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Cablegate: Lebanon: Pm Siniora Makes Energy Deals in Egypt Trip

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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

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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

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