Presentation Infrastructure and Privatization Inter Ministerial Committee Progress

Presentation Infrastructure and Privatization Inter -Ministerial Committee Progress Report # 1 Beirut, Lebanon May 15, 2007 This document is confidential and is intended solely for the use and information of the client to whom it is addressed. 0

The objective of this first Infrastructure & Privatization IMC meeting is to share with your Excellencies the GR PCO structure and progress to-date, resolve pending issues, and agree on the prioritization of initiatives Meeting Objectives 4 Brief your Excellencies on GR PCO structure and implementation progress to-date 4 Outline issues and challenges 4 Agree on a prioritization methodology for Paris III initiatives (a preliminary draft of the prioritized initiatives will also be shared with you) 4 Appoint Secretary to the IMC and agree on his role Note: GR PCO stands for Government Reform Program Coordination Office 1

GR PCO Structure The Inter-Ministerial Committees (IMCs) are chaired by the Prime Minister, and will focus initially on Paris III related activities – The GR PCO will liaise with, and support all stakeholders High Level Structure of the Oversight Committee Parliament The PCO will also support (as needed) the Mo. F in its interaction with Donors Council of Ministers Quarterly Progress Reporting on Paris III Initiatives Prime Minister Periodic Reporting Prime Minister’s Office GR PCO 4 Committees chaired by the Prime Minister 4 IMC Secretary appointed during IMC first meeting Reporting Consolidation Social IMC Economic & Fiscal IMC Infrastructure & Privatization IMC “Natural Owners” M & S Unit Ministerial Initiatives Teams Cross Ministerial Initiatives Teams Technical Support M & S Unit Ministerial Initiatives Teams Cross Ministerial Initiatives Teams Note: M&S Unit = Monitoring & Support unit reporting to “Natural Owners” (Ministers/ Institutions Head) to be set-up as needed 2

GR PCO Structure Reports will be prepared by Ministries/Government Entities and the GR PCO to monitor progress against Paris III commitments on a monthly, quarterly and annual basis GR PCO Reporting Types and Frequency Description Audience Frequency 4 GR PCO 4 IMCs 4 Prime Minister (if interested) 4 Monthly Report (not published) 4 Brief progress report (2 -3 pages) from each Ministry/ Government Entity, including latest progress on KPIs (for those which are monitored frequently) and overview of major developments (informal document) 4 Submitted by the M&S Unit to IMCs and the GR PCO in order to ensure constant follow-up of progress and the detection of possible problems 4 GR PCO 4 Prime Minister 4 Council of Ministers 4 Quarterly Report (not published) 4 A formalized performance report, developed by IMCs Secretariat jointly with each Ministry/ Government Entity 4 Submitted by IMCs to the PM and the GR PCO in order to ensure constant follow-up of progress and the detection of possible problems GR PCO Annual Report (published) 4 Report developed by GR PCO every year, summarizing progress against Paris III objectives 4 Summarized version of Bi-Annual Performance Report (not published) 4 General Public 4 Annually 3

GR PCO Structure During the first stage, the GR PCO will help Natural Owners prepare detailed programs charters, workplans, and milestones, which will take the form of a commitment document for Natural Owners Programs Planning Stage 4 Support Natural Owners, through their M&S Units, in initiative identification, charters, milestones and KPIs development 4 Train M&S Units on GR PCO processes 4 Escalate issues to the respective level as appropriate 4 Consolidate reports 4 Responsible for the implementation of Paris III Commitments 4 Sign the Paris III Commitment Document (PCD) with the respective IMC scope of work, timeline, milestones, and KPIs GR PCO “Natural Owners” M&S Units Ministerial Initiatives Teams Cross Ministerial Initiatives Teams 4 Prepare in conjunction with ministerial and cross ministerial teams detailed action plans for their Natural Owner 4 Develop KPIs and milestones 4 Prepare regular reports on progress in implementation 4 Support M&S Units in preparing action plans and milestones 4 Report progress to “Natural Owners”/ IMCs (in the case of crossministerial initiatives) according to established mechanisms 4 Implement initiatives and manage external parties deliverables 4 Raise issues and risks to the attention of “Natural Owners” 4

