reform. liowever, few specific recommendations were made and little has been done over the past five years to accelerate training. To obviate the problem of attempting to strengthen existing structures, the CDR undertook project execution directly (e.g. road rehabilitation), a practice which should be avoided in the future.
41. The 1978-82 tranche of the 1978 Reconstruction Project amounted to about LL 7.4 billion in current prices (Table 2, page 21). No data are available on actual expenditures. The tentative proposed financing envisaged that foreign funds would account for less than 40 percent, of which Ltie main contribution was to come from the Tunis pledge. The Treasury was expected to advance LL I billion. Because the budget is in aeficit, the bulk of uomestic financing would consist of borrowings from the CentraL Bank and sale of Treasury bills to the banking system.
Reconstruction Plan
42. The only detailed assessment of reconstruction requirements available at the present time is that developed by the CDR which estLmates that about LL 70 billion in 1982 prices woula be necessary over the coming live to eight years to repair the damages sustained by Lebanon in all sectors during the past eight years ana to make those investments which had to be deierred because of the events in the country. This global estimate is basically an updated version of earlier estimates contained in the 19-/8 "Reconstruction Project". It also includes CDR's estir,iatesof the damages caused by the hostilities in 1982 (LL 7.2 billion). No atterapt is made to oreak dowtl either estimate between-what is required for reconstruction per se and what is required for development purposes because the CDR believes, with consinerable logic, that this would be no more than an academic exercise with no inherent value. To the war-related physical destruction imust be added the widespread deterioration due to eight years of neglect or minimal maintenance and the need to accelerate the implementation ot a number of development projects wbich, because of civil disorder, could not be funded or executed, but which are essential for the speedy recovery of the economay anA the return ot the country to normalcy.
43. The CDR is in the process of revising the Reconstruction Project. In order for this revised plan to serve as a blueprint for reconstruction, it will be necessary to include the following:
(i) details on the scope of projects, costs, financing plan, and status of preparation (the aim should be to have studies with enough aetail to permit a calculation of rates of return and for design of works);
(ii) measures thiat need to be taken to mneet a predetermined scheduLe of implementation;
(iii) assessment of the financial impact of the program; and
(iv) policy actions that are required to make projects viable.
To assist in this task, the lission prepared an inventory of projects in cooperation with the Government. This subject is discussed in the next chapter. - 21 -
Table 2 - LEBANON; ONGOING PUBLIC SECTOR RECONSTRUCTION PROGRAM (commitments in LL million as of March 1982, current prices)
Local Funds Foreign Funds Total Budget Treasury Others Tunis Multilateral Bilateral Financial Grants 3/ Pledge Banks Market
Physical infrastructure
Road Maintenance 630 350 25 - 175 - - 80 - Expressways and rehabilitation 465 433 - - - 32 - - Port of Beirut 510 38 - 83 175 80 134 - - Beirut Airport 515 490 - - - 25 - - Water Supply 324 139 - - 114 31 40 - - Sewerage 2/ 75 - 35 - 8 - 23 - 9 Telecom. 1026 675 - - - 58 293 - - Power 961 12 65 150 - 115 119 500
Social infrastructure
Education 364 237 33 8 80 6 - - Health 263 98 - - 127 10 20 - 8 Beirut Center 30 - 30 - - - - - Assistance to South 420 - 150 - 250 - 20 -
Assistance to Private
Housing rehab. 257 - 100 - 30 - 127 - - South program 50 - 50 - - - - - Low cost housing 220 - 100 - 120 - - -- Productive activities 2/ 636 43 450 120 - 6 12 - 5
Public buildings 2/ 681 610 35 - 36 - - -
Total 7427 3125 1040 386 1043 1/ 437 794 580 22
1/ LL 606 million already disbursed had not yet been allocated. 2/ Not included in 197f Reconstruction Project. / Underestimated for lack of information.
Source: CDR's progress reports. - 22 -
IV. Recommendations for a Medium-Term Reconstruction Program
A. General
44. Private sector reconstruction has begun and will pick up momentum once internal security is restored. Reconstruction of public sector assets, however, is likely to require a special effort on the part of the Government, as the public sector has traditionally played a limited role in total investments. Consequently, public sector investments will have to focus on the reconstruction of damaged infrastructure and on assistance to the private sector. In this context, the CDR is now in the process of updating and revising the 1978 Reconstruction Project. The mission, in cooperation with the staff of the CDR and the executing ministries and agencies, selected projects, which, because of their priority and state of preparedness, could be started in the 1983-85 period. The phasing of the program takes into account the physical and financial capacity of the Government to implement it. The wide variety of sectors reflects the pervasiveness of damage and/or deferred investment. The objective of the projects included in the program is to bring the economic and social infrastructure to a minimum level that would assist the private sector to recover its prewar level of activity and to provide credit instruments which will stimulate reconstruction of the housing and industrial sectors.Since th:is list reflects data obtained from the executing agencies up to February 198:3, its sectoral composition is substantially different from that of the 1978 Reconstruction Project. The analysis shows total outlays to be committed in 1983-1985 of about LL 25 billion, of which LL 22 billion for direct public sector investment. 1/ LL J billion will be required as the Gcvernment contribution for credit programs designed to assist in the reconstruction of houlsing, industry, tourism and hospitals. A detailed list of projects which could be partially executed in the 1983-85 period is given in Attachment I. This list includes ongoing and new projects, whether financed or not; the estimated amount of commitments by project, sector and year is summarizecd in Table 3 on pages 23 and 24. Projects which require immediate financing either because they are part of ongoing programs but without secured funding or because they can be started in 1983 are of immediate interest to potential donors; they amount to about LL 4.4 billion and 7 billion respectively (about $3 billion). The other projects could start in 1984 and 1985 provided studies and other recommendations for preparation and implementation are carried out as described below.
45. Constraints to the implementation of the 1983-1985 program are likely to be the capacity of the economy to absorb the program (para. 93), the ability of the Government to mobilize external resources and to provide counterpart funds, the weakness of the public sector, the capacity of the construction industry to execute large quantities of works, the availability of skilled workers and building materials, and lastly, the capacity of the transport system to absorb increased traffic. The mission believes that the program is ambitious but could be executed from a technical point of view provided that the preliminary studies and institutional reforms described in this Report are carried out. Annual disbursements by sector are estimated in Attachment I and summarized in Table 4 on page 25.
1/ All figures given in this chapter are in 1982 prices unless noted otherwise and include contingencies and supervision costs. Most of the figures given are preliminary and will be revised as the Government firms up its estimates. - 23 -
Table 3: PUBLIC SECTOR RECONSTRUCTION PROGRAM PROPOSED FOR 1983-85 ANNUAL COMMITMENTS BY PROJECT (LL Million, 1982 Prices) (in brackets, projects with secured financing)
Executing Ongoing 1983 1984 1985 Total Agency
Roads
Routine Maintenance (7150 km networks) - 290 - - DGRB Periodic Maintenance (750 km/year) - 295 - -. DGRB Rehabilitation (335 km and 250 km) 788 - - 300 CDR
Beirut access - 314 - -- PWT/CEGP Expressway North (485) - - - CEGP/DGA South - 93 - 100 CEGP/DGA
Expropriation (206) - - Studies - 70 - PWT Subtotal 2941
Ports
Beirut Reconstruction:Phases I and II (127) 114 - - CDR Container Terminal 294 - - - CDR TripoliReconstruction - - - 90 CDR Studies - 3 - - CDR Subtotal 628
Airport (700) - - - 700 PWT
Water Supply
Reconstruction Beirut Area (12) 43 104 - OEB Ain El Delbeh 21 - - - OEB Rehabilitation of Six Networks - 120 - - Offices Rehabilitation of Three Plants - 7 53 - Offices Development Beirut Distribution System II - - - 480 OEB Djebel Amel Project - - - 144 OEB Anane Project - - - 384 OEB Awali-Beirut Water Supply - - - 576 OEB Three Water Storage Projects - - - 259 OEB Studies (20) 2 7 - OEB Subtotal 2232
Sewerage
National Waste Management Phase I - 480 - - CDR Beirut Sewerage Phase I - - 300 CDR Studies (17) - - - CDR Subtotal 797
Telecommunications
Reconstruction200,000 lines 720 - - - P&T Rehabilitation 50,000 lines 410 - - - P&T Expansion 250,000 lines - - 3000 - P&T Subtotal 4130 Power
Reconstruction/Rehabilitation - (241) - EDL Zouk Thermal Phases I and II (746) 1150 - - EDL North Thermal Phase I - - - 1265 EDL Transmission and Distribution 452 - - - EDL Subtotal 3854
Source: Mission estimates based on Attachment 1. - 24 -
Table 3 (continued): PUBLIC SECTOR RECONSTRUCTION PROGRAM PROPOSED FOR 1983-85 (Continued) ANNUAL COMMITMENTS BY PROJECT (LL Million, 1982 Prices) (in brackets, projects with secured financing)
Executing Ongoing 1983 1984 1985 Total Agency
Education
General Educatiorn Reconstruction 434 - - - MOE New Schools - - 1325 - MOE Vocational/Technical Modernization 366 - - - DGETP Other Works (90) - - - MOE Studies (7) - - - MOE Subtotal 2222
Health
UNICEF Program (126) - - - MOH Hospitals - 60 1100 - MOH Studies/TA (9) - - - MOH Subtotal 1195
Urban Development
Beirut Central District - 1828 - - CDR/CEGP/city Streets' Improvenment (75) - - Urban Transport - - - 200 CEGPB Bus Transit 8 - - - Offices Studies (5) 5 - - PWT Subtotal 2121
Housing
Sites and Services Phase I 1000 - - - MHC Studies (1) 17 - - MHC Subtotal 1018
Public Buildings (600) - - - 600 DGRB/CEGP
Overall Technical Assistance (14) - - - 14 CDR
Public Investment: Subtotal 7633 5132 5589 4098 22,452
Assistance to the Private Sector
Agriculture Programs being formulated 1/
Industry
Decree Law 131 (5) (500) - - CDR Interest Subsidy Law - (165) - - Central Bank Development Banksi - - - 120 CDR
Housing
Decree Law 20 (20) 600 - - MHC Lost-cost Housing Scheme (2) 1500 - - Eousing Fund
Assistance to Private Subtotal 27 2765 - 120 2912
TOTAL PROGRAM 7660 7898 5589 4221 25,368
of which eligible for financing 2/ 4393 6992 5589 4221 21,195
1/ See para 90.
2/ Excludes project costs shown above in brackets for which financing is already secured or which are not eligible for foreign financing.
Source: Mission estimates based oni Attachment 1. - 25 -
Table 4: ANNUAL DISBURSEMENTS FOR THE PUBLIC RECONSTRUCTION PROGRAM PROPOSED FOR 1983-85 (LL million, 1982 prices)
Annual Expenditures Total 1983 1984 1985 1983-85
Public Investments Roads 591 665 803 2,059 Ports 58 131 Z10 399 Beirut Airport 324 121 - 445 Water Supply 52 158 575 785 Sewerage 64 104 184 352 Telecommunications 380 450 520 1,350 Power 424 549 684 1,657 Education 147 299 386 83Z Health 33 147 Z15 395 Urban Development 175 234 334 743 Housing. 4 2U7 257 468 Public Buildings 150 200 250 600 Overall Technical Assistance 8 4 2 14
Subtotal (2,410) (3,269) (4,420) (10,099)
Assistance to Private Sector Agriculture (not available) Credit for Industry, Hotels, Hospitals 254 252 284 790 Housing Credit 565 650 9U7 2,122
TOTAL 3,229 4,171 5,611 13,011
Memo Items (in current prices) Public Investments 2,627 3,876 5,724 12,Z27 Assistance to Private Sector 893 1,072 1,542 3,507 Total 3,520 4,948 7,266 15,734
Source: Mission estimates based on Attachment I
46. The proposed 1983-1985 program identifies priority projects in economic and social infrastructure where there are substantial deficiencies to be met after years of destruction and deferred investment. There are also large needs for housing and industrial credit. The project list excludes required investments in agriculture which should be added on the basis of the studies prepared by FAO (para. 88). Except for irrigation, most of the government support to this sector would be in the form of credit. In defining the program, certain assumptions have been made regarding studies which need to be undertaken and institutional measures which need to be introduced for the program to be carried out in a timely manner. These are summarized below in sections dealing with each sector. In the absence of these actions, it can be expected that only a small proportion of the investments, which could be executed in 1983-1985, would in fact be carried out. Thus, the 1983-1985 project list would have to be revised annually in the light of the experience in executing the projects included in it. - 26 -
Table 5: LEBANONPUBLIC INVESTMENTS- PROJECTS TO BE STARTED AFTER 1985 (Total project cost in LL million and 1982 prices)
Roads Beirut-Damascus Expressway 4U0U Tripoli - Syrian;Border Section of the Northern Expressway 300 Beirut Beltway 3000 Sidon Beltway and Sidon-Zabrani section of the South Expressway 370
Ports Beirut Reconstruction - Phase III 245 Tripoli Development - Phase II 230
Water Supply Beirut Distribution - Phase III 238 Tyre Water System 107 Tripoli Water System 298 Water Storage Program (Mont Liban and North) 172 Litani Irrigation Development (South) n.a.
Sewerage Beirut Sewerage - Phase II 714 National Waste Management - Phase II 1190
Power North Power Station - Phase II (500 MW) 1300
Education General education construction program 5000 Technical/vocational training program 1000
Health n.a.
Urban Development/Housing Second Sites and services program 5000 Greater Beirut (transport network) 200
Source: Mission estimates
47. The Government should subsequently prepare a development program including economically-justified proJects which have been postponed because of administrative amd financial constraints. T'he CDR will be in a better position to carry out these activities once it increases its staff and contracts the tecbinicalassistance program described in Chapter VI of this Report. A list of some of the projects which could be started after 1985 is given in Table 5 on page 26.
48. In planning reconstruction and development, there are a number or institutional and policy measures that need to be addressed by the Government, and these are delailed in each sectoral annex and also summarized below. These measures deal with increasing the efficiency of the public sector and with establishing an adequate policy framework for reconstruction and development activities. The effectiveness of the public sector in meeting the challenge of reconstruction and renewed growth will be handicapped in tile absence of these actions. - 27 -
B. Sectoral Programs, Policies and Institutions 1/
Transport
49. The transport infrastructure is adequately developed, largely centered on Beirut, and comprises about 10,000 km of roads, one international airport, one major and several smaller ports, and a small rail network. Over the past six years, the entire transport infrastructure has suffered major damage caused either directly by the war, or, indirectly, through the inability to carry out routine maintenance. Although administrative institutions have been weakened, roads have continued to be built and the airport and ports have been generally operational. The need to rebuild whatever was destroyed is now competing with the need to maintai1iexisting capital assets and to expand the infrastructure to facilitate the economic recovery. A sound transport infrastructure is important to re-establish the country's reputation as an efficient center of transit for commercial and financial services, rebuild Beirut's city business center, and reunify the country. To achieve these objectives, rehabilitation of the road network, the rehabilitation and expansion of the Port of Beirut, rehabilitation of the Beirut airport and construction of main entrance axes into Beirut are given first priority. The raainsectoral issue, which affects the preparation ana implementation of the investment program, is the complex distribution of responsibilities between various government agencies. The preparation of a long term investment program will require a transport sector study.
Roads
50. The Program. The investment program for 1983-85 consists of works costing about LL 2.9 billion including ongoing items, of which it is estimated that about LL 2.1 billion will be spent during that period (Attachment 1, page 49). The program to be contracted in 1983, totalling about LL 1.6 billion, consists of (i) routine maintenance of the whole network of about 7150 km 2/; (ii) periodic maintenance (resurfacing) of up to 750 km per year over the 1983-1985 period; (iii) the first phase of the road rehabilitation program of about 335 km; and (iv) expropriation for and the start of construction of the access roads to Beirut. The 1984-1985 program includes (i) the start of the second phase of the road rehabilitation program (250 kia); and (ii) the start of construction of the Jieh-Sidon section of the Coastal Expressway.
51. Successful implementation of the above program will require more extensive use of contractors and consultants than has been the case in the past. The following actions need tgobe taken:
- recruitment of consultants to assist the General Directorate of Roads and Buildings (DGRB) of the Ministry of Public Works and Transport (PWT) in organizing and mounting a maintenance program and strengthening the DGRB;
- contracting by CDR of the feasibility study for 500 km of roaa rehabilitation;
1/ An estimated LL 600 million for the repair of Government buildings and LL 14 million for technical assistance to CDR are included in the overall program but not specifically discussed in this chapter (Attachment I, page 54). 2/ For purposes of this analysis, routine and periodic maintenance prograime are regarded as investment during the 1983-85 period. - 28 -
contracting by the Conseil Executif des Grands Projets (CEGP) of various studies required for Beirut access roads;
contracting by CEGP for final design and draft tender documents for Jieb-Sidon;
contracting out the execution of most of the routine and periodic maintenance, until it is determined when the DGRB's force account capacity could be developed;
contracting out al-L the rehabilitation and expressway construction works;
- recruitment of consulting firms to supervise maintenance and all construction works.
52. Lower prLority projects which should be delayed until after 1985 include (i) the Sidon Beltway and Sidon-Zahrani section of the South Expressway; (ii) the Beirut Beltway; (iii) the Beirut-Damrascus Expressway; and (iv) the Tripoli-Syrian Border section of the Northern Road together with miscellaneous new construction on local and regional road networks.
53. Policies and Institutions. The most serious damage to the road network has resulted from lack of maintenance over the past eight years. Hence, while a major and relatively costly rehabilitation program is needed and underway, it is urgent that the entire road system be adequately maintained to provide adequate service and to prevent future need for major reconstruction.
54. Road inaintenance and rehabilitation are and should continue to be the responsibility of the DGRB of the PWT, while major expressway construction is the responsibility of the CEGP. DGRB has been weakened by a salary scale which makes it difficult to recruit and maaintain good staff, by operating constraints of the civil service and by the loss of discipline resuLting from the difficulties of working over the past eight years. As a result, it is not in a position to provide adequate road maintenance, and in fact, responsibility for the road rehabilitation program has been assumed by the CDR. A functioning highway organization is indispensable and early attention has to be given to DGRB's staff so that it may, as soon as possible, assume full responsibility for road maintenance and rehabilitation. DGRB should immediately appoint a competent consultant firm to assist in the planning and supervision of routine and periodic maintenance.
55. It is recommended that the Government consider consolidating the various agencies responsible for the highway sector. In the past, new agencies appear to have been created on an ad hoc basis to deal with particular projects or as a means to circumvent the effect of rigid public service regulations. A case in point is the unclear relationship between *the PWT, the CEGP, and the CEGPI.
Ports
56. The Program. The investment prograrn for 1983 amounts to LL b62 million and includes the continuation of the rehabilitation of the Port of Beirut, the completion of the container terminal and the start of the rehabilitation of the port of Tripoli (Attachment I, page 50). The plan for the reconstruction of the Port of Beirut includes civil works (paving, construction of workshops and storage facilities) and the purchase of - 29 - equipment (cargo handling and floating). The program to be committed in 1983, estimated at LL 412 million, comprises (i) the second phase of the reconstruction of the Port of Beirut (the first phase is underway with World Bank financing); (ii) the second phase of the construction of the container terminal; and (iii) the final engineering for the Port of Tripoli. The 1984-1985 program includes the start of reconstruction of the Port of Tripoli. In order to execute this program, it will be necessary that the Ports Connnissionof the CDR finalize the tender documents for the equipment, and contract the preparation of the final design and documents for most civil works for the Port of Beirut and carry out the detailed engineering for Tripoli. Programmed for the second half of the 1980s is the third phase of the rehabilitation of the Port of Beirut, and the second phase of the development of Tripoli.
57. Policies and Institutions. The ports subsector is in a relatively good position to continue the reconstruction program which was initiated as part of the World Bank-financed Reconstruction Project of 1977. However, there is room for considerable improvement in the area of government administration and supervision of port facilities. Currently, these functions are divided among two ministries (Hydraulic and Electric Resources; and Public Works and Transport) and numerous authorities. Some form of port authority is needed to conduct planning, execute large projects and control port operations. The Government may wish to consider the adoption of the draft port legislation which was prepared with financing from the previously-mentioned Reconstruction Project.
58. The Port of Beirut, traditionally a profitable operation, has been in deficit since 1975, thereby imposing a burden on the lreasury. This situation resulted from a sharp decline in traffic. Under more normal conditions, Beirut should rapidly regain its 1974 tonnage, provided mleasuresare taken to control illegal ports and to reduce widespread under-reporting of merchandise imports and the resulting fiscal fraud.
Airports
59. The airport program, at a total cost of Lb 700 million for 19g3-85, includes LL 90 million (of which LL 22 million has already been committed through a 1982 Treasury allowance) to repair the airport installations (principally runways, communications and navigational equipment, see Attachment I, page 50). In addition to the rehabilitation program, the development plans for the airport include completion of works on contracts costing about LL 6I0 million. It is suggested that the Government consider postponing any further commitments until after 1985 and that it review the plan to expand airport capacity to take into account the latest trends of aviation traffic.
Railways
60. The railways have been severely damaged by the war. In view of their poor performance and the short distances involved, the Government is considering limiting their rehabilitation to some 80 km of coastal line between Sidon and Tripoli through Beirut (replacement of traction equipment and repair of tracks and buildings). The Mission considers that any investments in railways should be carefully examined, including the possibility of using the tracks for a rapid transit systenmaround ieirut. Rail operations would undoubtedly require increasing subsidies for the foreseeable future. Road transport offers a higher level of service at lower capital and operating costs to the public. Consequently, no investmerntshave been included in the 1983-85 program. - 30 -
Water Supply and Sewerage
61. The Program. The 1983-1985 program is divided into reconstruction and development components involving projects with a total cost of LL 2.2 billion for water supply and 0.8 billion for sewerage and waste management (Attachment I, pages 50-52). The program wbich could be committed in 1983 totals LL 673 million and includes (i) reconstruction and improvements in the Greater Beirut area; (ii) the rehabilitation of networks and plants; and (Iii) the first phase of the National Waste Management Program. The 1964-198J program's main components are (i) the initiation of the Beirut water distribution project; (ii) the Awali-Beirut water supply project 1/; kiii) the construction of the Anane and Djebel Amel water systems, which wiTl serve important areas of the South; and of three water storage projects, whicb will serve the North and the Mont Liban areas; and (iv) the start'of construction of the Beirut sewerage project.
62. Success in the implementation of the above program is predicated on a major effort by the Government to strengthen sectoral institutions and to contract the necessary studies. it is estimated that in the absence of these measures, less than 50 percent of the 1983-1985 program described above can be carried out. Specifically, the following actions must be taken:
(i) Integrating immediately the water authorities operating in Greater Beirut and establishing a project implementation unit to execute 'construction works. This unit could be established in the Office des Eaux de Beyrouth (QEB). It is estimated that about 10 professionals must be appointed to implement the program in Beirut and the surrounding areas;
(ii) Setting up a waste management technical group in the CDR to begin implementation of the sewerage program. This unit would be placed in a national water and sewerage authority when it is establisbed;
(iii) Appointing consulting engineers by the relevant water authority to supervise the works;
(iv) Undertaking the following studies;
- completion by the Litani Water Authority of stulies on the Bisri Damt;
- completion by OEB of the Beirut water distribution feasibility study;
- execution of the feasibility study for the Tyre water and sewerage system;
- execution by CDR of the feasibility study for sewerage in Jounieh, Sidon, Tripoli, and Zahle; and
- execution by CDR of an oceanographic survey.
63. Projects to be started after 1985 include the third phase of the Beirut distribution system, the water systems for Tripoli and Tyre, the continuation of the water storage program in the North and the Mont Liban area
1/ The Damour-Beirut project could be included as a first stage of the awali project if the necessary studies conclude that it is viable. - 31 -
and continuation of the National Waste Management Program throughout the country (including Beirut). For irrigation, an upaating of the stuay on the Litani River Development is considered of high priority so that the project can be started in 1985/86 (para. 88).
64. Policies ana Institutions. The Government's ability to carry out an urgently-needed major reconstruction and development program in the water and sewerage sector is handicapped by the proliferation of sectoral agencies. In 1974, the Government decided to reduce the existing 18 water authorities to five. The present situation offers a good opportunity to go beyond this decision, wbicb was never implemented, and to create a single national water agency which is considered the most eftective way to organize the sector. Given Lebanon's small size, regional authorities are not likely to develop adequate technical teams to plan and execute sewerage investments. Moreover, given the magnitude of sewerage and storm-water drainage requirements, it does not seem feasible to leave this responsibility to the municipalities. An appropriate course would be to entrust sewerage operations to the national water agency and to establish a National Water and Waste Management Authority. This would permit the recovery of sewerage costs as part of customer payments for use of water.
Telecommunications
65. The Program. Disbursements for the total program of LL 4.1 billion to be committed in 1983-85 are estimated at LL 1.35 billion (Attachment L, page 52). The current expansion plan of the Ministry of Posts and Telecommunications (P&T) consists of completion of a program to install 200,000 additional telephone lines by 1985 which is the remaining portion of P&T's 300,000 line expansion program started in 1979. The total installed capacity would then reach 500,000 lines. During 1983-1985, a reconstruction/ rehabilitation program will also be carried out to repair and restore 60,000 damaged lines and to rebabilitate all network facilities. This reconstruction/rehabilitation program will permit the system to absorb the traffic projected for 1985 and to reestablish) the quality of service. The reconstruction/rehabilitation and the expansion programs are estimated to cost about LL 410 and 720 million, respectively. The overall program over the next two years represents an exceptional construction burden for the Ministry's services as P&T has installed a maximum of 40,000 lines a year in the past programs for 1979-1982.
66. The next 250,000-line expansion is assumed to begin in late 1984 ana to be carried out over a four-year period, as it will be difficult for the P&T to execute this program any faster. In addition, about 120,U00 Lines of old switching equipment will have to be replaced and an adaitional large capacity submarine cable for international link will have to be provided during this period. This program, including investment for the replacement of old equipment and for the new international link, is estimated to cost LL 3 billion.
67. Policies and Institutions. The P&T has been able to operate reasonably well under the difficult circumstances of the past eight years. However, as it continues to grow to meet the increasing demand, there will be need to establish an independent self-financing public entity. This will enable P&T to improve the efficiency of its operations and to recruit and retain qualified staff as necessary for its operations and development. As a first and urgent step, it will be necessary to introduce commercial and cost accounting procedures in P&T. The income policy of the present P&T and later - 32 - of the independent body should be to cover all current costs and depreciation plus a large proportion of its expansion program from internal cash generation. The remainder of its investment program should be covered from bilateral, regional and multilateral credits or commercial and government sources. P&T, with the help of consultants, should draw up medium and long-term plans to enable it to forecast Its financing requirements and to improve and coordinate engineering and implementation of its development. Through an adequate tariff policy, efficiently-operated telecommunications services can generate substantial resources for the sector's expansion or for use in other sect:ors of the economny. Procurement through comapetitivebidding for bulk or long-term deliveries of larger quantities of technically-similar or compatible equipment should also be introduced once adequate development planning has been instituted.
Power
68. The Program. The 1983-85 program totals LL 3.8 billion (Attachment 1, page 53). The bulk of expenditures under the program (LL 3.2 billion) are for generating capacity to meet the growing demand. Of the three fuel oil/steam units already contracted for the Zouk Thermal'Power Project, the first one is expected to come into operation in early 1984. In 1983, offers are to be invited for a second stage of the expansion of the Zouk station (three additional fuel oil/steam units). This second stage is expected to be in operation by the end of 1988. A further oil/steam generating station is also planned at ]Lebanon North near Tripoli; construction of phase I is to start in 1985. Also, LL 452 million will be spent on the expansion of the transmission and distribution systems. Reconstruction of damage is presently estimated at about LL 241 million in addition to this program.
69. Policies and Institutions. Except for four small and one larger concession area (Khadicha), EDL is responsible for the supply, transmission and distribution of electricity throughout Lebanon. Between 1976 and 1981, EDL was able to generate capacity to sustain a demand growing at 15 percent p.a. Until the first unit of Zouk II is available for regular production, however, EDL could suffer from capacity shortages, which it will attempt to meet, as in 1982, through imports from Syria and by the continuing use of its gas oil/turbine generators at Zouk. The operation of these units is technically difficult and expensive. Past growth rate is very high and may reflect the unusual conditions due to the war. The long-term prospects should be assessed by EDL before deciding on the long-term investments, in particular the feasibility of hydroelectric sites for both generating power and irrigation water.
70. EDL has operated at an increasing financial loss for a number of years. Tariffs were increased by 30 percent on March 1, 1982 and by a further 33 percent on September 1, 1982. In spite of these measures, EDL incurred substantial losses in 1981 and 1982. Thefts of electricity from EDL through illegal connections and unbilled consumers have increased since 1979. This has meant that with the normal power line losses at about 12 percent, only about 54 percent of the energy generated and purchased by EDL was billed to consumers. The situation in 1982 has not improved substantially. 'he cost to EDL in 1981 for unbilled and illegal connections was about LL 194 million and is expected to increase annually. This direct drain on EDL's operating revenue was matched by increasing Treasury advances. It is recoTmmended that the Government give EDL maximum legal support in its efforts to reduce both illegal connections and unpaid, overdue electricity bills. One suggested way would be for the appropriate public agencies to notify EDL of applicants' - 33 - names for building permits, damage repair loans and similar activities relating to property, so that EDL can object if necessary. If thefts were reduced to 18 percent by 1984 (and arrears reduced also), EDL should be in a position to break even by about 1984. This requires a thorougb review of all the indirect subsidies received by EDL, such as the subsidy it presently receives on its oil purchases, and of the delivery price for hydroelectric power received from Office du Litani.
Education
71. The Program. Investment for public education in the 1963-85 programi is estimated to total about LL 2.2 billion of which LL 832 million would be spent during the period 1983-85 (Attachment I, page 53). The investment program for 1983 consists of (i) reconstruction and reequipping of general and technical schools; (ii) construction and/or equipping of technical schools and vocational training centers, and (iii) technical assistance mainly aimed at building up the capability of the Ministry of Education (M1OE)in planning, managing and implementing projects. The initial phase of the program for the construction and equipping of new public primary and lower secondary schools could start in 1984 provided the school mapping study has been updated to take into account population movements. The program does not include possible investment in the university subsector, where the needs are presently being considered by the appropriate autborities.
72. Policies and Institutions. The reconstruction program is likely to progress satisfactorily if the Government continues to use UNICEF as executing agency. The effective implementation of the network of new general education schools is predicated on the assumption that li) as decided by MOE, a Project Planning and Coordinating Unit will be established and staffed with tecbnically qualified personnel, which would include among its urgent tasks review of the planned network of schools to take account of demographic changes and the confirmation and registration of sites prior to proposed construction timing; and (ii) coordination will be carried out with personnel in CEGP which should assign an adequate number of qualified staff for the implementation of the construction program. Similarly, the implementation of the program of modernizing technical/vocational institutions requires strengthening and expansion of the staffing of the MOE's General Directorate of Technical and Vocational Education (DGETP) and in particular the establishment of a new Vocational Training Unit. In parallel, there is a need to reassess the functional need for teachers and their training and to streamline current budgetary expenditures.
Health
73. The Program. Investment tor public health in the 1983-85 prograrn is estimated at LL 1.2 billion of which LL 395 million would be spent during the period (Attachment I, page 53). As in the case of education, there may be significant public investment requirements in the health sector. However, except for the rehabilitation of certain existing public health facilities, the scope, priority and justification for any major additions to infrastructure, specifically hospitals, will need to be reviewed carefully and within the context of an overall health assessment and sector development plan. Meanwhile, estimated reconstruction and renabilitation expenditures during the 1983-85 period total about LL 95 million, comprising (a) a work plan of emergency repairs and replacement of equipment for a variety of existing facilities in the Beirut area and South Lebanon costing about LL 26 million, which is being coordinated and financed through UNICEF/CDR; (b) the - 34 -
establishment of two temporary hospital facilities (in Sidon ana West Beirut) and the rehabilitation of two existing hospitals in Beirut (Quarantine Hospital and the Lebanese Hospital for Mental and Neurologic Disorders) costing about LL 60 million; and (c) the creation of a proposed Planning and Systems Development Unit in the Ministry of Public health (MPH) at an estimated initial cost of about LL 7 million and the preparation of a sector assessment by WHO costing L, 2 million. CDR's overall Reconstructioni Project includes a health and hospital reconstruction component which consists of 8 hospital facilities and a proposed national network of health centers at an estimated total cost of about LL 1,100. The justification for these 8 hospitals and the network of health centers remains to be established and, in any event, should take into account inter alia the outcome of a WHO-assistec health sector survey now in progress.
74. Policies and Institutions. Although the MPH is charged with coordinating the activities of other public sector agencies involved in the sector and with regulating the services provided by the private sector, it has in practice been unable to carry out these responsibilities, owing to a combination of political pressure, the long tradition and predominant role of the private sector and the recent dislocations. However, the reconstruction and rehabilitation process will provide a unique opportunity for the consolidation and rationalization of the sector. Against this background, the MPH requested WHO to assist in a comprehensive health sector survey, now in progress. This survey is expected to address the following priority areas: the respective roles and an appropriate division of labor and responsibility between the privaite and public sectors in the delivery of health services; the strengthening of the Ministry of Health's coordinating, planning and regulatory functions and, in this context, the reforn and reorganization of the MPH itself; the development and implementation of appropriate policies and mechanisms for the financing of health services; the supply and cdelivery of pharmaceuticals; and the definition of a longer-term health manpower training and development plan.
Urban Development and Housing
75. The Program. The overall program for urban development and housing includes immediate provision of shelter and repair of damaged housing and a mediumr-term program for housing construction and credit financing; the reconstruction of- the Beirut Central Business District; and an urban transport component. A public investment program of LL 3.1 billion was identified, of which LL 743 million for urban development and LL 468 million for housing could be spent during the 1983-85 period (Attachment I, page 6). In addition to that program, special credit for housing repair and low-cost construction was estimated at LL 2.1 billion (Attachment I, page 55).
76. The Government intends to assist directly in finding shelter for squatters and incdirectly in reconstructing damaged housing. The construction of new housing is intended to meet the accumulated demand of the last eight years as well as the normal increases in demand. It is expected that the Ministry of Housing and Cooperatives (MOHC) will continue using the credit facilities providledunder Decree Law 20 of 1977 for financing damaged and destroyed housing. Based on the capacity to process applications, it is assumed that the Government would finance the reconstruction of about 6,000 dwellings a year in 1983 and 1984 increasing to 12,000 in 1986 with an average loan of about LL 25,000 per dwelling. A first phase of a sites and services program would start in 1984 in order to rehabilitate slums and relocate squatters. It would help to meet the demand for new housing by providing - 35 -
suitably-serviced sites for about 100,000 dwellings at a total cost of about LL 1 billion of which LL 450 million could be spent over 1983-85. Other phases of a country-wide sites and services program are expecteu to begin after 1985. A program of low-cost housing will also be started with 4,000 units in 1983, increasing to 6,000 units in 1985, representing LL 1.5 billion in total credit. Consultants, under the MOC, will initiate studies on land use, land assembly/sites and services, and tiousing finance during the 1983-1985 period. These studies will help identify housing finance projects as well as suitable land assembly and sites and services projects, initially in the Greater Beirut area, and subsequently in other urban centers.
77. A major component of the 1983 program is the start of reconstruction of the Beirut Central Business District. The publicly-provided infrastructure would cost approximately LL 1.8 billion (the total cost of the project, including private sector investment, is estimated at LL 6.8 billion) and it is expected that about LL 600 million will be spent in the first three years. Before construction can start, the Government will need to review the set-up for project execution and its financial implications. It should be noted that with appropriate accompanying measures, this could be a higbly profitable operation for the Government (see Annex IX). In addition, the physical plans and cost estimates of the project will need to be updated in connection with the revision of the Master Plan for Greater Beirut.
78. For urban transport, the 1983-85 includes the repair of streets and traffic lights, a public bus transit component, and an urban transport study which would lead to an investment program that could start around 1985. The repaving of city streets and repair of traffic lights is estimated to cost LL 75 million. For bus transit the total cost of the program is estimated at LL 8.2 million to repair garages and purchase buses. The urban transport study (including a traffic study for Greater Beirut) is expected to start in 1983; as a result of the study, investments are likely to include major civil works on 10 of the most congested intersections in the city, multi-story parking facilities, and automatic traffic control for many city intersections. The total cost is tentatively estimated at LL 200 million; these investments should be coordinated with the Beirut Ring road and penetrators.
79. Policies and Institutions. In keeping with the Government's general approach to reconstruction, subsidies in the housing sector should be minimized and cost recovery maximized. At present, housing construction is the responsibility of the MOHC, which finances housing schemes, and the Ministry of Public Works and Transport, which undertakes urban planning. It is recommended that the functions of urban development and housing construction be placed under one ministry to ensure appropriate coordination.
80. The credit program established under Decree Law 20 of 1977 could continue to be the instrument for assisting those wbose homes have been damaged or destroyed (estimated at 90,000 units). At present, the termasof lending are 20 years with interest at 2 percent and a maximum loan of LL 45,000. Consideration should be given to modifying the provisions of the law to achieve the following objectives: (i) targeting the interest rate subsidy to the lowest income groups by adopting a progressive interest rate structure linked to the surface area of the uniit ranging from 2 percent for dwellings of less than 60 m2 to 12 percent for dwellings of over 150 r 2 (ii) increasing the ceiling on the value of the loans, but linking the size of the loan to the amount of destruction suffered by the unit e.g., LL 100,000 for destroyed units (those with more than 70 percent damage), LL 75,000 for - 36 - severely damaged units (35-70 percent damaged), and LL 40,000 for slightly damaged buildings (less than 35 percent of daimage) (iii) providing for tenants to participate in the repayment of loans used for repairs on the basis of their length of occupancy; and (iv) streamlining and simplifying the procedures for loan application and processing.
81. With respect to squatters, a three-step program could be envisaged; (i) moving them to sites on nearby government or community land; Vii) providing them with temporary facilities (e.g. tents, prefabs); ana (iii) ultimate upgrading of the sites with the provision of decent permanent housing on a tranche-by-tranche basis.
