Privatization of Lebanon's Public Assets: No Miracle Solution to The

RESEARCH REPORT

PRIVATIZATION OF LEBANON’S PUBLIC ASSETS NO MIRACLE SOLUTION TO THE CRISIS

This report is published by the Issam Fares Institute for Public Policy and International Affairs (IFI) at the American University of Beirut (AUB). It can be obtained from IFI or can be downloaded from the following website: http://www.aub.edu.lb/ifi.

The views expressed in this document are solely those of the authors, and do not reflect the views of the Issam Fares Institute for Public Policy and International Affairs, or the American University of Beirut.

This report or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of the publisher except for the use of brief quotations.

Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut (AUB) Issam Fares Institute Building (Facing the Green Oval) PO Box 11-0236, Riad El-Solh, Beirut 1107 2020, Lebanon +961-1-350000 Ext. 4150 [email protected] www.aub.edu.lb/ifi aub.ifi @ifi_aub @ifi_aub PRIVATIZATION OF LEBANON’S PUBLIC ASSETS NO MIRACLE SOLUTION TO THE CRISIS

Albert Kostanian Senior Policy Fellow for Economics at the Issam Fares Institute

The Research Team: Maysa Baroud, Program Coordinator, Governance and Policy Lab, IFI Karim Merhej, IFI-Google Policy Fellow, Governance and Policy Lab, IFI Fatima Moussawi, Program Coordinator, Civil Society Actors and Policymaking, IFI 2 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Acknowledgements

We would like to thank Alexi Touma, formerly a researcher with the Civil Society Actors and Policy-Making program at IFI, and Amira Dabbous and Elina Qureshi, interns at the Governance and Policy Lab at IFI, for their support with background research and data collection. We thank Raghda Jaber Azad, Expert in Land Use Policy, for her valuable insights on State held real estate. We also thank the Beirut Urban Lab at the American University of Beirut for providing us with data on state-owned parcels in Municipal Beirut. We thank Lamia Moubayed and Khalil Gebara for their support and insight at the inception phase of the research. We would like to thank all experts, as well as the representatives from civil society organizations and the private sector, and the academics who attended the validation meeting for contributing to this report by sharing their valuable opinions and expertise. Finally, we thank Alia Moubayed whose constructive and helpful review helped improve the report, and Nasser Yassin, IFI’s interim director 2019-2020 (when the study was launched), and Suzanne Houssari, Communications Manager at IFI, for their active participation towards achieving this report. 3 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Acronyms

ARPU Average Revenue per User ATI Access to Information BCC Banking Controls Commission BOT Build-Operate-Transfer BSE Beirut Stock Exchange CDL Casino Du Liban CMA Capital Markets Authority DSP Distribution Service Provider EBIDTA Earnings before Interest, Taxes, Depreciation, and Amortization EDL Electricite du Liban EDZ Electricite de Zahle EP Egyptian Pounds EUR Euros GSM Global System for Mobile Communications HRADF Hellenic Republic Asset Development Fund ICT Information and Communications Technology IMF International Monetary Fund IPP Independent Power Producer JSCC Joint Stock Company Concessions KPI Key Performance Indicator LBP Lebanese Pound LIBNOR Lebanese Standards Institution MEA Middle East Airlines MIC Mobile Interim Company MoF Ministry of Finance MoT Ministry of Telecommunications MP Member of Parliament OECD Organization of Economic Cooperation and Development PAMC Public Asset Management Company PHA Publicly Held Asset PPP Public-private Partnership RLTT Regie Libanaise de Tabacs et Tombacs RWE Regional Waters Establishment SME Small- and Medium-sized Enterprise SOE State-owned Enterprise TRA Telecommunications Regulatory Authority TSO Transmission Service Operators USD United States Dollars 4 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Table of Contents

Acknowledgements...... 2 Acronyms...... 3 Executive Summary...... 5 Introduction...... 5 Prerequisites for Privatization...... 5 Assessing the Potential for Privatization of Select PHAs...... 6 Introduction...... 8 Objectives...... 9 History of Privatization in Lebanon...... 10 What are the Prerequisites for Privatization?...... 16 Regulatory Environment...... 16 Anti-Corruption Laws and Frameworks...... 18 Transparent Procurement Processes...... 19 Selection of Global Privatization Experiences...... 23 Assessing the Potential for Privatization of Select PHAs...... 28 Conclusion...... 54 Appendix. Valuation Methods ...... 60 References...... 62

List of Boxes Box 1. Telecom: A BOT that Ended in Nationalization...... 14 Box 2. Water Management Contracts in Tripoli: A Semi‑Failure...... 15 Box 3. Various Existing Regulatory Authorities in Lebanon...... 17 Box 4. Privatization Frameworks...... 29 Box 5. Intra Bank and its remnants...... 31

List of Figures Figure 1. Timeline of Paris conferences and privatization laws and regulations...... 11 Figure 2. Selected publicly held assets in Lebanon...... 28 Figure 3. Summary of privatization frameworks...... 29 Figure 4. Middle East Airlines net profits and net shareholders’ equity...... 30 Figure 5. Government revenues from Casino du Liban (million LBP)...... 33 Figure 6. Total number of passengers at the Beirut Rafic Hariri International Airport.... 37 Figure 7. Government revenues from Beirut Rafic Hariri International Airport (million LBP)... 38 Figure 8. Government revenues from the budget savings of the telecommunications budget...... 46 Figure 9. Case for privatization of different PHAs...... 56

List of Tables Table 1. Share of Port of Beirut’s Total Revenues Received by Lebanese Government Since 2011...... 41 Table 2. Overview of Government-Owned Real Estate (in square meters)...... 43 Table 3. Number of Water and Wastewater Connections in Lebanon...... 53 Table 4. Synthesis of privatization models and estimated impacts for each PHA...... 54 Table 5. Valuation of different PHAs (excluding potential concessions)...... 58 Table 6. Estimation of gross revenues for the State from privatizations...... 58 5 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Executive Summary

INTRODUCTION

As Lebanon faces an unprecedented economic and financial crisis, the privatization of Publicly Held Assets (PHA) has been proposed as a silver bullet solution, with little evidence to support such claims. PHAs are the martingale of the debate; a trick that will purportedly ease the government’s proposed plans to get the country out of the current deadlock. Nevertheless, proponents of the debate have generally treated the valuation of PHAs only superficially. While privatization can theoretically alleviate losses borne by the financial system, any decision to sell off state assets must be weighed based on economic and social criteria that will contribute to the long-term objective of improving the population’s overall welfare in a sustainable manner.

This study aims at contributing to this debate by assessing the benefits and risks associated with the privatization of selected PHAs in Lebanon using the following framework of criteria: 1) the competitiveness and efficiency brought to the sector by private sector participation, 2) the service or public goods’ accessibility to citizens, and 3) the impact on the treasury. We also attempt to quantify the value of selected PHAs in Lebanon with acceptable accuracy using a best estimation per sector, based on available data. The PHAs included in this study are: Middle East Airlines (MEA), Casino du Liban, Regie Libanaise de Tabacs et Tombacs, Lebanon’s airports and ports, state-owned real estate, the telecommunications sector (fixed and mobile), Electricite du Liban, and the water establishments.

PREREQUISITES FOR PRIVATIZATION

Lebanon’s recent history of privatization experiences shows that regulatory reforms were closely linked to pressure from international donors’ conferences and were not properly implemented. Lebanon is thus a long way from fulfilling the various prerequisites necessary for privatization:

▸ Sound regulatory environment: Conflict among the political class has marred the establishment of regulatory authorities in Lebanon in several sectors, such as telecommunications, electricity, and civil aviation, which still remain without a regulatory body. ▸ Anti-corruption laws and frameworks: Although several anti-corruption laws have been passed, Lebanon’s National Anti-Corruption Commission is yet to be established, with worries looming that it will be rendered ineffective due to a politicized appointment of members or inadequate funding. Efforts to combat corruption are further complicated by the fact that Lebanon’s judicial branch is politicized and subject to the whims of the executive branch. ▸ Fully transparent procurement processes: Lebanon’s procurement process is outdated and has several structural shortcomings. The legal framework is heavily fragmented, with overlapping mandates between different institutions. Furthermore, due to legal loopholes, the Central Tenders Board is often surpassed altogether, with state contracts usually awarded in an opaque manner with little to no competition among firms that apply. 6 Privatization of Lebanon’s public assets: No miracle solution to the crisis

▸ Well-functioning capital markets: Lebanon’s Capital Markets Authority (CMA) receives limited funding from the government, and is not able to carry out its activities in an effective manner. In addition, the CMA is not truly independent from the executive branch and the country’s political establishment. Furthermore, the CMA’s Sanctions Committee has not been established, which is a major hindrance towards the development of capital markets in the country. ▸ Fair competition: Lebanon is in dire need of a competition law that guards against monopolistic or oligopolistic practices, and an independent regulatory body to ensure that the law is properly implemented and that monopolistic practices are sanctioned. While a Competition Law and a dedicated authority are necessary, there remains a real risk that the authority would fall under the thumb of the political establishment, or would be deliberately left underfunded and understaffed to effectively carry out its functions.

Amidst such circumstances, the prerequisites needed for a proper and transparent privatization process that would lead to sustainable socioeconomic development are simply not present. Rather, it is likely that a privatization attempt at this time would only perpetuate the status quo—basically a privatization of corruption—with PHAs going into the hands of the political establishment and their cronies.

ASSESSING THE POTENTIAL FOR PRIVATIZATION OF SELECT PHAS

The privatization of Lebanon’s PHAs will have far-reaching implications that will shape the country’s future. To succeed, any privatization initiative must be appraised over the long-term, going far beyond the current debate on loss remediation. Factors such as the impact on the provision of public services, and their accessibility to citizens, in addition to the spillover effect that privatization might have on the economy, are as important to consider as the revenues that will be generated by the public treasury. In addition, any privatization efforts must be accompanied by a strategy that properly evaluates the assets’ privatization potential, and determines how the funds gained from the process will be used to the benefit of the population.

▸ Assets that enjoy a high readiness and attractiveness for full or partial divestiture, subject to implementation of the aforementioned prerequisites, including the Middle East Airlines and Casino du Liban. ▸ Assets whose privatization is subject to sectorial frameworks and regulations can be partially and progressively privatized only after major prerequisites are met, and include the telecom sector, the Regie Libanaise de Tabacs et Tombacs and state-owned real estate. ▸ Assets to be potentially developed under concession, affermage or lease contracts, which can potentially yield long-term benefits to the general public and to the State subject to contractual terms and the fairness of the procurement process, as well as to sectorial frameworks and regulations, such as the water and wastewater management, and electricity sectors.

The privatization of PHAs cannot be considered a magic bullet to remedy the current losses of the financial sector in Lebanon since the revenues these assets will generate in the short-term are largely insufficient when compared to Lebanon’s aggregated losses. A comprehensive valuation 7 Privatization of Lebanon’s public assets: No miracle solution to the crisis

of PHAs based on publicly available data, and excluding assets meant for concessions, results in a total value ranging from ~12 billion USD, conservatively, to ~ 22 billion USD, optimistically, averaging 17 billion USD. Moreover, the gross revenue potential for the Lebanese State from privatizations could range between ~6 billion USD considering a realistic privatization program and ~13 billion USD in a bullish scenario. Although the privatization of select PHAs could potentially generate substantial revenues for the State, it is by no means a solution to Lebanon’s current financial crisis. Addressed solely from the angle of loss remediation, as is the case in the current debate, privatization could jeopardize the country’s chances of resuming sustainable growth and improving the welfare of its people in the future.

If carried out in the current context, privatization will likely be an unfair process that will only benefit the political elites and their cronies, particularly if one considers the current state of regulatory bodies and legislations, such as those related to corruption, procurement processes, capital markets and fair competition, all prerequisites for a proper privatization program. To benefit Lebanon and its people, any privatization program must be appraised and decided upon according to a comprehensive and contextualized strategy that integrates a long-term vision of structural and regulatory reforms, the uphauling of productive sectors, and a wealth distribution philosophy. In turn, the public must be able to hold the government accountable in their privatization efforts, and this can only be achieved through making publicly available all relevant information that will allow for a transparent and contestable assessment of the privatization process and value of PHAs. 8 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Introduction

The enormous national losses that have resulted from the Lebanese financial crisis have brought the privatization of Publicly Held Assets (PHAs) to the forefront of public debate in an unprepared, hasty manner. The decision makers have been dealing with the country’s bankruptcy in a disorganized, uncoordinated, and self-centered approach. To date, stakeholders have not held a national dialogue to reach a consensus regarding the quantification1 of the losses or the potential remediation policies. Instead, they only fueled public rift, which was met with surprise, deception and bewilderment by the Lebanese public and the international community, anchoring Lebanon in a disunited stalemate.

PHAs are the martingale of the debate; a trick that will purportedly ease the government’s proposed plans to get the country out of this deadlock. As they currently stand, it is widely acknowledged that PHAs are mismanaged and misused by the country’s political class for their self-enrichment and for entrenching their clientelist networks. This reality has prompted many to believe that privatization is not only necessary to free PHAs from the claws of the political establishment and their corruption, but to also allow them to prosper and actually provide decent services to the public. Yet, such calls are often made out of ideological persuasions, without any sectorial distinction. The public debate on privatization essentially consists of opposing arguments, from “the government is responsible, and must pay by committing its assets” to “we will not sell assets that belong to the people and future generations to pay for the politicians’ crimes”.

The valuation of PHAs has also been generally treated superficially by the various proponents of the debate. For example, the government plan, released on April 30, 2020, called for the establishment of a Public Asset Management Company (PAMC) to hold and restructure government assets, without providing much details (Government of Lebanon, 2020). The plan put forth by the Banks Association, released in May 2020, on the other hand, deals with PHAs in a very assertive, and unjustified, manner. It advocates committing public assets valued at 40 billion United States Dollars (USD) to remedy losses. Yet, the plan provides no details regarding how the PHAs were valued, nor what the source of the figure itself is (Association of Banks in Lebanon, 2020).

The question of privatization in Lebanon cannot be approached through the lens of loss remediation alone, nor as a mere option to reduce or complement the bail-in of depositors stuck in the Lebanese banking system. While privatizations can theoretically alleviate losses borne by the financial system, any decision to sell off state assets must be weighed based on economic and social criteria that will contribute to the long-term objective of improving the population’s overall welfare in a sustainable manner. The attractiveness of a privatization operation must therefore be considered holistically by evaluating its impact on the overall competitiveness of the concerned sector, on the accessibility of public goods to citizens and on the financial position of the treasury. The latter must be evaluated on the long-term to factor-in potential savings and incremental revenues in addition to one-off revenues. The prerequisites to privatization

1 Aggregated losses were estimated at 241 trillion Lebanese Pounds (LBP) by the Lebanese Government Financial Recovery Plan (April 30, 2020), a figure that has since evolved under the worsening economic conditions in Lebanon. 9 Privatization of Lebanon’s public assets: No miracle solution to the crisis

operations are also of utmost importance as a sound legislative and regulatory framework in addition to the “rule of law” are necessary for the transfer of public goods to the private sector in a way that guarantees genuine socioeconomic development of the overall population rather than only benefiting the country’s socioeconomic and political elites. Their absence would put at risk any privatization process that could lead to the dilapidation of public goods at the expense of common welfare given the historical enmeshment of Lebanon’s political class with the business elites in the private sector, a relationship tainted by all forms of corruption and cronyism.

