LEBANON: SEVERE POWER CUTS AND INCREASED GAS AND

UNCLAS SECTION 01 OF 02 BEIRUT 000896 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/DEMOPOLOUS E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: LEBANON: SEVERE POWER CUTS AND INCREASED GAS AND TRANSPORTATION PRICES HIT CITIZENS (ECONOMIC WEEK IN REVIEW, JUNE 9 - 15, 2008) CONTENTS -------------- -- CONTROVERSY BETWEEN FINANCE MINISTRY AND POWER COMPANY LEAD TO SEVERE POWER CUTS -- GAS PRICES REACH RECORD HIGH, PUBLIC TRANSPORT FARES ALSO RISE -- FINANCIAL INSTITUTE DISCUSSES PLANS FOR IPR TRAINING PROGRAM, SEEKS U.S. ASSISTANCE -- ARAB INVESTORS AWAIT 2009 ELECTIONS TO MOVE ON MEGA PROJECTS -- GOL AND THE FOOD AND AGRICULTURAL ORGANIZATION LAUNCH THREE PROJECTS VALUED AT OVER $6 MILLION -- HOUSING PROJECT IN TYRE AIMS AT REDUCING FISHERMEN IMMIGRATION -- FITCH'S INFLATION VULNERABILTY INDEX RATES LEBANON AS SECOND MOST VULNERABLE IN MENA REGION -- LEBANON FALLS IN COUNTRY CONNECTIVITY SURVEY CONTROVERSY BETWEEN FINANCE MINISTRY AND POWER COMPANY LEAD TO SEVERE POWER CUTS -------------- ¶1. (U) It is expected that power outages will be reduced in frequency after Finance Minister Azour approved opening $140 million Letters of Credit for fuel imports for national power utility Electricite du Liban (EDL). Azour indicated that EDL is using power cuts to put pressure on the GOL and Treasury to settle its fuel bills as EDL suffers from chronic deficits. Azour believes poor management and maintenance are causing power cuts. ¶2. (SBU) Meanwhile, EDL Chairman Kamal Hayek told us June 12 that EDL had to impose severe power cuts that reached four hours in Beirut and 9-12 hours in other regions daily as of last week because of shortage in fuel and gasoil reserves. He said he warned Azour in writing about the shortage in oil reserves two weeks ago and urged the opening of L/Cs for oil imports. He rejected Azour's public statements that increased power rationing was not due to shortage in fuel/gasoil, but to problems in production and in programming oil imports. Power cuts are expected to drop starting early next week as fuel/gasoil tankers unload in storage tanks. GAS PRICES REACH RECORD HIGH, PUBLIC TRANSPORT FARES ALSO RISE -------------- ¶3. (U) The Ministry of Energy and Water raised the prices of 20 liters of gasoline by slightly over one dollar on June 11, so that the price of 95-octane is $21.2 per liter and the price of 98-octane is $21.8 per liter. Private sector economic and business officials, as well as member of the labor and agricultural sectors have expressed their concerns on the effects of this rise on production and how it will affect the most recent increase in the minimum wage. ¶4. (U) Even before the most recent hike in gas prices, the Ministry of Transportation raised the fares of public transportation (buses and shared cabs) by around 33 percent, effective from the first week of June. FINANCIAL INSTITUTE DISCUSSES PLANS FOR IPR TRAINING PROGRAM, SEEKS U.S. ASSISTANCE -------------- ¶5. (SBU) On June 12, Econ staff met with the head of the Financial Institute, Lamia Moubayed, to discuss ways Post can assist in implementing a one to two year training program at the Institute for Customs officers on IPR enforcement. Working in collaboration with the Brand Protection Group (BPG) -- an association of leading local, regional, and international manufacturers and distributors aimed at combating counterfeiting -- the Financial Institute hopes to use the skills and experience of those that post has already sent on IPR training, as well as bringing U.S. IPR experts to train local officers and improve IPR enforcement. In addition, Moubayed made a strong pitch for a U.S. expert to assist in engineering the program. ARAB INVESTORS AWAIT 2009 ELECTIONS TO MOVE ON MEGA PROJECTS -------------- BEIRUT 00000896 002 OF 002 ¶6. (SBU) Arab investors are increasingly interested in real estate projects in Lebanon because real estate is still under-valued, General Manager of Lebanon's largest Islamic bank Arab Finance House (AFH) Fouad Matraji told us June 10, noting that AFH has been approached by several Arab investors for real estate development projects in Greater Beirut. Matraji however noted that Arab investors are holding back on mega projects, mostly in tourism sector, until after the 2009 parliamentary elections, to see how "Lebanon will re-shape" given recent developments in the region. GOL AND THE FOOD AND AGRICULTURAL ORGANIZATION LAUNCH THREE PROJECTS VALUED AT OVER $6 MILLION -------------- ¶7. (U) According to the local press, the Food and Agricultural Organization (FAO) announced on June 10 the launching of three agricultural projects, valued at over $6 million, financed by the GOL with funds from the August 2006 Stockholm Conference, organized in the immediate aftermath of the 2006 July war. The projects will be undertaken in collaboration with the Lebanese Ministries of Agriculture and Environment and focus on flora and fauna, forestry sector, and combating wildfires. HOUSING PROJECT IN TYRE AIMS AT REDUCING FISHERMEN IMMIGRATION -------------- ¶8. (U) A housing project for 80 Christian fishermen from the southern coastal city of Tyre was inaugurated on June 9. This project was co-funded by the Spanish Government Development Agency, local Christian/Shia NGO Association for the Development of Rural Capacities (ADR),the Greek Catholic Archdiocese of Tyre, and the fishermen. The total cost of the project is estimated at around $2.8 million, and aims at encouraging young Christian fishermen to stay in Tyre, thus reducing immigration from the area. FITCH'S INFLATION VULNERABILTY INDEX RATES LEBANON AS SECOND MOST VULNERABLE IN MENA REGION -------------- ¶9. (U) Fitch Ratings' Inflation Vulnerability Index (IVI) ranked Lebanon as the 29 most vulnerable economy to inflation shocks out of 73 emerging economies in Europe, the Middle East, Africa, Asia and Latin America, and the second most vulnerable in the MENA region. The index measures the extent to which a country's vulnerability to inflation shocks could result in broader macroeconomic instability, potentially damaging a country's creditworthiness. LEBANON FALLS IN COUNTRY CONNECTIVITY SURVEY -------------- ¶10. (U) According to the 2008 Arab Advisor's Group Total Country Connectivity Measure (TCCM),Lebanon ranked 10 among 19 countries, down one place compared to the 2007 survey. The TCCM is the aggregate of household mainlines penetration, cellular penetration, and Internet users penetration in each country. SISON