Lebanon first PPP project updates (1500MW IPP). by: Pierre El-Hnoud

1. Public-Private Partnerships in Lebanon
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Pierre El-Hnoud
Senior Advisor, Leadership & Strategy Development
Advisor to the Minister of Energy and Water
Aug 2010- March 2015.
pierre.elhnoud@yahoo.ca
Lebanon’s 1st Case

2. Agenda
❖Introduction
❖What is the infrastructure problem that the PPP is trying to solve?
❖What services are to be provided and are these services affordable?
❖What are the reasons that the private sector would want to participate?
❖How should these risks be allocated? Consider the country context in
judging the risks and who should take them
❖Next steps
❖References
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3. Introduction
Public-Private Partnerships are critical for a
developing country like Lebanon in order to close
its Infrastructure Gap.
One of the major gaps that Lebanon is
experiencing today relates to the power sector,
where current actual capacity is 1650 MW
according the Policy Paper for the Electricity Sector
(June 2010); which represent 23% deficit (2100
MW required at that time). The country needs to
produce around 5000 MW by 2015 in order to meet
its demand.
The main consequences were a considerable
dependence of the sector on budgetary subsidies
estimated by the Ministry of Finance at close to US
$1.5 billion in 2006-9 and could reach US$8 billion
in 2015 not to mention the impact on the Lebanese
economy as a whole which is estimated at US$46
billion.
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4. 4

5. What is the infrastructure problem that the PPP is trying to solve?
A major infrastructure problem lies at the Power sector, where supply can barely meet
23% of the demand (2009), and the efficiency of the actual supply is at a 1.5USD$
billion dollar yearly deficit.
This not only have a catastrophic fiscal impact on a small country like Lebanon (GDP
of 21.8 billion USD 2006) but also an economical impact on other industries like
Tourism, Industrial and agriculture.
Therefore, a decision to build a 1500-2500 MW/IPP under a PPP scheme led to an
initial feasibility study as announced at the Beirut Energy Forum on September 2014.
This represent an enormous challenge as it would become Lebanon’s first PPP project.
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6. What services are to be provided?
and are these services affordable?
As demand grew substantially and surpassed additional
capacity of the current electricity generation levels.
Power shortages progressively became the norm with
some regions barely receiving 12 hours of electricity
supply on some days.
The technical challenges that prevent sufficient volumes
of electricity from getting reliably delivered to end-users
span across the entire power system value chain: from
insufficient capacity to large losses in the transmission
and distribution networks and Insufficient Generation
Capacity.
So the main challenge is to provide electricity 24/7 at a
competitive price to the consumer. With current
subsidies from the government, the consumer is paying
around 40-60% of the actual cost.
A gradual increase in tariff must take place in order to
provide the service at an affordable price.
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7. Private Sector
What are the reasons that the private sector
would want to participate?
It is the World Bank opinion that Lebanon has adopted
elements of a pro-PPP policy at official level with
attempts to enact a PPP law to institutionalise PPP as a
procurement option.
Lebanese banks could have PPP lending capacity but
they as well as government institutions, lack experience
of PPP. This is because there is no PPP project
precedents to date in Lebanon to draw upon.
The Lebanese banking industry is financially sound and
stable and represent the backbone of the private sector
with 141 banks according to the central bank BDL with
over US$100 billion that can be tapped into.
Not only they have the cash to invest, but they also
have a vested interest in the economy as a whole which
is expected to lose US46 by 2015 if nothing is done to
close the infrastructure gap with the power sector.
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8. How should these risks be allocated?
Consider the country context in judging the risks
and who should take them
“Allocation of risks between two parties should be based on which
entity is best positioned to manage a risk.” PPPMOOC
This is the first PPP in Lebanon and there are no precedent to such
endeavour. As the public lack the financial means and men power, the
following risks should be allocated as follow:
1.Political risks: the government must take ownership of drafting the
Institutional Framework and PPP Law in a way that future government
proceed with any launched project in a transparent and seamless way.
Political stability and security issues are key factors here and the
private sector, beside giving its feedback can do nothing about it.
2.Economical risks: The future of cash flow and capital depends mainly
on the Private sector that is required to invest heavily according to
current government policy ( minimum 80%), and it is expected to rely
on international donors. While the public sector must ensure connect all
parties involved in an effective and transparent manner and to provide
sovereign guaranties and third parties (i.e. Multilateral Investment
Guarantee Agency MIGA and World Bank).
3.Execution risks: the private sector must provide creative solutions and
deliver in the most efficient manner and ensure availability of services ,
while the public sector must provide speed and timely approvals.
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9. Next Steps
1. Hire a Transaction Advisor (i.e IFC) to launch the tendering process to build a 1500 MW/IPP under
a PPP scheme as presented and discussed during the Beirut Energy Forum 2014 in details following
the completion of the feasibility study. ( a feasibility study in 2013 financed by the Kuwait Arab
Fund and executed by Mott MacDonald and Clyde&Co as external consultant.)
2. Finalise and approve the PPP Law Draft that was submitted to the Council of Ministers for in 2012.
3. Formalise the PPP Policy and Framework to empower the Higher Council for PPP Unit to be active
and ready.
4. Continue with the awareness campaign, and get the private sector involved and increase its
appetite to invest (as it seemed to be the case during the Beirut Energy Forum)
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10. References
WORLD BANK
http://www.worldbank.org/en/results/2014/04/15/restructuring-the-power-
sector-in-lebanon
http://ppp.worldbank.org/public-private-partnership/library/study-ppp-legal-
financial-frameworks-mediterranean-partner-countries
BEIRUT ENERGY FORUM
http://www.beirutenergyforum.com/Presentations%20BEF%202014%20PDF/DAY
%201-2-3/session%201A/Session%201A%20Sissaf%20EDL%20Pierre
%20Hounoud.pdf
http://beirutenergyforum.com/Befpresentation/pdf%20session%202/Dr.Dr.
%20Raymond%20Ghajar-Sep-2010.pdf
PPPMOOC
https://class.coursera.org/effectiveppp-001
PPIAF
http://www.ppiaf.org/sites/ppiaf.org/files/documents/Note-Four-Developing-a-
PPP-Framework.pdf
BANK OF LEBANON (BANQUE DU LIBAN)
www.bdl.gov.lb/downloads/download/82/en
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