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Summary of proposed guarantee

Summaries of proposed guarantees are provided prior to Board consideration and before final contract signing, and they are therefore subject to change. Project briefs are disclosed after Board consideration and contract signing and reflect the terms of the project at the time of contract signature. Environmental and Social Review Summaries are provided for projects assigned an Environmental Assessment Category of A or B.

 

Project name
Butec Utility Services S.A.L. in Lebanon
Project ID
11576
Fiscal year
2013
Status
Active
Guarantee holder
Butec International Ltd.; El Sewedy
Investor country
Egypt, Arab Republic of
Cyprus
Host country
Lebanon
Environmental category
B
Sector
Services
Date SPG disclosed
February 28, 2013
Project Board date
April 02, 2013
Gross exposure
 $64.7 million
Project type
Non-SIP
Strategic priority area
South-South

Project Description

This summary covers an investment by Butec International Cyprus and El Sewedy Electric of Egypt in Butec Utility Services S.A.L. in Lebanon. The investors have applied for MIGA guarantees totaling $64.7 million for a period of up to four years. The guarantees will cover the risks of non-payment by the government of Lebanon of an arbitral award in favor of the guarantee holders or Butec Utility Services S.A.L (BUS), whether in the dispute resolution procedure provided under a contract between BUS and Electricité du Liban (EDL), or in an arbitration pursuant to each investor’s respective Bilateral Investment Treaty; denial of recourse to the guarantee holders to an arbitral forum to determine such claim; and war and civil disturbance.

BUS has been awarded a four year power distribution service provider contract for the Northern Lebanon region serving 350,000 households. The contract was awarded by EDL, a state-owned enterprise that controls 90 percent of the power generation, transmission, and distribution services in the country. BUS, which is majority owned by Butec International Cyprus and its affiliates, will execute the contract along with several partners experienced in power distribution. This includes El-Sewedy of Egypt, which will supply the metering system. The asset-management component of the contract involves operations and maintenance, planning and design, construction, and network surveys. The customer care services component includes establishment of call and contact centers, meter reading, and reduction of non-technical losses.

Environmental Categorization

The project is a category B under MIGA’s Policy on Social and Environmental Sustainability. Click here to view the Environmental and Social Review Summary prepared by the International Finance Corporation, which is providing financing to Butec Holding.

Development Impact

Lebanon’s power sector suffers from chronic supply shortages in the face of growing demand. The reform of the electricity sector was set as a priority for the government in 2010, when it endorsed an action plan for the sector including the upgrade of the transmission distribution network to reduce technical losses and installation of advanced metering infrastructure to reduce non-technical losses. The World Bank was a contributor to the policy paper and has been involved in its implementation through grant funding for feasibility studies and technical assistance support. The project is aligned with the World Bank’s Country Partnership Strategy for Lebanon, which specifically mentions support for the government’s plan to reform the electricity sector by transferring to the private sector the rehabilitation of transmission and distribution networks and the distribution, billing, and collection functions.

Specifically, the project would improve efficiency and reliability through better distribution facilities, improved operation, and better maintenance. Upgrading the distribution network will increase the quality of service to consumers through wider access to the network, shorter load shedding periods (currently at six hours/day on average in Beirut alone), less need to rely on more expensive private generation of electricity, and better consumer care. Improvements in efficiency and reliability would reduce technical losses and meter installation would lead to a reduction in non-technical losses. Together, these losses are estimated to cost EDL $300 to 400 million annually.

The project will also generate approximately 350 new jobs and will generate an average of $3.9 million in taxes, royalties, and duties for the government annually.

 
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