PUBLIC-PRIVATE PARTNERSHIPS BRIEFS Lebanon: Butec Utility Services Overview Recurring episodes of conflict and a challenging political-economy in Lebanon have contributed to serious power shortages in the country that reduce the quality of life for Lebanese citizens, and continue to be a burden to the public budget. The Government of Lebanon (GoL) has made power sector reform a top priority and encouraged private sector participation in the process. International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), assisted Butec Group Holding S.A.L. (Butec) and, its subsidiary, Butec Utility Services (BUS) with quasi-equity financing, and a risk guarantee, respectively. This series showcases how the World Bank Group supports the development and implementation of public-private partnerships. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. PUBLIC-PRIVATE PARTNERSHIPS - MAY 2016 Background of its investment and make the project more viable for commercial lenders. The spillover effects of the Syrian conflict has cut real GDP growth in Lebanon by 2.9 percent, put 170,000 World Bank Group Role Lebanese at risk of slipping below the poverty line, and stymied access to essential public services. The World The World Bank Group has supported the development Bank, in a 2013 report, estimated that simply stabilizing of Lebanon’s power sector at several levels. First, the World public services back to pre-conflict levels would require an Bank contributed to the government’s overall reform efforts additional $2.5 billion per annum. Lebanese public finance by providing grant funding for feasibility studies and would not be able to provide the same or enhanced level of technical assistance, paving the way for engagement by public service without private sector financing. IFC and MIGA. The Lebanese power sector has long been unable to meet In 2008, IFC bought a 16.7 percent stake in Butec through demand but has come under greater strain due to a surge a $15 million investment in quasi-equity and provided of refugees from across the border. Electricity consumers in advice to improve its corporate governance practices. Lebanon have long faced unreliable service with frequent As an investor in Butec, IFC required implementation and long power outages. Load-shedding in Beirut alone of certain corporate governance practices as a way to averages six hours a day and non-technical losses cost the increase the sustainability of the company. Based on IFC’s state-owned company, Electricité du Liban (EDL), an recommendations, Butec added independent directors estimated $300 to $400 million annually. The blackouts to the board, improved the internal audit process, bring hardship to the population, strain businesses and are implemented transparent financial reporting guidelines, an ongoing problem for government. Diesel and gasoline and established new procedures for human resources generators help fill the supply gap, but also increase urban management. pollution and raise the costs of living and doing business. In 2013, IFC committed an $8 million income- To address these problems, the Lebanese government made participating loan to provide financing for the BUS power sector reform a top priority. In 2010, it endorsed project under a distribution service contract in North an action plan to upgrade transmission and distribution Lebanon. MIGA’s role was also critical given the history networks, install metering infrastructure, and improve of conflict in the country and region. billing and collection. An important factor in its approach In December 2013, MIGA issued guarantees of $35.5 was transferring these services to the private sector. million to Butec and its partner, El Sewedy, to cover equity and future earnings related to the contract with Project Description EDL. MIGA’s cover is against the risks of war and civil disturbance as well as breach of contract. One participant, Butec Utility Services (BUS), was awarded a four-year distribution service contract by EDL to design, upgrade, maintain, and operate the electricity distribution Outcomes network in North Lebanon, serving 350,000 households, • 350,000 households will enjoy higher quality in partnership with several companies with significant power services. experience in power distribution. These include ERDF, • Supports the reform of Lebanon’s power sector, the wholly-owned distribution subsidiary of Électricité thereby contributing to the country’s economic de France, El Sewedy Electrometer Group of Egypt, development and growth. and AT Kearney. BUS was established by Butec Group • Encourages private sector participation in Lebanon’s Holding S.A.L., a mid-size engineering, procurement, and power sector. construction contractor based in Beirut, which is partially • Decreases distribution network losses and improves owned by IFC. Butec approached IFC for financing to the efficiency of the distribution network. help it execute the distribution service contract. BUS also approached MIGA to help improve the risk profile Photo Credits Front: First Energy Corp./ Creative Commons license, creativecommons.org/licenses/by-nd/2.0 worldbank.org/ppp @WBG_PPP scribd.com/wbg_ppp