82. As a first step in planning housing developments, the PWT will need to prepare a land use plan starting in Greater Beirut. The plan would not only contribute to the orderly expansion of the housing sector throughout Lebanon, but would also serve as a basis for guiding urban growth and transport and preserving scarce agricultural land and major tourist attractions. In increasing the supply of housing, the role of the public sector is not perceived as a builder of housing units, a function which can be fulfilled by the private sector, but rather as a facilitator. Movement towards decontrolling rents, at least for new dwellings (perhaps by tying rent increases to increases in the cost of living index), and providing incentives for building are essential. Government intervention should be geared towards guiding urban growth in an orderly and coherent manner, providing services and utilities and ensuring access to medium-term finance, and should be targeted towards those most in need. In this context, it is clear that the interest rates being charged by both the Caisse Autonome de l'Habitat and the Banque de l'Habitat are too low and represent a heavy burden on the Government which will be difficult to sustain over the long run. Consideration should, therefore, be given to increasing interest rates on these loans, although, as an incentive, the possibility of making interest payments tax deductible might be envisaged.
83. In keeping with its broad commitment to ensure decent shelter for all, the Government of Lebanon is addressing the question of shelter for the Palestinians on its soil in the context of: (i) the settlement of the broader question of the Palestinians in a region-wide framework, (ii) the continued role of UNRWA, and (iii) the reaffirmation of Central Government authority on regularization of status.
Credit for Industry, Tourism and Hospitals
84. The Program. The Government contribution to various credit programs was estimated at LL 790 million for the 1983-85 period (Attachment I, page 52). Since 1977, the Government has taken a number of measures to assist the process of productive sector recovery, primarily but not exclusively directed towards reconstruction of directly damaged industry, hotels and hospitals and also those suffering from effects of war. The major instrument was the Decree Law 131 of 1977 which provides subsidized credit (up to LL 4 million per individual loan); LL 400 million have been disbursed as of December 1982 at a 5 percent interest rate. The funds are allocated through the CDR (90 percent of the loan amount at 2.85 percent interest, available through the participating banks). Up to December 1982, 164 projects had received CDR-funded loans, of which 135 projects were in the industrial sector, 16 were tourism projects, and 13 were hospitals. The scheme appears to be popular among small and medium borrowers, but the limit of LL 4 million restricts its usefulness for larger projects. There are also complaints of lengthy - 37 -
procedures and delays in obtaining necessary approvals. The Government indicated its intention to earmark another LL 500 million for the 1983-85 period; including the grant element less repayments,total net budgetary costs would amount to LL 505 million for the same period. A new law for subsidizing interest on commercialbank loans is presentlybeing prepared; it would provide a subsidy equal to half the interest rate on Treasury bills (at present about 9 1/2 percent for three-monthmaturity) for funds made availabile (througb the Central Bank) from commercialbanks for financingnew equipment. For a credit requirementestimated at LL 1,000 million, interest subsidieswould cost LL 165 million to the Budget for 1983-85.
85. Industrialcredit is provided mainly by the country's 89 commercial banks. Commercialbanks are relatively unregulatedand are free to hold toth local and foreign currency accounts of residents and non-residentsbecause the Lebanese pound is freely convertible. Commercial banks are fairly liquid at present. Their resources are overwbelminglyshort-term, with more than 91 percent of total deposits carrying maturities of less than six months. Industry receives short-term credits from commercial banks mainly on a revolving basis. Long-term credit can be obtained from four specialized institutions. These banks, set up in 1973-74 under a special law, have extremely modest operations and need to be strengthened(see Annex XI). Once the appropriatepolicy measures are taken and adequate management chosen, special medium and long-termcredits should be mobilized tor these banks. Tentativelya LL 120 million credit program is identified;it could be implementedin 1985.
86. Policies and Institutions. Regarding the exceptionalcredit programs such as Decree Law 131 and interest subsidy laws, the followingmeasures are suggested for review by the Government:
- A non-bankingpublic agency (like the CDR) should not take any direct role in appraising and distributingcredit. It is recommended, therefore,to phase out loans under Decree Law 131 as quickly as possible. Public funds should only be allocated to soften lending terms and for a limited period of time, with commercial banks and developmentbanks fully responsible for the loans.
- Loans at subsidized interest rates should be made more selective to avoid encouraginguncompetitive and economicallynonviable industries,by applying criteria of eligibility,in particular financialviability after terminationof subsidy.
- Interest subsidies could be broadened to cover repairs to buildings and equipment, instead of being restricted to new equipment as at present.
- Several units which have not been airectly damaged but have sustained financial loss are in urgent need to borrow fresh working capital to remain active. For those units financiallyviable in the medium term, a special guarantee scheme should be implementedsoon to avoid their closing.
87. To promote new modern ventures and assist new entrepreneurs,and to stimulate larger, permanent flows of medium-term credit for industrial investment,there will be a need for some policy changes; the following measures could be reviewed: - 38 -
- A credit guarantee scheme for medium-term investment loans should be introduced. There is at present coverage against war risk available from the National Investment Guarantee Corporation. This coverage could be extended to cover normal business credit risks. Alternatively, a new institution could be set up or the guarantee mechanism be operated by the Central Bank. Coverage could be automatic and mandatory and available for 75-90 percent of the loan amount.
- Development banks sbould be strengthened and enabled to mobilize adequate resources. A desirable step would be a modification of the law whic'h prevents them from accepting deposits of less than two years - a too lengthy maturity for Lebanese depositors. The maturity of deposits accepted by development banks could be reduced to about b months.
- Discounting of mediumr-term loans sbould be introduced through discount houses like the newly set up Societ4 Financiere. This could protect the liquidity of commercial banks and enable them to use their short-term deposits for making medium-term loans (up to 5 years).
The average lending rate of conmmercialbanks to the industrial sector, which is about 15-16 percent, appears to be adequate, considering actual inflation rates in Lebanon and the cost of funds in the international capital market. Attempts at subsidization will only promote nonviable firms and increase the burden on scarce budgetary resources.
Agriculture
88. It is too early to define a reconstruction program for the agricultural sector. The main reason stems from unsettled political conditions in most of the rural areas and lack of administrative capacity to prepare development projects and policy measures. In 1980, FAG prepared a comprebensive study for the reconstruction and development of this sector; 1/ it offers an excellent basis for preparing a reconstruction program with long-term sectoral prospects. The Ministry of Agriculture plans to start preparatory measures to speed up the preparation process by (a) setting up a planning unit; (b) consulting the main economic and social groups involved in the sector; and (c) preparing an estimate of war damages and a land use master plan.
89. The agricultural sector has suffered extensive damtage although no estimate is available on the reconstruction requirements. Besides physical destruction (irrigation network, orchards, storage facilitles), indirect damages could have an even more disruptive effect on the potential for quick recovery; these include substantial movements of population, which scattered rural communities and sent qualified technicians abroad; limited access to modern supplies; loss of fertile land through lack of soil preparation; loss of productive capital (livestock, trees, fishing boats), and loss of export markets.
90. With the right set of policies and incentives, there is potentiaL for developing an efficient agricultural sector specialized in intensive, mostly
I/ See FAG Report No. AG: DP/LEB/79/013 published in Beirut. - 39 -
irrigated techniques, and high-value, quality products (fruits, off seasonl vegetables, livestock); there is also potential for fishing development. In order to prepare the maodernization of this sector, FAG is engaged in studies concentrating on seeds, greenhouses and fisheries and the possible creation of a development bank specialized in agricultural credit. Irrigation has a potential of 160,000 ha of which 67,000 ha are equipped but the irrigation network needs repair; 1/ erosion control and reforestation should be expanded to at least 163,000 ha. The FAO recommends a five-year program of technical assistance and studies costing about $200 million in 1980 prices (about $400 million in current prices if the program starts in 1983). Recurrent expenditures of about LL 20 million per year (in 1980 prices) would require the doubling of the present budget allocation for the Ministry of Agriculture (currently I percent of total budgetary expenditures).
1/ This would require an action program, including the updating of technical studies on hydroelectric dams and rehabilitation of irrigation infrastructure (see Annex 10 of the FAO report). - 40 -
V. Financing of the Reconstruction Program
91. The financing scheme of the reconstruction program for the public sector remains highly tentative and aggregate. Thus, it is crucial to undertake a program of financial studies and to agree on methods to monitor public finance trends. At a first stage, preparing a financing scheme would imply the following projections:
- Central budget current deficits (or savings) - Deficits (or savings) for each public agency or enterprise - Prospects for foreign assistance - Need for domestic borrowing
At a second stage, these projections should be tested for consistency with a macroeconomic framework, balance of payments trends, and factors affecting domestic monetary liquidity and long-term creditworthiness. The mission was unable to make these projections or carry out detailed studies for lack of data. Therefore, it limited the analysis of the financing scheme to a review of the public finance situation and the need for Government borrowing. We assume that private investments will be financed with equity resources or by borrowing on the domestic or foreign markets. There will, however, be potential competition between private credit requirements and government borrowing to finance the public sector deficit.
92. Total estimated disbursements in current prices for the public reconstruction program amount to LL 15.7 billion ($ 3.9 billion) for the 1983-85 period, of which LI 12.2 billion for direct public sector investments and LL 3.5 billion for assisting the private sector. These figures were obtained by taking the 1983-85 reconstruction program summarized in Table 4 and converting it into current values using an average price escalation of 9 percent p.a. over the 1983-85 period. 1/ The analysis of the public sector bas shown (para. 22) that because of inefficient revenue collection and large accumulated debts and arrears, the public sector (administration and enterprises) will not be able to mobilize any savings to finance this investment program. In fact, mission estimates show that public sector revenues will not be able to cover current expenditures, including interest payments, over the 1983-85 period. Estimates of domestic and foreign financing requirements for the public sector should take into account both current deficits and investment costs.
93. The reconstruction program will require a special effort to mobilize resources for investment. It is assumed (para. 13) that cumulative GDP for the period between 1983 and 1985 will be of the order of LL 100 billion in current prices and that the public sector (administration and public enterprises) could invest about LL 10 billion; this would require a ratio of total gross fixed investments (including private investments) to GDP of about 25 percent, a performance never achieved by the Lebanese economy heretofore. The reconstruction program of LL 15.7 billion over the 1983-85 period is equivalent to a volume of gross fixed investments of about LL 10 to 11
1/ This escalation assumes a composite index made of price contingencies for external components (40 percent of total costs at 8 percent p.a.) and for local costs (60 percent at 10 percent p.a.); the latter costs are mainly for public works where price escalation is projected to be lower than inflation (para. 32). - 41 - billion 1/ which is at the upper limit of the economy's absorptive capacity. Thus, the program identified in Attachment I will have to be flexibly implemented and may need to be stretched out in time if the economy's recovery should be slower than expected.
94. The degree of feasibility of the financing outlined for the reconstruction program and public sector deficits is particularly difficult to assess at this point in time, while Lebanon is still striving for normalcy. The preliminary program indicated in this report aims at identifying the issues and illustrating their magnitude (Table 6 on page 42). The Government intends to finance 25 percent of the reconstruction prograrmcosts with domestic funds, a percentage that was already the objective ot the 19T7 program. However, it is not possible to fix such an objective in the abstract without considering the overall financing requirement of the public sector. The total amount of public sector investments and current deficits could, at a minimum, reach LL 25 billion or about 25 percent of cumulative GDP for the 1983-85 period. The Government will not be able to borrow directly such a large amount. It is, therefore, imperative that the Government obtain grant assistance if it is to finance the public sector requirements without jeopardizing the domestic monetary system and the country's creditworthiness. It is assumed that, including the LL 6.4 billion left to be disbursed from the Tunis pledge (para. 37) but excluding special grants for defense equipment, the Government would obtain a global amount of about LL 10 billion in grants to finance its overall financial requirements.
95. The Central Budget may need a minimum of LL 7 billion to cover its current deficits for 1983-85 (para. 23). These funds would be for:
- current expenditures; except for 1982, budgetary current revenues (including profits from the Central Bank) covered non-military outlays for wages and inputs (i.e. excluding defense and interest payments, Table 1). It is assumed that this will be the Goverment's minimal objective over the 1983-85 period, but that some LL 3 billion of defense-related outlays would not be covered by current revenues.
- interest payments: they include payments for the cumulative domestic debt outstanding as of December 1982 and for future borrowing over the next three years. Existing domestic debt reached LL 12 billion and at an average Treasury bill rate of 9 percent, interest payrnents could reach LL 3 billion over the 1983-85 period to which should be added about LL I billion for interest on new borrowings. These figures exclude interest on the external debt, which is deducted from project loan disbursements.
96. Public enterprises (and other revenue-earning public agencies) also need to finance large current deficits. These deficits may require supplementary funds for an amount of at least LL 3 billion compared to the 1980-82 cumulative current deficits of LL 5.4 billion estimated by the mission (Table 1). This amount is a preliminary estimate, which has to be backea up by detailed financial projections for each public enterprise or agency and strongly depends on policy measures taken to control these deficits. Two sets of measures need to be implemented by the Ministry of Finance in collaboration
1/ National accounts definition includes only gross expenditures for equipment and public works directly operated by the public sector. - 42 -
Table 6: FINANCING OF THE 1983-85 PUBLIC INVESTMENT PROGRAM (LL Million, current prices)
1972-74 1977-79 1980-82 1983-85
Public Investments 990 2400 3080 15700
Central Budget 1/ 670 1800 2000 12100 Public enterprises 320 600 1080 3600
Current Deficits -790 1600 12800 10000
Central Budget (net of annexed) -590 100 7370 2/ 7000 3/ (of which interest payments) - (200) (2030) (4000) Public enterprises -200 1500 5430 3000
Total financing need 200 4000 15880 25700
External Financing -90 440 2290 18200
Grants - 300 1900 10000 (of which Tunis Pledge) - - (1600) (640U) Project Loans: Gross Disbursements 10 200 400 10400 Service Payments -100 -60 -270 -1900 4/ Financial Market (net) - - 260 -300 5/
Domestic Financing 290 3560 13590 7500
Gains on foreign exchange 290 1800 2220 - Central Bank Advances - 690 260 1000 Treasury Bills - 1070 11110 3500 ReconstructionBonds - - - 3000
Memo Item: As percentage of GDP
Public Investment 4.6 8.5 6.2 15.7 Current Deficits -3.7 5.7 25.6 10.0 External Financing -0.4 1.6 4.6 15.2 Domestic Financing 1.3 12.6 27.2 7.5
1/ Including investments listed in the Annexed budgets. 2/ Adjusted to domestic and external financing (Table 1). 3/ Excluding defense equipment assumed to be financed by special grants not shown in this table. 4/ Including LL 500 million of debt service on existing external debt. 5/ Assuming no new borrowing on international financial markets.
Source: Mission Estimates - 43 - with other appropriate government agencies. First, a thorough review of the price-support and direct transfer schemes should aim at eliminating across-the-board subsidies and at keeping only temporary programs targeted to the truly needy. Second, a review of the public sector finance position and trends should focus on the main public services (electricity, water and sewerage, posts and telecommunications, ports, airports, railroads) to assess their medium-term financing requirements and need for borrowing. Specific measures will have to be implemented to improve income and reduce subsidies; increases in tariffs, recovery of arrears, and even reconstruction taxes should be considered to enable each enterprise or agency to better contribute to self-financing a reasonable share of reconstruction and devTelopmentneeds. Moreover, these enterprises should start to negotiate directly their borrowing from foreign sources rather than through the Treasury. External exposure will contribute to financial discipline. Total annual amounts of public loans subscribed every year should, of course, remain under the Government's direct control to avoid the danger of overborrowing.
97. Out of the LL 15.7 billion estimated expenditures required for the reconstruction program over 1983-85, it is assumed that LL 6.4 billion would be financed from the Tunis Pledge, and that the remainder (including part of local costs) could be provided by foreign assistance from ODA sources and commercial credit (i.e. suppliers and export credits). Lebanon would have to mobilize about LL 19.4 billion ($4.8 billion) of foreign loan commitments in 1983 or early 1984 so that some LL 10.4 billion (or a net capital inflow of LL 8.2 million) is effectively disbursed over 1983-85. 1/ It is impossible to forecast the allocation of these funds by foreign sources and, tberefore, the profile of debt service in the medium term, especially considering that Lebanon will have to borrow large amounts from abroad after 1985 to finance the remainder of the reconstruction program. The table below is given as an illustrative example only:
Lending Terms Debt Service Interest Maturity % Disbursed (LL Million) (LL I Billion Committed) (percent) (years) 1983-85 1985 1990
Multilateral: soft terms 4 22 (6) 44 18 85 normal terms 9 17 (4) 44 40 134 Bilateral 6 17 (4) 55 33 113 Export Credits 8 12 (4) 72 58 174 Financial Markets 10 9 (4) 100 100 205
The blend between the four types of borrowing has an impact on long-term debt service capacity; with an average 4-year grace period (shown in brackets above), the full debt service burden will start to be felt only in 1989-90. Because of the future borrowing needs, and the absolute need for Lebanon to preserve its long-term creditworthiness, the mission recommends that the external debt contracted in 1983-85 be on soft terms, and only for investment projects, leaving most borrowing on financial markets for after 1986, once prospects for economic recovery are clearer.
98. Net inflow of foreign public capital would cover a significant part of balance of payments deficits. Assuming no significant increase in foreign
1/ Only US$ 85 million of external debt is left undisbursed as of December 1982 (para. 30). The required net capital inflow includes service payments on existing debt. - 44 -
reserves at the Central Bank, financing external trade deficits would require about LL 25 billion of foreign non-factor and factor services and private transfers and capital in addition to net public capital. The level of these inflows expressed in 1980 prices is equivalent to that achieved in 1977-82 and appears feasible. On the one hand, remittances could slow down with the return of Lebanese working abroad while transfers linked to the existence of various political factions could be reduced or even terminated; on the other hand, with economic recovery, private capital should return to Lebanon.
In LL million, in current prices 1972-74 1977-79 1980-82 1983-85
External trade deficits 1/ 4,600 10,900 28,000 45,000 Variation in Central Bank's Net Foreign Assets 2,100 1,290 ,140 - Foreign Transactions Tunis-pledge - - 1,600 6,40U Other grants - 3U0 300 3,600 Foreign borrowing (net) - 140 390 8,200 Other inflows 2/ 6,700 11,750 30,850 26,800
Memo Item: Other inflows in 1980 prices 3/ 22,300 16,800 23,700 24,1u
1/ See para. 27 for assumption. 2/ Services, remLittances and private transfers and capital. 3/ Using international inflation, expressed in LL in para 32.
99. The financing requirements of the public sector, roughly estimatei at LL 25.7 billion ($6.4 billion) over the 1983-85 period, could leave a financing gap of about LL 7.5 billion to be mobilized from the domestic market. This financing gap would be equivalent to about 7.5 percent of GDP on average over 1983-85; it cannot, therefore, be mobilized exclusively throulgh the Central Bank advances and sale of Treasury bills. Advances and Treasury bills reached a level of LL 14 billion (equivalent to about 28 percent of GDP) over the 1980-82 period, but this corresponds to an exceptional period with large idle liquidities in the banking system and low credit requirements from the private sector. The mission considers, subject to more detailed studies, that up to LL 4-5 billion could be mobilized through advances and Treasury bills. Another LL 3 billion could be mobilized through the issue of long-term reconstruction bonds which should be attractive, in particular, to the large Lebanese community abroad. These bonds could be linkea, through an institutional set-up to be studied, to revenue-earning public programs, e.g. assistance to housing reconstruction, the reconstruction of the Beirut Center.
100. In conclusion, financing of the reconstruction program raises two kinds of issues; the capacity to mobilize large amounts of foreign assistance on adequate terms and the capacity to mobilize large amouuts of domestic funds. This report could not fully address these issues; they are interrelated with overall financial and monetary policies and they can only be dealt with by a continuous monitoring of overall public finances. It is, nevertheless, clear that the Government will have to review the public finance situation periodically. At the end of 1983, a first review should assess the execution of the 1983 tranche of the reconstruction program and the 1984 potential deficit. Keeping the deficit sufficiently low to avoid excessive borrowing on harcd terms may imply delaying some of the projects now tentatively included in the 1983-85 reconstruction program. - 45 -
VI. Reconstruction Programming and Development Planning
101. As already indicated, the Government of Lebanon established the CDR to carry out the function of planning the reconstruction and development efforts necessary for the full resumption of economic activity. The reconstruction effort is a medium-term function: to repair the damage caused during the last eight years to institutions and pbysical structures of the Lebanese economy by civil strife and wars. The development effort, by contrast, is a long-term function which transforms the economy and its institutions beyond the reconstruction phase. At present, and for the next 2-3 years, the highest priority should go to reconstruction of the economy's infrastructure to enable resources and products to flow freely once again and to restore the shattered frame of operation of the Lebanese economy. The reconstruction of the directly productive activities should be left to the private sector, but with sectoral objectives and policLes to be defined by the Government.
102. It was also pointed out that it would be best to operate on the premise that the reconstruction effort is to be formulated within the development framework. Restoration of productive capacity, especially in infrastructure, should not be designed with the same technologies and specifications as they were prior to the damage. Buildings, structures, roads, water and sewerage networks, ports, equipment, etc. should now be restored for long-term development. This is a critical point to keep in mind at the conceptual and design phases of the reconstruction effort. The logical way to proceed would be to establish an indicative plan for physical reconstruction that would distribute expected outlays spatially and clarify the locations and interrelations of various investments. The objective of such a plan would be to provide policy-makers at the outset with an integrated picture of the magnitude of the necessary physical tasks to be undertaken during the next few years.
103. With the economy's statistical base seriously impaired, and its data flows interrupted, a priority is to progressively define a macroeconomnic framework for the flows of resources throughout the economy but, most importantly, a public finance framework. Revenue sources need to be assessed; the departments entrusted with government revenue collection should be examined immediately to determine their staffing requirements as well as their needs for technical assistance. Simultaneously, there is a need to formulate a comprehensive program of reconstruction expenditures, compatible with both the indicative plan for physical reconstruction and available financial resources. Sucb a program should be divided into annual budgets to monitor the deficit financing closely and also to establish responsibility and accountability for the executing agencies.
104. As a second priority, revenue-earning entities, presently or potentially autonomous, should also be assisted to enhance their ability to generate financial flows wbich, over the medium term, would be necessary to cover both their current operating costs, and an increasing proportion of their capital costs.
105. Operating in this fashion would enable the CDR, the Ministry of Finance, and the Central Bank to provide the necessary inputs for the deliberations of the the Bureau for Economic Policy Coordination. The Bureau will have to play a key role to prepare, for the Government's approval, coordinated measures and policies to implement the reconstruction effort without creating grave disruptions in public finance. - 46 -
106. Furtber activities include development planning within a macroeconomic framework. To do this will require that the Department of Statistics be strengthened and given proper working capabilities; the mission suggests the attachment of this Department to the CDR. This action could ensure the prompt generation and management of the needed statistical information on the sectoral and overall performance of the economy. Experience from several countries suggests that administrative separation and autonomy of the planning and statistical generating functions often result in the weakening of the former.
107. The approach to defining, preparing, and implementing reconstruction projects should follow an iterative path. In the first round, along the lines of this Report's methodology, a small number of higb priority projects should be identified by the CDR and prepared in conjunction with the executing ministries/agencies with adequate studies which would assist in the design and implementation of the subsequent tranches. In the second round, the same areas covered in the first round would be looked at in greater detail, while new areas of lesser priority are brought into the active domain of the CDR.
108. The scope of work of the CDR may thus be conceptually divided into several related activities: assessing damage to the infrastructure (with specialized agencies); contributing to the public finance framework (with Ministry of Finance and Central Bank); planning and coordinating the preparation of reconstruction projects (with executing agencies); and monitoring implementation of the reconstruction program.
109. Assessing damage to the infrastructure would require:
(a) surveying the physical and institutional damage to public infrastructure;
(b) establishing sectoral priorities for reconstruction;
(c) sorting tbrough the inventory of existing studies and projects from the last reconstruction planning effort (1977-78) and defining the tasks necessary for updating those retained; and
(d) identifying new projects to fill gaps between country-wide needs and the existing pipeline of projects.
110. CDR's contribution to the public finance framework involves helping the Ministry of Finance to estimate the level of public finances available for the reconstruction effort; this requires in particular:
(a) preparing an overall financing plan and annual investment budgets;
(b) monitoring the public sector's investment financing.
Ill. Planning and coordinating the preparation of reconstruction projects, in collaboration with the executing agencies/ministries, would require:
(a) identifying high priority projects and the public institutions which would be entrusted with executing and operating them;
(b) establishing criteria to select priority projects over the horizon of the reconstruction plan; - 47 -
(c) developing terms of reference for these projects;
(d) commissioning consulting firms (when necessary) to carry out feasibility studies for the identified projects;
(e) estimating capital and manpower requirements to execute and operate these projects;
(f) estimating the financial and economic viablity of these projects;
(g) assessing the needs of such institutions for technical assistance inputs to ensure prompt project execution and/or operation;
(h) coordinating technical assistance needs with offers fromavarious donors; and
(i) formulating a finance plan and identifying external sources of financing for each priority project.
112. Monitoring the implementation of the reconstruction programiwould involve;
(a) establishing with the executing agencies an implementation schedule for contracted projects;
(b) developing a system to monitor the implementation of priority projects by specialized agencies; and
(c) devising procedures for selective intervention by Government with implementing agencies or external funding sources to ensure proper and prompt execution of projects.
113. In order that the above tasks proceed on firm gounds, it is essential to develop the statistical and physical data base of the country which would include:
(a) reviewing the presently existing data base and identifying gaps (statistics and base maps);
(b) arranging for preparation of base maaps (aerial photos, landsat, etc.);
(c) undertaking quick sample surveys to provide soraebase line data to answer urgent questions;
(d) preparing terms of reference for other studies and surveys to be executed outside the Department of Statistics; and
(e) setting the groundwork for a medium to long-term statistical work program which is essential for any sustained analytical or executive functions.
114. Concurrent with the preparation of the statistical and physical data base, development of a fully operational Department of Statistics is a high priority. To this effect, several tasks ueed to be carried out, and they include the following:
(a) assessing the skilled personnel in the Departinentof Statistics, including the group attached to the CDR; - 48 -
(b) aligning Department of Statistics priorities with those of the CDR to ensure compatibility of objectives and modus operandi;
(c) defining the priority areas which require data generation; and
(d) estimating skill requirements to accomplish the data generation tasks stated in (c) above, and determining skill gaps to be filled by consultants.
115. In order to undertake the considerable tasks outlined in the paragraphs above,, the staff of the CDR will have to be substantially strengthened. The range of these tasks and their complexity are clearly beyond the capability of the currently small staff of CDR. Even with additional staff, it is proposed that the CDR secure the assistance of a reputable international consulting firm to assist its staff in discharging their functions. Such a consulting firm would be expected to provide, under the leadership of an experienced development planner, a multidisciplinary resident expert team, whose size will vary from five to seven. This team will require backstopping from the firm's home office in terms of short-term field visits of specialists and detailed research/analysis. The role of the consulting firm should, of course, decrease as CDR's staff acquires more experience. - 49 - Attachment i Page I of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status ot External Cost 1983 1984 1985 1983-85 Preparation Financing
ROADS
Routine Maintenance * 290 1/ 70 100 120 290 Study to be contracced
Periodic Maintenance * 295 1/ 75 100 120 295 Study to oe (resurfacing) contracted
Rehabilitation * Phase 1 (335 km program) 788 150 190 190 530 Ongoing Tunis Pleage
Phase II (tranch I of 250 km) 300 - - 100 100 Study to be contracted
Beirut Access 314 lb 81 131 228 Loi-Programme proposed
Expressway Construction
Tabarja-Jbeil * 110 35 - - 35 Ongoing IBRD
Jbeil-Batroun 90 24 - - 24
Batroun-Chekka 140 25 - - 25
Chekka-Tripoli (incl. Tabarja- 145 80 60 - 140 Ongoing Tripoli) *
Damour-Jieh * 93 60 33 - 93 Ongoing, works contracted
Jieb-Sidon 100 - - 25 25 Final design to be contracted
Subtotal Construction, Equipment & Maintenance 26b5 535 5b4 686 1785
Expropriation 206 26 76 104 206
Studies/Technical Assistance
Rehabilitation - Phases I and II 18 4 7 5 16 Ongoing ana to be contrac- ted
Maintenance - Phases I and II 9 2 4 3 9 To be contrac- ted
Beirut Access 30 14 12 4 30 To be contrac- ted Northern Expressway construction supervision 3 2 1 - 3 To be contrac- ted
Southern Expressway design & construction supervision 10 8 1 1 10 To be contrac- ted
Subtotal Studies 70 30 25 13 68
TOTAL ROADS 2941 591 665 803 2059
* Included in CDR's Reconstruction Project 1/ Maintenance program included in investment program for the first three years while the maintenance program is being set up. Expenditures after 1985 would be part of the Government's current budget. - 50 -
Attachment I Page 2 of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status of External Cost 1983 1984 1985 1983-85 Preparation Financing
PORTS
Beirut Reconstruction - Phase I 127 3 40 21 64 Final designi Abu Dhabi Fund to be contrac- Arab Fund ted for re- IBRD, USAID, maining works Tunis Pledge, Beirut Reconstruction - Phase II 114 5 47 62 114 Final design to be contrac- ted
Beirut Port Container Terminal 294 48 37 87 172
Tripoli Reconstruction - Phase I 90 - - 40 40 To be contrac- ted
Subtotal Construction & Equipment 625 56 124 210 390
Studies
Tripoli - final design 3 2 1 - 3
TCOTAL PORTS 628 58 125 210 393
AIRPORT
Reconstruction
Replacement of Equipment 51 51 - - 51
Civil Works Repair 39 39 - - 39 ongoing
Strengthening Paving 150 55 40 - 95
Passenger Terminal 400 150 50 - 200
Fuel Depot 46 22 24 - 46
Equipment Catering Building 14 7 7 - 14
TOTAL AIRPORT 700 324 121 - 445
WATER SUPPLY I/
A. RECONSTRUCTION
1. Beirut Water Authority
Ongoing project 12 12 - - 12 Ongoing IBRD
Dbayeb treatment plant 8 2 3 3 8 Ready
Improvement water resources 17 3 7 7 17 Ready
Tallet el Khayat pumping 4 4 - - 4 Ready station
1/ Costs include supervision and physical contingencies. - 51 - Attachment I Page 3 of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status of External Cost 1983 1984 1985 1983-85 Preparation Financing
WATER SUPPLY continued
Achrafieh electrical station 14 2 5 7 14 Ready
Transmission line JeYta- b0 - 24 36 60 Final design Dbayeh
Distribution system I 44 - 20 24 44 Feasibility underway
2. AYn El Delbeh water authority
Pipe from Spring to treat- ment plant
Force main to Hazmiyeh 18 4 6 8 18 Ready
Damour/Bordj Barajneh 3 1 2 - 3 Ready pumping stations
3. Networks rehabilitation
Jounieh (Mont Liban) 30 3 12 15 30 Ready
Rhiam (South) 5 1 2 2 5 Ready
Joubeil (Mont Liban) 42 3 8 31 42 Final design
Sidon (South) 14 1 3 10 14 Ready
Zahle (Bekaa) 24 1 10 13 24 Final design
Koubayat (North) 5 1 2 2 5 Final design
4. Plants rehabilitation
Taibeh treatment plant (South) 7 3 4 - 7 Ready
Pumping equipment 29 - 29 - 29 Reaay
Treatment plants 24 - 12 12 24 Ready
Subtotal 3bO 41 149 170 360
B. DEVELOPMENT
Beirut distribution system II 480 - - 120 120 Feasibility underway Djebel Amel project (South)* 144 - - 71 71 Ready
Anane project (South)* 384 - - 60 60 Final design
Awali-Beirut water supply* 576 - - 60 60 Updating of study to be contracted Quaissamani Lake (Mont Liban) 58 - - 29 29 Ready
Azzibeh Lake (North) 57 - - 24 24 Final design underway Chabrouh Dam (Mont Liban) 144 - - 36 36 Final design underway
Subtotal 1843 - - 400 400
Subtotal Reconstruction & Development 2203 41 149 570 7tO
Studies
Institution building 3.0 - 1.0 2.0 3.0 To be contrac- ted - 52 -
Attachment I Page 4 of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status of External Cost 1983 1984 1985 1983-85 Preparation Financing
WATER SUPPLY continued
Awali Beirut 1.5 0.5 1.0 - 1.5 To be contrac- IBRD ted
Beirut Distribution 8.0 4.0 4.0 - 8.0 Ongoing IBRD
Bisri Dam 12.0 6.0 2.0 - 8.0 Ongoing IBRD
Water Master Plan 4.0 - 1.0 3.0 4.0
Subtotal Studies 28.5 10.5 9.U 5.0 24.5
TOTAL WATER SUPPLY 1/ 2231.5 51.5 158.0 575.0 784.5
SEWERAGE 1/
National waste management - Phase I 480 60 96 120 276 Tender docu- ments being prepared Beirut sewerage - Phase I 300 - - 59 59 Feasibility underway
Subtotal Construction & Equipment 780 60 96 179 335
Studies
Beirut Sewerage 6.5 1.6 3.4 1.5 6.5 To be contrac- IBRD ted National waste management 5.0 1.2 2.6 1.2 5.0 To be contrac- IBRD (Tripoli, Sidon, Zahle, Jounieh) ted oceanographic 5.4 1.0 2.4 2.0 5.4 To be contrac- IBRD ted
Subtotal Studies 16.9 3.8 8.4 4.7 16.9
TOTAL SEWERAGE 796.9 63.8 104.4 183.7 351.9
TELECOMMUNICATIONS
Reconstruction 2/ 410 120 160 130 410 Ongoing France, Italy, 7 (60,000 lines) 0SA, IBRD
Ongoing program 2/ * 720 260 270 190 720 Ongoing France, Sweden, (200,000 lines) TBRD
Expansion program 2/ 3000 - 20 200 220 Inital plan- (500,000 lines by 1990) ning underway
TOTAL TELECOMMUNICATIONS 4130 380 450 520 1350
* Included in CDR's 1978 Reconstruction Project
1/ Project costs include supervision and physical contingencies. 2/ Engineering and supervision of installation included in cost estimate. - 53 - Attacbment I Page 5 of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status of External Cost 1983 1984 1985 1983-85 Preparation Financing
POWER
Reconstruction/Rehabilitation 241 141 100 - 241
Generation
Zouk Tbermal *
First stage 726 150 194 80 424 Ongoing EIB
Second stage 1150 io 90 320 420 Ready EIB
Miscellaneous 20 10 10 - 20
Nortb Thermal Phase I 1265 - - 100 100
Transmission 203 23 80 100 203
Distribution 249 90 75 84 249 Ongoing EIb
TOTAL POWER 3854 424 549 684 1657
EDUCATION
General
Reconstruction 434 120 180 84 384 Ongoing UNICEF
New schools 1325 - 20 150 170
Miscellanous 90 10 30 50 90
Vocational/Technical 366 16 65 100 181
Subtotal Construction& Equipment 2215 146 295 384 825
Technical Assistance 7 1 4 2 7
TOTAL EDUCATION 2222 147 299 i86 832
HEALTH
UNICEF program 26 15 11 - 26 Ongoing UNICEF
Hospitals 60 15 30 15 60
Health network development 1100 - 100 200 300 To oe studied
Subtotal Construction h Equipment 1186 30 141 215 3b6
Technical Assistance
Planning Unit 7 2 5 - 7 USAID
Sector Assessment 2 1 1 - 2 Ongoing WHO
Subtotal TA 9 3 6 - 9
TOTAL HEALTH 1195 33 147 215 395
* Included in CDR's 1978 Reconstruction Project - 54 - Attachment I Page 6 of 7
Lebanon - Proposed Public Investmeat (LL Million, 1982 Prices)
Total Expenditures Project Total Status of Cost 1983 1984 1985 198S-85 Preparation Financing
URBAN DEVELOPMENT
Urban Development
Beirut Central Business District * 1828 150 200 250 600 Feasibility being updated
Repaving streets and 75 15 30 30 75 1/ Ongoing traffic lights
Urban Transport Project 200 -. - 50 O
Bus Transit 8 8 - - 8
Subtotal Construction & Equipment 2111 173 230 330 733
Studies
Urban transport 5 1 2 2 5 To be contrac- ted
Master Plan for Greater Beirut 5 1 2 2 5
Subtotal Studies 10 2 4 4 10
TOTAL URBAN DEVELOPMENT 2121 175 234 334 743
HOUSING
Sites and Services - ]'hase I 1000 - 200 250 40o Study to be con- tracted
Studies
Land use study 12.0 2.0 5.0 5.0 12.0 To be contrac- ted
Land assembly/sitesanid services 5.0 1.0 2.0 2.0 5.0 To be contrac- ted
Housing Finance 1.0 0.5 0.5 - 1.0 To be contrac- ted
Subtotal Studies 18.0 3.5 7.5 7.0 18.0
TOTAL HOUSING 1018.0 3.5 207.5 257.0 468.0
PUBLIC BUILDINGS 600 150 200 250 600 Ongoing
OVERALL TECHNICAL ASSISTANCE
CDR 14.0 7.6 4.4 2.0 14.0 To be contrac- USAID ted Other (Finance Ministry/Central Bank) n.a. n.a. n.a. n.a. n.a.
SUBTOTAL INVESTMENT 2, 22,452 2,410 3,269 4,420 10,099
* Included in CDR's 1978 Reconstruction Project I/ Initial repairs onilyincluded in investment program. Expenditures after 1985 should be part of the Government's current budget. 2/ Totals are rounded. - 55 - Attachment I Page 7 of 7
Lebanon - Proposed Public Investment (LL Million, 1982 Prices)
Total Expenditures Project Total Status of Cost 1983 1984 1985 1983-85 Preparation Financing
HOUSING CREDIT
Housing Reconstruction Credit
Loan to owners (Government 600 15 130 300 600 USAID, contribution) Tunis Pledge, Saudi Arabia
Grant element 1/ 5 15 30 50
Loan repayment - -10 -20 -30
Net Government Contribution 620 155 155 310 620
Low and Medium Cost Housing Credit
Loan to owner 1500 400 500 600 1500 Grant element - 10 22 57 89 Loan repayment - - -27 -6O -87
Net Government Contribution 1502 410 495 597 1502
TOTAL HOUSING CREDIT 2122 5b5 650 907 2122
INDUSTRIAL CREDIT
Law 131
Loan by Government 500 210 200 90 500 (Government contribution)
Grant element 2/ - 29 48 bS 142
Repayment -25 -46 -6b -137
Net Government Contribution 505 214 202 89 505 Under study
Interest Subsidy
(Total credit) 3/ (1000) (150) (350) (500) (1000) Banking System Grant element 40 50 75 165
Net Government Contribution 165 40 50 75 loS
MLT Credit (Development Banks)
Total Loan 120 - - 120 120
TOTAL INDUSTRIAL CREDIT 790 254 252 284 790
SUBTOTAL CREDIT 2912 819 902 1191 2912
GRAND TOTAL 4/ 25,364 4171 5611 13,011
l/ 7% Subsidy on lending rate (Difference between lending rate of 2% ano assumed commercial rate of 9%). 21 5% subsidy on lending rate (difference between lending rate of 4% and assumed commercial rate of 9%). 3/ Funds coming from banks. 4/ Grand Total figures are rounded.
