June 2024

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June 2024, N°80
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Here's How We Made a Lasting Impact in June 2024

LIMS Exposes Corruption in Public Procurement and Sparks Resident Activism

Under the APPLE C (Apply Public Procurement Law to End Corruption) program, LIMS continues its relentless campaign against systemic corruption in Lebanon’s public procurement system.

One significant issue exposed by LIMS is the hazardous chemical storage at the Zouk Mikael thermal power plant. The disposal process for these dangerous materials is stalled due to the Ministry of Energy and Water’s repeated failure to conduct a legal tender, with the process repetitively marred by irregularities. In response to LIMS's awareness, a resident sit-in was organized demanding the removal of these materials campaign. The Mayor of Zouk Mikael warned that these chemicals could become even more hazardous over time, particularly given the proximity of the fuel importing company “Coral”. Environment Minister has since offered to liaise with EDL to ensure the chemicals are scientifically packed and safely handled.

LIMS also released a policy brief addressing corruption issues in public tenders. The brief detailed various collusive practices such as: cover bids, bid rotation, and conflicts of interest between ministers and bidders. Examples include consultancy services, economic connections among bidders, multiple bids from a single company, and familial ties. Collusion leads to reduced competition (single bidder), higher prices, lower output, and reduced innovation. To combat these issues, LIMS proposed a legal provision to prevent establishing monopolies through public procurement in sectors where multiple providers can operate. In the exceptional cases of natural monopolies, stringent measures should be applied to prevent collusion. Furthermore, LIMS called for curbing the unchecked power of ministers, including limiting their ability to exclude bidders through tailored tender documents or shortened bidding deadlines under the guise of urgency.

In a separate policy brief, LIMS criticized the Ministry of Communications’ attempt to grant a monopoly to a new company, Stream Media, for providing "over the top" (OTT) services. OTT refers to the delivery of audio, video, and other media content over the internet, bypassing traditional cable, broadcast, and satellite platforms. These services allow users to access content directly through their internet-connected devices such as smartphones, smart TVs, tablets, and computers. Popular examples of OTT services include streaming platforms like Netflix and Shahid. LIMS argued that this move violates the Public Procurement Law by awarding the service through mutual agreement to a pre-selected company, bypassing competitive bidding. The significant danger lies in the attempt to monopolize a service that multiple companies could provide simultaneously, allowing subscribers to choose. Additionally, the deal raises widespread suspicions of corruption, imposing Stream Media, an unknown company, with no experience in the field, recently created for the sole purpose of taking this public contract. LIMS asserted that fostering competition would be more beneficial to the society than concealing corrupt practices under the guise of Ogero’s monopoly.

Through these efforts, LIMS continues to advocate for competition, merit, and efficiency in Lebanon’s public procurement processes, aiming to dismantle entrenched corruption and promote a more equitable economic environment.

Lebanon Faces Imminent Blackout Amid Fuel Shortages

Lebanon teeters on the edge of another nationwide blackout as Electricité du Liban (EDL) power plants cease operations. This development has shattered Energy Minister pledge to boost electricity supply from 450 to 600 megawatts this summer. The Deir Ammar, Zahrani, and Litani power plants risk to all shut down, plunging the nation into deeper crisis.

LIMS has highlighted that such service breakdowns are not unprecedented. They are often leveraged by the Ministry of Energy and Water to pressure the state for additional funding, a practice that has significantly contributed to Lebanon's financial collapse and energy crisis. The Ministry had committed to collecting adequate resources from electricity bills when prices were increased in 2022. Therefore, revenues from the raised prices should suffice for maintenance, spare parts, and fuel procurement, facilitating swift problem resolution. There is no justifiable reason for further demands on taxpayer money. LIMS asserts that the core issue lies in the Ministry's lack of commitment to reducing electricity losses. These losses stem from billing delays, unpaid bills, and theft. Without addressing these problems, EDL will continue to drain taxpayer resources.

To mitigate the risk of total blackout, LIMS advocates for a transition towards distributed solar energy production through municipal and private sector cooperation. Under the PRISM program, LIMS underscored the advantages of decentralized solar farms to provide cheaper, more reliable electricity, ensuring longer electricity hours than those offered by EDL. LIMS proposes a model similar to that used in Toula, which integrates solar farms with existing generators. This approach reduces pollution, lowers costs, and guarantees a continuous electricity supply. Legislative action to streamline this model could facilitate the private sector involvement in electricity at the municipal level, addressing Lebanon's electricity crisis and environmental challenges and allowing local economic development. By adopting these reforms, Lebanon could move towards a more sustainable and resilient energy future, mitigating the chronic risk of blackouts and fostering economic stability.

Lebanon Faces Potential Grey Listing by FATF

The Financial Action Task Force (FATF), the global authority overseeing anti-money laundering (AML) and counter-terrorism financing (CTF) policies, is contemplating adding Lebanon to its "grey list," subjecting the country to enhanced monitoring.

LIMS has highlighted Lebanon’s dependence on a cash economy as a significant risk factor. The ongoing banking crisis has eroded public trust in financial institutions, prompting individuals to eschew bank deposits in favor of cash transactions. This shift not only raises compliance issues with international financial standards but also hampers economic growth. LIMS further emphasized that Lebanon’s judicial system has shown reluctance in cooperating with the international community on money laundering matters. The nation also still grapples with rampant tax evasion and smuggling, compounding its financial woes.

To restore confidence in the banking sector and encourage deposits, LIMS has proposed urgent reforms. Firstly, the Lebanese parliament should permit banks to differentiate between old and new dollar deposits. Banks should be allowed to offer interest on new deposits and ensure that loans issued in new dollars are reimbursed in the same currency. Secondly, the market should be opened to new banks untainted by the current banking crisis. These measures would enable the banking sector to resume its financial intermediation role the time the broader crisis is addressed.