Progress To-date, the team introduced the GR PCO structure to several Ministries/ Government Institutions, refined the list of Paris III initiatives, initiated the development of detailed workplans… Progress To-date 1 2 Meetings with Natural Owners 4 Introductory meetings held with all initially identified Natural Owners 4 Technical meetings held with M&S Units 4 Regular follow-ups with M&S Units Review and Update of Paris III Initiatives 4 Review and analysis of Paris III initiatives 4 Grouping of initiatives into programs 4 Preliminary allocation of Paris III initiatives to Natural Owners Development of Detailed Workplans 4 Elimination of redundancies and gaps among allocated Paris III initiatives 4 Initiation of the development of detailed work plans, that will be grouped into program charters, resulting in a Commitment Document Development of GR PCO Toolkit 4 Development of a detailed toolkit to train Natural Owners and M&S staff on GR PCO structure, processes and tools 4 Development of commitment document template 3 4 … and completed the GR PCO toolkit (to be mainly utilized by the M&S units and GR PCO team) 5

Progress To-date The team conducted introductory meetings with Ministers and Heads of Government Entities, and started the second round of technical meetings with Monitoring Support Units staff (M&S) where available Meetings with Natural Owners and M&S Units Natural Owner Minister of Telecommunications Ministry of Energy and Water Meeting Date 16 March 2007 14 May 2007 EDL President 12 March 2007 HCP Secretary General 9 March 2007 CDR President 12 March 2007 Monitoring and Support Unit Meeting Date Ministry of Telecommunications M&S 30 March 2007; 18 April 2007; 24 April 2007 EDL M&S 20 March 2007; 13 April 2007; 20 April 2007; 30 April 2007 HCP M&S 22 March 2007; 13 April 2007; 20 April 2007; 27 April 2007; 7 May 2007 4 Technical meetings were conducted with Natural Owners to discuss their understanding of own commitments under Paris III 4 Most Natural Owners were positive on GR PCO implementation 4 Most M&S Unit members are committed to the GR PCO implementation process 4 Most M&S Units members came prepared with the initiatives plans submitted to Paris III 4 Some M&S Units lack the required human resources capacity needed for the process (e. g. , Mo. EW, EDL) 6

Progress To-date The Infrastructure and Privatization IMC has up to 4 Natural Owners with a total number of up to 10 programs… List of Infrastructure and Privatization IMC Programs Ministry of Telecom HCP 1. Establish the Telecom Regulatory Authority 1. Privatize mobile telecom 2. Corporatize Liban Telecom 2. Privatize other public entities Engagement Not Finalized to-date Ministry of Energy / EDL CDR 1. Corporatize, restructure and privatize EDL 1. Restructure CDR’s capacity to undertake reconstruction & development capital investments 2. Contribute in social development projects 2. Improve power sector efficiency 3. Rehabilitate and strengthen the capacity of the power sector 3. Contribute in developing the infrastructure and rationalizing expenditure 7

Progress To-date … And 74 initiatives, representing 23% of the total number of Paris III initiatives Distribution of Initiatives As Extracted from Paris III Document Energy/ EDL HCP CDR Social Affairs Distribution of Initiatives After Discussion and Reallocation to Natural Owners Social CDR Affairs HCP Health Telecom Education Labor/ NSSF OMSAR BDL Health Energy/ EDL Telecom Education Justice Economy & Trade OMSAR BDL Labor/ NSSF Economy & Trade Finance IMC # of Initiatives % of Total Initiatives Social 19 18% Social 128 39% Economic 66 65% Economic 122 38% Infrastructure 17 17% Infrastructure 74 23% TOTAL 102 100% TOTAL 324 100% 8

