FATCA – cost and effect

Money Laundering Bulletin

http://www.moneylaunderingbulletin.com/risksandcontrols/taxevasion/fatca--cost-and-effect-111491.htm

The United States’ Foreign Account Tax Compliance Act (FATCA) went into effect on 1 July 2014. A year on, financial institutions are filing for the first time, but teething problems abound, Paul Cochrane discovers, with some banks no longer accepting new US clients and registration volumes far below expectations.

FATCA, which requires foreign financial institutions (FFIs) to provide information on US accounts above US$50,000 to the US' Internal Revenue Service (IRS), has been a complicated piece of legislation from the get-go. The over 1,000 page Act, which is aimed at curbing tax evasion, was delayed repeatedly after its passage in 2010, as US authorities worked to persuade more jurisdictions to sign Intergovernmental Agreements (IGAs), and FFIs to secure a Global Intermediary Identification Number (GIIN). 

The uptake was slow due to FATCA's extra-territorial nature, requiring legislative changes in many countries, including override of national banking secrecy and to effect financial institution reporting to a foreign jurisdiction.

With FFIs having to screen all clients for US indicia as well as hiring new compliance staff, FATCA has proved both onerous as well as expensive to implement; it has cost an estimated $8 billion worldwide. 

Deadlines and delays

Aware of the complexities, IRS set a 'transition' period, running to the end of 2015, for 'good faith' compliance efforts by FFIs; only then would it start cracking down on what it terms 'recalcitrance' via a 30% withholding tax on US-sourced income, and the risk of being shut out of the US financial system.

Despite the transition phase, the legislation's complexities has already led jurisdictions to extend reporting deadlines, notably one of the first to sign up to FATCA, the Cayman Islands, a FATCA world leader, with 30,868 FFIs registered, pushed the date for providing details of its US reportable accounts back to 26 June 2015. Luxembourg extended its deadline from 30 June to 31 July 2015. 

“The IRS has extended FATCA reporting for 90 days, if you ask for it,” said Malek Costa, Head of Group Compliance at BLOM Bank in Lebanon, which operates throughout the Middle East. “The real issue was with the software, at first we thought it would be easy to extract data from the core banking system and send it to the IRS but it has been a difficult task and took a lot of time. It involved many processes starting from getting the authorized certifications, buying necessary software that transform the file to be reported into .xml schema, encrypting it and then decryption when extracting the IRS response when validating the file.”

It is not just upgrading software that is causing issues for financial institutions. “Bankers are frustrated at the amount of paperwork, and US citizens with the extra paperwork, of 80 pages compared to 5 to 10 pages in the US,” said Liz Zitzow, Managing Director of British American Tax, a London-based US accounting firm.

Irreconcilable differences

The extra form-filling is expected to generate numerous problems, particularly filing figures that correspond with other tax files; filing on the value of shares; around beneficial ownership and exchange rate differentials. “I think everyone is going to be off the mark and figures that match will be less than 5 percent,” added Zitzow. For example, “tax filers don't use the exchange rate that banks use as many people do their own forms.”

Filing issues are compounded by the 7.6 million US citizens abroad having to fill in the Foreign Bank Account and Financial Accounts Report (FBAR), a BE-10 form on foreign affiliates, and other tax forms. “I estimate there will be around 100,000 false positives on FATCA,” said Professor William Byrnes, Associate Dean of Special Projects at Texas A&M University's School of Law. “I find the forms difficult, and I've written a 1,500 page analysis on FATCA. Many issues are unsolved or unworkable.”

A concern for FFIs is that the IRS will audit institutions over the data they send, with the ability to go over 10 years of records.

“They have the data to match taxpayers information with the information they're receiving from financial institutions. So if the IRS knows Mr X made a transfer from the US to an account in bank Y, and the bank did not report this account, the IRS may ask bank Y if the account is still active. If the bank says yes, the IRS will ask why it wasn't reported. They could investigate,” said Costa. “If the client declared non-US status with no US indicia in the electronic and paper records, the bank is then covered. The reason for doing enhanced due diligence is to mitigate the risk of identifying the accounts with US indicia and thus minimizing IRS investigations. This is a conservative approach for applying the FATCA procedures.”

American exodus

While banks have to screen for clients above $1 million, the next IRS requirement, by 2016, is to screen for all US clients.

An unintended consequence of FATCA has been Americans renouncing their citizenship due to the extra due diligence. Already a record 1,336 Americans have done so in 2015, according to the IRS, while earlier this year a survey by the deVere Group, a financial consultancy, found that 73% of expatriate Americans were considering relinquishing their passports due to FATCA. 

Banks are also shunning American clients, unless high net worth individuals, due to the extra due diligence required. “Over half of UK banks will not take Americans anymore,” said Zitzow.

Furthermore, FATCA is impacting the employment prospects of American managers abroad due to filing requirements. “Many Americans are becoming unemployable as they are not being given signing authority as (companies would then be) exposed to FATCA,” said Jim Jatras, Manager of RepealFATCA.com in Washington D.C.

Not a priority for all

But despite the fallout (or maybe because of it), there is still a long way to go for global FATCA compliance. As of June 2015, 165,461 FFIs have registered on the IRS FATCA portal, according to Byrnes. Such a figure is well below what the IRS initially suggested, of 500,000 potential FFIs to be registered worldwide, while others suggested 800,000 to 900,000 FFIs. Indicative of the low uptake, the HM Revenue & Customs estimated that 75,000 UK financial institutions would be impacted, yet just 23,256 GIINs are in place in the mainland UK. The UK and its 10 main dependencies and overseas territories – the Cayman Islands, the British Virgin Islands, Montserrat, the Turks & Caicos Islands, Anguilla, Bermuda, Gibraltar, the Isle of Man, Jersey, and Guernsey - comprised 74,694 of the GIINs, representing 45% of the total, according to Byrnes. Of concern to global roll-out, of the four BRIC countries, there are just 8,254 FFI registrations. “At the end of the day the lagging GIIN registrations tell us FATCA is a back burner issue for most foreign governments,” said Byrnes. “The IRS should have upfront employed a more diplomatic and inclusive stakeholder approach.”

Regarding IGAs, 57 countries have signed Model 1 agreements (with 11 signed this year) as framed in FATCA, whereby the FFI reports directly to their central bank/regulator, which then reports to the IRS; and seven countries have signed Model 2, where the FFI reports directly to the IRS. A further 48 jurisdictions have signed onto FATCA “in substance,” bringing the total to 112 jurisdictions, according to IRS figures. The US, meanwhile, recognises 250 jurisdictions and territories worldwide. There are some 6,296 GIINs in 131 jurisdictions without an IGA. 

“The IGAs are potentially a weak link as without them FATCA is not enforceable - as the IGAs are not legal [agreements in the conventional sense], having not gone through Congress or the usual international treaties processes, and these vulnerabilities could be exploited,” said Jatras. There is a degree of uncertainty about the “consequences of sanctioning foreign institutions.”

Exaggerated claims

Meanwhile, FATCA is not expected to repatriate the amount of tax stated by the IRS and US Treasury in 2010 of more than $100 billion annually. In 2013, the Congressional Joint Committee on Taxation estimated that FATCA “will generate additional tax revenue of approximately $8.7 billion over the next 10 years,” or $870 million a year. “That is a pretty big difference. So where did the $100 billion come from? It was made up. My conclusion is FATCA will never pay for itself, as amounts are so small in the big picture of things,” said Byrnes. “The goal was already being achieved through the normal tools the IRS has at its disposal and through negotiations with Switzerland. There were 150,000 evaders before FATCA. Now, 100,000 of them have been caught (through tax evasion probes into banks in Switzerland and elsewhere), so that leaves only 50,000 left. As a percentage of 150 million tax payers, that is not even a correction error. A 50 percent whistle blower reward to find a tax dodger would have been a better idea.”

