Tuesday, August 04, 2009

Street smart in Gemmazieh

Commentary - Executive magazine

If you believed Lebanon's ad campaign, you'd think the country is a paradise of pristine nature, beautiful shorelines and night time cavorting. On touring the country you wouldn't see the Saida rubbish dump that regularly collapses into the sea, the smoggy haze over Beirut at sunset, or the belching fumes as you sit in yet another traffic jam. Neither would you experience the raging torrent of traffic heading north from Beirut, or the long line of cars crawling along nightlife hotspot Rue Gouraud in Gemmazieh. Such images would not be good for Lebanon's brand identity.

This is quite understandable, no country would highlight such downsides. But with tourism to contribute directly and indirectly an estimated $7.78 billion to the Lebanese economy this year - equivalent to 28.1 percent of GDP - such images should be embarrassing to the sector. Resolving Lebanon's environmental woes requires macro efforts and capital to invest in infrastructure improvements. Yet there are initiatives that can be taken on a more local level.

Take Gemmazieh street (the official name is Rue Gouraud). To drive the one kilometer long, one way street that runs from the edge of Martyrs' Square to the Electricite du Liban building, it can take anywhere from 20 minutes to an hour as people search for a parking space or hand over keys to a valet. For an essentially straight and flat street, close to areas with parking space, like downtown and Charles Helou Station, such a log jam would seem a major urban planning oversight.

But in Gemmazieh's case, an area of 'traditional character' as the sign posts tell us, the street turned into a nightlife hub haphazardly, bar by bar, restaurant by restaurant. The one kilometer long traffic jam is also not solely down to a lack of planning. A big contributer is the Lebanese penchant for valet car parking, a combination of unwillingness to walk and, two, to show off.

What if Rue Gouraud were to follow the example of cities as far apart as Shanghai, Cape Town, York, Copenhagen, Montreal and Curtiba, Brazil? What all these cities have done is pedestrianize streets or whole blocks, whether for retail, nightlife or areas of historic interest. Neither extreme temperatures, rain, sunshine or humidity have made these areas less popular.

But Gemmazieh would not need to look abroad to see how pedestrianization was implemented – half a kilometer away is pedestrian friendly downtown Beirut. With the upcoming opening of the Beirut Souks, the pedestrian area will be extended even further, and it could spread eastwards if Rue Gouraud followed suit.

How this could work would be for Rue Gouraud to have rising bollards at either end, making the street pedestrian but also accessible at specific times for delivery trucks and residents with parking permits.

Parking space could be found in Martyrs' Square, and if Charles Helou was given a lick of paint, fumigated, and linked via a bridge, several hundred more vehicles could be parked. For those unwilling to walk, a fleet of golf carts could be added to the current half a dozen that ply downtown to transport people. Pedestrianized, bars and restaurants could spill onto Rue Gouraud, and there could be live music, buskers, dancers, and street artists. People would mix and mingle, no-one would be aggravated from a traffic jam or altercation with a valet, and air pollution would undoubtedly be reduced.

While this sounds desirable there are always obstacles to contend with, particularly ones unique to Lebanon. In other cities, when pedestrianization has taken place, gentrification has also occurred, changing demographics. Lebanon's 'old rent' laws, where rents were frozen at a particular monthly rate prior to the civil war, has prevented this from happening. It has also meant demand by more elderly residents for vehicle access. Noise pollution is another potential issue, although if the demographics changed would be less of a problem, with those moving in aware of the neighborhood's lively night time atmosphere. The valet car parking mafia, which attempts to control the parking spaces that line Gouraud and surrounding streets, could also oppose such a move to pedestrianization.

Then the night-goers themselves may very well resist such an idea, too used to valet parking and reluctant to give up a perceived convenience – although it may take 40 minutes to get to the valet, as opposed to a 10 minute walk from parking lots on the easter edge of downtown, or if it was renovated, Charles Helou.

But that are indications some nightlife patrons are willing to forgo their valet. A bar owner, not overly in favor of pedestrianization, admitted that out of the 150 cars usually valet parked every Friday, on one particular night there were only 15 as people shunned their cars to walk. While anecdotal, this does suggest that people are willing to forgo the valet to save time.

For access to Gouraud to improve – whether by improving parking or opting for pedestrianization – this would require a united front by residents and business owners to surmount the biggest obstacle, bureaucracy and vested political interests.

PAUL COCHRANE is the Beirut-based Middle East correspondent for International News Services

Sanctions busting – an Iranian imperative

Money Laundering Bulletin - August 2009

Iran is an international outcast for its nuclear ambitions but ranks as high in the geographical risk league over its long-standing refusal to cooperate in the fight against money laundering (let alone terrorist financing). There may though be signs, albeit mixed, of movement in Tehran, writes Paul Cochrane.

