DFI-backed projects in Lebanon appear to be on ice after Prime Minister Saad al-Hariri resigned earlier this month. The latest instability is likely to further hinder project financings in the country.

Hariri appeared on a Saudi TV channel to read out his resignation on 4 November. His coalition government had been supported by Iran-backed political party and paramilitary group Hezbollah, which claimed Riyadh had forced the resignation (although Saudi officials denied this).

The shakeup means that much-needed infrastructure projects in the country will struggle to progress. Lebanon already finds it difficult to attract outside investment – few project financings have reached financial close in the country in recent years, IJGlobal data shows.

An already tricky investment environment was combined with raised tensions as Saudi Foreign Minister Adel al-Jubeir declared Lebanon would be treated as a hostile state as long as Hezbollah was in government. Around the same time, Saudi Arabia, Bahrain and Kuwait advised their citizens to leave the country.

Projects in progress

The European Investment Bank had been preparing to finance the €146 million ($173 million) Al-Ghadir wastewater treatment project, itself providing €68 million in debt alongside lending from the Islamic Development Bank. But with the resignation of Hariri, the EIB lacks a counterparty to sign off on the deal, a source said.

An EIB spokesperson contended however that the bank still expects to sign Al-Ghadir’s financing by the end of 2017.

“The project was approved by the EIB in December 2014 and is expected to be signed by the end of this year,” the spokesperson said.

Al Ghadir is one of a number of projects needed to update Lebanon’s existing infrastructure. It includes the expansion of the existing wastewater preliminary treatment plant in Southern Beirut, converting it to a primary treatment facility as well as constructing and upgrading sewer networks in the area.

Another planned project involves the €120 million construction of three industrial zones in Baalbek, Tourbol-Kosaya and Deir El Moukhaless-Jleiliye. EIB financing of €60 million would be used for mixed infrastructure including water, wastewater, roads and electricity development. Other financial support comes from the United Nations Industrial Development Organisation and the Italian government.

Other DFI-backed projects in Lebanon have struggled to move forward – or been cancelled. The International Finance Corporation attempted an ambitious IPP programme in 2007 in efforts to introduce private sector participation into the power sector. The $2 billion deal was to include a concession for the existing 450MW Deir Amaar CCGT which would have allowed for a 550MW expansion.

The project was cancelled, although the lender will continue its efforts to develop new IPPs in Lebanon. IFC has a portfolio of some $450 million in Lebanon.

Modest successes 

There have been successes, however. The operational Tripoli wastewater treatment plant benefited from an EIB loan and IFC parent company The World Bank in 2014 approved a $474 million loan for the country’s Water Supply Augmentation project which will see the construction of the Bisri dam.

Bisri will also benefit from $128 million in financing from the Islamic Development Bank as well as $15 million from Lebanon’s government. Ratified by Lebanon’s parliament in November 2015, the project is on track according to the World Bank: “The implementing agency, the Council for Development and Reconstruction, has closed the bidding for contractors and the construction work should begin soon.”

Saroj Kumar Jha, World Bank regional director for the Middle East, recently reiterated the lenders’ support for Lebanon:

“The World Bank Group is committed to support the people of Lebanon through a long-term programme for development that supports the poor, and supports economic stability to spur growth and job creation.

“We understand that these are uncertain times for Lebanon. But we have confidence in the Lebanese authorities, especially the financial and economic institutions, and their ability to remain resilient and wisely weather the challenges, as they have done before.”

Opportunities for private companies are thin, but they do exist. Lebanon plans to revive a hydrocarbons licensing round – the country’s first – although it has been delayed for three years. Amongst the 46 bidders prequalified in 2013 were Eni, ExxonMobil, Shell, Total, Statoil, Petrobras, Chevron and Petronas. The tender will offer five blocks in an initial phase followed by five more in later rounds.

Cover image of a Lebanese Cedar tree courtesy of Rabiem22