LEBANON: TELECOM PRIVATIZATION ON TRACK, BUT UNLIKELY

UNCLAS SECTION 01 OF 02 BEIRUT 001630

SENSITIVE

SIPDIS

STATE FOR NEA/ELA, EEB/IFD/ODF, EEB/CIP/BA
STATE PASS USTR FRANCESCKI
STATE PASS USAID BEVER/LAUDATO/SCOTT
TREASURY FOR PARODI/BLEIWEISS/AHERN
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: TELECOM PRIVATIZATION ON TRACK, BUT UNLIKELY
BEFORE THE ELECTIONS

REF: BEIRUT 1627

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


1. (SBU) In recent weeks, Embassy contacts have publicly and
privately expressed doubts that the privatization of mobile telecom
licenses can take place before the spring 2009 parliamentary
elections. Most contacts blame poor market conditions following the
international financial crisis for the likely delay. Nonetheless,
all government officials involved in preparing the privatization say
there is political will to privatize, and that it will happen, most
likely in the months following the elections. Despite talk of the
GOL imposing foreign ownership restrictions on the licenses or
imposing revenue-sharing schemes, post believes the privatization
will go through when the market improves, and the USG should not
push the Siniora government to privatize too soon if it would hurt
the government politically. End summary.

NO PRIVATIZATION BEFORE THE ELECTIONS...
--------------


2. (SBU) Privately and publicly, an increasing number of GOL and
foreign officials have been expressing doubts about the likelihood
of mobile privatization taking place before the 2009 elections. On
November 1, French daily L'Orient le Jour quoted SYG of the Higher
Council for Privatization Ziad Hayek as saying that mobile
privatization may be delayed. He attributed the delay to current
market conditions, which would make it difficult for interested
companies to get financing. However, Hayek commended the Minister
of Telecommunications Gebran Bassil's efforts to improve the mobile
network in the meantime.


3. (SBU) World Bank country Manager Demba Ba told us November 4 that
he concurred with Hayek, saying that international market conditions
are not likely to attract investors for mobile privatization. PM
Senior Advisor Ghassan Taher shares Ba's views, and publicly said to
donor country representatives at a Paris III donor meeting on
October 23 that privatization could be difficult to achieve in 2009.



4. (SBU) Hayek told us on November 10 that the GOL may want to wait
for better market conditions, noting that current conditions could
lower the valuation of the two mobile licenses. Hayek said Bassil
is nonetheless still building political support for mobile
privatization, and will hold a workshop for stakeholders in early
December.

...BUT PERHAPS RIGHT AFTER
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5. (SBU) Telecom Regulatory Authority (TRA) Chairman Kamal Shehadi
believes mobile privatization is possible in the first half of 2009
if the GOL can summon up political will. He refuted claims that
current market conditions make it difficult for investors to get
financing, and told us November 4 that eight out of the ten
companies that have expressed interest in bidding for a mobile
license are from countries that have so far been only minimally
affected by the financial crisis and thus would be able to bid.
Regarding SYG Hayek's remarks, Shehadi said "he spoke too soon."


6. (U) On November 8, Finance Minister Mohammad Chatah told
English-language newspaper The Daily Star that although the legal
and technical aspects of mobile privatization should be ready,
privatization may not happen before the 2009 parliamentary
elections. Chatah said Paris III donor countries were not pressing
Lebanon "to privatize the mobile networks before the election, but
they want to see some steps taken by the government that will pave
the way for the privatization."


7. (SBU) In a November 11 meeting, Chatah told us there is support
for telecom privatization across the political spectrum, and that it
will go forward, though there may be restrictions on foreign
ownership or other conditions set to ensure political consensus.
Chatah said political and market conditions might affect the timing,
but the sale still should go through either in the spring before the
elections, or in the fall, soon after them. He noted that if the
sale went through under the current conditions, the GOL could be
accused of cheating the people out of a receiving a fair price for

BEIRUT 00001630 002 OF 002


state assets.

COMMENT
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8. (SBU) Post believes it is increasingly unlikely that mobile
privatization will occur prior to the 2009 parliamentary elections.
Though the USG has been anxious to see privatization sooner rather
than later, to ensure disbursement of the final tranche of USG
budgetary support funds pledged at Paris III, the main issue seems
to be market conditions in the wake of the world financial crisis,
and not a lack of political will. If the GOL thinks a few extra
months' wait can significantly increase the bids it can receive for
the licenses, perhaps it is prudent for it, and the USG, to wait.
Ultimately, forcing through a privatization under poor market
conditions could hurt the Siniora government and all those working
for reform and democracy in Lebanon. End comment.

SISON