July 1999

Syria Master Report

1. The interaction between business and regulatory constraints

1.1 The regulatory background

Major sectors of the Syrian economy, including heavy industry, banking, insurance, and utilities remain firmly in the public sector. Other sectors, including food processing, pharmaceuticals, and transportation, have recently been opened to the private sector. Still other sectors, such as retail sales and agricultural production, were never nationalized. The Ministry of Industry is responsible for both the public and private sector industries. Through its regional Chambers of Industry, 20 000 private sector companies are currently regulated.

Until recently, the government pursued policies aimed at expanding the public sector, with tight controls on private sector activity. All large industry, including the banking and insurance sectors, was nationalized in the 1960s. Arab aid from the "boom years" of the 1970s was used to expand the state's industrial base with the creation of hundreds of public enterprises. Beginning in 1989, the government started to implement some economic reforms. It passed a new investment law in May 1991 (Investment Law #10), and has gradually lengthened the list of goods that the private sector can either produce or import to include goods produced by the public sector. However, the public sector is still expanding and the government continues to control all "strategic" sectors such as oil, electricity, banking and chemicals as well as much of the textile and food processing industries.

1.2 Business constraints and entry barriers

Numerous restrictive government policies still create several business constraints. All major private investment projects must for instance be licensed. A cumbersome and complex multiple exchange rate system remains in place, despite incremental efforts to move the "neighboring country rate" towards the "free market rate". Tariffs remain high. Import restrictions remain numerous despite an increase in the types of goods the private sector can import. Real interest rates are negative and the private sector has very limited access to capital. Bank loans require collateral as well as a third-party sponsor.

However, in June 1991, as part of its overall reform program to encourage the private sector, the government passed a new investment law --"Law Number 10"-- to promote investment in all sectors of the economy. The new law offers the same incentives to local and foreign investors. Specifically, companies that receive licenses under the new law are accorded duty free privileges for the import of capital goods and materials necessary for a project, including vehicles, and a tax holiday for the first five years of operation. Companies that export over 50 percent of their products enjoy a seven year tax holiday.

1.3 On-going regulatory developments concerning alternative networks

Prospects for Syrian private sector investment and imports continue to improve slowly, spurred by economic reforms. Liberalization actions over recent years permit private exporters to retain foreign exchange export earnings to finance permitted imports. Likewise, the government has continued broadening both its list of permitted private sector imports and investments by private sector companies in areas such as power generation.

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

2.1 Oil and Gas Exploration Equipment, Piping, and Supplies: (OGM, OGS)

The Al-Furat Petroleum Company (which produces about 370,000 bpd of crude oil) plans to invest several hundred millions dollars in oil and gas infrastructure during the next five years. In addition, the Dayr al-Zur Petroleum company (producer of 60,000 bpd) will continue its own development and infrastructure investment program. Tullow Oil, an Irish company, discovered small oil reserves and has formed a joint-venture called Khabur Company. It will extract about 4,000 bpd beginning early 1997 with the consequent field development and production costs. Several companies are interested in gas recovery projects estimated at USD 300-400 million. Furthermore, the Syrian Petroleum Company (which produces 160,000 bpd) continues its own field development and infrastructure construction projects in Northeastern and Central Syria.

The above statistics are unofficial estimates.

2.2 Electricity (ELP)

The Public Establishment for Power Generation and Transportation (PEEGT) continued to pursue expansion projects in the electricity sector in 1996 and 1997. The most important development in the power sector is the regional project to create an electricity grid between Syria, Jordan, Egypt, Iraq, and Turkey. To achieve the grid link-up, PEEGT has announced international tenders for its grid connections with Jordan and Turkey. The tender for the connection with Jordan was awarded to the Indian "K.A.C." company on a turn-key basis. The tender for the connection with Turkey is currently under evaluation and results should be announced soon. In addition, current plans call for the construction of three new power stations namely: The 600 megawat (MW) Al-Zara plant, the 300 MW Zeizun Plant, and the 630 MW Tishrin hydro power plant. Furthermore, PEEGT plans to construct fifty 66 KV substations. The Establishment contracted for the import of 5 transformer stations. As for 1997, the government will announce a foreign tender for the import of a dispatching center as well as the import of gas turbines to be installed in 2-3 existing power plants so that they become combined cycle. Foreign donors are financing, or will finance, most of these projects, provided Syria can resolve some of its debt arrears problems. With three new power plants and fifty substations planned, there are numerous commercial opportunities for U.S. companies for the supply of equipment and technology.

The above statistics are unofficial estimates of power generation and transmission equipment.