Beirut, Lebanon January 30, 2008

1. PRESENTATION Infrastructure and Privatization Inter-Ministerial Committee Progress Report # 4 Beirut, Lebanon January 30, 2008

2. Today’s objective is to update your Excellencies on progress to-date against Commitment Documents of the respective stakeholders Meeting Objectives • Brief on the status of issues raised in the previous IMC and on progress to-date of GR PCO planning and monitoring activities • Following the last IMC dated August 24, 2007: 8 main issues were raised regarding the Power, Telecom and Transport Sectors, and the CDR • To-date, 2 issues were resolved, 1 is in progress, and 5 are delayed • Highlight progress and status of implementation of short-term programs in each sector (where available): • Monthly Progress Report against programs charted in commitment documents • New and Emerging Issues

3. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

4. The Paris III implementation planning process is generally on track, except for the Power Sector which is delayed, and the Transport Sector, which is still at the initiative identification phase

5. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

6. Status Implementation Budget KPI • Completed on Time • Completed on Budget • Completed on Target  • On Track • On Budget • On Target • Could be Delayed • Potential Over Budget • Emerging Issues • Delayed • Over Budget • Off Target • Not Started • N/A • N/A NS Monthly progress reports will highlight the status of each program – defined in a commitment document – along implementation, budget, and KPI dimensions Program Status and Budget Performance Definitions

7. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

8. Program Dashboard Program Title: TEL-001: Establish the Telecom Regulatory Authority Natural Owner: Minister of Telecom/TRA Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Transfer of qualified staff from MoT completed New: • TRA budget approved but not transferred yet • Second advanced payment approved but not transferred as of January 18th, 2008 • Review and approval of Ministry of Finance for financial procedures still pending Carried Over from Previous IMC: • Need to complete the process in transferring documentation and information from MoT to TRA • Numbering assignment database • RF planning and studies (ATDI, and other) carried out to the benefit of MoT • Transfer of Satellite licensing information • Transfer of RF management equipment Note: (*) Defined in the legend

9.  NS Completed On Track Could be Delayed Delayed Not started  

10. Program Dashboard Program Title: Tel-002: Corporatize and Privatize Liban Telecom Natural Owner: Minister of Telecom Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • MoT launched on IP TV pilot project • MoT is proceeding with its national project providing broadband services New: • None Carried Over from Previous IMC: • Need to appoint Liban Telecom Board of Directors or alternative governance structure Note: (*) Defined in the legend

11.  NS Completed On Track Could be Delayed Delayed Not started

12. Program Dashboard Program Title: TEL-003: Privatize mobile telecom Natural Owner: Secretary General of HCP and TRA Chairman Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Review and finalizing of the 4 regulation issued for consultation (Interconnection, SMP, Consumer Affairs, and Quality of Service and Key Performance Indicators) • Issue Type approval regulation for consultation • Finalize request for application • Finalize information memorandum • Launch of the mobile licensing process • Opening of the online data room along the auction website • Finalize the mobile draft license • Finalize all related document (due diligence reports) • Finalize draft transaction document (SPA) New: • None Carried Over from Previous IMC: • None Note: (*) Defined in the legend

