Lebanon to seek more cuts in 2020 budget targeting power subsidy

Lebanon hopes to halve its ruinous electricity subsidy in 2020. Above, Corniche al Manara, Beirut. (Reuters)
Updated 31 May 2019

Lebanon to seek more cuts in 2020 budget targeting power subsidy

  • The coalition government agreed a 2019 budget with a projected deficit of 7.6% of gross domestic product (GDP), down from 11.5% last year, but it must still be approved by parliament
  • Lebanon has one of the world’s highest debt burdens, equivalent to about 150% of GDP, and electricity subsidies cost 3.5%-4% of GDP a year

BEIRUT: Lebanon hopes to halve its ruinous electricity subsidy in 2020 as it targets more spending cuts after proposing a deficit-slashing budget plan for this year, the prime minister’s financial adviser said on Friday.
The coalition government on Monday agreed a 2019 budget with a projected deficit of 7.6% of gross domestic product (GDP), down from 11.5% last year, but it must still be approved by parliament.
“I think the 2020 budget, which will be studied by the cabinet in a few weeks, is going to demonstrate another fiscal consolidation,” Nadim Munla said after a press briefing.
“The main component that will help in the reduction of the deficit will be the reduction in the subsidy to the power sector,” he added.
Lebanon has one of the world’s highest debt burdens, equivalent to about 150% of GDP, and electricity subsidies cost 3.5%-4% of GDP a year, Munla said.
Lebanon’s two other main expenses are the cost of debt servicing and the large public payroll.
Credit ratings agencies have expressed doubt that Lebanon can meet its deficit goals. S&P Global said on Tuesday it expected a deficit of 10% of GDP and Fitch said on Thursday it forecast a deficit of 9% of GDP.
Responding to those estimates, Munla and Labour Minister Camille Abousleiman both said the government could meet its budget targets, but that parliament must agree the plan without big changes.
“It is critical from a financial perspective that we don’t start caving in and deleting some of the difficult measures that are currently in the budget,” Abousleiman told Reuters.
Asked if Lebanon could avoid a default given its very large stock of public debt Abousleiman said: “I am hopeful,” but he added that the country also needed to adopt “ambitious structural reform” on top of the fiscal retrenchment.
Abousleiman has a rare financial background in the cabinet, having acted on sovereign debt issuances for Egypt, Tunisia, Albania, Bahrain, Jordan and Morocco for law firm Dechert.
Munla said he did “not anticipate any problems” regarding a default. “Most of our sovereign debt is internal debt... and the banking sector has the financial resources equivalent to around three times the debt,” he said.
Half of the budgeted reduction in the 2019 deficit comes from spending cuts and half by increasing revenue, Munla said. Some 40% of the revenue increase is projected to come from a temporary rise in the tax on interest to 10% from 7%.
However, “we’re reaching the limit on how much the banking sector can contribute to a reduction in the deficit,” he added.
Lebanon this year approved a plan to reduce electricity subsidies by switching to more efficient generators, raising tariffs and improving bill collection.
Implementing the deficit cuts is vital to restore Lebanon’s credibility in markets and the confidence of investors and depositors, Abousleiman said.
“I can accept that the credibility of the government given its track record is not great, but we need to work on that,” he added. “We’re talking about a six-month period, so please give us a chance and keep an open mind.”
International donors at a Paris conference last year pledged $11 billion in project finance for Lebanese infrastructure contingent on reforms.
Economists from two major donors, the World Bank and the European Bank for Reconstruction and Development this week told Reuters that Lebanon’s budget plan was a good step.
“What they did is fulfilling one of the first commitments to (the conference) which is decreasing budget deficit,” said Bassem Kamar, EBRD’s lead economist for the southern and eastern Mediterranean.


The Musk Method: Learn from partners then go it alone

Updated 18 September 2020

The Musk Method: Learn from partners then go it alone

  • Entrepreneur building a digital version of Ford Motor’s iron-ore-to-Model-A production system of the 1920s

Elon Musk is hailed as an innovator and disruptor who went from knowing next to nothing about building cars to running the world’s most valuable automaker in the space of 16 years.

But his record shows he is more of a fast learner who forged alliances with firms that had technology Tesla lacked, hired some of their most talented people, and then powered through the boundaries that limited more risk-averse partners.

Now, Musk and his team are preparing to outline new steps in Tesla’s drive to become a more self-sufficient company less reliant on suppliers at its “Battery Day” event on Sept. 22.

Musk has been dropping hints for months that significant advances in technology will be announced as Tesla strives to produce the low-cost, long-lasting batteries that could put its electric cars on a more equal footing with cheaper gasoline vehicles.

New battery cell designs, chemistries and manufacturing processes are just some of the developments that would allow Tesla to reduce its reliance on its long-time battery partner, Japan’s Panasonic, people familiar with the situation said.