With some banks reluctant to on-board US customers due to the extra due diligence, and certain Americans not wanting to hand over their financial data to the IRS, an up-tick in financial crime is expected. “I think shell companies will increase as it is a way to evade tax, although AML (anti-money laundering) procedures are playing a strong role in fighting tax evasion by finding out who is the real beneficial owner of an account as this later may be a US person,” said Costa.

Looking ahead, FATCA is expected to play a role in the upcoming US presidential elections, with Senator Rand Paul proposing through Senate Bill S66 amendments to the IRS Code, which would amend FATCA. Also, the Organisation for Economic Cooperation & Development's (OECD) tax information sharing initiative is gaining steam, which could have implications for FATCA implementation and compliance.

Guilty countries doing little to bear brunt of refugee crisis impact

Global Times
www.globaltimes.cn/content/942353.shtml 

An informal refugee camp in the Bekaa Valley, Lebanon

There is a massive debate raging in Europe and the US as to what should be done about the Mediterranean refugee crisis. How many should be let in? What is our moral responsibility?

Largely absent from these discussions is the role of certain European states and the US in triggering the refugee crisis in the first place.

It was not Greece, whose beaches and borders are inundated with refugees, or other countries along the South-Eastern Mediterranean. Nor Lebanon, which has a staggering 1.2 million registered refugees, or Iraq or Jordan. Turkey is another matter, but all four of these Middle Eastern countries have taken in the bulk of 4 million Syrian refugees.

All the neighboring countries of Syria are reeling from the strain of such an influx, particularly Lebanon, which has taken in the equivalent of a quarter of its population in the last four years. Yet Europeans are complaining about collectively taking in 350,000 refugees: try over a million in one country and see what happens on the social and economic level.

Ironically, the countries that have taken in the most Syrian refugees on a per capita basis were not involved in any recent military adventurism in the Middle East.

The countries that beat the drums of war for the invasion of Iraq in 2003 have not been as welcoming, despite causing the deaths of over 1 million Iraqis and displacing 1.9 million people.

Initially, the US took in only a handful of refugees, and under pressure increased the number, since 2007 taking in 105,000 Iraqi refugees.

Britain was also not very refugee-friendly, despite London's role in pushing for the war. When it comes to Syrian refugees, the US has taken in just 1,243 since 2011.

This year, the US has pledged to take in a further 33,000. That figure should be seriously increased.

The Iraq war ties in with the Syrian refugee crisis, as does the NATO decision in 2011 to bomb Libya. The Iraq war provided the catalyst for the rise of the Islamic State, which did not exist prior to the West's "humanitarian intervention."

Libya's shoreline, which is being utilized primarily by African refugees to cross the sea, was not a launch pad prior to the overthrow of Muammar Gaddafi. Neither was Syria a source of refugees prior to the conflict in 2011.

Certainly such dictatorships should not be excused any blame since their clinging onto power at all costs has proved devastating, but it is the public, in particular women and children, that are bearing the brunt of conflict. Furthermore, the conflicts have negatively impacted economies around the region, adding further impetus for people to leave.

No wars, no refugees. It is essentially that simple. Indeed, the EU estimates that two out of every three migrants come from conflict areas. This is only likely to increase as Britain, France and the US up their military involvement in Syria.

The advocates of humanitarian intervention will argue that a new democratic state cannot emerge without a difficult "transition period," but is war the right way to make such a change happen?

A broken country that is not able to rebuild, like Iraq, Libya or Afghanistan, without the equivalent of a Marshall Plan that rebuilt postwar Europe, is not going to succeed.

Instead, we have hand-wringing about what to do with refugees.

Blame for the Mediterranean refugee crisis should also lie with the key regional US allies like the Gulf states, which have so far not taken one Syrian refugee despite their counter-revolutionary role in the Middle East, especially in Syria but also Libya and Egypt.

There needs to be a global debate about the refugee crisis, and the role of those countries most responsible should not be overlooked.

That said, supporters of the Assad regime should also be involved in taking in refugees, as they too hold culpability for the deaths of 240,000 Syrians and the displacement of 9 million people.

(Photograph by Paul Cochrane)

Economics and the Syrian Uprising

(THIS ARTICLE WAS ORIGINALLY COMMISSIONED BY A MAGAZINE IN 2012, BUT THEY FELT IT WAS OVERLY CRITICAL OF NEO-LIBERAL CAPITALISM AND DID NOT BELIEVE IT WAS A FACTOR IN THE UPRISING - IRONIC, GIVEN THE OPENING PARAGRAPH)

Economics was a major factor behind the Arab uprisings, in Syria as much as in North Africa, but the role of economics has been downplayed by governments and the media alike. What is more, plans are underway to replicate the same economic policies in post-conflict Syria that helped trigger the uprising in the first place, writes Paul Cochrane in Beirut.

In the years immediately after the US-led invasion of Iraq in 2003, there were often discussions in Syria and Lebanon about whether there would one day be regime change in Damascus. Would the regime eventually be overthrown – internally or via external intervention – and Syria become a democracy? An often typical, if somewhat cynical statement was that Syrians did not want either. Syria was stuck like the meat in a sandwich, with on one side a devastating conflict in Iraq that had forced over 1.4 million Iraqis to seek refuge in Syria, and on the other side laissez faire Lebanon, a democracy in name but essentially a dysfunctional one due to a political-confessional system that maintains a fragile status quo but results in minimal development and a weak state.

The choice of a painful, bloody transition from autocracy that could lead to civil war and then perhaps be followed by a “demo-crazy” Lebanese style government was not overly attractive for Syrians compared to stability and security, and where minorities – which account for around 26% of the country's population of 23 million - were protected under a nominally secular regime.

So, the argument went that while Syrians wanted change, such as greater civil liberties, less corruption, and the reigning in of the omnipresent mukhabarat (the secret police), the trade off was questionable. In short it was that pithy statement of “better the devil you know, than the devil you don't.” Economics however barely figured into discussions.

Fast forward to the beginning of 2011, and the same conversations were being had: would the Syrians be the next citizens of an Arab autocratic state to rise up following the Tunisians, Libyans and Egyptians? In one such debate, a French embassy employee and a French NGO worker, both working in Damascus, argued that the conditions were different from North Africa, poverty was not as biting, and there was little room for a mass uprising to take place. A year later, the same French embassy employee – since evacuated from Syria – admitted how wrong she was, having been sucked into a “Damascene bubble” of the good life and not exposed to the rude reality of life in the towns and smaller cities outside of the capital and the second largest city, Aleppo.

Indeed, under the economic reforms initiated in 2001 following the death of President Bashar Al Assad's father, Hafez, the middle and upper middle classes in Damascus and Aleppo were doing better from a materialistic perspective, able to buy goods and services previously unavailable during the period of a state-run economy, and greater economic opportunities seemingly abounded. Tourism was also doing well, with the number of visitors surging from 2 million in 2002, to 8.5 million in 2010, and revenues reaching $8 billion. 