13. Detailed Workplan Progress -- Sep 1, 2007 - Feb 29, 2008 Workstep Program/ Initiative/ Workstep Start Date End Date Duration Deliverable/ Milestone Status Responsible 1. Privatize mobile telecom 13/12/05 14/01/08 111 wks 1.a Draft and issue regulations (e.g., Interconnection, Competition, Consumer Guidelines, Universal Services, National Roaming) 02/04/07 28/12/07 40 wks 1.a.i Draft mobile telecom regulations 02/04/07 30/11/07 35.8 wks TRA Regulations drafted Draft regulations 1.a.ii Publish draft regulations on TRA website for review 08/06/07 03/12/07 26.2 wks TRA reviewed 1.a.iii Update draft regulations based on review 19/06/07 14/12/07 26.8 wks TRA Draft regulations updated 1.a.iv Issue telecom regulations 03/07/07 28/12/07 26.2 wks TRA Regulations issued 1.b Perform valuation of licenses 13/12/05 31/08/07 91.4 wks 1.b.iv Negotiate and sign contract with investment bank 14/07/06 06/07/07 52.6 wks HCP Contract signed HCP supported Valuation report 1.b.v Perform valuation of licenses 09/07/07 31/08/07 8 wks by TRA completed 1.c Perform financial due diligence 13/12/06 12/09/07 40.6 wks 1.c.iv Negotiate and sign contract with consultant 23/04/07 13/07/07 12.6 wks HCP Contract signed 2005-2006 audit 1.c.v Conduct statutory audit of MIC accounts (2005-2006) 02/04/07 31/07/07 18 wks HCP conducted HCP/ MoT 2004-2006 cash flows 1.c.vi Reconstruct cash flows (2004-2006) 01/08/07 29/08/07 4.2 wks (OSB) reconstructed HCP/ MoT 1.c.vii Conduct vendor due dilligence 01/08/07 12/09/07 6.2 wks (OSB) Vendor report submitted 1.d Perform technical due diligence 06/12/06 25/09/07 43.4 wks 1.d.iv Negotiate and sign contract with consultant 27/02/07 27/07/07 23 wks HCP Contract signed 1.d.v Present key findings from technical review and site visits and status of KPI analysis 01/08/07 21/08/07 3 wks HCP Key findings presented IM technical section 1.d.v Draft technical section for Information Memorandum 01/08/07 04/09/07 5 wks HCP drafted 1.d.vi Undertake KPI analysis 01/08/07 04/09/07 5 wks HCP KPIs determined 1.d.vii Verify networks' asset register 01/08/07 25/09/07 8 wks HCP Asset register verified 1.d.viii Forecast CapEx over 12 month 01/08/07 25/09/07 8 wks HCP CapEx forecasted 1.d.ix Perform network asset replacement valuation 01/08/07 25/09/07 8 wks HCP Valuation performed  NS Completed On Track Could be Delayed Delayed Not started                

14.  NS Completed On Track Could be Delayed Delayed Not started               

16. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

17. Program Dashboard Program Title: POW-001: Strengthen Sector Policy-Making Capacity Natural Owner: Minister of Energy and Water Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Recommendations for the Generation segment will be submitted on 17 February 2008 Recommendations for the Transmission segment will be submitted on 17 April 2008 Integrated report will be submitted on 17 July 2008 • Public Expenditure Review Completed New: • New variation order for NCC (New financing required) Carried Over from Previous IMC: • None Note: (*) Defined in the legend

18.  NS Completed On Track Could be Delayed Delayed Not started      

19.  NS Completed On Track Could be Delayed Delayed Not started NS

20. Program Dashboard Program Title: POW-002: Improve EDL Operational Efficiency Natural Owner: Minister of Energy and Water Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Viability report for Zouk Power Plant submitted • Tender was issued for Zouk and Jieh to perform feasibility study • Audit of 2002 accounts issued in draft form New: • EDL to provide KPI’s • Finalize Audit for 2002 account • Signature of Natural Gas agreement with Egypt • Proceed with Audit of financial statements from 2003 to 2006 Carried Over from Previous IMC: • Need to formalize KEPCO contract • EDL to follow up with consultants on the preparation of a technical report on the viability of Jiyyeh power plant • Advisors hired for MoEW, EDL and HCP have submitted their first deliverables – Decon contacted Azorom – Advisors should coordinate with IFC Note: (*) Defined in the legend

21.        NS Completed On Track Could be Delayed Delayed Not started

22.  NS Completed On Track Could be Delayed Delayed Not started

23. Program Dashboard Program Title: POW-003: Corporatize and Privatize EDL Natural Owner: Secretary General of the HCP Program Overall Status: Period: Jan 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • EDL restructuring kick off was end of September 2007 • Sector strategy presented to the PM and IMC committee in January 2008 and approved New: • Need for law 462 amendment regarding certain issues Note: (*) Defined in the legend