OBJECTIVES

This paper aims to inform the debate on the privatization of Lebanon’s PHAs through achieving the following objectives:

▸ Assessing the potential for privatization of key PHAs by analyzing the overall impact of their partial or total transfer to the private sector. The benefits and risks will be analyzed through a framework of criteria2 as follows: 1) the competitiveness and efficiency brought to the sector by private sector participation, 2) the service or public goods’ accessibility to citizens, and 3) the impact on the treasury. Benchmarks from countries that went through a similar crisis will also be reviewed to extract lessons. ▸ Identifying the prerequisites and conditions necessary for a privatization program, including providing an overview of the necessary general legislative and regulatory environments, as well as the specific sectorial policies that should precede any potential privatization. ▸ Quantifying the value of Lebanon’s PHAs with acceptable accuracy. This is a difficult exercise, as financial information and other necessary data is scattered and often unavailable. This paper will provide a best estimation per sector, based on information we were able to collect, and other readily available resources.

2 Where possible, this framework of criteria for assessing the attractiveness of the privatization of key PHAs is also applied to previous privatization experiences in Lebanon, as well as the countries selected for benchmarking in the Global Privatization Experiences section of the paper. 10 Privatization of Lebanon’s public assets: No miracle solution to the crisis

History of Privatization in Lebanon

Privatization Framework Laws related to Law 48 regulating (Law 228) establishing privatization of electricity, public‑private the higher Council for telecommunications, and Telecommunications partnerships, of the Privatization water sectors Regulatory Authority PPP Law

2000 2001 2002 2002 2007 2007 2017 2018

Paris I Paris II Paris III CEDRE Conference Conference Conference Conference

FIGURE 1. TIMELINE OF PARIS CONFERENCES AND PRIVATIZATION LAWS AND REGULATIONS 12 Privatization of Lebanon’s public assets: No miracle solution to the crisis

In order to understand the context in which a potential privatization intervention would take place, it is first crucial to explore Lebanon’s previous experiences with privatization, as well as the evolution of laws that are relevant in this regard (Figure 1). Since the 1990s, the privatization of PHAs has been a constant discussion in Lebanon. The immediate post-civil war era was characterized by massive reconstruction efforts, with the politically-connected and then newly established real estate developer Solidere awarded a contract – essentially a carte blanche – to remake the whole central district of Beirut as it pleases. The significant controversies involved in the Solidere-led reconstruction of Beirut have been extensively covered, and fall outside the scope of this paper. However, it is worth noting that the Solidere experience and the blatant disregard it had for the general population constitutes a warning sign that must be heeded when thinking about any kind of privatization efforts in Lebanon.

In addition to the post-civil war privatized reconstruction of Beirut, other privatization efforts were also undertaken. The Lebanese postal service was subject to privatization to create what is now LibanPost. Build- operate-transfer (BOT) concession contracts were also granted to two separate companies, LibanCell and Cellis, for the construction and management of two Global System for Mobile communication (GSM) networks (see Box 1). At the time, a new economic formula was pushed onto Lebanese institutions, shifting the production and provision of public goods from the public to the private sector. According to Fawaz (2018), the reasons behind the post-civil war privatization process in Lebanon revolved around the state’s inability to impose a political reform that ensures an administrative reform which includes productivity and financial correction. Additionally, while the Lebanese state’s initial intention to privatize many of the unprofitable and poorly managed services was meant to improve these services to the benefit of its people, this tended to minimize the public sector’s capacity for reform and correction in the post-civil war era.

Following the 2018 CEDRE Conference in Paris, discussions around privatization in Lebanon gained momentum, with the country’s political establishment promising to carry out significant administrative and legislative reforms to facilitate such privatization efforts and increase the potential for public-private partnerships (PPP). However, legislations related to privatization were carried out well before the conference. Lebanon’s Privatization Framework law came to be in 2000, aiming to “[regulate] privatization’s operations and [define] its terms and fields of implementation”, and to set up the general privatization framework for the country (Databank, 2000); requiring a separate law to be enacted for each sector engaging in privatization. The law also established the Higher Council for Privatization, the authority that determines which state-owned enterprises (SOE) are to be sold, the time required for restructuring and their sale, and the financial value of these institutions. In 2002, Lebanon passed legislations related to the privatization of the electricity, telecommunications, and water sectors, but to little avail. The electricity law called for a 40% sale of production 13 Privatization of Lebanon’s public assets: No miracle solution to the crisis

and distribution, while the telecommunications law called for the state-run Ogero to be dissolved into a new company called Liban Telecom, to be administered separately from the Ministry of Telecommunications (MoT)—neither of which has been accomplished (Akoum, 2012). The water sector saw only a service and management contract awarded to a company named Ondeo Liban (see Box 2) to manage water services in Tripoli for a period of four years (EUWI‑MED & OECD, 2010).

The next major evolution in privatization-related legislation came in 2017, with law 48 regulating public-private partnerships, or the PPP law (Norton Rose Fulbright, 2019). In the absence of a sound legal framework and prior to passing the law, several controversial PPP initiatives were implemented in Lebanon. These initiatives were characterized by mismanagement, inefficiency, nepotism, and corruption; and the majority failed (Straub, 2019). Examples of these initiatives include the management of parking meters in Beirut, the duty free at Rafic Hariri International Airport, solid waste management, and postal services, among others (Straub, 2019). These previous privatization initiatives did not manage to achieve all three criteria in the aforementioned framework for assessment, and in most of the cases, these initiatives failed to generate incremental revenues for the treasury. It is widely regarded in Lebanon that privatization initiatives are usually undertaken to benefit the country’s political elites (Straub, 2019).

In the past, calls for privatization often brought tension and bickering to the traditional Lebanese political class, but this appears to be dwindling now, at least on the surface. This is most apparent when we take into consideration the number of international donor conferences held for Lebanon over the years, including the Paris conferences series, culminating in the 2018 CEDRE Conference. Paris 1, 2, and 3 were usually followed or preceded by legislation promoting privatization in Lebanon to lure foreign aid (Figure 1). In 2001, the same year as Paris 1, Lebanon passed the privatization framework law. The following year, around Paris 2, Lebanon passed laws related to electricity, telecommunications, and water. In 2007, close to Paris 3, Lebanon established the Telecommunications Regulatory Authority (TRA), as stipulated in the 2002 telecommunications law mentioned above. The PPP law of 2017 was passed just before the 2018 CEDRE Conference, following a decade of discussions and debates, since the law was a key component of the government’s Capital Investment Plan that sought to bring in over eleven billion USD in funding for infrastructure projects (Norton Rose Fulbright, 2019). The proclaimed aim of these conferences and the subsequent calls for privatization is to mitigate the ever- looming public debt crisis. Prior to the crisis, public debt had reached 170% of GDP, and with the current fiscal crisis in Lebanon, privatization is back on the government’s agenda and the public’s mind (Agence France-Presse, 2020). Two years later, and reeling under the weight of the country’s current economic collapse, the government of Prime Minister Hassan Diab brought back to the fore the idea of privatization as a means to generate immediate revenue, and to address the government’s rising debt crisis.3

3 As of the time of writing, we cannot be sure what the views on privatization of the upcoming government to be led by Saad El Hariri will be. 14 Privatization of Lebanon’s public assets: No miracle solution to the crisis

BOX 1

TELECOM: A BOT THAT ENDED IN NATIONALIZATION

Lebanon’s first experience with mobile telecom operators after the civil war was marked by major problems and disagreements. In 1993, LibanCell, owned by Telecom Finland, and Cellis, a subsidiary of France Telecom, were awarded the country’s first mobile operating contracts through build-operate-transfer (BOT) contracts. These contracts were meant to fulfill the demand for phone services, while the government reconstructed the fixed line network, and shifted the construction of GSM networks onto the private sector. The BOT contracts stipulated a ten-year operating period, and an eight-year exclusivity period (Jamali, 2003). Nevertheless, the contracts of both operators were terminated prematurely in 2001, with the government claiming breach of contract, partly due to the operators exceeding the allowed number of subscribers set by the government (Habib, 2002). Both operators rejected the claims and undertook legal action against the government, raising arbitration through international courts (Habib, 2002). These rulings ended favorably for the operators—France Telecom was awarded a 266 million USD settlement (Investment Policy Hub, 2002). Management of the networks was thus transferred back to the government, which since 2004 has remained the owner and regulator of these networks, with two Mobile Interim Companies (MIC) being granted external telecommunications contracts. 15 Privatization of Lebanon’s public assets: No miracle solution to the crisis

BOX 2

WATER MANAGEMENT CONTRACTS IN TRIPOLI: A SEMI‑FAILURE

From 2003 to 2007, Ondeo Liban and the Lebanese government entered a partnership whereby the former would operate and maintain Tripoli’s water supply systems, as well as organize the billing system and collect fees. Ondeo Liban managed to bring about various positive changes: the Tripoli Water Authority’s infrastructure was renovated; water meters, a geographic information system, and a computer-assisted maintenance management system were installed; an efficient system of responding to customers’ complaints was set up; and water leakages were reduced (EUWI-MED & OECD, 2010). Yet, of the previously mentioned criteria, we find that only one has been met, namely related to the improvement of services delivery through the achievement of a 24-hour continuous water supply. Various targets were only partially met. For example, technical performance of the water system improved from 35% to55%, but did not meet the agreed upon target of 75%, while the billing rate increased from 34% to 55% (versus a target of 75%) and the debt recovery rate only increased from 29.7% to 33.8% (versus a 90%) (EUWI-MED & OECD, 2010). The Ondeo PPP “was presented as a pilot project that aimed to convince the Lebanese of the benefits of private sector participation” before legislations dealing with privatization and PPPs were passed. This can be considered, at best, a semi-failure, as even though targets were not reached, the performance of the water authority did indeed improve on several fronts (Alles, 2012). Ondeo’s contract was not renewed since “no clear legal framework existed to allow Ondeo to run the utility autonomously, and fully meet the contract’s objectives” (Fanack, 2015). 16 Privatization of Lebanon’s public assets: No miracle solution to the crisis

What are the Prerequisites for Privatization?

Before any privatization can be undertaken, various prerequisites are required for it to be beneficial, such as sound regulatory environments, anti-corruption laws and frameworks, and transparent procurement processes, the status of capital markets, and competition laws. In the absence of these prerequisites, any privatization initiative risks fueling corruption and clientelism. This is particularly true in Lebanon, where the corrupt political class can be tempted to privatize corruption, now that the Lebanese state is virtually bankrupt. Without these prerequisites, and without the necessary political will to ensure that they are properly implemented and that the privatization process can take place in an atmosphere of transparency away from the political bickering that has long characterized the Lebanese state, it will be very difficult to entice investors to take Lebanon’s privatization process seriously, and the process risks being put in jeopardy.

REGULATORY ENVIRONMENT

A modicum of regulations in virtually all sectors of the economy is essential and necessary in order to ensure that citizens, workers, and consumers alike are protected. However, throughout Lebanon’s history, regulations are frequently flouted by those in power, and lax enforcement of regulations in numerous sectors has many times resulted in negative consequences. The country’s quarrying sector is perhaps an apt illustration: countless quarries operate without licenses in areas where it is illegal for them to do so. Quarries have long failed to comply with the technical modalities necessary for proper safe operations, using dangerous explosive levels to speed up the quarrying process and reduce operating costs. Such operations have not only drastically altered and damaged much of Lebanon’s natural landscapes, but have also negatively impacted citizens close by. Government officials have failed chronically to adequately enforce regulations, and hold these illegal quarries accountable. Not surprisingly so, as it is widely believed that the quarrying sector—both legal and illegal operators—is largely under the thumb of political elites and their cronies (Leenders, 2012).

Ideally, regulations should support economic growth and broad socioeconomic objectives, such as environmental sustainability and the general welfare of the population. Regulations should be constantly reviewed and evaluated, in order to determine whether they are having positive or negative impacts on the private sector and society, and to adjust them depending on need. Governments should actively engage with regulations to ensure that they function properly and bring about beneficial outcomes, rather than reactively respond to regulatory failures when they arise (OECD, 2011). Regulatory bodies are of the utmost necessity for any privatization process, as such well-functioning bodies could improve the valuation of the state assets to be given as a concession or sold off.

In Lebanon, regulatory bodies are established following the passage of a law in parliament. These bodies’ main purposes are to prepare strategies for the sector they are regulating, as well as carry out studies on those sectors to ensure that related laws are being properly applied. Regulatory bodies also provide input and comments on decisions and procedures being considered by the relevant ministry. They are also tasked with encouraging competition in their sectors, providing 17 Privatization of Lebanon’s public assets: No miracle solution to the crisis

licenses, and monitoring illicit activities, such as monopolistic practices. Thus, they monitor the prices being offered to ensure fair practices. The regulatory bodies are also tasked with preparing annual reports and recommendations, which are submitted to the relevant minister, who, in turn, submits these to the Council of Ministers (Lebanese Broadcasting Corporation, 2019). Nevertheless, conflict among the political class has marred the process of establishing regulatory authorities, in several sectors, such as telecommunications, electricity, and civil aviation, which still remain without a regulatory body; though various other regulatory authorities do currently exist (Box 3). This indicates that the political elites are wary of carrying out structural reforms that could reduce their authority, and are prioritizing their own political calculations over the public good (Akoum, 2019).

BOX 3

VARIOUS EXISTING REGULATORY AUTHORITIES IN LEBANON

▸ Telecommunications Regulatory Authority: The TRA was established in 2007, but disagreements among the political elites rendered it incapable of carrying out its functions. When its chairman resigned in 2010, the TRA effectively ceased to function (Akoum, 2019). ▸ LIBNOR (Lebanese Standards Institution): Established in 1962 under the Ministry of Industry, LIBNOR is tasked with preparing, publishing, and amending national standards. LIBNOR sets the definitions of the quality for products, as well as the methods used for testing and analyzing the products’ quality. Many standards related to numerous sectors (construction, food, chemistry, biomedical, etc.) have been developed. While standards are voluntary, several are made mandatory due to public health or public safety concerns (LIBNOR, 2014). ▸ Capital Markets Authority (CMA): Established in 2011, CMA is an “independent, autonomous regulatory body” responsible for “regulating, supervising, licensing and monitoring the activities of the Lebanese Capital Markets”. It is tasked with promoting and developing Lebanese capital markets, as well as protecting investors from fraudulent activities (Capital Markets Authority, 2020). ▸ Banking Controls Commission (BCC): Established in 1967, the BCC is an ostensibly independent five-member commission that wields supervisory powers to ensure commercial banks are following the proper banking regulations. The BCC performs its functions in close coordination with the governor of the Central Bank of Lebanon. The BCC’s duties are performed through on-site and off-site inspections of the commercial banks’ financial soundness, and “can impose corrective and remedial measures on individual banking institutions if found necessary” (Banking Controls Commission, 2020). 18 Privatization of Lebanon’s public assets: No miracle solution to the crisis

ANTI-CORRUPTION LAWS AND FRAMEWORKS

There is no denying that corruption in Lebanon is both endemic and systemic. Countless investigative reports and scholarly studies have been carried out meticulously, documenting how corruption manifests itself in the public sector, and how corruption itself is a tool through which the political elite ensures their grip on power. In 2019, Lebanon obtained the very low score of 28 out of 100 in Transparency International’s Corruption Perception Index, and ranked as the 137th most corrupt country out of 180 (Transparency International, 2019). With such high levels of corruption, any attempts at privatization without the proper anti-corruption laws and frameworks in place will be jeopardized, and risks creating more problems for both the government and society, rather than solve them.