European tourists by Souk Hamidiyeh, Damascus in 2008

Decades of rising unemployment

The reforms, spearheaded by Assad and the Western-educated deputy prime minister Abdallah Dardari, gradually liberalized the economy, in part pushed by foreign banks – the bulk Lebanese – entering the market from 2004 onwards, and in 2009 the opening of the Middle East's newest stock market, the Damascus Securities Exchange (DSE).

Real estate projects, shopping malls and boutique hotels also sprung up, whether financed by expatriate Syrians returning home with an eye for an investment, to Levantine and Gulf investors (US investment was largely curtailed due to the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003, while bilateral trade in 2010 was estimated at $928 million or 2.4% of all trade).

However, the economic reforms enabled the elite to further line their pockets – like Rami Makhlouf's Cham Holding, whose board members and investors read like a Who's Who of prominent Syrians – while creating massive income disparities amid high inflation, leaving ordinary Syrians with an average monthly salary of $234 but an average monthly household expenditure of $638, according to figures from the Syrian Central Bureau of Statistics in 2010.

The shift from a centrally planned economy to a more open market model still had too much of the cronyism and endemic corruption that had plagued Syria for decades. Indeed, there was massive capital flight between 2000-2009, with Global Financial Integrity estimating Syria lost $23.6 billion from corruption, trade mispricing, bribery and other illicit activity.

The billionaire businessman and maternal cousin of Assad, Rami Makhlouf, whose portfolio includes mobile phone operator Syriatel, was a particular figure of hate for ordinary Syrians, with his heavy-handed tactics of muscling in on business deals to get his cut, and judged to have too much of a controlling stake in the economy.

Not that the reforms were all negative. Syria sorely needed to overhaul its economy given declining oil revenues, a burgeoning population – reaching 3.5 percent growth a year in the early 2000s – and fiscal woes (Moscow had to write off $10 billion of Syria's $13 billion Soviet-era debt in 2005 in able to sell new weapons to Damascus).

“When you look back, don't throw reforms in the dustbin,” said Jihad Yazigi, editor of financial paper The Syria Report. “Average Syrians were entitled to open a bank account, get loans and buy cars. The problem was economic reform was in no way accompanied by a real vision as to where to take the country to.”

On top of a lack of vision, Syria arguably opened up too soon in terms of trade liberalisation, such as joining the Greater Arab Free Trade Agreement (GAFTA), and inking a free trade agreement with Turkey, which did not give adequate time for Syrian industry to get up to speed with competitors.

“The idea was to create jobs and exports, but it didn't work. The borders opened, and the Turks and the Chinese flooded the market; thousands of workshops closed,” said Yazigi. “People on the streets today are farmers, plumbers, semi-skilled workers and those that lost jobs over the past decade in the smaller cities and the suburb cities; not from Damascus or Aleppo, which benefited from the reforms.”

With topsy-turvey geographical economic development, the economy was not growing fast enough to handle a rising population. “Over the last three decades you've had low GDP growth and periods of high GDP growth, but according to most economists Syria needed growth of 8% per annum. Syria never grew more than 7%, some years by 5%, but most years by 2-3%. In other words, there was 30 consecutive years of rising unemployment every year,” said Yazigi.

The opening of the Four Seasons in 2005 was indicative of Syria's opening up to the world, and outside capital.

Downplaying economics

Economics played a key part in the uprisings in Tunisia and Egypt, both having adopted neo-liberal economic models and applied International Monetary Fund (IMF) recommendations. Both countries, like much of the Middle East and North Africa, have burgeoning populations, 50% of the populace under 30 years old, and unemployment rates among the highest in the world. Such dissatisfaction with the status quo had been growing for years, and in many senses the indicators were there for all to see.

In Egypt, there were 3,426 strikes, sit ins and protests by workers between 1998 and 2010. It was a “decade of unprecedented strikes,” said Joel Beinin, Professor of Middle East History at Stanford University, at a lecture on “Arab Workers and the Popular Uprisings of 2011” at the American University of Beirut. A major demand of workers was a minimum wage. “The mobilization of workers from the 1990s onwards is an ongoing story, and demands were primarily economic,” said Beinin.

However, the economic angle of the uprising in Egypt – and Tunisia – was barely covered in the Western media, focusing instead on demands for democracy and freedom, and downplaying the role of workers and economics in the uprisings. For instance, a key move in the struggle against the government of Hosni Mubarak came when tax collectors stopped working. Furthermore, workers' strikes have continued in Egypt even after Mubarak's fall, demonstrating the importance of the need for economic change in the country, with 1,419 collective actions by workers in 2011, with around 1 million participants in each protest.

“If you compare the Polish Solidarity movement (in the 1980s) to the Egyptian uprising, it was championed by the West as it was anti-Communist, but in Egypt it was anti neo-liberal, so it was viewed as a “negative” phenomenon by the West,” said Beinin.

Regarding Syria, Damascus did not have the same economic relations with the West as Egypt and Tunisia had, nor had it IMF loans and stipulations or major worker movements. “The dynamics of the struggle in Syria” are different to that of Egypt, said Beinin. “It is hard to find a class dimension, although political-economics definitely played a part in what led to the uprising.”

The geography of the uprising in Syria is testament to the role economics played, starting in the southern town of Dera'a near the Jordanian border in March 2011, and spreading to other periphery towns and cities, with the last places affected the economic and political centres of Aleppo and Damascus.

“There is a link between the economy and the uprising,” said Yazigi. “Early on in Dera'a, before the people said they wanted the fall of the regime, they burned down Syriatel stores, which is a reflection of their frustration with crony capitalism.”

Damascus skyline, 2008

 

A ravaged economy

The uprising quickly became violent, initiated by the Syrian regime's crackdown on what started as peaceful demonstrations and escalated as an armed opposition took form – when external involvement in training and arming rebels began is not clear, and may never be.

Unlike how the US, Britain and France did not initially support the uprisings in Tunisia and Egypt, or believe in the fall of their long time leaders, the West was quick to denounce the Assad regime, and by May the US imposed sanctions, followed by the European Union later in 2011, banning EU importation of Syrian oil and gas, which had accounted for 93% of Syria's exports to the EU (22.5% of overall exports).

As the conflict spread throughout Syria and the sanctions started to take hold, the economy was on a slippery downwards slope. According to the Syrian Center for Policy Research, Syria's real GDP contracted by 18.8% in 2012 following a contraction of 3.7% in 2011, with economic losses estimated at $48.4 billion in both 2011 and 2012, equivalent to 81.7% of its 2010 GDP. The Institute of International Finance (IIF) on the other hand estimated contractions of 20% in 2012, and 6% in 2011, and that the economy will contract by 15% this year, to $27 billion, from $30.9 billion in 2012, $46.7 billion in 2011 and $57.5 billion in 2010.

The economic ramifications of the conflict have also spilled over into Lebanon, with up to 375,000 Syrian refugees in the country, while in Jordan – also hosting refugees – the IIF estimated output losses to the economy from regional unrest at $1 billion in 2011 and $3 billion in 2012, equivalent to 3.4% of GDP in 2011 and 9.5% of GDP in 2012.

It is like history repeating itself, as Iraqis had taken refuge in both countries following the 2003 invasion, and now Iraqis are fleeing back to their war ravaged country while Syrians are taking refuge elsewhere. “What happened to Iraqis 10 year ago is now happening to the Syrians,” said Yazigi.

 The Citadel in Aleppo after a refit to encourage tourism, 2008

The future?

