Sharing the risks
Infrastructure could get a much needed boost from PPP
A new law passed this summer could help facilitate sorely needed investment to fix the country’s infrastruc
ture. The legislation, a framework for public-private partnerships (PPP), puts into law new options for sharing risks between companies and the government when investing in, building, and operating new public works.
Ziad Hayek, secretary general of the Higher Council of Privatization (HCP), tells Executive that Lebanon needs at least $6 billion to revitalize its infrastructure. The country’s roads are jammed with traffic, it has no longterm garbage solution, and its electricity supply is unreliable. Amongst other proposed infrastructure projects, the government has recently announced intentions to expand capacity at Beirut’s airport and to re-open Tripoli’s Rene Mouawad Air Base to passenger traffic.
Lebanon has had difficulty structuring PPP projects, and the new legal framework should help clean up that process. Lebanon has already had a few PPPs: Jeita Grotto, the waste treatment plant in Saida, and LibanPost. But judging their success through the lens of the new PPP framework, Hayek says, those examples—at least in the case of LibanPost—have deviated from the terms and conditions of their contracts, and are not great examples. “We want to make sure that when we talk about PPP, we really have fully successful projects that live up to the letter of [the] contract, that provide periodic reports on operation and how they are meeting key performance indicators, that are held responsible for [meeting those] indicators, where any payment from the government is dependent on their meeting those indicators.”
Prime Minister Saad Hariri stressed Lebanon’s desperate need for new infrastructure at an April aid conference in Brussels. There, he asked donors to fund a $12 billion “large-scale capital investment program (CIP)” to help Lebanon rebuild its economy and continue supporting the more than 1 million UNHCR-registered Syrian refugees living in the country. Since then, the government has not articulated any infrastructure investment plan, but has indicated that it wants around 25 percent of financing for the CIP to come from PPP approaches, says Peter Mousley, a PPP specialist at the World Bank’s Beirut office (see Q&A page 30). “We’re anticipating the government will move forward with this CIP, [and] that they will be wanting to reach out more to potential private investors,” he tells Executive.
While the government has known for years that it needs to fix its infrastructure, it has not been able to set much money aside for capital expenditures. According to the most recent numbers from the Ministry of Finance, only 4.4 percent (or less than $600 million) of the more than $13.5 billion in total public spending for 2015 went to capital expenditures, a percentage that has not varied much since at least 2011. Last year, Lebanon spent almost $5 billion more than the revenue it brought in; about a third of that went to interest payments on debt, public worker salaries, benefits, and pensions, and to cover losses by the nation’s electricity utility, Electricité du Liban. The country covers its deficit by issuing debt, which totals nearly $77 billion as of July. In August, Moody’s, a credit rating agency, downgraded Lebanon’s borrowing grade to a B3 rating, indicating that it considers Lebanon’s finances to be weak. In a press release, the company stated, “The principal driver of the downgrade is the rise in the country’s debt burden. Moody’s estimates Lebanon’s 2018 government debt to reach close to 140 percent of GDP [...] government debt will remain close to 700 percent of government revenues next year.”
Would Lebanon’s credit rating be an obstacle to financing a PPP project?