Finance Minister Mohammad Safadi Thursday said a deal with a Turkish company set to supply Lebanon with electricity generating boats this summer hangs in the balance, with the supplier having failed as yet to meet the his ministry’s conditions.
“We still do not have an agreement on the power generating ships with the suppliers. The price they have agreed on does not comply with requirements of the Finance Ministry. They dropped their prices by 9 percent because of financial sweetness [packages] which were offered to them,” Safadi told The Daily Star in an interview.
A ministerial committee agreed on April 5 to lease two electricity generating boats from a Turkish company this summer after the firm slashed the original price by 9 percent and reduced the leasing period to two years.
According to the agreement, the Turkish company Karadeniz will send the first boat to Lebanon in August this year while the second ship will be dispatched a few months later.
“Basically, there are things we can do by law and things that we cannot do by law,” Safadi said, adding that agreement is still loose.
The minister suggested that the incentives offered to the Turkish company such as tax reductions and Letters of Credit are questionable and will not fly unless the firm meets the conditions of the Finance Ministry.
“I can’t say that the deal with the company has collapsed. If the suppliers agree on our terms then the problem is solved,” Safadi said.
He added that if the Cabinet or the Parliament wants to compromise on this, it will be their choice, but his ministry cannot negotiate on the matter.
The news of the government’s intention to lease the electricity boats has raised hopes that severe electricity rationing will be reduced considerably during the sweltering summer season.
Safadi also expressed concern that failure to pass a draft law authorizing LL8.9 trillion in extra-budgetary spending and the 2012 draft budget could put strains on most ministries and affect allocations to some vital sectors.
“I am not worried about the government staff and civil servants because they will get their salaries on a regular basis. But I am really concerned about the ability of some ministries to meet their obligations. The Ministry of Social Affairs, for example, will not be able to provide assistance to the disabled, poor families and NGOs that cater to needs of impoverished families,” Safadi told The Daily Star.
Safadi declined to say if the Finance Ministry is ready to spend above the ceiling of 2005 budget in the event that there is no breakthrough on the issue. Lebanon’s Parliament has not approved a budget since 2005, meaning that legal government expenditures are effectively frozen at $6.8 billion annually.
“The Cabinet must review this matter very closely in order to reach a solution,” Safadi said.
President Michel Sleiman has refused to sign a measure authorizing the LL8.9 trillion in extra-budgetary Cabinet spending, though he is constitutionally empowered to do so.
A draft bill to authorize the spending failed to win the support of Parliament due to division between March 14 and March 8 MPs.
March 14 insists the LL8.9 trillion sought by the current Cabinet should be approved in parallel with a bill to authorize $11 billion in extra-budgetary spending by previous governments since 2005.
The minister said that he has sent all the unaudited accounts of the previous governments since 2005, including the $11 billion, to the Cabinet and Parliament.
Safadi also disclosed that the Finance Ministry intends to issue another $2 billion in Eurobonds before the end of this year after the successful issuance of $950 million Eurobonds a month ago.
“The last issue was oversubscribed to reach $2.7 billion, but we settled for $950 million. What is more interesting is that foreign investors were the first to snap up a chunk of the Eurobonds issue and local banks followed suit,” he said.
He emphasized that the Lebanese state will not have any problem in meeting its financial obligations and assured that the government will never default on the payments of maturing bonds. Safadi added that the amended 2012 draft budget will not burden ordinary citizens with additional taxes. “Apart from the proposed 11 percent VAT, most of the taxes will not touch ordinary citizens,” the minister said.
Among the proposals in the amended draft budget is a 15 percent capital gains tax which will not affect property development companies.
“This will only affect properties bought at the end of 2009 and properties bought before that date will be taxed at 4 percent flat,” Safadi said.
He also disclosed that his proposal to raise taxes on interest rates on customer deposits from 5 percent to 8 percent has been amended in the new draft budget. “We are proposing a tax of less than 8 percent,” Safadi said.