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CEDRE : one year later, where are we ?

Lebanon

The international community has serious doubts about the credibility of the pledges made by Lebanon during the Conference for Economic Development and Reform through Enterprises (CEDRE)

09/04/2019

A year ago, Paris hosted the CEDRE conference, as part of a cycle of three conferences (in addition to Rome II and Brussels) scheduled during a meeting of the International Support Group for Lebanon in the aftermath of the November 2017 crisis, caused by the shock resignation of Prime Minister Saad Hariri announced from Riyadh. "We had no interest in seeing a failed state in the region", explained last Thursday Jacques de Lajugie, Minister Counselor for Economic Affairs at the French embassy

The CEDRE conference sought to help Lebanon raise funds to finance a part of the first phase (lasting 6 years) of its Capital Investment Program (CIP) designed to modernize the country's infrastructure. Although the organizers estimated the conference would raise about $7 billion, the international community eventually pledged over $ 11 billion in loans and grants. "This success, which exceeded all expectations, was due to the strong and persistent efforts and ‘pedagogy’ to mobilize OECD and Gulf countries," added Jacques de Lajugie.

As a result, "this will secure funding for two of the three phases of the CIP, taking into account the contributions of the private sector, since of the 270 projects included in the CIP, 18 projects worth $ 7 billion must be under public-private partnerships," as Ziad Hayek, former secretary general of the High Council for Privatization and PPPs (HCPP), said last month.


A support conditional upon reforms and increased control

The CEDRE process differs from previous support conferences held for Lebanon (Paris I, II and III) since its funding packages are conditional upon the implementation of budgetary and sectoral reforms that Beirut had committed to last year. "If the reforms are not implemented, the funds will simply be recycled elsewhere" warned Mr. de Lajugie. Moreover, these funds take the form of "project financing, not budgetary aids which are difficult to control". In addition, two follow-up mechanisms are planned for the CEDRE process: a coordination group in Beirut, which is of a highly operational nature, and another that will bring together multilateral donors (the World Bank, the European Union, the United Nations) and the countries that have contributed the most (Germany, France, Saudi Arabia, Kuwait), which will have a more strategic focus. The Lebanese side will be represented by the Presidency of the Council of ministers, the Council for Development and Reconstruction, and the Ministry of Finance, "and we have asked that the Central Inspector be able to participate," said de Lajugie. "If the monitoring committee finds an irregularity in one of the projects funded under the CEDRE program, the bidding process will be suspended, as well as the funding. And the state entity responsible for this irregularity will be blacklisted," he explained.


A contract of breached trust

Describing the CEDRE process as contract of trust between the international community and Lebanon, Jacques de Lajugie noted that the "decision-making process was halted for months because of the delay in the formation of Hariri’s third government". "Even after the formation of the government, things did not improve. There are serious doubts about the credibility of the commitments made by the government, "he said. This sentiment is shared by World Bank Vice President for the Middle East and North Africa, Ferid Belhaj, who spoke last week of the "disappointment of the international community." On Tuesday, in an interview with Albert Kostanian, presenter of Vision 2030 TV program, French ambassador Bruno Foucher said that Lebanon has "lost a lot of time" and that "the debate was not at the level of the challenge," given the "bad situation" of the country. However, he tried to be reassuring by saying that "this delay did not compromise CEDRE".

On each visit he makes to Lebanon, Pierre Duquesne, a French diplomat assigned by President Emmanuel Macron to monitor the process, reiterates the same demands that he says are "simple" and "achievable" in the short term, which suggests things are not moving forward. The demands include filling current vacancies in the sectoral regulatory authorities in telecommunications, energy, and civil aviation. "It must be done, because without filling these vacancies, these authorities do not function. If these sectors are not regulated there will be no investments in them," warned Duquesne in March. Similarly, to promote the resources of the HCPP "We must give the HCPP the means to regulate public-private partnerships in Lebanon by allowing it to recruit forty additional people and to have an independent budget," he added.

Ziad Hayek, who was head of the HCPP until last month, eventually resigned, before saying that there was "no political will to implement PPPs in Lebanon."

Lajugie and Foucher also reiterated to the government this week that it should "prioritize projects included in the CIP". On the eve of the Paris conference, "the government had hired consultants who did a sloppy job on this evaluation work. These projects were mostly designed decades ago and must probably be completely redesigned or at least updated "said Mona Fawaz, professor of urban planning at AUB.


Decisive coming weeks

Faced with this impasse, Mr. de Lajugie warns: "The next few weeks will be decisive for the success of the CEDRE process: All economic actors in the country and the donors are becoming impatient. Lebanon no longer has the luxury of time.” He further urged the government to give serious signs of commitment on two key issues: the 2019 budget and the electricity reform plan.

• Concerning the 2019 budget: Lebanon has pledged in Paris to reduce its public deficit-to-GDP ratio by five percentage points over a period of five consecutive years. The government had at that time presented a budget forecast for 2018, in which public deficit did not exceed 9% of GDP, but the public deficit has now already reached 11% of GDP. "A sincere, credible and convincing plan for the 2019 budget must be submitted fast by the government, with a reduction in the deficit compared to 2018, based on 9% (and not 11%)," warned Mr. de Lajugie.

As for the reform of the electricity sector: "Electricity tariffs must be increased starting 2019," advised de Lajugie. However, the plan presented by the Minister of Energy, Nada Boustani, provides for this increase in early 2020, along with an increase in production by adopting an interim solution. "The cost of production provided by the interim solution will be much higher, considering the techniques used and the amount of additional fuel required. This will lead to a massive increase in the EDL deficit and the government will not be able to achieve savings, "said de Lajugie. He also regretted that Boustani’s plan "does not include the appointment of members to EDL's Board of Directors and the creation of a sectoral regulatory body".

He further stressed that "the HCPP should have jurisdiction over all PPP projects, especially electricity", while according to Boustani’s plan her ministry retains control over the related tendering procedures for projects in the electricity sector.


(This article was originally published in French in L'Orient-Le Jour on the 6th of April)


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