LEBANON: TELEPHONE PRIVATIZATION SET TO GO

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 001258

SIPDIS

SIPDIS

NSC FOR ABRAMS/SINGH/HARDING/GAVITO/DEMOPULOS, STATE FOR
NEA/ELA, NEA/FO FOR ATACHCO

E.O. 12958: DECL: 08/16/2017
TAGS: PGOV PREL ECON EFIN LE
SUBJECT: LEBANON: TELEPHONE PRIVATIZATION SET TO GO


Classified By: Charge William Grant for reasons 1.4 (b) and (d)

SUMMARY
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1. (C) Key players in the GOL program to privatize the
telecommunications sector, including Minister of
Telecommunications Marwan Hamadeh, met with the DCM and
EconOff to review the status of the program. All are in
agreement that the plan can proceed on time if PM Siniora and
the Higher Council for Privatization give the green light.
The current political instability will probably delay the
timeline, and may have a cost impact on potential revenue.
There are no internal or market interests hampering GOL
efforts. End Summary.

A SHOW OF UNITY
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2. (SBU) DCM and EconOff met with Minister of
Telecommunications Marwan Hamadeh August 8 to discuss the
status of GOL efforts to privatize/corporatize the telephone
sector, a key benchmark in the USG's Paris III commitments to
Lebanon. All key GOL players were present, including:
Gilbert Najjar, Chairman of the Owner Supervisory Board,
which represents the GOL as owner of the two mobile
companies; Dr. Abdul Munhem Youssef, Director General of the
Ministry of Telecommunications (MOT) and Chairman of Ogero,
the GOL fixed-line telephone company; Moussa Khoury, the
attorney for the MOT; and Dr. Kamal Shehadi, Chairman and CEO
of the newly-formed Telecommunications Regulatory Authority
(TRA),who was called by Hamadeh to come to the meeting.

PRIVATIZATION ON TRACK
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3. (C) According to everyone present the GOL is in the final
stages of its efforts to sell the two mobile
telecommunications licenses, as well as the fixed assets of
the two government-owned mobile companies, Alpha and MTC.
The GOL contracted with JP Morgan and Citicorp to develop a
plan for the process, and although there are still some
questions on the part of the Ministry of Finance (MOF),they
do not appear to be major obstacles. The launch of the road
show leading up to the auction of the licenses will be
September 14, if the Prime Minister and the Higher Council
for Privatization (HCP) give the green light. At this point,
since all technical issues are satisfied, it is a purely
political decision to proceed.

SALE OF ASSETS
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4. (C) Since the closure of parliament in 2006 there has
been disagreement within the GOL as to whether the fixed
assets of the current government-owned companies can be sold.
Although the GOL did have a law before parliament to allow
this specific sale, it has withdrawn that law since the MOT
lawyers, among them Khoury, have interpreted the law to mean
that the GOL does have the right to sell the assets, and the
sale can proceed without further legislation. This is the
position always held by Shehadi and the TRA.

FIXED-LINE OPERATION
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5. (C) The GOL is also moving ahead on the corporatization
of the fixed-line company, Ogero, which also is owned by the
GOL. It expects to sign an agreement with consultant Grant
Thompson to assist in the process. The appointment of the
Board of Directors will be announced in one of the next two
meetings of the Council of Ministers. (Note: This was
reportedly a highly charged issue within the GOL due, in
large part, to the intention of Youssef to secure a role as
Chairman of the new company. End note.) Booze Allen
Hamilton also has beenengaged to make a strategic study of
two paralle plans: how to corporatize, and the role of the
oard. It will take about six months to complete te
corporatization, at which point it will be a poitical
decision whether to move ahead with privaization.

WHAT IS IT ALL WORTH,
AND WHO IS BUYNG?
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6. (C) he Ministry of Finance must do the valuation of the

BEIRUT 00001258 002 OF 002


sale and ultimate revenue stream. The GOL will cancel the
airtime tax, but the details of revenue sharing vs. taxation
have not yet been finalized. The revenue sharing scheme,
which might be easier to sell to the public than any notion
of taxation, would be limited to between zero to ten percent,
plus applicable required fees, for example to support the
TRA. The sale of the licenses is targeted for early 2008,
and not later than May, because at that point new management
agreements would be required with Alpha and MTC, or a penalty
paid. Hamadeh said he did not believe the GOL should proceed
with the sale without a new president in place (November 26
at the earliest),because the value of political stability
could be as much as $.5 billion for each license. Shehadi is
in favor of an auction, but there still appears to be some
disagreement about the methodology of the sale.

FIXED LINE IPO
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7. (C) After the completion of Ogero's restructuring, the
new company, Libantel, could be sold. Initial thinking is
that 40 percent of the shares would be sold, but the GOL will
make its final decision after the company is corporatized and
the value can be determined. The legal requirements call for
33 percent of the shares to be held by Lebanese citizens,
with a chairman and one-third of the board to be Lebanese as
well. Current thinking among the group is that 25 percent of
the shares will be listed publicly for sale on the Beirut
Stock Exchange and possibly an exchange in the Gulf region.
Although the GOL expects to sell the mobile licenses well in
advance of Libantel, should there be slippage, the three
companies might be sold at one time. The cabinet must make
the decisions regarding the IPO and the structure of the
offer in the next week to ten days, according to the group.

ALL IN ACCORD
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8. (C) Shehadi explained that there are no vested interests
within the GOL NOW slowing down the process. He expressed
some concern with Alpha, but remained confident that the MOT
is managing that issue. Najjar concurred that there are
neither market concerns nor internal concerns that could harm
the process in any way.

COMMENT
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11. (C) Comment: It was reassuring to see that all the key
players appear to agree on the key issues regarding
privatization of the telecom sector, and people who
previously appeared to have vested interests, like Hamadeh
and Youssef, are a part of the chorus. However, no one
believes the proposed sales will proceed without political
stability and more importantly, a pro-privatization
government. End comment.
GRANT