Lebanon: The story of the Danish loan to a “Bassily” project … Berri’s contractor is one of the most prominent beneficiaries!

Hala Nasreddine
Lebanese Journalist
Published on 11.05.2022
Reading time: 16 minutes

The loan is, unusually, absent from both the Danish and Lebanese databases – raising initial suspicion. When asked about this discrepancy, EKF claimed that the absence was a result of “human error”.

Ordinary Lebanese citizens have time and time again been the ones to take on the financial burden of repaying loans granted by European companies embroiled in dubious deals with their politicians. The 254.7 million euro loan provided by Denmark’s Export Credit Agency (EKF) to the Lebanese Ministry of Energy and Water in 2014, is one such example. The loan was granted following the contracting of Danish company BWSC to build two new power plants in Zouk and Jiyeh in 2013 – during which former minister, Gebran Bassil, served as the Minister of Energy (2011-2014). BWSC has a proven track record of corruption cases such as in Mauritius and Mali. Probing further into the agreement between the company and the Lebanese political elite reveals that this contract was no exception. The company’s representative, Kassem Hammoud is a contractor with close ties to Nabih Berri, the Speaker of the Parliament of Lebanon. On the other side of the deal, the Ministry of Energy contracted MVV Decon, a German consulting company to conduct the environmental studies and prepare the tender’s guidelines, whose links to the Lebanese businessman Azzam al-Sankari, an advisor to the then Minister of Finance, Mohammad al-Safadi (2011-2014), were later revealed. 

In 2019, the Lebanese government defaulted on all of its Eurobonds, as well as its many other debts under prime minister Hassan Diab Yet, the state paid the last installment of this loan in November of the same year, under the tragic economic crisis. Resulting from the Ministry of Finance failure to pay its dues for several months and several prolonged disputes, BWSC filed for arbitration against the Lebanese state, demanding 130 million USD. As well as these devastating economic consequences, the project failed to produce anything of substantial benefit to the Lebanese people, as was promised. The environmental impact of the project, discussed in the second installment of this investigation, has not improved. Instead, the residents of Zouk feel that the situation has worsened.

In 2018, BWSC filed a lawsuit through the International Chamber of Commerce (ICC) seeking $130 million from the Lebanese government over its failure to pay. The Ministry of Finance delayed in paying several invoices due to the non-conformity of the project implementation with the tender specifications, without the approval of the Audit Bureau, according to the ministry, so it stopped paying 4 invoices.

BWSC’s 2020 annual report addressed the problem without explicitly mentioning Lebanon. The company stated:“In 2014, two engine-based projects in the Middle East were suspended due to the client not paying the milestone payments on time. These outstanding milestone payments were paid at the end of 2014, and the suspension was lifted at the beginning of 2015. BWSC has claimed the customer for direct costs, overhead and profit. A part of the costs related to the claims have been included in the project accounts/ work in progress over the years. At the end of 2016, the taking-over-certificates (TOC) were signed by the customer. Since 2017, focus has been on reaching an agreement on the claims with the Client and the Client’s representative. Since it has not been possible to reach an agreement, we decided in 2018 to file for arbitration through ICC, France. The arbitration has been (on hold) from 2019 until the beginning of 2021 due to settlement negotiations with the Client and the Client’s Representative. The arbitration case at ICC re-started in January 2021 when the latest extension of the Stay expired, and BWSC expects to submit the Statement of Claim to ICC in the spring of 2021. A material part of the amount BWSC is claiming has not been recognised as income …”

It is expected that the case will result in a positive outcome for BWSC. This will result in a significant financial loss for the Lebanese state, already mired in dire economic conditions. The original purpose of the EKF loan was to support a new project with the potential to improve the domestic electricity situation and reduce pollution. The project has failed on both accounts and instead cost the Lebanese state an enormous sum of money – a sum which may further increase following the results of the lawsuit.

Abou Jaoude Law Firm, the lawyers representing BWSC, declined to comment on the matter – as did BWSC. The majority of official bodies and stakeholders on the Lebanese side also declined to speak on the matter, citing the fact that the matter is still pending. 

Suspicions of Corruption

The contract with the BWSC was signed on February 26, 2013 after BWSC won the tender in September 2012. Business News quoted a source in the Danish embassy stating that the EKF and HSBC World Bank had proposed granting the government a soft loan to cover 85% of the project’s cost, amounting to approximately 350 million USD. Note that the loan term is five years at an interest rate of about 4.6%, with a grace period of six months from the date the work commences.