Addressing rumors about allowing pre-2019 depositors to withdraw funds at the market exchange rate, LIMS clarified that such speculation is baseless, as the necessary funds are unavailable for withdrawal. This situation underscores the urgent need for comprehensive restructuring of Lebanon’s banking sector to resolve the deposit crisis and stabilize the economy.

The potential grey listing by FATF highlights the critical necessity for Lebanon to align its financial practices with international standards. Without decisive reforms, the nation risks further isolation from the global financial system.

LIMS Advocates for Renewable Energy at PSP Conference

Beirut, June 3, 2024 - Dr. Patrick Mardini, CEO of LIMS, was a speaker at a conference organized by the Progressive Socialist Party (PSP) titled “The Road to a Green City: A Discussion on Air Pollution from Generators.” The event saw attendance from members of parliament, representatives of several Lebanese political parties, officials from relevant ministries, executives from the oil facilities in Zahrani and from EDL, the Governor and the Mayor of Beirut, a representative of the World Health Organization, and various activists and NGOs.

In his address, Dr. Mardini highlighted the success of the Tula Solar Farm, a project that tackled electricity supply challenges at the local level, by establishing a solar farm, generating electricity for an average of 10 hours daily. He emphasized the critical role municipalities can play in partnering with private sector investors to ensure continuous electricity supply. Renewable energy projects offer a viable solution as they allow Electricité du Liban to focus its supply from traditional energy sources on densely populated cities like Beirut, which lack the space for solar farms. Therefore, local level initiatives could significantly enhance the electricity supply across Lebanon.

Dr. Mardini urged members of parliament to support legislation that would streamline the approval process for local renewable energy producers. He posited that such a bill would pave the way for cleaner, more affordable, and sustainable electricity, ultimately fostering economic growth and healthier living conditions for all Lebanese citizens. The conference underscored the urgent need for collaborative efforts between municipalities, the private sector, and legislative bodies to improve Lebanon's energy infrastructure.

Airbnb Sparks Controversy Amidst South Lebanon Clashes, Threatening Tourism Sector

The ongoing clashes in South Lebanon have spread beyond the border areas, severely impacting the entire country, with the tourism sector bearing the brunt. As threats of a full-scale war escalate, there are mounting fears that the summer tourism season could be devastated, affecting numerous sectors that depend on this vital pillar of the Lebanese economy. Amid this turmoil, the Hotels Syndicate has launched an advocacy campaign against Airbnb, accusing the platform of unfair competition. The syndicate highlighted issues such as users’ nonpayment of taxes and fees and potential security breaches due to the lack of guest registration with Lebanese General Security.

LIMS acknowledged that the conflicts in the south pose a significant problem for tourism but argues that other challenges should not be overlooked. Firstly, the duopoly imposed by Middle East Airlines on each destination makes air travel to Lebanon more expensive than to neighboring countries, reducing Lebanon's competitiveness in the regional tourism market. Secondly, Lebanon's inadequate infrastructure—marked by frequent electricity and water outages, poor road conditions, and food safety issues—exacerbates the problem. Hotels in Lebanon spend 30-35% of their revenue on electricity and water, compared to the global average of 10%, leading to higher service prices and lower occupancy rates. To address these challenges, LIMS recommends that Lebanon focus on reducing operational costs by adopting energy decentralization and alternative energy sources, which could enhance the sector's competitiveness.

Regarding Airbnb, LIMS emphasized that Lebanon is in the throes of a severe economic crisis, with many citizens struggling to find sources of income. A recent World Bank study indicates that the poorest families in Lebanon are those without dollar income. Platforms like Airbnb provide Lebanese people with an opportunity to earn dollar income, which, even if modest, helps alleviate some of the crisis's impact and provides a lifeline during these difficult times. Additionally, Airbnb can boost tourism in Lebanon by lowering accommodation costs and attracting budget-conscious tourists. This approach opens new opportunities and offers more options for visitors who prefer economical travel, different from those who choose hotels in high-end areas. Lebanon should be able to diversify its offerings to tap into this new tourist profile, thus expanding its tourism market.

In conclusion, while the immediate impact of the southern clashes on tourism is dire, Lebanon's broader challenges require comprehensive solutions. By addressing infrastructure deficiencies and embracing innovative income opportunities like Airbnb, Lebanon can build a more resilient and competitive tourism sector.

Lebanese Eurobonds Surge Amid Speculation

Lebanese Eurobonds, which have plummeted in value since the onset of the financial crisis, are experiencing successive price jumps amid speculation that the Lebanese government may be planning to purchase these bonds. The price saw a notable increase of 0.15 cents over the past week, rising from 6.85 cents per dollar at the end of the previous week. This sudden surge raises questions about whether these increases reflect any substantive positive developments.

LIMS asserts that it is highly improbable that the Lebanese government intends to buy Eurobonds, even at their current heavily discounted rates. If the government were to start purchasing these bonds, their price would rise sharply, likely leading the government to halt the buyback due to escalating costs. Moreover, the government lacks the financial resources to repurchase the bonds unless it resorts to using the central bank's foreign exchange reserves. Such a move would effectively reward bondholders at the expense of depositors, exacerbating the already strained financial situation.

The recent price movements of Lebanese Eurobonds, driven by speculative rumors, underline the precarious nature of the country’s financial landscape. Without concrete economic reforms, these price fluctuations are unlikely to signify genuine improvements in Lebanon’s economic stability.

References
LIMS Media Interviews