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Mike Azar Profile picture
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5 Nov, 4 tweets, 1 min read
You learn early on in infrastructure finance that you cannot use creative financial engineering to overcome governance problems and poor project economics. Lebanon's power sector doesn't have a "financing" problem. It has a problem of poor governance and economics.
Any creative financing structure is destined to fail if the very reasons that give rise to the need to use such financial engineering (eg poor economics, macro instability, bad governance) aren't solved first. Once you solve those, the financing is easy to get.
So I'll say it again and again: before we restructure the public sector/debt/budget, restructure BDL/banks, & fix the governance model, there is absolutely nothing we can do to fix our national electricity (or other economic) problems. No amount of financial creativity will do.
Other countries that tried "creative" financing structures to carry out projects with poor economic fundamentals ended up stuck with expensive electricity for decades, project defaults and bankruptcy, and government over-borrowing, etc.

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More from @AzarsTweets

Mike Azar Profile picture
4 Sep
1/ I'd surprised if this was the full fuel sale and purchase agreement between the Iraqi and Lebanese governments. It looks more like a term sheet/summary of terms that would've been fleshed out in a full agreement. It contains almost no details, very unusual. A few other things:
2/ Leb is buying the fuel at the market price in dollars, which may be converted to LBP at approximately the parallel market rate. Iraq isn't taking exchange rate risk. The payment is deferred for one year with interest. It looks less like a gift and more like a $ loan from Iraq.
3/ Interesting that the Iraqis want a standby letter of credit to guarantee payment for the fuel. That's not unusual, but it's usually done because Seller doesn't want to take the risk that Buyer doesn't pay (and so a third-party guarantees payment, in this case BDL).
Read 14 tweets
Mike Azar Profile picture
2 Sep
1/ Increasing the withdrawal rate to 8,000+ would increase BDL's unrealized balance sheet losses by hundreds of trillions of LBP. It doesn't matter if there are withdrawal limits. The loss will eventually materialize either as LBP deval or higher discount on bank deposits/checks.
It's like saying it's OK if I borrow/spend $1 bn loan because it's zero interest in the first year. It's a huge problem. Unrealized losses on the book are a MAIN reason for the LBP deval. Increasing the withdrawal rate increases BDL's debts when it's already facing massive losses
You can't create value out of nothing. Someone always pays. You can't outsmart math. In this case, the ones paying will be a combination of those (individuals or companies) with money still stuck in the bank, those with LBP assets, and those earning LBP income. And the economy.
Read 4 tweets
Mike Azar Profile picture
15 Apr
1/ In the 1920's, Germany experienced hyperinflation because it had a large amount of public debt from World War 1, which its central bank covered by printing money. The central bank governor sought to "buy time" for the politicians.

I see so much of Lebanon in there. 👇
** The excerpts below are from the book "Lords of Finance" by Liaquat Ahamed about the role of central bankers in the period between World War 1 and World War 2.

The passages are not that long. I really recommend reading them.
2/ The central bank governor allowed the Reichsbank to keep printing money to fund the public sector (for Leb, this could include the Govt + BDL debts, as is happening now). People wondered why he never "stopped the printers".

Intentional or ignorance?
Read 14 tweets
Mike Azar Profile picture
12 Apr
1/ The first nuclear power plant in the Arab world began commercial operations in UAE last week. Our firm acted as financial advisor to the lenders for this groundbreaking $25+bn project. What does it take to develop & finance a complex nuclear project?

reuters.com/article/us-emi…
2/ We faced multiple challenges in structuring this and other (very rare) new nuclear project financings over the last 15 years. I'll describe a few general challenges related to nuclear financings, from a bank's perspective.
3/ Construction risk (delays and cost overruns). Nuclear projects are notorious for experiencing large cost overruns and delays.

A nuclear project in Georgia, USA has nearly doubled in cost ($14 bn to $24bn+) and is more than 5 years delayed. It's still not complete.
Read 24 tweets
Mike Azar Profile picture
10 Apr
1/ Head of Budget and Finance Committee @IbrahimKanaan accuses unnamed Govt advisors/others of having purchased Credit Default Swaps (CDS) on Leb Eurobonds and then pushed for default to make a profit. Any trader could've explained to him why this is far-fetched had he only asked
2/ I suggest the MP hire advisers as these are technical topics and we can't keep wasting time on this nonsense over and over again.

While not my job, I did the research for anyone who's interested.
3/ As most of you know, CDS is like an insurance product. The CDS Buyer gets paid out by the CDS Seller if there is a default on the bonds. To keep it simple, the Buyer pays the Seller a fee or premium to buy this insurance.
Read 16 tweets
Mike Azar Profile picture
5 Feb
1/ BDL appears to be proposing that all official intl humanitarian aid (~$1.5bn in 2021) be channeled through BDL and given to recipients in LBP at a rate of 6,200 LBP. BDL says this will allow it to sustain the 1500/3900 subsidy longer. It's a gross misuse of humanitarian aid.
2/ Firstly, as we've said before, the issue is HOW the $ are being used. If the $ are used to sustain the peg, a large portion of which benefits monopolies, smugglers, money launderers, &the wealthy, then the value of the aid is NOT going to the people it's meant to help. For ex:
3/ It doesn't matter if the Govt/BDL gives recipients the aid at a rate of 9,000 LBP! If the actual real $ are squandered, then the country is losing regardless of the rate it gets because the impact will be further inflation.
Read 18 tweets

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