The loan is, unusually, absent from both the Danish and Lebanese databases – raising initial suspicion. When asked about this discrepancy, EKF claimed that the absence was a result of “human error”. 

The main issue, and the principle reason for the arbitration case, was the changing of priorities specified in the tender agreement in the implementation of the project. The Ministry of Finance stopped paying as a result of not consulting the changes to the Audit Bureau and obtaining its approval.

“During the implementation, it became clear that talks were going on about amending the priorities of the documents and giving precedence to the offer of the contractor. The consultant objected and asked us about the reasons. We understood that there were negotiations with the ministry that led to this amendment. The Minister of Finance objected, then the Audit Bureau said that any amendment must be referred to us so that we can see if this amendment could affect the outcome”, according to Ghassan Baydoun, the former Director-General of Investment in the Ministry of Energy.

The project was suspended in 2014, resumed in 2015 and completed in 2017 instead of the original end date of 2014. Following this delay, the company entered into negotiations with the Lebanese state, and when those negotiations failed, BWSC turned to the option of arbitration.

In an interview with Daraj, Jean Ellieh, Head of the Tender Department said that “The problem is not with the tender specifications, but rather in non-compliance with the specifications and in breaching a significant principle in it, which is adhering to provisions of the tender specifications. So, why this tender that succeeded in theory at the Tender Department, but failed at the level of the Ministry of Energy. The specifications shall not be changed because this jeopardizes  the competition. Tender specification is considered like a tender constitution. This is usually a problem with the tenders of ministries, and specifically this Ministry, the amendment of conditions, that is, moving conditions.”

The plants were intended to ensure a steady and sustainable electricity supply, and have a total output of 260 MW (180 MW in Zouk and 80 MW in Jiyeh). “The two new power plants in Zouk and Jiyeh are an important first step in reforming the Lebanese energy sector system, which aims to significantly improve power supplies across the country,” the former Energy Minister, Gebran Bassil said at that time. Yet, the electricity situation in Lebanon is constantly deteriorating – in some areas reaching the Lebanese for only an hour or two over the span of 24 hours.

This project was based on the electricity sector policy sheet approved by the government in June 2010, according to Baydoun, who confirmed that in the transitional period the state allocated 1.2 billion USD under the Law no. 181/2011. That was to guarantee an increase in production of 700 MW, which was distributed to two plants in Zouk and Jiyeh with about 270 MW, and Deir Amar with 450-500 MW.

The new plants were supposed to be handed over in 2014, but due to the disputes with the company, the project was suspended for a period of time – after which work was resumed and completed in 2017. The contract was valued at 270 million euros for the BWSC and MAN Diesel alliance, but the former was leading the project, according to a response from MAN Diesel to the investigation team’s questions.

The project is based on constructing two plants with reciprocating engines that run on fuel and natural gas and gas conversion equipment was purchased. Considering this, experts wonder, why did we purchase this equipment at that time and store it in warehouses all these years? Would it not have been better if we had waited until the infrastructure was ready first? Especially in the absence of the infrastructure to deliver gas to the Zouk engines, since they already “knew at the beginning of the project that it would not run on natural gas,” according to energy expert Jessica Obeid.

Speaking to Daraj, Mark Ayoub, an energy expert, confirmed that the engines “do not add much to the electricity production on the grid. So if other power plants are not working well, such as the old Jiyeh plant, Deir Amar or Al-Zahrani, these two power plants cannot fill the gap. Here lies the main problem: there is no tangible difference.”

The project was not limited to reciprocating engines but also employed a “Diesel Combined Cycle”, which uses the heat produced as waste from engines to power steam turbines, according to a statement by MAN Diesel website.

In this regard, sources close to the story told Daraj that the Danish company offered steam engines as an additional option not included in the original tender. The other bidders, however, were denied the opportunity to offer an additional option, contributing BWSC being given preference for the contract at the expense of other biddings.

Mark Ayoub confirmed “The power of reciprocating engines is not comparable to the combined cycle, which includes several turbines so that the heat of the turbines is used to generate more energy. This is not the case in this project.”

Internal sources confirmed that the hasty process from preparing the tender specifications to signing the contract, on the contrary to the custom in Lebanon, was itself suspicious and that the value of the contract “allows commissions to be paid.” “Like everything in Lebanon, it is not about planning, but rather about implementation, which usually raises huge question marks… All the problems of the energy sector are first and foremost related to corruption, poor governance and mismanagement, and this will only change through political change,” according to Obeid.