In recent years, several anti-corruption legislation acts have been passed. For instance, in early 2017, the Lebanese parliament ratified the widely praised Access to Information (ATI) law. The ATI law allows any natural or legal person to access any information from any public body (budgetary data, minutes of meetings, contracts between the State and private corporations, etc.), with certain exceptions, such as national security issues. The law also stipulates that public bodies must publish annual reports detailing all their activities, as well as their plans for the future (Center for Research and Studies in Legal Information, 2017). While on paper the ATI law appears impressive, and can be considered a very good step forward regarding enhancing transparency and combating corruption, the reality is much more somber. Few are the public bodies that comply with the law’s provisions, and, in a few instances, civil society organizations tried to request information regarding contracts between government and the private sector, only to have their requests rejected, based on flawed reasoning (Saghieh, 2019). This lack of proper implementation of the ATI Law is coupled with a dearth of easily accessible publicly available data from the public sector which inherently complicates any privatization process as without accurate and up-to-date figures, proper valuations of PHAs cannot easily be made. This shortage of publicly available data will be made abundantly clear in the subsequent sections dealing with specific PHAs.

In 2018, the Lebanese parliament ratified the Whistleblower Protection law, which theoretically grants many protections and incentives for potential whistleblowers in the public sector to sound the alarm on any illicit and corrupt acts they witness. However, this law can be considered dead on arrival, as all of the protections and benefits potential whistleblowers would receive are to be provided by the National Anti-Corruption Commission, which does not yet exist (ALDIC, 2018). This brings us to the Fighting Corruption in the Public Sector and the Establishment of the National Anti-Corruption law (hereafter ‘Anti-Corruption Commission law’), passed in April 2020. This law stipulates that a National Anti-Corruption Commission is to be established, which would have significant powers to provide protections to whistleblowers, and hold corrupt individuals to account (Abi Haidar, 2020). At the time of writing, the commission has yet to be established, with worries looming that it will be rendered ineffective due to a politicized appointment of members or inadequate funding.

What further complicates efforts in combatting corruption effectively, and ensuring that the corrupt are held accountable, is the fact that Lebanon’s judicial branch is politicized and subject to the whims of its executive branch. As a matter of fact, according to the International Commission of Jurists, the appointment process virtually ensures that political influence hangs over “virtually every aspect of judges’ careers, including their selection and appointment, their transfer through arbitrary procedures, and their discipline, suspension and removal through unfair and opaque proceedings” (International Commission of Jurists, 2017). Without a judicial branch properly independent from the executive branch, or from undue political influences, enforcing transparency and holding the corrupt accountable will be impossible, even if the best anti-corruption legislation had been passed. 19 Privatization of Lebanon’s public assets: No miracle solution to the crisis

TRANSPARENT PROCUREMENT PROCESSES

According to the Organization of Economic Cooperation and Development (OECD), “[p]ublic procurement refers to the purchase by governments and state-owned enterprises of goods, services and works. As public procurement accounts for a substantial portion of the taxpayers’ money, governments are expected to carry it out efficiently and with high standards of conduct in order to ensure high quality of service delivery and safeguarded public interest” (OECD, n.d.). Transparency at all levels of the public procurement process is a must. Among several OECD recommendations regarding proper and efficient public procurement, potential suppliers should be treated fairly, equitably, and transparently during each phase of the procurement process, and all information related to the process (from institutional frameworks and legislations, to calls for tenders and award announcements) must be made easily accessible to all stakeholders (potential suppliers, civil society, or the general public) via an online portal (OECD, 2015).

As outlined by the OECD, Lebanon’s procurement process is outdated; it came into being in the early 1960s, and has several structural shortcomings. For instance, the legal framework is heavily fragmented, with overlapping mandates between different institutions. In addition, capacity and technology gaps within the public sector further complicate the procurement process. This is particularly grave as public procurement constitutes around 6.5% of Lebanon’s GDP, and the inadequate and non-transparent system contributes to low levels of trust in the State, high-levels of corruption, low competition, and high costs. Due to legal loopholes, the Central Tenders Board, the public body responsible for overseeing and monitoring the procurement process in Lebanon, is often surpassed altogether. State contracts dealing with the most mundane of services to large-scale infrastructural projects are awarded in a highly non-transparent manner with little to no competition among firms that apply. Throughout the years, countless cases of state contracts provided to politically-connected firms have been documented and have generated wide controversy. The case of Sukleen, a waste-management company given a lucrative contract in 1994 by the notoriously non-transparent Council for Development and Reconstruction to manage waste in Beirut is particularly telling as it incurred unjustified high costs for decades while waste was improperly managed (Lebanon Support – Civil Society Knowledge Center, 2016).

The Ministry of Finance has, in recent years, begun working on reforming the public procurement system in Lebanon, tasking the Basil Fuleihan Institute to serve as “the National Focal Point for this exercise”, in early 2019. Based on several OECD guiding principles on public procurement, a new draft law on public procurement has been prepared (Basil Fuleihan Institute, 2019, 2020). It is currently being debated among lawmakers in parliament. 20 Privatization of Lebanon’s public assets: No miracle solution to the crisis

WELL-FUNCTIONING CAPITAL MARKETS

Capital markets are essential components and key engines of growth in economies, as they can serve as handy alternatives for financing when commercial banks impose hefty collaterals and thus hamper the ability of investors and companies large and small to expand their commercial activities. While Lebanon does have a securities market, the Beirut Stock Exchange (BSE), it has “failed so miserably in matters of attracting liquidity” as it is not insulated from the wider political system and the political plays that come with it, and is riddled with bureaucratic red tape which render it ineffective (Schellen, 2019). This problem is acknowledged by the de facto head of the BSE who has called for turning it into a joint-stock company on numerous occasions (Murray, 2014; The Business Year, 2017).

In August 2011, a significant step forward was made regarding the establishment of capital markets in Lebanon, as the Lebanese parliament passed two key laws, the Capital Markets Law and the Prohibiting Insider Trading Made on the Basis of Material Non-Public Information Law. The former stipulated the establishment of the Capital Markets Authority (CMA), a body which is tasked with organizing, supporting and promoting capital markets in Lebanon, protecting investors from illegal practices, and sanctioning any violations of the Capital Markets Law 161 (Capital Markets Authority, 2011). A year following the law’s passing, the CMA’s Board of Directors was selected, although it took nine months for the board to take over the capital markets-related activities that the Central Bank had been handling (Murray, 2014).

While the establishment of the CMA is generally seen as a positive development when it comes to enabling capital markets in the country and promoting investments, almost a decade following the law’s passing, the CMA has not yet lived up to its expectations. For starters, the funding that the Lebanese state earmarks to the CMA is generally considered to be minimal and insufficient for the authority to carry out its activities effectively. More problematically, the CMA is not truly independent from the executive branch and the country’s political establishment in general – the fact that the CMA’s Sanctions Committee has yet to be established is a major hindrance towards the effective development of capital markets in the country, as potential investors need to be assured that any fraud or wrongdoing committed against them would be properly sanctioned and that their rights would be respected. Additionally, while the CMA issued a license to Bank Audi Group and Athex Group to establish an Electronic Trading Platform in June 2019, a move widely hailed by the business community (Schellen, 2019), the subsequent economic and financial collapse has raised a big question regarding this platform and what became of it. Without a properly functioning CMA and strong capital markets, the potential privatization process in Lebanon risks being derailed as it would be difficult to attract investors. 21 Privatization of Lebanon’s public assets: No miracle solution to the crisis

FAIR COMPETITION

While Lebanon is often touted as a beacon of innovative and disruptive entrepreneurialism, and as a haven for the free market, this picture is inaccurate. In addition to the severe administrative red tape and the maze-like and bribe-riddled bureaucracy that potential entrepreneurs and investors need to go through in order to formally register their commercial activities (Berthier, 2018), many sectors of the Lebanese economy are notoriously characterized by monopolistic or oligopolistic practices. For example, it is estimated that four companies control over half of the entire poultry market (Akiki, 2016), while five pharmaceutical importers control over half of the country’s pharmaceutical sector (Akiki, 2020). In addition to discouraging potential investors and entrepreneurs, such practices can have severe deleterious effects on society as a whole. For instance, the monopolistic pharmaceutical importers can choose to import specific brands which may bring them hefty profits, while deliberately avoiding to import cheaper, more generic alternatives, thus putting higher medical costs on everyday citizens.

Lebanon does not have any legislations to guard against such practices. Lebanon is in dire need of a competition law and an independent regulatory body to ensure that the law is properly implemented and that monopolistic practices are sanctioned. Such calls are not new. In 2003, a study by the Consultation and Research Institute made the case for the adoption of such a law and for the establishment of an administratively and financially independent authority (Gaspard, 2003). The Lebanon Small to Medium-sized Enterprises (SME) Strategy, prepared by the Ministry of Economy and Trade in 2014, states that a draft competition law stipulating the establishment of an authority dedicated to prevent monopolies and anticompetitive practices has been prepared, but that it has yet to be ratified (Ministry of Economy and Trade, 2014). As Lebanon descends into an economic collapse, and as anecdotal evidence of monopolistic practices being exerted by several firms during the collapse have surfaced, it has become abundantly clear how badly needed such a law and authority are.

While a Competition Law and an authority dedicated to fight monopolistic practices are necessary, as with any public body in Lebanon, there is a real risk that it would fall under the thumb of the political establishment, or would be deliberately left underfunded and understaffed to effectively carry out its functions.

DOES LEBANON HAVE THE PREREQUISITES NECESSARY FOR PRIVATIZATION?

While anti-corruption laws have been passed in recent years, they remain poorly implemented, particularly the ATI Law which should have ostensibly improved transparency. Contracts between the state and the private sector generally remain shrouded in secrecy, while public bodies responding to ATI requests either drag their feet, provide flimsy excuses to justify noncompliance, or outright ignore requests. The public procurement system is fragmented and riddled with loopholes, while the draft public procurement law intending to drastically reform the system and make it more transparent and in-line with international standards appears to be languishing in parliament. Regulatory authorities in key sectors, such as the telecommunications sector, are rendered either ineffective due to political deadlock, or simply do not exist. Monopolistic practices remain the norm in several sectors, with little to no legislations or regulatory authorities to guard against such practices. Although the CMA exists, potential investors are wary about investing in the country due to the fact that the CMA, despite existing for almost a decade, has yet to establish a Sanctions Committee which would protect investors in the event of fraud or other wrongdoings. The heavily politicized judiciary further makes foreign investors wary of engaging in any activity in the country. 22 Privatization of Lebanon’s public assets: No miracle solution to the crisis

The Lebanese state has long been characterized by poor governance and endemic corruption. Despite the administrative and legislative developments in recent years – be it the establishment of the CMA and the passing of anti- corruption laws, to name a few – the political establishment responsible for the country’s socioeconomic collapse continues to exert dominance over the whole political system. In addition, as mentioned in the Introduction, the debate over privatization in the country tends to be surface-level and overly general, with little focus on specific sectors. Unsurprisingly, stakeholders in the privatization process have not prepared any strategy or plan with clear long-term objectives which seeks to ensure that the process is carried out under the best possible auspices and that it leads to socioeconomic development and improvements in the overall living conditions of the population at large.

ICELAND

Refusing privatization, opting for nationalization and restructuring debt, Selection of leading to recovery Global Privatization Experiences GREECE A rushed privatization with uncertain results

MALAYSIA

Selective privatization of inefficient public assets relieved the state, speeding the EGYPT recovery

ARGENTINA Quick, uncalculated and corrupt Largest public privatization leading asset privatization to loss of income coupled with generating assets mismanagement, leading to more debt 25 Privatization of Lebanon’s public assets: No miracle solution to the crisis

In light of Lebanon’s past experience with privatization, we have selected a group of countries that have, over the past 30 years, utilized privatization in order to remediate major economic crises. These five countries we refer to opted for privatization in order to fulfill one or more of the criteria in the aforementioned framework, either to bring competitiveness or efficiency to the sector, improve accessibility of services, or generate revenues for the treasury. The selected countries present a wide range of scenarios. They either opted to fully, partially, or conditionally privatize their public sector, or refused privatization altogether. Each of these cases (political, regional, systemic, and/or economic) influenced the type of intervention undertaken and subsequent outcomes. The assessment of these benchmarks clearly showcases the absence of an off-the-shelf privatization recipe, as some of the programs were successful, while others were disastrous, noting that as in the case of Lebanon the key prerequisites for privatization in some of these countries were also absent. Countries that opted for massive privatization did not completely overcome their crises, while others that did not privatize are cited as examples of recovery. The take away lesson from these experiences is as follows: Whereas the Lebanese government’s supposed aim for privatizing PHAs’ is to increase the revenues generated for the treasury to cover the national debt, any such effort should rather be based on a more comprehensive set of criteria, specific to the Lebanese context, including those in the proposed framework.

ARGENTINA: Largest Public Asset Privatization Coupled with Mismanagement, Leading to More Debt

In Argentina, the first round of privatization was completed between 1990-92 by privatizing assets or putting them under long-term concession agreements (Saba & Manzetti, 1996). The total market value of these assets at the time was 22 billion USD, reaching 49 billion USD by the end of 2000 (Sturzenegger et al., 2003). Privatized properties included telecom, transportation, water, electricity, construction, radio, and television. In turn, privatization revenues were used to pay internal and external debts (Chisari, Estache, & Romero, 1997). Nevertheless, the social and economic conditions of citizens experiencing poverty, or belonging to lower-middle and middle classes deteriorated due to the absence of any development plan or sustainable vision to create economic opportunities (Cavallo, 1997). A lack of transparency, high levels of corruption, and unjustifiable, unfair mechanisms of revenue distribution characterized the Argentinian privatization process (Cavallo, 1997; Saba & Manzetti, 1996). Despite wide privatization schemes, public debt increased, pushing the government to request additional loans from the International Monetary Fund (IMF) over the following decade, reaching 50 billion USD by 2007. Furthermore, the gradual loss of public assets, in parallel with debt growth, led the country down further economic and social destruction (Sturzenegger et al., 2003). Although the initial aim of this wide and lengthy process was to increase revenues generated for the treasury above anything else, this goal was not met.

ICELAND: Refusing Privatization, Opting for Nationalization and Restructuring Debt, Leading to Recovery

Between 2003 and 2008, the main private Icelandic banks (Glitnir, Landsbanki, and Kaupthing), known for their high interest rates, attracted 140 billion USD. When the 2008 crisis started, rather than bail out the failing banks, the government nationalized them (Nicholas, 2018). The government decided to protect the poor and lower-middle classes from austerity measures, and worked towards saving local depositors only (Izzat, 2015; Wade & Sigurgeirsdottir, 2011). It established an economic plan that stimulated the fishing and thermal energy sectors. Transformative and technological production proliferated, in addition to services and tourism (Wade & Sigurgeirsdottir, 2011). Being out of the Eurozone helped Iceland, and led to an 26 Privatization of Lebanon’s public assets: No miracle solution to the crisis

unprecedented growth in tourism, annually averaging 2.2 million tourists since 2009. With the gradual drop in debt, European countries opened-up to Iceland, and low-risk investments in the country resumed. As such, Iceland was able to recover by 2016, without having to privatize any of its state-owned assets (Izzat, 2015). Although the Icelandic government was mainly concerned about generating revenues for the treasury and fiscal savings, it perceived no benefit from the already existing privatization model and instead opted for the nationalization option. Often showcased as a successful nationalization scenario, the Icelandic recovery model cannot be generalized due to particularities related to their national resources and population size.