- 57 - Sectoral Annex I Page 1 of 7
THE EDUCATION SECTOR
A. DESCRIPTION OF SECTOR
1. The formal education system consists of one pre-primary year (attached to primary schools), a five-year primary cycle, a four-year lower and a three-year upper sec'ondarycycle and up to five years of higher educa- tion. Technical education is offered mostly at the upper secondary cycle. Primary teacher training corresponds to the upper secondary level while secondary teacher training is provided in conjunction with university programs. Education is free in public schools.
2. In response to growing demand, the system was greatly expanded over the decade to 1975 to the point where it was quantitatively well developed. It has continued to grow since then at the lower and upper secondary levels but has shown some deterioration at the primary level, where enrollments declined by 12% between 1973 and 1981 (from 452,500 to 398,977), as a conse- quence, it is thought, of unstable conditions and damage to school buildings.
3. The country has traditionally relied heavily on private schooling. Despite considerable expansion of the public school system from the mid-1960s onwards, about 32% of students at primary level and 50% of students at secondary level attended fee-paying private schools in 1981-82, while a further 31% of all students at the primary level attend non-fee paying private-aided schools. The quality of public schools is generally considered to be lower than the fee-paying private schools, with the result that children from relatively wealthy families attend the fee-paying schools while the less affluent attend public schools or some of the less expensive private schools.
4. The most recent education sector study was conducted in 1978 within the IBRD/UNESCO cooperative program and is described in the report "Lebanon- Education and Reconstruction" (August 1978, Report No. EFM/92). The results of this study confirm earlier findings that the major issues to be addressed within the general education system include:
(a) the lack of an effective mechanism to ensure coordination in planning and implementation between the various interests involved in education, and in particular between the general directorates of education and the Center for Educational Research and Development;
(b) the need to develop a capability within the Ministry of Education (MOE) to plan and implement educational investment programs;
(c) the high cost of public schooling due to the uneconomic size of - 58 - Sectoral Annex I Page 2 of 7
schools, the small class sizes as a result of extensive use of unsuitable rented premises with inadequate classroom space and, as a consequence, the very high teacher-pupil ratios (which now average 1:11 at the primary and lower secondary levels);
(d) the high proportion of unqualified teachers in primary and lower secondary schools, combined with the existence of a large body of surplus teachers, leading to the need to concentrate all teacher training efforts on upgrading the existing cadre of teachers;
(e) the high repeater rates and the alarming numbers of dropouts estimated at about 90,000 per year of the total enrollment of 580,000 students at the primary and lower secondary levels;
(f) the need to transfer responsibility for school inspection from the Prime Minister's office to the MOE and to establish an adequate inspectorial system which would assist in raising and coordinating educational standards between the public and prilvate systems; and
(g) the need to upgrade curricula at all levels.
5. The Government recognizes the need to expand and improve the public education sector and, as a first step, had adopted a major plan for an improved general education network for primary and lower secondary schools. Implementation of the plan was begun in 1974-75 but was then suspended due to the outbreak of hostilities. In the meantime, the massive destruction of school buildings together with further internal migration of population has placed additional burdens on the general education system.
6. With the return of more settled conditions, the MOE hopes to systematically address the issues listed above through the establishment of a project planning and coordinating unit (para. 9) which would prepare and monitor the execution of a number of projects including a public school building program (para. 13), in-service teacher training and curriculum development. However, the MOE will require substantial assistance to achieve its objectives.
7. Major issues and needs described in the 1978 Report regarding techni- cal education and vocational training, which are also relevant, include:
(a) the need to modernize and expand technical education programs and to compensate for the large emigration of well-qualified technicians and to meet the urgent needs for reconstruction and development;
(b) the need to establish new (and expand existing) vocational training programs to replace migrant workers who were previously employed, particularly in the building construction and industrial sectors; and
(c) the need to develop modern curricula and improve and expand teacher/instructor training programs. - 59 - Sectoral Annex 1 Page 3 of 7
8. The above needs are being partly addressed by the ongoing First Bank Education Project (Loan 877-LE). However, the mission determined that sub- stantial additional inputs are urgently required for all three of the above categories to prepare trained manpower for the massive reconstruction tasks in various sectors. In addition, preliminary estimates by UN specialized agencies indicate that as many as 200,000 persons may be in need of some form of vocational rehabilitation for the disabled.
B. INSTITUTIONAL ASPECTS
General Education
9. The problems in general education are numerous and complex. The pre- requisite to effective action in addressing these problems is the need to establish a project planning and coordinating unit within the MOE staffed with project planning and implementation specialists. The unit would be reponsible for coordinating with the Center for Educational Research and Development and the General Directorates of Education to develop and implement investment programs and for liaising with assigned staff in such agencies as the Conseil Executif des Grands Projets (CEGP) in the physical execution of the investment programs. The mission confirmed with the Minister of Education that the establishment of such a unit was among his highest priorities and that he expected to have the unit established in the very near future.
Technnical Education
10. The MOE's Directorate Generale de l'Enseignement Technique et Professionnel (DGETP) has responsibility for technical education programs. The DCETP has demonstrated its competence during the past several years through the implementation of the First Bank Education Project (Loan 877-LE) which is about 50% completed and should be completed by June 1984. The DGETP has already--remarkably under the circumstances--prepared draft planning documents for the rehabilitation and development of its network of schools. However, the staffing needs of the DGETP are substantially unmet. The mission recommends that a Director General and additional staff be appointed to fill vacant posts within the DGETP.
Vocational Training
11. Administrative responsibility for accelerated vocational training rests with the Conseil d'Administration de la Formation Professionnelle (CAFP), with funding of recurrent costs provided through the Ministry of Labor and Social Affairs (MOLSA). The CAFP operates under the chairmanship of the Director General of the MOLSA and includes the Director General of the DGETP (MOE), the Ministry of Industry and the National Employment Office as well as two representatives of the employers organization and two representatives of the trade unions. However, neither the MOLSA nor the CAFP have the capacity for the planning and implementation of a vocational training system. The current provision for such training is limited to one center for which facili- ties have been provided by the DGETP within the Dekwaneh technical education complex. As a result of excellent cooperation between the MOE and MOLSA, arrangements for the development of the Dekwaneh center, including preparation of programs, equipping, etc. are undertaken by DGETP. There lis an urgent need - 60 - Sectoral Annex I Page 4 of 7 to develop an effective vocational training system to include vocational instructor training and for major expansion of the provision for accelerated vocational training. It appears appropriate that DGETP should expand on its initiatives in this area and for this purpose its staffing should be expanded and strengthened.
C. DAMAGE ASSESSMENT
12. The MOE is currently concentrating on the problem of repairing many damaged primary, intermediate, and secondary school buildings in the south and in Beirut and its suburbs. UNICEF have identified more than 400 schools as requiring varying degrees of repairs, including 39 schools damaged beyond repair which require complete rebuilding. The overall cost of this work, according to UNICEF estimates, detailed below is LL 313.5 million (1982 prices), and includes primary and secondary schools, and some technical schools, but does not include estimates for teaching and training equipment.
Work Being Undertaken and Financed by UNICEF LL Million
Repairs to 51 primary and secondary schools and 3 technical schools (completed) 36.0
(sub-total 36.0) Work Financed Through the Tunis Pledge 1/
Being undertaken by UNICEF - Repairs to 80 schools (underway) 41.0
--16 replacement schools 70.0
To be undertaken by the Council for the South; Repairs to 150 schools 22.5
(sub-total 133.5)
Work For Which Financing is Still to be Secured
--Repairs to 85 schools in Greater Beirut 34.5 --Repairs to 19 schools in Mont Liban 9.5 --2 replacement schools in Beirut 16.0 --16 replacement schools in South and 5 in Bekaa 84.0
(sub-total 144.0)
Total 313.5
1/ See para. 37 in main text. Out of present transfer of $417 million about $37.5 million have been allocated to the education sector. - 61 - Sectoral Annex I Page 5 of 7
D. RECONSTRUCTION AND DEVELOPMENT PROGRAM
General Education
13. The immediate priority for the MOE is to complete the work of recon- struction as detailed above. At the same time, efforts are being made to reactivate the program for the provision of new primary and lower secondary schools (almost 1,000 schools in all)l/ based on a 1972 "Plan de Regroupement". The first phase of this program (63 schools) with proposed World Bank financing had been brought to tender stage in 1975 but has remained in abeyance since then. It will be necessary to reexamine urgently and modify as required the planned network of schools to take account of events since 1975 and to formulate priorities as the basis for the phased implementation of the school building program. The necessary studies in this respect would be an immediate task for the proposed coordinating unit (para. 9), which would need to extend the studies to include a determination of needs at the upper secondary level.
Technical Education and Vocational Training
14. As the CAFP has a budget of only LL 725,000 for 1983 for the opera- tion of its accelerated vocational training program at the Dekwaneh complex and as its future budget is uncertain, the DGETP has included in its draft planning documents provisions for the expansion of the accelerated vocational training (AVT) program. The DGETP draft planning documents which currently do not have detailed timetables, include a variety of proposals among which the most viable and readily justifiable include:
(a) rehabilitation, extension and additional equipment for 21 existing technical schools (about LL 56 million);
(b) construction and/or completion and equipping of 5 technical schools approved under the 1978-82 five-year plan (about LL 76 million);
(c) construction of two new technical schools, establishment of five new AVT centers, four of which would be located within existing technical schools, and provision of five mobile AVT units for completion of the 1978-82 five-year plan (about LL 54 million);
(d) construction and equipping of seven new technical schools/ vocational training centers and extension of the DGETP admini- stration buildings and provision of three mobile AVT units under the 1983-88 five-year plan (about LL 180 million); and
(e) technical assistance for curriculum development, instructor training, staff training, manpower needs assessment studies, etc. (see para. 20).
1/ Estimated to cost about LL 1,325 million (in 1982 prices). This estimate will be revised following the review of the school network. - 62 - Sectoral Annex I Page 6 of 7
15. Based on the DGETP fVaft planning documents (outlined above) which total about LL 373 million,- it is estimated that most of the projects under (a) and (b) above (about LL 132 million) could be completed during the 1983-85 period. In addition, selected items under (c) and (d) above, possibly totalling about 'LL 49 million, could be completed during the 1983-85 period.
E. THE 1983-85 PUBLIC INVESTMENT PROGRAM
General Education
16. During the 1983-85 period, the MOE would be expected to: (a) complete the repairs and rehabilitation of existing schools (para. 12) at an estimated total cost of LI" 434 million of which LL 384 million could be spent during this period; (b) establish a coordinating unit within the MOE, (para. 13); and initiate preparatory work on the school building program in calender year 1983 to be followed by a small first phase in calendar year 1984 and a second phase in 1985 (para. 13); disbursements are estimated to reach about LL 170 million in 1983-85 (Attachment I).
Technical Education and Vocational Training
17. The DGETP has also developed a reasonable strategy and will, to the extent that fund:ingbecomes available, concentrate on:
(a) expanding existing capacity and introducing new accelerated vocational training courses;
(b) reinforcing the planning and management capacity of the DGETP;
(c) establishing a new vocational training unit in DGETP;
(d) instructor training, curriculum development and production of teaching/learning materials at the Dekwaneh complex for all institutes and centers.
The cost of completing the above Technical Education and Vocational Training activities is estimated at about LL 181 million (para. 15).
Miscellaneous
18. It is also estimated that MOE will have about LL 90 million in miscellaneous expenses over the three-year period. For example, repair work is underway on the MOE's administrative building.
1/ Amount of LL 373 million represents LL 366 million for works and LL 7.0 million for Technical Assistance (paras. 14, 19 and 20). - 63 - Sectoral Annex 1 Page 7 of 7
F. TECHNICAL ASSISTANCE
19. Technical assistance is urgently required to assist the MOE in establishing and initially staffing a project planning and coordinating unit, in carrying out the necessary planning studies and in formulating general education projects and a detailed investment program based on determined priorities following a review of the planned network of schools (para. 13), This assistance is estimated at about LL 1.4 million for the period 1983 to 1985.
20. The DGETP urgently requires technical assistance for the establish- ment of a vocational training unit, for the planning and management of an expanded vocational training program, for the development of vocational training materials and for instructor training. A limited amount of technical assistance is also required to determine manpower training needs related to vocational training. The estimated cost of this assistance is about LL 5.6 million (1982 prices) for the period 1983 to 1985.
G. CONCLUSIONS AND RECOMMENDATIONS
21. Within the overall general public education system, the major policy and institutional needs include: the establishment of a project planning and coordinating capability within the MOE, revision of the planned network of new schools, the conducting of studies leading to reduced costs of schooling, implementation of a new in-service teacher training program, updating existing curricula, production of new textbooks and implementation of the new technology-oriented curriculum at the intermediate and secondary levels.
22. The Government, in addition to completing the reconstruction of damaged schools should take the necessary initiatives to implement, on a phased basis, the planned network of new schools.
23. It is recommended that technical assistance be provided to the MOE as soon as possible to assist in the establishment of a project planning and coordinating unit, initiate necessary studies and prepare general education projects.
24. The DGETP has prepared a comprehensive plan for investment in tech- nical education and vocational training which should be implemented as soon as possible. The plan includes provisions for the expansion of accelerated voca- tional training programs including instructor training, to assist in meeting the urgent manpower needs for reconstruction. For these purposes the DGETP should be strengthened and supported with technical assistance to enable it to develop an effective vocational training system and to prepare future projects.
25. Finally, it should be stressed that although this brief report has necessarily focussed on the needs and shortcomings of the education system, there is every reason to expect that, with the return of more settled conditions and the provision of adequate assistance, Lebanon's education system will experience rapid development. - 64 - Sectoral Annex II Page 1 of 5
THE HEALTH SECTOR
A. DESCRIPTION OF SECTOR
1. The following paragraphs summarize the demographic and health status of Lebanon, the institutional aspects of its health services, and the status of reconstruction and rehabilitation activities. Owing to the lack of basic information about Lebanon's health sector, this annex does not purport to be comprehensive; nor does it address in detail the sector's medium- and longer- term needs and the policy issues that will need to be resolved in due course. The latter are the principal focus of a comprehensive health sector assessment currently underway with the assistance of the World Health Organization (WHO).
Demographic Background
2. Owing to political and other constraints, the last official popula- tion census was conducted in 1932, when Lebanon was under the French mandate. Lebanese demographic, economic and social data are therefore based on esti- mates of varying accuracy and reliability, of which three national surveys undertaken in the early 1970s are the most important; The 1970 demographic, economic and social survey conducted by the then Ministry of Planning; the 1971 national fertility and family planning survey carried out by the Lebanon Family Planning Association (LFPA); and, the 1971 Ministry of Planning survey of internal migration. While most observers agree that the population in 1975 was about 2.6 million, reliable estimates of the resident population since then are difficult, owing to the absence of accurate data on the significant numbers of people that moved into and out of the country during the civil war, including refugees and migrant labor from neighboring countries. However, according to the Bank's 1982 World Development Report, Lebanon's population is currently estimated at about 2.7 million, of which about three quarters live in urban areas; Beirut and its environs alone account for about 45% of the total. The country's overall population density is estimated at about 256 persons per km2 and about 744 per km2 of agricultural land. As in all countries of the region, its population is a relatively young one with a dependency ratio of about 81% (1980) which, although low by Middle Eastern standards, is high compared to developed countries.
3. Lebanon's crude birth rate (CBR) and crude death rate (CDR) have both declined moderately during the last twenty years, from about 43/1,000 and 14/1,000 respecitively in 1960 to about 30/1,000 and 8/1,000 in 1979. The corresponding naLtural rate of population growth declined from 2.9% in 1960 to 2.2% in 1979. H[owever, both the CBR and the estimated total fertility rate of 4.1 are still relatively high. Nevertheless, the demographic significance of these data must be qualified by the considerable but unquantified impact of migration during the second half of the 1970s. In fact, substantial emigration since 1975 and deaths caused directly by the civil war have undoubtedly affected the rate of population growth between 1975-82. - 65 - Sectoral Annex II Page 2 of 5
Health Status
4. Although there are no reliable national health status data since 1965, health conditions in Lebanon before the civil war years were generally considered to be the best in the Near and Middle Eastern Region, except for Israel. This is probably still the case, although Lebanon's overall health- related indicators are known to mask significant differences in health status and the availability of health services between, for example, the Beirut metropolitan area and the rest of the country. According to Ministry of Public Health (MPH) data, about one-third of reported deaths in 1965 derived from cardiovascular diseases; other leading causes of reported mortality included malignant neoplasms, senility, tuberculosis, diseases of the nervous system and accidents. The average life expectancy of Lebanese citizens at birth in 1979 was an estimated 66 years - the highest in the region. On the other hand, the relatively high infant mortality rate of about 41/1,000 suggested a high incidence of gastro-intestinal and respiratory-pulmonary diseases, measles and perhaps some malnutrition among infants and young children. As regards morbidity, the most prevalent diseases reported in 1965 included poliomyelitis, tuberculosis, diphtheria, meningitis, typhoid, dysentery, schistosomiasis, malaria and eye infections. A more recent and significant problem is the growing number of disabled persons - caused* directly by the wars. Epidemiological surveys of the population and the development of health information are an urgent need in order to assess accurately the current health status of the country and to plan the future development of appropriate health services.
B. INSTITUTIONAL ASPECTS
5. Historically, the principal mandate and functions of the MPH, estab- lished in 1950, followed the classical model: To prevent and control communi- cable diseases; to provide medical services to the poor and needy; and to legislate in health matters. During the late 1950s, MPH established 21 public hospital facilities - essentially to provide health services to the desti- tute. As far as the rest of the population was concerned, the provision of health services was left to the private sector in accordance with the preva- lent philosophy that health care was a consumer commodity to be purchased, where available, on the open market. Accordingly, a variety of hospitals, health centers and dispensaries was established'by private voluntary agencies, charitable institutions and religious bodies. During the early 1960s, two new institutions increased the Government's involvement in the health sector: The Social Security Fund (CNSS) (based on the European pattern), comprising a tripartite, co-payment sharing mechanism between the Government, employers and employees covering retirement, old-age and sickness and maternity benefits; and, the Office of Social Development, an autonomous body designed to promote the development of the regions and rural, areas specifically in education, health, social welfare and overall community participation. Both agencies were placed under the tutelage of the Ministry of Labor and Social Affairs (MOLSA). - 66 - Sectoral Annex II Page 3 of 5
Health Resources
6. By the mid-1970s, health services were being delivered by a large number of providers, both public and private, with the private sector, compri- sing profit making as well as voluntary, charitable and religious bodies, being by far the most important. In terms of physical facilities, there were about 131 generaL hospitals with about 6,200 beds, of which private-for-profit and voluntary (mostly religious) agencies accounted for three quarters; 13 specialized hospitals witlh about 3,700 beds, owned and operated mainly by voluntary agencies; and about 230 dispensaries (1977/78), of which 90 were operated by the public sector (61 by the Office of Social Development and 16 by MPH) and the rest by a wide variety of, private groups. About 4,020 or 65% of total general hospital beds and all 3,700 specialized hospital beds were located in Beirut:or Mt. Lebanon, of which about 93% were private sector faci- lities. The overall coverage of the population in terms of general hospital beds was about 2.34 beds per 1,000 population, ranging from 2.44/1,000 in Beirut and Mt. Lebanon (14% publicly owned) to 1.71/1,000 in Beqa (77% publicly owned). As regards human resources, the overall stock of health man- power in 1977 consisted of about 2,000 physicians, 930 dentists, 1,510 nurses, 890 pharmacists and about 2,000 paramedicals (midwives, laboratory techni- cians, sanitarians and nursing aids, etc.). While the availability of physicians and their supply, thanks to the medical schools at the American University of Beirut and St. Joseph University, is generally satisfactory by comparable international standards, their geographical distribution is uneven, with over 80% concentrated in Beirut and Mt. Lebanon. Moreover, both the existing number and supply of nurses is inadequate, as is their geographical distribution.
7. There is little recent or reliable data available on health sector finances, although a USAID-financed study currently underway at the request of the Minister of Public Health, will shortly provide a preliminary analysis. Reflecting its predominant role in the provision of services, the private sector is estimated to account for about three quarters of total health expenditures. Total expenditures on health services by public sector agencies in 1982 was of the order of LL 540 Million (about $135 million), of which services reimbursed wholly or in part under various cost-sharing mechanisms by MPH, the CNSS, the "Mutuelle des Fonctionnaires" and the Lebanese Army amounted to LL 428 million (79%) and services provided directly by MPH, the Army, the Office of Social Development and Beirut municipality amounted to LL 69 million (13%). Owing to the disruption and, in some areas, the complete breakdown of public health services during and since the civil war, the Government has been obligated to cover the costs of hospitalization of any Lebanese citizen needing such services in private hospitals and clinics. Accordingly, upon certification by a doctor, any Lebanese citizen may enter a private hospital or clinic and have his or her bill paid directly by MPH ex- cept for the first LL 500 or 15% of the total, whichever is lower. The cost of this effectively unlimited subsidy of private sector services, which according to observers is subject to substantial abuse, was about LL 160 million in 1982, or about two-thirds of MPH's total budget of LL 234 million. - 67 - Sectoral Annex II Page 4 of 5
8. In addition to the statutory functions outlined above, the MPH is charged with coordinating the activities of other public sector agencies involved in the health sector and with regulatingthe services provided by the private sector. In practice, owing to political pressure, the long tradition and predominant role of the private sector and, more recently, the disloca- tions caused by the civil war, MPH has avoided interfering with the private sector and has been unable to carry out its regulatory, review and coordi- nating responsibilities. Consequently, Lebanon's health sector and service delivery system is at present thoroughly fragmented, resulting in unplanned, overlapping programs with some government activities, operated by different ministries, often competing for the same clientele. While the private sector will, and probably should, continue to play a leading role in providing health services, particularlyin the main urban areas and for those segments of the population that can afford to pay, the public sector and, specifically, the MPH, needs to be strengthened in terms of its planning, coordinating and regulatory functions and also in the provision of those services for which it enjoys a comparativeadvantage.
Summary
9. While a detailed analysis of the problems and prospects of Lebanon's health sector must await the outcome of the assessment now underway under WHO auspices, it is generally agreed that there are two categories of problems. The first category,which antedates the civil war and is common to any middle- income developing country, includes: A relatively high infant mortality rate; a poorly organized and ineffectiveMPH, partly a function of the leading role of the private sector; an inadequate geographicaland functional distribution of health manpower, includinga shortage of nurses; and, an uneven coverage of services, particularlyin the rural areas. The second category of problems, a direct consequence of seven years of civil war, includes: The physical destruction of and damage to health facilities in both urban and rural areas; the importation of inferior quality drugs and counterfeit packaging; the virtual breakdown of preventive health services and, since June 1982, the paralysis of MPH activities; and, the postponementof plans and policies for the longer-termdevelopment of the health sector.
C. DAMAGE ASSESSMENT
10. The main work of damage assessment, concentrated initially in South Lebanon and subsequentlyin Beirut and its suburbs, and the implementationof a work plan of emergency repairs and replacementof equipment is being coordi- nated by UNICEF and the Council for Development and Reconstruction(CDR). The latest estimated cost of this work plan is about $34.6 million, of which the health sector share is about $6.4 million consisting of some 52 "projects" ranging in size from about $5,000 to $1 million for a variety of facilities owned and operated by the Ministry of Public Health, the Office of Social Development, the Council of the South and other government and non- governmentalagencies. The external assistance and internal funding for this work plan has already been mobilized and committed by UNICEF and CDR respec- tively. - 68 - Sectoral Annex II Page 5 of 5
D. RECONSTRUCTION AND DEVELOPMENT PROGRAM
11. Although, as of February 1983, there is no formal reconstruction and development plan available, owing inter alia to the lack of a planning unit in the Ministry of Public Health, CDR's overall Reconstruction Project includes a health and hospiitals reconstruction component comprising 12 hospital facili- ties (4 in Beiruit) with an estimated total cost of about LL 1,100 million, a planning and systems development unit for the MPH costing an estimated LL 7 million, and a proposed national network of health centers. Studies for the latter are toD be initiated later this year in the context of a national plan for primary health care. The proposed planning unit, an urgent and high priority activity, is to be financed by USAID from an existing health sector rehabilitation project grant and is expected to become operational within the next three months. Finally, the priority of and justification for the pro- posed 12 hospital facilities will need to be reviewed carefully by the MPH's planning unit, taking into account inter alia the outcome of the ongoing WHO sector assessment.
12. The reconstruction program is made of (Attachment I):
(a) Rehabilitation of hospitals, pharmacies, health centers in the South carried out through UNICEF with a disbursement of about LL 26 million in 1983 and 1984.
(b) Repair to hospitals and health centers in Greater Beirut for which a sum of LL 60 million would be expended in the year 1983 to 1985.
E. THE 1983-85 PUBLIC INVESTMENT PROGRAM
13. The reconstruction and rehabilitation process immediately ahead will provide a unique opportunity for the consolidation and rationalization of the health sector and for the resolution of problems and issues which, in normal circumstances, might not be feasible; and, it was against this background that the Minister of Public Health requested WHO to assist in the comprehensive sector assessment: now in progress. This assessment is expected to address inter alia the following priority areas: The respective roles and an appro- priate division of labor and responsibility between the private and public sectors in the delivery of health services; the strengthening of the MPH's coordinating, planning and regulatory functions and, in this context, the reform and reorganization of the Ministry of itself; the coordination of the various public sector agencies involved in the provision of health services; the development of appropriate policies and mechanisms for the financing of health services; the supply and delivery of pharmaceuticals; and, the definition of a longer-term health manpower training and development plan. - 69 - Sectoral Annex III Page 1 of 15
THE HOUSING AND URBAN DEVELOPMENT SECTOR
A. DESCRIPTION OF SECTOR
Background
1. Lebanon has a small territory (10,452 square kilometers) and a highly dense pattern of settlement with resulting high prices for land which, when coupled with high construction costs, places housing at a great premium. In addition, substantial inflows of capital have gone into real estate specula- tion leading to severe distortions of the market with mismatches between supply and demand of housing types and income levels. The rental market has also been severely constrained and distorted by the application of rent controls. Furthermore, there has been no urban growth strategy to anticipate and cope with population movements (rural-urban and urban-urban) as well as with the natural increase of the population in the large urban centers, especially in Greater Beirut which, with a population exceeding one million, represents over one third of the national total.
2. This overall situation has resulted in a severe backlog of unmet demand for new housing estimated at 150,000 units in 1974, and the absence of initiative to meet future demand, estimated at 400,000 between then and the year 2000.
3. This housing problem has been severely exacerbated by recent events which caused further reduction of stock through destruction and damage, and resulted in the proliferation of squatters in unhealthy and overcrowded condi- tions. In accordance with the latest surveys carried out by the Government, about 92,000 dwellings were destroyed or damaged by the events. Of these about 59,000 were damaged before May 31, 1982 and about 33,000 were damaged since June 1982, of which about 25,300 units were in Beirut and its suburbs and about 7,700 in the South. As of February, 1983, 72,000 damaged dwellings remained to be rebuilt or repaired.
4. The Government's declared program is to assist in reconstructing and repairing damaged housing, finding shelter for squatters and funding the construction of low-cost housing. Given this background, it is advisable that any attempt to deal with the immediate problems resulting from the war should be seen in the context of a broad strategy geared to address the medium and long-term circumstances as described in para. 1 above.
General Approach
5. The objectives of the Government housing policy are to (i) increase the housing stock as rapidly as possible, (ii) generate an active housing market where a broad array of units affordable to all income groups will be provided, and (iii) ensure that these activities take place in a proper _ 70 - Sectoral Annex III Page 2 of 15
land-use pattern, respecting both the environment and the cultural traditions of the country.
6. In achieving these objectives, it is the policy of the Government both to minimize the burden on the public sector and rely as much as possible on the private sector (developers and individuals). The state aims to provide the badly needed guidance, including the development of a national perspective on urbanization thus affirming the state's role in guiding urban growth in an orderly, coherent manner. The Government, realizing the importance of break- ing the supply bottleneck, should take measures to encourage the private developers and individuals to: (i) build new units for both rental and ownership, and (ii) restore the existing housing stock and maintain it. In increasing the supply of housing, the role of the public sector is not per- ceived as a builder of housing units but rather as a facilitator, a creator of circumstances in which individuals can build themselves. Movement towards decontrolling rents and provision of incentives for building are essential. Government intervention would therefore be geared towards alleviating supply constraints by ensuring access to finance and the provision of land, services, utilities. Such interventions would be targeted for those below the median income level, currently estimated at LL 22,000 per family per annum. It is deemed that those above that income level can find adequate shelter through the existing market mechanism.
7. The short-term policies required to cope with the results of the war (damage and squatters) would be dealt with by special, non-replicable pro- grams, where some sharply targeted subsidies would be provided and where a more active public sector involvement could be expected.
B. INSTITUTIONAL ASPECTS
General
8. Lebanon does not have an urban growth strategy. The absence of an approved land-use plan (plan d'amgnagement du territoire) classifies the whole country as suitable for urban development and the Government has no authority to refuse granting a building permit anywhere on Lebanese territory. There is an absence of coordination between the Directorate of Urban Planning, which falls under the tuatelage of the Ministry of Public Works and Transport (MPWT), and the Ministry of Housing and Cooperatives (MOHC). As a result, residential developments, even those financed by the MOHC, are implemented with little consideration to Land conservation or urban planning.
CDR and National ]?olicies
9. The Council for Development and Reconstruction (CDR) jointly with MPWT should articulate a national urbanization pattern of growth in Greater Beirut and all major urban centers. Within that framework, it should assist the MPWT and the municipal authorities to develop further regional and city plans for land-use management. Finally, CDR should coordinate spatial (geographic) programming of government expenditures on schools, hospitals, - 71 - Sectoral Annex III Page 3 of 15 industries, transport, etc. thereby linking the physical and socio-economic dimensions of development programming.
Ministry of Housing and Cooperatives
10. The MOHC is the principal agency responsible for the housing sector in Lebanon. As a newly-established ministry being faced with the task of the reconstruction of damaged dwellings, it has been unable to face up to the problem of setting up a long-term housing strategy. However, under the tutelage of the Ministry, several government and semi-autonomous entities have been created for the implementation of a comprehensive program of housing, rehabilitation and reconstruction.
The Management of Housing Finance
11. Legislation of March 1977, the Government has enacted Decree Law 20 (DL20) as a vehicle for the extension of loans to home owners for the recon- struction or repair of their damaged homes. The Housing Bank (HB) and the Caisse Autonome de l'Habitat (CAH) for the purpose of extending loans for new housing to the higher income groups and to the middle and low-income groups respectively.
12. The Decree Law 20 is operated by the MOHC through its headquarters in Beirut and seven regional offices, all equipped with technical staff. Loans are extended to the owners of damaged dwelling units or buildings at 2% p.a. over 15 years with a ceiling of LL 45,000 for each dwelling. At the borrower's option, the loan is disbursed either in four installments related to work progress after an advance payment of LL 5,000 is made, or the entire amount is advanced under bank guarantee. The borrower undertakes to complete the work within six months of the loan signature in the case of repair, or within 18 months in the case of reconstruction. The seven regional offices are authorized to approve loans and sign contracts but have to refer estimates exceeding LL 30,000 to the Ministry headquarters in Beirut for further checking.
13. Beneficiaries under DL 20 have to be Lebanese citizens of good standing, prove ownership of the dwelling, and submit proof of legal construc- tion. The only collateral required is a mortgage on the dwelling. Where beneficiaries have been unable to produce the required documents, such as title deeds, the MOHC has encouraged the formation of cooperatives and has channeled the loans through the cooperatives.
14. By January 31, 1983, the MOHC had received about 24,500 applications representing about 62,000 dwelling units and about 7,700 common areas. Of these, only 6,069 applications had been processed, representing about 14,100 dwellings and 1,700 common facilities at a cost of LL 197 million. The short- fall is due to the lack of security, the insufficiency of funds, the shortage of staff, and the cumbersome routine for loan processing. - 72 - Sectoral Annex III Page 4 of 15
15. DL 20 is currently under review by the MOHC, and the principal changes are listed under Para. 36 below. However, if the MOHC is to be able to cope with the volume of work generated under DL 20 within a reasonable time horizon, it must increase the number of staff assigned to the program, as well as increase their efficiency.
16. It must cut down on the cumbersome procedures which at present require the submission of- a multiplicity of documents and a series of inspections by technical staff. The MOHC is now taking steps to increase its staff and streamline its procedures in order to be able to increase the number of loans processed from the present maximum level of 6,000 to about 20,000 loans per year. The Housing Bank (HB) was established in 1977 and it is owned 20% by the Government, 30% by the Social Security Fund and 50% by the private sector. It is independent in its operations, managed by a Board of Directors and a chairman. The HB can operate over the whole country and extends loans to Lebanese citizens of good standing having a yearly income in excess of LL 40,000. Loans can be made either for the purchase of ,a ready-built apartment or for the construction of a new house, with a ceiling of LL 200,000 per loan. The only collateral required is the mortgage on the title. This is sufficiently safe as the loans do not exceed 60-70% of the value of the property. Furthermore, the HB does not expect any arrears in repayment of loans because the value of property is appreciating very fast (averaging about 20-25% per year) and a foreclosure would mean a heavy loss to the borrower. In order to discourage beneficiaries from over-extending their resources, the HB applies a combi- nation of progressive rate of interest, and decreasing maturity, namely:
(i) For a residence of up to 150 m 2, 8% interest and a maturity of 20 years.
(ii) For a residence having an area of 151-200 mi2 , 9% interest and a maturity of 15 years.
(iii) For a residence with over 200 m 2, 10% interest and a maturity of 10 years.
17. In its first three years of activity (1980-82), the HB processed about 2,000 loans for a total amount of LL 180 million. But in 1982, the HB suffered from a severe shortage of funds as its main source had been the budgetary allocations of the central Government. Consequently, the HB had to curtail its lending. In 1982, it granted 324 loans for LL 51 million giving priority to large families.
18. After three years of operations, besides having a modest impact on the housing supply, the HB has already encountered some of the difficulties facing new financing institutions: inability to diversify its sources of funds, thus emphasizing its dependency on government financing (66% of term resources at the end of 1982); lack of adequate staffing and administrative - 73 - Sectoral Annex III Page 5 of 15 set-up to appraise urban development projects of significant size. Based on loan requests, the HB would need LL 120 million of new resources every year, whereas annual loan collections amount to only LL 20 million and cash flows generated in 1982 were close to LL 6 million. Taking into account the debt service that will start in 1983 to the tune of LL 1.5 million per annum, increasing to LL 14 million per annum starting in 1985, the resource gap is even larger. The HB is unable to attract private capital because it would result in a negative spread (the commercial rate of interest on deposits in Lebanese currency is about 13-14%). It failed to borrow from the Social Security Fund (CNSS) to finance housing for the employees of the banking sector, CNSS preferring to deal with the commercial banks. The introduction of a contractual savings scheme is also under consideration. In an effort to improve HB's performance a new chairman was appointed by the Government in February 1983.
19. The National Housing Fund (Caisse Autonome de l'Habitat, CAH) can only operate outside the municipal boundaries of Beirut; beneficiaries have to be residents of the area and have to submit proof of residence for 10 years. The CAH also has a Board of Directors and a chairman, and it functions independently although it is administratively a branch of MOHC. Loans are granted to Lebanese citizens of good standing with an annual income of less than LL 40,000 per family. The CAH was established under Law No. 6 for 1980 with an original program of 20,000 dwellings, of which 70% were targeted for families below the 1980 median income of LL 20,000 per annum and the remaining 30% for incomes of LL 20,000 - LL 40,000 per annum. By the end of 1982, in 18 months of activity, CAH had approved 4,494 loans, committed 2,141 and dis- bursed 1,994 representing LL 185.4 million.
20. The ceiling on the loans is LL 103,680, which represents 80% of the cost of a small apartment. The loans are granted over a period of 20 years, with an interest rate of 3% for incomes below LL 20,000 per year and 4% for incomes ranging between LL 20,000 and LL 40,000. In addition to the mortgage, the CAH requires a second collateral, such as automatic deduction from the salaries of employees, mortgage on a business (if self-employed), or a bank guarantee, to avoid a possible foreclosure on the house.
21. The original capital of the CAH was paid up by the Government. However, it benefits from a second source of income generated by what is known as the Murr Decree. Promulgated in 1978, this decree allowed for an increase in the intensity of exploitation of land in the suburbs, with a corresponding revenue based on a coefficient of land value to percentage exploitation. This decree has so far generated LL 76 million in received income, with a further sum of LL 61 million expected from already approved increases, collection of which has been delayed due to the recent events forcing CAH to rely on Govern- ment advances in the meantime. The success of the decree has encouraged the Government to seek its extension for another year, beyond the closing date of December 31, 1982. - 74 - Sectoral Annex III Page 6 of
22. The CAH has a limited staff of 40 because it uses the commercial banking system as an intermediary for the collection of repayments on loans. The loan is broken up into regular monthly payments; the beneficiary then signs promissory notes which are deposited at one of a selected number of commercial banks and payments are collected through the bank. The commercial bank pays the CAH interest on accumulated collections until such time as these are transferred to the account of the Treasury at the Central Bank.
23. The operations of the CAH are more constrained than those of the HB because (i) the original decree limited its total portfolio to 20,000 dwell- ings, with further additions to be financed from the repayment of loans, (ii) it can only lend for the procurement of housing outside the municipal boundaries of Beirut, (iii) the average value of its loans is much smaller. However, there are two problems facing the CAH and which need to be resolved:
(a) At present, collected loan repayments are channelled back to the Treasury and the CAH does not have any control on the recirculation of these funds. An independent account must be created for the CAH.
