LEBANON: PM SINIORA MAKES ENERGY DEALS IN EGYPT TRIP

UNCLAS SECTION 01 OF 03 BEIRUT 001213 SENSITIVE SIPDIS STATE FOR NEA/ELA STATE PASS USTR TREASURY FOR MNUGENT AND SBLEIWEISS USDOC FOR 4520/ITA/MAC/ONE NSC FOR ABRAMS/SINGH/YERGER/MCDERMOTT E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: LEBANON: PM SINIORA MAKES ENERGY DEALS IN EGYPT TRIP (ECONOMIC WEEK IN REVIEW, AUGUST 11 - 17, 2008) CONTENTS -------------- -- BUSINESSMEN HAVE HIGH HOPES FOR RESULTS OF PRESIDENT SLEIMAN'S VISIT TO SYRIA -- GENERAL LABOR CONFEDERATION RENEWS THREATS ON MINIMUM WAGE -- SINIORA VISITED EGYPT IN SEARCH OF ENERGY CONTRACTS -- EGYPT REASSERTS PROMISE TO SUPPLY LEBANON WITH ELECTRICITY AND GAS, BUT NO CONTRACTS SIGNED YET -- SKEPTICISM OVER EGYPT'S PROMISE TO SUPPLY ELECTRICITY; GOL ARREARS TO POWER UTILITY ON PURPOSE -- MEA FLEET EXPANSION DEPENDANT ON POLITICAL STABILITY; NEW AVIATION TRAINING CENTER IN THE WORKS -- CAPITAL INTELLIGENCE REVISES LEBANON'S CREDIT OUTLOOK TO STABLE -- ECONOMIST INTELLIGENCE UNIT FORECASTS HIGHER GROWTH FOR 2008 AND 2009 -- CONSUMER CONFIDENCE REMAINS PESSIMISTIC FOR SECOND HALF OF 2008 BUSINESSMEN HAVE HIGH HOPES FOR RESULTS OF PRESIDENT SLEIMAN'S VISIT TO SYRIA -------------- ¶1. (SBU) Board member and head of the Agriculture Committee at the Beirut Chamber of Commerce, Industry, and Agriculture Raphael Debbane told us on August 13 that agriculture and industrialist representatives urged Agriculture Minister Elie Skaff to ask President Sleiman to convince his Syrian counterpart to abolish the Syrian-imposed "road tax" on trucks crossing the Lebanese-Syrian border. Syria has imposed a $40 tax on each ton carried by trucks crossing into Syria or transiting through Syria. This tax is particularly a deterrent for Lebanese agriculture exports, Debbane said. ¶2. (SBU) Debbane, who is also the Secretary General of the Syrian-Lebanese Businessmen Council, believes that if President Sleiman's visit succeeds in creating a friendly atmosphere between Lebanon and Syria, this will help resume cooperation between businessmen in both countries, and will revive the Businessmen Council. The Council has been inactive for the last three years due to the political tension between both countries, Debbane said. The Council's objective is to help both economies grow based on complementarity and to provide assistance to businessmen in both countries. GENERAL LABOR CONFEDERATION RENEWS THREATS ON MINIMUM WAGE -------------- ¶3. (U) Head of the General Labor Confederation (GLC) Ghassan Ghosn stated on August 11 that if the GOL takes the necessary steps to implement the previous cabinet's decision of raising the minimum wage (a decree for increasing the minimum wage in the private sector, and a law for the public sector) without taking into consideration the demands of the GLC, the GLC will not hesitate in taking to the streets in protest once again. ¶4. (U) During the previous cabinet's last session on May 6, the GOL decided to increase the minimum wage from $200 to $333. The GLC considers this insufficient, as it now demands a minimum wage of around $730 to be implemented retroactively from January 1, 2008. Ghosn also accused the previous and current cabinets (as seen in the ministerial statement) of violating the law, for not calling for increases in salary brackets as well. (Note: The GLC's last demonstration calling for higher wages took place on May 7, 2008, which many believe was used as a pretext for pro-opposition forces to take to the streets and start the violence that ensued in Beirut. End note.) SINIORA VISITS EGYPT IN SEARCH OF ENERGY CONTRACTS -------------- ¶5. (SBU) PM Siniora, along with a ministerial delegation including Ministers of Finane Mohammad Chatah, Economy and Trade Mohammad Saadi, and Energy and Water (MEW) Alain Tabourian, visited Egypt August 16 and to discuss possible electricity, oil, and gas supplies to Lebanon. Tabourian