Issues and Challenges From the initial round of meetings, some issues emerged mainly related to initiatives ownership, sector strategy and staffing Issues Facing Infrastructure & Privatization IMC Natural Owner Ministry of Telecom (Mo. T) Initiatives Ownership Issues 4 Need to appoint LT Bo. D or alternative governance structure Natural Owner/ M&S Engagement Issues Sector Strategy Issues Staffing Issues 4 Need to finalize decision on whether to opt for mobile assets privatization or issuance of new “Greenfield” licenses Ministry of Energy and Water / EDL (Mo. EW/ EDL) 4 No consensus on approach for power sector reform: In-house 4 Mo. EW/ EDL reform vs. corporatization requires with Quick Wins recruitment of 4 A power sector reform plan is M&S staff currently being developed to be submitted to the World Bank 4 Potential overlap with Higher TRA on six initiatives Council for Privatization 4 Potential overlap with Mo. EW and Mo. T on (HCP) privatization initiatives 4 Strategy relating to privatization of other public entities (e. g. , airport, ports, tobacco) still under development 9

Prioritization of Initiatives Current initiatives can be prioritized according to several criteria including the extent to which they could translate into “quick-wins” and have a noticeable impact on the concerned sector reform Initiatives Prioritization Criteria Short-term Impact 4 Should have a noticeable impact before November 2007 4 The impact should affect a large part of the population 4 The impact on the concerned sector reform should be easily communicated to the public Absence of legislative barriers 4 Can be implemented without the need for legislation enactment 4 Requires long preparations (more than 5 months) before being submitted to the Parliament 4 Could be implemented with alternatives to legislation Budget availability / Ongoing activity 4 Already progressing and requires minimal budget 4 Budget already allocated through other sources 10

Prioritization of Initiatives Ministry of Telecom – Short-term Paris III Programs and Initiatives Y INAR List of Programs and Initiatives IM PREL Sector Reform Programs and Initiatives Stakeholders Preliminary Timeline Comments 1. Establish the Telecom Regulatory Authority 1 a. Create the Telecom Regulatory Authority and appoint its board Mo. T, Co. M Q 1 2007 2 a. Appoint Liban Telecom Board of Directors or Alternative Governance Structure 2 b. Setup Program Management Office (PMO) Mo. T, Co. M Q 2 2007 Mo. T, Liban Telecom Board Q 2 2007 2 c. Set-up provisional opening balance, and prepare asset transfer 2 d. Capitalize Liban Telecom by transferring budget Mo. T, Liban Telecom Board Q 3 2007 Mo. T, Liban Telecom Board, Mo. F Q 3 2007 4 Completed 4 TRA lacks resources 2. Corporatize Liban Telecom 11

Prioritization of Initiatives Ministry of Energy and Water / EDL – Short-term Paris III Programs and Initiatives Y INAR List of Programs and Initiatives IM PREL Sector Reform Programs and Initiatives Stakeholders Preliminary Timeline Comments 1. Corporatize, restructure and privatize EDL 1 b. Appoint qualified advisors to the Ministry of Energy Mo. EW/EDL, CDR, Mo. F, and Water and EDL: World Bank - Advisory team at Mo. EW to support on strategic planning and evaluation of electricity policy reforms - Consultancy team at EDL to perform operational, financial, accounting, legal and contract management activities, including coordinating and assisting the HCP and its advisory team in the corporatization and privatization of EDL 1 d. Complete the auditing of EDL financial statements Mo. EW/EDL from 2002 to 2006 Q 2 2007 – Q 3 2007 4 Terms of reference prepared and endorsed 4 Committee in CDR will evaluate the applications 4 Final decision by April 2007 Q 2 2007 – Q 2 2008 4 International auditor appointed 4 Start auditing the most recent financial statements, then go back to 2002 1 f. Retain consultants to assist the HCP with the corporatization, restructuring and privatization of EDL HCP, Mo. EW/EDL, CDR, Mo. F, World Bank Q 2 2007 Mo. EW/EDL, CDR Q 2 2007 – Q 2 2008 Mo. EW Q 2 2007 – Q 4 2007 Mo. EW/EDL Q 2 2007 (End of June 2007) Q 2 2007 – Q 4 2008 2. Improve power sector efficiency 2 a. Complete the establishment of a National Control Center to audit volumes and performance 2 c. Negotiate additional bilateral contracts for fuel oil to reduce high premiums 2 h. Award contracts for the supervision of the KEPCo operations and maintenance contracts 2 k. Reduce illegal network connections and enforce bill collection through support from security forces and the Justice department Mo. EW/EDL, Ministry of Interior, Mo. J 4 Contract signed by CDR with AREVA 12