(b) Some potential beneficiaries are loathe to borrow from the CAH because, by law, they are required to vacate any rented premises that they may be occupying. This would mean losing the "key" money to which they would have been entitled if evicted from the house. Considering that such key money could be equal to the total loan to which the beneficiary would be entitled and would come as grant, it is understandable why original householders would not want to borrow from the CAH. This problem would not exist if rent control were to be removed.
C. DAMAGE ASSESSMENT
Method of Assessment
24. Four different agencies the Council for Development and Reconstruc- tion (CDR), the F[OHC, the United Nations Department of Technical Cooperation (UNDTC) and the Islamic Social Welfare Institute attempted to carry out an accurate survey of the damage caused after June 1, 1982, and assess the cost of reconstruction. The method ranged from a visual survey to detailed measurements and costing. All the surveys agreed in the classification of dwellings into high, middle and low-income residences and the degree of damage as completely destroyed, severely damaged and partially damaged. The final count of damaged units is reasonably close but the costing varies considerably, depending on the estimated unit cost of construction.
25. The World Bank reviewed these estimates, undertook a limited: visual survey, and made a comparative analysis of the findings, wherever sufficient data were availabLe for such comparison. Based on these reviews, it appears that the MOHC survey gives the most accurate figures on damage since it - 75 - Sectoral Annex III Page 7 of 15 involved detailed field surveys by teams of qualified professional staff who visited every single damaged unit, measured the size of the dwelling and noted the degree of damage suffered by it. The survey was limited to recent hostilities and their side effects only. Damage resulting from the events before June 1982, was assessed on the basis of loan applications received by the MOHC. Double counting was avoided because application forms clearly indicated the location and registration number of each unit.
Estimate of the Damage
26. Table 1, below, shows the operations of the MOHC under DL 20 up to May 31, 1982, showing the number of loan applications received, those approved and their respective estimated costs. Table 2, shows the estimated damaged in Beirut and South Lebanon after June 1, 1982. To estimate the damage in Beirut and its southern suburbs, the MOHC divided the area into eight zones (IBRD Map No. 17118) and sent teams of engineers and technical assistants for a house-to-house survey.
27. Table 3 gives an approximate cost of the damage after June, 1982, based on the most reasonable average cost of construction. These figures are somewhat higher than the average cost applied by the MOHC for the following reasonst
(a) MOHC was limited by the dictates of DL 20 and such items as central heating, air conditioning, hardwood doors, aluminium windows, etc. were considered as luxury items not eligible for lending under DL 20.
(b) The building construction industry has not been very active over the last few years. An extensive reconstruction program could easily lead to a major increase in the cost of construction.
28. As mentioned above, Table 3 gives the estimated cost of the recent damage to dwellings for which no applications for assistance have yet been filed. To this cost must be added the estimated cost of the dwellings damaged earlier and estimated at about LL 1,675 million on the basis of applications received for loans under DL 20 and not included in the more recent survey (Table 1). Thus, the total cost of the damage, in 1982 prices, can be estimated as follows;
LL Million
1. Early damage, on the basis of applications submitted under DL20 loans 1,675
2. Damage in Beirut and the South since June 1982 2,920
Total 4,595 - 76 - Sectoral Annex III Page 8 of 15
Table 1; OPERATIONS OF DL 20 UP TO MAY 31, 1982
Applications Received AND Loans Approved Number No. of No. of Common Amount Regional Office Dwellings Facilities L.L. 1/ Appl/s Loans Appl/s Loans Appl/s Loans Appl/s Loans Beirut 2181 404 7379 1276 1097 124 292,132,400 13,782,500 Metn, kesrouan, Jbeil 2819 733 10743 2146 1479 179 262,470,700 31,207,300 Borj Hammoud 1446 246 7351 1333 660 118 143,716,900 6,964,900 Baabda, Chour, Chyah, Ghobeiri, Haret Horeik 4427 1124 13571 3227 1664 253 410,314,500 40,713,300 Aley 1463 401 3527 951 801 136 108,330,400 11,587,000 South 3745 59 4955 68 350 - 124,033,700 740,000 North 4488 1954 7855 3237 1052 163 219,983,800 51,909,200 Bekaa 2389 844 3426 1371 267 61 114,489,100 27,185,500 TOTAL 22958 5765 58807 13609 7370 1034 1,675,471,500 186,089,700
'Table 2: RECORD OF DAMAGED DWELLINGS SINCE JUNE 1982
Location Beirut and Suburbs South Lebanon Total 2/ H M L T H M L T H M L T
Destroyed :175 600 305 1080 220 1020 2090 3330 395 1620 2395 4410 Severely Damaged 1635 4400 2515 8550 175 801 1515 2495 1810 5205 4030 11045 Partially Damaged 2930 8170 4570 15650 90 500 1285 1875 3020 8670 5855 17545
Totals 4740 13170 7390 25300 485 2325 4890 7700 5225 15495 12280 33000
Table 3:: ESTIMATED COST OF DAMAGES TO HOUSING UNITS SINCE JUNE 1982
Degree and Estimated Cost of Damaged Housing Units (H.U.) L.L. Extent Damage Per Housing Unit Cost of Similar H.U. Totals
Destroyed H 395 500,000 197,500,000 831,437,500 M 1,620 225,000 364,500,000 L 2,395 112,500 269,437,500 Severely Damaged H 1,810 250,000 452,500,000 M 5,205 112,500 585,562,500 L 4,030 56,250 226,687,500 1,264,750 Partially Damaged H 3,020 100,000 302,000,000 M 8,670 45,000 390,150,000 L 5,855 22,500 131,737,500 823,887,500
TOTALS 33,000 - 2,920,075,000 2,920,075,000
1/ Appl/s - Applications. 2/ H - High Income; M - Middle Income; L - Low Income; T - Total
Source: MOHC - 77 - Sectoral Annex III Page 9 of 15'
D. RECONSTRUCTION AND DEVELOPMENT PROGRAM
Policy Framework
29. The Government must start addressing major policy issues such as land-use at the national level, a long-term urban development plan, a housing policy with special attention to low-income housing, gradual decontrol of rent and channelization of private resources into housing development. The CDR should play a major planning and coordinating role in setting up the long-term strategy.
30. With inputs from the Ministry of Finance, the Central Bank, and the CDR, the MOHC should organize the Housing Fund's line of credit to be funnelled through the existing banking system; setting criteria, ceilings and terms. It should also organize the expansion of the role of the Housing Bank (or other specialized institutions as may be created) to reach lower into the income distribution curve. The MOHC should also enunciate the sectoral policies to deal with the provision of serviced land for housing.
31. With the assistance of the Higher Council for Municipalities Organization, CDR, the MOHC and the MPWT, municipalities should be encouraged to undertake specific land assembly and site development projects, especially of the sites and services type. If needed, Government should explore the creation of a parastatal institution that could undertake land assembly and development projects which include housing as well as other uses. This institution could become a prime instrument for guiding urban growth and anticipating future needs.
32. In keeping with the general approach described above (para. 5-7), there should be no subsidies and maximum cost recovery should be sought. This implies that actions to ensure affordability will have to be on the level of physical standards. Interest rates should be positive, or at least non- negative, in the medium to long-term, although some limited short-term negative spreads could exist in the earlier phases of the program.
33. Municipal authorities in Lebanon have been deeply involved in all matters related to urban development and housing, from the application of zoning regulations to the issuing of building permits, the reconstruction of damaged housing and the implementation of citywide infrastructure projects. Furthermore, large tracts of communal land suitable for housing development are owned by or are placed under the jurisdiction of municipal authorities. Also, the Governorate of Beirut has prime responsibility for the reconstruc- tion of the Beirut Central District (discussed under sectoral Annex IX). The Government should, therefore, carry out a detailed study of the organizational structure of the various municipal authorities and the Higher Council for Municipalities Organization in order to streamline their operations and improve their efficiency. - 78 - Sectoral Annex III Page 10 of 15
34. In keeping with its broad commitment to ensure decent shelter for all, the Government of Lelbanon will address the question of shelter for the Palestinians on its soil in the context of: (i) the settlement of the broader question of the Palestinians in a region-wide framework, (ii) the continued role of UNRWA in discharging its reponsibilities in the region; and (iii) the reaffirmation of central government authority on regularization of status (residence papers, work permits, etc.). The formulation of an action program to deal with thei shelter problems of the Palestinians on Lebanese soil will therefore be developed independently of, but in parallel to, the present policy framework and the proposed action program for dealing with the shelter problems of Lebanese nationals.
E. 1983-85 PUBLIC INVESTMENT PROGRAM I. SHORT TERM PROGRAM
Housing Reconstruction
35. The proposed short-term program should be seen in the context of the policy framework that should generate medium to long-term perspective. It is a step to normalizing the post-war conditions to launch the medium to long-term program, and it is an immediate one-time input to alleviate the misery and hardship that the war has heaped on hundreds of thousands of individuals. There are five broad subjects discussed below.
36. The Homeless Destitute: These are squatters whose shelters have been destroyed and who basically have nowhere to go. For them, a three-step program can be envisagedz
(i) They should be moved to sites on nearby government or communal lands promptly;
(ii) tents, prefabs or other temporary facilities should be provided immediat.ely;and
(iii) ultimate upgrading of the sites, with the provision of decent shelter should be undertaken as a tranche-by-tranche servicing and upgrading operation.
3 Squatters: These are of two kinds:
(i) those wishing to return to their villages or regional residences with the advent of general security. They can benefit from the DL 20 credit line as discussed below;
(ii) those who want to stay. Until they can be absorbed in appropriate sites and services schemes under the medium-term program (para. 53), they should be made to pay a monthly payment to the state as an "enrollment fee" in the resettlement (sites and services) scheme. It should be noted that this payment is made towards participation in the sites and services scheme and, in no way creates a legal basis for the tenancy of the squatter in the presently occupied premises. - 79 - Sectoral Annex III Page 11 of 15
38. Persons whose residences have been damaged or destroyed: The key instrument for dealing with these individuals would be DL 20. It is intended that the benefits of DL 20 should be made available to as many needy persons as possible. Accordingly, amendments to DL 20 were considered by the Government. Its main provisions are the following: (i) increasing the ceiling on the loans for repairing damaged dwellings to LL 55,000 per unit; (ii) increasing the ceiling on the loans for reconstructing totally destroyed buildings to LL 105,000 per unit under specified circumstances; and (iii) facilitating the procedures for the extension of loans to tenants when the landlord fails to initiate the necessary repairs; (iv) simplifying the routine for loan processing; and (v) making it possible to extend loans for the repair of damaged housing that originally may not have been built in conformity wiht the building regulations.
39. Some of the other amendments proposed by the Bank were however not retained, though considered reasonable, because (i) reducing the interest rate subsidy by linking interest rates and income levels, taking the unit area as proxy for income level, because it was politically difficult to modify the interest rate applied in the early years of reconstruction; and (ii) extending an additional loan of LL 100,000 for the construction of an additional rental apartment free of rent control would not be practical due to the current review of the rent control law.
40. Further studies shall be undertaken to explore ways of extending the benefits of DL 20 or other laws to those beneficiaries presently ineligible to obtain assistance due to legal status of ownership or to irregularity of building.
41. Although the repair and reconstruction of damaged housing requires huge capital outlays, the MOHC had processed the sum of LL 186 million only over the first five years of the life of DL 20, or an average of less than LL 40 million a year. Taking into consideration the loans already contracted and the limitations of DL 20, the total value of expected loans under the Decree is estimated at LL 2,400 million to repair the damage to the dwell- ings. In the 1983-85 investment program, the total project cost is shown as LL 600 million only (Attachment I). This is based on the maximum capacity of the present staff of the MOHC and on the assumption that such a reconstruction program should not last more than three years to implement. It is assumed that the program will finance from government borrowings about 6000 housing units each in 1983 and 1984 and 12,000 in 1985 at an average loan of LL 25,000 per housing unit. The total program of LL 2,400 million can be absorbed if the staff of the MOHC is increased to sufficient strength.
Low-Cost Housing
42. Recognizing the need for an accelerated program for the construction of low-cost housing, the Government established the MOHC in order to cope with the shortage. It hardly started getting orginazed when the Lebanese events started. Since then, all its efforts have been diverted to the repair and reconstruction of damaged housing. All this time, the housing shortage has - 80 - Sectoral Annex III Page 12 of 15 become more acute and requires urgent attention. The Government should draw up a housing strategy that would aim at the satisfaction of demand for housing, especially for low-income families. In the light of the recommenda- tions of the studies listed under para. 42, the Government should create the conditions that would lead to the development of a low-cost housing program that would eventually cover the shortage in housing (para. 49).
Studies
43. In parallel with the short-term reconstruction program, five studies have been proposed. The first two are to provide a general physical planning framework for policy initiatives and project interventions. The other three are intended to lead to the identification and preparation of specific proj- ects that could be implemented as a medium-term program over a period of 3-8 years, starting as early as 1984. The studies cover the following:
a. Land Use Planning Study (Amenagement du Territoire)
b. Master Plan for Greater Beirut.
c. Housing Finance
d. Urban Transport for Greater Beirut
e. Land Assembly/Sites and Services Projects.
44. Land Use Planning Study; The purpose of this study is to develop an overall spatial framework for the utilization of Lebanon's limited land resources. It will be articulated at different levels:
(i) a regional level dealing with each of the four traditional regions (the Soujth, Mount Lebanon, the Bekaa and the North) separately but in a coherent and mutually supportive fashion; and
(ii) individual cities, notably Tripoli, Sidon, Tyre, Nabatiyyeh and Zahle.
The level of detail and specificity will naturally vary with the scale of the level being considered. The cost was estimated at LL 12 million.
45. The study can be broken up into separate studies each covering one or more of the levels, regions and cities. It is recommended that work start most urgently on the Master Plan, for Greater Beirut with a simplified "first cut" at national/regional data analysis using Landsat techniques. The Greater Beirut master plan would be essential to provide the framework for the proposed Land Assembly/Sites and services projects as well as for the proper integration of land use and transport planning. This study would cost LL 5.0 million.
46. The other three studies are described below in the context of the projects they are intended to prepare. - 81 - Sectoral Annex III Page3of
II. MEDIUM-TERM PROGRAMS
47. As mentioned under para. 41, five major studies will be carried out under the 1983-85 program, three of which are directly intended for preparing future projects that could be developed and implemented under the Medium-Term Program. These projects are the following:
a. Housing Finance Project.
b. Greater Beirut Urban Transport Project.
c. Land Assembly/Sites and Services Projects.
Draft project briefs for the three projects and terms of reference for the three related studies have already been prepared to expedite commencement of the studies as soon as possible.
48. The Housing Finance project could be developed very rapidly, as early as 1984. Its objectives would be to mobilize resources into a sound financial framework that would provide the poor with access to housing finance. It is expected that the preparation of the other two projects could be completed in about 12-18 months and the projects could be implemented over a period of three to eight years. The Urban Transport Study will be linked to the Transportation Master Plan of Greater Beirut as well as the Reconstruction Plan for the Central Business District. In particular these studies will address the subjects shown below.
Housing Finance
49. This medium-term project would be a housing finance project, to provide the poorer with access to housing finance, using the two existing housing banks, the HB and the CAH as financial intermediaries. The main objective of the project would be to improve the ability of the HB and the CAH to.
(a) encourage private developers to produce and market low-cost housing units affordable to the lower half of the income distribution curve; and
(b) mobilize and direct housing finance to these income groups.
50. The project would provide a line of credit to be channeled through the HB and the CAH to finance housing construction projects meeting various criteria. It would also include a technical assistance component to streng- then the HB and CAH. Given that HB and CAH are located in Beirut, their intervention could initially focus on low-cost housing programs in the capital and immediate suburbs, respectively, with future extension of their field of activity to the rest of the country. For 1983-85 it was assumed that the program would finance about 4,000 housing units in 1983, 5,000 in 1984 and 6,000 in 1985 with an average loan of LL 100,000 per housing unit, with a total estimated of loans amounting to LL 1.5 billion (Attachment I). - 82 - Sectoral Annex III Page 14 of 15
Urban Transport
51. As a result of the eight-year war, which completely destroyed the Central Business District of Beirut, secondary growth poles have flourished, creating new centers of density and congestion. The objectives of the proposed Urban Transport Project for Greater Beirut will be to:
(a) set up or strengthen institutions responsible for urban transport planning and management;
(b) establish or strengthen links between the transport sector and overall urban planning and management;
(c) introduce systematic methods for analyzing, selecting and programming transport projects;
(d) update the existing urban transportation Master Plan of Greater Beirut;
(e) improve existing system performance by:
(i) introducing traffic management programs; (ii) im-provingdamaged roads; and
(f) implement civil works projects that may be necessary to improve traffic flow and provide parking facilities.
52. It is expected that several grade separations, similar to the ones at Ghobeiri, Borj Hammoud and Nahr El Maout will be required at major intersec- tions. It will also be necessary to build multi-storey parking facilities in the newly developed commercial centers to liberate the city streets to traffic. The cost of these projects will depend on the results of the study and is estimated at LL 200 million to be disbursed in 1983-85. A further sum of LL 75 million would be required for the repair of existing traffic lights at 75 intersections, installation of lighting systems at 75 additional intersections and repair of about 160 km of damaged city streets.
53. Public bus transit is operated by a state company only in Greater Beirut. Interurban services are provided by private operators. The two main garages in Beirut have been extensively damaged and the machine tools stolen. Rectonstruction is urgent in order to create satisfactory working conditions for bus maintenance, and to permit delivery of 165 buses now in France ready for shipment. A further 25 buses were burned and should be replaced. The total cost of th,e program is estimated at LL 8.2 million in 1983-85.
Land Assembly/Sites and Services
54. As indicated in para. 2, the housing shortage was estimated at 150,000 units in 1974 and could attain 400,000 by the year 2,000, or an esti- mated annual deficit of about 10,000 units. This would indicate a shortage of - 83 - Sectoral Annex III Page 15 of 15 about 250,000 units by the year 1985 and 300,000 by 1990. With a maximum possible construction intensity of 200 dwellings per hectare, there would be need for 15,000,000 sq. m. of serviced land by 1990. Clearly the location(s) of such land and how it will relate to the existing and proposed land uses and to the existing urban fibre are questions that must be determined in the light of the Land Use Planning Study (paras. 43 - 45 above).
The objectives of the Land Assembly/Sites and Services project would be to:
(a) undertake studies leading to the identification of land suitable for residential development;
(b) facilitate open market purchases of small parcels of land in critical areas;
(c) provide financing for infrastructure and through the sale of land to high- and middle-income families at a profit, create subsidies for the sale of serviced lots to low and moderate income households;
(d) maintain an inventory of serviced land that could be available for development on short notice; and
(e) support administrative operations, planning and management.
55. The development of serviced land by the Government would result in guiding the pattern of urban growth, limiting speculation in land, providing a more efficient pattern of land use, and ensuring adequate land for sheltering the poor. The sale of such serviced land at a reasonable rmarket rate could leave the Government with a substantial profit on the cost of land and infra- structure which could be channelled towards ensuring the availability of low-cost housing for the poor.
56. Assuming that the total area of serviced land to be developed by 1990 is 1,500 hectares, and that a third of this land would be developed by the private sector, the Government must provide the means for the acquisition and development of the remaining 1,000 hectares. Furthermore, it may be assumed that 50% of this land will be government-owned or communal land which could be acquired at no cost to the Government. The capital outlay that would need to be made by the Government would, therefore, be LL 1.0 billion, of which LL 500 million would be the cost of acquiring 500 hectares of land (at LL 100/m2) and the remaining LL 500 million would be the cost of infrastructure (at LL 50/m2). Fifty percent of the land would then be sold to high-income families at a profit and the balance sold to low-income families at a subsidized rate, enabling the Government to recover both the cost of its own lands and the financial investment incurred in developing the land. It was assumed that LL 450 million would be disbursed in 1983-85 (Attachment I). - 84 - Sectoral Annex IV Page 1 of 10
THE PORT SECTOR
A. DESCRIPTION OF SECTOR
General
1. The coast of Lebanon extends for about 200 km in a north-south di- rection. It has few natural harbours; all ports have to be provided with ar- tificial protection. Main ports before 1974 were Beirut and Tripoli. Beirut is midway between the northern and the southern frontier and serves an area with about 50% of the totaL national population. In normal circumstances, the port of Beirut handles all kinds of cargo either for the industries in the Greater Beirut area or for transit to other countries, with a major free zone; the Port of Tripoli handles mainly bulk and industrial cargoes. Altogether, these two ports, which served 86% of the industrial establishments of the country, handled some 85% of traffic of public ports before 1974, that amounted to some 5.0 million tons.
2. Other ports were either small public ports, the largest of which is Sidon, 50 km south of Beirut; or private ports serving industrial facilities and handling bulk cargo such as chemicals or cement. Altogether, total traffic was of the order of 1.5 million tons. Under normal circumstances, in 1974, traffic of all Lebanese ports was some 6.5 million tons; it roughly doubled from 1967 to 1974.
3. The war, civil strife and foreign occupation changed this pattern. While the traffic of traditional ports declined or fell to zero, new ports ap- peared, that have not always been under central government control. There are no statistics of traffic. It is however known that Jounieh, for example, 20 km north of Beirut, a small port for naval and pleasure craft, handled up to 400,000 tons of cargo in 1976, which were diverted mainly from Beirut. Sidon went up from very little traffic in 1975, to 0.5 million tons in 1976, then declined. Altogether, traffic at all Lebanese ports may have been some 60% of prewar traffic; of course, not all goods unloaded were commercial cargo. Table 1 gives traffic figures at Beirut Port for years 1974-1982.
4. Even before the events mentioned in the preceding paragraph, the port system of Lebanon was operating under considerable pressure. Only two ports, Beirut and Tripoli, had the necessary facilities to enable ocean-going vessels to enter and berth alongside. In other ports, ships had to anchor outside and off-load to lighters. There were ships waiting for berths at Beirut, and con- gestion ashore. However, it is not easy to interpret the prewar traffic fi- gures; Beirut is at the center of a complex system of sea and land routes; traffic at this port is affected by events that may take place at a consider - 85 - Sectoral Annex IV Page 2 of 10 able distance, such as congestion in Persian Gulf ports, or closure of an in- ternational waterway, or changes in condition of international highways in neighbouring countries, etc.; these events may be temporary or take place at irregular intervals. Since Beirut plays a traditional role as a transit port for the Middle East, its traffic may be affected by such events.
5. One should not, however, exaggerate the importance of Beirut and Tripoli as transit ports; the development of ports in other countries caused a decline of their transit traffic. In Beirut, for example, it was 0.9 million tons in 1970 (32% of traffic) and 1.0 million tons in 1974 (27% of traffic). In other terms, it stagnated in absolute terms and declined in relative terms. In 1977, it fell to 13% of total traffic. While some of the transit traffic had been diverted to illegal ports on the coast, the closure of the frontier between Iraq and Syria, and the diversion of exports of Jordan phosphate from Beirut to Aqaba (a diversion which is now permanent) were also among causes of the decline in traffic. Both causes are significant examples of the outside forces that influence traffic in Lebanese ports.
6. It is therefore mainly the future of the Lebanese economy that will dictate the future of Lebanese ports. In the past (1966-73), the rate of growth of traffic was faster than GNP growth; imports growth rate, for example, was 30% over GNP growth rate; this is significant, since imports are 80% of traffic at Lebanese ports. Traffic is likely to increase much more during the reconstruction period. The pattern of future traffic will also be influenced by technology changes, such as the development of containerization; while con- tainer traffic is still modest, it is increasing rapidly; for example, between 1973 and 1975 it increased sixfold.
Facilities
7. Both Beirut and Tripoli are typical Mediterranean ports, originally established in a cove of modest dimensions, more or less naturally protected; they could develop only behind the protection of lengthy (and costly) break- waters, and roughly following a narrow, overpopulated and congested coastline.
8. Beirut port is thus formed by three docks extending from west to east and protected by a continuous breakwater. While quay length (4000 m) is im- pressive, land space is, by modern standards, limited, especially since the port limits comprise a bonded free zone where cargo is stored for long pe- riods. Work has started on a fourth dock, where a container terminal is being built. The tranche under construction, once equipped, would handle traffic until 1990, that is about 6.5 million tons, of which 2.0 million would be con- tainerized.
9. Tripoli is a much more modest port, with 700 m of quay length along- side a mole protected by a continuous breakwater. Depth (8 m) is insufficient in the access channel and alongside, a major deficiency since this port - 86 - Sectoral Annex IV Page 3 of 10 handles mainly timber and other bulk, that are carried more economically by large vessels. ]f Tripoli is to handle its projected traffic of 1.3 million tons in 1990, development is urgent.
10. Other ports consist of modest facilities. However, a project to de- velop Sidon as a major port exist; a feasibility study has been conducted, on the invitation of the private sponsors of the project. It is not certain that the project would be economically viable at present level of traffic; it needs to be reviewed in the context of overall planning for port development in Lebanon.
Traffic Operations and Financial Situation
11. Traffic at Beirut was 2.5 million tons in 1981 (see table below), 39% below the peak of 1974. It has dropped further in 1982 in connection with the hostilities; traffic for the third quarter of 1982 was 46% lower than that of the same period of the previous year and totalled 1.9 million tons for the year, following a swift recovery over the last three months. This evaluation partly reflects the deterioration of the national economy, diversion of traffic to illegal ports and the loss of most transit traffic, once a dynamic component of the port traffic (almost 1 million tons in 1974). Under normal circumstanoes, Beirut should regain rapidly its 1974 traffic, with container traffic developing at present a modest rate (in 1981, about 17,000 container boxes were discharged representing 183 thousand tons of cargo) which will be boosted when the new container terminal at Dock 4, financed so far from Arab resources, is completed and equipped.
Table I: TRAFFIC AT PORT OF BEIRUT
of which Actual Traffic Number of Cargo Tonnage Transit/ in % of 1974 Year Ships Entered ('000 tons) Free Zone Traffic
1974 3,612 4,080 978 100 1975 2,859 2,829 914 69 1976 1977 2,783 2,187 267 63 1978 1,875 1,801 212 44 1979 2,257 2,600 152 64 1980 2,732 2,980 217 74 1981 2,095 2,483 188 62 1982 1,476 1,540 100(?) 46. (10 months)
Source: CGEPB - 87 - Sectoral Annex IV Page 4 of 10
B. INSTITUTIONAL ASPECTS
General
12. There is no system of public ports in Lebanon, but a great diversity of arrangements, a weak governmental presence and a dispersion of respon- sibilities. This situation proved flexible in the past; it does not seem well adapted now. The main issue is to retain the benefits of the present arrange- ments while streamlining them for better control.
Port Planning
13. There was no overall port planning before 1975. Since then, however, the Port Commission of the Council for Development and Reconstruction (CDR) has started to put together ideas on future port development. It has in its hands (i) a 1978 study of Lebanese port and coastline covering the period to 1990; (ii) an updated 1974 Study for development at Tripoli; and (iii) a detailed 1979 study of the Port of Beirut. All these documents constitute a good basis for future projects. Detailed engineering is, however, outstanding on most items of such projects.
Port Ownership
14. Being part of the public domain, ports in Lebanon are built by and belong to the State; the Ministry in charge is the Minister of Public Works and Transport (PWT) which, therefore, provides marine services (traditionally a government activity) and harbour master services. However, the control of the construction of the container terminal and of reconstruction works at Beirut is presently entrusted to CDR. CDR has therefore started to develop a small port engineering unit under its Commission Portuaire.
Port Operations
15. Port operations are conducted by the private sector. In Beirut, the Compagnie de Gestion et d'Exploitation du Port de Beyrouth (CGEPB) is in charge; it operates all cargo handling, storage, grain handling, etc. in go- vernment-owned facilities and with government-owned equipment; in Tripoli dif- ferent users rent transit sheds and warehouses and operate cargo handling. All are operating under licenses (cahier des charges), as public utilities.
Port Administration
16. Given the organizational set up, the role of the Government is basically one of overall control. At Beirut, the CGEPB is controlled, as a public utility, by the Ministry of Hydraulic and Electric Resources (MHER); the control is oriented towards financial rather than operational control, since CGEPB collects revenue on account of Government (para. 17). At Tripoli, there is some kind of port authority, with a board and a budget, but government control is strict, and autonomy therefore limited. The distribution of control between two Ministries (PWT and MHER) and CDR is not conducive to development of a national port policy. - 88 - Sectoral Annex IV Page 5 of 10
Port Finance
17. At Beirut, all port revenue is collected by CGEPB, which has a cost plus fee contract; the fee is a percentage of gross port revenue. As a result, CGEPB does not lose money, but is also not discouraged to perform when the port runs at a deficit, which is the case now Table II below. When the port makes a surplus, which was the case before the events, all such surplus is earmarked for port development and procuring equipment; altogether, it seems that the Port of Beirut self-financed its development until 1975. By com- parison to other ports in the region, this is an excellent result. However, this is only an estimate. There is no balance sheet describing the government's assets and liabilities in the Port of Beirut; there is only a traditional government type cash account.
Table II: BEIRUT PORT - FINANCIAL SITUATION (at current prices)
Treasury Year Revenue Expenses Deficit Cumulative Advance (million LL)
1975 51.4 56.1 4.7 - 1976 8.5 30.7 22.2 26.9 1977 22.2 38.4 16.2 43.1 20.0 1978 31.7 50.6 18.9 62.0 38.0 1979 42.6 71.4 28.8 90.8 10.0 1980 62.9 102.2 39.3 130.1 10.0 1981 60.7 119.3 58.6 188.7 38.0 1982 64.6 N.A. - - (10 months)
Source: CDR and CCEPB
18. The Port of Beirut has been in deficit since 1975; accumulated def- icits amount to LL 188.7 million; tariffs have been increased and advances have been granted by the Treasury to the account of the Concession. Table II summarizes the firnancialsituation at Beirut Port.
Conclusion
19. There is no doubt that despite the need to strengthen the organiza- tion, all those iinvolved in port administration have, over the years, per- formed their functions well given the circumstances. The Port of Beirut was kept open whenever possible; the private concessionnaire showed considerable sense of public service. In this he was helped by the fact that all financial losses, in accordance with legislation, were supported by the Treasury; if it - 89 - Sectoral Annex IV Page 6 of 10 had not been the case, he might have given up, at heavy losses to the economy and to the morale of the country. At the same time, CDR has monitored the Master Plan of Beirut Port (in cooperation with the Bank), the UNDP-financed Lebanon Coastal Study as well as the updating of the Tripoli Port Development Project, both assignments being undertaken by well-known international con- sultant. It has also drafted and reviewed, with the Bank's participation, a new port legislation. Some training, financed from the first Bank Reconstruc- tion Project (Loan 1476-LE) and from bilateral sources, was provided to staff from the AMHER,who supervise the concessionnaire, either at the Port of Le Havre (France) or the Port of Antwerp (Belgium). Tender documents and terms of reference were prepared. The port subsector is therefore, maybe more than some others, ready for reconstruction and development.
20. Port management could be improved at little cost. It is certainly necessary to let the private operators continue to operate cargo handling and other activities, with their own equipment. However, planning, ownership of infrastructure, development, marine and harbour master services, and control of users should be under one authority, in one single ministry, with a se- parate budget, a board of management and a chairman. The organization need not be large; indeed, existing staff at CDR, MHER and PWT should suffice du- ring a first stage. Training will be necessary, as well some technical advice.
C. DAMAGE ASSESSMENT
21. At the Port of Beirut, infrastructure remained unaffected by the war while all superstructures such as sheds, warehouses, cargo-handling equipment, workshops, telephone and power lines were either destroyed or severely dam- aged, particularly between March and October 1976. After a period of relative peace and partial reconstruction in 1977-78, additional damages were caused sporadically. The hostilities of the summer of 1982 affected the Port of Beirut, which was shelled and used for military purposes.
22. At present, the Port of Beirut operates mainly with that part of the superstructure which was rebuilt in 1977, with World Bank and USAID financ- ing. Damages to that infrastructure have been limited. Among the Bank fi- nanced transit sheds, some were shelled; they have been repaired or scheduled for repair in the near future. One of the sheds financed by USAID was burned. In any case, these are temporary sheds that will need to be replaced in due course.
23. Total damage is estimated at;
LL Million (1982 prices)
1975-76 57.6 1978 8.6 1981 2.5 1982 3.0 71.7 _ 90 - Sectoral Annex IV Page 7 of 10
However, the assessment of the damage is somewhat an academic exercise, because, firstly, the value of the port's assets have not been depreciated and so any balance sheet and record of assets is but an approximation; secondly the losses suffered by the economy through pilferage and damage to cargo and goods, estimated at about LL 3.0 billion is not included in the present assessment and thirdly and most significant the ports of Lebanon need be modernized and rebuilt with all facilities for the needs of the future. Reconstruction costs will require the inclusion not only of the rehabilitation costs but the costs of improvements and development.
24. Damages at Tripoli and Sidon have not been assessed. From an earlier assessment in November 1980, it appeared clear that the Tripoli Port needed major rehabilitation.
D. RECONSTRUCTIONAND DEVELOPMENT PROGRAM
General
25. CDR prepared the outline of a reconstruction and development program for Beirut Port (IBRD Map No. 17001). It aims at permitting it to handle the expected traffic if normal conditions prevail and to accommodate the increas- ing roll-on/roll-off and container traffic. The program is in accordance with the master plan for the Port of Beirut, prepared by internationally-known consultants in 1978.
26. The program includes at Beirut:
1) (Refierence item only), procurement of cargo-handling equipment and reconstruction of 50% of transit sheds destroyed. This is completed and was financed by the Bank and USAID.
2) First priority at present: paving for container handling at Pier 3, construction of a workshop for maintenance of cargo-handling equipment, additional cargo-handling equipment, machine tools, maintenance equipment, rehabilitation of utilities. Para. 32 gives the status of execution of these first priority items.
3) Second priority: floating equipment, including a 1200 hp tugboat, telecommunications equipment, a tranche of construction of ware- houses, completion and equipment of container berth.
4) Third priority: warehouses, office space and equipment.
5) Fourth and fifth riori:; specialized storage facilities and of- flce space.
6) Sixth priority: Further extension of Beirut Port by constructing Dock 5. - 91 - Sectoral Annex IV Page 8 of 10
27. The priorities in paragraph 26 are only broadly defined. First priority (subpara. 2) items do not appear open to question. Of special im- portance is the completion of the container terminal at Dock 4. This has been financed from the Arab Fund for Economic and Social Development and the Abu Dhabi Fund for some US$30 million equivalent, but there is a financing gap estimated at present at some LL 200 million or US$5O million equivalent, in- cluding equipment. (US$1.0 = LL 4.00)
28. Tripoli is at present congested and loses traffic to foreign ports. It is necessary to rehabilitate, modernize and expand the port; the program proposed is as follows;
Phase 1 Dredging of channel and turning circle. Rehabilitation of quay wall, revetments, and utilities. Demolition of out- dated transit sheds and erection of new ones. This would permit handling a modest increase in traffic, and, mainLy to operate the port under much improved conditions. Cost is estimated at LL 90 million, of which LL 68 million would be foreign exchange.
Phase 2 Construction of a new dock, with an increased depth, and equipment. This would accommodate an 80% increase of traffic. Cost would be some LL 240 million, of which LL 136 million would be foreign exchange.
Phase 3 Further development for increasing capacity at a cost of LL 76 million, of which LL 26 million would be foreign exchange.
29. The other ports are certainly in need of rehabilitation, but the vol- ume of works is not known.
E. THE 1983-85 PUBLIC INVESTMENT PROGRAM
30. Phases I and II of the Port Reconstruction Program estimated, in 1982 prices, at LL 628 million would disburse LL 393 million (Attachment I) over the period 1983-85 for the Rehabilitation and extention works in the Beirut Port including outstanding works for the Bank First Reconstruction Program and completing the studies for the Tripoli Port and commencing its rehabilitation.
(a) Reconstruction Phase I
31. The status of main First priority items to be financed from remaining funds allocated to the port component of the first Reconstruction Project (Loan 1476-LE) is as follows (as of February 1983);
(i) Tender documents for paving works at Mole III await CDR's approval before calling tenders. - 92 - Sectoral Annex IV Page 9 of 10
(ii) the draft contract for a local consultant to prepare plans and tender documents for construction of the workshop is with CDR f or approval.
(iii) tender documents for cargo-handling equipment are ready for CDR to review and take further action.
32. Total cost of phase 1 in 1982 prices will be LL 64.2 millionl/ with foreign exchange cost estimated at LL 43 million.
(b) Reconstruction Phase 2
33. The Second Phase of the Reconstruction to be financed under the 1983-85 investment program include:
(1) first priority items not yet financed mainly covering rehabili- tation of utilities, workshop and maintenance equipment;
(2) floating equipment;
(3) erection of warehouses and storage sheds;
(4) cargo-handling equipment;
(5) clearance oiE wrecks at Dock No 1;
(6) final engineering of the Tripoli Project; and
(7) technical assistance, design and supervision.
In 1982 prices, total cost of phase 2 is LL 113.8 million with foreign exchange cost of LL 43.0 million.
(c) Containe!r Termina L
34. Ongoing works at the container terminal in Beirut will cost a total of LL 49.3 million. Further works needed to complete the terminal include. (i) paving of the stacking yard and of the circulation areas; (ii) con- struction of a consolidation shed, a workshop and administrative buildings. Equipment of the terminal would include gantry cranes and rubber-tyred yard stacking gantry cranes plus ancillary cranes, tractors and trailors. In 1982 prices, costs for civil works and equipment are estimated as LL 76.3 million and LL 102.1 million respectively.
1/ This amount does not contain the price contingencies of LL 10.1 million. - 93 - Sectoral Annex IV Page 10 of 10
F. TECHNICALASSISTANCE
35. Some technical assistanceand training will be necessary (i) for the benefit of the civil servants from PWT, MHER and CDR who are at present su- pervising the port sector; and (ii) for staff directly involved in operations, mainly from the CGEPB to familiarize themselves with container terminal op- erations. Most trainingwould take place in Lebanon and technical assistance would be provided by local and foreign experts and are included in the respec- tive estimated costs. - 94 - Sectoral Annex V Page 1 of 12
THE POWER SECTOR
A. DESCRIPTION OF THE SECTOR
Background
1. Electricite' du Liban (EDL) is an autonomous state owned entity, under the tutelage of the Ministry of Hydraulic and Electric Resources (MHER). EDL was formed in 1954, when the Government acquired for LL 20 million, the Franco/Belgian owned company which supplied and distributed electricity to the Beirut Region. Initially run by MHER, it became effectively autonomous or an "Etablissement Public A caractere Commercial et Industriel" in 1962. EDL's capital remains at LL 20 million.
