C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 001199

SIPDIS

DEPT FOR NEA/FO, NEA/ELA
ALSO FOR IO ACTING A/S HOOK, PDAS WARLICK
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USUN FOR KHALILZAD/WOLFF/SCHEDLBAUER
NSC FOR ABRAMS/SINGH/YERGER/MCDERMOTT

E.O. 12958: DECL: 08/13/2018
TAGS: PREL PGOV ECON ENRG EPET EFIN LE
SUBJECT: LEBANON: MINISTER OF ENERGY AND WATER GETS A
HANDLE ON LEBANON'S TROUBLED POWER SECTOR, HAS BAD FIRST
IMPRESSION OF SINIORA

Classified By: Charge d'Affaires a.i. William Grant for reasons 1.4 (b)
and (d).

SUMMARY
--------------


1. (C) In an August 13 courtesy call with Charge Grant, the
new Minister of Energy and Water Alain Tabourian described
the huge cost and capacity problems in Lebanon's electricity
sector, and discussed plans to import electricity and natural
gas from Egypt. Tabourian, one of the five ministers
appointed by opposition Christian leader Michel Aoun,
bemoaned what he said were fifteen years of energy management
by "bean counters" without vision or a long-term strategy,
and said it would take years to build up the sector. He said
that privatization was not a panacea, and described his first
argument on the topic with Prime Minister Fouad Siniora, with
whom he had not worked before, but who clearly made a bad
impression on him during the drafting of the Ministerial
Statement. He reserved judgment on the national unity
government. He concluded by saying he did not care about
political squabbles, as he can always go back to his more
profitable business activities. End Summary.

HE WANTED THE JOB, BUT THE PROBLEMS ARE ENORMOUS
-------------- ---


2. (SBU) Newly appointed Minister of Energy and Water Alain
Tabourian received Charge Grant and Econoff on August 13. He
told Charge that when he was called about participating in
the cabinet, he immediately expressed interest in the energy
portfolio, even pitching himself to the President, saying
energy was the most critical issue Lebanon faces. He said he
was still getting a handle on his portfolio, but was appalled
to learn that in 2007, Lebanon spent about five or six
billion dollars on fuel -- around 25 percent of

GDP. And
since fuel and electricity are subsidized in Lebanon, the
national electricity company Electricite du Liban (EDL) has
put the government further and further into debt with the
rising price of oil. Even if there were not subsidies, he
said, it would not be sustainable for the country to continue
to spend 25 percent of income on fuel.


3. (SBU) Tabourian said that in addition to high fuel
prices, fifteen years of energy management with no vision has
left Lebanon with outdated and inefficient electricity
generation, which has increased costs significantly. He
pointed to past studies recommending moderate investment in
equipment and upgrades to increase efficiency and cut
pollution, and he said that in each case either the
recommendations were ignored or the Ministry of Finance
refused to approve funding. In one example, he said that 40
million dollars in equipment upgrades in 2003 could have
saved 20 or 30 million dollars per year thereafter, but the
Finance Ministry refused to grant the funds (Note: The
Finance Minister at the time was current PM Fouad Siniora).
Tabourian said that currently 15 percent of EDL's losses were
technical losses resulting from old technology.


4. (SBU) Tabourian mentioned that in an attempt to diversify
supply, he would be working to conclude a contract with Egypt
to buy some of its surplus electricity, as well as natural
gas, which would allow Lebanon to produce electricity less
expensively at its two gas-powered plants. Both of these are
currently being run on more expensive and polluting fuel oil.


PRIVATIZATION AND THE FIRST FIGHT WITH SINIORA
-------------- -


5. (SBU) In response to Charge's question about
privatization in the electricity sector, Tabourian said that
although PM Siniora thinks privatization is the cure for
everything, he himself, who is coming from the private
sector, does not think it is a panacea. He said that there
would be a huge potential for corruption if privatization
were to proceed right away, and said "we should learn to walk
before we run" by improving efficiency and capacity. He
mentioned his idea to restructure electricity prices,

BEIRUT 00001199 002 OF 002


creating a "social tariff" for the 70 percent of Lebanese
with modest electricity needs, while charging higher prices
to bigger consumers. He said he did not have the details of
this worked out, but hoped it would increase revenues and cut
EDL's losses. He said the current privatization plan needs
to be reworked, that it was too complicated and would not be
easily understood by the cabinet, especially those members
without technical backgrounds. He claimed there was no way
privatization would be passed by the cabinet if it was
incomprehensible.


6. (C) The Minister described how the topic of privatization
sparked an argument between himself and the Prime Minister,
with whom he had not worked previously, during the drafting
of the Ministerial Statement. Tabourian said Siniora wanted
more stress on electricity privatization in the statement,
and that he replied that he could not privatize in ten months
(before the next elections). Tabourian then said the PM
argued with him for four days, rewriting the energy portion
of the statement and "micromanaging." In the end, the
Minister said, Siniora just backed down and left the
statement as Tabourian wanted it, but the PM had created
antagonism. "Before I started this job, I thought that I
would have a big problem with electricity. After I analyzed
it, I realized I would in some ways have an even bigger
problem with water. Then, I found out that I had an even
bigger problem: Fouad Siniora."

THE CABINET
--------------


7. (SBU) The Charge also asked Tabourian about his
impressions of the new cabinet and whether it would work
effectively. The Minister had no real opinion yet, saying
they had only had one meeting and he could not tell yet how
things would go. He anticipated that on certain issues,
ministers might not vote along the standard dividing lines of
March 14 vs. March 8/Aoun forces. He cited as an example
privatization, where individual ministers might have opinions
that do not match those of their bloc. He did think that the
vote on the new head of the Lebanese Armed Forces would go
along party lines, though, and hence they would have to work
to find a consensus candidate.

COMMENT: "I DON'T CARE"
--------------


8. (C) Considering that Tabourian asked for the energy
portfolio, he still seemed to be facing a steep learning
curve and offered very little information about what he
actually was planning to do. He said he thought it would
take him three months to get fully versed in all the issues,
which is a large proportion of the time he will have to lead
the Ministry before the spring 2009 parliamentary elections.
While he has moved forward on contracts with Egypt, he had no
details on price restructuring, and offered no information on
his plans for upgrading the outdated generation plants he
complained about. And he did not even discuss the water
portfolio. Nonetheless, if he is able to use his private
sector experience to provide the kind of vision he said has
been lacking, and, importantly, if can get funds from
Minister of Finance Mohamad Chatah to begin implementing his
vision, he may be able to decrease his sector's drain on the
state coffers and indeed leave it better prepared for
privatization than he found it.


9. (C) The fact that Tabourian is from the opposition and
Siniora a leader of the majority could explain their explain
their tiff over the cabinet statement. It is true, though,
Siniora is known to be a micromanager as well as miserly with
government funds, and, as a former Minister of Finance, likes
to keep his fingers in the pie. Tabourian tried to convey a
sense of being above politics: "I don't care," he said. "I
am doing people a favor by being here. I can always go back
to my much more lucrative private sector job." End comment.
GRANT