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Cablegate: Lebanon: Energy Minister Visits Syria (Economic Week In

VZCZCXYZ3348
RR RUEHWEB

DE RUEHLB #0322/01 0631443
ZNR UUUUU ZZH
R 031443Z MAR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1169
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS BEIRUT 000322

SIPDIS

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR
TREASURY FOR MNUGENT AND SBLEIWEISS
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/SINGH/GAVITO
E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: ENERGY MINISTER VISITS SYRIA (ECONOMIC WEEK IN
REVIEW, FEBRUARY 25 - MARCH 2, 2008)

CONTENTS
--------

-- ACTING ENERGY MINISTER VISITS SYRIA, LEBANON SHIFTS TO NATURAL
GAS SOON
-- DEPUTY ASSISTANT SECRETARY OF TREASURY VISITS BEIRUT
-- REPORTS ON SAUDI WITHDRAWAL OF INVESTMENTS FROM LEBANON
QUESTIONED
-- RESIGNED LABOR MINISTER TEMPORARILY RESUMES ACTIVITIES
-- UNEMPLOYMENT RATE ESTIMATED AT 25 PERCENT
-- FOREIGN INVESTMENT IN 2007 REACHES $3 BILLION
-- CDA SISON DISCUSSES ECONOMIC AND COMMERCIAL ISSUES WITH LEBANESE
BUSINESS SECTOR
-- NATIONAL SOCIAL SECURITY FUND ARREARS TO HOSPITALS REACHES $250
MILLION
-- TOURISM SECTOR LOSSES SINCE 2005 ARE HUGE, NEW TRAVEL WARNINGS
WILL CONTINUE TO AFFECT THE SECTOR
-- GERMANY FUNDS ENVIRONMENTAL PROJECTS

ACTING ENERGY MINISTER VISITS SYRIA,
LEBANON SHIFTS TO NATURAL GAS SOON
-------------------

1. (SBU) Acting Energy and Water Minister Safadi on February 23
attended the Arab Energy Ministers meeting in Damascus, hosted by
Syrian PM Naji Ottari, to discuss the Arab gas pipeline project.
Safadi also met on the sidelines with Syrian Minister of Electricity
Ahmad Khaled Al-Ali to discuss the purchase of electricity from
Egypt and Jordan, to be routed through Syria. This is the first
visit to Syria by a minister of the Siniora cabinet since 2005 and
was perceived by some in Lebanon as Syrian recognition of the
Siniora cabinet. Safadi received PM Siniora's approval to attend
the meeting and briefed him after.

2. (U) Safadi announced on February 27 that the Deir Ammar power
plant (north Lebanon) will start operating on natural gas in five
months, thus saving $200 million of the GOL's annual energy bill.
He also mentioned the possibility of an additional 450 MGW power
plant to be built next to Deir Ammar, and the construction of a
power plant in Selaata (north Lebanon), both operating on gas, prior
to closing the Zouk power plant (north of Beirut), thus producing
electricity using more environment-friendly energy. Safadi revealed
that the Ministry of Energy and Water is considering building
transmission lines to enable Lebanon and Syria to import electricity
from Egypt through Jordan, and mentioned that some Arab countries
are discussing power production using nuclear energy, with a meeting
expected on March 18 in Libya on this subject.

DEPUTY ASSISTANT SECRETARY
OF TREASURY VISITS BEIRUT
--------------------

3. (SBU) During a one-day visit to Beirut on February 25, Deputy
Assistant Secretary of Treasury Andrew Baukol met with Ministers of
Finance and Economy, the Central Bank Governor, head of the Banking
Control Commission, top bankers, the Chairman of the Telecom
Regulatory Authority, and senior IMF officials. Discussions
revolved around the possibility of an IMF stand-by agreement,
progress on the implementation of economic reform and privatization,
macro-financial stability, and banking sector resilience despite the
political stalemate. All those who met Baukol urged continued USG
support, asking the U.S. to support an extension of the IMF's
Emergency Post Conflict Assistance (EPCA).

REPORTS ON SAUDI WITHDRAWAL OF
INVESTMENTS FROM LEBANON QUESTIONED
--------------------

4. (SBU) The local press reported that Saudi Arabia has withdrawn
$4.8 billion worth of investments from Lebanon over the past two
years, according to head of the Saudi Arabian-Lebanese Business
Council Al-Hokair, who attributed this "to the deterioration in the
level of confidence in the Lebanese economy." On the other hand,
board member of the Riyadh Chamber of Commerce and Industry
Al-Rusayes indicated that Saudi demand for real estate projects in
Lebanon is currently weak, but Saudi investors "are not selling
their real estate projects because they hope the situation will
improve." According to Gulfnews, real estate projects in Lebanon by
Saudi investors exceed $1.5 billion. Political and banking sources
believe the $4.8billion could refer to potential Saudi projects,and noted that
such press reports might have been lanted to create

political pressure against the government.