2. EDL is responsible for the generation, transmission and distribution of electricity throughout Lebanon, with the exception of 5 small "conces- sions", all of which are due to run out by 1990. These concessions, which have a total thermal generation capacity of 60 MW, are at: Kadisha (Hreichah 44 MW, Bahsas 2 MW); Jbe.Ll (Chekka 7 MW); Zahle (7 MW); with distribution of sections at Aley and Bhamdoun. All five concessions distribute electricity under their own tariffs within their own concession areas, and all buy bulk electricity from EDL. Theoretically only EDL is permitted to build additional generation units, but Kadisha plans to increase its Hreiche station by 70 MW in 1984. This proposed addition has been included in the overall system planning for Lebanon. Some of the larger hydroelectric stationsL/ do not belong to EDL but, since they sell all of their generation to EDL, are considered as part of the EDL system capacity.
3. EDL has continued to generate necessary supply from its power sta- tions, despite difficulties in transport, supplies and communications that have been caused by the events in Lebanon since 1975. Except for 1976 and 1982, the years when foreign forces entered Lebanon, the energy generated in Lebanon has increased annually and in the 4 years from 1977 through 1981, Giga watt hours (Gwh) generated increased at an average annual rate of nearly 14%, from 1839 Gwh to 3083 Gwh. The peak maximum demand also increased by an average of over 12% annually in the same four years. Generating stations happily have suffered no serious damage during the years of disturbance, but this does not detract from the achievement of the EDL staff in being able to move such a significant annual load growth under such difficult operating conditions. In the same period the construction of 3 x 69 MW units at Jieh, and the 230 KV interconnection with Syria and the Nord Substation were also completed. Generating capacity in Lebanon totals 745 MW, of which the con- cessions own and operate 60 MW.
1/ Litani river stations (154 MW), Nahr Ibrahim (32 MW), Nahr el Bared (17 MW). - 95 _ Sectoral Annex V Page 2 of 12
4. EDL has two main thermal stations at Jieh, (330 MW oil fired steam units,) and at Zouk Mikael (30 MW oil fired steam) and four gas oil turbine units generating about 80 MW. Some 245 MW of hydro electric generation capacity is installed in Lebanon, including 219 MW in 10 stations which EDL owns or buys the whole output, and 26 MW in 6 stations operated by the con- cessions. In addition 60 MW of thermal generation is operated by the con- cessions. The generation capacity mix in Lebanon is therefore about 56% oil/steam thermal, 11% gas oil turbine and 33% hydroelectric. The gas oil turbines have however been running some 3700 hours each in 1981.
5. Transmission is over an integrated grid, mainly 66 KV, which is interconnected in the North to the Syrian grid through a 230 KV line from the border at Deir-Nouba to Nord Substation (see map IBRD No. 17084). The onward transmission South from Nord to Bsalim is at 150 KV. A further 66 KV inter- connection with Syria is also available in the East at Anjar. The basic 66 KV overhead system runs North along the coastal plains from Tyre to Tripoli. It then swings inland to Al Qubayyat. The line also runs East from Tyre to Tibnin, and then North along the Bekaa valley to Al Hirmil. Al Qubayyat and Al Hirmil are expected to be interconnected in early 1983 thereby completing the outer ring of 66 KV system. Two cross connections between the coastal line and the parallel Bekaa line already exist. These join Sidon to Abdel Al and Jamhour to Zahle. L/ A double 150 KV overhead line joins Jieh generating station in the south to Jamhour and Bsalim substations near Beirut. The. line then runs North (to the East of the 66 KV line) directly to Nord substation.
6. In smminary therefore the transmission system comprises:
Capacity Length Circuits Overhead or Underground
230 KV 32 Km single OH21 Border - Nord 150 KV 26 Km double OH Jieh - Jamour 92 Km single OH Beirut - Nord 11 Km single UGI/ Beirut area 66 KV 610 Km single OH Main ring 10 Km single UG Beirut area
Subtransmission is at 33 KV and 11 KV and distribution is mainly at 130 V although conversion to 240 V is underway in the Beirut area.
7. EDL's 550,000 billed consumers are mainly in the greater Beirut area (400,000). The rest are to the North (70,000), the East (40,000) and the
1/ Jamhour to Zahle is currently, because of political events, out of opera- tion, so EDL cannot use its Litani hydroelectric generation for Beirut.
2/ OH - Overhead
3/ UG - Underground - 96 - Sectoral Annex V Page 3 of 12
South (40,000), although billing in the East and the South has been greatly disrupted by the recent events.
8. EDL's 3090 employees (a ratio of 1: 178 consumers) are divided up into:
Engineers and senior technicians 540 Senior and Middle Management 100 Semi or Unskilled Workers - Engineering 1720 Semi or Unskilled Workers - Administration, Meter readers, billing, accounting 730 Total Employees 3090
B. INSTITUTIONAL AND FINANCIAL ASPECTS
9. Despite its technical achievements, EDL's financial results since the events of 1976 hiave shown increasing losses (see Tables 1 to 4 for details) even with depreciation calculated on historically valued assets. The last finalized accounts (1979 and 1980) showed losses of LL 18 million and LL 46 million on billings of LL 216 million and LL 323 million respectively. EDL is expected to have operated at a substantially greater loss both in 1981 and 1982, despite a government subsidy on the ex-refinery price of fuel oil and gas oil paid by EDL in 1982 equivalent to 29% and 20% of the respective re- finery prices.
10. Electricity tariffs were increased by 30% on March 1, 1982 and again by a further 33% on September 1, 1982. The full benefit of these increases will only be felt by EDL in 1983. The average cost of electricity (after these increases) is currently 37.5 piastres/KWL (9.4 US /KWH). EDL can break even in 1983 at the current tariffs, provided thefts of electricity are re- duced from the 1981-82 levels of about 30% of generation down to the still high, but budgetted level of 18%. This objective is, however, probably over ambitious.
11. In 1981 EDL could not bill 895 Gwh, i.e. 34% of the Gwh generated. Thus with its normal average line losses at 12%, EDL was only able to bill 54% of its 1981 total generation. This "generation gap" constitutes EDL's major problem, and is a function of the insecure conditions that were prevailing in Lebanon generally in 1981 and 1982. The value of the electricity stolen or not billed was about LL 200 million in each of the two years. EDL can not sustain such losses financially and the level of thefts and non-billing need be reduced by at least 50% by mid 1984. The alternatives are either a sub- stantial tariff increases, which would be inequitable and unacceptable to the legal consumers; or an additional subsidy by the Government. Such a solution would divert scarce government funds from productive reconstruction. The mission recommends therefore that EDL and the Government discuss means whereby the Government can support and reinforce EDL's existing measures to cut down and reduce illegal connections. One such method that could be considered by the Government would be for appropriate government agencies to notify EDL of the names and locations of all applicants for building permits, damage repair - 97 - Sectoral Annex V Page 4 of 12 loans or other activities relating to property. EDL could then intervene to either carry out a legal connection or collect any outstanding arrears. The Government agencies could then require evidence from the applicants that they have straightened their client supplier relation with EDL, before their appli- cations could be processed further. Improvement in this situation even in Beirut alone for the present, would provide a very great benefit to EDL's financial position.
12. Assuming that the Jamhour/Zahle line is reconnected early in 1983, thefts are reduced to about 18% and load growth is about 15% annually, which is the forecast of EDL, a modest tariff increase of about 10% would enable EDL to break even and to dispense with fuel and gas oil subsidy by 1985.
13. EDL's development program for 1983 through 1985 is estimated to cost LL 1416 million in 1982 prices (Table 1 and para. 18). The load for 1983 through 1990 is estimated by EDL to grow at between 15% and 10% annually. Under present circumstances a detailed load forecast is impracticable, and the above estimate is based on the achieved average growth of 14% throughout the relatively calm years of 1976 through 1981. Prior to 1975 annual growth was at about 10%. The proposed increased generation capacity would be required to meet the 15% growth estimate (chart 1) and EDL is likely to experience capacity difficulties until Zouk II first unit comes into operation in early 1984. No least cost comparison for this program has been made but, since Lebanon has no coal, the only alternative to he proposed solution would be a dependence on imported power from Syria, with whom Lebanon presently only has an agreement for the mutual exchange of electricity. The rest of the 1983-85 construction program comprises LL 203 million for transmission and LL 249 million for distribution. War damage reconstruction estimated by EDL at LL 241 million is not included in the above program.
14. EDL has no direct access to the money markets and all of its financ- ing is obtained through the Council for Development and Reconstruction (CDR). The CDR has received various loans from the European Investment Bank (EIB), part of which have been allocated to EDL for their construction program. The final tranche of ECU 5 million (LL 17 million) for the completion of Zouk II phase 1 is currently under negotiations. A sum of LL 2,495 million in grants over the period 1983 through 1988, was included by the Government in its 1983 budget for financing EDL's capital construction program. Of this amount LL 1125 million was included for 1983 through 1985 in tranches of LL 280 million, LL 390 million and LL 455 million respectively.
15. EDL accounts separately to the MHER for all expenditure against its capital budget, so EDL's balance sheet excludes work-in-progress. For the purposes of this report, however, capital expenditure has been included in an overall provisional EDL financing plan for 1983-85. This plan (see table below) indicates a total financial gap of about LL 500 million, which does not include the LL 241 million representing the cost of damage (para. 16). - 98 - Sectoral Annex V Page 5 of 12
LL Million A. Cap.tal Budget for 1983-85 Construction Program _ 1416 Financed by: Consumers Contributions 201 Government Grants 1125 EIB final tranche for Zouk II 17 Total financing available 1343 Capital Financing Gap 73
B. Operating Cost Requirement Increase in Working Capital 891 Less: Cash generation by EDL 672 Net working capital increase 219
C. Cash Shortage Est-mated cash deficiency (Dec. 31, 1981) 108 Operating cost requirement 100 208
D. Total Financing Gap 500 If assumptions on theft and consumers accounts are not effected, the additional working capital support, would be approximately; (a) Thefts continue at 1981 level 500 (b) Delinquent accounts at 1981 level 100 600 Total Gap 1100
C. DAMAGE ASSESSMENT
16. EDL has sustained material damage to its transmission and distribu- tion systems and to their respective substations, transformers and meters. No significant damage has, however, been sustained by the generating stations. EDL's estimate of the cost of rectifying the damage is LL 241.5 million (in 1982 prices) made up as follows:
LL Million Distribution, Consumers meters and Connections 20 Main Substations 10 Distribution Substations and transformers 57 HV Transmission Lines 15 MV Transmission Lines and Cables 65 LV Lines and Cables 46 Buildings 2.5 Stocks and spares stolen or destroyed 8 Vehicles 18 LL Million 241.5
1/ Does not include price contingencies. - 99 - Sectoral Annex V Page 6 of 12
17. USAID is considering financing the equipment EDL has listed to be most urgent.
D. RECONSTRUCTIONAND DEVELOPMENT PROGRAM
18. EDL's development program for 1983-88 includes the completion of the ongoing turnkey contract with GIE of Italy for the construction of 3 x 145 MW units at Zouk. This contract is about 6 months behind schedule, and the first unit is expected to become operational in early 1984 followed by the others at 6 monthly intervals. This small delay is not expected to cause undue strain on existing generating capacity. Other work in progress also includes the 150KV Zouk/Bsalim line (completion 1983). The program also includes Zouk second phase of 3 x 150 MW fuel oil/steam units for completion in 1988-89. Offers have been invited for 3 units of between 140 MW to 170 MW each and award of contract is expected in November/December 1983. Offers for the "Sealine" oil link for Zouk are also expected in June 1983 since completion is needed by June 1984 when Phase I Second unit comes into operation. The program for 2 x 250 MW units, for the North Station, to be located on the coast near Tripoli, is expected to start in 1985.
E. THE 1983-85 INVESTMENT PROGRAM
19. EDL is implementing a generation development program estimated to cost in 1982 prices LL 3,161 million (Table 1) out of which LL 964 million is expected to be disbursed during the years 1983-85. The 1983-85 program will also include: (a) LL 241 for reconstruction and repair (para. 16); (b) LL 203 million for a 3 year transmission program including two 150KV lines (Zouk/Bsalim for IOKM and Zouk/Jamour for 20KM and improvements to the network of GGKV lines; and (c) LL 249 million for a transmission system program. (See IBRD Map 17084).
F. TECHNICAL ASSISTANCE
20. In February 1968, EDL signed a "Convention Gdn4rale de Coop6ration" with Elctricitd de France (EDF), to cover studies into organizational, admin- istrative, economics and accounting problems. This general agreement is still in force, and in 1977-78 EDF undertook the following studies;
Report Due
a) Generation Capital Program August 1977 b) Transmission Capital Program 1985-90 1978 c) Organization 1978 d) Electricity Laws and Regulations 1978 e) Financial "Plan Comptable" 1978 f) Comptabilite Analytique Not done g) Revaluation of Assets 1978 h) Operating Ratios 1978 i) Tariff Revision Formula 1978 j) Short circuit study of H.T. System 1981 - 100 - Sectoral Annex V Page 7 of 12
21. In addition to the above studies, EDF assists EDL with technically specialized engineers from time to time as the need arises.
22. The mission considers that further technical assistance could con- tinue to be supplied under the convention and that EDL should now actively consider EDF's recommendation on its reorganization (para. 20(c) above) and, with the help from EDF, set up a program of implementation. EDL should also request EDF to carry out the study on its "Comptabilite Analytique" (para. 20(f) above), which was not done in 1978. EDF could also be asked to update its Revaluation of Assets report and to discuss with EDL their calculation for including assets on a revalued basis in their balance sheets as from 1981-82.
23. EDL does not have any in-house training facilities for its staff, but utilizes the general technical training colleges. A training scheme specifi- cally designed to meet EDL's needs would help EDL to meet the accelerated demands for repair and maintenance caused by the recent events.
C. CONCLUSIONS AND RECOMMENDATIONS
24. EDL has a well established construction program, but the schedule may need revision in the light of developing load increases. The LL 2495 million in budget grants will be more than needed for the present schedule, although this sum would be reduced by probably further borrowing from EIB and other ex- ternal sources.
25. The Government should urgently discuss the problem of illegal connec- tions and excessively overdue accounts with EDL, and should set up practical measures to help EDL to restore normal conditions in the sale of electricity.
26. The Government should discuss with EDL their operating cost level and financial requirements and the extent of the tariff increase necessary to en- able EDL to pay i-or its current oil purchases, meet its debt service and break even on its operating account by 1985 without the need for oil or other subsi- dies from the general budget. After 1985 EDL should be expected to generate surplus funds towards the cost of its capital development program. An objec- tive should agreed- for EDL to be sufficiently financially viable by 1989 to enable it to raise its own development finance requirements in the interna- tional markets at an acceptable cost.
27. Based on the no additional borrowing notion from foreign agencies or Bank, EDL should discuss with Government a financing scheme for the LL 500 million it will require to finance its 1983 working capital and capital investment needs.
28. EDL should design specific courses for the rapid training- of its staff or potential staff necessary to meet the accelerated demands for repair and reconstruction of its war damaged system. Such training could, ideally, be organized within EDL and the setting up of such a permanent training unit could well form part of the war damage aid from foreign sources. Sectoral Annex V 101 - ~~~~~~~~~~~~~Page8 of 12
Table 1. ESTIMATEDCONSTRUCTION PROGRAM 1983-1988 (LL Millions in 1982 Prices)
Iforeegn I I I 1I 1 I1 I Total I Priorto Grand Eapected
II1 riiitLoca1l 1-983 I 1984 1 1985 I 1983-1985 I 1986 11987 I 98I1983-19881 1983 I Total Completion I G... ration Td-rrnc LL I I 1I 1I I1 I I I IJie N/L~ I 1 ' 1 I I IZc.klrIlPh~ase 1. TIDM I I I IIIII l3x145 MWOil/Steam 1 282 1 4651 261 1 1501 194 1 80 1 424 1 - I - I - 424 302 I 726 IlI I I I I I 12 -19841 12 I 8 -19841 13 I 2 - 19851 ZloukIIPhase 2I I I I I III II I2x140& 1x170 MWOil/SteamI I 10 I 90 I 320 I 420 I350 I 350 1 30 1150 I - I1150I IlI I I I I I 1- 19871 12 I 7 -19871 13 I 1III1 I - 19881 Nord 1. 2x25O MW Oil/Steam I I I 1 I io10o 100 I102 I 479 I 584 I 1265 I - 1265II Ilouk oil Sealine &tanks I I lo 0 101 _ 20 I I 201 _ 20 8 - 19841 subtotal Generation j i I 1170 1 294 1 500 1 96 5 2 1 2859 r 302 i1 3-16T- I TransmissionI I I I I I I III II I150KVZook - B..lin 10104I I I 4 I 3 I I 7 I I III I 6 - 1983 I I15OKV Zouk -Jamour 2OKMI I I lo10 10 I I- 1 19841 I 66KV Other k I 21 142 1 63 151 1 50 1 47 1 III
I Transmission lines I I I 1 41 34 1 42 1 80 1 51 1 50 1 47 1 228 1II I Substations I I I 191 461 58 123 I 691 701 631 325!
JSubtotalTransmisaion System1 I___ I** 1 23 1 80 1 00 203 ] 120 ] 120 1 110 1 553 _____ 553 IDistributionSystem 1 r--T---T 90 1 75 1 84 1 249 1 95 1 106 1 T11 568 T 1 rf I I I I I I I I I I I I I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~ILL241Mil. I IWar Damage Repair I _ _ I I I _ _ I _ _ I _ _ I _ _ _ I _ _ I _ _ I _ _ I _ _ I _ _ _ II I fTot-al 1__ p -f 283 1449 1684 I 1416 T667 1 1055 1 8421 3980 302. 1 4282--T
Source - EDL - 102 - Sectoral Annex V Page 9 of 12
Table 2. ESTIMATED CASH FLOW (LL Millions)
______I1981 1982 1983 1984 1985 T
SOURCES |Operating Results | (184.0) (278.4) 82.9 104.7 174.4 l Depreciation and Provision I 64.3 130.0 169.0 189.0 240.0 l I (1T3-.) (4 8.4) 251.9 293.7 414.4 I Debt Service - Interest | 120.8 118.0 88.0 60.0 28.0 l Amortization 75.6 198.0 35.8 35.8 40.4 l Total Debt Service | (196.4) (316 ) (123.9) (95.8) (6_3_.4) | Internal Cash Generation (net of debt service)l (310.3) (464.4) 128.1 197.9 346.0 l Change in Working Capitall| Increase/Decrease 152.5 147.9 (430.0) (230.0) (231.0) | Borrowing - Ministry/CDR I 382.2 28.6 - - - | Other Foreign Loans l (through CDR) _ 52.0 16.5 - - | Consumer Contributions I 26.3 73.0 65.0 67.0 69.0 l | Government Subsidy for Capital Program (1983 budget) - 299.4 280.0 390.0 455.0 TOTAL SOURCES 250.7 136.5 59.6 424.9 639.0 f ~~~~~I - -_I APPLICATIONS | Construction Program 1 74.3 453.0 283.0 449.0 684.0 Difference between sources and applicat]Lons I | (i.e. increase (decrease) in Cash) 176.4 (316.5) (223.4) (24.1) (45.0) I Cash Balance (beginning of period) 31.9 208.3 (108.2) (331.6) (355.7) | I Cash Balance (end of period) I 208.3 (108.2) (331.6) (355.7) (400.7) I
1/ Excluding Cash. - 103 - Sectoral Annex V Page 10 of 12
Table 3. OPERATINGACCOUNTS (LL Millions)
Actual Preliminary Estimated I _ 1979 1980 1981 1982 1983 1984 1985 l~~~~~~~~~~~~~~~~ I. I Gwh Electricity Generated & Purchased (Gwb) | 1906 2331 2600 2490 3440 3950 4540 | Less: 12% Losses | 229 280 312 299 413 474 545 | Less; Theft (illegal connections) | 341 457 895 747 619 711 817 | Sales (Gwh) 1 1336 1594 1393 1444 2408 2765 3178 | Average tariff P/Kwh | 13.95 17.62 21.69 27.17 37.50 37.50 37.5 I %Increase in Average tariff i 26 23 25 38 - - % Theft of Generation | 18 19 34 30 18 18 18 Cost of Stolen Owh at average tariff I 47.3 80.1 194.1 202.6 232.1 266.6 306.4
| Revenue | Sales of Electricity | 185.4 279.6 300.2 392.3 903.0 1036.9 1191.8 | Other standing Charges | 30.6 43.4 55.1 68.9 86.1 107.6 134.5 | Subtotal billing | 216.0 323.0 355.3 461.2 989.1 1144.5 1326.3 Other Income i 17.0 }4.6 67.2 33.0 34.0 39.0 44.0 | Total ReventLe 233.0 342.6 422.5 494.2 1023.1 1183.5 1370.3
I Expenses | Salaries & Wages I 76.5 98.6 123.8 147.0 178.0 211.0 251.0 I Fuel I 75.9 168.8 303.0 379.0 453.6 521.8 528.7 | | Maintenance & Spare Parts I 4.1 12.1 15.4 50.0 60.0 70.0 80.0 Energy purchased I 52.5 68.8 75.7 53.1 64.6 71.0 78.2 | Misc. Admin. Expenses I 8.7 10.9 10.3 13.0 15.0 16.0 18.0 DDepreciation | 19.7 21.4 64.3 130.0 169.0 189.0 240.0 I Change in Stocks of Materials 10.9 - 14.0 - - - OOperating Expenses 248.3 380.6 606.5 772.6 940.2 1078.8 1195.9 Interest | 2.9 7.9 120.8 118.0 88.0 60.0 28.0 I | Total Expenses 1 251.2 388.5 727.3 890.6 1028.2 1138.8 1223.9
I Profit/(Loss) for year (18.2) (45.9) (304.8) (396.4) (5.1) 44.7 146.4
I Sovt. Subsidy on Fuel (114.0) (135.2) (174.5) (206.5) (5.0) I | Net Addition required to break even I (418.8) (531.6) (179.6) (251.2) (103.6) 1 i 2 of Revenue 1 140% 136% 207 _ 42 9% r ource ED I I
Source: EDL - 104 _ Sectoral Annex V Page 11 of 12
Table 4. BALANCE SHEET (LL Millions)
Net Assets 1979 1980 1981 1982 1983 1984 1982 r r r Fixed Assets Cross Fixed Assets in Operation 410.6 521.0 1295.3 1702.3 1877.3 2424.3 3009.1 Less Depreciation 255.7 276.9 681.1 845.2 1056.4 1298.2 1603.1 Net Fixed Assets in Operation 154.9 244.1 614.2 857.1 820.9 1126.1 1406.0 | Work in Progress - - - 114.0 304.0 290.0 501.0 Advances to Suppliers & Consultant Services 468.1 561.0 584.3 584.3 584.3 584.3 584.3 Total Net Fixed Assets 623.0 805.1 1198.5 1552.4 1709.2 2004.4 2491.3
Current Assets I Cash and Banks (Overdraft) 17.3 31.9 208.3 (108.2) (331.6) (355.7) (400.7) | Accounts Receiveable - Consumers!/ 227.4 315.8 416.7 656.0 1059.0 1269.0 1475.0 - Others 30.2 34.8 40.3 40.0 40.0 40.0 40.0 Inventories 1.7 14.0 99.3 100.0 100.0 110.0 120.0 Other Debt Balances 49.1 54.3 _25.4 25.0 25.0 25.0 25.0 I Total Current Assets 317.7 4550.7 790.0 712.8 892.4 1088.3 1259.3
Current Liabilities Suppliers Accounts Payable3/ 202.6 419.0 748.1 1135.3 1108.3 1088.3 1063.3 | Other Credit Balances 5.7 5.7 5.7 5.7 5.7 5.7 5.7 I Short Term Debt | Total Current Liabilities 208.3 424.7 753.8 1141.0 1113.0 1094.0 1069.0 I Net Current Assets 109.4 26.0 36.2 ?2) (221.6) (5.7) 190.3
TOTAL NET ASSETS 732.4 831.1 1234.7 1124.2 1487.6 1994.7 2681.6 | Capital 20.0 20.0 20.0 20.0 20.0 20.0 20.0 I Government Subsidy for | Construction - - - 299.4 578.4 969.4 1424.4 I Reserves and Provisions 218.0 169.1 (129.8) (526.2) (531.3) (486.6) (340.2) Consumers non returnable | Contributions 105.9 141.8 168.1 241.1 306.1 373.1 442.1 I Re-evaluation Reserve4/ - - 360.0 390.9 433.7 474.9 531.8 Total Equity 343.9 330.9 418.3 425.2 807.9 1350.8 2078.1 Long Term Borrowing 347.8 450.9 757.5 640.1 620.8 585.0 544.6 I Long Term Liabilities 40.7 49.3 58.9 58.9 58.9 58.9 58.9 | Total Long Term Debt 388.5 500.2 816.4 699.0 679.7 643.9 603.5 I TOTAL FINANCING 732.4 831.1 1234.7 1124.2 1487.6 1994.7 2681.6
1/ Work in progress is accounted for separately by EDL against a separate Capital Budget, which is part of the budget of the Ministry of Hydraulic Resources and Electricity. Work in progress has been included in these estimated EDL Balance Sheets for the purpose of this report only. 2/ Many consumers accounts are uncollectable because of circumstances arising out of the events since 1975. 1981 accounts receivable comprised LL146 million (1981 billing), LL88 million (1980 billing) and LL132 million (pre 1980 billing). Assumptions made 1982-1985 are that current billing will be reduced from 199 days, to 162 days "Previous Year" by 49% of previous years balance (1982) to by 65% in 1985, old balance by 8% to 3%. 3/ EDL has not paid for its oil since about 1979. Fuel bills have been accumulated so that 1982 pajable comprise LL923.3 million (Fuel unpaid) LL65 million (Municipal taxes), LL7 million (short term loans) and LL140 million (others). 1982-85 assumes; current fuel bill paid; taxes and short term loans outstanding progressively paid off; "others" remain at 1982 level. 4/ Revaluation of assets as calculated by EDL for 1981 using EDF recommended formula for 1977 assets, plus minor addition annually 1978 through 1981. 1982 and subsequent years revalued assuming a (rough) 5% annual inflation of asset values.
Source - EDL -105 -Sectoral Annex V Page 12 of 12
Chart 1. ENERGY BALANCE - GENERATION
Gwh ACTUAL GWH GENERATED OR IMPORTED ESTIMATED GWH AVAILABLE ANT) REQUIRED! GENERATTON 11000 ILOAD FORECAST IIIGH (+15%)
10000! JF~~~VT T VITf1II11 T / T~~~~~~~~~FIRM Gwh I II I I I I I I I I I I I I~~~~~~~~oAVAILABLE 9000 ! I I I I I I I I II I I ! i
I I I I I I I I I I I I ~~~~~~~ GENERATION 8000! ! I I I I !I OAD FORECAST 4~~~TflF1T VITf7II 7 TT ~~~~~~~~~LOW(+10%)
70001 '
6000! 4 ... ~
5000! I ! ! I I I ! ! I ' ! ! IPROPOSED I ~~~~~T~~~~III T T C~~~~~~~~ONSTRUCTION
I II I I ~~~~~~~~~II IZ5 I I I!ZOUKl5oll0W I I ! I I I ! I I I ~ ~~~~~~Z41I ~~II I 30001 I I I I I I I I I I I ZOUK 4150 MW I11T~~I MWRTED1f II I I I1 FT-- zoUK 3 145 MW I Z2 I I I I I 2000 I I I I I I I! !ZOUK 2145 MW I ~~~~~~OIL/STEA.MT I ONfL/STEAMF1T CAS OILIMIRB ~~K IGASOIL/TURBINE I I IZOUK1 145 MW 1000 ~~~~~~~~~ZXI_ I !KHADIS1tA.70MW \N\IV ~ ~ I ~ ~ ~ -OLD ZOUK 30 MW
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Years
Source - The Mission - 106 - Sectoral Annex VI Page 1 of 13
THE ROAD AND AIRPORT SECTORS
I.. THE ROAD SECTOR
A. DESCRIPTION OF SECTOR
The Network
1. When the last inventory was carried out, about two decades ago, the road network was as follows:
-Length Km------Class of Road Paved Unpaved Total
Expressway 50 - 50 International 570 - 570 Primary 1,320 100 1,420 Secondary and Local 3,310 1,100 4,410
Total 5,250 1,200 6,450
The responsible Highway Authority was the General Direction of Roads and Bridges (DGRB) in the Ministry of Public Works and Transport (MPWT). Since that time the DGRB has in practice become responsible for many more kilometers of network including regional, municipal and military roads. The total net- work is presently of the order of 9,000 - 10,000 km ( Map No. IBRD 17080).
2. The road network is at its most dense on the coastal plain and the western slopes of the Lebanon Mountains, following the population distribu- tion. The expressway class consists of two sections along the coast, to the north and to the south of Beirut. The international rogds link the regions of the country by means of routes along the coast, in the Bekaa valley, from Beirut towards Dcmascus, and in the south to Nabatiyeh and the Syrian fron- tier. International class roads are generally of two-lane width, and in many areas are bordered almost continuously with commercial or residential land use with frequent acc,esses or parking, reducing the capacity for through traffic.
3. All of the international and primary roads, and most of the secondary, are paved. However many roads, particularly in the mountains, are narrow, winding and have steep grades. In the mountains traffic is inter- rupted by landslides or snow, and on the coastal plain by flooding because of poor drainage.
Traffic
4. No systematic traffic count program has been undertaken since 1974. Since then, in asny case, normal flows have been distorted because of the constraints imposed at what were virtual "frontiers" between areas controlled by different factions. In general, traffic volumes on Lebanese roads are - 107 - Sectoral Annex VI Page 2 of 13
relatively high, often over 5,000 passenger car units (p.c.u.) on primary roads, and over 50,000 p.c.u. on the northern expressway at Nahr el Mott.
Expressways
5. The expressway construction program is particularly important for good communications along the coastal strip from Tripoli to Sidon, since the old two-lane road cannot provide an adequate level of service. The status of construction of various sections of the expressway, is as follows:
Completed
(a) Beirut (Maameltein) to Tabarja - 20 km
(b) Beirut (Khalde) to Damour - 11 km, opened 1981, cost LL 75 million
Ongoing (LL 578 million in current prices)
(c) Tabarja to Jbeil - 13.6 km, cost LL 110 million
(d) Jbeil to Batroun - 14.3 km, cost LL 90 million
(e) Batroun to Chekka - 13.6 km, cost LL 140 million
(f) Chekka to Tripoli (el Mina) - 18 km, cost LL 145 million
(g) Damour to Jieh - 8.5 km, cost LL 93 million
Planned (LL 6400 million in 1982 prices)
(h) Beirut beltway, Khalde to Antelias section - 15 km, cost LL 1,000 million preliminary design complete.
(i) Beirut (Hadath) to Shtaura and to Syrian border, 87 kin, cost LL 3,200 million. Tender documents ready for Beirut - Shtaura, preliminary study complete for Shtaura - Syrian border.
(j) Jieh to Zahrani, 23 km, cost LL 500 million, preliminary design compLate. The first phase of LL 100 million for the Jieh Sidon section is expected to start in 1985.
(k) Beirut beltway, Antelias to Tabarja section - 15 km, cost LL 1,000 million, preliminary design complete.
(1) Tripoli to Syrian border, 31 km, cost about LL 400 million, not yet studied.
(m) Zahrani to Tyre, 29 km, cost about LL 350 million, not yet studied.
The Beirut beltway and its associated "penetrators" is discussed in more detail in paras. 14 to 18. The remainder of the 537 km national expressway plan is programmed for longer term implementation. - 108 - Sectoral Annex VI Page 3 of 13
6. The capacity of the early expressways in Lebanon is being quickly eroded by the construction of commercial and private buildings with direct access to the e!xpress lanes. There are already indications of the same problem on the not yet completed fully access controlled freeway from Tabarja to Chekka. In order to preserve the investment in the freeway, control of access should be rigorously enforced.
Road Maintenance
7. Road maintenance works are carried out by the DGRB, both by contract and by force account. Periodic maintenance consists essentially of resur- facing with about 5 cm of asphalt concrete, surface dressing having been unsatisfactory in Lebanon in the past. Unfortunately the surfacing is often of mediocre quality, and DGRB did not have the resources to supervise the works. Because of the difficulty of inter-ministerial coordination of programs and budgets, DGRB was rarely able to ensure that resurfaced roads were not subsequently cut by utility agencies, whose facilities were also in a poor state of repair. Since the Bank reconstruction assessment mission in November 1982, positive steps have been taken under special decrees to address both of these problems. Additional staff is being recruited and trained for supervision, and DGRB has been given more control over utility cuts, and carries out the reinstatement works. Current costs for asphaltic concrete resurfacing by contract is about LL 150/ton. The average application is about 1,000 ton/km, for a total contract cost of about LL 150,000/km. The DGRB only resurfaced about 200 km in 1982 because of military disruption. A desirable program would be to resurface all roads about once every 10 years on average, or an annual program of about 800 km/year, with a corresponding budget of about LL 120,000,000 (1982 prices). At present, because of the reduced program over the past several years, the surfacing on most of the network is much more than 10 years old. Accepting that the heavy rehabilitation program (paras. 9-11) cannot address more than 100 to 200 km a year, an immediate objective should be to apply an overlay to as much of the network as possible, with a target of 800 km a year.
8. The Bank mission was not able to review routine maintenance in detail. Observation would suggest that this is at a low level, being the most susceptible to administrative problems discussed below (para. 20). The possi- bility of contracting out some routine maintenance work should be investigated.
Road Rehabilitation
9. By 1978, when the Council for Development and Reconstruction (CDR) was reviewing national reconstruction and development needs, the lack of maintenance and betterment works on international and primary roads was causing surface failures with consequent increases in vehicle operating costs and delays. In view of the difficulties encountered by DGRB in accomplishing satisfactory repaving projects, CDR, with advice from DGRB, decided to concen- trate on an integrated rehabilitation program. Components of this program included water mains, ducts for telephone cables, sanitary and storm sewers, electricity cables, pavement widening and strengthening, and street lighting. The cost of the utility works is included in the road rehabilitation project - 109 - Sectoral Annex VI Page 4 of 13 without the complexity of charging the individual agency. Comprehensive supervision is provided by consultants and as built drawings are prepared. Contracts are negotiated by CDR with selected contractors.
10. The first phase of the program consists essentially of (i) the coastal road from North to South, (ii) the Bekaa and Damascus route east from Beirut, (iii) some connections between important towns and the coastal road. Execution of the project has been slowed by hostilities. However, work on both a first group consisting of 17 road section totalling 69.17 km, and on a second group of 5 sections totalling 47.80 km is now in progress under 11 contracts. The estimated total costs of the two groups are about LL 420 million. Designs for a third group have been prepared, consisting of 16 road sections totalling 127.45 km. A fourth group consisting of 2 road sections totalling about 91 km is being studied. The whole of phase I covers 335.45 km and the total cost is estimated to be LL 788 million, including expropriation and utilities.
11. Terms of reference have been drafted for a second phase study cover- ing 500 km. Less utility work is expected on most of these sections and pavements are narrower, thus cost per km will be less, averaging about LL 1.2 million/km, for a total phase cost of about LL 600 million.
12. Because of the general state of the Lebanese roads, rehabilitation should be a continuing program. A further 2,200 km phase has been nominally identified, with a continuing fall in unit costs (in 1983 prices) to about LL 800,000 per km, for a program cost of LL 1,760 million. This program should be implemented in manageable tranches of, say, 500 km.
Main Road Construction
13. Because of the reasonably good coverage provided by the main road network, but to a generally low standard of alignment and width, most con- struction in Lebanon consists of betterment of existing roads, rather than construction of new links. Individual betterment projects are itemized in the MPWT budget and the amounts are carried over from year to year. In the past the selection of projects has not been based on a formal master plan or deficiency analyses, and the legislature has played a significiant role in deciding which projects were to be included. However, for the preparation of the 1983 budget, DGRB has attempted to implement a set of logical principles, including an economic justification for each project. This should lead to a much more coherent use of funds.
Beirut Metropolitan Area
14. The Beirut metropolitan area consists of the municipality proper and the surrounding urban and suburban area. This area is considered separately, both because of its particular scale within Lebanon and character, and because some additional institutions are responsible for some of the arterial roads. The downtown area, the central business district, is separately discussed in Sectoral Annex IX. - 110 - Sectoral Annex VI Page 5 of 13
15. A 1968 report included a plan for a network of high capacity "boulevards", with some grade separated intersections. Much of this network has since been constructed as shown on Map No. IBRD 17083.
16. An expressway be!Ltway outside the municipal limits was studied by consultants in the early 1970s. The recommended alignment and connections are also shown on Map) No. IBRD 17083.
17. The comp)lexity of the problem, the impact of various pressure groups and, above all, the military situation have inhibited progress with implemen- tation. Much of the alignment was determined in the 1960s and at that time a decree was promulgated about right-of-way acquisition. The consulting engi- neers' study concluded that the most urgently required sections of the beltway were (i) the northern access to Beirut, where the capacity across the Nahr el Maout needs to be doubled, (ii) a connection in the eastern suburbs between the partially completed Nahr Beirut penetrator and Hazmieh, which would facilitate access to the port from the east, and (iii) to the south where the consultants concLuded that improvements to the arterials could delay need for the beltway, but an interchange was required south of the airport at Khald4 to accommodate the traffic on the new southern expressway.
18. After reviewing the road sector, the Bank mission concluded that attention should immediately be concentrated on Beirut, specifically the northern, eastern and southern accesses, forming a first stage development of the beltway. Since then .a study of the northern expressway (Autostrada A-1) has been carried out for the CDR, and recommendations for short-term improvements, including the construction of three grade separations, are being implemented by the DGRB. The Executive Council for Major Projects (CEGP) has carried out a detailed study of initial improvements, based on the overall beltway concept. These are shown in red on Map No. IBRD 17083. This CEGP study has resulted in a draft "loi programme" over a 4-year (1983-86) implementation period totalling LL 500 million, including expropriation. This study responds ito the concerns of the November 1982 mission, and the Bank recommends that the program receive the highest priority for immediate implementation.
