Beirut, Lebanon July 5, 2007

1. PRESENTATION Infrastructure & Privatization Inter-Ministerial Committee Progress Report # 2 Beirut, Lebanon July 5, 2007 This document is confidential and is intended solely for the use and information of the client to whom it is addressed.

2. Today’s objective is to update your Excellencies on progress to-date, endorse the Telecom and Power Sector Programs, discuss the Ministry of Transport and CDR’s plans, and highlight key issues Meeting Objectives • Brief your Excellencies on the status of issues raised in the previous IMC and on progress to-date of GR PCO planning and monitoring activities • In the last IMC, 5 main issues were raised regarding the Power, Telecom and Transport Sectors: To-date, 2 issues were resolved, 2 are in progress, and 1 is delayed (details in appendix) • Highlight progress and status in each sector (where available): • Paris III Program Milestones (2007 and 2008) • Short Term Technical Assistance Requirement • Short Term Initiatives Implementation Progress and Issues • Endorse the Telecom and Power Sector Programs • Agree on the prioritization of the proposed Transport initiatives • Discuss CDR engagement under Paris III

3. The Paris III implementation planning process is generally on track – Delays could occur in the Power and Transport sectors Progress To-date Infrastructure & Privatization IMC Progress To-date

4. Telecom Sector A Telecom Sector Corporatization & Privatization plan, structured along three main streams, has been endorsed by all stakeholders Telecom Sector Corporatization/ Privatization – Program Milestones 2007 Milestones 2008 Milestones 1 Establish the Telecom Regulatory Authority (TRA) • TRA created and Board appointed • Decrees to facilitate the operations of TRA issued • All regulatory functions transferred to TRA 2 Corporatize Liban Telecom • Liban Telecom established and Board or alternate governance structure appointed • Restructuring Program Management Office (PMO) created • Liban Telecom organization structure formalized • Provisional opening balance setup, and Liban Telecom budget transferred • Business support systems and marketing plan implemented • Customers and vendors contracts migrated • LT brand created and Web presence established • Employees migrated to new organization • Mobile License for Liban Telecom issued • Liban Telecom officially launched 3 Privatize Mobile Sector • Key regulations issued • Financial, technical, and legal due diligence performed • Auction rules and procedures for sale of assets / licenses finalized • License/ privatization auction launched • Termination notice sent to existing operators Note: Program Charters and initiatives in Appendix

5. Telecom Sector However, progress is obstructed by a slow process in transferring documentation to TRA, absence of a governance body for Liban Telecom, and delays in finalizing legal opinion on asset transfer Telecom Sector Corporatization/ Privatization – Short Term Initiatives Progress and Issues Progress on Short Term Initiatives Issues 1 Establish the Telecom Regulatory Authority (TRA) • TRA was established and Board appointed • Decrees to facilitate TRA operations are being issued • TRA regulatory functions defined • Need to speed-up the process in transferring documentation and information (e.g., Radio Frequency, Licensing, Authorizations, Studies) from MoT to TRA 2 Corporatize Liban Telecom • Decree # 13944 establishing and capitalizing Liban Telecom issued • Need to appoint Liban Telecom Board of Directors or alternative governance structure, and to assign PMO Members 3 Privatize Mobile Sector • TRA issued 3 mobile telecom regulations (SMP, Interconnection, and Consumer Affairs) • Valuation of licenses and legal due diligence in progress • Tendering for financial and technical due diligence advisors in progress • Legal opinion on ways to proceed with the privatization of mobile telecom assets, based on Privatization Law, sent to MoJ for review • Need to speed-up the process in finalizing decision on the available options regarding assets transfer (sale vs. lease) – Currently, legal opinions developed by HCP’s and TRA’s advisors, have been sent by the Minister of Telecom to the Department of Legal Administration at the Ministry of Justice for final verdict

6. Advisory support for restructuring implementation • $ TBD • Auditing of LT – Auditor fees • $ 1,000,000 • Developing new brand for Liban Telecom – PR consultants fees • $ 50,000 • $ 600,000 • Valuation of licenses – Advisory fees • $ 250,000 • Financial due diligence – Advisory fees • $ 600,000 • Technical due diligence – Advisory fees • $ 500,000 • Publication of RFA in international and local newspapers • $ 300,000 • Creation of virtual data room Telecom Sector Once key issues are resolved, Telecom Sector Natural Owners will need technical assistance support of around $3.3 million to achieve short term milestones Telecom Sector Corporatization & Privatization Short Term Technical Assistance Requirement (Pre-November 2007) Programs Milestones Budget Items Amount Total Budget Establish the Telecom Regulatory Authority • TRA created and Board appointed • Decrees to facilitate the operations of TRA issued • All regulatory functions transferred to TRA - - - Corporatize Liban Telecom • LT established and Board or alternate governance structure appointed • PMO created • LT organization structure created • Provisional opening balance setup, and LT budget transferred $ 1,050,000 Privatize Mobile Sector • Mobile telecom regulations issued • Valuation of licenses, and financial, technical, and legal due diligence performed • Auction rules and procedures for sale of assets / licenses finalized $ 2,250,000 Note: All budgetary requirements should be reviewed and endorsed by the Ministry of Finance

