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French Version

Can Hariri play his economic trump card ? - The Daily Star

Premier needs to push through sell-off program to cut debt -
Economist warns that if privatization does not top 2003 agenda, gains made at 'Paris II' will be lost -

Daily Star staff

Injecting cash into the state's empty coffers has always been the goal of governments in Lebanon. But despite noticeable improvements in the collection of taxes and a drop in the budget deficit this year, the financial condition of the Treasury remains in a critical state.

With over $30 billion in public debt and mounting discontent among lower classes, Prime Minister Rafik Hariri seems to be running out of options.

Hariri managed to secure $4.4 billion in soft loans from the 'Paris II' donor conference in November. But these pledges, which gave his government more breathing space, are still far from what the International Monetary Fund (IMF) and World Bank want from the country. Lebanon needs to reduce its enormous public debt immediately or it will be forced to take decisions that could spell doom for the country.

Unpopular decisions mean that the state will be forced to devalue the currency, cut spending on education, health and development projects and may even lay off thousands of government employees. "Every time a developing country runs into deep economic recessions and high public debts as in the case of Brazil and Turkey, the IMF quickly recommends the devaluation of the currency," one financial analyst said.
He added that the same rule applies to Lebanon, although the IMF is not to eager to push the government to devalue the Lebanese pound right now.

One of the few choices which Hariri is counting on to ward off ugly scenarios is privatization. Although the government did not sell off any state entity this year, it did lay the groundwork for the privatization of a number of public assets. "Selling state-owned assets to the private sector will be the biggest challenge of the government in 2003," the secretary-general of the Council of Higher Privatization, Ghazi Youssif, has said.

He has stressed that the government plans to generate about $5 billion from privatization and securitization in 2003. To speed up the process, Parliament approved a number of bills that will enable the government to sell part or all of selected state-owned assets to the private sector. The most important bill that was passed by the Parliament this year with respect to privatization was the telecommunications law.

The LebanonTelecom law is the first step toward the transfer of ownership of the cellular phone networks. Telecommunications Minister Jean-Louis Qordahi and his team of advisors plan to auction off two cellular licenses beginning in February of this year. But if the offers for two 20-year licenses do not meet the expectations of the government, Qordahi may opt for a third company that would run the mobile networks on behalf of the government.

The minister, who was at loggerheads with Hariri and the Council of Higher Privatization over how to sell the licenses, finally secured the transfer of ownership of the cellular networks to the government. But this agreement with the current operators did not come easily.

Backed by President Emile Lahoud, Qordahi made some important amendments to the transfer of ownership agreement that protects the rights of the state during arbitration with the country's current cellular operators. The minister told the two companies that they must either sign the contracts or face the consequences. After weeks of negotiations, Cellis and LibanCell inked the contracts, paving the way for the sector's privatization. No one knows for sure the true value of the telecom sector in Lebanon, even though some experts claim that the government can fetch up to $5 billion if they sell two licenses and the fixed telephone lines. Cellis and LibanCell have more than 800,000 subscribers. The government has estimated that it could easily collect more than $450 million from both networks after they became the sole property of the state.

In addition to the 800,000 cellular lines, the Telecommunications Ministry has almost 1 million fixed telephone lines. But Qordahi prefers to revamp the fixed telephone company before a partial sell-off to the private sector. In order to do this, Qordahi intends to create a mobile phone company that will be sold with the rest of the fixed telephone network. Youssif has said that the names of the companies that will officially bid for the licenses will disclosed on Feb. 14. He has also said that the cellular networks will be sold in April or May of this year.

Apart from the lucrative telecom sector, Hariri intends to privatize the electricity sector before the year's end. But observers are still skeptical about the government's ability to sell the loss-making electricity company. It is still not clear if the government plans to privatize the distribution or production components of the sector.

Some economists say the government could easily get $1 billion from the sale of the country's power plants. The government has spent $1.4 billion to rebuild some of the power plants that were destroyed during the civil war. But despite all the money invested in the construction of new power plants, Electricite du Liban (EDL) has suffered a loss of more than $1 billion due to poor bill collection, illegal connections and technical problems. The new general manager of EDL managed to reduce the losses of the company last year after installing new meters in some parts of Lebanon, and cutting waste.

Water utilities, the airport, the port and Middle East Airlines are also on the shopping list of potential investors. But for the time being the government wants to focus on telecom and electricity because these sectors are easier to sell. The proceeds of the privatization program will only be used to reduce the public debt and nothing else, according to the government.

Officials say that if politicians stopped complicating the privatization process, the state will be able to sell the telecom and electricity sectors this year. "This is the last chance the government has. If no privatization takes place in the first six months of this year, then all the money we got from the Paris II meeting will be useless," one economist warned.

Beirut 14-01-2003
Osama Habib
The Daily Star

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