Iran has been under international scrutiny since the Islamic revolution 30 years ago, with sanctions by the United States tightened under the Clinton administration through the Iran-Libya Sanctions Act.

Since Iran's decision to embark on a nuclear programme, US sanctions have intensified, but in the face of such restrictions Iranian banks and individuals are increasingly using joint venture banks in the Middle East and South America to bypass scrutiny. At the very same time, the Central Bank of Iran denies that money laundering exists in the country, even while implementing a new Anti Money Laundering law.

Iran has been at the hard end of recent Financial Action Task Force (FATF) statements, warning in October, 2007 that “Iran’s lack of a comprehensive anti-money laundering/counterterrorist finance regime represents a significant vulnerability within the international financial system.” Since then the FATF has issued three additional statements, the last, in October, 2008, reiterating the risk of terrorist financing (TF) and urging all jurisdictions to “strengthen preventive measures to protect their financial sectors.”

The FATF statements appear to have been taken seriously by Iran, which has applied for membership of the Paris-based body. “At the same time that the Ahmadinejad government was dismissive of US and UN sanctions, it was concerned about FATF, sending a lobby group to Paris to stop a second warning,” said Michael Jacobson, Senior Fellow at the Washington Institute for Near East Policy.

Last year, the Iranian parliament passed an Anti-Money Laundering (AML) law and sent it to the Guardian Council for final ratification. Enacted in April, 2009, the law creates a High Council on Anti-Money Laundering chaired by the Minister of Economic Affairs and Finance, with members including the governor of the Central Bank of Iran (CBI). However, a Financial Intelligence Unit (FIU), which is a requirement of the FATF, has yet to be established.

Jay Jhaveri, Head of Asia at World-Check, a British company that maintains a database on high and heightened risk individuals and entities, said the AML legislation is “pretty standard, the key buzzwords are there. It's almost a standard cut and paste from FATF guidelines.” But lacking a FIU, he said Iranian “banks and financial institutions don't have anyone to report suspicious activity to.”

A further area where legislation is falling short is in addressing terrorist financing (TF), a particularly charged area given the political animosity between the United States and Iran. The US State Department designated Iran as a international sponsor of terrorism in 1984, accusing Iran of funding Palestinian organization Hamas, the Lebanese militant group Hizbullah and since 2003, militias in Iraq such as Asa'ib Ahl al-Haq and Kata'ib Hizbullah. The US has directly linked Iran's Islamic Revolutionary Guard Corps Quds Force (IRGC-QF) – a paramilitary wing of the government that is also heavily involved in business in Iran – to financing, arming and training such groups. The IRGC-QF has been designated by the U.S. Department of the Treasury under Executive Order 13224 for providing material support to terrorists, stating that the IRGC is funneling money to Hamas, and between US$100-US$200 million a year to Hizbullah through Iranian banks, notably state-owned Bank Saderat and Bank Melli.

Confirmation of funding to Hamas was given by Khaled Meshal, the leader of the Hamas political bureau in Syria, on a visit to Tehran in 2007, when he stated that Iran had been providing financial support since Hamas was voted into office in the Palestinians territories in 2006. Meshal did not state any figures, but added that funding would continue.

Unlike in Lebanon where Iranian banks operate freely, Israel strictly monitors Palestinian financial transactions, meaning funding from Iran has to enter the Palestinian territories through other channels. “A lot of the money is bulk cashing smuggling, particularly into Gaza through tunnels, with people travelling from Iran and bringing huge amounts, some in the millions of dollars,” said Jacobson.

Given Iran's support for such groups – all listed on the Office of Foreign Assets Control (OFAC) list and deemed terrorist groups by the US government – Tehran does not consider the likes of Hamas and Hizbullah as terrorist organizations.

There is an element of politicization in the OFAC list, with a few years ago Libya the bad boy, and since removed from the OFAC list. There is always a gray area between terrorist and freedom fighters; Hamas was elected, so what do you say?” said Jhaveri.

But Tehran's inability to tackle TF remains a concern of FATF and its 40 Recommendations Plus 9 on TF. “The plus 9 has largely been ignored in Iran, which probably comes down to the definition of terrorism,” added Jhaveri. “I believe FATF will address that in their next report, that legislation doesn't address the plus 9 properly.”

Iran's definition of ML is a further area where Tehran and the international community are not seeing eye-to-eye, with the Central Bank primarily focused on criminal proceeds and the narcotics trade. “Like a lot of countries in the beginning [of implementing legislation], ML is considered proceeds of narcotics. So in a lot of reports, when Iran talks of ML, the predicate crime behind that is narcotics related,” said Jhaveri.