The companies who bid for Zouk and Jiyeh plants: 1- Collaboration of the German Man Diesel and Turbo and the Danish BWSC, represented in Lebanon by Hammoud for Trading and Contracting 2- Caterpillar Power Generation, represented in Lebanon by Electrical Technologies SAL 3- Wartsila Finland, represented in Lebanon by Bisco International SAL In addition to Sakr Power Systems, which only bid for the Jiyeh Plant project.

A key aspect of the suspicions of corruption is about names of Lebanese persons associated with the project:

Hammoud for Trading and Contracting: Who Is Kassem Hammoud?

Today, a new contractor is added to the list of those (directly or indirectly) intertwined with political figures: Kassem Hammoud. Hammoud for Trading and Contracting (HETC) BWSC’s local subcontractor was Hammoud for Trading and Contracting (HETC), owned by Kassem Hammoud.

According to his acquaintances, Hammoud has ties with Speaker of the Parliament, Nabih Berri, and is specifically associated with the Amal Movement’s Head Council member and Former President of the Council of the South, Kabalan Kabalan, who resigned in November 2021 to run for elections in the Western Bekaa constituency on the Better Future electoral list (Hassan Abdel Rahim Mourad’s list).

Informed sources confirmed that the value of the contract awarded to Hammoud’s was significantly greater than the value of work done by the company, suggesting that most of the suspicious commissions were paid out of this contract.

Hammoud declined our requests to be interviewed. In a phone call, however, he said he was not the company’s local subcontractor, as he only constructed the hangars, which were only 7-8% of the project, but that his address was included in BWSC’s tender because it needed a Lebanese address through which to be contacted.

“Brokerage and corruption by contractor Kassem Hammoud, who is now stronger than the state, particularly in regard to electricity, as he’s working on stopping citizens from benefiting from the 10-hour electricity supply increase, since he has a hold over some ministers and wants to broker with companies and do reconciliations on behalf of the state, while citizens pay the price,” said Former Minister, Wiam Wahhab, at his residency in 2016.

It is worth noting that Kassem Hammoud works on several projects with the Council of Development and Reconstruction (CDR). His contracts between 2004 and 2019 amounted to $192.17 million, $25.16 million of which in 2019 alone.

In May 2015, Hammoud gave a $50,000 gift to the Ministry of National Defense in the form of asphalting and pavement installation works in Ablah. Hammoud did not respond to the right-of-reply questions sent by the investigative reporter.

What is Decon International?

Decon International or MVV Decon is a German engineering and consulting company providing engineering and advisory services worldwide. It also assists infrastructure projects in areas such as energy, renewable energy resources, water, wastewater, and more.

The Ministry of Energy employed Decon’s consulting services to conduct environmental impact studies on both Zouk and Jiyeh in 2011. One of the coauthors of these studies was Azzam al-Sankari. The German company had a Lebanese connection, Azzam al-Sankari, who later became the head of its’ office in Lebanon, established in April 2018.

On 11/4/2018, German-national Decon International GmbH, with a capital of €/100.000/ (a hundred thousand euros), headquartered in Norsk– Data– Str. 1 61352 Bad Homburg Germany, expressed its wish to establish a branch office in Lebanon, and on 11/4/2018, submitted to the Department of Commerce (Corporate Bureau) full documentation of its articles of association, as provided by Lebanese laws, in addition to the treasury receipt no. MOFT20180022647 of 19 April, 2018, and the document stating the appointment of Mr Azzam Ahmad Ghazi Sankari as the head of its’ branch office in Lebanon.

In this regard, Ellieh commented “When consultants prepare tender specifications, they are doing a job that should be done by a government department. Turning to a consultant over this issue in itself has significance in two ways: firstly: it discredits government departments. Secondly: if something is requested that isn’t in line with Lebanese laws, the consultant is able to proceed with it.” “Creating parallel substitute departments doing the state departments’ job is one of the reasons we are in the disastrous situation we’re in today,” he added. This contravenes the Central Inspection’s recommendation no. 87/2013 which provides that the tendering process is for Électricité du Liban (EDL), so the technical and administrative body should participate in preparing the tender specifications, according to Ellieh.