24.  NS Completed On Track Could be Delayed Delayed Not started              

25.  NS Completed On Track Could be Delayed Delayed Not started

28. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

29. Airport privatization roadmap and ports privatization approach were developed by the GR PCO consultant, and need to be discussed with the Minister of Transport and HCP Secretary General Transport Sector Progress • Following the request of the Prime Minister and the Minister of Transport during the IMC meeting on 5/7/2007, the GR PCO consultant developed the following: • Air Transport: Detailed roadmap for the privatization of the Beirut Rafic Hariri International Airport (BRHIA) • Maritime Transport: Approach to privatizing the different ports, including quick-wins • These proposals need to be discussed and finalized with the Prime Minister, the Minister of Transport and HCP Secretary General

30. Table of Contents Air Transport Maritime Transport

31. The aviation sector liberalization Law 481 calls for the set up of an Aviation Authority and an Airport Company, and clearly defines the roles and responsibilities of each Planned Institutional Structure of Civil Aviation in Lebanon Entity Key Roles Government Responsible Agency Ministry of Public Works and Transport (MPWT) • Propose CAA Board appointment or termination for the Council of Ministers • Set compensation and rules for Board Directors • Provide guidelines and approve overall aviation policy Planning and Regulation Civil Aviation Authority (CAA) • Propose aviation policy and key initiatives • Develop and enforce safety and economic regulations for airports, airlines and air traffic control • Propose development project for existing and new airports • Negotiate international agreements and ensure close cooperation with ICAO and other international and regional organizations Operations Beirut Rafic Hariri International Airport Corporation (BRHIAC) • Plan and manage airport operations in coordination with government agencies • Plan and decide on subcontracting service providers for airport activities, and ensure supervision and coordination of all providers • Provide air navigation, communication, and metrological observation services Source: Law 481, Other Regulations

32. The CAA is the safety and economic regulator, while BRHIAC is the company that is fully responsible for running the Beirut Airport Allocation of Selected Key Aviation Responsibilities Minister of Transport CAA BRHIAC Aviation Policy • Set guidelines, approve policies, and submit for CoM (where needed) • Develop draft policy and laws in consultation with stakeholders • Contribute / Propose own plans Safety Standards • Develop and Enforce safety standards and rules for airport, airline, and ATC • Fully comply with all safety standards Accident / Incident Investigation • Accident Investigation office under Minister leads investigations • Contribute to accident and incident investigation • Contribute / participate Licensing Personnel, Equipment and Flights • License personnel, aircrafts and airline flights in line with safety and bilaterals • Ensure personnel, aircraft and flights admitted are licensed Bilateral Agreements • Review and process for approval as per Lebanese law • Conduct negotiations and implement provisions • Provide input Airport / Airline Tariff • Approve aviation tariff and/or refer to CoM as per aviation laws • Set fees for services by CAA • Review and approve aviation tariff • Collect airport fees and fares Airport developments / investments • Review plans for compliance with safety and economic regulations • Plan and submit studies for airport development and investment initiatives Outsourcing Contracts and Tenders • Review compliance with regulations and safety guidelines • Develop tender and approve winners in compliance with laws Operations Management, Outsourcing Supervision • Review compliance with regulations and license personnel and equipment • Plan and manage operations and supervise all service providers Airport Planning and Budgeting • Review and submit budget for government approval • Develop and propose airport plans and budgets Source: Law 481, Other regulations

33. The GoL postponed the creation of the CAA and BRHIAC despite the enactment of the aviation Law and the CAA decree since 2002 and 2003 Civil Aviation Institutional Structure – Status of Implementation Current Organization of the Directorate General of Civil Aviation Current Status Director General • In August 2003, the CoM issued decrees defining and creating the organization of the CAA, as well as incorporating the BIAC • Since then, studies have been prepared for detailed organization and manpower of the new institutional set up • However, the GoL has delayed implementation of the decrees, without providing a revised timeline • To-date, the CAA Board is not appointed and no progress have been made in setting up BRHIAC Technical Affairs Meteorology Aviation Safety Air Transport Research and Studies Airports Air Navigation Directorate Airport Studies Directorate Equipment Maintenance Directorate Beirut Airport Presidency Air Communication Directorate Technical Installation Directorate Source: Directorate General of Civil Aviation