7. Power Sector A Power Sector Program, structured along three main streams, has been endorsed by all stakeholders – This program is detailed in the Appendix Power Sector Program Milestones 2007 Milestones 2008 Milestones 1 Strengthen Sector Policy-Making Capacity • IMC to oversee sector reform created • Policy & Planning advisors to MoEW retained • Electricity Sector Expenditure Review (World Bank) completed • National Control Center established • Master Plan & Public Investment Plan for Generation and Transmission completed 2 Improve EDL Operational Efficiency • Advisors to EDL appointed • Auditor for 05-06 accounts appointed • Contract for the supervision of KEPCO awarded • Technical report on viability of Zouk and Jiyyeh plants completed • EDL 2002-2006 accounts audited • NG to Beddawi plant committed • 220kV grid rehabilitated • 400kV Ksara substation expanded 3 Corporatize and Privatize EDL • Consultant to HCP appointed • Energy Regulatory Authority created • Power meters BOT contracted • EDL Asset Register completed • Additional capacity in Deir Ammar contracted through IPP • EDL restructuring plan approved by CoM • EDL corporatized (unbundled into subsidiaries for generation, transmission and distribution) • EDL bylaws approved by CoM • Management of distribution privatized Note: Detailed program (in Appendix) agreed by MoEW, EDL, MoF, HCP, and CDR

8. Power Sector Preliminary issues have surfaced while implementing short term initiatives Power Sector Short Term Initiatives Progress and Issues Progress on Short Term Initiatives Issues 1 Strengthen Sector Policy-Making Capacity • Qualified advisors at the Ministry of Energy and Water to support on strategic planning and evaluation of electricity policy reforms selected (contract negotiations currently underway) • EDF hired and financed by AFD to develop a Master Plan for power sector generation & transmission Improve EDL Operational Efficiency • Auditor appointed for EDL 2002-2006 financial accounts – Auditors started working on 2002-2004 financial accounts • Consultancy team at EDL to perform operational, financial, accounting, legal and contract management activities selected (contract negotiations currently underway) • Need to formalize KEPCO (BDL rejected EDL’s request to open LC, which has been resent to MoF) • Need to hire supervision company for KEPCO • Need to shift focus of auditors to EDL’s 2005-2006 accounts (or have them work in parallel on 2002-2004 and 2005-2006 accounts) 2 3 Corporatize and Privatize EDL • Candidates for staffing the Electricity Regulatory Authority are being interviewed • Contract signed with CRA to tender the installation of remote meters • Contract signed with IFC for attracting IPP to install additional capacity at Deir Ammar and investigate sale of plant

9. Transport Sector Short-term transport sector priorities were discussed with the Minister, after meeting with the main stakeholders – A roadmap to implement these is being developed Transport Sector Progress • GR PCO met with Transport sector key stakeholders (Minister of Transport, Former Director General of the Ministry of Transport, Civil Aviation Director General, and Port Authority President) • Transport sector priorities were agreed upon with the Minister of Transport: • Airport privatization: Need to start preparing for the BRHIA privatization (e.g., concession or sales of assets), while establishing the CAA • Ports expansion and corporatization: • Need to corporatize Beirut and Tripoli ports – Tripoli port might represent less challenges for corporatization • Need to consider expansion of both ports through private sector involvement • Next steps consist in developing a roadmap for the prioritized activities, to be agreed upon by all stakeholders (Minister of Transport, HCP SG, Civil Aviation DG, Port Authority DG, and MoF)

