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RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1213/01 2311559
ZNR UUUUU ZZH
R 181559Z AUG 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2791
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 03 BEIRUT 001213 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR 
TREASURY FOR MNUGENT AND SBLEIWEISS 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR ABRAMS/SINGH/YERGER/MCDERMOTT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: PM SINIORA MAKES ENERGY DEALS IN EGYPT TRIP 
(ECONOMIC WEEK IN REVIEW, AUGUST 11 - 17, 2008) 
 
CONTENTS 
-------- 
 
-- BUSINESSMEN HAVE HIGH HOPES FOR RESULTS OF PRESIDENT SLEIMAN'S 
VISIT TO SYRIA 
-- GENERAL LABOR CONFEDERATION RENEWS THREATS ON MINIMUM WAGE 
-- SINIORA VISITED EGYPT IN SEARCH OF ENERGY CONTRACTS 
-- EGYPT REASSERTS PROMISE TO SUPPLY LEBANON WITH ELECTRICITY AND 
GAS, BUT NO CONTRACTS SIGNED YET 
-- SKEPTICISM OVER EGYPT'S PROMISE TO SUPPLY ELECTRICITY; GOL 
ARREARS TO POWER UTILITY ON PURPOSE 
-- MEA FLEET EXPANSION DEPENDANT ON POLITICAL STABILITY; NEW 
AVIATION TRAINING CENTER IN THE WORKS 
-- CAPITAL INTELLIGENCE REVISES LEBANON'S CREDIT OUTLOOK TO STABLE 
-- ECONOMIST INTELLIGENCE UNIT FORECASTS HIGHER GROWTH FOR 2008 AND 
2009 
-- CONSUMER CONFIDENCE REMAINS PESSIMISTIC FOR SECOND HALF OF 2008 
 
BUSINESSMEN HAVE HIGH HOPES FOR RESULTS 
OF PRESIDENT SLEIMAN'S VISIT TO SYRIA 
-------------------- 
 
¶1. (SBU) Board member and head of the Agriculture Committee at the 
Beirut Chamber of Commerce, Industry, and Agriculture Raphael 
Debbane told us on August 13 that agriculture and industrialist 
representatives urged Agriculture Minister Elie Skaff to ask 
President Sleiman to convince his Syrian counterpart to abolish the 
Syrian-imposed "road tax" on trucks crossing the Lebanese-Syrian 
border.  Syria has imposed a $40 tax on each ton carried by trucks 
crossing into Syria or transiting through Syria.  This tax is 
particularly a deterrent for Lebanese agriculture exports, Debbane 
said. 
 
¶2. (SBU) Debbane, who is also the Secretary General of the 
Syrian-Lebanese Businessmen Council, believes that if President 
Sleiman's visit succeeds in creating a friendly atmosphere between 
Lebanon and Syria, this will help resume cooperation between 
businessmen in both countries, and will revive the Businessmen 
Council.  The Council has been inactive for the last three years due 
to the political tension between both countries, Debbane said.  The 
Council's objective is to help both economies grow based on 
complementarity and to provide assistance to businessmen in both 
countries. 
 
GENERAL LABOR CONFEDERATION RENEWS 
THREATS ON MINIMUM WAGE 
-------------------- 
 
¶3. (U) Head of the General Labor Confederation (GLC) Ghassan Ghosn 
stated on August 11 that if the GOL takes the necessary steps to 
implement the previous cabinet's decision of raising the minimum 
wage (a decree for increasing the minimum wage in the private 
sector, and a law for the public sector) without taking into 
consideration the demands of the GLC, the GLC will not hesitate in 
taking to the streets in protest once again. 
 
¶4. (U) During the previous cabinet's last session on May 6, the GOL 
decided to increase the minimum wage from $200 to $333.  The GLC 
considers this insufficient, as it now demands a minimum wage of 
around $730 to be implemented retroactively from January 1, 2008. 
Ghosn also accused the previous and current cabinets (as seen in the 
ministerial statement) of violating the law, for not calling for 
increases in salary brackets as well.  (Note: The GLC's last 
demonstration calling for higher wages took place on May 7, 2008, 
which many believe was used as a pretext for pro-opposition forces 
to take to the streets and start the violence that ensued in Beirut. 
 End note.) 
 