The outlook for the Syrian economy is pretty dire, while the government is hemorrhaging money to retain allegiances, fund the military and bolster public sector employment. How long Damascus will be able to handle the situation without assistance from allies is now a pressing question. The loss of government oil revenues due to the sanctions was estimated at $4 billion in 2012, or 25% of the budget, and the Syrian pound (SYP) has depreciated by 72% since 2010, now trading at SYP 81 to the US dollar, while the black market rate is around SYP 100.

Official foreign currency reserves are also in a precarious position, with the IIF estimating they will decline to $2.1 billion at the end of this year, equivalent to one month of import cover, from $5.6 billion in 2012.

The next big question is what will happen economically after the conflict is over, which may – if a long drawn out civil war is prevented - involve the remnants of the Assad regime, as some are predicting, with a transitional government of sorts in place, to a government made up of the numerous factions currently fighting Damascus. Whatever the outcome, tens of billions of dollars will be needed to get Syria and its economy back on its feet.

The West and Gulf backed National Coalition for Syrian Revolutionary and Opposition Forces announced in November, 2012, that it is seeking $60 billion for reconstruction efforts. However, the opposition does not have a publicly announced economic plan for a post-uprising Syria. “The Syrian opposition doesn't realize how important economics is or how it important a role it played in the uprising,” said Yazigi.

What is being discussed appears to be a return to the same economic policies as before, yet with a weaker state role, such as ending subsidies and pushing privatisation programmes. At the forefront of such discussions is Abdallah Dardari, the man that spearheaded Syria's economic reforms in the 2000s. He is now in Beirut, working at the United Nations Development Programme (UNDP) and advising the opposition. “Dardari is a neo-liberal, and the West wants him to steer economic reconstruction, yet he was responsible for how Syria's economic reforms were carried out,” said Yazigi.

The opposition is aiming for funding from Syrian businessmen, the West and the Gulf states, which have common economic aims. As the UAE's Minister of State for Foreign Affairs Anwar Gargash told the press in Dubai in November: “What we want to do is involve the private sector in what sort of economy emerges in a future Syria.”

Yet while the private sector needs a role in the future Syria, other voices need to be heard too. “If you want to talk about the economy the business community matters, but it is not the whole economy. They are working on cooking up a programme that suits their interests,” said Yazigi.

While the battle lines have been drawn in the current conflict, the next part of the battle will involve economic policy and how it is determined by local, regional and global players keen to exert their influence. 

Photos by Paul Cochrane 

Japan ready to operate in shadows of espionage with new spy agency

http://www.globaltimes.cn/content/940689.shtml

Illustration: Luo Xuan/GT

With Tokyo pushing for a more offensive military role, Japan not having an external intelligence agency is set to change with an agency reportedly just months away from being launched.

Modelled and developed in conjunction with Britain's external intelligence agency MI6 and the Australian Secret Intelligence Service (ASIS), news of Japan wanting a secret foreign intelligence service first emerged in a leaked 2008 diplomatic cable. Further news this spring confirmed that Tokyo was developing its human intelligence capabilities following the kidnapping and killings of two Japanese citizens in Syria by the Islamic State. 

Japan's intelligence services, which were confined to domestic matters following WWII, have had to rely on open-source intelligence and cooperation with foreign intelligence services for information, notably the countries that make up the surveillance alliance exposed by whistle-blower Edward Snowden, known as the "Five Eyes:" the US, Britain, Canada, New Zealand and Australia.

The development of such a spy agency dovetails with Prime Minister Shinzo Abe's drive for a reversal of the ban on overseas military engagement. New legislation has been passed at the lower house and needs to be endorsed by the parliament's upper chamber. The move however has been met with massive resistance from the public, with over 120,000 anti-war protesters demonstrating in Tokyo on August 30.

While the demonstrations were anti-military in nature, protests were not per se against the new agency, news of which has been clouded in secrecy. The agency, which has no name yet and is to be run out of the prime minister's intelligence service, the Naicho, or Cabinet Research Office, is expected to take years to get up to operational strength and be on par with the global intelligence giants.

It was reported in August that Abe met with Shigeru Kitamura, head of the Naicho several times, along with the Budget Bureau Chief Kazuho Tanaka, to finalize a new budget for the fledgling agency.

According to the 2008 leaked cable, Japan's foreign intelligence priorities were China and North Korea, followed by preventing terrorist attacks. Again, this gels with the reversal of Tokyo's stance on non-military engagement, which is aimed at containing China and strengthening ties with the US.

At the same time, Japan is establishing two new signal intelligence stations, on Yonaguni island which is close to Taiwan, with the second slated to open in 2017. Operated by the country's Defense Intelligence Headquarters, the two new facilities will bring the total to 19, enabling Japan to have one of the best interception services on the planet. This will link Tokyo even more with the "Five Eyes" in the global showdown over surveillance capabilities.

Unsurprisingly, such moves are being eyed with great suspicion in the Asia-Pacific region. Tokyo has been increasingly antagonistic in recent years toward China and the two Koreas, while heightened foreign intelligence and surveillance gathering brings back bad memories of Japan's brutal military intelligence in the first half of the 20th century. A new spy agency will only exacerbate current tensions.

Such surveillance and intelligence gathering will not of course be confined to military matters. As has been seen time and again, intelligence services work for the national interest in multiple ways, with economic intelligence a top priority. With Japan's economy going head-to-head with Asian rivals, greater intelligence gathering will bolster Japanese competitiveness. Surveillance will also be used to anticipate political, social and economic unrest overseas, giving Japan another advantage.

The big question now is whether the new military legislation will be passed by the upper chamber. This would officially green light the new agency. If the legislation is not passed, will the spy agency still go ahead? Given Abe's passing of a state secrecy act in 2013, and that training of intelligence agents has been underway for years in conjunction with the ASIS, it is likely either way.

We are going to see the rise of a much darker Japan that is able to better operate in the shadowy intelligence world.

ANALYSIS: A flawed US approach to countering IS financing?

Middle East Eye

Military efforts to dislodge the Islamic State (IS) group from its strongholds in Syria and Iraq have not yet had the desired effect, in part due to the lack of a coordinated policy by regional and global actors.
The other major strategy to weaken IS, financial warfare, has been described as “pathetic” despite numerous international efforts, ncluding UN Security Council resolutions, an extensive report by the OECD's Financial Action Task Force (FATF), the Manama Declaration on combating the financing of extremism, the establishment of the Counter-ISIL Finance Group in Rome and pressure from the United States.
Financial crime experts attribute the failure to curb the rise of IS to policy initiatives and the “stalled war on terrorism financing”.

To read more: http://www.middleeasteye.net/news/analysis-flawed-us-approach-countering-financing-611245461

Can growing pressure make Lebanon’s army reform its military courts?

  Middle East Eye 

BEIRUT - Lebanon is not a military state like Egypt, Jordan or Syria. There is no military-industrial complex like in Egypt, where it is estimated to account for about 30 percent of the gross domestic product (GDP). There is also no clear national leader capable of doing publicity stunts with parachute regiments like in Jordan, and there is no military service.
The last two Lebanese presidents aside - who switched their general's uniforms for suits once in office - Lebanese politics has been dominated more by former militia leaders and technocrats than by an elite officer corps with the potential to carry out a coup.
However, a storm is brewing over the extent of the army’s power, and in particular its use of military courts.
On the one hand, the Lebanese Armed Forces (LAF) exerts tremendous power within the country and has long been seen as one of the only neutral bodies in an otherwise heavily fractured state.
According to many activists it has also been able to further expand its influence in recent years thanks to the growing political vacuum that has left the country unable to select a president since May last year. Furthermore, it is having its hard power upgraded through a $3bn arms pledge from Saudi Arabia, which should see its stockpiles updated.
On the other hand, the body is keen to win public approval and has embarked on a soft power offensive, working to rally the populace around the cross-sectarian institution to keep stability amid regional unrest.
Billboards line the country's roads celebrating the army's 70^th anniversary with the words Jamaa Moushtarak (Common Unity). In August, a smartphone app was launched, LAF Hero, with one game about territorial defence where the player has to strategically place army check points to nab terrorists.
This dual strategy has left the army open to criticism, touting itself as the defender of the people while at the same time trying citizens through the military court without full legal process, prompting a battle for reform that is currently underway.