MALAYSIA: Selective Privatization of Inefficient Public Assets Relieved the State, Speeding Recovery

Of all the international cases we refer to, the Malaysian one is the one that was enacted mainly based on the pillar of improvement of services delivery, especially in a very costly and failing public bureaucratic sector. Unlike some of its neighboring countries, Malaysia avoided the IMF when its crisis hit. Rather, it shifted from a weak agricultural model to an industrial, agricultural-industrial model, while privatizing costly, low-profit public sectors (Sun & Tong, 2002; Woon, 1989). Previously, Malaysia’s public sector expanded rapidly, resulting in low productivity, high costs, and enlarged bureaucracies. This developed into a financial burden, with diminutive productivity and utility. Privatization policies in Malaysia aimed to restore efficiency and productivity, maximize revenues, encourage foreign direct investments, and advance the country’s economic status (Sun & Tong, 2002). The impact of privatization programs on Malaysian GDP growth, job creation, and foreign direct investments was mostly positive, although it required time and supervision by the state. Such conditions were possible, since Malaysia had restructured its debt, eluded the IMF’s financial packages, and therefore was not restricted by financial deadlines (Woon, 1989).

EGYPT: Quick, Uncalculated, and Corrupt Privatization Leading to Loss of Income-Generating Assets

During the Mubarak era, Egypt turned to the IMF multiple times. As a result, major state-owned assets were privatized to pay back loans. The first privatization wave occurred between 1993-2010, while the second one started in 2016, during El-Sisi’s presidency (Hafiz, 2019; Hamida, 2018). During the first wave, the government privatized 236 state-owned assets, estimated at about 270 billion Egyptian Pounds (EP), for only 33 billion EP, which ignited public anger, and led legislators to file cases aiming to stop this unjustified and questionable waste of public money. Egypt’s earlier privatization programs mostly failed to protect workers’ rights, and threatened the job security of public sector employees, who saw a decrease in both their wages and benefits (El-Ghazaly, Evers, & Shebaya, 2011). Only 136 state‑owned assets remained by 2011 (Al Jazeera, 2019). Current privatization initiatives in Egypt revolve around public banks, financial institutions, and insurance companies that are performing well and generating considerable revenues for the state (Al Jazeera, 2018; Hamida, 2018). Such privatization measures have led many activists, lawyers, and economists to question the country’s economic policies, especially when considering the massive increase in poverty levels (Abdel Aal, 2017; Al Jazeera, 2019). The interesting part about the Egyptian experience is that in both stages of privatization, the first led by Mubarak and the second by El-Sisi, the focus was on one aspect in the privatization framework while ignoring and even working against another. In both cases, the focus was on the revenues generated for the treasury and fiscal savings, at the cost of the improvement of services delivery and the improvement of price competitiveness especially that the privatized services were functioning well according to Egyptian economists. 27 Privatization of Lebanon’s public assets: No miracle solution to the crisis

GREECE: A Rushed Privatization With Uncertain Results

Greece privatized many of its public assets to pay 300 billion USD for a vast bailout agreement it made with the IMF, the European Commission, and the European Central Bank in 2009, under the supervision of the Hellenic Republic Asset Development Fund (HRADF) (Amaro, 2018; European CEO, 2019). Before the crisis, the value of state-owned assets was estimated at 280 billion Euros (EUR), however, at the time of the first bailout package, the value had decreased to 50 billion. Due to obligations, Greece followed the European Bailout scheme so that it would not have to leave the European Union and the Eurozone (Dimas, 2010). Greece sold fourteen airports for 1.2 billion EUR for 50 years; a deal that was criticized, since the airports would generate more than 100 billion EUR for the same period. The Piraeus seaport was also sold for 368 million EUR (a very low price relative to its utility value). These low revenues did not counterbalance the social costs of the deals. Nevertheless, the Greek privatization experience is still too recent to be properly assessed. Some economists highlight that it was a key component of the relative recovery of the country, with unemployment falling from 27.9% in 2013 to a still high 18% at the end of 2018, while other indicators improved as well. Others argue that the Greek privatization experience led to a defeat in future generations’ wealth, and thus, to deep intergenerational inequity: high loss of jobs among youth, mass migration, and the governance of an external power over local industries and resources (Kadritzke, 2016; Kallianiotis, 2018). Like in the previous scenarios, the Greek scenario also aimed at generating revenues for the treasury to cover the significant public debt; however, it is revealed by Greek economists that this negatively affected another aspect of the framework which is the improvement of price competitiveness. Of the initial target of 50 billion EUR proceeds from privatization, a target set under the intense pressure of Germany during the bail out, Greece had only generated a little above 10 billion EUR by 2020. 28 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Assessing the Potential for Privatization of Select PHAs

In this paper, we assess the potential for privatization of Lebanon’s public assets in the short- and long-term (See Box 4 for an overview of privatization frameworks). The valuation presented in this paper is carried out on a best effort basis and is by no means meant as a comprehensive exercise. It provides an estimation of the current value of PHAs, while outlining whether there is a case for privatization of each asset category, taking into consideration the criteria set forth previously, namely, 1) the competitiveness and efficiency brought to the sector by private sector participation, 2) the service or public goods’ accessibility to citizens, and 3) the impact that privatization may have on the treasury. In the absence of detailed financial data, such as balance sheets, profit and losses statements, and business plans for most PHAs, the valuation relies on publicly available data points and estimations.

The assets included in this valuation are by no means an exhaustive list held by the Lebanese Republic (Figure 3), and exclude assets held by affiliated entities, such as municipalities and natural resources (ex: hydrocarbons). Greenfield projects that represent a future case for PPPs are also excluded, as they fall into the liberalization of certain sectors, such as public transportation. In this context, railways are not included due to their inoperative status, and the important investments required to revive them; despite it being essential to future infrastructure development in Lebanon. Gold held by the Central Bank of Lebanon is also excluded because the current legislative framework bars the government from disposing of it (Center for Research and Studies in Legal Information, 1986);4 furthermore, it has a known valuation, to which this paper will add no contribution. The other notable exception includes the two oil refineries of Zaharani and Tripoli that are currently inoperative, and whose privatization is unrealistic given the geopolitical prerequisites required.

FIGURE 2. SELECTED PUBLICLY HELD ASSETS IN LEBANON

PHA

State owned Transportation Real estate Public utilities entreprises infrastructures

Middle East Casino Régie Libanaise Maritime Lands and Ogero, MIC1 Électricité Water Airports Airlines du Libana des Tabacs et ports buildingsb and MIC2 du Liban establishments Tombacs a hrouh ntra an b ncluin real estate assets hel b the entral an an ntra an

4 Law 42, issued by the parliament in 1986, explicitly prohibits the disposal of the Central Bank’s gold reserves under any circumstances, unless authorized by the parliament through legislation. 29 Privatization of Lebanon’s public assets: No miracle solution to the crisis

BOX 4

PRIVATIZATION FRAMEWORKS

Full Divestiture Full divestiture is often synonymous with privatization since it involves the transfer of the entire control of a state’s asset to the private sector. A private entity would then operate, maintain, and invest in this acquired asset. Here, the government maintains some form of control or ability to regulate the privatized entity, for instance, through a licensing system (World Bank, 2016a).

Partial Divestiture Partial divestiture is usually applied when shares in a utility are sold to the private sector in the form of a partnership or a Joint Venture. This can be the case when a holding company is created to hold the utility’s assets in a joint ownership structure (World Bank, 2016b). The distribution of shares differs depending on the government’s goals. When divesting the majority of the capital of a PHA, governments can maintain a “golden share” that grants veto power over reserved matters.

Concessions In concession agreements, the government grants a private entity the right to run and operate state assets for a specified duration called a concession period. Here, the state retains full ownership of all assets, including those purchased by the private entity during the concession period, with their operation reverting back to the state once the concession period ends. The concession period usually lasts until the private entity can make a return, up to 25 years or more in some cases (World Bank, 2018). Concession agreements are often ideal for infrastructure projects, such as airports and ports (World Bank, 2019). The private entity, known as the concessionaire, typically generates revenues from the general public.

FIGURE 3. SUMMARY OF PRIVATIZATION FRAMEWORKS

Restucturing Service Operation & Leases Concessions Joint ventures Full Corporatization contracts Maintenance Affermage BOT Partial diverstiture Design-Build- divestiture Operate

Public owns Public Private Private owns and operates partnership and operates assets assets 30 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Middle East Airlines

Background. Middle East Airlines (MEA) is Lebanon’s national flag-carrier airline. What originated as a private company in the 1940s became one of Intra Bank’s major assets by the 1960s (see Box 5). MEA had become a parastatal organization by the mid-1990s, as no private shareholders remained (Leenders, 2012). According to the Commercial Register, the Central Bank of Lebanon owns 54,575,849 shares out of a total of 54,594,743 shares—in other words, over 99% of MEA’s shares are owned by the Central Bank (Ministry of Justice, 2012). MEA was successfully restructured in the early 2000s, and has been generating profits since. As a result, the net shareholders’ equity increased sharply to reach approximately 700 million USD, as the graph below indicates (Figure 4).5

FIGURE 4. MIDDLE EAST AIRLINES NET PROFITS AND NET SHAREHOLDERS’ EQUITY

800

700 00 00

00 00 200

100 0 200 200 2007 2008 200 2010 2011 2012 201 201 201 201 2017

MA Net Profits million USD MA Net Shareholders uity million USD

Despite its successful turnaround, MEA has failed to position itself as a major regional airline, operating a limited number of direct connections. According to its website, MEA has direct connections with 31 locations—twelve in Europe, eight in the Gulf, eight in the Middle East, and three in Africa (Middle East Airlines, 2020). Moreover, MEA has been criticized for locking competition out of major routes by establishing pricing agreements (codeshare) to those routes, which led to quasi-monopolistic pricing. Hence, some argue that MEA is benefiting from a dominant position, which results in forced subsidization by the public. Furthermore, MEA growth and profits have stagnated in the last few years, and the carrier is heavily impacted by the global COVID-19 crisis, which has impacted the aviation sector worldwide.

5 Data on MEA’s net profits and net shareholders’ equity can be accessed on MEA’s website. See for example: https://meablob.blob.core.windows.net/files/Library/Assets/Gallery/Documents/FinancialStatements/ Profit%20and%20Loss%20Statements%20-%20MEA%201991-2001%20and%202002-2015.pdf 31 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Box 5:

INTRA BANK AND ITS REMNANTS In late 1951, Palestinian-Lebanese banker Youssef Beidas established Intra Bank, which rapidly grew to become an economic and banking behemoth in Lebanon. By the mid- 1960s, Intra Bank was a major shareholder in several companies that played a key role in Lebanon’s economy, such as Middle East Airlines and the company handling the Port of Beirut. It also owned prime real estate properties in Lebanon and in many of the bustling metropolises of the world, such as New York, Geneva and Paris (Safieddine, 2019).

By 1966, a liquidity crisis followed by the spread of exaggerated rumors led to a dramatic bank run, leading to the collapse of the bank. The reasons for the bank’s collapse continue to generate much debate even today. Under the recommendations of an external financial consulting firm, the Lebanese government reorganized Intra Bank into two distinct entities: Intra Investment Company and Bank Al Mashriq. The former would be responsible for handling and managing Intra’s many assets; the latter would be a commercial bank, which collapsed in the late 1980s amidst dramatic corruption scandals (Dib, 2007). Intra Investment Company continues to exist, with the Lebanese state and the Central Bank of Lebanon holding a significant number of shares in it. While Intra Investment Company holds shares in several companies and owns much real estate, the company is notoriously shrouded in secrecy and obtaining information on its activities and assets is very difficult, as little of it is made public.

Potential for privatization. The privatization of MEA is backed by solid fundamentals as it would increase the air transport sector competitiveness and its accessibility to the public. The induced economic spillover effect will also benefit the treasury. However, the COVID-19 crisis has impacted the value of airlines, a downturn that is expected to last in the medium term. If MEA were to be privatized now, this will likely be done at a discount.

Sector efficiency and competitiveness ▸ In general, airlines are overwhelmingly privately held, and governments worldwide have increasingly sold their stakes in national carriers since the 1980s, in a sector that has become very competitive, especially since the arrival of low-cost carriers in the late 1990s. Some governments retain control over what was considered a strategic sector by holding minority rights in their national carrier capital. The case of France’s national airline, Air France, is illustrative: in 2002, a privatization program was enacted, and today, the French state owns only 14.3% of shares in Air France (Air France KLM Group, 2020). However, a law passed in 2014, the Florange law, doubles the voting power of shareholders in French companies who have held shares for over two years, which means that the French state continues to exert influence in the running of Air France (Air France KLM Group, 2015). 32 Privatization of Lebanon’s public assets: No miracle solution to the crisis

▸ Mergers and acquisitions are expected to continue in the airline industry, increasing the industry’s consolidation to cope with the financial crisis, and the lasting impact of COVID-19.

Service accessibility ▸ The privatization of MEA should have a positive spillover on the economy, as it abolishes the governmental conflict of interest concerning pricing and would introduce increased competition into the sector: increased competition allows cheaper prices that would boost the attractiveness of Lebanon as a destination. It takes no major study to understand that the multiplier effect of rendering Lebanon more accessible to expatriates, tourists, and business travelers is by far more important than boosting revenues for the national carrier. In a privatization scenario, the privileges of MEA (access to infrastructures, premium time slots, restriction of competition, etc.) will gradually be abolished, which increases competition to benefit the national economy.

Impact on treasury ▸ In the event of a full privatization of MEA, the Central Bank of Lebanon, its the ultimate owner, will lose its dividends from MEA, one of the few profitable public companies in Lebanon, estimated at 495 million USD over the period of 1997 – 2016.6 ▸ The valuation of MEA is between 600 million USD (conservative scenario) and 740 million USD (optimistic scenario).7 ▸ The treasury will likely benefit from a spillover effect on the national economy from increased accessibility to the country that is difficult to estimate.

6 https://meablob.blob.core.windows.net/files/Library/Assets/Gallery/Documents/FinancialStatements/ Board%20of%20Directors%20Report%202016.pdf 7 See Appendix for details of the valuation method used. 33 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Casino du Liban

Background. Casino du Liban (CDL) is a Joint Stock Company Concession (JSCC), of which Intra Investment Company is a 52% shareholder while private investors and Abela Tourism & Development Company own the remaining shares. CDL shares are traded over the counter on the Beirut Stock Exchange.

Under the gaming license granted to CDL by the Lebanese government, the casino enjoys a monopoly on all gaming in Lebanon until 2026 (Casino du Liban, 2020). In 2019, budgetary revenues of the casino were 101.82 billion Lebanese Pounds (LBP), an almost 18% drop from the previous year (Figure 5) (Ministry of Finance, 2020).

FIGURE 5. GOVERNMENT REVENUES FROM CASINO DU LIBAN (MILLION LBP)

10,000

120,000

100,000

80,000

0,000

20,000

0 201 2017 2018 201 as of Nov2018 as of Oct201

Potential for privatization. The privatization of CDL is backed by solid fundamentals.

Sector efficiency and competitiveness ▸ Privatization will enhance the sector’s competitiveness and efficiency by eliminating the renowned political interference that has characterized the institution since its creation. ▸ The irony of having the Central Bank as an ultimate owner of a gambling institution is also not to be missed.

Service accessibility ▸ The accessibility criteria in the case of CDL refers to the legislations and controls that regulate the industry in order to provide protection to vulnerable populations. The privatization of CDL would liberate the government from the current conflict of interest, where it seeks to protect the general public while maximizing the revenues of CDL. 34 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Impact on treasury ▸ The valuation of CDL (Central Bank of Lebanon’s share) is between 320 million USD (conservative scenario) and 420 million USD (optimistic scenario).8 Here, it is important to note that some real estate that was once part of Intra Bank belongs to the CDL today and was not included in this valuation due to lack of available data. ▸ It is to be noted that the value of CDL is dependent on gambling legislation in Lebanon. The monopoly status granted by law to CDL gives it much of its value, and any changes to that law that might accompany potential privatization will negatively affect the value of the asset, and have an uncertain impact on the national economy and society at large.