B. INSTITUTIONAL ASPECTS
Administration
19. Three institutions are concerned with the national road system, the MPWT, the CEGP and the CDR. The basic responsibility for roads rests with the MPWT acting through the DGRB. In DGRB, the Roads Directorate (Chart No. 1) has six headquarters divisions: planning and programming, engineering studies, construction supervision, maintenance (including equipment), highway safety and traffic signs, and the public works laboratory. There are also four regional public 'works directorates. In common with much of the civil service, low salaries have made it difficult for the DGRB to recruit and retain capable staff. This is aggravated by the loss of a sense of professional accomplish- ment from the assignment of prestigious projects to the CEGP and now also to - lll - Sectoral Annex VI Page 6 of 13
the CDR. Because of the lack of supervisory staff, low morale in the work force, and the poor work habits which have developed over the past few years because of the difficulty of access to places of work, neither the contracted nor the force account works are adequately controlled and supervised. Speci- fications and standards are sound, but neither materials nor execution conform to these specifications. A typical reaction of the administration in the past, when confronted with an agency with a low level of perLormance, has been to create a new ad hoc agency, such as the CEGP. Such splitting of responsi- bilities should not continue in the future, as it will lead to coordination and communication problems and to unbalanced programs. The basic organisation chart of the Roads Directorate is sound, and it is essential that the directorate be rebuilt into a vigorous and capable organisation able to play its part in the development of Lebanon.
20. In 1973 the original Bank highway project included financing for a comprehensive study of road maintenance and organisation of DGRB. Terms of reference were drawn up, but the Government subsequently decided to finance this study with UNDP funds. However, the scope of the UNDP assistance was later significantly reduced to the provision of about three experts to assist the DGRB over a two-year period. This assistance has not yet materialised, and the mission understood that UNDP was endeavouring to supply the experts though a French state agency. If it is provided, such expertise would be helpful to DGRB with its present staffing problems. However, it would not substitute for the comprehensive study, which should be undertaken as quickly as possible. The scope of the consulting services should be expanded to include assistance with the supervision and control of maintenance tasks, whether carried out by force account or contract, similarly to the services now being successfully provided to CDR for the rehabilitation program.
21. The CEGP was created in 1961, to undertake projects assigned to it by the Council of Ministers, including studies and execution. The intention was that the CEGP would be able to overcome administrative difficulties encountered when major projects were executed by the directorates in the ministries. The CEGP has since carried out projects in the highway an4 port sectors and has been responsible for the construction of many government buildings. Although CEGP has' no defined mandate in the highway field, the assumption of the major rehabilitation program by CDR has resulted in a CEGP concentration on express- 5ays. In this connection, as there is no formally approved expressway master plan, CEGP has for working purposes produced a plan showing a future national network of 537 km of expressways, which is being implemented in stages, with feasibility studies.
22. CEGP was originally created to operate outside the constraints of many civil service policies and regulations; however, it is not completely autonomous, and now also feels the constraint of salary scales below the level of the private sector. Thus, CEGP should be assisted by consultants to ensure that expressway construction is adequately supervised.
23. The CDR has relatively recently become involved in the sector, through the rehabilitation program for main roads. In this, the CDR is assisted by an advisory committee, including members of DGRB. However, CDR - 112 - Sectoral Annex VI Page 7 of 13 has retained executive power for the project. Since the CDR staff is small, the officer in charge of the rehabilitation program relies heavily on a firm of consulting engineers under contract to the CDR for design, supervision and liaison. The flexibility this permits has contributed to the success of the project.
Financing
24. Funds for road construction and maintenance are in the MPWT budget. The budget is in three parts. Section 1 covers salaries for the established civil service and office accommodation; section 2A covers other recurrent expenditures, periodic maintenance and road improvements and also includes maintenance labour costs and road maintenance equipment acquisition; and the third section of the budget, section 2B, covers development proiects, essen- tially the funds for CEGP administered expressway design and construction. The CDR rehabilitation works are outside the MPWT budget. The DGRB budget, section 2A, is about LL 520,000,000 for 1983, of which roughly LL 50,000,000 is for buildings and about LL 470,000,000 for roads. This global amount for improvements and maintenance would appear to be of the right order of magni- tude, although it has not been possible to analyse individual items. The 1982 budget incLuded about LL 155,000,000 for maintenance. The 1983 budget for CEGP expressways is about LL 176,000,000, although because financing is on a multi-year program basis, the figure for any one year is less significant.
C. DAMAGE ASSESSNENT
25. The CDR report on damage assessment (Nov. 1, 1982) includes an item for roads of LL57,100,000 for damage resulting from the events of 1982. It notes that the accelerated deterioration of roads throughout the area could not be fully measured in the time available. It was not possible for the Bank mission to evaluate this CDR estimate. Based on the limited field trips the mission was able to make, actual damage to the road system, in the narrow sense of damage from explosives or military vehicles, appears limited. In a broader sense "damage" is extensive. This is the deterioration over many years resulting from the lack of routine and periodic maintenance. The deterioration is, however, uneven because in some areas, in spite of the difficulties, thie DGRB has managed to achieve a fair level of maintenance. The total cost to the Lebanese economy of this deterioration, considering the increase in vehicle operating costs and the cost of delay, is of course many times the cost of road maintenance works, it was roughly estimated at about LL 500 million in 1982 prices.
D. RECONSTRUCTIONAND DEVELOPMENTPROGRAM
26. The public investment program for the road sector is summarized in Attachment 1 and includes the following items in order of priority:
(a) Improved routine maintenance
(b) Periodic maintenance
(c) Major rehabilitation
(d) Expressway construction - 113 - Sectoral Annex VI Page 8 of 13
27. New construction and improvements to main roads are generally of lower priority than the above programs and should be reduced to an absolute minimum during the short term.
Improved Routine Maintenance
28. Routine maintenance is normally considered a recurrent rather than a capital expenditure. However, expansion of this activity is essential to the development of Lebanon and can properly be included in a development program. Institutionally it is the weakest of the four programs listed above, and because of this it is the most difficult to improve. Consulting services to assist DGRB are urgently required (para. 20). The present low efficiency of force account operations compared with the vigour of the private sector in Lebanon suggests that consideration should be given to carrying out at least some routine maintenance tasks by contract. This would, however, impose an additional planning and supervision load on the already short staffed DGRB. Assistance with this work, while building the capacity of the DGRB, should be supplied by consultants, similar to the services now being successfully pro- vided to CDR for major rehabilitation. The scope of the proposed maintenance and organization study should be expanded to include these tasks.
29. Present routine maintenance costs in Lebanon are distorted, but based on typical costs per kilometer in other countries the annual budget for routine maintenance should be of the order of LL 125,000,000 a year. Time constraints have precluded a detailed review of the present budget of DGRB but globally it would appear to be of a reasonable order of magnitude, which could already provide such an amount as soon as it can be absorbed. Suitable programming targets would be LL 70 million for 1983, LL 100 million for 1984 and LL 120 million for 1985. The consulting services would cost about LL 4,500,000, and a second phase should be planned to follow.
Periodic Maintenance
30. A crash program is required to resurface probably half of the 9,000 km network. Considering the difficulties of building up such a program, including studies, organisation, contracting and control capacity, it is unlikely that even a crash program could be accomplished in less than five years. The same consulting services discussed under routine maintenance would assist DGRB to develop and supervise execution of the program. Costs in 1982 prices are about LL 150,000/km, which for 800 km a year requires an annual budget of LL 120 million. The mission understood that the provision in the 1983 budget for this item is about LL 75 million. Proposed programming targets are LL 75 million for 1983, LL 100 million for 1984, and LL 120 million for 1985.
Major Rehabilitation
31. The present program is now running well, and should be continued. The last 91 km of the 335 km program are being started. As DGRB capacity builds up, responsibility should be transferred from CDR to DGRB. Contracting capacity is building up in Lebanon and less complicated design situations will be encountered in the future. Average per kilometer costs should be lower, at - 114 - Sectoral Annex VI Page 9 of 13 about LL 1.2 million/km for phase II, and LL 0.8 million/km for phase III. To reduce commitments in the short term, phase TI may be carried out in two tranches of 250 km each.
Expressway network
32. As noted in paragraph 5, capacity constraints on 2-lane main roads require that expressway level of service be provided between Beirut and Tripoli, and Beirut and Sidon. The final section of Beirut-Tripoli is under construction, and CEGP is about to appoint consultants for the final design of the Jieh-Zahrani section of the southern expressway. The possibility of stage construction of Jieh-Zahrani, to provide initial service Jieh to Sidon should be studied, to ease capital needs in the short term. With these items under- way, attention should be immediately concentrated on Beirut, specifically, the implementation of the proposed "loi programme" developed by CEGP.
33. Although the Hadath-Shtaura section of the Beirut-Damascus road is economically justified and ready for tender call, this large project would absorb so much of the Government's financial and execution capability that it would delay other even more urgent projects. Therefore, for the 1983-85 pro- gram only the penetrators to the Nahr-Beirut and to the Palais de Justice intersection as shown in the CEGP "loi programme" plan (Map IBRD 17083) are recommended, leaving construction of Hadath-Shtaura until after 1985.
E. The 1983-85 PUBLIC INVESTMENT PROGRAM
34. Projects estimated to cost LL 2941 million, in 1982 prices, can be started in the period 1983-85 with estimated disbursements of LL 2058 million during the same period. Attachment I and the tables below describe the works which can start during 1983 and those planned to commence after 1985.
PUBLIC INVESTMENT - HIGHWAYS
Table 1: PROJECTS TO BE STARTED IN 1983 (LL million 1982 prices)
Construction Routine maintenance 290 Periodic maintenance 295 Beirut access 314 Subtotal 899
Expropriation Beirut access 156 Subtotal 156
Studies Maintenance organisation, Phase I 4.5 Rehabilitation, Phase II 12.0 Beirut Access, Phase I 30.0 Jieh-Sidon, final design, tender docs. 10.0 Subtotal 56.5 TOTAL 1,111.15 - 115 - Sectoral Annex VI Page 10 of 13
Table 2: PROJECTS TO BE STARTED AFTER 1985 (LL million 1982 prices)
Rehabilitation Phase II, Tranche 2 300 Phase III 1,760
Beirut Access Khaldg - Antelias 1,000 Antelias - Tabarja 1,000
Eastern Expressway Beirut - Shtaura 3,000 Shtaura - Syrian Border 200
Southern Expressway Sidon Beltway 200 Sidon - Zahrani 150 Zahrani - Tyre 350
Northern Expressway Tripoli - Syrian Border 400
F. TECHNICAL ASSISTANCE
35. The needs for consulting services have been outlined in the para- graphs about each program. These are estimated to cost LL 70 million for the period 1983-85. In summary the following actions are required:
- appoint consultants to assist DGRB with a study of organisation, maintenance, and the design, execution and control of immediate pro- grams of routine and periodic maintenance;
- appoint consultants to carry out for CDR the second phase study of 500 km of road rehabilitation;
- appoint consultants to assist CEGP with the supervision of the construction of Chekka-Tripoli and Damour-Jieh expressway sections;
- appoint consultants to produce the final designs and tender documents for at least the Jieh-Saida section of the the Jieh-Zahrani express- way; and
- appoint consultants to produce the final designs and tender documents for the CEGP program for Beirut access routes.
G. CONCLUSIONS AND RECOMMENDATIONS
36. The most urgent need in the road sector is to rebuild the capacity to plan and to execute routine maintenance. Consultants should be appointed to - 116 - Sectoral Annex VI Page 11 of 13 assist DGRB to organise and carry out the program, including investigating contracting out routine maintenance works.
37. An urgent program of periodic maintenance is required over much of the network. The consultants terms of reference of para. 35 should include provision for assistance to DGRB to prepare and supervise execution of this program.
38. The road rehabilitation program, being carried out through CDR, should be continued, and consultants appointed for Phase II as soon as possi- ble. To reduce financing constraints, construction of Phase II may be committed in two tranches, each to cover 250 km.
39. Expressway construction should be completed north to Tripoli and south to Sidon. Necessary studies and works should be started as soon as possible on the program of improvement of Beirut access routes. Consultants should be appointed to assist CEGP with the supervision of all construction contracts.
40. Illegal private access to freeways should be rigorously excluded in order to preserve the benefits for the community from the large capital investment in these facilities. - 117 - Sectoral Annex VI Page 12 of 13
II. THE AIRPORT SECTOR
A. DESCRIPTION OF SECTOR
41. Beirut International Airport is the only major airport in Lebanon, about 8 km to the south of the city center. It serves many international airlines as well as two important Lebanese companies: Middle East Airlines, and Trans Mediterranean Airlines for freight transport. The airport has two 3,500 m runways and a passenger terminal of about 110 thousand m 2 . Peak passenger load of 2.4 million was experienced in 1974. A comprehensive development plan was prepared by French consultants Aeroports de Paris designed to prepare Beirut Airport for a throughput of 6 million passengers a year by 1990. Worldwide growth rates of general traffic are lower than expected and this volume may not be experienced until 1995 or 2000.
B. INSTITUTIONAL ASPECTS
42. Two institutions are responsible for airport infrastructure; one is the Development Commission for long run planning of the airport development, and chaired by the Minister of Public Works and Transport, with the General Directors of Finance, Roads and Buildings, Civil Aviation and Town Planning as members. The second is the General Direction of Civil Aviation (DGAC) which is responsible for the airport's current operations, including its maintenance and rehabilitation.
C. DAMAGE ASSESSMENT
43. The airport and associated installations were extensively damaged by war in 1982. Its reconstruction and rehabilitation is under the responsi- bility of DGAC. They have estimated that war damages amount to about LL90 million: LL51 million worth of equipment destroyed and urgently needing replacement; and, about LL39 million worth of buildings and infrastructure to be reconstructed. So far DGAC has received a treasury advance of LL22 million which were mostly used on ciyil works and to repair the Instrument Landing System (ILS). There is no financing available to replace or repair the rest of equipment and buildings. Moreover, damage to en route Very high frequency Omnidirectional Ranges (VOR) has not yet been assessed as they are located in the war zones.
D. RECONSTRUCTIONAND DEVELOPMENTPROGRAM
44. Long term development, under the direction of the Development Commission, is following a well defined, comprehensive plan. Financing is through current investment budgets and accounted for in "loi-programmes". So far LL610 million has been committed, and an additional LL 815 million (in 1982 prices) is needed to complete the program. - 118 - Sectoral Annex VI Page 13 of 13
45. The two runways and the taxiways have been strengthened. Work is in progress on strengthening the aircraft parking areas and on extension of the passenger terminal. A new catering building is nearing completion (not yet equipped) and new offices for airline companies are also nearly completed. Notice to proceed has been given to the contractor for a new fuel storage depot.
E. THE 1983-85 PUBLIC INVESTMENT PROGRAM
46. The mission recommends that the Government postpone new commitments, but continue with ongoing contracts, and give the highest priority to repair- ing war damage in view of higher investment priorities over the next three years and the low probability of attaining the initially forecast passenger traffic by 1990. The 1983-85 program is estimated at LL 700 million in 1982 prices of which LL 90 million for repairing damage (Attachment I). - 119 - Sectoral Annex VII Page 1 of 12
THE TELECOMMUNICATIONS SECTOR
A. DESCRIPTION OF THE SECTOR
1. Telecommunications in Lebanon are not only essential to economic activity which centers on the commercial, banking, service and tourism sectors but also to private and social life due to the country's mountainous geography and very high population density. The Government and the public in Lebanon have been aware in the past of such an essential requirement. In 1977, before the great destruction resulting from the civil war and other hostilities, there were about 200,000 direct exchange lines (DELs) in service in Lebanon. Corresponding telephone density was about 70 DELs per 1,000 population. This compared with densities ranging between 8 and 20 DELs per 1,000 population in neighboring Middle Eastern and other Mediterranean countries, and with densi- ties ranging between 140 and 260 per 1,000 population in European countries where continued growth in the number of telephones was observed.1/ Pressed by the very high demand and the need to decongest and improve service, the Lebanese Posts and Telecommunications Ministry (P&T) undertook an ambitious expansion program of its domestic and international systems in 1979, with the goal of more than doubling available capacity by adding about 300,000 lines to the then 250,000 installed capacity and by increasing the number of interna- tional circuits from about 600 to 1,400. The program was to be completed by the end of 1983. The disruptive events over the past two years hampered and even stopped the progress of that expansion. Restarting and completing the then ongoing works, together with the need to reconstruct and repair the extensive damage which the networks suffered, represents an enormous task which will require management awareness and skill, and appropriate outside assistance to ensure its efficient and timely implementation.
2. As of June 1982, the total number of telephone subscribers' lines was about 290,000 and was undergoing very rapid expansion; following the installation of new equipment ordered by P&T in 1979, the growth in the number of lines in service had taken place at a pace of about 1.5 percent per month during the first five months of 1982. The targets of the ongoing development program were about 520,000 lines installed capacity and about 500,000 lines in service by the end of 1983. Automatization was about 93 percent complete, with subscriber trunk dialing (STD) facilities available to most users for both domestic and international traffic. The number of telex subscribers was nearing 4,000, and also increasing rapidly. About two-thirds of the telephone and 80 percent of the telex subscribers were in the Greater Beirut area, largely serving the business community.
1/ At the end of 1977, telephone density of about 70 per 1,000 population in Lebanon can be compared with that in Morocco, 8; Egypt, 10; Algeria, 12; Iraq, 18; Syria, 19; and Turkey, 20; and with that in Spain, 150; Greece and Italy, 185; France, 190; and West Germany, 260. - 120 - Sectoral Annex VII Page 2 of 12
3. Long distance facilities are provided through three main coaxial cables, one along the coast serving the areas in the south of the country, one across Lebanon to the Syrian border serving points en route and the interna- tional route; and a third, following the coast north, to Tripoli and serving cities en route. A large capacity combined coaxial and pair cable links Beirut with the populated districts to the north-east of Beirut, also provid- ing circuits to the northern and central Mount Lebanon areas. Backbone micro- wave links exist south to Saida and east to the Syrian border serving also the international route, with lines from Saida going east, and along the Bekaa Valley. Smaller capacity microwave spur routes provide circuits to the smaller provincial locations from the main long distance routes. The current 1980-83 expansion plan provided for additional circuit capacities to all these links, adding microwave links to establish a fully meshed network between all places where telephone exchanges were being expanded or installed.
4. Lebanon is linked to the outside world by three submarine cables (to France, Cyprus and Egypt); by two large type A satellite earth stations (one working with the Atlantic and the other with the Indian INTELSAT satellite repeaters) at Arbanieh, near Beirut; by microwave radio and coaxial cable to Syria; and by microwave radLio to Jordan. It has an automatic international switching center dLealingwith locally originated or destined traffic, and also with transit traffic.
5. The vital importance of telecommunications facilities to Beirut in any attempt to restore its role as a business and banking center in the Middle East and as an active tourist center, places the rehabilitation of Lebanon's telecommunications; network among the highest priorities in the country. The restoration of the telecommunications services is also an essential element in the needed reconstruction effort and for the resumption of normal economic and social life in Lebanon. Besides the immediate reconstruction and rehabilita- tion of the damaged networks, there are other important works in the sector which P&T would have to undertake simultaneously, especially for completion of the large ongoing expansion program which was stopped by the outbreak of the June 1982 hostilities. Outside assistance would be urgently required to enable P&T to cope!with all these works during the next two years, in particu- lar with regard to planning and preparation of the works and the supervision of their implementation.
B. INSTITUTIONAL AND FINANCIAL ASPECTS
6. Public telecommunications in Lebanon are a state monopoly under the Ministry of Posts and Telecommunications (P&T). The Ministry also has a monopoly in the provision of all postal services. P&T operates domestic tele- communications directly, but operates its international links through two semi-public companies: SODETEL for the submarine cables, and OGERO (formerly Radio-Orient) for the HF links. OGERO also operates the computer center used by P&T for its billings, international accounting, wages, and statistical information, but not yet for budgetary functions. Services to the public are provided through nine regional districts, including three districts for the Greater Beirut area, following the country's local government structure. P&T services are generally using common post-office buildings, except at locations where separate technical centers exist. - 121 - Sectoral Annex VII Page 3 of 12
7. Under the authority of a Minister who, at present, is also Minister of Industry and Petroleum, the Ministry of P&T has since 1980 two directorates general for telecommunications, one for maintenance and operation and one for equipment, development and construction. It also has a third directorate gen- eral for posts, and common services for personnel, budget, general administra- tion and legal matters.
8. The national budget governs all accounts and financial procedures for P&T operations and development, which are kept on a cash accounting basis under the budget structure. P&T has no accounting branch, in the generally understood sense, and maintains only the budgetary accounts required by the Ministry of Finance. There are no accounts for fixed assets and debts, or for inventories or receivables. Billing for telecommunications is subcontracted to OGERO (paragraph 6). Collection of revenues is made by P&T and by other government and public agencies on behalf of the Finance Ministry. All reve- nues become part of government's general revenue. Apart from traditional a-priori budgetary control of expenditures and the annual settlement of its budget, P&T has no adequate data for its financial management, or even for practical control or supervision of its own finances.
9. No significant information other than budgetary estimates over the last five years was available during the mission on the present financial situation of the sector and its implications. Reportedly, actual budgetary statements for telecommunications have not been formally settled since 1979 and no reliable figures for the actual revenues from the services are avail- able. P&T also indicated that tentatively assessed cumulated arrears, due mostly to inability to collect because of the prevailing conditions, would represent about eight months of income or about LL 400 million at present level of billing.
10. Under the circumstances it is only possible to make indicative comments on P&T's financial situation with respect to telecommunications. Before the 1976 hostilities, Lebanese telecommunications operations normally had good financial results despite the relatively low tariffs for domestic telephone services. This was due to the very high usage of the then existing services by business, high telex revenues, and good financial returns on the international links. Until 1979, cash surpluses from gross revenues from operations--after provisions for operating expenses but excluding depreciation not provided for in the accounts--were expected to cover the cost for invest- ment in telecommunications. Corresponding cash flows available for investment increased from about LL 80 million in 1976 to LL 140 million in 1978 and 1979. As a result, P&T had practically no long-term debt for its telecommuni- cations operations. Under the large 1979-83 investment program for the addi- tion of about 300,000 lines, annual investment expenditures were to increase from about LL 180 million in 1980 to LL 400 million in 1982 and 1983. In early 1982, P&T was authorized to increase telecommunications tariffs by an average 70 percent. Based on service usage and operating costs at that time, such an increase would have been expected to result in higher cash flows for investment reaching about LL 250 million each year. Under the program, about LL 100 million (US$25 million) each year were to be obtained from bilateral or supplier's credits, or from Government, for 1982 and 1983. Assuming that service mostly resumes in 1983, and that program implementation is delayed by - 122 - Sectoral Annex VII Page 4 of 12
one year to the end of 1984 and adding reconstruction expenditures of about LL 140 million (US$40 million) each year, the Lebanese Government or P&T would have to borrow approximately LL 260 million (US$65 million), in constant 1982 LL prices, each year for telecommunications investment in 1983 and 1984 (paragraph 23).
11. No meaningful medium- or longer-term financial projections can be established for telecommunications at this time. The above estimates show, however, that even if the good operating results of the pre-civil war period are attained again with the resumption of services, the Government will have to seek long-term financing for the reconstruction and development of telecom- munications faciliLties. To ensure P&T's financial viability and to maintain an appropriate level of contributions to expansion from operations, the Government may also have to consider new tariff increases to be instituted when a more adequate supply of service, at an appropriate level of quality, can be reinstated. Also, in order to help P&T meet its present urgent reconstruction requirements, the Government should work out a settlement for the overdue arrears, once such amounts have been inventoried and assessed.
12. With regard to the overall development planning and implementation in the telecommunications sector, there is apparently a lack of coordination (and a gap of communication) between the Ministry of P&T and the Council for Development and Reconstruction (CDR). This state of affairs is not satisfac- tory and should be improved. It is understandable to a certain extent given the overload of day-to-day work accomplished by the few P&T experienced managers, and given that the information that CDR needs is most likely unavailable at P&T in the required form. P&T's investment expenditures are now reaching about LL 400 million (US$100 million) a year and are due to increase in the near future. At this stage, present short-term planning, as practiced by P&T for a one or two year period or on the basis of separate operations, should be supplemented by longer-term planning and by strengthened development engineering. This is practicable only by coordinating with the planning for devel]opment in other sectors and for the related global financing requirements, as exercised by CDR.
13. The institutional and financial set-up outlined above, with its inherent problems, is not satisfactory for the efficient operation and development of the services which are entrusted to the P&T Ministry. The usual problems of complexity and slowness in the administration of a government department and of inadequate financial information to manage industry-type services such as public telecommunications, is apparently aggravated by the lack of coordination between the three directorates general, all of which report directly to the Minister, and by a lack of flexibility in personnel management and inadequate compensation of P&T's staff under the civil service statute. As a result, and in addition to the exceptionally difficult conditions prevailing since 1977 in Lebanon, the overall efficiency of P&T's operations has suffered. In fact, the agency's operational and developmental capabilities and the standards of services have so deteriorated that they may now prove quite inadequate to cope with the large workload and the complex requirements of the current phase of reconstruction and expansion of P&T's facilities. - 123 - Sectoral Annex VII Page 5 of 12
14. P&T has reached a stage in its operations and development where there is an urgent need for reorganization of the sector on the basis of introducing improved management and commercial practices. This would greatly facilitate reconstruction and future operations and development of its services. In 1977, during preparation of the subproject under the first Bank Reconstruction Project (Loan 1476-LE), the Government was considering the creation of a public corporation. Such a sectoral set-up is adopted and works efficiently in a large and growing number of countries where telecommunica- tions, as a well-operated public service, remain a source of substantial revenues to Government. The status of public corporations is well known and commonly used in Lebanon, for example in the power sector now operated by "Electricite du Liban" (see Sectoral Annex V). A covenant to prepare a program for the reorganization of P&T's telecommunications sector in accord- ance with commercial practices was included in Loan 1476-LE. Subsequent circumstances, however, did not permit compliance with the covenant. It is recommended that the Government clarify its intentions on the proposed struc- tural reform of the P&T, as well as prepare the necessary law, decrees or by- laws which such a reform would require together with a plan of action to implement it. The Bank could assist in reviewing the proposed documents for the reform and, once the policy framework for the necessary institutional changes is decided upon, the proposed terms of reference for the outside consultancy services which would be required to implement the new institu- tional set-up and to reorganize the services. Such a major reform will certainly take time and the transition from present to future organization will require qualified and careful preparation and planning. A first step toward reinforcing P&T's immediate capabilities could be to immediately set up an appropriate system of cost accounting within its operation and to set up a development planning and project implementation unit, using adequate outside assistance for both measures. Such assistance should be kept within a reason- able scope using a limited number of experienced specialists.
C. DAMAGE ASSESSMENT
15. Damage to working facilities from hostilities since June 1982 and unrepaired destruction from previous wars since 1975 are very extensive and cover a wide range of installations. The problem of reconstruction is linked with that of restarting the interrupted large ongoing development works and of modifying facilities for interfacing them with the new equipment in an enlarged network. Also, the significant transfer of population to other areas pending re-establishment of internal security and reconstruction of the innumerable damaged or destroyed buildings has created an urgent need for telecommunications to be used for essential services, as well as for business, private and social activities, in areas where such services had not been, or were not planned to be, provided before. In addition, due to the loss of access to service in many areas and also to the continued emergency conditions prevailing in the country, the usage of the remaining operational facilities is much higher. This creates frequent traffic congestion in the networks and an urgent need for specific repairs and in some cases provisional expansion works to be undertaken together with reconstruction works. - 124 - Sectoral Annex VII Page 6 of 12
16. As of the end of December 1982, there were about 70,000 telephone and 1,000 telex lines out of service from the 1975-82 events. This represents approximately 23 percent of the working facilities. It is estimated that about 80 percent of the damage is in the Greater Beirut area, principally affecting the subscriber line network and outside plant installations. Tele- phone and telex exchange facilities have been destroyed at four locations involving about 12,000 lines during the last six months. Exchange equipment already delivered or being installed under the current expansion program, but not yet in service, has been damaged at three locations involving about 9,000 lines. The long distance network has been damaged in several sections. The coaxial cables to the east (Syrian border and Bekaa Valley) and to the north (Tripoli) are still out of service, and an estimated twenty microwave or radio stations are not functioning. Present conditions of insecurity and the lack of access to the eastern half of the country do not make it possible now for the P&T to assess the damage or to restore service, even provisionally, in many parts of the networks.
17. Evaluation of the damage and of the reconstruction needs is complicated by the fact that lack of maintenance and repair and excessive use of all facilities since the beginning of the disturbances in 1975 have caused substantial deterioration of most installations. For example, P&T estimates from specific observation that the traffic capability of the installations which are still in service is not more than 50 to 60 percent of normal capacity. Also, in many cases, the necessary documentation on the damaged facilities is not available or has been destroyed. The provisional assessment of the works and equipment involved and cost estimates of the repairs and rehabilitation requirements had therefore to be based on information collected from a number of different sources--the estimates of the directors of each telecommunications region for the local networks and switching centers in their respective districts; estimates of the Service Technique Central for the major transmission links and trunk switching centers; estimates of manufacturers for specific major items such as large local and international switching centers, submarine cable and satellite earth station equipment.
18. From the information obtained or reconstituted, P&T has prepared a tentative first assessment of its reconstruction and rehabilitation require- ments. These requirements were provisionally estimated to cost about LL 326 million (US$81.5 million equivalent) at current 1982 base prices. P&T is cur- rently identifying a first stage of emergency works to restore service to about 30,000 subscribers before June 1983.
19. Table 1 summarizes the estimated costs (LL 410 million in 1982 prices) of restoring and rehabilitating the previous facilities throughout the country within the enlarged networks. Contingencies and the required technical assistance were added to P&T's estimated base costs for their reconstruction program. The local costs, together with the foreign exchange costs of equipment which can be procured by international competitive bidding (ICB) or should be obtained through negotiated purchase of proprietary items on grounds of compatibility, were also provisionally estimated. Contingencies averaging about 20 percent were factored in because the estimates prepared by P&T were based oIn imperfect data and insufficient survey information. Also, the extent of the damage to the facilities in some cases of complex equipment - 125 - Sectoral Annex VII Page 7 of 12
can only be determined during the actual repair work. Based on the above, the estimated total cost of P&T's reconstruction program would be about LL 410 million (US$102.5 million). Complete reconstruction and rehabilitation of the facilities should require about three years under favorable conditions. Corresponding estimated yearly expenditures would be LL 120, 160 and 130 million in 1983, 1984 and 1985 respectively. At this stage, however, all estimates remain conditional on more detailed surveys and investigation.
20. Lebanon expects to receive aid from various countries in recon- structing its telecommunications facilities. A tentative estimate of such immediate short-term help would total about US$12 million to be provided in goods and/or services in 1983 and 1984, with some of the assistance already under way for first emergency repairs. P&T is also in the process of contact- ing the manufacturers, or seeking finance from the countries of origin, for the proprietary items costing nearly US$12 million which are essential for the restoration of urgently needed facilities and for the rehabilitation of major installations. In addition, about US$5 million for telecommunications are still uncommitted under Bank Loan 1476-LE. P&T proposed to use these remain- ing funds for urgent procurement of outside plant equipment and tools for reconstruction of the local networks, and of power systems. The procurement of these items, which are expected to be delivered in 1983, is now under way.
D. RECONSTRUCTION AND DEVELOPMENT PROGRAM (1983-92)
21. In 1979, P&T had undertaken a large expansion program, adding about 80,000 lines of electromechanical (crossbar) and 260,000 lines of electronic exchange equipment to the then existing 220,000 lines. The Ministry planned to progressively retire about 40,000 lines of old exchange equipment. Total available installed capacity was expected to reach 530,000 lines by end 1983 at completion of the program. By June 1982 about 300,000 lines were installed in total (of which about 140,000 were from the current 1979-83 program) and 200,000 lines in electronic exchanges remained to be installed. Works were interrupted by the June 1982 hostilities.
22. Assuming that works could restart rapidly and could be continued without interruption, it would take at least three years to complete the current expansion, including the local line networks whose construction was largely delayed by hostilities. Corresponding investment expenditures would total about LL 720 million, or about LL 260 million each year in 1983 and 1984 and LL 190 million in 1985. These expenditures represent the cost for comple- tion of the approximately 200,000 lines in the current program which remain to be installed plus estimated amounts for the capacities already installed in 1982 but not yet operative. About LL 120 million of these expenditures are financed under French bilateral and suppliers' credits. 126 - Sectoral Annex VII Page 8 of 12
E. THE 1983-85 PUBLIC INVESTMENT PROGRAM
23. A summary of P&T's investment expenditures for reconstruction and completion of the ongoing development works for 1983-85 (Attachment 1), and to start future expansion in 1985, is given below:
P&T's Reconstruction and Development Expenditures, 1983-85 (in LL million - 1982 prices)
1983 1984 1985 Total
Reconstruction program 1/ 120 160 130 410 Ongoing program 260 270 190 720 Future program (first tranche from 1985 on) - 20 200 220
Total 380 450 520 1,350
1/ Including contingencies and technical assistance.
24. With regard to future programs as proposed by P&T to add another 500,000 lines to the networks when the current expansion is completed, the mission considers that the burden on P&T from the reconstruction/rehabili- tation and current expansion activities is sufficient to absorb all available capacities in the Ministry in 1983 and 1984. A future program to reach the one million lines objective could be prepared and started in 1985 for imple- mentation over, say, an eight-year period, from 1985 to 1992. Practically, it is advisable that implementation of this program be arranged in two phases, or tranches, of similar sizes adding about 250,000 lines each over two subsequent four to five year construction periods. The first tranche for implementation from 1985 to 1988 should also provide for an additional large capacity inter- national link to be made available by about 1986 and for the replacement of about 120,000 lines of obsolete equipment (mostly switching) still in service but which must be progressively retired. Total cost of this tranche is tenta- tively estimated at LL 3,000 million (US$750 million). The new international link which is already urgently required was assumed to be a 2,600 channel sub- marine cable between Lebanon and Europe, at a subcost of LL 160 million for the Lebanese contribution. Corresponding yearly growth in the number of lines during the 1985-88 period of the tranche would be about 11 percent. This would enable P&T to reinforce its development capability from present 40,000 lines added each year to about 90,000 lines in 1988, a pace which could be maintained through 1992 during the subsequent tranche. Tentatively estimated growth in capacities under the first tranche of the program, and yearly and total development expenditures (at constant 1982 prices), would be as follows: - 127 - Sectoral Annex VII Page 9 of 12
P&T's Investment Requirements (First tranche of 250,000 new lines added from 1985 to 1988)
1984 1985 1986 1987 1988 1989 Total
Line Capacities (in thousands) - Added capacity, each year (under the 1985-88 first tranche program) - 40 50 70 90 - 250 - Total installed capacity (at end of each year) 500 540 590 660 750 - 750
Investment Expenditures (in LL million) - Reconstruction and ongoing programs 430 320 - - - - 750 - First tranche program (250,000 lines, 1985-88) 20 200 680 800 890 410 3,000 - Subsequent tranche (from 1988 on) - - - - 10 490 500
Total Investment requirements (1984-89) 450 520 680 800 900 900 4,250
25. A first outline of the subsequent second tranche of the program to reach one million lines from 1989 to 1992, could notionally be based on the addition of another 250,000 lines and replacement of about 50,000 lines of remaining old equipment. This program would also include adequate expansion of the international links, the core of which is likely to remain distributed between the expanded submarine cable systems within the Mediterranean basin and satellite communications facilities. With an assumed continued yearly growth in number of telephone lines of about 11 percent during the program period, Lebanon would reach a telephone density of about 30 DELs per 100 population in 1992, which is approaching the levels being presently attained in some Western European countries. The tentative cost of such a second tranche program (in 1982 prices) would be about LL 2,600 million (US$650 million). Lacking any medium- or long-term planning for telecommunications in Lebanon and most of the data to support such planning, it is not possible to elaborate more accurately at present on what future development requirements would be for the sector.
F. TECHNICAL ASSISTANCE
26. The proposed institutional reform and reorganization of P&T and the strengthening of its operational and developmental capabilities during the forthcoming period of reconstruction and active development of new facilities would require outside assistance as summarized below: - 128 - Sectoral Annex VII Page 10 of 12
(a) assist.ance for management and administration, financial management and accounting, personnel management and tariff matters--(estimated) four consultants/experts at two man- years each;
(b) assistance in organization of operations, development plan- ning and engineering, project implementation, control and acceptance of the installations--(estimated) six consul- tants/experts at two man-years each; and
(c) assistance in training, for establishing a specialized institute for training of P&T's staff and overseas staff training--(estimated) five consultants/experts at three man-yetars each and 140 manmonths of overseas fellowships.
This assistance, including the services already made available to P&T, is tentatively estimated to cost LL 20 million (US$4.0 million), with local costs amounting to about LL 5 million. Being essentially engineering services, these costs havet been included in the appropriate components.
27. P&T has had pastLexperience using consultants. In 1978, a study was made on behalf of ITU (UNDP project No. LEB/77/037) using Lebanese and Canadian consultants to prepare a six-year plan for telecommunications, and to study the institutional and organizational structure of the services. Part of the latter studly was financed under Loan 1476-LE. The ITU project was continued with a training project covering the study and the creation of an institute for applied training in telecommunications within P&T. In 1980, two small vocational training courses in outside plant construction and power systems were started with ITU assistance. Unfortunately, the external circumstances wlhich developed resulted in the termination of these projects before their completion; it would be necessary to review and update their objectives before re-activating them.
28. Several offers of advice and technical assistance have already been made to the Lebanese Government and to P&T under various bilateral or indepen- dent auspices, f-rom P&T administrations or operating entities in various coun- tries, and from the ITU Secretary General. In January 1983, ITU sent an exploratory mission to study P&T's immediate needs for assistance in the operational and training fields, and to recommend a plan of action for such assistance. Since November 1982, substantial help has been provided to Lebanon relating to emergency reconstruction works of the subscriber line system, for planning and supervising the implementation of the works to reha- bilitate existing exchange facilities and for restarting installation of the new exchanges and local networks under P&T's current development program. Other offers of immediate assistance are also being considered by P&T.