To read more: http://www.middleeasteye.net/news/analysis-can-growing-pressure-make-lebanon-s-army-reform-its-military-courts-1889516685

Britain had an Empire?

Dissidentvoice.org - http://dissidentvoice.org/2015/08/britain-had-an-empire/

An online video of Indian MP Shashi Tharoor arguing that Britain should pay India reparations for its colonial legacy has gone viral. It prompted much enthusiasm in the Indian press and parliament, as well as responses in the British press arguing both for and against Tharoor’s proposal. Interestingly, it also prompted a short article in the Guardian newspaper, ‘How much did you really learn about the British empire in school?”
The article did not really answer the title’s question, even though the answer is ‘bugger all’.
It is quite extraordinary that British school children learn essentially nothing about an empire upon which ‘the sun never set’, which invaded every country on the planet bar 22 countries, spawned the world’s superpower, the United States, and that drew up the borders to so many countries with long-lasting negative results – Pakistan/India (Kashmir conflict), Sykes-Picot (divided up the Middle East), Nigeria, South Africa, and so on.
I had a British education in the 1980s and 1990s. In history lessons we touched on ancient Egypt, the Romans, the Vikings, then flash forwarded to Agincourt, Tudor England, the Industrial Revolution, the two World Wars, and some Cold War history. Colonialism was barely mentioned, or de-colonisation. Students had no idea about the true scale and the long history of the British empire. Then at university, where I studied international history and international politics, I encountered next to nothing about British colonialism; one course was on de-colonisation in Africa, but that was a class only history students took. In fact, I learned more about the British empire from the Flashman novels than I did at school or university – through George McDonald Fraser’s witty novels I read for the first time about the First Anglo-Afghan War (1839-42), the First Anglo-Sikh War (1845-6), the Indian War of Independence (or Mutiny as the Brits call it in 1857), the British and French invasion of China (the Second Opium War, 1856-1860), the invasion of Abyssinia (1868), and the White Rajah of Sarawak.
While Fraser had no real truck with imperialism, his extensive footnotes allowed you to read between the lines, and importantly learn something about what perfidious Albion was up to in the nineteenth century.
The Flashman novels aside, there are few other popular novels about the British empire (although J.G. Farrell’s excellent Empire Trilogy comes to mind), or films for that matter, certainly with a critical perspective produced over the past few decades. It is as if there is a collective amnesia about Britain’s imperial past. The one place you do encounter it is at the Imperial War Museum in London, but that is very much a hagiographic experience, not touching on the dark side of colonialism.
This amnesia extends to political studies too. Despite studying international relations at university, British foreign policy – old and contemporary – was not taught. An internet search showed that only one British university covers British foreign policy, as if Britain was not at all an actor on the world stage, not a part of the G8 or the UN Security Council, and was practising isolationism, when we know that is far from being the case. This is also extraordinary. There were – and still are – plenty of research papers and essays written about US foreign policy – invariably bashing it – but the same does not apply to British foreign policy; Europe yes, but not about what is coming out of Westminster and the Foreign and Commonwealth Office (FCO). Indeed, the FCO’s title says it all really, which should mean students, academics and journalists should be devoting as much, if not more, attention to its activities than Washington’s.
In conversation with Mark Curtis shortly after he published “Unpeople: Britain’s Secret Human Rights Abuses”, in which he states Britain bears “significant responsibility” since 1945 for the direct or indirect deaths of 8.6 million to 13.5 million people throughout the world, I asked him how many people were going through declassified British documents. He answered just one other research he knew of, Caroline Elkins, for her book “Britain’s Gulag: the Brutal End of Empire in Kenya”.
No academics or investigative journalists? He answered in the negative. That may, one hopes, have changed since 2005. But the title to George Monbiot’s article in 2012 discussing Elkins’ book still holds true, ‘Deny the British empire’s crimes? No, we ignore them’.
To have discovered about Britain’s past – varnished and unvarnished – has been a long term endeavour, from one’s own volition. Travel has also helped to discover the true extent of Britain’s empire and its legacy. The fact that all plug sockets in the Gulf Cooperation Council countries are British speaks volumes. Unless I had been there and read about the Gulf, I would never have known that the United Arab Emirates, Qatar and Bahrain all got their independence from Britain in 1971, and Kuwait in 1961. Or known that Cyprus got independence in 1960 – despite the ongoing presence of British Sovereign Base Areas – Uganda in 1962 and Tanzania in 1963. Hong Kong in 1997.
None of these ‘handbacks’ are very old, at all, yet few Brits below a certain age would know, and I would bet the vast majority of schoolchildren as well as university students today wouldn’t know either. Students wouldn’t be able to point on the map the countries that were British colonies. India perhaps. But would they know about the rest of Asia, Africa, South America, the Caribbean? Perhaps from the Commonwealth Games the public would have an idea, but the history of how Britain ‘acquired’ its colonies would be missing.
Tharoor’s suggestion that Britain should pay India reparations, even a token £1 ($1.54) a year as a form of apology for 200 years of occupation, should be strongly considered. Teaching children about the British empire should also be a major component of the curriculum. It is, quite simply, ridiculous that such a broad sway of history is not touched upon, especially a history that has had such a profound effect on the modern world.

Support in a Time of Peril: Nurses and Syrian Refugees

Nurses helping people affected by the civil unrest in Syria do what they can with limited resources, writes Paul Cochrane for Nursing Standard Journal

Volunteer nurse Sylvie in Zaatari camp, Jordan

In the fifth year of the civil war in Syria, nurses working for more than 200 agencies and aid groups in the region are providing paid and unpaid assistance. In 2014, the United Nation’s Syria Humanitarian Assistance Response Plan dispensed 16.5 million medical treatments in Syria. In Turkey, 522,000 people received health assistance in September 2014 alone.

The plan has also provided 3.6 million primary healthcare consultations for Syrians, and trained 4,343 health workers. According to the International Labour Organisation, 75% of Syrian refugees are struggling to meet their food needs or pay for medical care. This is where aid agencies step in.

In neighbouring Lebanon, senior nurse Norma Kebbe works for the international Catholic charity Caritas’ Saint Michel Medical Centre in the Beirut suburb of Sid El Bauchrieh. The clinic sees more than 80 families every day.

‘It is busy because our services are free of charge,’ Ms Kebbe says. The clinic has two doctors, a nurse and an occasional volunteer Syrian nurse. Ms Kebbe, who has 17 years’ nursing experience, decided to leave her public hospital job and take a 20% salary cut to work for Caritas because the clinic’s daytime hours suit her. The clinic cares for Syrian refugees, Iraqi refugees and low-income Lebanese people. 

Ms. Kebbe at the Caritas Clinic

Marked improvement

Over the past two years Ms Kebbe has noticed a marked improvement in refugees’ health. ‘When we started the clinic, refugees were in a bad situation medically and psychologically. After a year, people with hypertension are improved, there are fewer skin infections and follow up is better,’ she says.