8 See Appendix for details of the valuation method used. 35 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Regie Libanaise de Tabacs et Tombacs

Background. Regie Libanaise de Tabacs et Tombacs (RLTT) is a public company that manages the cultivation, manufacturing, distribution, and sale of tobacco and tombac across Lebanon. Under law 151/1959, RLTT is the exclusive agent of all imported tobacco products, and the sole grantor of tobacco sales permits in Lebanon (Regie Libanaise de Tabacs et Tombacs, 2020). Although RLTT has seen significant losses in recent years, it remains among the most profitable government-owned entities, where revenues from RLTT for the Lebanese treasury reached 340 billion LBP in 2019 (Ministry of Finance, 2020).

Potential for privatization. The tobacco sector would benefit from a structural reform that could include the privatization of RLTT and a change in the scope of its activities.

Sector efficiency and competitiveness ▸ The business model of RLTT that buys tobacco at a subsidized rate from farmers has introduced a market distortion, discouraging more productive crops and forcing farmers into a labor intensive, uncompetitive and unhealthy practice. ▸ The liberalization of the industry would eliminate these distortions and encourage the re‑affectation of lands towards more productive and necessary crops. Lebanon is one of few countries in the world that dedicates more than 1% of its agricultural land to growing tobacco (Chaaban, Naamani, & Salti, 2010). ▸ The revision of the subsidy model and monopolies on RLTT and its privatization will enhance the sector’s competitiveness and efficiency by eliminating the political interferences that generally undermine the functioning of this public organization.

Service accessibility ▸ The accessibility criteria in the case of RLTT refers to the legislations and controls that regulate the tobacco industry in Lebanon in order to minimize health hazards from smoking. Restructuring and privatizing the sector is recommended, as it avoids the conflict originating from two contradictory objectives the government has as an owner: maximizing income from tobacco products and minimizing health hazards to its citizens. ▸ Tobacco imports and distribution was a common state monopoly during most of the last century, but many governments liberalized the sector, while implementing firm anti- tobacco regulations.

Impact on treasury ▸ The valuation of RLTT is between 1,440 million USD (conservative scenario) and 1,700 million USD (optimistic scenario),9 considering the current scope of activities and business model. The tobacco farming industry should nonetheless be restructured to a more sustainable and attractive model for the community.

9 See Appendix for details of the valuation method used. 36 Privatization of Lebanon’s public assets: No miracle solution to the crisis

▸ In the case of a full privatization, the government will lose its yearly dividends from RLTT that were budgeted at 131 million USD10 in 2020, excluding fees on tobacco products and licensing fees that are independent from the privatization process.

10 Based on a USD/LBP exchange rate of 1,507.5, source: http://finance.gov.lb/en-us/ Finance/BI/ABDP/Annual Budget Documents and Process/Budget Law 2020.pdf 37 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Airports

Background. Airports are key engines of a country’s economic growth and development. While Lebanon is home to three airports, only one of them, the Beirut Rafic Hariri International Airport, is functioning and viable. It serves as Lebanon’s gateway to the world. The total number of passengers going through the airport has been on the rise since 2008, although it has seen a slight dip in 2019 (Figure 6) (Beirut Rafic Hariri International Airport, 2019).

FIGURE 6. TOTAL NUMBER OF PASSENGERS AT THE BEIRUT RAFIC HARIRI INTERNATIONAL AIRPORT

10,000,000

,000,000

8,000,000 7,000,000

,000,000 ,000,000

,000,000

,000,000 2,000,000

1,000,000 0 2012 201 201 201 201 2017 2018 201

It is important to note that Beirut Rafic Hariri International Airport suffers from a significant congestion problem. Although it has a capacity of six million passengers, the airport has been welcoming many more since 2012, reaching almost nine million in 2018. Many criticisms have been waged against the airport’s management, as passengers often complain of being stuck in long queues. This prompted the Lebanese government to undertake an expansion project, announced in October 2018. The World Bank provided the initial 18 million USD fund for expansion, as part of a larger 200 million USD loan intended to undertake numerous infrastructure projects in the country (The Daily Star, 2019). The Council for Development and Reconstruction contracted the urgent expansion of the airport to Engineer Elie Maalouf Company and Dar Al Handasah (Shair and Partners), who designed it (IFP Info, 2019). In August 2019, works on renovating and expanding the departure terminal were completed, with the hopes that it would reduce congestion among those seeking to fly out of the country. However, this minor expansion project is only a drop in the ocean compared to the planned large-scale expansion of the airport. In 2018, Dar Al Handasah won a contract to design a two-phase airport expansion, estimated to cost around 500 million USD, which will be financed via PPP, while the government will manage and oversee the project. This expansion project figured prominently among the planned capital investment projects the Lebanese government had presented at 38 Privatization of Lebanon’s public assets: No miracle solution to the crisis

the CEDRE Conference (Government of Lebanon, 2018). Figure 7 shows the revenues generated by the airport for the Lebanese State; as can be seen, the figures have shifted significantly in recent years.11

FIGURE 7. GOVERNMENT REVENUES FROM BEIRUT RAFIC HARIRI INTERNATIONAL AIRPORT (MILLION LBP)

00,000 260,802 249,485 20,000

200,000 193,830

10,000

100,858 100,000 95,390

0,000 22,680 0 201 201 2017 2018 201 2020 as of March

In addition to Beirut Rafic Hariri International Airport, Lebanon is home to two other, smaller airports. The first of these is the Rene Moawad Airport, formerly known as the Kolaiyat Airport, located near the town of Kolaiyat, in the Akkar governorate, close to the Syrian border. It is currently being used as a base by the Lebanese Armed Forces, however its potential to serve as a civil airport has long been touted. For instance, in 2018, at a time when congestion at Beirut Rafic Hariri International Airport was making headlines, discussions about renovating the Rene Moawad Airport, and turning it into a civil airport began to take place in the country’s press. While the airport could play a vital role in the reconstruction of Syria, and in reinvigorating economic life in Akkar, its renovation and rehabilitation has yet to see the light of day, reportedly due to political disagreements. There are discrepancies regarding the actual costs of rehabilitating the airport. The Capital Investment Program, prepared by the Lebanese government for the CEDRE Conference in 2018, states that the estimated investment cost of rehabilitation and development of the Rene Moawad Airport would be around 100 million USD (Government of Lebanon, 2018). The other airport, the Rayak Air Base, located in Rayak, in the Beqaa, is mainly a military airport that serves as headquarters for the Lebanese Air Force, the aerial branch of the Lebanese Armed Forces. Its status as a military airport means that it is unlikely to be used as a civil airport, regardless of its potential.

Potential for privatization. The concession model would be the most fit for the development of the Beirut Rafic Hariri International Airport and, to a lesser extent, of other inoperative airports in Lebanon. A full privatization of airports is very uncommon even in the most liberalized countries where concessions are the norm.

11 Data on governmental revenues from the airport was retrieved from official documents published by the Ministry of Finance of and retrieved from its website. See for example: http://www.finance.gov.lb/en-us/ Finance/EDS/FP/2018/revenues%20till%20dec%202018%20customs.pdf 39 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Sector efficiency and competitiveness ▸ Airport concessions are the norm in this sector, where international and regional specialists are granted long-term concessions for managing airport operations, which often include investments for expansion. Full privatization of airports is rare; examples of fully privatized airports include the Heathrow Airport in the UK and Sydney Airport in Australia (Graham, 2020). ▸ A concession model for Beirut Rafic Hariri International Airport would allow the government to reach national objectives such as increasing airport capacity and enhancing its competitiveness and attractiveness by implementing international standards and best practices, without using taxpayers’ money. ▸ Involving the private sector in the management of the Beirut Rafic Hariri International Airport will also liberate this critical economic hub from political interference and mismanagement that have been notorious in the last few years. ▸ Lebanon has already engaged in a PPP model for the phase-two expansion of Beirut Rafic Hariri International Airport, a project listed in CEDRE that has since stalled.

Service accessibility ▸ The impact of conceding the airport on accessibility is uncertain as its tariffs will be decided by the private concession holder in accordance with the concession terms. ▸ Involving the private sector in the development of airline traffic should also be directed towards the rehabilitation of inoperative airports. In addition to increasing the accessibility of air transport, new airports have a strategic interest for a country that currently relies on a single international gateway, with no redundancy whatsoever. This would also serve development purposes, as airports are major economic development hubs, generating important direct and indirect activity for their regions. ▸ A concession model can thus best revive the Rene Mouawad Airport, requiring the government to adopt a national airport strategy (to develop both the Rafic Hariri International and Rene Mouawad Airports over the next 30-50 years, modifying their specializations and their business models).

Impact on treasury ▸ The government is likely to cash-in upfront fees from a concession agreement, whose value is difficult to estimate, as it depends on a tradeoff between different complex parameters that characterize a concession agreement. ▸ A recent sizable concession operation that occurred in Greece in 2015 and included 14 airports totaling approximately 24 million passengers then, resulted in an upfront payment for the government of 1,400 million USD and a yearly payment of approximately 64 million USD12. Benchmarking Beirut Rafic Hariri International Airport against this deal and assuming similar concession terms, which is highly unlikely, suggest that the government could indicatively extract around 400 million USD as an upfront payment and 20 million USD of yearly payments for granting a concession over its main airport. Rene Mouawad Airport presents much less upfront payment potential, due to the extensive investments needed to operate the airport.

12 https://www.arabnews.com/node/1083376/business-economy 40 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Ports

Background. Lebanon is home to several ports, four of them being state-owned: Beirut, Tripoli, Saida, and Tyre. However, until recently, the Port of Beirut by far overshadowed the other ports in terms of size and commerce, hence this section will only deal with the capital’s port. In 1960, Lebanese authorities reclaimed the Port of Beirut, which was run by a French company at the time, and offered a 30-year concession to run the port with a new company, the “Compagnie de Gestion et d’Exploitation du Port de Beyrouth”, which was partly owned by Intra Bank. However, the port’s infrastructure would be completely destroyed during the civil war, and its reconstruction proved to be very costly (Assaf, 2016). The end of the 30-year concession roughly coincided with the end of the civil war. The Lebanese government, at the time, established a temporary committee, called the “Comite de gestion et d’exploitation du Port de Beyrouth”, to manage, administer, and develop the port. The committee remains ‘temporary’ until present day; its current members were selected back in 2002. Whereas the Port of Beirut officially belongs to the Lebanese government, it has a unique structure with both public and private sector characteristics. The port is financially autonomous, as the committee decides the budget, and spends its funds along the way. Every year, the port authorities partially submit the port’s revenues to the Lebanese government using calculations based on the port’s total revenues, its expenses, and future envisaged developmental projects (Le Commerce du Levant, 2013).

This unorthodox situation has led to a lot of criticism and concern being raised over the management of the port, especially given that the ‘temporary’ committee has full authority to manage enormous sums of money, without being subject to the government’s financial or administrative control. Furthermore, the committee can arbitrarily decide on fees that the port’s users must pay, such as truckers and container ships, as well as the customs generated on imported and exported goods (The Monthly, 2017). There is little transparency in the way the ‘temporary’ committee decides to spend its funds. Furthermore, several of the port’s development projects are questionable, as attested by several largely empty new buildings in the area (Abboud, 2019). According to an MP who has been closely following the status of the Port of Beirut, the ‘temporary’ committee is obliged, by law, to transfer only 25% of the port’s total revenues to the government, while it is free to do as it pleases with the remaining 75%, including putting its revenues in private bank accounts, as opposed to the Central Bank of Lebanon (Saibi, 2019).

In addition to the non-transparent manner in which the port is managed and the way its revenues have been handled, doubts regarding the performance and efficiency of the port have long been raised. A master’s thesis from 2002 pursued at the Massachusetts Institute of Technology and dealing with the Port of Beirut states that while the port has been largely rehabilitated since the end of the civil war, logistical operations are carried out generally in a haphazard and disorganized manner. The port at the time did not have an automatic yard management system, which led to containers being stored in a chaotic and illogical manner. The subcontracted companies tasked with handling incoming cargo were operating without official governmental contracts, and their staff were not specifically trained to carry out the work required – as a whole, the handling process was poor, with the subcontractors lacking the expertise and the trained staff. The thesis unequivocally states that the port of Beirut is not operating in an efficient manner (Sawaya, 2002).

Since then, the port’s operations appear to have improved. In 2015, the Port of Beirut won the International Association of Ports and Harbors’ “Gold Prize for the Information Technology Award 41 Privatization of Lebanon’s public assets: No miracle solution to the crisis

for the best Port IT solution worldwide” (Port Technology, 2015). The number of containers was on a gradual increase every year, especially following the outbreak of the Syrian civil war which inadvertently amplified the Port of Beirut’s role in regional trade routes. The port was the country’s major hub for imports, raking in billions of dollars annually, and the chairman of the ‘temporary’ committee and ministers of public works throughout the years downplayed the non-transparent and unorthodox manner through which the port was administered, justifying this with the impressive economic figures the port exhibited. In other words, the “if it ain’t broke, don’t fix it” mentality was adopted.

Against this murky backdrop characterized by low transparency and unclear prerogatives of the port’s authorities, it is unsurprising that industrial accidents will occur. While it is still early to determine whether the explosion on August 4, 2020, was a result of poor oversight or deliberate action, the mere fact that a large supply of dangerous chemicals was stored under poorly regulated and unsafe conditions over several years, without any remedial action, is proof of grave mismanagement and corruption taking place at the Port of Beirut. In addition to the dramatic destruction caused to the city, and the countless lives lost, the explosion took out large parts of the port. As the country’s major economic lifeline, the loss of the port has been a particular economic blow. This has created a whole new dimension regarding the potential of the port’s privatization, rendering previous estimates of the port’s value largely obsolete.

Data retrieved from the Ministry of Finance’s (MoF) publications, and other sources, shows that from 2011-19 the Lebanese government received less than 25% of the port’s total revenues on three separate occasions. Table 1 illustrates the share of the port’s total revenues the Lebanese government has received since 2011.

TABLE 1. SHARE OF PORT OF BEIRUT’S TOTAL REVENUES RECEIVED BY LEBANESE GOVERNMENT SINCE 2011

2011 2012 2013 2014 2015 2016 2017 2018 2019 Total Revenue 158.8 174.7 219.1 210.89 238.92 238.96 238.98 231.53 198.89 (million USD)

Gov. Revenues 48,000 0 30,000 82,110 116,720 135,514 174,935 110000b 219555c (million LBP)

Gov. Revenues 31.683a 0 19.802a 54.198a 77.043 a 89.448a 115.468a 72.607a,b 144.921a,c (million USD)

Approx. Percentage of 20.05% 0% 9% 26% 32.35% 37.43% 48.12% 31.36% 73% Total Revenue

Note: a Exchange rate at 1 USD = 1515 LBP; b As of November 2018; c As of October 2019.