According to the United Nations Office on Drugs and Crime, approximately 60 percent of Afghanistan’s opium is trafficked across Iran’s border, supplying an estimated three million Iranian drug addicts as well as being transported on to Turkey and Europe. According to a study carried out by Dr Bijan Bidabad, an Economic Consultant in Tehran, “revenues from drug sales and transportation in some years is equal to Iran's oil revenue.” Iran's oil and gas revenues were US$80 billion in 2007-2008, according to the CBI.

The World Bank meanwhile has reported that an estimated 19 percent of Iran’s GDP stems from unofficial economic activities, while according to the US State Department, “a prominent Iranian banking official has estimated that money laundering encompasses an estimated 20 percent of Iran’s economy. Other reports have found that approximately US$12 billion is laundered annually via smuggling commodities in Iran and another US$6 billion laundered by international criminal networks.”

Money is typically laundered through non-official banks, said Bidabad, known as Qarzol Hassaneh Funds, which “belong to pressure groups and the Ministry of Defense and Armed Forces Logistics (MODAFL).” State run banks and businesses are further areas of concern, but Jhaveri said as they are state controlled, enforcement of AML regulations was unlikely as it would directly hurt the government. Iran ranked 141 out of 180 countries listed in Transparency International 's 2008 Corruption Perception Index.

Real estate is a further area where funds are laundered, according to the State Department, with settlements and payments often made out overseas. Dubai in the United Arab Emirates has been singled out as a major hub for Iranians to launder money, acquire real estate and re-export Iranian-made goods. “A lot of bypassing of Iranian semi-governmental agencies is done via Dubai, while a lot of private activity is also carried out there,” said Bidabad.

The Central Bank, however, came out in April to say that US claims regarding money laundering are baseless. “(Iran's) banking laws and regulations do not allow that kind of illegal activities,” the CBI governor, Mahmoud Bahmani, was quoted as saying in the Iranian press. “The money laundering law approved by the Guardian Council is now being enforced in the banks throughout the country,” he added.

Side stepping international regulations

The Iran Sanctions Act (ISA), originally called the Iran-Libya Sanctions Act (ILSA), was issued in 1995 under Executive Order 12959 in response to Iran's nuclear programme and support for Palestinian and Lebanese terrorist organizations. The ISA banned US trade and investment in Iran, while in July, 2006 the United Nations Security Council passed five resolutions related to nuclear proliferation, with three calling for financial restrictions on Iran.

In the years since, the US Treasury Department has designated four Iranian banks – Bank Sepah, Melli, Mellat and the Export Development Bank of Iran – for proliferation under Executive Order 13382, while Bank Saderat was designated under a separate order for funding Hizbullah and Hamas. The international clamp down on Iran was heightened last year when the European Union (in June, 2008) imposed sanctions on Iran's largest bank, Bank Melli, freezing assets and preventing the bank from doing business in the EU.

The effect of such sanctions on Iran has been mixed. “Are they having an economic impact and raising the cost of business? Yes. But curtailing the nuclear programme? No,” said Jacobson.

Indeed, international banks took notice of the stepped up US sanctions and executive orders, with Treasury officials in 2007, saying that over 40 international banks and financial institutions had either cut off or stepped back from business with Iran. But the seriousness with which Washington takes such sanctions was only highlighted in January, 2009, in a landmark case by the Manhattan District Attorney and the Justice Department against LloydsTSB. The British bank was fined US$350 million for falsifying outgoing US wire transfers from Sudan and Iran, with over US$300 million transferred up to 2004 for Iranian banks Melli, Sepah and Saderat. A further nine EU banks are currently being investigated.

There is now a fear factor of a heavy or perhaps even crippling fine,” said Jhaveri. “But as long as banks are trading in non-USD curries like Euros, they seem to believe that they are ok.”

Jhaveri added that Asian banks, particularly in Malaysia and India, “deal with Iran with kid gloves.” He said banks have separate units that deal with Iran, making sure transactions are not carried out in US dollars or via a US institution. “There is a fear that if money comes via the US, and Iran is mentioned, the money will be frozen. So they have specialists to make sure no mistakes take place,” he said.

While such policies are required for banks and businesses dealing with Iran, the state-owned banks that are blacklisted by OFAC are resorting to other means to get around restrictions.