Patients are also referred to social workers and psychologists. ‘All the refugees are traumatised and stressed,’ says Ms Kebbe.

Lebanon has no refugee camps but Jordan does – although about 84% of refugees live outside camps. Minimal care is provided by the Jordanian government. The largest camp, Zaatari, with 83,796 refugees, is near Jordan’s capital Amman. Nurse Sylvie, who does not want to give her full name, is from New York and volunteered with the Syrian American Medical Society for a n week in March.

‘It was a shock,’ she says. Conditions at Zaatari’s healthcare facilities were basic and patients’ health issues were related to poor living conditions, trauma and prior medical conditions.

‘Burns from gas stoves were prevalent among women and children. I did a lot of dressings with almost nothing to work with and it was impossible to wash hands between patients.’

Despite the difficult conditions, Sylvie plans to volunteer again: ‘I should be in Jordan doing something useful.’

Syrian refugees: the figures
7.6 million	Internally displaced
3.8 million	Refugees
1.2 million	Registered in Lebanon
1.6 million	In Turkey
624,000	In Jordan
Source: United Nations Office for the Coordination of Humanitarian Affairs (OCHA)

First photo courtesy of Sylvie, second by Paul Cochrane

The New Great Game: The West, Uyghers and China

The Unz Review 
http://www.unz.com/article/the-new-great-game-the-west-uyghers-and-china/

The control of Central Asia has been a core part of international relations since the “Great Game” between Tsarist Russia and the British Empire. At the turn of the 20^th century, John Halford Mackinder developed the “Heartland Theory,” which revolves around the concept of a pivot area/Heartland, that covers Eastern Europe, Central Asia, Western China and most of Eastern Russia. The theory determines that whichever regional power controls Eurasia will determine that country’s supremacy over world politics.
Mackinder’s theory had widespread traction. It was influential to Nazi military planners, and the “Heartland” concept has been apparent in United States foreign policy since President Jimmy Carter’s term in the White House, when the US backed the mujahideen in Afghanistan against the Soviet Union. Mackinder’s theory was pushed by then National Security Advisor Zbigniew Brezinski, a voice still listened to in Washington D.C. circles, and took on renewed relevance following the end of the Cold War.
As a leaked 1992 Pentagon document states: “Our first objective is to prevent the reemergence of a rival that poses a threat on the territory of the former Soviet Union. This is a dominant consideration… and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power…Our strategy must now refocus on precluding the emergence of any potential future global competitor.”
A decade after this policy objective, US forces were in Afghanistan, and in 2010, the Obama administration launched its “pivot to Asia” foreign policy initiative, its very name drawn from Mackinder’s Heartland theory.
A clear aim is that the US and its allies – embodied in NATO – are trying to contain China’s ascendancy to retain political and financial power. There is the realization that power is shifting from the West to the East. The US strategy has been proactive, trying to shore up its allies in China’s immediate geographical vicinity, and been aggressive in its military build up, particularly in Asia Pacific. But in Central Asia, the US is on the back-step, unable to undermine Russia and China’s strong positioning, evident in the Shanghai Cooperation Council (SCC). Outside of the SCC, in the immediate area, the US is reducing troops in Afghanistan – albeit to retain a presence until 2024 – and is not as strategic a partner with Pakistan as in the past. The US is struggling to have “full spectrum dominance” in Central Asia, and economically has been losing out to China, in goods and services, to accessing hydrocarbons. Furthermore, China is cementing its position in the area through its Silk Road Economic Belt, which is to run from China to Eastern Europe, and ramping up ties and investment with neighboring Pakistan, evidenced in President Xi’s visit to Islamabad with pledges of some US$46 billion. Additionally, China is challenging the financial status quo regionally and further afield through the launch of the Asian Infrastructure Investment Bank (AAIB).

Back to the Future

American policymakers were aware that exerting US influence in Central Asia was going to be an uphill struggle, if not mission impossible. Washington would not be able to have a military presence with the same capabilities as in the Asia-Pacific, in Taiwan, South Korea and Japan. Moscow would not stand for it, and neither would Beijing. Afghanistan and Pakistan – known as AfPak – therefore become focuses during and after the Cold War.
The NATO presence in Afghanistan has been devastating for the country, and the US’ acquiescence in its relationship with Pakistan and its infamous intelligence service the ISI – which has co-opted and used Islamic terrorist organizations for its own ends to fight India in Kashmir, and retain influence in Afghanistan – has created fertile ground for extremists in the region.
As leaked documents have shown, this has been both intentional and unintentional, with the US on one hand waging its “Global War on Terrorism” and on the other creating the conditions for the rise of Islamic terrorism – for instance ISIS spawned from the battlefields of Iraq – and directly working with and through its allies with Islamic terrorist groups.
In the wake of the Cold War, Britain and the US – along with Arab Gulf allies – utilized Islamist groups, including fighters affiliated with Al-Qaeda, for its own foreign policy objectives in Bosnia, Kosovo and Chechnya, documented in Mark Curtis’ book, which draws on declassified documents, Secret Affairs: Britain’s Collusion with Radical Islam.
As cited in written evidence by Nafeez Ahmed to a UK Parliamentary inquiry in 2010: “According to Graham Fuller, former Deputy Director of the CIA’s National Council on Intelligence, the selective sponsorship of al-Qaeda terrorist groups after the Cold War continued in the Balkans and Central Asia to intensify the rollback of Russian and Chinese power (2000): ‘The policy of guiding the evolution of Islam and of helping them against our adversaries worked marvelously well in Afghanistan against the Red Army. The same doctrines can still be used to destabilize what remains of Russian power, and especially to counter the Chinese influence in Central Asia.’”
Covert operations programs have also been carried out by British and American intelligence that supports certain Islamist opposition groups in the Middle East to curtail Iranian and Syrian influence in the region. This came to a head during the uprisings in the Arab world from 2011 onwards, with Western intelligence agencies working with funders Saudi Arabia and Qatar to develop the militant opposition against the regime of Bashar Assad in Syria, as has been documented here, here and here. Turkey, a NATO member, has also been instrumental in supplying Islamic rebels in Syria, including ISIS (the Islamic State).