Potential for privatization. The explosion that ravaged Beirut and its port on August 4, 2020, will have a tremendous impact on Lebanon and its economy for many years to come. Only a week after the explosion, the port was surprisingly operative via its terminal container, which was relatively shielded from the impact. Already highly reduced by the financial crisis, the port was expected to reach 80% of its pre-explosion activity by September 2020 (Gemayel, 2020). Nevertheless, the substantial destruction caused to the port and the severe flaws in its management and processes that paved the way for this catastrophe brought forth open calls for its privatization, only days after the explosion. Lebanon should involve private players through a concession model to reconstruct the port on solid grounds and reposition it again in an increasingly competitive environment without using taxpayer money. 42 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Sector efficiency and competitiveness ▸ The necessity to involve the private sector has increased after the explosion that ravaged the port on August 4th, 2020, as the investments needed for reconstruction cannot be borne by the Lebanese treasury. The Beirut port will also be confronted by an increased competition from ports in the Levant and will benefit from strategic investors to reposition itself on the freight map of the region. ▸ The ownership and management model of the Port of Beirut must also move from its current temporary status to a model that provides transparency, accountability, and strategic ambition. ▸ The concession model is fit for Lebanon as it is widely adopted by ports across the world, which are increasingly managed and developed by private sector specialists. Full privatization, including the sale of the port real estate, would be detrimental to national interest, given the strategic value of the Port of Beirut, one of the main windows to the country, located on 1.2 million square meters of seafront in the capital. ▸ It is to be noted that several countries have shown interest in reconstructing Beirut Port in the wake of international mobilization that followed the August 4 explosion (Haboush, 2020). ▸ Concessions models are also the most fit for developing the three other commercial ports of Saida, Tyre, and Tripoli, the latter being destined for a major role in the future reconstruction of Syria. The Tripoli Port, which will also potentially benefit from a transfer of activity after the August 4 explosion, will also need private investments, better governance, and increased efficiency that could be provided with the involvement of the private sector. The Jounieh passenger port should also be revived according to this framework.

Service accessibility ▸ The accessibility of services of Beirut port would be increased due to private management that will boost its overall efficiency. But the impact remains uncertain as the port tariffs will be decided by the private concession holder in accordance with the concession terms. ▸ The enhancement of the accessibility of port services and their integration into the economy should be the objectives of a national strategy that will define the ambition and means of development of the Lebanese ports. In the past, the absence of such a strategy fueled a sectarian rift when the Port Authority decided to backfill the fourth basin in 2017 and moved part of this activity to the Port of Tripoli.

Impact on treasury ▸ The government will not likely cash-in any upfront payment from a concession agreement given the magnitude of investments needed in the reconstruction of the Port of Beirut, and the fact that a BOT model will likely be privileged. ▸ The other three commercial ports of Lebanon, and the Port of Jounieh, also present a negligible upfront payment potential, due to the extensive investment needed to operate them. As a result, no privatization value was accounted for ports in this paper. 43 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Real Estate

Background. The selling off of real estate assets officially held by the Lebanese State is considered by some to be the key to solving the current financial crisis; as auctioning off state lands and buildings will supposedly generate significant funds. However, despite the much- taunted potential that this solution holds, there is widespread disagreement over the actual value of the Lebanese state’s real estate. For instance, Cordahi in 2006 estimated that the value of the Lebanese State’s administrative buildings stood at around 12 billion USD, while the total value of the available unbuilt land in the country stood at around 291.5 billion USD (Obegi, 2008). In turn, an article written in April 2020, based on the same study, estimated that the State’s real estate assets are worth 55 billion USD (Al Markazia, 2020). What complicates matters further is the dearth of government-sanctioned studies and official governmental data regarding these assets. Based on efforts exerted by successive Lebanese governments, an assessment led by former Environment Minister Mohamad Mashnouk concluded that 50% of Lebanese lands have been mapped out and are legally registered, 30% have been mapped out but not legally registered, while the remaining 20% of the lands, mainly located in rural areas, need both mapping out and registration (Lebanon24, 2020). Lebanese authorities have been working on this matter. As of October 21, 2019, a decision was made by the Lebanese government to task the MoF with carrying out a full mapping out process of these assets, and, in May 2020, a delegation of the met with the Minister of Finance to discuss (نقابة الطوبوغرافي�ين المجازي�ن) Order of Surveyors cooperation between the Order and the Ministry (Lebanon Debate, 2020).

The Lebanese Republic owns a substantial part of the territory, estimated to range between 20‑25% of the total surface area of Lebanon.13 However, only the private domain held by the State can present a potential for privatization—the public domain constitutes assets not meant for privatization, such as riversides, mountain summits, seashores, and railway domains. Real estate held by municipalities are also to be excluded from potential privatization appraisals as they are controlled locally and cannot be integrated in a government steered divestiture program.

TABLE 2. OVERVIEW OF GOVERNMENT-OWNED REAL ESTATE (IN SQUARE METERS)14

Built Unbuilt Beirut 682,453 314,493 Beqaa 28,915,555 733,022,092 Mount Lebanon 3,424,577 9,457,046 Nabatieh 198,669 2,452,938 North 3,331,887 32,729,212 South 3,389,312 41,406,030 39,942,453 819,381,811

13 Interview with Raghda Jaber Azad, Expert in Land Use Policy, on July 24, 2020 14 Unpublished data from September 9, 2019, obtained from the Ministry of Finance, Lebanese Republic 44 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Government-Owned Real Estate comprise 60,480 plots, of which 32,387 are of unknown size.15 In addition to the figures in Table 2, we include Central Bank of Lebanon-held real estate of 53 million square meters (mostly lands), of which 79% are in the Beqaa.

Potential for privatization. The massive privatization of publicly held real estate is an unrealistic remedial option for the severe compounded crisis that Lebanon is going through due to the nature and location of these lands, the required processes and regulations, as well as the un- expandable demand within the sector. A look at several international benchmarks also suggests that large-scale real estate sales did not play a part in any salvation program for countries that incurred major financial crises. However, this should not prevent the government from cherry-picking attractive assets that have no public value, with the intention of divesting them or committing them to a privately managed income-generating fund. The government should also rationalize its real estate use and start by moving its administrations from rented domains to owned properties while seeking to valorize its real estate by encouraging and prioritizing productive activities where possible, such as through solar farms, agriculture, etc., in an effort to minimize potential opportunity costs.

Sector efficiency and competitiveness ▸ The private domain is estimated at 860 million square meters, of which 88% are in the Beqaa (including Baalbeck-Hermel), a region that historically constitutes 2.5%16 of all real estate transactions in Lebanon (BankMed, 2013, 2017); this figure surged to 13% recently in quarter one (Q1) of 2020 (BLOM INVEST Bank, 2020). As the previous sub-section highlights, it is estimated that only half of all real estate assets of the State are fully mapped out and legally registered, with the remaining half divided along 30%, which are mapped out but not legally registered, and 20% that are neither mapped out nor legally registered. Furthermore, many coastal lands, riverbeds, etc. are not properly labeled as public domain, and may be labeled as private domains. This reality further complicates the privatization process of the State’s real estate and dampens the potential commercial value of such assets. ▸ The exact location of the assets is unclear. Most of the plots are estimated to be small in size (more than 70% are less than 1,000 sqm),17 though significant portions have no market value due to their situation (leftovers from infrastructure projects, parcels in inhabited or unattractive areas, etc.), or current usage (Ministry of Energy, Ministry of Education, Ministry of Defense, large abandoned infrastructure projects, etc.). ▸ The current allotment of the parcels does not obey commercial reasoning in terms of attractiveness and capacity to be sold, which further complicates the process and feasibility of a massive privatization program. ▸ A massive sale of government held real estate assets will come at the detriment of the real estate sector that will suffer from a surge in the supply, and real estate will lose value as a consequence. The real estate market is limited in size in Lebanon and cannot be expanded at will. The total market size in recent years has averaged 8.2 billion USD per year18 (BankMed, 2013, 2017). Recent evidence suggests that the market can expand in times of crisis, as real estate has increasingly been sought after as an alternative for bank deposits. However, this expansion has limitations. 2020 Q1 figures indicate real estate transactions have witnessed

15 https://al-akhbar.com/ArticleFiles/20206723232622637271689826220223.pdf 16 2008 - 2013 and 2014 - 2016 average 17 https://al-akhbar.com/ArticleFiles/20206723232622637271689826220223.pdf 18 2008 - 2013 and 2014 - 2016 average 45 Privatization of Lebanon’s public assets: No miracle solution to the crisis

an important yearly increase of 44%; this increase is limited to 14% when compared to the 2015-19 averages in the same quarter (BLOM INVEST Bank, 2020). ▸ This sector is also already greatly influenced by private sector players (with many of them affiliated directly to the current political class), who have pushed both for legislation (for example, the property law in 2001 and the building law in 2004) and incentives (dozens of Central Bank of Lebanon circulars easing bank’s investments directly/indirectly in real estate) that promote speculation and monopolization to their benefit.

Service accessibility ▸ The accessibility to the public of real estate assets intended for privatization will be bound to laws and regulations and to a divestment process that will be too complex to design and to implement due to the nature of most of the considered assets and the sensitivity of real estate related matters in Lebanon. ▸ The massive reconstruction program needed in Lebanon after the August 4 explosion will further reduce the appetite for real estate transactions, as the reconstruction will absorb important funds that must be partially contributed by local economic agents—foreign aid cannot fully cover the multi-billion dollars of incurred losses. ▸ Furthermore, the restrictions affecting non-Lebanese land ownership is an additional limitation to their tradability and international attractiveness, as the law restricts access of foreigners to lands of more than 3,000 square meters. In addition to the 3% limit of Lebanon’s total surface area, foreigners are also restricted to 3% of the total surface area of each caza, and 10% of Beirut’s total surface area (Investment Development Authority of Lebanon, 2020).

Impact on treasury ▸ The theoretical valuation of publicly held real estate is between 7,120 million USD (conservative scenario) and 14,380 million USD (optimistic scenario)19 but is highly unlikely to materialize in full in the short or medium term.

19 See Appendix for details of the valuation method used. 46 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Telecommunications Sector

Background. In 2002, the parliament ratified the Telecommunications Law no. 431/2002, which provided a framework to regulate the telecommunications services sector, and which stipulated the rules for the complete or partial transfer of its administration to the private sector. The law also established the TRA of Lebanon (Telecommunications Regulatory Authority, 2002). Two decrees followed concerning the TRA, one issued in 2005 (Decree No. 14264), which laid out the administrative and financial regulations for the authority’s organization, and a second in 2007 (Decree No. 1), which appointed its chair and the members of its board (Telecommunications Regulatory Authority, 2008a). The TRA’s duties are set forth in law no. 431/2002, and include preparation of draft decrees and regulations to implement the law, promote competition in the sector, organize concessions and issue licenses, and monitor tariffs. Its mandate is to “liberalize, regulate and develop telecommunications” in the country (Telecommunications Regulatory Authority, 2008b). Despite the rules set forth in law no. 431/2002 regarding the sector’s privatization, it remains completely owned and regulated by the Ministry of Telecommunications (MoT).

Both mobile cellular networks (MIC1 and MIC2) currently operating in Lebanon are owned and regulated by the MoT; private operator Orascom Telecom manages MIC1 (Alfa), while private operator Zain manages MIC2 (Touch). The government recently decided to end the management contracts of the private operators, reclaiming the sector. In 2018, there were an estimated 4,424,185 mobile cellular subscriptions in the country (64.498 per 100 people) (World Bank, 2020a, 2020b). Ogero, an SOE, is the entity responsible for fixed telecom operations in Lebanon. It also manages the telecommunication and information technology infrastructure for telecom networks, including data service providers, and internet service providers (Ogero, 2020). In 2018, there were an estimated 893,529 fixed telephone subscriptions in the country (13.026 per 100 people) (World Bank, 2020c, 2020d). This sector is a major income- generating sector for Lebanon’s state treasury (Figure 8). Government revenues in budget savings from the telecommunications budget reached 1,388 billion LBP in 2018 (Ministry of Finance, 2020).

FIGURE 8. GOVERNMENT REVENUES FROM THE BUDGET SAVINGS OF THE TELECOMMUNICATIONS BUDGET

million LBP 2,00,000

2,000,000

1,00,000

1,000,000

00,000

0 201 201 2017 2018 201 as of Nov 2018 as of Oct 201 47 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Potential for privatization. An increased involvement of the private sector is critical in order to develop the telecommunication sector in Lebanon. Held by the Lebanese state for nearly two decades, the sector is characterized by poor infrastructure, lack of innovation, high and uncompetitive prices and absence of sound governance that are undermining the whole Information and Communications Technology (ICT) industry in the country. The private sector should step-in according to a national strategy that will determine the future operating model of the sector, many options being possible, and institute necessary regulatory frameworks accordingly.

Sector efficiency and competitiveness

▸ Telecom is one of the first industries to have been liberalized and privatized in the OECD countries in the 1980’s. The constant need for innovation, fueled by competition between private sector players, left little room for publicly held entities in the sector. Apart for some exceptions, historically and linked to necessary infrastructures that are mutualized by public authorities, very few countries own and operate their telecom assets. ▸ The telecom sector in Lebanon suffers from poor infrastructure, ranking 90 over 134 countries on the Network Readiness Index.20 The country moved from being a regional pioneer of the first generations of mobile telecommunications to a late follower in the deployment of 3G and 4G. Moreover, the ambitious fiber roll-out program for which more than 300 million USD were budgeted still hasn’t given expected results due to implementation roadblocks. ▸ Investment by the private sector is much needed to complement and upgrade existing infrastructures (fiber roll-out, 5G, submarine cable, datacenters, etc.) and increase the overall competitiveness of ICT in Lebanon. ▸ Management by the private sector will benefit innovation and help import best practices to develop the ICT ecosystem beyond the government’s short-term cash-driven objectives. The involvement of the private sector will also limit the widespread political interferences in the sector, namely related to employment and sponsoring budgets (such as advertising, sports, etc. used for political purposes). ▸ When it comes to the sectoral structure, many different privatization models are possible in Lebanon with various parameters: segregation between fixed and mobile networks or between infrastructure and services implying the existence of virtual operators. The number of players to operate in each segment is also critical to boost competition. ▸ A national telecom strategy is a prerequisite for any privatization operation, as it will shape its business plan and valuation and specify the scope of the public sector’s involvement through the creation of Liban Telecom. The latter could be fully or partially privatized (law 431/2002 indicated that the government could sell up to 40% of Liban Telecom to a “strategic partner”).