10. CDR The CDR is working on enhancing its internal capabilities and developing a Public Investment Plan CDR Programs and Initiatives 1 Enhance Internal Capabilities • Strengthen CDR’s procurement, financial management and legal functions capabilities: • CDR is planning to launch soon the process of filling job vacancies for its existing organizational structure • CDR will continue making use of foreign grants to contract consultants until all open position are filled • Streamline related internal processes from bid and terms of reference preparation to contracts management and disbursement: • CDR relies on the policies internationally adopted for its internal procurement processes, which vary according to the funding party requirements 2 Develop Public Investment Plan • A task force has been created and includes CDR, Ministry of Finance, and the Office of the President of the Council of Ministers • The mandate of the task force is to develop a Public Investment Program (PIP) • The task force is expected to work under the following guidelines: • The Public Investment Plan should have a specific financial ceiling (defined by the MoF) • The investment program should be in-line with the National Land Use Plan • The investment program should ensure sector management capacity (e.g., capacity to maintain the asset), as well as, achieve cost recovery

11. Going forward, Natural Owners should resolve pending issues, finalize short term budget requirements, and endorse Paris III Commitment Documents Next Steps Actions Required • Telecom Sector: • Appoint Liban Telecom Board in order to proceed with the corporatization process (in the interim, PMO member would be reporting to the Steering Committee) • Finalize legal decision on whether to sell or lease the mobile assets, when issuing new licenses (Follow-up on Ministry of Justice for final verdict) • Transfer relevant documentation and information from the Ministry of Telecom to TRA • Power Sector: • Develop and finalize Power Sector detailed workplans for short-term initiatives • Formalize KEPCO contract • Initiate auditing of EDL’s 2005-2006 financial accounts • Transport Sector: • Align key stakeholders on a roadmap for implementing priority programs • Agree on CDR short-term initiatives, develop and finalize their detailed workplans • Review and approve funding and TA requests, and finalize short term requirements • Endorse Paris III Commitment Documents (Natural Owners)

12. Next Steps A third IMC meeting should take place to finalize programs, timelines, KPIs and funding, with steady-state implementation progress reporting starting end of August IMC Engagement Schedule (May – August 2007) Meeting Objectives Dates • Appoint Secretary to the IMC and agree on his/her role • Review progress, and resolve escalated issues • Review initiative and program allocation, and resolve overlaps • 1st Infrastructure and Privatization IMC: 15 May 2007 First Round of IMC Meetings • Follow up on 1st round of IMC meetings • Endorse initiatives and program allocation • Endorse cross ministerial initiative teams • Resolve escalated issues • 2nd Infrastructure and Privatization IMC: 5 July 2007 Second Round of IMC Meetings • Follow up on 2nd round of IMC meetings • Review and approve natural Owners funding/ TA requests • Endorse Paris III Commitment Documents (Natural Owners) • 3rd Infrastructure and Privatization IMC: 22 August 2007 (tentative) Third Round of IMC Meetings

13. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

14. IMC Issues Register Liban Telecom corporatization is still delayed due to lack of proper governance structure – Mobile sector privatization is still awaiting the outcome of legal consultations on assets transfer Infrastructure & Privatization IMC Issues Register

15. IMC Issues Register A Power Sector Program has been endorsed by all stakeholders – Key transport privatization initiatives have been identified by the Minister of Transport Infrastructure & Privatization IMC Issues Register

16. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

17. Program Objectives/Description High Level Work Plan • Establish the TRA to regulate the telecommunications sector • Achieve a competitive telecommunications market to deliver state-of-the-art services at affordable prices to the broadest spectrum of the Lebanese population • Create the Telecom Regulatory Authority and appoint its board • Issue decrees to facilitate operations of TRA • Transfer regulatory responsibilities to the TRA • Draft telecom policy outlining the liberalization path to be followed Telecom Sector Telecom Sector – Program Charter 1 Program Title Establish the Telecom Regulatory Authority Program Owner Minister of Telecom Program Number TEL-001 Key Stakeholders Council of Ministers, TRA, MoF Key Risks • MoF or MoT might not approve TRA budget • CoM might not allocate budget on time • CoM might delay financial and organizational decrees issuance • MoT might delay the transfer of responsibilities to the TRA Resources Requirements Description Milestones and Key Deliverables Technical Assistance • Management consultants to assist TRA in mapping existing MoT regulatory processes • Management consultants to design new processes • TRA Board appointed • TRA budget approved and transferred • TRA financial procedures approved by ministers of Telecom and Finance • Documentation transferred by MoT • Information regarding current regulatory functions and relevant material transferred by MoT • TRA functions fully staffed Budget Ministry Team • TRA Board • MoT Director General of Operations & Maintenance • MoT Director General of Equipment & Construction • MoT OSB Director KPIs • [To be developed at a later stage]

18. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term Telecom Sector Telecom Sector – Summary of Paris III Programs and Initiatives (Charter 1) List of Programs and Initiatives

