July 1999

Jordan Master Report

1. The interaction between business and regulatory constraints

1.1 The regulatory background

Since 1989 the Jordanian government has pursued an ambitious reform agenda to stabilize the economy and improve efficiency, and broaden the role of the private sector. The reform program included measures to reduce the fiscal deficit, maintain a competitive and real exchange rate, and liberalize the trade regime. Much of the program is embodied in new legislation, including laws governing companies, securities, competition (antitrust), leasing, customs, safeguard, secured financing, income tax and general sales tax. In 1995 investment, insurance, and telecommunication laws were enacted.

The government of Jordan is committed to the structural reforms and has shown its willingness to bear the politcal costs of unpopular reforms. These include raising the prices of irrigation water in 1995 and municipal water and electricity in 1996, and scrapping a costly universal subsidy on wheat and feedgrains in favor of targeted cash subsidies in 1996. At the same time, the government has removed most price controls, opened formerly monopolized sectors (telecommunications and power) to private sector competition and will soon open others.

1.2 Business constraints and entry barriers

The full economic response to the government’s achievements in stabilization and structural reform is still to be felt, but the initial impact, backed up by strong international support and new balance of payments assistance from the international community, has been impressive.

Jordan’s challenges over the longer term are primarily infrastructural and environmental. These two challenges are intertwined in the water sector. With barely half the water supply per capita of Israel or Syria, Jordan is one of the world’s driest countries, and water supply is becoming a binding constraint on growth. Costly investments in water transport from the distant Disi aquifer, wastewater treatment and re-use, and in water network loss reduction are needed.

Growth will also depend on investments in power and transport infrastructure, which, like water investments, are beyond the budgetary capacity of the public sector and require private financing. In many cases this may involve fully private ownership and management, under a modern regulatory framework.

1.3 On-going regulatory developments concerning alternative networks

Jordan’s large public sector is set to shrink substantially over the next few years. The initial focus of the program will be to secure new financing for infrastructure development. But the program is also intended to raise enterprise efficiency. To achieve that, the government is not only moving state enterprises into a commercial environment by reducing subsidies (with the added fiscal benefit this entails), but also breaking old public monopolies. The program has the added benefit of raising foreign exchange from enterprise divestiture to strengthen the international reserves position.

The privatization program is gaining momemtum and has received a new boost with the creation of a council and a secretariat headed by the Prime Minister to accelerate and guide the program. The government intends to divest its ownership of enterprises with commercial functions, particularly those in competition with the private sector or where the private sector is able to operate freely in competition with others. The Jordan Electricity Authority and the Telecommunications Company are already in the process of privatizing, and other state-owned firms including Aqaba Railway Corporation and Jordan Cement Company are expected to soon follow suit.

Jordan‘s privatization programme is due to go ahead and the government will be committed to developing clear strategies for key elements, starting with one for the Jordan Telecommunications Company (JTC) by the end of June. Progress is also required on the privatization of Royal Jordanian Airlines (RJ). Work has begun on the financial, legal and technical restructuring of the airline, with the main challenges being to establish a debt-free operating subsidiary by the end of 1999. The government also has to deal with RJ’s debt of JD 700 million.

Other key objectives include the privatization of power generation and distribution, and the a establishment of a regulatory body for the power sector. The state-owned National Electric Power Company (Nepco) has already been divided into three distinct companies for generation, transmission and distribution which have been operating as separate entities since January 1, 1999. Bids for Jordan’s first major independent power producer (IPP) are due in May and most distribution is already handled by private companies.

2. Inventory of the major "public" utilities with a potential for use in I.S. applications

2.1 Types of companies offering networks

Electricity

The National Electric Power Company (Nepco) is a state utility and has been converted into a coporation divided into three distinct companies for generation, transmission and distribution, which have been operating as separate entities since January 1, 1999. The Jordan Electricity Company’s geographical coverage is the Amman & Zarqa Governorets with approximately 2,000 employees, the Irbid Electricity Company’s geographical coverage is the Irbid Governoret and employs 500 people, and the National Electricity Company’s geographical coverage is the rest of Jordan, Syria and Egypt with approximately 1,500 employees.

An area of potential regional cooperation involves integration of individual national power transmission grids into a regional power network. Such a network would allow power companies to take advantage of differences in peak demand periods, reduce the need for (and the costs associated with) installation and maintenance of reserve generating capacity, and provide outlets for surplus generating capacity (mainly from Israel to Jordan). Israel and Jordan have tentatively agreed to link their power grids.

Water Network

The main water utility, is the state-owned Water Authority of Jordan, which is the responsibility of the Ministry of Water & Irrigation. The Water Authority has approximately 2,000-2,500 employees. An important issue for Jordan is adequate water availability. Jordan is looking to increase its fresh water supplies, as its underground aquifers are being depleted as the country’s water consumption rises along with the rapidly growing population. One proposal is for a $5 billion canal linking the Red Sea with the Dead Sea, where desalination plants would produce water for consumption in Israel and Jordan. The Water Authority of Jordan, is also considering forms of privatization to improve it s efficiency and finance costly new water infrastructure.

Oil

Jordan has nearly no oil resources of its own, and relies on Iraqi oil for nearly all of its needs. In early July 1998, Jordan and Iraq agreed on construction of a joint oil pipeline with an initial capacity of 100,000 bbl/d. The proposed 400-mile pipeline would carry oil form Iraq to the existing Zarqa refinery northeast of Amman, as well as the new refinery in Aqaba.

Jordan has one refinery, in Zarqa, with a capacity of 95,000 bbl/d and is operated by Jordan Petroleum Refinery Company (JPRC). Besides the Zarqa refinery, which produces oil products for domestic consumption, Jordan is looking into the possibility of building an export-oriented oil refinery as well. The refinery’s output would target markets in Asia, Israel, and the Palestinian territories.

Jordan’s state Natural Resources Authority (NRA) has been promoting exploration within the country which has been relatively unexplored until now. In October 1995, the NRA signed agreements with Malaysia’s Petronas and Houston-Based Trans-Global Petroleum for possible exploration of northern and central Jordan. To help attract foreign investment, the Jordanian government has plans to privatize its oil sector. In October 1995, the country set up the state-owned National Petroleum Co. (NPC) to handle upstream oil and gas exploration. The intent is for NPC to operate as independently as possible, and eventually to be privatized.

Natural Gas

There is no Gas company operating in Jordan. In June 1998, the Jordanian government awarded a contract to build a 170-mile natural gas pipeline from fields in Egypt’s Nile Delta region across the Sinai and under the Red Sea to Aqaba. The gas is to be used as a replacement for diesel and fuel oil used to generate electricity. The pipeline is to transport 212 million cubic feet per day of gas, beginning in 2001, and increasing to 318 million cubic feet per day in 2006. Jordan is hoping to use natural gas as part of a strategy aimed at diversifying away from imported Iraqi oil.

Railway

The railway company in Jordan is the state-owned Hijazi Railway Line which covers all of Jordan and links with Syria and employs 500 people.

Cable TV

The Cable TV company in Jordan is the state-owned Radio and TV Establishment which has a linking satellite with most countries of the World, and is working at establishing more connections.

The Radio and TV Establishment has approximately 1000 employees.

2.2 Types of operators using the networks

The above Jordanian companies are using their network infrastucture for provision of their services. Also, because most of their plans have been on improving their infrastructure (ie. water, natural gas), there currently are no plans to utilize their networks to offer alternative services such as telecommunications.