LEBANON: POLITICAL WILL MEANS USG'S CASH TRANSFER

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 001428 SIPDIS DEPT FOR NEA/FO, NEA/ELA ALSO FOR EEB/FO DSULLIVAN, EEB/ODF DEMARCELLUS USUN FOR KHALILZAD/WOLFF/SCHEDLBAUER NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT STATE PASS TO USAID FOR LAUDATO/BEVER/SCOTT COMMERCE FOR ITA LOUSTAUNAU, SAMS, AND WIEGLER E.O. 12958: DECL: 10/01/2018 TAGS: PGOV ECON EFIN ENRG ECPS LE SUBJECT: LEBANON: POLITICAL WILL MEANS USG'S CASH TRANSFER CONDITIONS ARE ACHIEVABLE REF: A. BEIRUT 1199 ¶B. BEIRUT 1337 ¶C. BEIRUT 1359 ¶D. LEBANON SITREP 9/12/08 Classified By: Charge d'Affaires a.i. William Grant for reasons 1.4 (b) and (d). SUMMARY -------------- ¶1. (C) There are clear signs that the political will exists in Lebanon, perhaps for the first time in years, to carry out needed structural reforms in the telecommunications and electricity sectors. The relevant ministries are working hard to make the privatization of mobile telecom networks and a restructuring of electricity tariffs a reality before the end of the current government's term in spring 2009. There is an impressive level of agreement between key ministers who are political rivals. The Ministers of Energy and Telecoms are both from the opposition, yet are working closely with March 14 Finance Minister Chatah and with Prime Minister Siniora to accomplish their goals before the end of their short mandates. Despite the inherent political difficulties involved in pushing through the reforms, and the colorful personality quirks of the Minister of Energy, indications from all the major players in Lebanon, as well as from the IMF, are that both reforms are achievable in the coming months. ¶2. (SBU) Post reiterates our previous recommendation to maintain the telecom privatization as a condition for disbursement of the 75 million dollar tranche of the cash transfer funds pledged by the USG at Paris III, as well as our earlier proposal to replace the condition for release of the other remaining tranche (50 million dollars) with a restructuring of the electricity tariff. A proposed draft of the tariff restructure condition is in paragraph 9 below. End summary. TELECOM PRIVATIZATION ON THE RIGHT TRACK -------------- ¶3. (SBU) Since taking office in July, Minister of Telecommunications Gebran Bassil has been fervent in his efforts to prepare for privatization of the two mobile phone companies, consulting with all the relevant bureaucratic entities and working to build political consensus in the cabinet. Ziad Hayek, Secretary-General of Lebanon's Higher Council for Privatization (HCP,) told EconOff he was impressed with Bassil. "He is using modern management techniques to set a course and achieve a goal," said Hayek, who believes there is an excellent chance the privatization will happen as a result of the Minister's efforts. Kamal Shehadi, Chairman of the Telecom Regulatory Authority (TRA), told EconOff the political will for privatization was there, and said he was working with Bassil and Hayek on putting together the Request for Application for the telecom license sale. ¶4. (SBU) Bassil told the Ambassador September 15 that he wants the sale to go through as soon as possible (Ref C), though he worries that holding the license auction too close to the spring 2009 election season would be complicated. He said he had extracted a promise from Parliament Speaker Nabih Berri that Berri would push through the necessary legislation for the privatization within 25-30 days. Even if the auction cannot happen before the elections, Bassil said he would have all the paperwork done and political consensus reached so that it could happen immediately following them. (Comment: Securing Berri's blessing was a coup for Bassil, as Shehadi had anticipated that Berri would be an obstacle to completing the privatization. Bassil's membership in the opposition bloc with Berri may allow him more political maneuverability than a majority minister might have as he works toward completing the license sale. End comment.) ENERGY MINISTER IS CONTROVERSIAL... -------------- ¶5. (C) Since his arrival, Energy Minister Alain Tabourian, a BEIRUT 00001428 002 OF 002 Harvard-educated businessman, has arguably been the most talked-about figure in the cabinet. Politicians as well as bureaucrats all seem to have a Tabourian story. In his conversation with EconOff, HCP's Ziad Hayek called Tabourian, "a geek who surfs the internet" and later referred to him repeatedly as "incompetent" and "an idiot." Hayek said that during his first meeting with Tabourian to discuss privatization in the electricity sector, the Minister spoke for three hours about what a bad idea telecom privatization was. (Note: Tabourian was Telecom Minister for three months during the caretaker government of PM Mikati in 2005. End note.) Tabourian himself told DCM (Ref A) about his clashes with PM Siniora over the drafting of the ministerial statement, and he later publicly protested Siniora's treatment of him during a visit to Egypt in August, then boycotted Siniora's visit to Iraq. ¶6. (C) At the Ambassador's September 11 iftar (Ref D), fellow opposition minister Elie Skaff complained that Tabourian was "frantic," and other politicians present criticized his adversarial manner and his lack of mastery of his portfolio. Even those who like him admit that he is challenging to work with. The head of state power utility Electricite du Liban (EDL),Kamal Hayek, said Tabourian is a "good man," but expressed frustration that the minister had not moved more decisively in procuring electricity and natural gas from abroad. During a September 26 meeting with Acting USAID Director and EconOff, Tabourian spoke passionately, and angrily, about the results of years of mismanagement of the electricity sector. He carefully presented a step-by-step plan for reform of the sector, but when asked how he would go about implementing it, or how he would fund it, he had no answers. "There is no time," he said. ...BUT STILL WANTS ELECTRICITY TARIFFS RESTRUCTURED -------------- ¶7. (SBU) While Tabourian may not have an elaborate plan for revamping electricity plants or working with the private sector to create more production capacity, he has taken on the restructuring of EDL's rate tariffs with enthusiasm. He told the Embassy that he was working closely with Finance Minister Chatah, and would have a new plan to send to Finance Ministry very soon. For his part, Chatah (Ref B) has told the Embassy that he and the Prime Minister are fully on board, and hope to have the new tariffs in place by the end of 2008. IMF ON THE SAME PAGE -------------- ¶8. (SBU) IMF Middle East and Central Asia Division Chief Domenico Fanizza told EconOff September 30 that he and his visiting IMF team were pleasantly surprised by the GOL's willingness to take on reform, even with a short time horizon. He said the IMF would likely include some sort of progress related to the telecom privatization (the issuance of a Request for Application) as well as the restructuring of the electricity tariffs, as conditions in an upcoming Emergency Post-Conflict Assistance Agreement (EPCA),to be announced during the Annual World Bank/IMF meetings in Washington OCTOBER 10-13. POST RECOMMENDATION -------------- ¶9. (SBU) Post recommends that we move forward with the final two conditions for our Paris III cash transfer disbursements as follows: -- Reform of the electricity tariff structure in a manner that increases revenues and rationalizes consumption (replacing gas excise tax condition -- 50 million dollars); -- Sale of the licenses for the two mobile phone companies through a transparent process (unchanged -- 75 million dollars). GRANT