The move on Xinjiang

At the other end of the “Heartland”, Eastern Europe, the US and Europe have been involved in regime change in Ukraine, utilizing non-governmental organizations (NGOs) to undermine the Kiev government away from the Russian orbit, and through backing pro-Western politicians, despite in cases their openly neo-Nazi and fascist sympathies. A propaganda war has been waged in the West that has ignored the West’s subversive policies in Ukraine to primarily demonize Russia, framing the conflict as one of “freedom” and “democracy” and leading to renewed discourse of a “New Cold War”. Such a policy has had mixed success, still being played out, but is a clear geo-political attempt to undermine Moscow in the public eye as well as economically through sanctions. What is notable in the Ukraine arena is that the US has not been directly involved militarily, relying on proxies and covert operations, to not risk an all-out war with Russia.
Given the West’s track record with co-opting and using Islamist groups for its own ends, as well as undermining democratically elected governments that do not see eye-to-eye with the US since World War II through coups and assassinations, it is far from conspiratorial to suggest that such tactics will be employed in the future against Chinese interests.
As such, Xinjiang is China’s Achilles heel, bordering on Kyrgyzstan, Kazakhstan, Tajikistan, Afghanistan and Pakistan, as well as having abundant hydrocarbons and being a key transit hub for the Silk Road Economic Belt. As mentioned, the US is attempting to contain China in the Asia-Pacific, and while it is strengthening its relationship with India, does not have the same capabilities in Central Asia, which will force the US to act clandestinely through NGOs, pro-democracy organizations, and Islamist groups. For instance, the National Endowment for Democracy (NED), which is funded by the US government and has been linked to subversive measures in numerous countries, including most recently in Hong Kong, is a sponsor of the World Uygher Conference and the Uygher American Association.
This is given further credence by the Uyghers not having the same ‘appeal’ as the Tibetans when it comes to “information politics” and winning “hearts and minds” in the West. The Uygher diaspora has attempted to portray their political grievances as self-determination causes, ‘minority rights’ and ‘human rights’ to capitalize on media coverage in the West. It is a classic method to highlight a cause in the eyes of the Western public, concerned about human rights, women’s rights and so on, the “softer” foreign policy issues. This was evidenced in the media’s use of humanitarian intervention to justify the US-led invasion of Afghanistan in 2001, such as by focusing on women’s rights and bringing “freedom,” thereby simplifying the complex reasons for US military engagement.
But while the Uygher cause will not gain the same traction in the West as Tibet arguably has – for one it is an under-covered area in the media, and secondly the Uyghers’ Islamic identity can be considered a “turn off” for liberal mainstream media – it is becoming a more important issue in Islamic extremist circles.

A Jihadi Front Against China?

Beijing is aware of the international dimension of Islamic terrorism, pressurizing Central Asian states to ban Jihadist groups such as the Turkistan Islamic Party (TIP) in Pakistan, the Islamic Movement of Uzbekistan (IMU), the Islamic Jihad Union, and the East Turkestan Islamic Movement (ETIM).
The TIP is linked to the IMU, which is pushing for the jihad to go beyond Pakistan and Afghanistan into China. Its mufti, Abu Zar al-Burmi, has become a prominent Jihadi leader in Pakistan with an anti-China message that is reportedly gaining in popularity. In 2013, in a speech called “A Lost Nation”, al-Burmi said the “mujahideen should know that the coming enemy of the Ummah (the Islamic community) is China, which is developing its weapons day after day to fight the Muslims.” In the speech, al-Burmi stated Muslims should kidnap and kill Chinese citizens and target Chinese companies, while blasting the Pakistani-Chinese relationship.
In May, 2014, Reuters briefly interviewed TIP’s leader Abdullah Mansour, who echoed al-Burmi’s statements. “The fight against China is our Islamic responsibility and we have to fulfill it. China is not only our enemy, but it is the enemy of all Muslims … We have plans for many attacks in China,” he told Reuters. “We have a message to China that East Turkestan people and other Muslims have woken up. They cannot suppress us and Islam any more. Muslims will take revenge.”
It is highly probable, lacking other options and not able to go head to head with Beijing, that the US will capitalize on such sentiments, urging directly and indirectly attacks against Chinese interests in Central Asia and China itself, as well as further afield, utilizing networks in Pakistan and the Middle East.
A scenario, going by past example, would be to force Beijing’s hand into harsh crackdowns against the Uyghers in Xinjiang, thereby providing ample propaganda opportunities for Jihadi groups to label China as an enemy of Islam, for Western media to highlight the Uygher’s aspirations for self-determination, and draw China into a costly war that will destabilize the Silk Road Economic Belt initiative.
The US appears to have already utilized such a strategy. “Between 1996 and 2002, we, the United States, planned, financed and helped execute every single uprising and terrorism related scheme in Xinjiang (aka East Turkistan and Uyghurstan)”, said Sibel Deniz Edmonds, a former Federal Bureau of Investigation (FBI) translator and founder of the National Security Whistleblowers Coalition (NSWBC), under oath in the US.
Militant Uyghers in the AfPak arena pose the closest geopolitical threat in this regard. Elements of Pakistan’s ISI in conjunction with financiers in the Arabian Gulf, as well as through establish networks with Western intelligence agencies, would pose the greatest concern. Indeed, as in the past when Islamabad played off British and American interests to maximum advantage, so could it play off its main financial backers, China, Saudi Arabia and the US.
Turkey is also a player to be watched in this regard, trying on the one hand to not sour growing ties with China, and on the other keep its affinities and further strengthen relations with Turkic groups. Istanbul has played a major role in the rebel movement against Assad, while the country is home to a large Uygher diaspora. Furthermore, with Turkey a transit hub for rebel groups to enter Syria and Iraq, it has played a role in enabling Chinese Muslims and Uyghers to join ISIS and become radicalized.
Another “Great Game” is unfolding, and the Heartland of Eurasia will be a key arena in the battle for the US to retain a unipolar world, or make room for a multilateral one, which Washington will fight on all fronts to ensure does not happen.
As Brzezinski wrote in The Grand Chessboard, echoing Mackinder: “The US, a non-Eurasian power, now enjoys international primacy, with its power directly deployed on three peripheries of the Eurasian continent [...]. But it is on the globe’s most important playing field – Eurasia – that a potential rival to America might at some point arise”.

Egypt struggles to meet burgeoning domestic energy demand

Energy World magazine
www.energyinst.org/information-centre/ei-publications/energy-world
Renewables are only now beginning to feature in the northern African country of Egypt, which has yet to adopt nuclear energy. Rather, the government is dealing with relentlessly rising demand, writes Paul Cochrane in Cairo

The Egyptian energy sector is facing numerous challenges in the immediate and long term, mirroring how the country is struggling to secure political stability. Insufficient power supply is resulting in sporadic power cuts in the major cities, driving up sales of private generators. Billions of dollars are owed to international oil companies in arrears. As big a concern is Egypt remaining a net importer of energy to meet demand needs, with natural gas imports likely to continue until 2020 (despite the country’s healthy reserves), while ambitious targets for renewable energy may not be met.
The Egyptian government has been scrambling to get a handle on the energy situation, complicated by the political unrest in the country since the 2011 uprising that overthrew former President Hosni Mubarak. Even prior to the unrest, Egypt was struggling to meet its projected energy demand.
The instability made things worse, causing a drain on the state’s finances, economic growth spluttered, and energy and food subsidies rose to account for 20% to 25% of government spending, according to Middle East Economic Survey (MEES) figures. Foreign reserves also plunged, by nearly two-thirds as of 2015, according to International Monetary Fund figures, and the currency was devalued. 

Strapped for cash

Strapped for cash, the government in Cairo began to default on payments to foreign energy companies, owing $7.5bn as of June 2014, according to figures from Egypt’s ministry of electricity and renewable energy.
Natural gas exports plunged from 535bn cubic feet (bcf) in 2010 to 259 bcf in 2012, according to US Energy Information Administration (EIA) data, while domestic consumption of natural gas, which accounts of 53% of power generation, rose from 45 bcf in 2010 to 51 bcf in 2014; production is 5.4 bcf per day.

In 2013, the state started diverting its liquefied natural gas (LNG) away from its two exporting plants, with the one run by Spain’s Unión Renosa Gas, in Damietta, north-east Egypt, stopping that year, and the BG Group citing force majeure to shut its plant in January 2014.

President Abdel Fattah Sisi, elected in May 2014, has put energy at the top of his agenda, aware that the power cuts during the Muslim Brotherhood’s rule were a contributing factor in fuelling discontent with President Mohamed Morsi. Radical reductions to subsidies were imposed in July 2014, with prices of petrol, diesel and natural gas rising by 40% to 175% – an average of 76% – with fuel and electricity subsidies to be gradually eliminated over five years. 