“Elon doesn’t want any part of his business to be dependent on someone else,” said one former senior executive at Tesla who declined to be named. “And for better or worse — sometimes better, sometimes worse — he thinks he can do it better, faster and cheaper.”

Tesla has battery production partnerships with Panasonic, South Korea’s LG Chem and China’s Contemporary Amperex Technology Co. Ltd. (CATL) that are expected to continue.

HIGHLIGHTS

  • Investors awaiting ‘Battery Day’ announcements on Sept. 22.
  • Musk has hinted at significant new battery developments.
  • Partners and acquisitions have helped give Tesla an edge.

But at the same time, Tesla is moving to control production of cells — the basic component of electric vehicle battery packs — at highly automated factories, including one being built near Berlin, Germany and another in Fremont, California where Tesla is hiring dozens of experts in battery cell engineering and manufacturing.

“There has been no change in our relationship with Tesla,” Panasonic said in a statement provided by a company spokeswoman.

“Our relationship, both past and present has been sound. Panasonic is not a supplier to Tesla; we are partners. There’s no doubt our partnership will continue to innovate and contribute to the betterment of society.” Tesla did not respond immediately to a request for comment.

Since he took over the fledgling company in 2004, Musk’s goal has been to learn enough — from partnerships, acquisitions and talent recruitment — to bring key technologies under Tesla’s control, people familiar with Tesla’s
strategy said.

They said the aim was to build a heavily vertically integrated company, or a digital version of Ford Motor Co’s iron-ore-to-Model-A production system of the late 1920s. 

“Elon thought he could improve on everything the suppliers did — everything,” said former Tesla supply chain executive Tom Wessner, who is now head of industry consultancy Imprint Advisers. “He wanted to make everything.”

Batteries, a big chunk of the cost of an electric car, are central to the Musk method. While subordinates have argued for years against developing proprietary Tesla battery cells, Musk continues to drive toward that goal. “Tell him ‘No,’ and then he really wants to do it,” said a third former Tesla veteran.

The changes in battery design, chemistry and production processes Tesla expects to reveal next week are aimed at reworking the math that until now has made electric cars more expensive than carbon-emitting vehicles with combustion engines.

Tesla is planning to unveil low-cost batteries designed to last for a million miles. 

Tesla is also working to secure direct supplies of key battery materials, such as nickel, while developing cell chemistries that would no longer need expensive cobalt as well as highly automated manufacturing processes to speed up production.

Panasonic is partnered with Tesla at the $5 billion Nevada “Gigafactory,” while CATL and LG Chem supply cells to Tesla’s Shanghai factory, where battery modules and packs are assembled for its Model 3 sedan.

Panasonic recently said it is planning to expand its production lines in Nevada, which supply the cells that then go into the battery modules assembled next door by Tesla.

But the Nevada Gigafactory partnership almost didn’t happen, according to two former Tesla executives. Musk ordered a team to study battery manufacturing in 2011, according to one former executive, but eventually partnered with Panasonic in 2013.

Now, Tesla is testing a battery cell pilot manufacturing line in Fremont and is building its own vast automated cell manufacturing facility in Gruenheide in Germany.

The roller-coaster relationship with Panasonic mirrors other Tesla alliances.

During its development alliance with Germany’s Daimler, which was an early investor in Tesla, Musk became interested in sensors that would help to keep cars within traffic lanes.

Until then the Tesla Model S, which Mercedes-Benz engineers helped to refine, lacked cameras or sophisticated driver assistance sensors and software such as those used in the Mercedes S-Class.

“He learned about that and took it a step further. We asked our engineers to shoot for the moon. He went straight for Mars,” said a senior Daimler engineer said.

Meanwhile, an association with Japan’s Toyota, another early investor, taught him about quality management.

Eventually, executives from Daimler and Toyota joined Tesla in key roles, along with talent from Alphabet Inc’s Google, Apple, Amazon, Microsoft, as well as rival carmakers Ford, BMW and Audi.

Some relationships did not end well, however.

Tesla hooked up with Israeli sensor maker Mobileye in 2014, in part to learn how to design a self-driving system that evolved into Tesla’s Autopilot.

“Mobileye was the driving force behind the original Autopilot,” said a former Mobileye executive, who declined to be named.

Mobileye, which is now owned by Intel, also recognized the risk of sharing technology with a fast-moving startup like Tesla, which was on the brink of collapse at the end of 2008 and now has a market value of $420 billion.

US tech firm Nvidia followed Mobileye as a supplier for Autopilot, but it too was ultimately sidelined.

In addition to partnerships, Musk went on an acquisition spree four years ago, buying a handful of little-known companies — Grohmann, Perbix, Riviera, Compass, Hibar Systems — to rapidly advance Tesla’s expertise in automation. Maxwell and SilLion further boosted Tesla’s ability in battery technology.