will also travel to Jordan August 26-27 to attend a meeting of seven countries of the region that have signed an agreement to interconnect their electricity grids. Tabourian will try to conclude an agreement with the Egyptian authorities on BEIRUT 00001213 002 OF 003 Egypt's supply of at least 200 MGW of electricity to Lebanon. EGYPT REASSERTS PROMISE TO SUPPLY LEBANON WITH ELECTRICITY AND GAS, BUT NO CONTRACTS SIGNED YET ¶6. (U) Following his meeting with Egyptian President Hosni Mubarak, PM Siniora reportedly indicated that Lebanon and Egypt are "coordinating efforts for the provision of Egyptian gas and electricity to Lebanon as soon as possible" and noted that the Lebanese and Egyptian Energy ministers will meet at the end of the month to sign the contracts. ¶7. (U) The press reported that Lebanon is expected to start receiving gas a month from now, to be pumped from Syria to the Deir Ammar (north Lebanon) power plant. The use of natural gas instead of fuel oil in its power plants would save Lebanon about $200 million annually. ¶8. (SBU) But there are still technical issues pending such as pricing, according to General Manager of Tripoli and Zahrani Oil Installations Sarkis Hlaiss, who accompanied PM Siniora to Egypt. He said no agreements were signed nor details discussed regarding the supply of Egyptian electricity and gas to Lebanon. "These are what we consider important in a visit," he said. He noted that Egypt has agreed "in principle" to increase gas supply by 20 percent, from an initial offer of 600 million cubic meters, for the use of energy-intensive industries. While a meeting will be held in Jordan next week to discuss the details of the supply of Egyptian electricity to Lebanon, no meeting has been scheduled to discuss gas issues, he said. SKEPTICISM OVER EGYPT'S PROMISE TO SUPPLY ELECTRICITY; GOL ARREARS TO POWER UTILITY DELIBERATE -------------- ¶9. (SBU) National power utility Electricite du Liban (EDL) Chairman Kamal Hayek told us prior to the PM's visit to Egypt that he was skeptical that Egypt will provide Lebanon with 200 MGW of electricity as announced during the recent visit of the Egyptian Minister of Energy to Lebanon. Hayek told us on August 11 that Lebanon wants to make sure that it will receive a set share from Egypt's surplus electricity production; Lebanese Energy Minister Alain Tabourian has requested that the contract clearly specify that Egypt will supply Lebanon with a minimum capacity of 200 MGW. Hayek will accompany Tabourian to a meeting in Jordan at the end of the month where seven countries (Egypt, Iraq, Jordan, Lebanon, Libya, Syria, and Turkey) working to interconnect their electricity grid will discuss the terms of contract for receiving Egypt's surplus electricity. ¶10. (SBU) Hayek also indicated that about ten days ago Egyptian Petrojet completed the repair of one (out of three) fuel oil storage tank and one (out of two) water reservoirs at the Jiyeh (south of Beirut) power plant, which were entirely destroyed during the July 2006 war. As a result, EDL does not need to deliver fuel oil by trucks to operate the Jiyeh plant, thus reducing EDL's costs. Work continues to complete the repair of the remaining reservoirs. Hayek said Egypt has offered to pay half of the costs for repairing the five reservoirs and EDL will pay the rest. ¶11. (SBU) Meanwhile, Hayek said EDL has still not been reimbursed for repair work undertaken in the aftermath of the July 2006 War. He said that a year ago the Higher Relief Committee (HRC) approved paying EDL $60 million for repairs completed. Hayek believes the delay is deliberate, as the GOL wants to show that EDL suffers from high deficits. MEA FLEET EXPANSION DEPENDANT ON POLITICAL STABILITY; NEW AVIATION TRAINING CENTER IN THE WORKS -------------- ¶12. (SBU) National air carrier Middle East Airlines (MEA) Chairman Mohammad Hout told the Embassy that MEA signed