Service accessibility

▸ Privatization will increase competition, which will likely benefit consumers and businesses, and render the economy more competitive. This sector is currently perceived as an income source for the government, and the consequential lack of competition within the sector has made telecom prices more expensive in Lebanon than in the majority of comparable

20 https://networkreadinessindex.org/countries/lebanon/ 48 Privatization of Lebanon’s public assets: No miracle solution to the crisis

or neighboring countries (Lebanon ranked 129 over 182 countries for the price of high- consumption mobile-data-and-voice basket in 2019).21 ▸ The increased involvement of the private sector should be expected to have a positive multiplier effect on the national economy through the surge of investments and improved pricing and accessibility that will be forced by competition. A study by Arthur D. Little, Ericsson and Chalmers at the University of Technology estimates that doubling broadband speeds for an economy can add 0.3 percent to GDP growth.22

Impact on treasury

▸ Transfers from the telecom surplus to the treasury will be impacted by any partial or full privatization. However, these transfers have been on the sharp decline in recent years, going from 1,936 billion LBP in 2017 to 1,202 billion LBP in 2019,23 a tendency expected to continue in the future. ▸ The valuation of the main telecom assets held by the Lebanese state, Ogero, MIC1 & MIC2, ranges between 2,180 million USD (conservative scenario) and 4,280 million USD (optimistic scenario).24

21 https://www.itu.int/en/mediacentre/Documents/Documents/ITU-Measuring_Digital_Development_ICT_ Price_Trends_2019.pdf 22 https://nova.ilsole24ore.com/wordpress/wp-content/uploads/2014/02/Ericsson.pdf 23 http://www.finance.gov.lb/en-us/Finance/BI/ABDP/Annual%20Budget%20Documents%20and%20Process/ Citizen%20Budget%202020en.pdf 24 See Appendix for details of the valuation method used. 49 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Electricite du Liban

Background. Electricite du Liban (EDL) is the public utility responsible for the “generation, transmission, and distribution of electrical energy in Lebanon” (Electricite du Liban, 2020). Since the end of the civil war, and as of 1993 with the start of Lebanon’s reconstruction, over 25 billion USD have been invested into Lebanon’s electricity sector: the construction of electricity power plants, and for rehabilitation and development (Information International SAL, 2018). Despite these investments, the sector is in major distress, with the majority of consumers facing three hours—sometimes up to 18 hours—of power cuts per day. As a result of poor electricity delivery, consumers rely on private diesel generator providers to deal with power outages, effectively paying twice for their power supply. Mismanagement, corruption, high operational costs, low efficiency plants, as well as technical (related to transmission and distribution grids) and non-technical losses (such as illegal connections) hamper the sector (Energy Policy and Security Program, 2019; Ministry of Energy and Water, 2019). EDL has been operating at a loss for years, with its cumulative debt for the past 25 years estimated at 40 billion USD. As a public establishment, it costs the treasury between 1.5-2 billion USD annually, mainly paid towards purchasing fuel and covering tariff subsidies. Consequently, EDL contributes significantly to the treasury’s budget deficit (Ministry of Energy and Water, 2019).

In 2002, law 462 regulated the electricity sector, which allowed for privatization of some or all of the sector’s production and distribution activities (Databank, 2002). Nevertheless, EDL maintains a monopoly over the sector, and still controls over 90% (Electricite du Liban, 2020). EDL serves more than 1,400,000 subscribers of various voltages (Electricite du Liban, 2020). The remainder of the sector is divided among various companies, through a number of concessions or operational agreements, that purchase electricity produced from EDL and then sell it back to consumers as part of the concession. In 2012, three companies won four-year operations contracts from EDL for electricity distribution support in Lebanon, the scope of work for the three distribution service providers (DSPs) also includes rehabilitating and modernizing Lebanon’s electricity power grid (National Electrical Utility Company SAL, 2014). These three companies continue to distribute electricity in their designated areas via an extension of their distribution contracts with EDL (Verdeil, 2018), along with a fourth company in the South of Lebanon which was awarded a similar operation contract in 2018 (MRAD Utility Services, 2020). Furthermore, a two-year operations contract was awarded to Electricité de Zahlé (EDZ) in November 2018, which replaced a previous concession agreement. The bill for this contract, which was passed by parliament, allowed EDZ to continue providing electricity twenty-four hours a day to its service area (Azhari, 2018). EDZ is a private energy utility serving in the central Beqaa region; operating, developing, and maintaining networks that provide low and medium voltage energy (Electricité de Zahlé, 2020).

EDL also has a concession agreement for distribution with Societe Electricite de Jbeil, while its concession agreement with 98% EDL-owned La Kadisha, in North Lebanon, is currently on hold (Electricite du Liban, 2020; Information International SAL, 2018). A number of distribution concession agreements have been dissolved over the years, including concessions previously awarded to Aley, Hammana, Beit Meri, Broumana, and Bhamdoun (Information International SAL, 2018). In addition, Nahr Ibrahim and Nahr Al Bared have concessions agreements for 50 Privatization of Lebanon’s public assets: No miracle solution to the crisis

hydroelectric power plants, while the Litani River Authority owns a hydroelectric power plant (Electricite du Liban, 2020).

Potential for privatization. The government focus should be on improving regulatory infrastructure and ramping-up private investments to salvage the electricity sector from its misery, now symptomatic of Lebanon’s failures. Stopping the bleeding that has cost Lebanon 30- 40 billion USD over the last decade is vital for the turnaround of the country and cannot be done without the involvement of the private sector through PPPs, specifically for power production, provided that the right regulatory framework is implemented.

Sector efficiency and competitiveness ▸ Private sector should commit funding to ramp-up power infrastructure that needs heavy investments across the value chain. ▸ EDL’s electricity production assets should be complemented by significant generation capacity that is likely to be done through PPPs (Independent Power Producers model or IPPs), or by leveraging agreements with foreign governments—noting that PPPs are increasingly complex due to the insolvent financial situation of the Lebanese government, the main off- taker of privately produced electricity through EDL. ▸ Transmission is also in need of heavy investments, but the strategic character of this asset makes its privatization less likely in the short and mid-terms. Transmission Service Operators (TSOs) belonging to the private sector are less common than IPPs or electricity service providers in liberalized countries and have been used primarily as a means to mobilize capital for massive new investments. ▸ Distribution is currently awarded to four different companies through service provider contracts, but significant improvements should be made to the contractual frameworks and regulatory environment prior to extending the role of the private sector. ▸ The efficient involvement of the private sector should be conditioned by the implementation of a sound regulatory framework, especially with the revision and implementation of law 462/2002, the nomination of an Electricity Regulatory Authority, the development and implementation of a clear strategic plan and roadmap for their functioning, and the corporatization of EDL.

Service accessibility ▸ In order to be sustainable, the reform of the power sector should include the gradual lifting of government subsidies (according to the National Electricity Strategy Plan of 2010, the price represented on average only 55% of the production cost per kilowatt hour) that currently benefit heavy consumers the most. ▸ However, the impact of the removal of subsidies is to be compared to the total cost of electricity borne by households that includes EDL subsidized tariffs (averaging 0.095$) and private generators tariffs (costing 0.23$ on average in 201725). Hence, the net impact should turn to positive with the increase of EDL supply and the adoption of a progressive tariffication scheme.

25 http://documents1.worldbank.org/curated/en/772521589865844161/pdf/Lebanon-Cost-of-Service-and- Tariff-Design-Study-Final-Report.pdf 51 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Impact on treasury ▸ The implementation of reforms and the ramp-up of infrastructure with private financing and management should progressively reduce EDL yearly losses, ranging between 1.5 billion USD and 2 billion USD. ▸ Moreover, the treasury would benefit from an important economic induction if the electricity crisis were to be solved. Power outages are estimated to cost the country several billions of dollars yearly (a paper by Elie Bouri and Joseph Al Assad estimated the annual losses at 3.9 billion USD and 5.7 billion USD, respectively in 2014 and 201226). ▸ It is worth mentioning that EDL has no current market value due to its financial deficits and tariff subsidies, in vigor since 1994.

26 https://www.mdpi.com/1996-1073/9/8/583/htm 52 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Water Establishments

Background. Lebanon’s law 221/2000 on the Organization of the Water Sector in Lebanon established four water authorities or regional water establishments (RWEs) across the country: Beirut, Mount Lebanon, North Lebanon, and Beqaa and South Lebanon (The Republic of Lebanon, 2001). By law, the authorities also manage water resources and wastewater within their territorial scope. In addition, they are responsible for suggesting tariffs for potable and irrigation water, as well as for discharging wastewater. Over the past decade, the water sector in Lebanon has received significant funding and loans from international donors aiming to improve access to safe and reliable water for its Lebanese citizens (USAID, 2019). The Syrian refugee crisis has exacerbated pressure on Lebanon’s water sector, with demand for water increasing by almost 30% since 2011 (Walnycki & Husseiki, 2017). Furthermore, over 2.6 million persons, including Lebanese and other populations, are still in need of safe drinking water and sanitation services (Government of Lebanon & UNHCR, 2020). The rate of household connections in Lebanon is 79%, and the water supply is only available for an average of nine hours per day (USAID, 2017). Data on the number of subscribers within each territorial region is retrieved from the USAID Lebanon Water Project Plan, and/or was provided by the respective water establishment (Table 3).

Since the end of the civil war in 1992, billions of dollars (from both foreign and government/local sources) have been invested in the water and wastewater sector (Ministry of Water and Energy, 2010; USAID, 2017; Government of Lebanon, & UNHCR, 2020); still, the sector continues to face a number of challenges which impede its proper functioning and hinder its improvement. These include legal pluralism covering various older and newer water laws, institutional duplication, with multiple institutions (including multiple ministries in addition to the RWEs) responsible for managing the sector (Gharios, Farajallah, & El Hajj, 2019), a weak legislative infrastructure, increasing lack of trust by consumers, poor management of water utilities, weak institutional capacities and lack of resources at the RWEs-level, high rates of non-revenue water, poor water and wastewater infrastructure, and lack of accountability, among others (USAID, 2017; El-Amine, 2016). For example, a predominantly pumping infrastructure has resulted in a high reliability on energy to run the system, with various RWEs unable to cover their electricity bills; the RWEs in North Lebanon and Beqaa owe 80 billion LBP to EDL/Kadisha, and 70 billion LBP to EDL, respectively (Issam Fares Institute for Public Policy and International Affairs, 2019). In fact, three of the four water establishments (all but Beirut/Mount Lebanon) operate at a financial deficit, fail to cover their operation and management costs, and do not achieve cost recovery, mainly due to billing and collection issues, including weak collection rates, high rates of non-revenue water, and a lack of a proper tariff strategy (USAID, 2017; Oxfam & Issam Fares Institute for Public Policy and International Affairs [IFI], 2019). 53 Privatization of Lebanon’s public assets: No miracle solution to the crisis

TABLE 3. NUMBER OF WATER AND WASTEWATER CONNECTIONS IN LEBANON

Regional Water Establishment Year Number of Water Number of Wastewater Connections Connections Beirut and Mount Lebanon 2018 490,886 477,339

North Lebanon 2015 115,714 93,255

Beqaa 2015 70,799 63,719

South Lebanon 2015 148,068 93,255

Potential for privatization. The involvement of the private sector in water and wastewater management is generally done under affermage or lease models with the purpose of improving services for the population by making use of private financing and know-how. The success of private sector involvement is highly dependent on applied contractual frameworks and the balance they establish between the interests of the users, the government and private operators.

Sector efficiency and competitiveness ▸ The impact of affermage and lease contracts on the sector are highly dependent on the applied contractual frameworks, as well as on the legal and regulatory context. These contracts obey complex business models where the main parameters are private sector investments, contract length, service and coverage, Key Performance Indicators (KPIs) to be achieved by the private operators, tariffs to be charged to consumers, government subsidies, and eventual revenue sharing and/or management fees. The length of affermage or lease contracts tends to be shorter than that of concession agreements, and is closer to around 7 to 10 years. ▸ Lebanon’s previous experience with private sector participation in the water sector through Ondeo Liban (see Box 2) failed for various reasons, including challenges which still persist today, such as institutional complexity, fragmented responsibilities, weak monitoring and arbitration mechanisms, and high debts of the Water and Sanitation Establishment of North Lebanon (EUWI-MED & OECD, 2010).

Service accessibility ▸ The improvement of water and wastewater accessibility in Lebanon through affermage or lease will be highly dependent on the applied contractual terms. However, water tariffs generally tend to increase on the long run with private operators, and privatization does not always necessarily result in improved efficiency, nor in better service provision.

Impact on treasury ▸ The government cannot realistically expect to generate upfront fees by granting water management (affermage or lease) contracts in Lebanon and should primarily aim to attract private investments in water and wastewater networks that have already suffered from decades of underinvestment. ▸ It is worth noting that full privatization is highly uncommon in this sector, even in the most liberalized countries where affermage or lease contracts (or concessions to a lesser extent) are the norm. 54 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Conclusion

A synthesis of the potential for privatization of selected PHAs is shown in Table 4 below.

TABLE 4. SYNTHESIS OF PRIVATIZATION MODELS AND ESTIMATED IMPACTS FOR EACH PHA

Publicly Privatization Sector competitiveness Service Impact Held Asset model and efficiency accessibility on treasury

MIDDLE EAST Full or partial Airlines are predominantly Privileges of MEA will gradually One-off revenues of 600 to AIRLINE (MEA) divestiture privately held and governments be abolished by privatization, 740 million USD to the Central worldwide have increasingly sold which increases competition to Bank of Lebanon. In addition, their stakes in national carriers. benefit the national economy. treasury benefits from sizable Mergers and acquisitions are More competition will allow spillover effect on the economy. expected to continue in the cheaper prices that would boost airline industry. the attractiveness of Lebanon as a destination.

CASINO DU Full or partial Increased competitiveness and Private sector will liberate the One-off revenues of 320 to LIBAN (CDL) divestiture efficiency by eliminating the government from its current 420 million USD to the Central renowned political interferences. conflict of interest, where it Bank of Lebanon. Nevertheless, seeks to protect the monopoly revenues highly dependent on of CDL and to maximize its gambling legislation. revenues at the detriment of a policy aiming to achieve broader objectives.

RLTT Structural The revision of the subsidy Liberate the government from One-off revenues of 1,440 reform of model and monopolies of RLTT its current conflict of interest to 1,700 million USD to the the tobacco and its privatization will enhance to maximize income from government considering its farming sector the sector’s competitiveness tobacco products and minimise current scope of activities and that could and efficiency by eliminating health hazards to its citizens. business model that should include the the political interferences Most governments privatized however evolve to build a more privatization that generally undermine their tobacco companies and sustainable and attractive of RLTT and the functioning of this public liberalized the sector, while model for the community. In the a change of organization. instituting firm anti-tobacco case of a full privatization, the scope of its regulations. government will lose its yearly activities dividends from RLTT that were budgeted at 131 million USD in 2020.

Unfavorable impact Uncertain impact Favorable impact 55 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Publicly Privatization Sector competitiveness Service Impact Held Asset model and efficiency accessibility on treasury

AIRPORTS Concession Airport concessions are Uncertain impact on tariffs. Concession terms and revenues increasingly the norm in this Increased accessibility and cannot be quantified. sector. Concession would allow economic activity with the an increase in capacity and development of other airports improvement of competitiveness (such as Rene Mouawad Airport) and attractiveness without using through private investments. taxpayer’s money. Private sector will also liberate the airport from political interferences and mismanagement.

PORTS Concession It is necessary to involve Accessibility should benefit Concession terms and revenues the private sector in the from boosted efficiency; cannot be quantified. reconstruction and repositioning however, impact remains of the Beirut port on the regional uncertain. The enhancement map after the August 4th Blast. of the accessibility of port Involvement of a strategic services and their integration private player should provide into the economy should be transparency, accountability, the objectives of a national and strategic ambition for strategy that includes all main the Beirut port. A concession commercial ports of Lebanon. model is also the most fit for developing the three other commercial ports of Saida, Tyre, and Tripoli, as well as the Jounieh passenger port.

REAL ESTATE Partial A massive sale of government The accessibility to the public Theoretical valuation between progressive held real estate assets will of real estate assets intended 7,120 million USD and 14,380 privatizations come at the detriment of the for privatization is bound to million USD. However, highly real estate sector that will suffer laws and regulations and to a unlikely to materialize in from a surge in the offer and lose divestment process that will revenues for the government in value as a consequence. be complex to design and to the short- or medium-term. implement due to the nature of most of the considered assets and the sensitivity of real estate related matters in Lebanon.

TELECOM Full or partial Globally, innovation and Privatization will increase Declining transfers from the (FIXED AND privatization competition have left little room competition, which will benefit telecom surplus to the treasury MOBILE) depending on for publicly held entities in consumers and businesses, will be impacted by any partial retained model this sector. Investment by the and render the economy more or full privatization. The for the sector private sector is much needed competitive. valuation of the main telecom to complement and upgrade assets held by the Lebanese existing infrastructures. state, Ogero, MIC1 & MIC2, Private sector will boost ranges between 2,180 million innovation and help import USD and 4,280 million USD. best practices to develop the ICT ecosystem beyond the government’s short-term cash- driven objectives.