Justin Dargin said "it is an impossibility for Egypt to be able to lower aggregate demand due to demographics."

Plans to reform power generation

At the World Future Energy Summit (WFES) in Abu Dhabi in January this year, Sisi announced a range of plans and reforms for the sector. Key measures included increasing oil and gas production, diversifying power production through the use of clean coal technology, nuclear energy and renewables. Sisi set a target of 20% of the country’s power supply to come from renewable energy by 2020, aiming to install 4,300 MW of solar and wind power within three years.

This would contribute to the 12 GW that needs to be added to the grid over the next five years, estimated to cost $12bn.

Energy consumption has surged over the past decade, rising from 57mn tonnes of oil equivalent (MTOE) in 2003 to 87 MTOE in 2013, according to the BP Statistical Review of World Energy 2014. In power production, Egypt has added 10.2 GW over the past 15 years, bringing installed generating capacity to 30 GW, but operational capacity is only between 22 GW and 23 GW due to a lack of fuel, according to ministry of electricity and energy 2014 figures.

While per capita electricity consumption is low by global and regional standards at 1,740 kWh (neighbouring Libya is 3,930 kWh and Saudi Arabia 8,150 kWh), according to World Bank data for 2011, it is burgeoning population growth that is driving up demand at an average of 7% a year. The population reached 85.5mn in 2014, up by 13mn on 2006 figures, according to the government’s Central Agency for Public Mobilisation and Statistics.

Reducing demand is not considered a possibility as a result. ‘It is an impossibility for Egypt to be able to lower aggregate demand due to demographics, with 1.3 children born every minute, so demand is going to continue to rise unless the state does a family planning programme like Tunisia did in the 1970s and 80s,’ said Justin Dargin, a UK-based Middle East energy expert at the University of Oxford. ‘But the subsidy reformation programme shows that the government is serious about mitigating the stark growth in energy demand.’ 

 

 Dr Elagamawy thinks the government forecast of 20% of energy to come from renewables by 2020 is optimistic. Around 15% could be achieved. 

Feed-in tariffs for renewables 

Subsidies aside, where the government is working to reduce conventional energy consumption

is at the household, company and industrial level by introducing last September a feed-in tariff scheme for renewable energy installations.

But while tariffs were released for photovoltaic installations, making use of Egypt’s abundant sunshine and ranging from less than 50 kWh for residential systems to over 20 MW, the scheme will not be available to all households.

‘Not all inhabitants are allowed to install a PV system, as there are certain requirements, like roof space, and the ability to make such investments,’ said Dr Hisham El Agamawy, energy advisor at the Egyptian Association for Energy and Environment (EAEE) and b former advisor to the country’s environment minister.

He believes the potential for smaller-scale solar power installations to be in the new residential and industrial cities springing up on the outskirts of the major metropolises, such as those being developed around Cairo.

Feed-in tariffs were also extended to wind power at the end of 2014. The country has three primary regions to generate wind power, at Hurghada on the Red Sea coast, in the Nile Valley, and in Gebel El-Zeit on the Gulf of Suez. ‘A lot of companies have been certified by the New and Renewable Energy Authority (NREA) to start installation and supply, ranging from 5 kW to 500 kW,’ said El Agamawy.

Indicative of interest in solar and wind power, in January, 177 international consortiums bid for 67 tenders to develop 4.3 GW of projects. According to the NREA, 40 are solar power projects, the rest wind energy projects. In February, the Bahrain-based Terra Sola Group proposed investing $3.5bn in a project aiming to develop solar photovoltaic technology in Egypt.

As for hydroelectricity, it already provides 3% of energy, according to the EIA, and room for further expansion is limited to meet agricultural needs. Expansion of renewables is therefore focused on major expansion of solar and wind, which currently together account for just 1% of current energy consumption. El Agamawy thinks that while the government forecast of 20% of energy to come from

renewables by 2020 is optimistic, around 15% could be achieved.

Mohamed Kassem, General Manager of Nanotech International for Industry and Trade, which develops solar systems, thinks the recent tenders will push production immensely.

‘Once these projects happen over the next couple of years, this should increase the percentage of solar power. With higher electricity prices due to the dismantling of fossil fuel subsidies, Egypt can try to close the price gap with the more expensive renewables, and the feed-in tariff makes it more attractive. We expect more investments,’ he said.

Dargin on the other hand is less optimistic. ‘It is still chaotic in renewables as they can’t get

primary production under control, so Egypt will be hard-pressed to increase to 20%. They are focused on doing anything necessary for energy demand, if that means importing coal, so be it. Environmental concerns are quite secondary,’ he added.

 

 

 

Coal imports, new nuclear? 

Coal has not been a part of Egypt’s energy mix – it relies on coal imports - but is considered more logistically viable than more gas and oil-powered plants. Clean coal technology is being pushed

by the government, in line with European Union (EU) regulations, and Cairo plans to offer tenders this year for coal plants to produce 4 GW. However, the government is facing opposition to coal power for environmental reasons. If the plans go ahead, El Agamawy said power plants will be located in the northern desert to ‘have minimal impact on Cairo or other governorates.’

Another possible avenue is nuclear. Cairo has considered nuclear power for decades but lacked the funds to move beyond research and development at its Dabaa nuclear site near Alexandria on the Mediterranean coast. There was renewed interest in 2011, with announcements to develop four nuclear power plants by 2025, and on a state visit to Moscow in 2013, former President Morsi invited Russian participation.

In February this year, Russian President Vladimir Putin visited Cairo, leading to an agreement with the Egyptian Nuclear Power Plants Authority for state-owned Rosatom to construct a nuclear power plant with a desalination facility. Two nuclear reactors of 1,200 MW each are to be built, with the prospect for a further two.

El Agamawy said there is not expected to be major opposition to the nuclear power plant due to the energy shortages, but had hoped the bid would have been competitive, as with the tender for the United Arab Emirates’ Braka plant, in Abu Dhabi. ‘We were surprised by this agreement, expecting an international tender to compare all nuclear technologies, especially after what happened in the Emirates when there was competition between French and Korean firms, but maybe the circumstances are imposed on us to cooperate directly with the Russians,’ he said.

Another pledge from Sisi at the WFES was to pay off its outstanding debts to international oil companies to get exploration and production back on track. As of December last year, Cairo had paid off a further $2.1bn. ‘There is still $3.1bn left to pay, but it has come to an agreement the international oil companies have more or less signed off on, so it is not just words and shows they’re [Egypt] putting their money where their mouths are,’ said Dargin. 

Gas, oil and LNG 

In the immediate term, Egypt is considering buying gas from Israel, and in March will receive its first shipment of imported LNG. Egypt’s petroleum ministry said in February that Egypt expects to stop importing gas and resume exports by 2020 as exploration and development projects gets underway. The official added that Cairo had inked 56 oil and gas exploration contracts worth $12bn since November 2013.

However, domestic demand for gas is set to continue outstripping production for years to come, while around 75% of gas reserves are in deep offshore waters, requiring greater investor investment and risk to extract.

‘These investments will take some time and massive investments to bear fruit. Considering the significant domestic investments and some reforms and caps on domestic demand, it is a possibility to export LNG in the future. But I think the strategic focus of Egypt in the short to medium term is to satisfy domestic and downstream demand. It is not like in the early 2000s with exports of LNG for revenues,’ said Dargin.

Photos by Paul Cochrane, except image of Justin Dargin, courtesy of Mr Dargin.