SINIORA VISITS EGYPT IN SEARCH 
OF ENERGY CONTRACTS 
-------------------- 
 
¶5. (SBU) PM Siniora, along with a ministerial delegation including 
Ministers of Finane Mohammad Chatah, Economy and Trade Mohammad 
Saadi, and Energy and Water (MEW) Alain Tabourian, visited Egypt 
August 16 and to discuss possible electricity, oil, and gas supplies 
to Lebanon.  Tabourian will also travel to Jordan August 26-27 to 
attend a meeting of seven countries of the region that have signed 
an agreement to interconnect their electricity grids.  Tabourian 
will try to conclude an agreement with the Egyptian authorities on 
 
BEIRUT 00001213  002 OF 003 
 
 
Egypt's supply of at least 200 MGW of electricity to Lebanon. 
 
EGYPT REASSERTS PROMISE TO SUPPLY LEBANON WITH 
ELECTRICITY AND GAS, BUT NO CONTRACTS SIGNED YET 
 
¶6. (U) Following his meeting with Egyptian President Hosni Mubarak, 
PM Siniora reportedly indicated that Lebanon and Egypt are 
"coordinating efforts for the provision of Egyptian gas and 
electricity to Lebanon as soon as possible" and noted that the 
Lebanese and Egyptian Energy ministers will meet at the end of the 
month to sign the contracts. 
 
¶7. (U) The press reported that Lebanon is expected to start 
receiving gas a month from now, to be pumped from Syria to the Deir 
Ammar (north Lebanon) power plant. The use of natural gas instead of 
fuel oil in its power plants would save Lebanon about $200 million 
annually. 
 
¶8. (SBU) But there are still technical issues pending such as 
pricing, according to General Manager of Tripoli and Zahrani Oil 
Installations Sarkis Hlaiss, who accompanied PM Siniora to Egypt. 
He said no agreements were signed nor details discussed regarding 
the supply of Egyptian electricity and gas to Lebanon.  "These are 
what we consider important in a visit," he said.  He noted that 
Egypt has agreed "in principle" to increase gas supply by 20 
percent, from an initial offer of 600 million cubic meters, for the 
use of energy-intensive industries.  While a meeting will be held in 
Jordan next week to discuss the details of the supply of Egyptian 
electricity to Lebanon, no meeting has been scheduled to discuss gas 
issues, he said. 
 
SKEPTICISM OVER EGYPT'S PROMISE TO SUPPLY ELECTRICITY; 
GOL ARREARS TO POWER UTILITY DELIBERATE 
-------------------- 
 
¶9. (SBU) National power utility Electricite du Liban (EDL) Chairman 
Kamal Hayek told us prior to the PM's visit to Egypt that he was 
skeptical that Egypt will provide Lebanon with 200 MGW of 
electricity as announced during the recent visit of the Egyptian 
Minister of Energy to Lebanon.  Hayek told us on August 11 that 
Lebanon wants to make sure that it will receive a set share from 
Egypt's surplus electricity production; Lebanese Energy Minister 
Alain Tabourian has requested that the contract clearly specify that 
Egypt will supply Lebanon with a minimum capacity of 200 MGW.  Hayek 
will accompany Tabourian to a meeting in Jordan at the end of the 
month where seven countries (Egypt, Iraq, Jordan, Lebanon, Libya, 
Syria, and Turkey) working to interconnect their electricity grid 
will discuss the terms of contract for receiving Egypt's surplus 
electricity. 
 
¶10. (SBU) Hayek also indicated that about ten days ago Egyptian 
Petrojet completed the repair of one (out of three) fuel oil storage 
tank and one (out of two) water reservoirs at the Jiyeh (south of 
Beirut) power plant, which were entirely destroyed during the July 
2006 war.  As a result, EDL does not need to deliver fuel oil by 
trucks to operate the Jiyeh plant, thus reducing EDL's costs.  Work 
continues to complete the repair of the remaining reservoirs.  Hayek 
said Egypt has offered to pay half of the costs for repairing the 
five reservoirs and EDL will pay the rest. 
 
¶11. (SBU) Meanwhile, Hayek said EDL has still not been reimbursed 
for repair work undertaken in the aftermath of the July 2006 War. 
He said that a year ago the Higher Relief Committee (HRC) approved 
paying EDL $60 million for repairs completed.  Hayek believes the 
delay is deliberate, as the GOL wants to show that EDL suffers from 
high deficits. 
 