Prioritization of Initiatives Ministry of Energy and Water / EDL – Short-term Paris III Programs and Initiatives … (Cont’d) Y INAR List of Programs and Initiatives IM PREL Sector Reform Programs and Initiatives Stakeholders Preliminary Timeline Comments 3. Rehabilitate and strengthen the capacity of the power sector 3 a. Hire consultants for the electricity sector generation and transmission Master Plan, to review least-cost investment needs and supply options 3 d. Complete the expansion and rehabilitation of the 220 KV transmission network Mo. EW/EDL Q 2 2007 4 Need 11 months to complete (according to EDL) Mo. EW Q 1 2007 – Q 2 2008 4 Two remaining lines: – Aramoun-Bsaleem (Issue in Mansourieh) – Bsaleem-Maameltein (Issue in Ghineh) 13

Prioritization of Initiatives Higher Council for Privatization – Short-term Paris III Programs and Initiatives Y INAR List of Programs and Initiatives IM PREL Sector Reform Programs and Initiatives Stakeholders Preliminary Timeline Comments 1. Privatize mobile telecom 1 a. Perform financial due diligence (reconstruct cash flows for 2004 -2006) 1 b. Conduct a technical due diligence of the two networks (technical review, asset confirmation, KPIs, IM sections) 1 c. Perform legal due diligence HCP, Mo. T Q 2 2007 14

Next Steps In its first meeting, each IMC should appoint a Secretary, which will provide administrative support to the IMC Functions of the IMC Secretary 4 Provide overall administrative support 4 Prepare agenda and circulate it before the meeting 4 Receive contribution of the IMC members and compile them 4 Distribute documentation to IMC members before the meeting 4 Prepare and distribute minutes of meetings 15

Next Steps Overall, four IMC meetings need to take place to finalize programs, timelines, KPIs and funding, with steady-state implementation progress reporting starting in August IMC Engagement Schedule – First Six Months Meeting Objectives First Round of IMC Meetings Second Round of IMC Meetings Third Round of IMC Meetings Steady-State Implementation Progress Reporting Dates 4 Appoint Secretary to the IMC and agree on his/her role 4 Review progress, and resolve escalated issues 4 Endorse initiative and program allocation, and resolve overlaps 4 1 st Infrastructure and Privatization IMC: 15 May 2007 4 Follow up on 1 st round of IMC meetings 4 Endorse cross ministerial initiative teams 4 Review and discuss program charters, plans and milestones 4 Start filtering funding / TA requirements 4 Resolve escalated issues 4 2 nd Infrastructure and Privatization IMC: 20 June 2007 4 Approve natural Owners funding/ TA requests 4 Endorse program charters including action plans, KPIs and milestones 4 Sign Paris III Commitment Documents with Natural Owners 4 3 rd Infrastructure and Privatization IMC: 16 July 2007 4 Follow up on 3 nd round of IMC meetings 4 Resolve issues arising out of funding requests and other items 4 Review monthly progress of implementation 4 Start steady-state implementation progress reporting 4 4 th Infrastructure and Privatization IMC: 20 August 2007 16

Next Steps Going forward, Natural Owners should finalize and prioritize their list of initiatives, and follow up on the development of Program Charters with their respective M&S Units Actions Required 4 Review and finalize programs and initiatives ownership: - Appoint Board of Director or “Alternative Governance Structure” for Liban Telecom in order to proceed with the corporatization exercise - Reach consensus on a common approach to the “Reform of the Power Sector” - Decide whether HCP, TRA or Mo. T should own initiatives for the privatization of mobile telecom - Decide whether HCP or Mo. EW/EDL should own initiatives for the restructuring, corporatization and privatization of EDL 4 Review and agree on short term initiatives prioritization 4 Identify the need for, and assign specific ministerial or inter-ministerial initiative teams 4 Follow-up on progress in development of Program Charters with M&S Units 17