19. Program Objectives/Description High Level Work Plan • Establish and corporatize Liban Telecom • Prepare the ground for privatization, hence creating a more competitive telecommunications sector, and implementing an important phase of the Telecom Law enacted in July 2002 • Issue decrees to establish LT and appoint governance structure • Setup Program Management Office (PMO) • Create LT organizational structure • Setup provisional opening balance and prepare asset transfer • Capitalize LT by transferring budget • Implement business support systems • Implement marketing plan • Set-up sales outlets • Migrate contracts with customers and vendors • Create LT brand and establish web presence • Migrate employees for LT launch • Issue license for Liban Telecom • Launch LT Milestones and Key Deliverables • LT governance structure appointed • PMO staffed • LT Level 1 appointed • LT license issued • LT launched Telecom Sector Telecom Sector – Program Charter 2 Program Title Corporatize Liban Telecom Program Owner Minister of Telecom Program Number TEL-002 Key Stakeholders Council of Ministers, Liban Telecom Board, PMO, Ministry of Finance, HCP, TRA Key Risks • Steering Committee might delay setup of PMO • CoM might delay decree issuance Resources Requirements Description Technical Assistance Budget • Budget from Paris III*: $ 1,050,000 (*) Excluding implementation advisory support and privatization KPIs Ministry Team • Director General of Operations & Maintenance • Director General of Equipment & Construction • OSB Director • [To be developed at a later stage]

20. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term Telecom Sector Telecom Sector – Summary of Paris III Programs and Initiatives (Charter 2) List of Programs and Initiatives Note: (*) Liban Telecom Board or temporary governance structuring namely Steering Committee in which the PM and Minister of Telecom are permanent members

21. Telecom Sector Telecom Sector – Program Charter 3 Program Title Privatize mobile telecom Program Co-Owner Secretary General of HCP and TRA Chairman Program Number TEL-003 Key Stakeholders Minister of Telecom, Parliament, CoM Program Objectives/Description High Level Work Plan • Draft and issue regulations (e.g., Interconnection, Competition, Consumer Guidelines, Universal Services, National Roaming) • Perform valuation of Licenses • Perform financial due diligence • Perform technical due diligence • Perform legal due diligence • Define and finalize the legal basis for the transfer of ownership of mobile assets • Finalize auction rules and procedures • Publish invitation to tender and pre-qualification / qualification criteria • Distribute Information Memorandum (IM), and provide data room access and site visits • Review transaction documents based on bidders’ comments, and distribute revised documents • Receive financial bids and conduct live auction • Send termination notice to existing operators The privatization of the mobile sector consists in the issuance of two licenses and the sale or lease of related assets • Ensure continuity of service as current management agreements expire on June 1, 2008 • Improve service quality • Offer a broader variety of services • Alleviate public debt and ensuing budgetary deficit • Open access to best practice management and operations • Create a more competitive telecom sector Key Risks • Lack of coordination from the current operators • Parliament not convening Resources Requirements Description Technical Assistance • Investment banks • Financial, legal, and technical consultants • International auditor Milestones and Key Deliverables • Mobile telecom regulations issued • Auction rules and procedures for sale of assets / licenses finalized • Financial bids received and live auction conducted • Termination notice to existing operators sent Budget • Budget from other sources: $ 700,000 • Budget from Paris III: $ 2,250,000 • TOTAL BUDGET: $2,950,000 Team • HCP Secretary general • Financial experts • Economic experts • Legal experts • TRA experts KPIs • [To be developed at a later stage]

22. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term Telecom Sector Telecom Sector – Summary of Paris III Programs and Initiatives (Charter 3) List of Programs and Initiatives Note: (*) MoT denotes the Minister of Telecommunications; (1) Owner Supervisory Board

23. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

24. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

25. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

26. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

27. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

28. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

29. XXX Natural Owner TIMING: S: Short term M: Medium Term L: Long Term Power Sector Power Sector – Plan Agreed by Stakeholders (cont’d) List of Programs and Initiatives

30. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

31. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term Transport Sector Transport Sector – Summary of Paris III Programs and Initiatives PRELIMINARY List of Programs and Initiatives

32. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term Transport Sector Transport Sector – Summary of Paris III Programs and Initiatives PRELIMINARY List of Programs and Initiatives

33. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

34. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term CDR CDR – Summary of Paris III Programs and Initiatives List of Programs and Initiatives

35. Appendix IMC Issues Register Telecom Sector Power Sector Transport Sector CDR Programs Other HCP Programs

36. XXX Natural Owner IMPLEMENTATION: S: Short term M: Medium Term L: Long Term HCP Higher Council for Privatization – Summary of Paris III Programs and Initiatives List of Programs and Initiatives