Azzam al-Sankari was the Advisor to the Former Minister of Finance, Mohammad al-Safadi, who was in office between 2011-2014. An inside source told Daraj that choosing the consultancy company was for establishing a liaison between the Ministries of Finance and Energy. The Minister of Finance was succeeded by Ali Hassan Khalil, and then most crises can be put in the context of the tensions between the Free Patriotic Movement and the Amal Movement, as the problem with this project surfaced at the same time as the TVA problem with the Deir Amar Plant project. al-Sankari did not respond to the investigative reporters’ questions.

al-Sankari and al-Merhebi Sankari co-owns an off-shore company in Cyprus called Eastmed Energy Services Ltd. It’s co-owned by a man named Abdel Fattah Sharif Merhebi, who also owns a company in Luxembourg, which is another well-known tax haven. There’s also a third co-owner of Eastmed Energy Service Ltd., a Cypriot company called Montrago Services Limited. Abdel Fattah Merhebi is an oil expert and owner of Wildcat. He was the Islamic Group’s candidate for Akkar’s Sunni seat in the 2018 parliamentary elections.

Operation and Maintenance (O&M) Contract A previous investigation by Lebanon Debate pointed out the “agreed contracting out” deal to Middle East Power (MEP), with a 5-year contract amounting to 107 million euros to operate and maintain reciprocating engines in Zouk and Jiyeh plants. The investigation covers loopholes in the tender specifications and the bid opening process, most notably: MEP did not meet the technical requirements, in terms of years of experience in operating and maintaining reciprocating engines plants and the required engine power. The companies with which MEP entered into an alliance with, OEG India and ARKAY, did not meet the requirements, as the former has no experience in reciprocating engines and the latter does not have enough years of experience. “Électricité du Liban (EDL) limited itself to the opinion of the consultant EDF that the 107 million euros is a fair price. It’s the same consultant the opinions of which EDL listened to in most of its’ decisions throughout its years-long failed journey, plunging Lebanon into darkness and drowning the state treasury into substantial deficit,” according to Lebanon Debate. The bid made by BWSC was not opened.

While Karim Khayyat, MEP owner and founder, tells Daraj in a phone call that the company has good experience in this area through their work in the plants in Erbil, and that the company bid for the second tender procedure as there were other people trying to win the tender directly from the Ministry with 40% more than the company’s bid (around $170 million compared with MEP’s $107 million bid), according to Khayyat. Then, there were rivalry and attempts to have the tender procedure canceled and directly contracted out to contractor Kassem Hammoud, but after some back-and-forth, MEP won the tender after it was extended several times.

In May 2016, EDL issued a statement addressing the above information: “EDL, contrary to what has been claimed, launched on 14/8/2015 global open call no. T4d/9082 for tenders to operate and maintain reciprocating engines in Zouk and Jiyeh.. according to the tender specifications prepared by the global consultant, MVV Decon, and it was announced in the official Gazette and local newspapers.. and as not enough bids were made, EDL proceeded to extend the tender procedure three times.. and yet, only two bidders applied, one of which did not meet the technical requirements, thus, their financial bid was not opened pursuant to the provisions of EDL’s financial system, while the other bidder’s (the alliance of OEG/ARKAY Limited/Middle East) bid was opened, as it was technically and administratively compliant with the provisions of the tender specifications. Therefore, the contracting out was a result of a global open call for tenders according to the applicable laws and regulations and not of bilateral negotiations leading to an agreed deal.”

MEP COO, Yehya Mawloud, did not respond to the questions sent by the investigative reporter.

Which is more corrupted: the Danish company or the Lebanese Ministry of Energy?

Read Also:

In a quick tour of the Danish BWSC, we see a long record of cases of corruption from Malta to Mauritius, among others. Mauritius’ case, for example, is shocking. In 2016, the company won a government contract of $120 million to expand the Saint Louis Power Plant, which was built by the company in 2006. The project was funded by the African Development Bank. The residents protested and filed lawsuits against the state 5 times due to air pollution, water contamination, and the increase in pulmonary disease cases, but to no avail. Upon finishing construction works, a huge corruption case came to light, as it turned out that BWSC bribed the Central Electricity Board (CEB). The case was seen as the biggest corruption scandal in the modern history of Mauritius. Consequently, the African Development Bank banned BWSC from taking part in any energy development projects for about two years, including those funded by the World Bank.

As for the Lebanese Ministry of Energy and EDL, there’s no need to state the obvious! Who would forget the Sonatrach case, adulterated fuel, and the corruption in power ships tenders? Along with Lebanon’s massive power deficit exceeding $40 million.

Therefore, as the experts contacted by the investigation team reported, the energy problem in Lebanon is obviously, at its core, a problem of aggregate corruption and mismanagement, but how could a European country concerned with the environment and renewable energy such as Denmark grant a loan to fund a project by a corrupt ministry and a company involved in corruption and bribes in other countries?

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Hala Nasreddine
Lebanese Journalist
Published on 11.05.2022
Reading time: 16 minutes

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