Several legal developments have recently come to light which will undoubtedly have a positive and incentivising impact on the implementation of the contemplated, and the long-awaited development and investment projects in Lebanon.
The Economic Conference for Development through Reforms with the Private Sector (CEDRE), an international conference in support of Lebanon’s development through specific reform, was held in Paris on the 6 April 2018 with 48 participants from the international community.
The key outcome of CEDRE was a pledge of financial support for Lebanon resulting in the sum of $10.2 billion by way of loans ($9.9 billion of which were on concessional terms) and $ 0.86 billion in grants. The pledges, however, were conditional on the basis that Lebanon shall effectuate reforms in certain key sectors, such as electricity and water, as well as the lowering of the fiscal deficit by one per cent annually over the next five years.
Sustaining reforms for the future
CEDRE participants emphasised the importance of an organised follow-up mechanism whereby the Lebanese government would commit to implementing such specific promised reforms.
The message from the international community was clear—Lebanon would only be able to unlock the CEDRE pledges once a consolidation plan that stabilises and reduces debt came into force.
From a legal reform perspective, it became crucial for the Lebanese government to enact new laws and regulations in addition to amending existing archaic laws and regulations that require urgent updates with the purpose of creating a stable environment for investments, both national and foreign, based on well-established legal frameworks.
There was a significant progress prior to and in the build-up of CEDRE with regards to the exploitation of the oil and gas (O&G) sector. The legal framework governing O&G in Lebanon supports and promotes further investments in the sector, with a number of milestones set out in the applicable laws and regulations already achieved.
Additional regulations are currently being discussed by the newly formed Lebanese government with the aim of creating a transparent and stable environment that will provide further comfort for international O&G companies.
In late 2017, the Council of Ministers approved the awards of two exclusive petroleum licences for exploration and production to a consortium composed of energy giants—Total, ENI and Novatek.
The consortium is currently discussing and preparing the various plans required to start the exploration phase by end of 2019 with a second offshore licencing round having been approved by the newly formed Council of Ministers.
Public and Private Partnership
In addition, the Public Private Partnership Law No. 48 (PPP Law), enacted in September 2017, and highly commended by the CEDRE participants, introduced a transparent, competitive as well as fair, and accountable process for submitting PPP tenders, therefore giving private investors increased clarity and visibility in project implementation.
Since the existence of a clear legal framework is fundamental to a strong foundation for successful ventures, the PPP Law is expected to create an investor friendly environment that shall encourage the private sector to partner with the newly formed Lebanese government.
Save for some gaps that will be covered by implementation regulations, the PPP Law is mostly compliant with international standards and should provide private investors with the legal certainty they need to enter into PPPs with confidence.
To this date, no PPP agreements have been implemented in Lebanon yet, however, there are several projects in the pipeline that should come into place by the end of this year, most notably the expansion of the Beirut Rafic Hariri International Airport. Similarly, the water sector witnessed the introduction of Law No. 77, the ‘Water Code’, which was ratified one month after CEDRE.
Among other improvements, the new law allows public utility projects to be run by Build-Operate-Transfer or Design-Build-Operate-Transfer contracts. As the government seeks private sector partners to assist with key initiatives, the PPP Law will no doubt have a large role to play in attracting international companies to invest in these sectors via the revamped public tender process.
Until recently, the obvious obstacle to implementing the reforms laid down by CEDRE was the lack of a national unity government in Lebanon. In February 2019, almost a year after CEDRE, the newly formed government of national unity could now finally turn its attention to addressing the outstanding CEDRE demands.
In March 2019, the Prime Minister confirmed that in light of the consensus between the different political parties there would now be a strong emphasis on approving laws related to unlocking the pledged CEDRE funds.
Electricity reforms, one of the key reforms demanded at CEDRE, remains at the epicentre of any national reform as state-run national utility company Électricité du Liban (EDL) has accumulated losses totalling billions of dollars over the past two decades.
The newly formed government has approved a plan by the Minister of Energy and Water, Nada Boustani Khoury, to boost power supply, increase electricity tariffs, and reduce fiscal deficit.
According to a policy paper published by the Ministry of Energy, a decrease in just one per cent of EDL’s losses would translate into roughly $13 million in savings, a substantial contribution to reducing public debt.
Reducing the deficit from EDL’s operations would free up funds for use elsewhere and unlock the pledged CEDRE financial support. Should the plan proceed as scheduled, Boustani Khoury is hopeful that Lebanon will reach a surplus of energy production by 2030.
Moreover, the update of the Lebanese Code of Commerce is currently in progress with the purpose of creating a more business-friendly environment for investors according to international practises and standards.
Amendments with the aim of modernising the Code of Commerce have been recently submitted for the Parliament’s consideration, one of them being the approval of a single shareholder limited liability company. Lebanon has demonstrated a resolute commitment to addressing the issues of much needed legal reforms—changes that should boost the country’s appeal to foreign investors.
With the newly formed government under intense pressure to deliver but having only a few months to operate thus far, it is expected that the rate and scale of reforms will increase significantly from here onwards, in line with the CEDRE promises.
Bolstered by the support of the international community, Lebanon should be well on its way towards macroeconomic stability and sustainable growth.