In April this year, OFAC listed state banks the Commercial Bank of Syria (CBS) and Bank Saderat formed a joint venture in Damascus to create “Banki”, ostensibly to act as a conduit for bilateral trade. However, a source close to the deal said that the motivation was “wholly political,” with CBS pushed into the deal by the Iranian and Syrian governments. Iranian banks Melli and Saderat had carried out a similar policy in 2004, joining to form a private bank, Future Bank, in Bahrain. It was able to operate outside of the OFAC list until March last year. A senior source at a Middle Eastern Central Bank said it would be logical for Banki to be put under the same US sanctions as the parent institutions.

It is a similar story in Venezuela, said Douglas Farah, senior fellow for the International Assessment and Strategy Center in Washington D.C. “Wholly owned Iranian banks have been established that are supposedly joint ventures, with Venezuela saying they put in half of the money, but it is usually Iran. The clearest case is Banco Internationale Desarrollo CSA, founded as part of the Saderat group in 2007. Everyone on the board is Iranian, and it is a 100 percent Saderat subsidiary,” said Farah.

It is an area of concern because it is constituted in Venezuela and acting out of Venezuela, so not facing sanctions like Saderat, which allows them to evade sanctions with relative ease,” he added. A second bank of concern is Banesco, the second largest commercial bank in Venezuela. “They have some suspicious characters on the board and have opened a large office in Panama, handling a great deal of Iranian money that comes from Saderat via branches in Dubai,” said Farah. And while these banks may face scrutiny from international regulators and the US Treasury, “it doesn't get the same scrutiny as Iranian banks. It's the same in Europe, so a nice way to get a free flow of money,” he added.

Copyright Informa Group

Euro-Arab Gas Pipeline

The Euro-Arab Mashreq gas pipeline is approaching completion

Paul Cochrane reports from Damascus

Petroleum Review August 2009

THE EURO-MASHREQ gas pipeline that runs 1,200 kilometers from Egypt through Jordan and Syria to Turkey has taken 20 years to come to fruition. The end is in sight however, with the project awaiting a final tender for the last leg through northern Syria. But while the pipeline is already pumping gas from Egypt to its eastern neighbours, there are currently doubts over Egypt's ability to meet burgeoning demand, while secure distribution contracts still have to be inked.

The pipeline (its acronym is EAM) is set to be fully finished and operational by 2011-2012 - later than expected. The reason for the delay is the re-tendering of the 62 kilometre leg between Syria's second largest city Aleppo, in the north of the country, with the Turkey border town Kilis.

In October, 2008, a US$71 million contract was awarded to Russia's Stroytransgaz, but annulled earlier this year. “The Aleppo-Kilis phase is being re-tendered due to the fall in energy prices and Syria hoping to get a better deal through a competitive tender,” said Richard Kupisz, team leader of the Euro-Arab Mashreq Gas Co-operation Centre (EAMGCC) in Damascus.

The bidding process is currently under technical evaluation and expected to be signed in the later half of the year. Once underway, the pipeline will take an estimated 18 months to complete. “The route is not very difficult, a smooth terrain. In the past we laid one kilometre or more of pipe a day, so once in operation, goes quite quickly,” said Naeem Danhash, Project Director of the EAMGCC. “The only issue is the big values.”

From Kilis, a 15-kilometre, 12-inch pipeline is needed to connect into the Turkish grid, where it could potentially tie into the proposed Nabucco pipeline. Danhash said the reason the Aleppo-Kilis route is to be completed before the 180-kilometre Furglus (east of Hama in central Syria) to Aleppo link in the pipeline, is that it is the fastest way to link to Turkey. He said the gap will be offset by the current Syrian grid, with the current Furglus-Aleppo pipeline to be expanded from 24-inches to 36-inches to boost capacity. “Syria is keen to import gas via Turkey, so the government is funding most of that [development] along with the Arab Fund for Economic and Social Development,” said Danhash.

The final stage, to secure contracts between producers and consumers, has yet to be completed, raising concerns over the financing of the EAM. “What is important for financiers is sales contracts from governments - it could be between Egypt and Bulgaria, or Lebanon and Iraq - but we don't have that,” said Danhash.

The pipeline’s route to Lebanon, which splits from the Homs to Banias route (on the Syrian coastline), and runs 32 kilometers to Tripoli in northern Lebanon, has been completed for about five years. Kupisz said that the Lebanese government has drawn up a draft agreement with Egypt for 600 million cubic metres (mcm) of gas per year for delivery this August. But the EAM is still awaiting certification from Beirut, attributed to continuing political animosity between the Lebanese and Syrian governments. With a new Lebanese parliament elected in June, there is high expectation that Beirut will green-light the flow of gas via a swap arrangement, with Syria using Egyptian gas and then pumping Syrian gas to Lebanon.

