Wednesday, September 21, 2005

Call me the energy man - for that appears to be my specialty.

Thanks to The Oxford Business Group's Emerging Lebanon 2005 publication, I have the opportunity to shed some more light on Lebanon's mysterious energy sector - the one industry that will likely lead to a considerable amount of contention once Mehlis' investigation has been concluded.

I've accumulated some interesting facts about the sector that I think all citizens of Lebanon should be aware of during the upcomming debate. There are too many hiddens and unknowns in Lebanese politics... too much that citizens do not know.

Interesting facts and figures about the importation and distribution of all kinds of fuel.

For a brief period after the war, the Lebanese authorities nationalized the importation of all fuels in the country (i.e. petrol, diesel, Liquid Petroleum Gas (LPG), etc....) Ever since, the sector has largely been under the control of unregulated, and might I add, unknown private control. Here are some details regarding how things turned out:

1 - Lebanon has six active and seven idle fuel import terminals even though demand can be satisfied by merely two.

Why should you care?

Think of opportunity cost. What could we do with the land where 11 unnecessary fuel importation terminals (very large structures) are situated. Is this land legally government land? Most likely yes. Is the government in dire straights with regards to debt and inefficiency? Yes! hmmm....

2 - Lebanon is known for setting precedents - a very good example is hosting the only McDonalds restaurant that offers valet parking (Ain Mreiseh). Another precedent that the country has set is one of the highest number of re-fueling stations per capita than any other country in the world. The major distributors are:

- Medco: 12.0%
- Wardieh: 9.6%
- HYPCO: 6.0%
- Falcon: 6.0%
- Cogico: 6.0%
- Laipco: 2.4%
- IPT: 2.4%
- Others: 41.0% (notice how large this category is?)

Okay, so why should you care?

Most of these stations are unregulated and, according to Emerging Lebanon 2005, fail to meet even Lebanon's minimal safety standards - some are even built on the ground floor of apartment buildings! Of course, when I say safety, I'm not implying that these stations will blow up (a very unlikely, but considering the situation in Lebanon, possible event). There are much more subtle issues that have larger long term impacts. One such issue is ground water.

Most of our fresh water comes from sources in our mountains. A lot of our re-fueling stations are also built on our mountains. Fuel is stored underground. Leakage of fuel storage tanks is a common occurrence. You do the math!

Another issue is not so dire, but it counts: aesthetics. How many times have you driven down a street in Lebanon and seen 20 darn refueling stations? Or maybe, the ugliest structure that simply gets you wondering about how it's able to maintain its integrity.

3 - It would take $800 million to build a new oil refinery in Lebanon. Since the Lebanese state is broke, private investors will be needed to make the investment. In all likelihood, it simply ain't gonna happen. Why? Lebanon's fuel market, despite the insane numbers of participants, is, to put it mildly, tiny. There's also the inconveniency of political instability in the country itself and its immediate environment. Finally, to quench that last flame of hope, the Eastern Mediterranean already has an excess of refining capacity.

Why should you care?

Well, if you ever had any hope that we'd get that refinery in Tripoli up and running again, forget it.

Another reason you should care is related to the hubbub that was created regarding oil-findings off of Lebanon's shore. If commercial quantities of oil really do exist, then it will not be so much of a panacea after all. Lebanon will simply export crude oil where it will be refined and used to make end-user products, and ultimately import the finished products - not too much change, if you ask me.

4 - Currently, our rabble of fuel importers buys their products from Greece, France, Italy and Turkey. They buy 4.5 to 5.0 million tons of fuel products, sell them to one, or a collection, of 30 distribution chains, who then distribute the fuels to around 2400 refueling stations.

Why should you care?

Well, I haven't really come up with a reason; except maybe to comprehend how big this monster really is. Maybe this sector is the MEA of the entire Lebanese economy!

ADDENDUM: Bloggers Mustapha and Lebanon Profile have posted entries (Mustapha, LP) on the issue of privatization, both of which criticized Speaker of Parliament Berri and MP Jumblatt on their positions regarding privatization. Although I am not against privatization in principle and do not support the rationale that the Speaker and MP use, this entry should serve as a warning that the private sector definitely does not imply salvation. To emphasize my point I will directly quote Emerging Lebanon 2005.

In January 2002, parliament appoined French investment bank BNP-Paribas as advisors for the proposed sell-off [of EdL], and in August passed Law No. 462, which was inteded to act as a framework for a limited sell-off of EdL's operations to take place by 2005.... [Among other things], the legislation failed to take into account ... the need to create a competition-based market rather than simply substituting a state monopoly for a partly privately owned state monopoly.

In short, my message is that if the government does not play its proper role by regulating the industry and ensuring that no abuses occur at the expense of hapless consumers, then privatization is definitely not a solution. Private monopolies are no better than public monopolies ... and in fact, in a theoretical sense, are much worse since public institutions are accountable to the electorate.

1 comment:

Doha said...

Raja, thanks for your insights.

I wanted to share with you a comment I posted on LP's post: "It was interesting to hear from Charles Rizk a couple of months back of his plan to privatize tele liban. He did not talk about privatization versus non-privatization, but he delved into the type of privatization we'd get, which is basically the gov't maintaining the golden share despite selling it to the private sector. In my mind, I believe that maintaining a golden share is important to ensure that the private sector is providing the appropriate services to the people, not making profit off of our backs in other words, and more, staying in tow with the gov't policies/regulations to ensure quality and equitable distribution of the good/service, etc.

Anyways, it's too late to have the conversation of privatization versus not. Privatization is a reality; we're 15 years away from the fall of the Berlin wall. I agree with LP that the debate should be what kind of privatization we want and based on that we can of course take sides (center, left, right.)"