July 1999

Lebanon Master Report

1. The interaction between business and regulatory constraints.

The Lebanese business framework has always been characterized by a strong free market orientation. To many analysts, the Lebanese economy has always benefited from laissez-faire especially in comparison with state-interventionism that prevailed in all other Arab countries. This laissez-faire was obvious in relation to unrestricted capital mobility, full currency convertibility, and secrecy regulation authorized in the banking activity. This meant of course, a high degree of openness towards the rest of the world.

1.1 The regulatory background

The legal system, in particular, has been influenced by foreign legal doctrine especially the napoleonean one. In particular, the civil code, the code of obligations and contracts and the commercial code constitute a sound and secure basis for all types of business activities. Because of the long lasting war (1975-1989), some legal texts are lacking adaptation to the fast changing business environment. This is why a special reform committee composed of magistrates from the ministry of Justice along with experts from various governmental bodies as well as members of parliament has been set up to modernize and update various aspects of the legal framework.

The Lebanese judiciary, also because of the war, is presently overworked and understaffed. Some court cases could therefore stretch over many years.

1.2 Business constraints and entry barriers

Private ownership is guaranteed by the Constitution as well as by specific laws. The free flow of funds between residents and non-residents has always been in effect as was also in effect the freedom of currency exchanges. It is worth noting that, presently, in the Lebanese economy there is large use of dollars notes (60 to 70%) and that big transactions are usually settled in US dollars and that paying for a restaurant service or a supermarket note, for example, can be done using US banknotes. The use of electronic money is becoming more and more frequent in the every day life transactions.

There are however some sectors where the law is setting some limitations to the activity of foreigners. The real estate sector is the most obvious example. Some other cases exist where activity, though not a state monopoly, is restricted to a small number of operators as is the case in the audiovisual business. In the banking sector, also, certain restrictive regulations exist concerning the activity of foreigners. Apart of these few cases, one can say that nationals and foreigners have practically equal opportunities to enter any economic activity.

A recent law concerning the protection of intellectual property came into effect beginning June 99. This was a precondition for Lebanon to join the WTO and take a firm step towards the Euro-Mediterranean partnership. By the same token, this law constitutes another formal and legal guarantee to promote the foreign direct investments. A knowledge-based development for the country requires such ground rules. However, as in many other countries in the region, corruption in the public administration as well as bureaucratic procedures are being considered in some instances a serious handicap for foreign companies to overcome.

1.3 Attitude of the incumbent operator towards alternative network providers.

As mentioned in the previous paragraph, the principle of equal opportunities is respected to a large extend within the Lebanese economic society. The present government is considering a new five-year plan where privatization is one of the building blocks. The telecom and the electricity sectors seem to be included in the privatization programs. This will certainly create business opportunities for the private sector. The commercial code of Lebanon provides for a number of business entities to be set up by national or international investors. These include, among others, the joint venture companies, the limited liability companies, the holding companies and the offshore companies. Branches of foreign companies need, in order to operate legally, to be registered with the ministry of economy. A registration with one of the four local chambers of commerce is needed when a company involves in the trading activities.

1.4 Ongoing regulatory developments concerning alternative networks.

Apart from the new legal framework permitting the privatization process to start, no new regulatory developments seem to appear shortly. The privatization law has been approved by the government in may 99 in draft form but in order to enter into effect it needs the approval of the parliament. It is to be noted that this draft concerns only the privatization of tradable but not the infrastructure, which has to be authorized by a specific text in each case. The draft provides for the setting up of a High Privatization Council (HPC), composed of the Prime minister and the ministers of finance, economy, labor and justice, and will be supported by ad hoc panels of experts. This HPC will have a role even after the privatization takes place in order to monitor unauthorized changes in foreign ownership and full compliance with the law. A regulatory authority will also be created to protect the consumer interests and safeguard free and fair competition. It is evident that the spirit of this law is targeted through bringing a wide range of international investors into the Lebanese economy.

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

2.1 Types of companies offering networks.

Lebanon has no natural resources except water, which is available from ground water, springs and bore-holes. The main river sources are the Litani river and the Awali river (south), Nahr Ibrahim and Nahr ElKalb (north). The Assi river (Bekaa) is for a short stretch in the Lebanese territory then flows north into Syria.

The water sources in Lebanon are controlled by the ministry of hydraulics and electricity resources which overseas the 22 water authorities on the national territory. These water authorities are in charge of the day to day running of the water network system and are mainly financed, for running this activity, through customer payments. The central government provides for the amounts needed as investments in heavy equipment and building.

Two major projects are now being considered to enhance the water network system in Lebanon. The Awali-Beirut conveyor is contemplated as a means to alleviate the shortage of water in the capital. An investment amounting approximately to $150 millions seems necessary for this 33-km conveyor. The implementation could be granted to a foreign company on a BOT basis.

The other big water project concerns the Bisri dam on the Awali river situated to the south of the country. No clear option however has been taken till now concerning the financing of this project estimated to about $160 millions.

The network of Lebanese roads is well distributed throughout the country. It comprises more than 6000 km of roads. But all structures are not similar as they vary in width, load capacity and condition. International roads stretch over 530 km, primary roads over 1650 km, secondary roads over 1340 km and local roads over 2810 km. The coastal highway stretches from Tyre in the south to Akkar in the north, Beirut being in the middle. Another highway links Beirut to Damascus crossing mount Lebanon and the Bekaa valley. A new highway is envisaged, having a length of 60 km approximately, and involving the construction of 34 bridges, 10 viaducts and 9 intersections. It will link Beirut to Damascus through the border city of Masnaa and from there to all neighboring Arab countries. The financing scheme of this "Arab Highway" seems to be a BOT contract over a thirty years period.

The public authority charged with generating, transmitting and distributing power in Lebanon is Electricité du Liban (EDL). This entity reports to the ministry of hydraulics and electrical resources. Founded in 1954, EDL has always been the official monopoly provider of electricity in Lebanon. Two concessions were granted by EDL to two small companies for power distribution in the region of Zahlé (Bekaa valley) 30 000 customers and in the coastal region of Jbeil (Byblos). An old concession for generating and distributing electricity in the north (Kadisha valley) has been recently bought by EDL.

The overall production of electricity in Lebanon is close to 1500 MW with the following repartition by type : 1030 thermal, 280 hydraulic and the rest from gas turbines. This supply is considered enough to meet the demand and provide electricity 24 hours a day but due to some failure in the distribution system some regions in the country do not enjoy that much hours of power supply. Recently the bombing of two distribution stations in the neighborhood of Beirut by Israeli planes has restricted the power distribution in most regions of the country to 6 to 18 hours a day. The rehabilitation works will restore a better supply (20 h) by end September and full recovery is expected by the end of 1999.

The power system in Lebanon is undergoing some extension through new power plants as domestic and industrial demand is expected to grow. EDL’s experts are participating in many international committees for renewable energy resources including wind and solar power, but no feasibility studies have been made so far.

2.2 Types of operators using the networks.

All networks are completely open without any restriction to all users.

2.3 Types of services offered by the operators on the network.

None of the operators mentioned above is providing services other than what is genuinely of his own business. However the 2 GSM operators who are granted licenses since 1994 are planning to offer microwave data transmission services. The system will probably use conventional microwave transmitters and use the network of the GSM relay stations to carry the signal.