29. It is recommended that the Government and P&T prepare and define the outside assistance outlined in paragraph 26 above, which is necessary for the restructuring of P&T's institutions, for the planning, development and opera- tion of the telecommunications networks, and for training their staff. If necessary, experienced senior individual consultants could be used to this effect and cooperate with P&T's staff in recommending and preparing a plan of - 129 - Sectoral Annex VII Page 11 of 12
action in the various fields of the required assistance and its progressive implementation, in coordinating the aid already obtained by or offered to P&T, in preparing terms of reference for the tasks to be accomplished and in find- ing ways and means to adequately implement such tasks.
F. CONCLUSIONS AND RECOMMENDATIONS
30. Telecommunications are given a high priority in the development and reconstruction of Lebanon. Telecommunications are a prerequisite to rebuild- ing the Lebanese economy and social life, and to reconstruction of other sectors (paragraphs 1 and 5).
31. A basic reform of the sector's institutions is necessary to enable reconstruction of facilities, efficient restoration of services, and to con- tinue the development which was under way. The Government should consider as a first priority the question of establishing an independent body enabling commercial operation of the telecommunications sector. Once the policy frame- work for the necessary institutional changes is decided upon, the Bank could assist in implementing such reform. A first step towards reinforcing P&T's immediate capabilities would be to promptly set up a system of cost accounting and financial management within its operation and to set up a development planning and project implementation unit, using adequate outside assistance (paragraphs 13 and 14).
32. Adequate coordination between CDR and P&T, in particular with regard to the sectoral reconstruction and development requirements and their financing, should be established in parallel with P&T's steps to improve its immediate and longer-term development planning and implementation capabilities and to strengthen its overall and financial management as a commercial-type operation (paragraphs 12 to 14 and 23 to 25).
33. Government must give appropriate attention to the technical assist- ance which is required for the sector (paragraphs 14 and 26). It is recom- mended that the Government and P&T discuss and define such assistance in the framework of the proposed institutional reform of the sector, and of the very large reconstruction and development tasks which are faced by P&T. The Bank could assist P&T at various stages in preparing and starting up such assist- ance, in particular in reviewing and commenting on the draft legislation or by-laws to reform P&T's institutions and organization, in commenting on pro- posed terms of reference for the consultants, and in preparing plans of action for these various fields (paragraphs 27 to 29).
34. The above aspects were discussed with the concerned Lebanese author- ities in February 1983. Some possibilities offered by other aid donors were mentioned by P&T, which was invited to provide further information on these possibilities as they materialize and when the corresponding operations would have been defined and agreed in more detail. - 130 - Sectoral Annex VII Page 12 of 12
Table 1: ESTIMATED COST FOR THE RECONSTRUCTION/REHABILITATION PROGRAM (in LL million)'l
Local Foreign Currency Category Currency ICB Proprietary Total A. Local telephone service Exchanges - 15.0 20.0 35.0 Local networks (cable and overhead line systems, including civil works) 35.0 110.0 - 145.0 B. Long distance service Cables, aerial lines and multiplex equipment 2.0 13.0 5.0 20.0 Microwave equipment 7.0 20.0 3.0 30.0 C. International service Switching - - 3.0 3.0 Earth station equipment 1.0 2.0 5.0 8.0 Submarine cable station 0.5 - 2.5 3.0 D. Telex service Exchanges - - 2.0 2.0 Teleprinters 2.0 - 2.0 Transmission equipment - 1.0 2.0 3.0 E. Miscellaneous Power plants and air conditioning, 5.0 10.0 2.0 17.0 Vehicles, tools 3.0 12.0 - 15.0 Maintenance equipment 1.0 3.0 3.0 7.0 F. Local installations works, and buildings 36.0 - - 36.0 SubtotaLl 90.5 188.0 47.5 326.0 G. Contingencies 22.5 37.0 4.5 64.0 H. Technical Assistance 5.0 15.0 - 20.0
Total - in LL mi:Llion 118.0 240.0 52.0 410.0
-- in US$ m:Lllion 29.5 60.0 13.0 102.5
1/ See text paragraph 19 for detailed basis of calculation.
Source Mission Estimates - 131 - Sectoral Annex VIII Page 1 of 8
WATER SUPPLY AND SEWERAGE SECTOR
A. DESCRIPTION OF SECTOR
Lebanon Water Resources
1. Lebanon has a relative abundance of water resources, but the demand is increasing whereas the development of water supply systems has been stopped for many years. The country will therefore face a critical situation in the near future unless prompt and effective action is taken. It was estimated, before 1975, that about 98% of the urban population (about 50% of the total population) were served with drinking water through house connections, and 85% of the rural population had reasonable access to piped water, but the service is poor because of water shortage. In the dry season, that is, the months of August to December, there is rationing throughout the country and the risk of pollution increases when the system is not under pressure: some 1,100 springs and 372 well systems are in operation. The quality of water from the springs is rather good, but their flow dwindles in the dry season. At that time, more water is pumped from the wells, even though those along the coast are salty.
Beirut Water Resources
2. The Beirut region is served by two water authorities: the "Office des Eaux de Beyrouth" (OEB) and the Ain El Delbeh water agency. Together, they supply about 200,000 m3 /day in the dry season from the following sources:
Dry season m3/day (A) OEB
Jeita Spring 100,000 Kashkoush 50,000 Makhada wells(2) 4,500 Nahr El Kalb wells(2) 8,000 Champville well 2,500 Antelias wells(2) 9,000 Saltaneh Spring 10,000 Salom4 wells 8,000 Hadeth wells 12,000 Dekwaneh wells 10,000
Sub-Total 214,000 (Water used for irrigation of agricultural land) (60,000)
Total A available for drinking purposes 154,000 - 132 - Sectoral Annex VIII Page 2 of 8
(B) A;n El Delbeh
A;n El Delbeh Spring 9,000 Wells 40,000
Total B 49,000
TOTAL A + B 203,000
In the wet season, from January to July, the JeYta spring supplies easily 400,000 m 3/day, but the distribution facilities represent a bottleneck: the Dbayeh treatment plant and the pumping station should be expanded; a needed new force main from Dbayeh to Achrafieh is under construction, financed by the first Bank Reconstruction Project (Loan 1476-LE).
Beirut Water Demand
3. Although the present population of Greater Beirut is difficult to determine, particularly in view of recent population migrations, most esti- mates place it at about 1 million and expanding rapidly. Domestic demand is estimated at 170 liters per capita per day (lcd) (water received and used by customers). If we take into account the very high water losses, this figure becomes 340 lcd, much higher than the available 200 lcd. Because of this shortage, there iispresently water rationing in the city on a rotating basis, even in the wet period; cut-offs last approximately 8.6 hours per day (h/d) in the wet season and 13.6 h/d in the dry season. The risk of pollution increases when the system is not under pressure. Analyses of some samples taken by OEB in west Beirut reportedly indicated the presence of local contamination.
Sewerage
4. The sewer connection level is rather good: 50% of all the population of the country and practically 100% of Beirut's population are served by a sewer system. But the sewer system is overloaded and badly maintained. Basic sanitation requirements, such as treatment before discharge or discharge through adequate marine outfalls, are not met. The existing facilities are operated and managed by the municipalities, which lack the technical expertise and the financial resources to provide adequate services.
5. UNDP financed the preparation of a "National Waste Management Plan" which was carriediout in 1980-81 with WHO as executing agency. These studies cover all of Lebanon except Greater Beirut. The studies include a Master Plan for the collection and disposal of wastewater and solid wastes, feasibility studies for works included in the first stage of the Master Plan, a study regarding the creation of a national authority for environmental control and sanitation, and the implementation of a training program for personnel in the field of environmental and health engineering. The conclusions and recom- mendations presented included a program of urgent works (LL 396 million for wastewater, LL 32.4 million for drainage and LL 164.9 million for solid wastes in 1982 prices). A Technical Working Group, established in the Council for Development and Reconstruction (CDR), would be in charge of its implementation. - 133 - Sectoral Annex VIII Page 3 of 8
B. INSTITUTIONAL ASPECTS
6. One of the most serious obstacles to progress in water supply throughout the country is the great number of water authorities. All water supply authorities are controlled by the Ministry of Hydraulic and Electric Resources. However, a lack of clear division of responsibility among the Ministries of Interior, Public Health, Hydraulic and Electric Resources, the Municipalities and the State Agencies results in an absence of effective decision-making concerning water supply at the national level. The water sup- ply management and control were shared among 73 authorities in 1966, but the number was reduced to 18 in 1971. At that time, the Minister of Hydraulic and Electric Resources submitted a proposal for further reduction of these bodies down to five, each one to be responsible for a province (Mohafaza). This pro- posal has never been acted upon.
7. For Greater Beirut, two authorities are involved in water supply:
(i) Office des Eaux de Beyrouth (OEB), which serves all the municipal area as well as its northeastern suburbs following OEB's merger with the Jal El-Dib concession. OEB has a staff of 500, including six engineers; this number is adequate to carry on the normal operation of the system.
(ii) Ain El Delbeh water agency, which serves the southern and south- eastern suburbs, including Baabda, Hazmiyeh, Furn El Shebbak, Ain El Rummaneh, El Hadath, Burj El Barajneh, Mraijeh and Choueifat.
In 1974, the Government decided to merge these two authorities to create a single water authority for Greater Beirut, but this decree has not yet been implemented.
Tariffs
8. Except in Tripoli, most consumers are served through orifice con- trolled connections which are supposed to provide 0.5 or lm /day. Water is not metered but paid on a subscription basis. In recent years, the lack of control has greatly reduced the revenue obtained from user fees, and users remove or tamper with the orifice connection to increase their withdrawal above the subscription amount. In Beirut, the annual water charge had been unchanged from the time of the concession (before 1956) to 1978. It was agreed, during negotiations of the first Bank Reconstruction Project (Loan 1476-LE), that OEB would double that rate. A new tariff was implemented on January 1, 1979, and another one on January 1, 1982; - 134 - Sectoral Annex VIII Page 4 of 8
From 1956 to From Jan. 1, 1979 From Jan. 1, 1982 Dec. 31, 1978 to Dec. 31, 1981 a) Orifices 0.5 m3 /day LL 50/year LL 75/year LL 175/year 1 m3 /day LL 100/year LL 200/year LL 400/year b) Meters 1 m3 /day LL 220/year LL 495/year Surplus LL 0.70/m3 LL 1.50/m3
At an exchange rate of LL 4.0 for one US$, this works out at US$ 0.24 to 0.37 per m 3. These present rates should be adequate if OEB is able to collect the bills and to reduce unaccounted-for water. With this in mind, a decision has been made to replace, progressively, all the orifice connections with water meters. Its implementation is included in the study being carried out for the Beirut water distribution system, and financed by the first Bank Reconstruction Project (Loan 1476-LE).
9. For sewerage, the consultant of the National Waste Management Plan recommended that a National Waste Management Authority, responsible for planning, funding, training and monitoring enforcement, be established.
10. The mission recommends that the Government establish a National Water and Sewerage Authority, which would be responsible for the planning, designing and construction of new works, for the fixing of tariffs and for financing the execution of the various projects. It will also be responsible for the opera- tion and maintenance of all the water and sewerage systems. The present Beirut Water Authority could serve as the nucleus for such a national entity.
C. DAMAGE ASSESSMENT
11. Many facilities were damaged, but most of these have been or are being repaired. The main problem of the water supply and sewerage sector stems from the laick of investments and maintenance over the last decade. In addition, during that period, the population has increased in most of the urban areas. Therefore, the needs cannot be met without a large rehabili- tation and expansion program. This program was roughly estimated at about LL 350 million in 1982 prices.
D. RECONSTRUCTION AND DEVELOPMENT PROGRAM
12. The following investment program takes into account the priority needs, the status of preparation of necessary studies and the implementing - 135 - Sectoral Annex VIII Page 5 of 8 capability of the responsible agenciesJl. A summary of the 1983-90 investment program is shown below, while Table 1 shows this program in greater detail.
INVESTMENT PROGRAM (LL million in 1982 prices)
1983 1984 1985 1986 1987 1988 1989 1990 TOTAL
I. Water Supply
A. Reconstruction 33 121 146 300 B. Development 334 572 580 390 180 165 2221
II. Sewerage 50 80 150 320 400 350 350 350 2050
Sub-total I+II 83 201 630 892 980 740 530 515 4571
III. Supervision 5% 4 10 31 45 49 37 26 25 227
IV. Physical contingencies 15% 13 30 93 134 147 111 80 78 686
V. Studies 14.3 17.4 9.7 41.4
TOTAL 114.3 258.4 763.7 1071 1176 888 636 618 5525.4
E. The 1983-85 PUBLIC INVESTMENT PROGRAM
13. The 1983-85 program was estimated at LL 3028 million in 1982 prices and of which LL 1136 million are expected to be disbursed during this period. (Attachment 1 and Table 1)
F. TECHNICAL ASSISTANCE
14. Success in the implementation of the above program requires the completion, according to a reasonable schedule, of the following necessary studies:
(a) Bisri Dam feasibility study (to be completed by the end of 1983);
(b) Beirut water distribution feasibility study (to be completed by the end of 1984; a first phase would be completed in mid 1983);
1/ The Damour-Beirut water supply project could be included in this program if the updating of the Awali-Beirut study concludes that the Damour proj- ect is feasible as a first stage of the whole project. - 136 - Sectoral Annex VIII Page 6 of 8
(c) Updating of the Awali-Beirut water supply study;
(d) Beirut sewerage feasibility study;
(e) Sewerage feasibility studies for Tripoli, Jounieh, Zahle and Saida; and
(f) Oceanographic survey for sewer outfalls.
Financing of the (a), (b), (c), (d) studies above is included in the first Bank Reconstruction Project (Loan 1476-LE); the (e) study should be financed by UNDP and the Bank has agreed to finance the (f) study from the proceeds of the Loan 1476-LE.
15. Management consulting services will be necessary for the organization and establishment of a National Water and Sewerage Authority. The first phase of this action would aim al: improving the management capability of OEB. The consultants wouldl prepare detailed recommendations for organization and management, including salary structure accounting practices and tariff policy of the new authority. The contract would include technical assistance for implementation.
16. There is an urgent need for development of a national multipurpose water master plan. A major objective of the plan would be an increased coor- dination between developments in irrigation and potable water. The latter is often used for irrigation, while water authorities using the same resources cannot meet the needs of the population. The consultants, who would be recruited for this purpose, should be asked to prepare recommendations about the best allocation and use of all available water resources, including criteria for the decisions to be taken by the Government in this respect. - 137 - Sectoral Annex VIII Page 7 of 8
Table 1: WATER SUPPLY SECTOR INVESTMENT PROGRAM 1983-85 (LL million)
1983 1984 1985 1986 1987 1988 1989 1990 TOTAL
I. WATER SUPPLY
A. RECONSTRUCTION
1. Beirut water authority
Ongoing project 10 10 Dbayeh Treatment Plant 2 2 3 7 Improvement water resources 2 6 6 14 Tallet el Khayat pumping station 3 3 Achrafieh electrical station 1 4 7 12 Transmission line JeYta-Dbayeh 20 30 50 Distribution system I 17 20 37
2. AYn El Delbeh water authority
Network rehabilitation and Improvement of water resources 3 5 7 15 Damour/Bordj Barajneh pumping stations 1 1 2
3. Networks rehabilitation
Jounieh 2 10 13 25 Khiam 1 1 2 4 Joubeil 2 7 26 35 Saida 1 2 9 12 Zahle 1 8 11 20 Koubayat 1 1 2 4
4. Plants rehabilitation
Taibeh treatment plant 3 3 6 Pumping equipment 24 24 Treatment plants 10 10 20
Sub-Total A 33 121 146 300
B. DEVELOPMENT
Beirut distribution system II 100 100 100 100 400 Djebel Amel project 60 60 120 Anane project 50 100 150 20 320 Awali-Beirut water supply 50 130 180 120 480 Quaissamani Lake 24 24 48 Azzibeh Lake 20, 28 48 Chabrouh Dam 30 30 30 30 120 Beirut distribution system III 100 100 200 Tripoli water system 50 50 50 50 50 250 Tyre water system 30 30 30 90 Beit Eddine Dam 20 20 20 60 Bared Dam 20 20 20 60 Beit El Hadj Lake 5 5 10 Kafifane Lake 5 10 15
Sub-Total B 334 572 580 390 180 165 2221
Base Prices; (Total A + B) 33 121 480 572 580 390 180 165 2521
Supervision 5% 2 6 24 29 29 20 9 8 127
Physical contingencies 15% 1/ 5 18 71 86 87 58 27 25 377
TOTAL 40 145 575 687 696 468 216 198 3025
17 Included in the cost of the project on Attachment I.
Source; Mission's Estimates. - 138 - Sectoral Annex VIII Page 8 of 8
Table 2: SEWERAGE SECTOR INVESTMENT PROGRAM 1983-90 (LL million)
1983 1984 1985 1986 1987 1988 1989 1990 TOTAL
II. SEWERAGEAND WASTE DISPOSAL
National Waste Management Plan I 50 80 100 170 400 Beirut Sewerage I 50 150 50 250 National Waste Management Plan II 200 200 200 200 800 Beirut Sewerage II 150 150 150 150 600
Sub-Total 50 80 150 320 400 350 350 350 2050
Supervision 5% 2 4 7 16 20 17 17 17 100
Physical contingencies 15% 8 12 22 48 60 53 53 53 309
TOTAL 60 96 179 384 480 420 420 420 2459
III. STUDIES
Institution building 1.0 2.0 3.0 Awali-Beirut 0.5 1.0 1.5 Bisri dam 6.0 2.0 8.0 Beirut distribution system 4.0 4.0 8.0 National Water Master Plan 1.0 3.0 4.0 Beirut sewerage 1.6 3.4 1.5 6.5 Jounieb, Zahle, Tripoli, Saidi sewerage 1.2 2.6 1.2 5.0 Oceanographic survey 1.0 2.4 2.0 5.4
TOTAL 14.3 17.4 9.7 41.4
1/ An amount of LL 4.0 million was spent prior to 1983. - 139 - Sectoral Annex IX Page 1 of 9
A NOTE ON THE BEIRUT CENTRAL BUSINESS DISTRICT
A GENERAL REVIEW
Background
1. The Central Business District (CBD)l/ of Beirut, covering an area of about 150 hectares (1.50 million square meters) was not only the geographical center of the city but its commercial and historic center as well (See IBRD Map 17081). Its old souks and traditional buildings, surrounded by one of the world's most flourishing banking centers and series of luxury hotels equally attracted local residents and foreign tourists. Businessmen, shoppers and visitors from all parts of the city daily converged on the CBD to look after their businesses, to go to one of a multiplicity of movie theatres or pass through to some other part of the city.
2. The area of the CBD is shown on the attached map IBRD No. 17081 and is bounded by the following arterial roads:
- Avenue Fouad Chehab to the South;
- Avenue Fakhreddine to the West;
- South-east Penetrator to the East; and
- The Sea between the St. Georges Hotel and the first basin of the port to the North.
This area was one of the most damaged sectors of Beirut, with its grand hotels burnt down, the shopping areas destroyed, the old souks torn down and business activity terminated. It had already turned into a deserted ghost town by 1977, but was still not spared from the sporadic shelling that went on until the summer of 1982. People who lost their businesses and sources of income moved out to the mushrooming growth poles in the residential areas and suburbs of Beirut, but nothing could replace the concentrated action and the throbbing pulse of the long-established CBD.
3. One of the Government's top priorities was the reconstruction of the CBD in order to create the conditions necessary for the recovery of business activity in the city and to encourage the private sector to re-establish itself. Studies were commissioned and plans were drawn for the commencement of construction works by August 15, 1978. However, due to continued fighting along the "green line" which cut Beirut in two the project did not materialize.
1/ Although the official title of the project was the "Beirut Central District--BCD," the more common term "Central Business District--CBD" is used in this document. - 140 - Sectoral Annex IX Page 2 of 9
Project Objectives and Components
4. The objectives of the project are to (i) reconstruct the areas destroyed during the events; (ii) carry out improvement projects that had long been planned but not executed because of the events; and (iii) renovate and modernize the infrastructuire of the CBD, including all public service net- works. The aim of the project at present proposed by the Government is to:
- preserve' and repair buildings and monuments of historic and archeo- logical value, and create public parks and gardens around them;
- preserve and repair areas having a particular, traditional character;
- create new commercial complexes with parking facilities;
- create public gardens in the touristic areas around the hotel district;
- construct new buildings to replace structures that have been complete!lydestroyed;
- construct a new transit system that would facilitate the East-West movement: through the CBD without causing unreasonable congestions; and
- extend the CBD through the construction of new outlets.
5. Some of the main components of the proposed project are the following;
(i) a coastal expressway and tunnel along the northern sea-front near the port;
(ii) an express tunnel under the Serail, connecting the South-west Penetrator to the coastal expressway and creating an exclusive bus lane linking with the North-east.
(iii) a new road linking the Hamra area to the CBD at Bab Edris;
(iv) a new road linking the South-east Penetrator to the CBD;
(v) interchanges linking all major arterial roads with the CBD;
(vi) a concrete slab joining the Maarad area with the sea wall at the port, making use of the natural fall of the ground towards the port and creating a shopping plaza and parking facility;
(vii) multi-storey car parking facilities; and
(viii) rehabilitation of the water supply, sewerage, power and telecommuni- cations networks. - 141 - Sectoral Annex IX Page 3 of 9
Status of Project Preparation
6. A Master Plan of the CBD was prepared by an internationalconsultant specializing in urban projects under the guidance of a commission headed by the Governor of Beirut. Work on the Master Plan was completed in 1978 and the preparationof detailed technicaldesigns, specificationsand tender documents was entrusted to local consultants under the supervision of the Governorate and coordinatedby an internationallyknown Lebanese consulting firm. About 50% of the works proposed for public sector investment under the present project are ready to go to tender. The first roadway, the coastal highway (voie littorale) is being tendered out, with the closing date for tenders set for April 15, 1983.
Land - Use Planning
7. Prior to the events CBD contained a built up area of 1,941,400 square meters of floor space distributedamong various activities as follows:
Million Sq. Meters Commercial 21% or 0.41 Offices 32% 0.62 Residential 32% 0.62 Hotels and Entertainment 15% 0.29 100% 1.94
8. In 1924 this floor space and many of the activities accommodatedin the CBD were in a state of stagnation due to the rent control legislation governing landlord/tenant relations, the bad public services and the inade- quate infrastructure.
9. The Master Plan for re-generating the CBD has revised the layout of about 700,000 square meters or about 46 percent of the CBD land. Table 1 shows the most important characteristics of the areas to be redeveloped and the legal means proposed in Decree No. 1163 for their implementation. This Table shows that the present development increases the floor space from 1,941,400 square meters to 3,370,000 square meters. This floor space will be allocatedto the followingactivities.
Million Sq. Meters Commercial 27% or 0.91 Offices 43% 1.45 Residential 16% 0.54 Hotels and Entertainment 14% 0.47 100% 3.37
Roads Network and Public Services
10. On this subject the Master Plan explains that the reconstruction of CBD includes radical improvement of its roads network and public services (Map IBRD 17082). This improvement constitutes an incentive to re-commence the CBD's economic and social activities and services on a good level which would facilitate arrival to and departure from the district, promote movements in it and provide the locality with complete public service networks, public squares, - ?42 - Sectoral Annex IX Page 4 of 9 gardens, pedestrian zones and private and municipal parking for over 6,000 vehicles.
11. The reference to the construction of a tunnel for future metro which, justly, has been criticized as somehow extravagant, it could be justified as part of the present development when it is explained that this tunnel will be used as of now as an express lane for Public Transport Buses with bus stops at Ghalghoul, Bab Idriss and Byblos.
B. INVESTMENT PROGRAM
Infrastructure
12. The project contains new roads, parking, bridges, road tunnels, bus tunnels, gardens and open spaces and a complete underground network of ser- vices for the area as it is to be developed. In 1982 prices these works were estimated by the consultants as follows:
Expropriation Construction Total Cost Infrastructure of Land Costs (LL) Million
1. Road Networks 204.4 833.0 1037.4 2. Public Services 675.0 675.0 3. Open Spaces 49.1 67.0 116.1
Total 253.5 1575.0 1828.5
It was assured that LL 600 million would be spent in 1983-85 (Attachment 1).
Zones Subject to Restructuring
13. Building zones subject to restructuring in CBD are included within the framework of various real estate operations which are set in motion by the Administration which participates fully and effectively in them.
14. The financial and economic study prepared in 1978 had shown that the financial income of this operation should be, in 1978 prices, of the magni- tude shown below (in LL mi:Llion but 1978 prices):
Financial Net Income of Expenses Income from The Administ- Locality Land Sales ration
- Ghalghoul 13,2 71 57,8 - Clemenceau/Bab Idriss 51,0 136,7 85,7 - Front De Mer 185,8 461,4 275,6 - Dalle du Port 33,7 1060,2 1026,5 - Souks Tawile/Ayass/Jamil 59,5 70,3 10,8 - Souks Quest de la Place des Martyrs 31,8 53,4 21,6 - Saiffi Zone 12,5 49,4 36,9 - Debbas _ 27,9 27,9 Total 387,5 1930,3 1542,8 - 143 - Sectoral Annex IX Page 5 of 9
15. Now that final designs and detail drawings of the remaining compon- ents of the project are nearing completion, the Government has; carried out a more precise estimate of the cost of construction. The latest estimates indi- cate that the public sector will have to provide in the next five to six years financing of the order of LL 1.8 billion (in 1982 prices) for constructing the infrastructure and the expropriation of the land.l/ At the same time, the private sector will have to provide about LL 5.0 billion (in 1982 prices) to reconstruct, renovate or rebuild the damaged buildings. For the Government, this would mean an annual outlay of over LL 300 million ($75 million equi- valent) in 1982 figures, per year for 6 years starting in 1983. Likewise, the private sector is expected to invest over LL 600 million ($150 million equivalent) in 1982 prices, per year for 8 years (Attachment 1).
16. The revised and updated estimate makes this one of the largest single projects in the whole of the Lebanese reconstruction program. Yet, this esti- mate may still be low since projects of this type have usually tended to grossly exceed original budget estimates. It would, therefore, be most ad- visable for CDR and the Government to review the contents of this project and decide whether it should be simplified and reduced in scope, and/or have some of its components postponed until more urgent needs are met elsewhere in the country.
Project Execution
17. The Consultant's report indicates that for carrying out the project described in the Master Plan it will be necessary for the Governorate to carry out extensive expropriations of land. In some areas, it will be also neces- sary to use the legal instrument of Acquisition, Reparcellation and Return to owners, which is known as the "Remembrement Method". In other cases where it would be difficult to reparcel and return to owners, because of the size of structure or need to build specialized buildings, the Method of "Societe Fonciere" will be used. This means that the property owners and tenants be- come shareholders in the operation based on an agreed formula.
18. The mission has reviewed the laws and decrees under which expropri- ation of land can take place and consider them suitable for expediting imple- mentation, especially the decree that gives the municipality the authority to become the owner of a piece of expropriated land within seven days of making a first offer to the original owner, provided it deposits the amount of the offer with the relevant tribunal.
1/ The Consultant's Report of February 1, 1983 states that the net income to the administration from these real estate operations covers full costs of implementation for roads network, public squares and various service networks. It would also realize a surplus amount as a result of the increase in land prices (above the 1978 level) of about LL 600 million when work was planned to start. - 144 - Sectoral Annex IX Page 6 of 9
19. Undeniably, the reconstruction of the CBD of Beirut is an urgent necessity to re-launch the economic activity vital to recovery and growth. Yet it is an expensive proposition, and one where government inputs are bound to put a strain on public finances since the cost recovery mechanisms presently envisaged (improvement taxes collected after the fact or resale of land after com[pletion of the infrastructure) will bring in the expected revenues only gradually over time, cause a heavy initial burden on the treasury and rernainhostage to risks of delinquency and poor tax-collection.
20. Conversely, there is no question that the reconstruction of the CBD could be a high:Ly profitable enterprise. It concerns the prime real estate in the Middle East, There is, therefore, no reason why it could not be done on a commercial, business-like, profitable basis. To this end the mission has suggested some alternative ways to achieve this target.
Proposed Approach
21. One possibility worth considering would be to create a Municipal Development Corporation (CMDC) whose equity would be partially owned by the Government (following a formula along the lines of "remembrement" and "Societe Fonciare") but covering the whole CBD, not just individual blocks, as presently envisaged. Under this formula, the Government would get a share of the equity, equal to 25% of the total (for its developer role) plus equity proportional to its share of the land, i.e., all streets and public lands within the perimeter of the designated area. The MDC would play the role of a private developer, borrowing for the reconstruction effort against its equity.
Issues
22. It may be asked whether the Government is obligated to provide a subsidy as a form of compensation for the losses businessmen incurred during the war. It is believed that a case could be made th,at such a subsidy/com- pensation would not be justified in this case. The inflationary impact of public deficits, the likely increase in speed of ultimate execution (which would benefit the businesses), and the undoubted appreciation of property values as a result of reconstruction, all argue in favor of a profit-oriented self-financing approach.
23. Another issue that needs to be considered is that of the rights of tenants in such a scheme. At present, the tenants have accumulated an intan- gible equity ("pas de porte") which can be realized only if they vacate the premises. This has created a rigidity in the present system that would argue well in favor of an MDC type of approach that would allocate tenants a share in the overall scheme, according to formulae that can be discussed and agreed.
24. It may be argued that a gigantic enterprise of this kind could prove unwieldy to a government bureaucracy that is not well equipped at present. Yet, on the contrary, it should be easier to establish one management struc- ture to deal with a substantive "remembrement" of this type than to establish four or five such structures, each dealing with a single block. Furthermore, - 145 - Sectoral Annex IX Page 7 of 9
the enlarged area would include more streets thereby increasing the Govern- ment 's share in the MDC.
25. This approach by the Government could be considered by some to be an "abuse of power". Undoubtedly property owners would like to minimize their outlays while still benefitting from reconstruction. Projects of this magni- tude invariably run into strong vested interests.
26. Finally, it may be argued whether the MDC should undertake the entire project as presently conceived, or only part of it. However, with or without the proposed MDC, the objective economic and financial conditions argue for either a substantial reduction in scope, or a postponement of the execution of some components or both. It is believed that it would be advantageous to expedite reconstruction of the CBD, while scaling down some of the scope of work, but always minimizing public outlays. The Government would have to weigh whether it is possible to resist the strong pressures for resumption of activity in the CBD in order to improve its ultimate shape.
Recapitulation
27. The mission's proposal is therefore to establish an MDC that would be governed by an amalgam of the laws establishing "Societd Fonciere" and "remembrement" projects and launch a first tranche of construction projects by the end of 1983. The MDC would have jurisdiction over the 150 hectares of the CBD and would be responsible for the redevelopment of the whole CBD. It could choose, selectively, to exclude certain parts of the area (such as archaeological sites) and could execute for the Government, and charge it full cost, those project components that are of city-wide interest and strictly public in nature such as gardens and open spaces.
28. Some of the major infrastructures proposed should be reconsidered: the roof slab at the port, depressed expressways, etc. At a time when the Lebanese economy is reeling and prices are rapidly escalating, such projects should be very carefully scrutinized since they have proven grossly uneconomic in most countries, even at times of rapid economic growth (e.g. the USA).
29. The reasoning behind this proposal is clear: although there are prob- lems, there are also opportunities. Clear advantages will accrue to the Government from endorsing such an approach: it minimizes drains on the public treasury, it mobilizes private sector resources, and it stabilizes/quantifies some of the intangible aspects of the established tenant rights. Given the magnitude of the tasks envisaged for the reconstruction of the CBD, it is probably a good idea to reconsider priorities and establish a sound institu- tional framework before committing a fragile public treasury to multi-billion dollar investments, some of which are of doubtful merit.
30. The various concepts and aspects proposed and the issues raised have been considered by the Government, who nevertheless retain the position that the proposed intervention is the best possible under the circumstances in order to maintain control and secure benefits for the city population as a whole. - 146 - Sectoral Annex IX Page 8 of 9
Recommendations
31. Nevertheless the mission recommends that the Government form a high level "steering group" to review the CBD reconstruction efforts and recommend policies and plans of action. The steering committee could be assisted by a consulting team. Such a group should include representatives from CDR, the Ministry of Public Works and Transport, the Beirut Municipality, the Ministry of Finance and the Chamber of Commerce. Its first tasks would be to.
(i) review the proposed implementation mechanism (existing schemes and the MDC) and draft Decree laws as appropriate to enable the start of operations in the preferred mode;
(ii) review the existing plans and ideas and identify those most urgently needed for re-starting the economic activity in the CBD;
(iii) identify those elements of the present schemes that should be excluded from consideration and those that should be the object of further study; and
(iv) prepare a priority ranking and general timetable to guide the development and implementation of the CBD reconstruction effort reflecting the key decisions in (ii) and (iii) above.
32. In parallel with the overall development of the CBD, a determined effort should be made by the private sector in consultation with the Government, to repair and bring back to operation the hotels and other major activities in the CBD. The approach of the Government, it should be reiter- ated, allows the largest possible freedom to provide owners to develop on their own accord. The Government is only intervening by acquiring land in areas where infrastructural deficiencies exist and must be corrected--e.g., construction of roads, tunnels, public spaces, gardens, pedestrian access, utility networks, etc.
33. In conclusion, it is being stressed that a considerable amount of the infrastructure expenditures for the CBD would produce benefits to the inhabi- tants of the City as a whole, this justifies both the priority order assigned to this project and the magnitude of the proposed improvements. - 147 - Sectoral Annex IX Page 9 of 9
Table 1; COMPARISON OF PLOT AND FLOOR AREAS IN THE CBD
BEFORE AND AFTER THE MASTER PLAN (Sq. m)
Zone Areas in 1975 Future Areas Legal Method of Implemen- According to tation as Per Decree No. 1163 Plot Floor Plot Floor Area Area Area Area
A- Ghalghoul 36150 64600 32500 195000 "Societe Fonciere"
B- West of Serail 21250 37100 14550 59000 New Zoning Regulations
C- Clemenceau - Bab Idriss 58000 148500 57600 279200 Reparcellation & Expro- priation by zone of Bab Idriss Area
D- Front De Mer: Phoenicia - Normandy 42600 103600 39450 147050 Reparcellation/Expro- priation by Zone and Direct Traditional Expropriation
E- "Dalle Du Port" 61500 49150 50400 252000 Reparcellation/Expro- priation by Zone and Partial Expropriation.
F- Souks Ayass/ Tawile/Jamil 38200 103150 35200 141950 Expropriation by Zone/ Direct Traditional Expropriation/Partial Expropriation
G- Souks Ouest De La Place De Martyrs 27250 62250 28100 89200 Direct Traditional Ex- propriation(l)/Expro- priation by Zone
H- Saifi 30000 44300 27900 137400 Societe Fonciere
J- Debbas 10100 12600 9000 54000 Reparcellation
Total Zones to be Designed 325050 625250 294700 1354800
Liberated Area 363100 1316150 363100 2015200
Grand Total 688150 1941400 657800 3370000
(1) In view of the destructions which took place in this zone after 1978, it is impossible to restore many of the sections which the Master Plan calls for restoration. Hence, it is advisable to have them restructured in a radical way through the establishment of a "Societe Fonciere". - 148 - Sectoral Annex X Page 1 of 19
INDUSTRIAL CREDIT
A. THE FINANCIAL SECTOR
Overview
1. The financ-ial sector is by far the strongest sector in the Lebanese economy and has remained relatively unaffected by the hostilities since 1975. Its total assets grew at about 25% p.a. from LL 17.8 billion in 1975 to LL 74.8 billion by November 30, 1982 ($7.3 billion to $18.1 billion respectively) 1/ and it accounts for employment of over 12,000 in the country. The sector consists of three types of institutions: The Banque du Liban (BL), which is the central bank, 89 commercial banks and five specialized financial institutions. The specialized institutions consist of four development banks for providing medium and long-term credits to industry, real estate and agricultiure and one institution for promoting secondary capital markets i(para 8 and 9). In terms of the size, total assets of the Banque du Liban as of November 30, 1982 were LL 13.6 billion ($3.3 billion), and that of commercial banks were LL 60.6 billion ($14.6 billion) and specialized banks were about LL 600 million 2/ ($145 million), i.e., 18.2%, 81.0% and 0.8% of the total assets in the banking system respectively. In addition to these institutions, the Government has created several special facilities by promulgating decree laws (DL) to assist revitalization of the industrial sector destroyed or dislocated by the war (paras 26 through 32).
Banque du Liban
2. Founded in 1964, with a primary function to formulate and implement monetary policy. To insure that banks follow sound business principles, an autonomous Banking Control Commission has been established. The commission, with a staff of 30, monitors banks in accordance with the principles laid down in the Code of Money and Credit through periodic and annual reports and on the spot inspection. Policy instruments at the disposal of BL include the enforcement of statutary reserve requirements for banks, intervention in foreign exchange markets to support the exchange rate of the Lebanese pound (LL) when necessary and monitoring the growth of credit and its sectoral distribution. Finally, Bl, has been the Government's principal advisor in undertaking successive issues of Treasury (T) bills since 1977. These bills, which currently carry an interest of 9 1/2% p.a. and are for a term of three months, are believed to serve as a floor for short-term deposit rates in the country. In gen,eral, BL uses its powers very discreetly and only when-
1/ Conversion in US$ at exchange rates in the year of reference. 2/ This figure has been estimated on the basis of the annual reports of development banks for 1981 and 1982, as available. - 149 - Sectoral Annex X Page 2 of 19
powers very discreetly and only when destabilizing speculative fluctuations occur in exchange rates and credit. For example, it does not directly set lending or deposits rates: these being influenced by free convertibility of LL (which imposes links to international interest levels and exchange rate movements), occasional interventions of BL described above, and the liquidity of the individual banks and credit ratings of their borrowers. Furthermore, except for a brief period in the late 1970s, the BL has not imposed credit ceilings on the banking system .
3. Between the end of 1975 and November 31, 1982, BL's total assets grew at about 18.5% p.a., from LL 14.2 billion ($1.7 billion) to LL 36.6 billion ($3.3 billion) respectively. The largest increase was in the credit to public sector: from 0.4% to 22.9% of total at the end of the respective periods, an increase of about 210% p.a. The bulk of the increase was in direct loans to the Government to finance the increasing volume of public deficits. Credit to private sector also increased from a low base of 0.1% in 1975 to 1.9% in 1982. Gold and foreign exchange declined from 89.8% to 73.0% (although it should be noted that gold is valued substantially below the market price) and the credit to commercial banks declined from 2.5% to 0.8%. The liability structure has not changed significantly between 1975 to 1982. Currency in circulation as a percentage of total liabilities declined from 56.0% to 41.2%. Demand deposits increased from 17.6% to 26.9% and public sector deposits declined from 20.6% to 17.57 during that period.