MEA FLEET EXPANSION DEPENDANT ON POLITICAL STABILITY; 
NEW AVIATION TRAINING CENTER IN THE WORKS 
-------------------- 
 
¶12. (SBU) National air carrier Middle East Airlines (MEA) Chairman 
Mohammad Hout told the Embassy that MEA signed a 65 million dollar 
loan contract with the Lebanese Canadian Bank to settle about 80 
percent of the cost of the Airbus A330 it received in June.  He said 
MEA has secured financing for its fleet expansion plan, through loan 
contracts totally 450 million dollars with five Lebanese banks. 
This funding will pay for ten Airbus planes, with the nine left to 
be delivered to arrive in 2009-2010.  Hout stressed that given the 
Lebanese central bank's 99 percent ownership of MEA, the fleet 
 
BEIRUT 00001213  003 OF 003 
 
 
expansion plan is directly linked to security and political 
stability in Lebanon, adding that the only guarantee MEA provided to 
financiers was the profitability of the company. 
 
¶13. (SBU) Hout also told us that MEA will build an aviation training 
center of about 15,000 square meters in the company's headquarters 
near Beirut International Airport (BIA), and has allocated 30 
million dollars for this project.  (Note: MEA's training center was 
destroyed during the 1982 Israeli invasion.  End note.)  The new 
center will include a flight simulator and provide training for MEA 
pilots and crew as well as to other airlines, Hout said.  This will 
reduce MEA's training costs and generate revenues to the company. 
The center has received approval from the Civil Aviation Authority 
(CAA), CAA Director General Hamdi Chaouk told us.  Hout and Chaouk 
each told us separately that MEA will coordinate with the CAA in the 
management of the center and the programs offered.  Lebanon already 
has an ICO-approved center on safety oversight training, ai 
traffic management, and airport management training, Chaouk said. 
 
 
CAPITAL INTELLIGENCE REVISES 
LEBANON'S CREDIT OUTLOOK TO STABLE 
-------------------- 
 
¶14. (U) Rating agency Capital Intelligence revised its 'B-' 
long-term foreign and local currency rating on Lebanon to 'stable' 
from 'negative, as well as that of six Lebanese banks, noting that 
banks' rating continues to be constrained by the sovereign ratings. 
Capital Intelligence attributed the change in outlook to improvement 
in the domestic political climate ever since the Doha Conference. 
Although it believed the improved climate would help revitalize the 
economy, Capital Intelligence ruled out that any significant reforms 
would take place before the 2009 parliamentary elections and 
questioned the level of commitment of the main political factions to 
the Paris III fiscal and structural reform program. 
 
ECONOMIST INTELLIGENCE UNIT FORECASTS 
HIGHER GROWTH FOR 2008 AND 2009 
-------------------- 
¶15. (U) The Economist Intelligence Unit (EIU) revised its economic 
growth forecast upwards for Lebanon, the second time since the Doha 
Agreement in May 2007, but warned that economic growth is expected 
to remain below potential due to political uncertainties and 
institutional deficiencies.  The EIU forecast 4.4 percent growth in 
2008, up from 2.7 percent, and 4.6 percent in 2009, up from 3.8 
percent.  Inflation was forecast around 12.5 percent in 2008 and ten 
percent in 2009.  The EIU also upgraded its Political Risk rating 
for Lebanon to "CC" from "C," as well as the overall Country Risk 
rating to "B" from "CCC," due to significant decline in political 
tensions. 
 
CONSUMERS REMAIN PESSIMISTIC IN SECOND HALF OF 2008 
-------------------- 
 
¶16. (U) According to MasterCard Worldwide bi-annual consumer 
confidence index survey MasterIndex, Lebanon scored 32 in the second 
half of 2008, or at a similar confidence level as compared with the 
previous survey covering the first half of 2008.  Out of 100, a 
score above 50 reflects consumers' economic optimism, while a score 
below 50 reflects pessimism.  The survey analyzes consumer 
perceptions of economic conditions for the six months ahead, 
focusing on perceptions of employment, the economy, income, the 
stock market, and quality of life.  Lebanon's score on all five 
indices reflected pessimism, although expectations for the economy 
and quality of life improved slightly. 
 
GRANT