Initial contract

In August 2002, and after revising the proposals, the Lebanese Cabinet agreed to award the contract to the Saudi Fal Company1, a bidder with the lowest negotiated price, to design, construct, equip and operate vehicle inspection centers in Lebanon, granted that the stations would be transferred to the state by the end of 2012. It was agreed that the company would build 4 to 6 stations distributed over the Mohafazat.

• Beirut and Mount Lebanon: 1 or 2
• North: 1
• Beqa’a: 1
• South and Nabatieh: 1 or 2

The company was later exempt from establishing 2 centers and built the remaining 4 on state-owned property. The operator was responsible for financing the project and had the right to collect the inspection fees in line with the prices set in the contract. However, not specifying the amount of those fees in the contract left the matter entirely to the operator’s discretion. According to the contract, a minimum of 7 lanes was to be set for the inspection of vehicles under 3.5 tons, with each lane performing 150 inspections per day against at least 1 lane for vehicles over 3.5 tons. The total number of staff including technicians and non-technicians stood at no less than 44.

Supervision contract

Along with the Saudi Fal contract, the Lebanese government signed a no-bid contract with Vivauto, which was tasked with supervising the work at the centers and monitoring the quality of operations, in exchange for 2.75% of the profits, to be paid, unprecedentedly, by the Lebanese government instead of the service provider. This percentage was reduced to 2.5% following the 6-month extension of Vivauto contract.

Demands of the operator

The company reported that the profit estimation had been exaggerated, stressing that they had incurred many losses and missed opportunities due to the laws, decrees and other government measures that deprived the company of substantial revenues.

• USD 318.862 due to Law No. 519, which delayed inspection commencement from January 7, 2003 to January 31, 2003.
• USD 750 000 due to the government decision suggesting the transfer of the North inspection site from Ras Masqa to Mejdlaya, 10 months after the company had built the station and started its activity in the former.
• USD 65 million due to lack of follow-up on the vehicles that avoid the inspection process. In 2004, only 650 000 vehicles out of 1.1 million underwent inspection.
• USD 13 million for failure to subject second-hand imported cars to roadworthiness tests.
• USD 2.4 million for failure to increase inspection fees in parallel with the pay increases. Increase in the minimum wage entered into force May 1, 2008 while the increased inspection rates remained pending until January 8, 2009.

All the above brings the total up to USD 81.5 million.

Ministry of Interior and Municipalities

The contract with the Saudi Fal Company expired at the end of 2012. The Ministry of Interior and Municipalities was supposed to find alternatives to secure continuous provision of inspection services either by launching a new bid to run what has now become its own facility, or by undertaking its direct operation. But unfortunately, the Ministry failed to act as a guardian angel to protect this vital economic activity.

Against the absence of alternate options, the government was forced to extend the contract by 6 months and called on the Ministry of Interior and Municipalities to prepare a request for proposals handbook stipulating the construction of two inspection centers in Rashaya and Baakleen. The ministers of interior and finance were also assigned to forge contracts with Fal to set up inspection centers responsible for testing second-hand cars entering the country through land or sea ports and to prolong the agreement with Vivauto for another 6 months for the same share of profits (2.5%). A new tender to award supervision contracts was also demanded from the Ministry of Interior and Municipalities.

The proposition offered by the Ministry of Interior and Municipalities entailed extension of the contract by 5 years that expires on December 31, 2017 according to the following stipulations:

• Waiving all the previous demands and lawsuits filed by the company during the past 9 years and worth USD 81.5 million (as mentioned earlier).
• Building, equipping and operating 6 additional stations in Jbeil, Al-Kweikhat (Akkar), Tripoli, Nabatieh, Tyre, and Baalbeck during a 6-month period from the date of receiving the plots from the state.
• Modernization and maintenance of the equipment.
• Introducing inspection centers at ports of entry by land or sea to test imported second-hand cars.
• Running the 4 stations whose ownership was transferred to the Lebanese state as follows:

• Transferring to the state at the end of every month the following flat revenues:
• LBP 15 000 out of LBP 87 900 charged by the company per vehicle over 3.5 tons.
• LBP 7000 out of LBP 32 650 charged by the company per vehicle over 3.5 tons, when the number of vehicles inspected ranges between 1 and 600 000. The state’s share increases to LBP 8000 when the number stands between 600 001 and 900 000 and further to LBP 11 000 when the number is between 900 001 and 1 million. Should the company inspect more than 1 million vehicles, the state would then obtain LBP 15 000 out of LBP 32 650 per vehicle.
• LBP 5000 out of LBP 10 000 charged by the company per motorcycle.
• USD 25 out of USD 100 charged for every inspection performed at the stations set in the ports of entry.
• Half the confirmatory inspection fee

After examining the above, one may observe the following:

• The initial contract stipulated the establishment of 6 inspection centers and the reasons that only 4 were built remain unknown.
• Although the contract expired at the end of 2012, preparation for a new tender did not materialize and the Ministry of Interior and Municipalities announced its inability to run the centers, which entails the extension of the contract as is or its renewal according to the operator’s amended terms. Otherwise, the USD 81.5 million claimed by the operator should be paid.
• The proposition presented by the Minister of Interior included numerous clauses, one of which put the share of the state from the truck inspection fees at a mere LBP 15 000 out of LBP 87 900 per truck.

Operator’s profits and opinion

The data available on the profits that Fal has made since January 1, 2004 until December 31, 2012 lack precision. However, estimates put them at around USD 8.5 million yearly and some believe that the company was able to recover its initial investment in its first year of operation, which would justify its desire to renew the contract. However, Fal insists that the margins of profits are very tight.

The extended contract expires by the end of June, so will the government award a concession contract with a new company or will it negotiate adjusting the fees and raising the state’s share? Or will there be a new contract that serves the interest of private companies at the expense of that of the Lebanese citizens and treasury?

1 Saudi Fal Company is a company registered in Lebanon.