Commercial Banks
4. There are 89 commercial banks in Lebanon with total assets as of November 30, 1982 of LL 60.6 billion ($14.6 billion). The strict secrecy law governing banking activity, a relatively regulation free banking sector and free convertibility of LL may account for the large number and size of banks as compared with the size of the country's economy. Out of 89, 18 are classified as foreign banks, 26 as Lebanese banks with majority foreign participation and 45 as Lebanese banks with majority participation of nationals. The three categories account for about 22%, 31% and 46% respectively of the total assets of commercial banks. Thirteen banks (three foreign, four with majority foreign participation and six Lebanese) have assets over LL 1 billion each and account for 50% of the total commercial banks' assets. The assets in the commercial banking system increased by about 24% p.a. between the end of 1975 and November 30, 1982.
5. Resources; The major engine of this growth has been private deposits by residents 1/ which grew at 26% p.a. since 1975 to reach LL 41.1 billion ($9.9 billion) as of November 30, 1982. These private deposits currently account for 67.9% of total assets. Other resources of the banks include public sector deposits (mainly deposits of the Social Security Fund, 1.3% of total assets), deposits of non-residents (3.6%), deposits of foreign banks (7.1%) and equity and other liabilities (20.1%). Lebanese residents are allowed to hold deposits
1/ It should be noted that distinction between residents and non-residents is difficult to make in Lebanon because of inadequate data. - 150 - Sectoral Annex X Page 3 of 19
in foreign exchange and conversely non-residents are allowed to hold deposits in LL. Overall, as of November 30, 1982, total deposits by residents and non-residents were LL 43.3 billion ($10.5 billion) of which 67.6% in LL and 32.4% were in foreign exchange. LL being freely convertible, the proportion of LL and foreign deposits fluctuates over a wide range depending upon the expectations about the rate of exchange of and interest rates on LL vis a vis foreign currencies. Over 90% of the total deposits in the banking system are of maturity of less than six months. The overall debt/equity ratio of the banks as of November 30, 1982 was 24.5; 1, which is high by international standards.
6. Applications; The banks currently use their resources as follows: 41.5% in credit to local private sector, 22.7% in foreign investments, 15.0% in credit to public sector, 6.3% in statutary reserves specified by Banque du Liban and the remaining 14.5% in miscellaneous and fixed assets. The credit to the private sector has grown 20.5% p.a. since 1975 to LL 23.2 billion ($5.6 billion) on November 30, 1982. As of that date, the largest share was given to trade (54.1%), followed by industry (17%), construction (11.1%), agricul- ture (2.6%) and special financial institutions (2.2%, primarily for real estate). The tenns of credits is not available but a majority (over 75%) is believed to be less than six months. (It is suggested that, in future, BL statistics,should include data on maturity of loans by sectors and rollovers, if any). It should be noted that the share of industry has marginally declined from 20% in 1975 to 17% in 1982. The industrial output, on the other hand has declined by substantially greater percentage since 1975 (see footnote on page 6). The relatively modest decline in the industrial credit may be explained by the fact that a substantial proportion of the credit is in default and is being simply rolled over from one year to another. Key indicators of the evolution of banking activity in Lebanon are shown below:
March Nov. 1975 1981 1982 1982
In % of Total Assets
Credits to private sector 50.6 40.8 43.1 41.5 (of which agriculture/Ind.) (22.6) (7.9) (7.9) (8.0) 1/ Credits to public sector 0.1 7.9 6.9 16.4 1/ Credits to non-residents 37.9 37.9 39.5 26.1 1/
In % of Total Liabilities
Deposits from private sector 62.8 67.5 71.2 67.9 (demand deposits in LL) 11.8 7.6 8.0 8.3 (other deposits iinLL) 35.5 32.0 32.5 39.0 (deposits in foreign exch.) 15.5 27.9 30.7 20.6 Deposits from public sector 3.0 1.5 1.2 1.3 from non--residents 21.2 13.9 13.9 10.7
Source: Central Bank's Quarterly Bulletins 1/ Preliminary estimates. - 151 - Sectoral Annex X Page 4 of 19
7. Interest Rates: In early 1983, the average LL lending rate of major commercial banks was about 15 - 16% p.a. and the rate paid on time deposits in LL was about 12-13% p.a., thus giving banks an average spread of about 2-3%. Although the estimated inflation rate of about 19.5% p.a. during the next three years, the lending rates are satisfactory given the relative freedom of operation of the banking sector, and free convertibility of LL and alternative investment opportunities for Lebanese investors. Term loans are normally given on variable interest rates.
8. Foreign Exchange Risk; Industrialists have traditionally preferred borrowing LL for financing their investment needs. So far, foreign exchange risk has not been a major issue, given the almost negligible use of external credits. However, should external credits to finance investments be used more widely and should the banks continue to accede to industrialists' preference to borrow in LL, this issue will require a close attention. This is particularly important for development banks, who are likely to depend on external sources to mobilize term finance.
9. Liquidity 1/1 Lebanese banks have traditionally maintained a high liquidity for two reasons; short-term nature of the deposit structure and free LL convertibility (para. 23). The liquidity as a percentage of total assets increased from 23.1% in 1975 to 36.8% in 1982. More important, the proportion of LL in overall liquidity icnreased from 25.5% in 1975 to 57.6% in 1982. The rise in the LL liquidity partly reflects surging local currency deposits and also partly the subdued demand for LL credits. The problem of high liquidity in general and of LL in particular is reported to have further exacerbated during the past three months due to appreciation of LL. Just how serious the problem is and its potential impact on banks' profitability is not clearly known for lack of data.
Specialized Institutions
10. Development Banks: The four development banks providing long-term loans to industry in the country are: (i) Banque Nationale pour le Developpement Industriel et Touristique (BNDIT), (ii) Investment and Finance Bank (INFI), (iii) Banque de Financement (BF) and (iv) Banque du Credit Agricole, Industriel et Foncier (BCAIF),. The salient operational features of these banks are given below:
1/ Banks have different measures for liquidity. For the purpose of this analysis, liquidity is calculated as cash and interbank deposits and reserves at the central bank plus T bills plus net claims on non-resident banks. - 152 - Sectoral Annex X Page 5 of 19
Table It OPERATIONAL FEATURES OF LEBANESE DEVELOPMENTBANKS
BNDIT INFI BF BCAIF 1. Established in 1974 1974 1972 1955 2. Ownership Government 51% - - 40% Private 49% 100% 100% 60% 3. Sectors of operation Industry Industry Industry Industry-Tourism Tourism Tourism Tourism Agriculture Real estate Real estate Real estate Special loans to lawyers 4. Staff (Professional) 25 10 4 20
5. Projects approved in 1982 from own - 20 30 169 resources Amount (LL mill) 10 10 14
6. CDR projects 16 15 4 N.A.
7. Total No. of pro- jects in portfolio 213 100 N.A. 1,000 (approx): - of which Industry 169 25 N.A. N.A. - Real estate 29 60 N.A. N.A. - Other 15 15 N.A. N.A.
8. Typical lending terms excluding CDR loans - Interest 12% 16% 17% 5 1/2-12% - Maturity 5 yrs. 5-6 yrs 2-3 yrs 3-5 yrs - 153 - Sectoral Annex X Page 6 of 19
11. The financial statements as of December 31, 1981 are given below in LL million;
BNDIT INFI BF BCAIF
Assets Advances and accounts receivable 267.0 69.1 54.8 276.7 Securities 2.0 16.2 1.0 31.6 Other 32.0 18.3 9.6 35.9 Total 301.0 103.6 65.4 344.2
Liabilities Term deposits 31.0 44.0 14.0 15.3 Loans from Banks and CDR 180.0 32.5 6.0 217.8 Other creditors 13.0 0.3 12.0 34.6 Capital 60.0 15.0 17.0 5.0 Reserves, provisions 17.0 11.8 15.7 71.5 301.0 103.6 65.4 344.2
Source; 1981 Annual Report of the Banks.
12. Societe Financiere (SF) was established by the Banque du Liban in early 1983 to promote secondary capital markets by trading in certificate of depo- sits, bonds and T bills. SF is in the process of organizing itself and has not yet begun its operations.
B. THE INDUSTRIAL SECTOR 1/
Situation prior to Hostilities
13. In 1974, Lebanon is estimated to have had about 9000 industrial esta- blishments with LL 2.5 billion in investment, output of about LL 2.3 billion (28.2% of GDP), exports of LL 836 million (about 24% of total exports) and employment of 120,000. Only five industries had investment of more than LL 25 million but over 150 had more than LL 1 million. Garments and textiles made up about 39% of the total number of establishments; wooden furniture and products about 20%; food stuff and beverage about 17% and other about 24%. Lebanon had a small but diversified industrial base manufacturing textiles, wood, food, electrical, engineering, metallic and non-metallic, chemicals, plastic, pharmaceutical and leather products. Much of the capital investment
1/ (a) The last systematic industrial census in Lebanon was conducted in 1974. Thereafter, some ad hoc studies have been undertaken to assess damage during the 1975 through 1981/82 hostilities. The analysis of industrial sector should, therefore, be considered as indicative. (b) See Note on Tourism at end of Annex X. - 154 - Sectoral Annex X Page 7 of 19
came from domestic private sources and from commercial banks as rolled over short-term loans. In 1974, the industrial output and exports were estimated to be growing at about 20%o and 30% p.a. respectively. Several factors were responsible for this robust performance including growing markets, particu- larly in the Gulf countries, cheap and abundant availability of labour, easy credit terms, political stability and effective protection.
Performance since 1975 and Present Situation
14. The 1975-1976 hostilities brought the first crisis in the sector; direct losses were estimated at about LL 500 million to over 250 industries, representing 20% in investment. A part of this capacity was restored and some new capacity was added by 1978, although precise estimate on industrial inves- tment cannot be made for lack of data. The performance has fluctuated since then with production rising during the period of relative calm and declining during hostilities. Overall, by 1980, the total output had risen to LL 4.5 billion. In real terms, this represents a fall of 34% in the output since 1975. Renewed hostilities in 1981, particularly in Zahle (in Bekaa valley) is estimated to have! caused direct damages to 100 industries with investment of over LL 2 billion. The 1982 war and its aftermath appears to have crippled the industrial sector in Lebanon: another 100 enterprises were completely destroyed and 200 - 300 were partially destroyed representing a total direct damage of over LL 375 million (at present, it is estimated that about 5000 enterprises rema:in in the country). Further, in addition to the direct destruction, the industrial sector has suffered substantially from indirect disruption causeci by war related economic disturbances. This problem has become increasingly acute during the recent years. Statistics during the past few years are not very reliable but it is estimated that about 700 - 800 enterprises out of those currently remaining in Lebanon have closed down be- cause of operaticnal or financial difficulties. The remaining are operating at very low or moderate levels of capacity utilization.
15. Four causes are primarily responsible for these operational and financial difficulties: first, the general security situation has disrupted the flow of raw materials and finished products and shorter working hours has led to decline in the labour productivity. Second, with the import of cheap (and often smuggled) goods, Lebanese products are unable to compete, and therefore, are being increasingly forced out of the domestic markets 1/. The problem is further compounded by the fact that Lebanese enterprises could not and did not modernize equipment or diversify their product lines during the past several years of uncertainty. Third, many industries, which went into arrears during the war period and subsequently because of the above factors, are not credit- worthy to borrow additional financing for working capital. And
1/ This is most evident in shoe manufacturing where manufacturers who were essentially small enterprises have increasingly shut down their operations and switched over to import of shoes instead. Total production of shoes declined from about 6 million pairs (of which 33% were exported) in 1973 to about 1.5 raillion pair in 1981 with no exports. Similar problems have besieged wood products, furniture and other small scale industries. - 155 - Sectoral Annex X Page 8 of 19 finally, LL has appreciated by over 20% during the past three months, thus making imported products cheaper.
16. The textile and garment subsector was perhaps the most seriously affec- ted of all industries during 1975-82 hostilities and their aftermath. The problems are, however, more general than those associated with the destruction and disruption due to the war. Prior to 1975-76, the industry was relatively well protected with a 10% import duty on competing products and a subsidy on several export items. With the rise in the Government's deficit after 1975-76, budgetary support was withdrawn. Direct destruction during the war period and lack of modernization has led to a rapid deterioration of this industry; employment has dropped from about 50,000 before 1975 to about 12,000 in 1981. About one third (most of them small scale) of the original 600 factories are still in operation but at significantly reduced levels of capacity utilization.
17. The problems of the industrial sector are also reflected in the decline in the number of new enterprises licenced and their size: the number declined from 138 in 1979 to 31 in 1981 and their average size declined from LL 5^4 million in 1979 to LL 1.9 million in 1981. The number of licences granted was further reduced to 25 in 1982.
18. One area of relative success has been exports which increased from LL 623 million in 1975 to LL 2.3 billion in 1981, a rise of about 24% p.a. This is partly due to devaluation of LL by about 87% since 1975, preferential treatment to Lebanese exports in some Arab markets, diversity of the initial export base and the necessity to exports for manufacturers who were increas- ingly forced out of the domestic marktes. The value of exports until 1981, however, has almost stagnated in real terms. More recently, in 1982 exports declined to about LL 1.9 billion due to a set back in Iraq (which accounted for 39X of Lebanese exports in 1981) following the suspension of transit facilities through Syria and the consequent rise in the overland transpor- tation cost.
Prospects and Priorities
19. Security, uninterrupted domestic movement of goods and control of illegal imports are clearly the prerequisites, if Lebanon is to achieve revi- talization of the industrial sector. Assuming that this happens in the near future and taking into account the problems described above, the investment priorities during next 3-5 years are in the following areas. Selection of individual projects among the priorities should, of course, be subject to establishment of their technical, financial and economic viability.
Priority It to restart closed industries (not destroyed during the war) and to avert further closures. This would primarily involve making viable enterprises creditworthy and providing fresh working capital support.
Priority 2: to modernize those industries which have not been able to do so during the 1975-82 period of hostilities; - 156 - Sectoral Annex X Page 9 of 19
Priority 3. to assist reconstruction of destroyed industries, and
Priority 4:. to establish new industries to exploit new opportunities by the proposed reconstruction program, particularly in the building materials sector.
Demand for Investment Funds l/
20. On the basis of the studies made by Lebanese agencies and the mission's own estimates, investment requirements in the above four categories are est- imated to be as follows:
- to restart the closed industries and to achieve a reasonable capacity utilization in general - 1.0 billion - modernization of existing industries - 1.3 billion - reconstruction of destroyed industries - 0.7 billion - new industries 2/ - 1.0 billion 4.0 billion
21. Beyond the immediate reconstruction period, tourism could offer renewed opportunity development, given the country's natural advantages and strong tourism tradition. But tourism traffic projections would have to be carefully studied in the light of competiting facilities in other mediterranean countries that have developed since 1975, cheaper cost of travel and changes in traffic patterns since mid 1970s (see attached note on tourism). As regards manufacturing industry in the longer term, availability of skilled labour and entrepreneurial talent, scarcity of local raw materials, small local market andi high labour cost suggests the possibility of developing technology intensive, highly automated, export oriented enterprises. However, before any directions are selected, it is recommended that a study of Lebanon's comparative advantages, choice of specific industries, potential markets and the availability of infrastructural and manpower support should be undertaken.
22. It should also be noted that the pace of industrialization in Lebanon will be influenced by the availability of investment resources, particularly medium and long-term loans. As noted in section C below, the financial envi- ronment for this purpose is not yet adequately developed.
1/ These estimates should be treated as preliminary 2/ Primarily building materials industry. - 157 - Sectoral Annex X Page 10 of 19
C. FINANCING OF INDUSTRY
Conventional Sources
23. Role of Commercial Banks. Some banks have recently provided medium and long term loans for industry. But such occasions are few (only 10 in 1981 for a total of LL 300 million in loans or about 7.5% of all credit granted to industry in that year) and loans have been given to large projects and syndi- cated among several banks. More traditional practice is to provide short-term loans for financing fixed assets and to roll them over with maturity not exceeding one year. Several reasons are responsible for the banks' reluctance to finance medium and long-term loans: first, the nature of the credits given by the banks is strongly influenced by the nature of deposits, which are highly short-term. The need to maintain highly liquid credit portfolio is further exacerbated by the fact that banks cannot bear foreign exchange risk on an amount (technically known as a position) of more than 50X of their capital. This means that banks have to invest foreign deposits primarily into foreign revenue earning instruments and likewise they have to invest local deposits primarily into local investments 1/. Because of this restriction and because at any time, the composition of foreign and local deposits cannot be predicted, let alone controlled, by banks (para 5), it is not surprising that banks invest their deposits into short-term instruments. Second under article 156 of the Code of Money and Credit, the banks are required to ensure equilibrium between (maturity of) their deposits and advances. Although this requirement has not been strictly enforced as evident from the syndicated long-term loans, they are treated as exceptions. Third, concern for maintaining liquidity could be addressed through discounting of medium and long-term loans at BL as provided under Article 102 of the Code of Money and Credit. But this instrument has not been widely used, partly because of the prevailing liquidity in the banking system and also because of the fact that, according to Article 102 of the Code such instrument is to be used under exceptional circumstances. Each such use has to be approved by BL's board. Fourth, commercial banks tend to favor commercial credit, T bills and short-term lending to industry (in that order) over the medium and long-term loans because of the greater amount of risk involved, particularly under the prevailing uncertainty in Lebanon. Fifth, there is no generally applicable credit guarantee scheme in the country except for special purposes such as war risks covered by National Institute for Guarantee of Investments (para 32) and those covered under DL 144 of December 17, 1977 administered by CDR (para. 31). Finally, in the absence of any real need or incentive to lend for medium and long-term, the banks have not developed any significant project appraisal capacity. Nonetheless, the banks have a large amount of resources at their disposal and many of them have expressed interest in providing medium and long-term loans for industry if an appropriate legal and guarantee framework could be created.
1/ As of March 31, 1982, the banks held LL 19.3 billion equivalent in foreign currency deposits. The foreign investments as of that date were LL 19.4 billion equivalent. - 158 - Sectoral Annex X Page 11 of 19
24. The issue of working capital for industries which were not destroyed during the war but who were unable to operate (para 14) is more difficult to resolve. Many of these industries have not serviced their debts and therefore not creditworthy for additional working capital financing from commercial banks. The extraordinary facilities created by CDR (para 27) can in principle finance working capital needs of such enterprises but analysis of CDR loans suggests that priority has been given to reconstruction of enterprises actually damaged during the war.
25. Role of Development Banks: As can be seen from para 10, the contri- bution of development banks to capital investment, particularly for industry has not been significant in the past. Reasons for this disappointing perfor- mance are (i) that most were created in 1972-74 and did not have a chance to consolidate prior to the outbreak of hostilities; (ii) general uncertainties have led to a steep decline in the number of new industrial investments investments; (iii) they have been unable to collect any significant deposits because, by law (DL 108), these are limited to a minimum term of two years, which is too long a maturity to attract Lebanese depositors; and (iv) commercial banks which can invest, by law, in these banks for one year or more, are not interested in committing their funds for such a long time. With the normal operations declining, these banks have increasingly functioned pri- marily as appraisal agencies for the government's extraordinary programs such as the DL 131, for which they received a fee (para 27). The banks have also accumulated very high arrears (affecting up to 90% of their portfolio) follo- wing the general breakdown of discipline of debt collection. BL is considering a revision of DL 108 so as to permit development banks to accept deposits from public and commercial banks on shorter terms. For this to be effective, interest rates paid by development banks on deposits and loans would have to be competitive with those paid by commercial banks. In addition, substantial institution building effort and improvement in their financial structure would be necessary to develop these banks into effective channels for medium and long-term finance to industry.
Extraordinary Sources
26. Since 1977, the Government has taken a number of measures to speed up the process of industrial reconstruction and recovery, primarily but not exclusively directed toward directly or indirectly damaged enterprises. More important of these measures are outlined below.
27. DL 131 was enacted on February 11, 1977 providing subsidized credit to industrial, touristic and medical establishments directly or indirectly affected by war. Of the total LL 400 million allocated under this law as of January 1983, all funds have been approved for projects, LL 350 million committed and LL 300 million have been disbursed. A further allocation of LL 350 million is under consideration. Under the first tranche of LL 300 million committed by December 31, 1981, 164 projects received loans for a total investment of LL 1 billion. Industry received 82% of the loan, for 138 - 159 - Sectoral Annex X Page 12 of 19
projects, the rest being for tourism and hospitals. Also, civil works, machinery and working capital received 24%, 49% and 27% of the total loan amount respectively. The sectoral distribution of industrial projects was as follows:
% amount %_byno. of units assisted
Food and beverage 17.2 13.0 Leather 9.6 12.3 Textile 22.2 23.2 Paper 7.5 8.0 Chemical 15.3 15.9 Non metallic minerals 5.8 6.6 Basic metals 7.2 5.8 engineering 10.2 11.6 other 4.8 3.6 Total LL 300 million 138
28. Under the law, commercial or development banks first receive loan requests from industrialists. Such requests are then processed by one of the four development banks listed in para. 10 and forwarded to CDR for approval. CDR has a staff of only two for processing loan requests. The first recipient of a loan request and CDR share the approved loan amount in the ratio of 10;90 (or 5:95, for projects located outside Beirut). Loans to enterprises are pro- vided at 5% p.a. and a maturity of eight years including two years grace, with a ceiling of LL 4 million on CDR loan amount. The first recipient of the loan request who also administers disbursements and repayments receives CDR finan- cing at 2.85% p.a. and development banks appraising projects receive a commis- sion of 1% of the outstanding loan amount for the first two years and 1/2% thereafter. After deducting the commission, CDR's effective lending rate is about 1.8% p.a. CDR borrows resources from the government at 5% p.a. and the Government's cost of borrowing is about 9% p.a. At these rates, and if the new tranche of LL 350 million is approved, the direct annual subsidy by the Government and CDR during 1983-85 period is estimated at LL 142 million. The Government's net contribution to industry under this law during 1983-85 is estimated to be LL505 million (para 43).
29. Although well intended, DL 131 in its present form imposes a heavy financial burden and a direct risk on the Government at a time when its re- sources are already overstretched. Further, the criteria (war related damage and cash flow adequate to cover debt servicing at subsidized rates) are very general, thus creating a risk of encouraging uncompetitive and economically non-viable enterprises. Also, there is no relationship between the capacity destroyed and new capacity product lines added. As a result, some enterprises seem to have expanded their capacity substantially and/or set up new product lines. While this may not be undesirable in principle, the issue - 160 - Sectoral Annex X Page 13 of 19
is whether such enterprises should benefit from the subsidized credit. The limit of LL 4 million is inadequate to meet the needs of larger enterprises damaged during the war. Finally, CDR's staffing limitations severely restrict its ability to ensure proper application of the law.
30. A decree law was recently approved by the Council of Ministers and sub- sidizes interest rates charged by banks by one-half of the T bill rate. At the current bank lending rate of about 16%, and T bill rate of 9 1/2% an enterprise can borrow funds at 11 75% p.a. The subsidy applies to purchase of new equipment and the decision to lend and its terms rests with banks. The effectiveness of this scheme in inducing banks to provide term loans remains to be seen but, clearly, it would primarily benefit enterprises not damaged during the war, which are still creditworthy and who want to modernize their plant. Further, the eligibility criteria are similar to those for DL 131, thus raising the issues discussed in connection with that law earlier (para. 29). The total allocation for subsidy under the law is LL 300 million in the next five years and expenditure during 1983-85 period is expected to be about LL 165 million. The credit mobilized from commercial banks to industry under this scheme during 1983-85 is estimated to be LL1000 million (para. 43).
31. DL 144, enacted on December 31, 1977, authorizes CDR to provide Government guarantee up to a total of LL 200 million for internal and external loans to industrial and touristic establishments having suffered loss or damage during the war. So far, CDR has not provided any guarantee under this scheme, in part because other concessionary sources have been available and court procedures through which damage or loss has to be established is com- plicated. DL 47 of May 30, 1977 and DL 130 of November 2, 1977 allow for debts of those enterprises which suffered losses during the 1975 and 1976 was to be rescheduled and repaid over two-seven years and at interest rates varying between 5% and 9% per on local currency loans and at LIBOR rates on foreign currency loans. These laws have also not been made use of to any significant extent because of complex administrative procedures. In any case, these cannot be applied to damages suffered after 1976 unless modified. A ministerial commnittee has been appointed to recommend improvement in the effectiveness of these laws.
32. Finally, DL 3 of January 15, 1977 was enacted to establish the National Institute for Guarantee of Investments (NIGI) under the Ministry of Finance. The NIGI guarantees the fixed assets and installations of all new industrial firms established after the date of issue of the decree, against direct damage as a result of war for a premium of 3 per mil of the value of investment. The NIGI has been operational since 1980, has five professionals and has given 167 guarantees covering fixed assets of about LL 700 million (industrial, commer- cial and medical subsectors). It has received 35 claims over LL 35 million in damages. The NIGI has a token Government equity and depends for its resources on the Ministry of Finance, which has provided an initial soft loan of LL 10 million. The effectiveness of this institution in increasing the popularity of the above scheme and others it may have in future depends upon how quickly the ongoing claims are settled. - 161 - Sectoral Annex X Page 14 of 19
D. OONCLUSIONS AND RECOMMENDATIONS
33. There has been considerable damage to industries since the mid-1970s. In addition, industries not physically damaged have suffered considerably due to dissruption of operations, loss of markets, irregular supply of raw mate- rials etc. and have sustained large financial losses. This has generated strong pressure from industries for extraordinary measures of assistance from the Government. The main demands are for, (i) long-term investment loans at subsidized interest rates and (ii) additional working capital loans at below market interest rates.
34. The Government has adopted several measures (paras 27 and 30) aimed at subsidizing the cost of capital to revitalize the country's industrial sector. Such measures should be temporary and reflect exceptional circumstances. There is a risk of encouraging uncompetitive and economically non-viable industries if unselective, subsidized credit is provided. Industry rebuilt or brought into operation on the basis of subsidized credit could require continued cash subsidies and protection from external competition as account would not be taken of changes in trade patterns during the past several years. It would, therefore, be better to seize the opportunity to initiate development of efficient and competitive industry. The financial sector is the strongest sector in the economy at present. Unless this strength is harnessed in the reconstruction and development of the industrial sector, the process of economic recovery will be much more difficult. Therefore, measures would have to be devised to enable the commercial banks to play a more positive role without excessive increase in credit or relaxation of lending standards can best be achieved by creating a policy and procedural framework which would induce increased flow of medium-term investment loans at market interest rates to industry from commercial and development banks and by allowing market forces to play a positive role.
35. In view of the above, and also the limited staff and processing capacity available to CDR, it would appear necessary that the Government consider phasing out loans under DL 131 and that operation of the new interest subsidy scheme be for a short period. Measures to increase the flow of funds from commercial banks and to strengthen the development must be taken. At the same time, note has to be taken of the losses suffered by industry and really necessary relief measures have to be devised. There is, at present, a real risk that even viable industries would close down and a process of "disindus- trialization" could occur unless short-term measures are taken to give viable industries a reasonable opportunity to recover. The recommendations below are therefore divided into two parts: (i) measures to alleviate war damage and related losses; and (ii) measures to increase medium-term credit for indus- trial investment.
Measures to Alleviate War Damage
36. Loans made at subsidized interest rates should be made more selective by applying criteria of eligibility. For example, (i) projected financial viability in the future after termination of subsidized credit; (ii) period of implementation of rehabilitation projects; (iii) linkage with other rehabili- tation/new projects; (iv) impact on surrounding areas; and (v) prospects for - 162 - Sectoral Annex X Page 15 of 19
complementary financing, etc. In addition, subsidized loans should be avail- able only for rehabilitation and marginal expansion of the existing capacity. The new interest subsidy iLaw should be broadened to cover loans for repairs to buildings and hotels also. The duration of the interest subsidy scheme should be limited to the proposed five years.
37. The criteria suggested above should also be applied to loans under DL 131, should the Government find it difficult to phase it out.
38. There are also many cases of enterprises which are unable to service their debt to commercial banks as they could not operate or their inventories were destroyed. These industries are no longer creditworthy and cannot be restarted without fresh working capital. The working capital debt of such enterprises incurred prior to December 31, 1982 should be assessed and CDR should invoke its guarantee authority to guarantee the repayment of such debt. An enterprise receiving such guarantee would have to repay such debt in five years from the date of the guarantee with two years of grace. The enterprises wilL thus reacquire borrowing capacity. Commercial banks would have to agree to provide new working capital loans to affected enterprises to restart their operations in return for the CDR guarantees. While the detailed procedures would have to be worked out, the following approach is suggested; An affected enterprise should first make application to its commercial banks. Commercial banks should assess the outstanding working capital debt and new loan requirements of that enterprise. The banks should take into account additional securities and/or financing that can be mobilized from owners. Thereafter, application for guarantee should be made by banks to CDR. CDR guaranteed amount should be commensurate with the amount of new loans to be provided by banks. CDR may consider charging a commission for the guarantee. If necessary, the guarantee authority of CDR should be increased periodically for this purpose. The scheme should be terminated within a specific time period, say by December 31, 1984.
Measures to Increase Mledium-TermCredit for Industrial Investment
39. Strengthening of Development Banks should receive urgent consideration. Absence of effective development banks is a serious gap in the institutional framework of the financial sector as these institutions can play an important role in the development of new industries and in introducing modern project planning, financing and implementation techniques in the country. The exis- ting banks did not have a chance to consolidate prior to the outbreak of disturbances in 1975. They are also seriously handicapped by being prohibited from accepting shorter-than-two years deposits. The development banks should be allowed to mobilize adequate resources by amending the DL 108 to permit their acceptance of deposits and commercial bank loans of at least six months. Such an amendment: appears to be essential and it is doubtful if the development banks can be strengthened without it. Assistance from external - 163 - Sectoral Annex X Page 16 of 19 long-term sources could also be considered as a part of the program to build these banks into effective financial intermediaries. With these measures, the development banks could make loans of up to LL120 million per year starting 1983.It is recognized that strengthening of development banks will take some time and meanwhile funds for industrial investment will have to be provided by the large and sophisticated commercial banking system.
40. Introduction of a Credit Guarantee Scheme for medium-term loans for industrial investment should be taken up. Such a credit guarantee would pro- vide coverage against loan losses either on the occurrence of a default in debt servicing or to make up for the losses in the event of a foreclosure. Claims would be financed by an annual premium of 1% of outstanding loan amount. The premium should be borne by the borrower. The coverage should be automatic and compulsory for all eligible loans and should provide for guaran- tee equal to 75-90% of the outstanding amount. In return for the guarantee, the lending banks should be required to reduce collateral requirements to not more than 150% of the loan amount. The present NIGI coverage is confined to war damage only. After restoration of peace, emphasis must shift to coverage of medium-term credit risk, especially during the initial period when commercial banks would not have built up their ability to make comprehensive feasibility studies and project appraisal. This scheme can be implemented either by the NIGI or by setting up an independent credit guarantee corporation funded by all financial institutions.
41. Commercial banks are at present reluctant to increase volume of mediumrterm loans due to the short-term nature of their deposits and resulting volatility of banks' liquidity. It is therefore of crucial importance to set up an effective discounting mechanism to protect the lending banks from erosion of liquidity if they are expected to make medium-term loans for industrial investment. Discounting facilities should be available to both commercial and development banks. The banks should have the option either of arranging standby credit on payment of commitment charge or refinancing their industrial investment loans with maturity of 3-5 years at a suitable discounting rate (say 60-75% of the loan amount). Discounting of medium-term investment loans should be introduced as a temporary measure by issuing appropriate regulations under Art. 102 of the Code of Money and Credit until more permanent arrangements, such as the Societe Financiere, could be made operational. The amount of such discounting by BL should be monitored and periodically reviewed in relation to the monetary situation. Given the importance of this facility for promoting medium and long-term credit to industry, the discounting of short-term loans (which is almost automatic under the current rules in the Code) could be adjusted in favour of the medium and long term loans if required to maintain an overall balance in the total amount of discounting by Banque du Liban. Such adjustment is expected to be small, given that the discounting of short term loans would continue to form the major share of the overall amount of loans discounted.
42. The Application of Art. 156 of the Code should be made clear to the commercial banks in an appropriate manner so as to alleviate their concern - 164 - Sectoral Annex X Page 17 of 19 that they would be in violation of this article if they make long-term loans even within prudent limits (say 5% of total deposits) out of short-term deposits.
Financial Aspects
43. The total financial assistance to the industrial sector during 1983-85 period from DL 131 (para. 28), assumed to require a loan program of LL 500 million assumed to be applied for a loan project of about LL 1.0 billion; the new interest subsidy law (para. 30) and development banks is estimated to be LL1790 million of which LL 1483 million would be in credit/loans and LL307 million in interest subsidies. The details of the sources of finance and the yearly amounts are given below:
INDUSTRIAL FINANCE (LL mTIlion)
Source 1983 1984 1985 Total 1. DL 131 Gov't Gross disbursements 210 200 90 500 (Repayments) (25) (46) (66) (137) Net disbursements 185 154 24 363 Grant element 29 48 65 142 Subtotal 214 202 89 505
2. New Interest Subsidy Law
Credit Banks 150 350 500 1000 Grant element Gov't 40 50 75 165 Subtotal U 400 575 1165
3. M and LT Dev. Bks. - - 120 120
4. Total Industrial 1+2+3 Finance 404 602 784 1790
5. Total from: Government 254 252 164 670 Banks 150 350 500 1000 Dev. Banks - - 120 120
6. In the form of: Credit/Loan 335 504 644 1483 Grant 69 98 140 307 - 165 - Sectoral Annex X Page 18 of 19
Attachment I
Note on Tourism Industry
1. Lebanon's tourist attraction prior to 1975 came from its booming banking and commerce, central location between Europe and Near East, easy access, diverse natural attractions and a well developed infrastructure. The tourist traffic in 1974 was estimated by the Bureau of Tourism at about 1.4 million persons and the concentration was on high priced tourist market. The tourist facilities are entirely owned by the private sector. Since 1975, continued insecurity has brought tourist activity to a fraction of what it once was. In 1981, the tourist traffic was about 135,000 and was even less in 1982. The war has also caused extensive damage to the infrastructure, including the destruction of all of the three 5 star hotels, and dislocation of service facilities. The following table shows the number of hotels and rooms in 1975 and 1982 and the present occupancy rates in Beirut.
1975 1982 X Reduction % Room occupancy No. of No. of No. of No. of No. of No. of rates in Dec. 1982 hotels rooms hotels rooms hotels rooms
4 stars and over 27 3501 9 791 67 77 32.7 3 stars 37 2032 20 1179 46 42 39.4 2 stars 13 420 6 260 54 38 51.5 I star 24 550 1 23 96 96 69.8
Total 101 6503 36 2253 64% 65% 52.9
The hotels not seriously damaged during the war are also in need of refur- bishing.
2. By the end of 1982, it was hoped that 45 hotels with 2982 rooms would be operational but the program has lagged considerably behind schedule due to persitent uncertain conditions. Nonetheless, some hotels have started recon- struction and refurbishing from internal sources, bank loans and concessional assistance under DL 131. The room availability after this program is expected to be as follows: No. of Hotels No. of Rooms 4 stars 16 1534 3 stars 27 1585 2 stars 8 325 1 star 3 55 Total 54 3499 This should be able to sustain a tourist traffic of up to 700,000 - 800,000 tourists per year.
3. Beyond this immediate phase, assuming that tne security situation improves, the principal issues appear to be as follows: - 166 - Sectoral Annex X Page 19 of 19
Attachment 1
(i) What would be the traffic forecast? This in turn would be influenced by (a) the pace of revival of commercial activity as well as declining global tourist traffic, (b) competing options for European tourists which have developed since 1975 from other Mediterannean countries which are cheaper than Lebanon, (c) the expanded airline network between Europe and the Arab countries and (d) falling cost of travel and changes in travelling habits in the Arab countries;
(ii) What kind of tourist market should Lebanon aim at? In particular, should the country go back to the high priced market, or should it aim for mass tourism?.
(iii) How should the redevelopment of tourism be financed?.
(iv) How quickly can the labor, which was almost invariably trilingual (Arabic, French an,d English) be trained?.
4. The hotel industry strongly feels that tourist traffic will quickly rise with the revival of security and commercial activity. It also feels that Lebanon should aim for high-priced business/tourist traffic as before instead of mass tourism. It is estimated (tentatively) that reconstruction of three major hotels (Pheonicia, Hilton and Carlton) and expansion/refurbishing of other existing hotels will cost about LL 500 million. Additional investments would be necessary to redevelop the support infrastructure for which no esti- mates are yet available.
5. Given the large investments involved it is suggested that a study should be undertaken early (by the hotel industry) to serve as a guide for develop- ment of tourism industry in Lebanon. The Government has made available some assistance to the sector through DL 131 but such sources are limited. The Government, which has focussed on infrastructure, intends to leave major rede- velopment of tourism in the private sector. IBRD 17080
j E; E
Z
u
4, Do
411\
Al, IS)
A o- o
84
IZ ui cp "lo ui z fn
%
LL, cc Ap tz U) (n CO LL. "3 4
ui 47 10
MARCH1963 IBRD 170(
N, 0~ ft ~ ~ ~ ~ ~ ~ ~ ~ ~~PFT0 EU
,z-l f Th nttiBk y ~ t~r.17 47rrp t -dft ~ kk fi-I~Fm- ~ ~ ~ ~ ~ ~ ~ ~~~~~ esr~dc ~aBPPlI~trfr4R C Th ,pi tR fpht rd-mg- hel 4 -d -d fh~~~~~~~~~~~~~~~---~-N0Ih-d -d.-
L--L~ ~ ~ ~ ~ ~~~Qtfh --- I-- _h- b-d~~~~~~~~~~~~~,i- LEBANON~~~~~~~~~~~~~~~~~~~~~- FEET0 Soo 1000 ~~~F1ep500 eeLprppt e ~~~'or~~~~~~~, Brrure~~~~~~~~~~~~~nry 44~~~~~~~SREL33I
~~m --- ~MACH19 On 360
LIBANON i RECONSTRUCTION ASSESSMENT ELECTRICALPOWER SYSTEM '