RESIGNED LABOR MINISTER TEMPORARILY
RESUMES ACTIVITIES
--------------------

5. (SBU) Resigned Labor Minister Trad Hamadeh resumed his activities
at the ministry on February 26, stating to the press that he was
back to pave the way for the election of a new board of directors of
the National Social Security Fund (NSSF) that expired on the same
day, and to speed up reform at the fund. In 2007, Hamadeh, who is
close to but not a member of Hizballah, also temporarily resumed his
functions in order to facilitate elections of the members of the
board of the General Labor Confederation (GLC). As in that
instance, Hamadeh's comeback is seen as a way to safeguard
pro-opposition representation (mainly pro-Amal and Hizballah) during
an election, in this case for the NSSF board.

UNEMPLOYMENT RATE
ESTIMATED AT 25 PERCENT
--------------------

6. (U) On February 27, the local press reported that head of the
General Labor Confederation (GLC) Ghassan Ghosn questioned
unemployment figures presented by the Arab Labor Organization during
its latest meeting in Egypt. According to the Organization, the
unemployment rate in Lebanon was between eight to ten percent, which
Ghosn said was similar to GOL, World Bank, and IMF figures, but did
not reflect the reality in Lebanon. Ghosn said "more objective"
studies estimated unemployment at 25 percent. (Note: There are no
reliable unemployment figures in Lebanon because the GOL shies away
from statistics, which might highlight confessional differences.
End note.) A study conducted by an independent research firm in
2007 estimated unemployment at 15.14 percent immediately after the
July 2006 war.

FOREIGN INVESTMENT IN 2007
REACHES $3 BILLION
--------------------

7. (U) Head of the Investment Development Authority for Lebanon
(IDAL) Nabil Itani told the Daily Star on February 25 that foreign
investment in Lebanon reached approximately $3 billion in 2007, up
from $2.3 billion in 2006. Most of these investments were not
foreign direct investment (FDI), but purchases of real estate in
Beirut, the prices of which have skyrocketed in recent years. FDI
through IDAL rose slightly to $127 million in 2007, up from $123
million in 2006. IDAL noted an increase in FDI in the industrial
and agro-food industries in 2007.

CDA SISON DISCUSSES ECONOMIC AND
COMMERCIAL ISSUES WITH LEBANESE BUSINESS SECTOR
--------------------

8. (U) CDA Sison paid courtesy calls on the board of the Association
of Lebanese Industrialists and the Beirut Chamber of Commerce,
Industry, and Agriculture on February 26. Discussions included ways
to promote trade and investments between Lebanon and the U.S.,
technology transfer, private sector involvement in government
decisions, IPR enforcement, WTO accession, USG assistance to
Lebanon, and trade financing. Members of both boards also gave an
overview of Lebanon's process of economic reform, challenges facing
Lebanese industries (such as high costs of production and unfair
competition from neighboring countries), and Lebanon's brain drain.
A follow-up meeting will be held on March 13 at the CDA's residence
to discuss further steps to promote commercial ties between Lebanon
and the U.S.

NATIONAL SOCIAL SECURITY FUND
ARREARS TO HOSPITALS REACH $250 MILLION
--------------------

9. (SBU) The National Social Security Fund (NSSF) carries one-year
old arrears to hospitals amounting to around $256 million, according
to an NSSF board member, 60 percent of which is for the ten largest
hospitals in the country. The NSSF has a direct relationship with
hospitals; it pays 90 percent of the hospital bills of over one
million Lebanese enrolled in the NSSF and their dependents. These
arrears accumulated as the NSSF waited for the GOL to settle its
debt to the Fund. According to our contact, the arrears from only
the government and public institutions to the NSSF amount to about

$800 million. The Finance Ministry contests this figure; a senior
ministry source told us that it had paid the NSSF $146 million in
2007 to cover all dues up until the end of 2007.

TOURISM SECTOR LOSSES SINCE 2005 ARE HUGE;
NEW TRAVEL WARNINGS WILL CONTINUE TO AFFECT THE SECTOR
--------------------

10. (U) Minister of Tourism Joe Sarkis estimated that losses in the
tourism sector since 2005 reached $3.5 billion per year. Sarkis
said he understood why Saudi Arabia, Kuwait, and Bahrain issued
warnings last week to their citizens, discouraging them from
traveling to Lebanon due to the political and security situation,
but hoped the warning would be reversed soon. An-Nahar newspaper on
February 27 quoted unidentified sources in the tourism sector
stating that this warning will have a large effect on tourism
activity, since 30 percent of tourists are from these three Gulf
countries, and are responsible for 80 percent of all tourism-related
spending.

GERMANY FUNDS
ENVIRONMENTAL PROJECTS
--------------------

11. (U) The German Press Agency reported on February 26 that Germany
will give Lebanon a 4.5 million euro grant for rehabilitation of
environmental damage caused by the July 2006 war. According to the
report, the World Bank estimated the overall cost of environmental
damage from the 33-day war at $729 million. The grant will also
finance environmental investments with economic benefits to private
enterprises.

SISON

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