In Syria, domestic consumption of gas transported from Egypt will be primarily purchased by the Syrian Gas Company. Onward arrangements to Lebanon, Turkey and Europe have not been arranged yet, with Kupisz saying it was still too early to do so.

In Turkey, at least 70 licences have been issued for private gas distribution, so more likely to be a private company that will get the distribution licence [for the EAM in Turkey],” said Kupisz.

Supply issues

Looking at supply issues, the two main gas suppliers in the EAM are Egypt and Syria, with Egypt the crucial provider.

At present, Egypt exports 2.5 mcm/d through the EAM, with 2mcm/d earmarked for Jordan and 0.5mcm/d to Syria. “Officially this should be increased to 6mcm/d and afterwards to 9mcm/d, but nobody knows [if this will happen],” said Kupisz.

Syria produces 21-22mcm/d of gas, with some 4-5mcm/d used for gas injection into fields or as burn off, leaving around 16mcm/d for electricity generation and industrial use, said Ziad Ayoub Arbahe, an energy consultant in Damascus. At present this is sufficient, but with power plants to come online in the next few years and electricity demand growing by 10 percent a year, Syria will need to offset the supply gap.

Such uncertainties have clouded the viability of the project to deliver adequate gas requirements, one of the issues that has plagued the neighbouring Nabucco project, which would pipe gas from central Asia via Turkey to Europe.

Neither the Mashreq pipeline or the Nabucco pipeline are in a position to be realised, and neither has received enough financial backing,” said Graham Coop, general council at the Energy Charter Secretariat in Brussels.

The success of the EAM hinges on Egypt being able to ramp up gas output to meet rising demand for a ballooning population (currently estimated at 79.4 million but projected to reach 100 million by 2021), meet other export commitments, and develop future projects, such as the possible expansion of the Spanish Egyptian Gas Company (SEGAS) LNG complex in Damietta, and the framework agreement with Italy's ENI to build a second liquefaction train.

There is enough gas [for Egypt] to meet current commitments, but for the major projects, these need to be underpinned by further discoveries,” said Craig McMahon, a North Africa analyst at energy consultants Wood MacKenzie.

It is currently a matter of what Cairo considers a priority: using energy as a political tool within the Levant, or exporting gas to Europe according to fluctuating seasonal demand and for higher prices.

For Egypt the pipeline is one option, but it could equally expand LNG infrastructure, so there are a number of competing actors,” said McMahon. Cost preferential agreements have been signed between Egypt and Jordan, Syria and Israel. But with Cairo keen to access hard currency, such markets might not be always economically preferential. Adding to this is the geological complexity and depth of Egypt's gas fields, seriously boosting the cost of extraction. “If Egypt has the potential to sell gas through LNG and at international gas prices, why not do it?” said McMahon.

While the guaranteed success of the EAM is still in doubt, developments could secure gas volumes if the countries involved become full members of the Energy Charter Secretariat. The Energy Charter treaty promotes four main areas: trade on World Trade Organisation principles, freedom of transit, energy efficiency and investment protection. If countries violate the treaty, sanctions can be imposed. Asked whether current observers Jordan and Egypt signed up as full members this would benefit the EAM, Coop said: “It would certainly add security to the project and for the European Union.”

While analysts question Egypt's ability to extract enough gas, McMahon is actually optimistic Egypt will provide. “There is every reason to be optimistic, although we need further exploration success and to see those wells drilled,” he said. “But it is hard to imagine increases from Egypt in the shorter term.”

All is not lost

All is not lost however if Egypt is neither legally required to pump gas via the EAM or able to meet demand. An estimated 40% of Syria has not been prospected for gas. “Potentially we could find huge reserves,” said Arbahe.

Piping gas from Qatar and Iraq to Syria, and from Iran via the Nabucco network are other options. “If a pipeline comes from Iraq or Qatar there would be a principle pipeline, and a viable network,” said Arbahe.

Iraq is considered the most viable option, with the Akass field in the west of the country only 50 kilometres from the Syrian network. “They have spare capacity, and the Akass region is not a big market, so it is logical to go to Syria,” said Kupisz. A contract has been signed for 1.5mcm/d to be processed in Syria for domestic or export use, but is currently under a new licensing round in Iraq.

Longer term, gas from central Iraq could be connected to the EAM pipeline, potentially able to provide 30mcm/d over time.

International oil companies are looking at it, and attracting great interest, although Iraq's infrastructure is not developed,” said Danhash. “But the medium to long term prospects for Syria to become a gas hub are excellent.”

"The Iraqi supply could ultimately be the answer," concluded McMahon.

Photo courtesy of the EAMGCC