34. The new CAA organization is planned to have two core functions focused on safety and economic regulations Proposed Civil Aviation Authority Organization Structure(1) CAA Board of Directors Performance & Quality Control Secretariat of the Authority Administrative Directorate Civil Aviation Safety Directorate Air Transport Directorate Environment & Meteorology Directorate Lebanese Civil Aviation Training Center Financial Affairs Airworthiness Int’l Agreements & Authorizations Meteorology Promotion & Development Legal Affairs Flight Operations Economic Studies & Financial Revenues Environment & Climate Human Resources & Technology Transfer Personal Affairs & Supplies Licenses Information Technology Aerodrome Public Relations Air Traffic Safety and Economic Regulatory Functions (1) Proposed as part of a study on the organization, job descriptions and manpower plans of the new CAA and BRHIAC Source: Directorate General of Civil Aviation

35. Most of the Beirut Airport activities are currently managed by MEA subsidiaries or private companies Beirut Rafic Hariri International Airport – Privatized Activities Government MEA* Subsidiary Privatized through Concession Comments Infrastructure provision & site management  • Managed by Directorate General of Civil Aviation (DGCA) Asset / Facility Management  • Managed by Directorate General of Civil Aviation (DGCA) Free Zone  • Managed by Directorate General of Civil Aviation (DGCA) Asset / Facility Operation and Maintenance  • Operated and maintained by Middle East Airports Services (MEAS) Airport parking  • 15-year BOT concession won by Al-Khorafi of Kuwait Retailing  • 15-year concession won by Phoenicia-Aer Rianta Company Catering  • 15-year concession awarded to Abella Fueling  • 15-year concession won by a consortium of 5 local companies Cargo  • Cargo handled by Middle East Airlines Ground Handling (MEAG) Ground Handling   • Ground handling by MEAG, LAT, ASAS, EAS, Flying Carpet, and Beirut Wing Aircraft Maintenance   • Aircraft maintenance by Mideast Aircraft Services Company (MASCO), and TMA Aircraft Catering  • Aircraft catering by Lebanese Beirut Airport Catering Company (LBACC) Note: (*) MEA is organized as a private company under the commerce code, but is 96% held by the GoL and is under the financial responsibility of BDL

36. However, four key requirements need to be addressed upfront to enable the privatization Beirut Rafic Hariri International Airport Privatization – Key Requirements Description Rationale CAA Set Up • Appoint the Board of Directors • Fully develop the organization and build all requisite safety and economic regulations capabilities • Potential investors need to be reassured about the existence of an independent regulator, as such, they need to know who the regulator will be BRHIAC Set Up • Appoint the Board of Directors • Fully develop the organization • Transition all airport operating responsibilities and staff from DGCA to BRHIAC as per Law • Potential investors need to be reassured about the split between the regulator and the operator of the airport Government Agencies Coordination • Ensure each government agency understands and accepts its mandate post-privatization • Ensure coordination and conflict resolution mechanisms between government agencies • Unsupportive and uncoordinated work of government security and control agencies directly impacts negatively on airport operations and commercial services Timing • Confirm the form of the privatization option and define the process timeline – consider extending Lease term to more than 50 years • Determine a transaction timing with favorable growth prospects and political situation • The ability to attract investors and the value of privatization proceeds is heavily dependent on traffic growth prospects and political stability

37. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term As such, the privatization roadmap starts with the establishment of the institutional structure before developing the privatization scheme List of Programs and Initiatives PRELIMINARY

38. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term The privatization can then be launched at the right timing, targeting selected operators and followed by a carefully planned transition List of Programs and Initiatives PRELIMINARY