Unfavorable impact Uncertain impact Favorable impact 56 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Publicly Privatization Sector competitiveness Service Impact Held Asset model and efficiency accessibility on treasury

ELECTRICITE Partial Turnaround of the power sector Reform of the power sector The implementation of DU LIBAN liberalization cannot be achieved without the should include the lifting of the reforms and the ramp-up of (EDL) through involvement of the private sector important subsidies. The impact infrastructure with private concessions through PPP’s, specifically for of the removal of subsidies is to financing and management (IPPs) power production, provided that be compared to the total cost of should progressively reduce EDL the right regulatory framework is electricity borne by households yearly losses, ranging between implemented. that mixes EDL subsidized tariffs 1.5 billion USD and 2 billion with private generators tariffs. USD. The net impact should turn to The treasury would benefit positive with the increase of EDL from an important economic supply and the adoption of a induction if the electricity crisis progressive tariffication scheme. were to be solved.

WATER AND Affermage or The impact of affermage and The improvement of water The government cannot WASTEWATER lease lease contracts on the sector are accessibility and wastewater realistically expect to generate highly dependent on the applied management in Lebanon upfront fees by granting water contractual frameworks, as well through affermage or lease will affermage or lease contracts as on the legal and regulatory be highly dependent on applied in Lebanon; primarily, the context. contractual terms. However, government should aim to water tariffs generally tend to attract private investments in increase on the long run with water and wastewater networks private operators. that have already suffered from decades of underinvestment.

Unfavorable impact Uncertain impact Favorable impact

We find that the PHAs assessed in this study present different levels of feasibility and attractiveness for privatization, if the necessary conditions and prerequisites are in place. Here, three categories of PHAs are to be distinguished: 1) assets that enjoy a high readiness and attractiveness for privatization, subject to implementation of prerequisites; 2) assets with high privatization potential provided a national strategy and proper frameworks are in place; and 3) assets to be potentially developed under concession, or affermage or lease contracts (see Figure 9).

FIGURE 9. CASE FOR PRIVATIZATION OF DIFFERENT PHAs

High readiness Privatization subject Concessions for privatization to sectorial frameworks and regulations

MEA Rgie Libanaise des Airports Tabacs et Tombacs

Casino du Liban Lands and building Maritime ports

Telecom lectricit du Liban (fixed and mobile)

Water establishments

* On a selective basis 57 Privatization of Lebanon’s public assets: No miracle solution to the crisis

▸ Assets that enjoy a high readiness for privatization can be fully or partially divested in the short term as they present little to no risks from a national perspective, and enjoy a high feasibility, subject to the prerequisites detailed in this paper being in place. State owned enterprises, such as the Middle East Airlines and Casino du Liban fall under this category, as they are corporatized, and currently present some conflicts of interest for the State, in its role as a major shareholder. ▸ Assets whose privatization is subject to sectorial frameworks and regulations can be partially and progressively privatized only after major prerequisites are met, which will take time and effort. RLTT and Telecom are in this category due to the need for a national strategy that will shape the future of these sectors. Real Estate will also likely abide by a complex privatization process, as there is a need to properly assess and delineate what is public domain versus private domain, while preserving national interest and evaluating other valorization opportunities. There is also the issue of having to sell scattered assets of uncertain market value given the current financial crisis. ▸ Assets to be developed via concessions (or affermage or lease contracts) can potentially yield long-term benefits to the general public and to the State subject to contractual terms and the fairness of the procurement process, as well as to sectorial frameworks and regulations. Water and wastewater management, electricity, and transportation assets are in this category due to the strategic interest of keeping them public, as well as the important financing and know-how they could potentially gain from private sector participation.

As was mentioned previously, the privatization of PHAs cannot be considered a magic bullet to remedy the current losses of the financial sector in Lebanon since the revenues these assets will generate in the short-term are largely insufficient when compared to Lebanon’s aggregated losses. A comprehensive valuation27 of PHAs, excluding assets meant for concessions, results in a total value ranging from ~12 billion USD, conservatively, to ~22 billion USD, optimistically, averaging 17 billion USD (Table 5; also see Appendix).

27 In the absence of detailed financial data, such as balance sheets, profit and losses statements, and business plans for most PHAs, the valuation relies on publicly available data points and estimations. As such, the robustness of our valuation is limited by the data that we were able to identify. 58 Privatization of Lebanon’s public assets: No miracle solution to the crisis

TABLE 5. VALUATION OF DIFFERENT PHAS (EXCLUDING POTENTIAL CONCESSIONS)

Conservative valuation Optimistic valuation (million USD) (million USD) MEA 600 740 CDL 320 420 RLTT 1,440 1,700 Airport - - Ports - - Real estate 7,120 14,380 Telecom (fixed and mobile) 2,180 4,280 EDL - - Water Agencies - - TOTAL 11,660 21,520

The valuations and resulting figures in this table correspond to high-level estimations based only on publicly available data that we were able to identify. Valuation of these assets in the case of any future privatization effort will be highly dependent on the economic context and outlook at the time of potential privatization, as well as on the availability of data. All figures are based on a USD/LBP rate of 1507.5 and should be largely viewed as being in local banks dollars.

Based on our calculations, real estate is by far the most important contributor (14.38 billion USD in the optimistic scenario) to the total value of PHAs that were assessed in this study, followed by telecom (fixed and mobile; 4.28 billion USD in the optimistic scenario) (Table 5).

Considering the above, the gross revenue potential for the Lebanese State from privatizations could range between ~6 billion USD considering a realistic privatization program and ~13 billion USD in a bullish scenario (Table 6). The estimation above excludes concessions or lease or affermage contracts that would generate growing incremental revenues or savings over time, while ensuring better, cost-effective services to citizens, providing that the granting process is fair and transparent.

TABLE 6. ESTIMATION OF GROSS REVENUES FOR THE STATE FROM PRIVATIZATIONS

Realistic privatization program Bullish privatization program Assets Value (million USD) Assets Value (million USD) MEA 670 MEA 670 CDL 370 CDL 370 Telecom 1,615 Telecom 3,230 (50% of assets) (100% of assets) Real estate 3,225 Real estate 7,525 (30% of assets) (70% of assets) RLTT 1,570 TOTAL 5,880 TOTAL 13,365

Average between conservative and optimistic valuations 59 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Nonetheless, any privatization process carried out under the current political circumstances risks incurring significant harm to the Lebanese public, particularly in the long run. As mentioned, the many prerequisites necessary for privatization to occur in a transparent and fair manner are absent. If carried out in the current context, privatization will likely be an unfair process that will only benefit the political elites and their cronies. Privatization processes in countries that tend to lack good governance, regulatory prowess, and transparency often lead to valuable state assets being sold off to well-connected firms or crony capitalists seeking to make rapid revenues at the expense of the general public. There is a significant risk that this may occur in Lebanon if one considers the country’s history with privatization and the current state of regulatory bodies and legislations, such as those related to corruption, procurement processes, capital markets and fair competition. Similar to these countries, it is likely that Lebanese state assets will be sold off in a non-transparent manner to the country’s intertwined economic and political elites and their cronies, who are largely responsible for the socioeconomic morass Lebanon is currently in, and who would likely not have the public’s best interests in mind. Without genuine political and socioeconomic reforms on all levels, there cannot be a modicum of social justice in privatizing Lebanon’s state assets.

Furthermore, while international organizations such as the International Monetary Fund (IMF) often tout privatization as a solution to many of the problems that cash-strapped states face, evidence from across the globe shows that the process often leads to more harm than good if carried out without a proper evaluation or plan, particularly for vulnerable members of a population. As such, the distributional effects of any privatization effort must also be taken into consideration in any such strategy for Lebanon—for example, through assessing the impact of privatization on price and access, income distribution, labor restructuring/employment levels, etc. This can be achieved through conducting a thorough evaluation of the potential impacts of privatization in our context, particularly when determining the most appropriate privatization model for each sector (Estrin & Pelletier, 2018; Bourguignon & Sepulveda, 2009).

Although the privatization of select PHAs could potentially generate substantial revenues for the State, it is by no means a solution to Lebanon’s current financial crisis. Addressed solely from the angle of loss remediation, as is the case in the current debate, privatization could jeopardize the country’s chances of resuming sustainable growth and improving the welfare of its people in the future. To benefit Lebanon and its people, any privatization program must be appraised and decided upon according to a comprehensive and contextualized strategy that integrates a long-term vision of structural and regulatory reforms, the uphauling of productive sectors, and a wealth distribution philosophy. In turn, the public must be able to hold the government accountable in their privatization efforts, and this can only be achieved through making publicly available all relevant information that will allow for a transparent and contestable assessment of the privatization process and value of PHAs. 60 Privatization of Lebanon’s public assets: No miracle solution to the crisis

Appendix. Valuation Methods

PHA Valuation method Key metrics Conservative scenario Optimistic scenario

Industry Earnings Latest profit and loss The conservative scenario The optimistic scenario Before Interest, Taxes, statement (from 2016) shows estimates current operating estimates current operating Depreciation and positive operating profits of profits have decreased by profits have increased by 10% Amortization (EBITDA) 86 million USD. 10% since 2016. since 2016. multiple method. Industry EBIDTA valuation Operating profits have multiple is at 8.16 (Equidam, been assimilated into 2020). EBITDA in the absence of

MIDDLE EAST AIRLINES Shareholder equity stood at publicly available detailed 801 million USD in 2016. financial statements.

Industry EBITDA multiple Average government revenues Based on a discounted EBITDA Based on a premium EBITDA method. from CDL for the years multiple of 11. multiple of 14. 2016-19 (78 million USD) The average government assimilated to EBITDA. revenues from CDL have been assimilated to Industry EBITDA multiple of EBITDA. 12.39 (Equidam, 2020). Ownership structure of the CASINO DU LIBAN Casino (52% owned by Intra Bank, which in turn is 73% owned by the Central Bank).

Industry EBITDA multiple Government revenues from Based on a discounted EBITDA Based on a premium EBITDA method. RLTT (131 million USD, multiple of 11. multiple of 13. excluding fees on tobacco The government revenues products and licensing fees) from RLTT have been for 2020 assimilated to assimilated to EBITDA. EBITDA.

REGIE LIBANAISE DE Industry EBITDA multiple of TABACS ET TOMBACS 11.1 (Equidam, 2020).

N / A N / A N / A N / A AIRPORT

N / A N / A N / A N / A PORTS 61 Privatization of Lebanon’s public assets: No miracle solution to the crisis

PHA Valuation method Key metrics Conservative scenario Optimistic scenario

Estimation of market Breakdown of built and Accounts for an average Accounts for an average prices. unbuilt assets by governorates availability factor of 40% for availability factor of 50% for (details in relevant section of the unbuilt assets, and 20% the unbuilt assets, and 30% the full report). for the built assets (except for for the built assets (except for Central Bank held real estate Central Bank held real estate An estimated availability assets that are considered to assets that are considered to factor that excludes be fully liquid), and applies be fully liquid) and applies the unattractive and occupied a discounted price that current market prices. assets of 20% to 30% for built considers the price elasticity REAL ESTATE assets and of 40% to 50% for effect that will result from unbuilt assets. a massive surge in the real An estimated average selling estate offer. price per square meter for each region and asset nature.

Customer lifetime value Number of subscribers of Estimates the ARPU of the Estimates the ARPU of MIC’s of the different assets. MIC1 and MIC2 estimated at MICs at USD15 and the ARPU at USD18 and the ARPU of 4.2 million. of Ogero Broadband (including Ogero Broadband (including wholesale) at USD23. wholesale) at USD25. Number of subscribers of OGERO Broadband of 360,000 Estimates the churn rate for Estimates the churn rate for thousand and fixed lines of the MICs and OGERO at 15%. the MICs and OGERO at 10%. 1.8 million. Estimates the EBITDA margin Estimates the EBITDA Estimated average revenue of both MICs and Ogero margin of both MICs and per users (ARPU) and churn at 30% (just below the Ogero at 33% (matching the rates for different services. worldwide average of 33%). worldwide average). TELECOM (FIXED AND MOBILE) Estimated EBITDA margins for different companies.

N / A N / A N / A N / A ELECTRICITE DU LIBAN

N / A N / A N / A N / A WATER ESTABLISHMENTS

N/A: Value of the respective PHA was not calculated (details in relevant section of the full report). All USD/LBP conversions in the paper where based on the official rate of 1,507.5 Source for EBIDTA multiples: Equidam. (2020). EBIDTA multiples by industry. Retrieved from https://www.equidam.com/ebitda-multiples-trbc-industries/ 62 Privatization of Lebanon’s public assets: No miracle solution to the crisis

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▸ World Bank. (2016b). Joint ventures/government shareholding in project company. Retrieved from https://ppp.worldbank.org/public-private-partnership/agreements/joint- ventures-empresas-mixtas ▸ World Bank. (2018). Concessions, Build-Operate-Transfer (BOT) and Design-Build-Operate (DBO) projects. Retrieved from https://ppp.worldbank.org/public-private-partnership/ agreements/concessions-bots-dbos ▸ World Bank. (2019). Concession agreements. Retrieved from https://ppp.worldbank.org/public-private-partnership/ppp-sector/transportation/railways/ shared-use-railway-tracks/concession-agreements/concession-agreem ▸ World Bank. (2020a). Mobile cellular subscriptions: Lebanon. Retrieved from https://data.worldbank.org/indicator/IT.CEL.SETS?locations=LB ▸ World Bank. (2020b). Mobile cellular subscriptions (per 100 people): Lebanon. Retrieved from https://data.worldbank.org/indicator/IT.CEL.SETS.P2?locations=LB ▸ World Bank. (2020c). Fixed telephone subscriptions: Lebanon. Retrieved from https://data. worldbank.org/indicator/IT.MLT.MAIN?locations=LB ▸ World Bank. (2020d). Fixed telephone subscriptions (per 100 people): Lebanon. Retrieved from https://data.worldbank.org/indicator/IT.MLT.MAIN.P2?locations=LB ABOUT THE PROGRAM THE GOVERNANCE AND POLICY LAB

The Governance and Policy Lab (IFI GovLab) aims to undertake innovative policy research and activities that address some of the most pressing policy issues and public sector challenges faced in Lebanon and the region. Further to this, the IFI GovLab’s goal is to strengthen the ability of local and regional actors to enhance governance mechanisms and the uptake of innovation within organizations, particularly those in the public sector, by providing them with the right tools and evidence to address national priorities, to the ultimate benefit of the greater public. The IFI GovLab also aims to conduct policy research affecting digital policies and internet governance in the Middle East and North Africa (MENA) region with the aim to advance knowledge creation and existing evidence on inclusive institutions and good governance in the region.

ABOUT US THE ISSAM FARES INSTITUTE

Inaugurated in 2006, the Issam Fares Institute for Public Policy and International Affairs (IFI) at the American University of Beirut (AUB) is an independent, research-based, policy-oriented institute. It aims to initiate and develop policy-relevant research in and about the Arab world. The Institute aims at bridging the gap between academia and policymaking by conducting high quality research on the complex issues and challenges faced by Lebanese and Arab societies within shifting international and global contexts, by generating evidence-based policy recommendations and solutions for Lebanon and the Arab world, and by creating an intellectual space for an interdisciplinary exchange of ideas among researchers, scholars, civil society actors, media, and policy makers.