a 65 million dollar loan contract with the Lebanese Canadian Bank to settle about 80 percent of the cost of the Airbus A330 it received in June. He said MEA has secured financing for its fleet expansion plan, through loan contracts totally 450 million dollars with five Lebanese banks. This funding will pay for ten Airbus planes, with the nine left to be delivered to arrive in 2009-2010. Hout stressed that given the Lebanese central bank's 99 percent ownership of MEA, the fleet BEIRUT 00001213 003 OF 003 expansion plan is directly linked to security and political stability in Lebanon, adding that the only guarantee MEA provided to financiers was the profitability of the company. ¶13. (SBU) Hout also told us that MEA will build an aviation training center of about 15,000 square meters in the company's headquarters near Beirut International Airport (BIA),and has allocated 30 million dollars for this project. (Note: MEA's training center was destroyed during the 1982 Israeli invasion. End note.) The new center will include a flight simulator and provide training for MEA pilots and crew as well as to other airlines, Hout said. This will reduce MEA's training costs and generate revenues to the company. The center has received approval from the Civil Aviation Authority (CAA),CAA Director General Hamdi Chaouk told us. Hout and Chaouk each told us separately that MEA will coordinate with the CAA in the management of the center and the programs offered. Lebanon already has an ICO-approved center on safety oversight training, ai traffic management, and airport management training, Chaouk said. CAPITAL INTELLIGENCE REVISES LEBANON'S CREDIT OUTLOOK TO STABLE -------------- ¶14. (U) Rating agency Capital Intelligence revised its 'B-' long-term foreign and local currency rating on Lebanon to 'stable' from 'negative, as well as that of six Lebanese banks, noting that banks' rating continues to be constrained by the sovereign ratings. Capital Intelligence attributed the change in outlook to improvement in the domestic political climate ever since the Doha Conference. Although it believed the improved climate would help revitalize the economy, Capital Intelligence ruled out that any significant reforms would take place before the 2009 parliamentary elections and questioned the level of commitment of the main political factions to the Paris III fiscal and structural reform program. ECONOMIST INTELLIGENCE UNIT FORECASTS HIGHER GROWTH FOR 2008 AND 2009 -------------- ¶15. (U) The Economist Intelligence Unit (EIU) revised its economic growth forecast upwards for Lebanon, the second time since the Doha Agreement in May 2007, but warned that economic growth is expected to remain below potential due to political uncertainties and institutional deficiencies. The EIU forecast 4.4 percent growth in 2008, up from 2.7 percent, and 4.6 percent in 2009, up from 3.8 percent. Inflation was forecast around 12.5 percent in 2008 and ten percent in 2009. The EIU also upgraded its Political Risk rating for Lebanon to "CC" from "C," as well as the overall Country Risk rating to "B" from "CCC," due to significant decline in political tensions. CONSUMERS REMAIN PESSIMISTIC IN SECOND HALF OF 2008 -------------- ¶16. (U) According to MasterCard Worldwide bi-annual consumer confidence index survey MasterIndex, Lebanon scored 32 in the second half of 2008, or at a similar confidence level as compared with the previous survey covering the first half of 2008. Out of 100, a score above 50 reflects consumers' economic optimism, while a score below 50 reflects pessimism. The survey analyzes consumer perceptions of economic conditions for the six months ahead, focusing on perceptions of employment, the economy, income, the stock market, and quality of life. Lebanon's score on all five indices reflected pessimism, although expectations for the economy and quality of life improved slightly. GRANT