39. Table of Contents Air Transport Maritime Transport

40. Beirut and Tripoli Ports are currently operated and managed by the GoL, except for the Container Terminal activities of the Port of Beirut (PoB) which are outsourced through a concession agreement Ports Components Privatization in Lebanon Government Privatized through Concession Comments Infrastructure provision & site management • Managed by Gestion et Exploitation du Port de Beyrouth (GEPB) Beirut Port  Asset / Facility Management • Managed by Gestion et Exploitation du Port de Beyrouth (GEPB)  Asset / Facility Operations and Maintenance • Operated and maintained by Gestion et Exploitation du Port de Beyrouth (GEPB)  General Cargo Operations • Managed and operated by Gestion et Exploitation du Port de Beyrouth (GEPB)  Container Terminal Operation • POB subcontracted container terminal operation to Beirut Container Terminal Consortium (BCTC) in February 2005 • POB signed a partnership contract with MSC* • CMA-CGM also established a hub at POB  Tripoli Port Infrastructure provision & site management  Asset / Facility Management  Asset / Facility Operations and Maintenance  All Cargo and Container Operations  Note: (*) Mediterranean Shipping Company (MSC)

41. Maritime Transport Authority (MTA) Set Up • Establish a Maritime Transport Authority • Appoint Board of Directors of MTA • Fully develop the organization and build all requisite safety and economic regulations capabilities • Potential investors need to be reassured about the existence of an independent regulator Maritime Sector Privatization Law • Develop a Privatization Law for the Maritime Sector • Specify the potential privatization options, and define the transition of responsibilities and staff phases • A law (similar to Civil Aviation Law 481) needs to be drafted for the Maritime Sector in order to enable port privatization Maritime Sector Strategy • Develop a Maritime Transport Sector Vision for Lebanon • Develop a 5-year Maritime Transport Strategy • Clarify the appropriate organization and roles of port administrations, regulatory institutions, and the private sector • GoL needs to have a clear vision and strategy allowing it to have a clear maritime structure and privatization path Three key requirements need to be addressed upfront to enable the privatization of Beirut and Tripoli Ports Beirut and Tripoli Ports Privatization – Key Requirements Description Rationale

42. Strategy Components Operational Restructuring Maritime Sector Privatization Roadmap PRELIMINARY Sector Policy Sector Liberalization Ports Privatization Preliminary Targets: 1/9/2007 2008 2009 2010 2011 I.1 Assess Market Demand and Economics Develop & Strengthen Regulator Capability Restructure and Corporatize Functional Areas (when applicable) I.2 Develop Maritime Sector Strategy Develop Port of Beirut by Increasing the Holding Capacity of the Container Terminal* Commercialize Administrative, Human Resources and Internal Services I.3 Define Liberalization and Commercialization Options and Timelines Complete Development Work of the Port of Tripoli* Commercialize Service Provision I.4 Develop Regulatory Structure, Methodologies, and Phased Regulations II.1 II.3 Determine Implications and Critical Improvements for Infrastructure Model Develop Privatization Plan for Commercial Maritime Assets I.5 Develop Maritime Sector Privatization Law II.2 II.4 Develop Port and Port-related Business Strategies Determine Socio-Economic Implications by Region Source: (*) Lebanon Maritime Transport Policy , May 2006

43. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term As such, the privatization roadmap starts with the development of a sector strategy and establishment of the institutional structure, before developing the privatization scheme List of Programs and Initiatives PRELIMINARY Note: (*) In light of Sector Strategy and Privatization Law outcome

45. Table of Contents GR PCO Planning & Monitoring Monthly Progress Reports Telecom Sector Power Sector Transport Sector CDR Next Steps

46. Program Dashboard Program Title: CDR-001: Restructure CDR’s capacity to undertake investments Natural Owner: President of CDR Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Job Vacancies List Prepared • Consultants on contract basis hired (from foreign grants) • New Procurement Law endorsed by CoM New: • None Carried Over from Previous IMC: • None Note: (*) Defined in the legend

47.  NS Completed On Track Could be Delayed Delayed Not started  NS NS   

48. Program Dashboard Program Title: CDR-002: Develop Public Investment Plan for 2009-2012 Natural Owner: President of CDR Program Overall Status: Period: January 2008 IMC: Infrastructure and Privatization Achievements Since Last Report Key Issues • Public Investment Plan submitted to Council of Ministers New: • None Carried Over from Previous IMC: • None Note: (*) Defined in the legend

49.  NS Completed On Track Could be Delayed Delayed Not started  