SYRIA - Ali Abbas.

The CEO of the Syrian Gas Co. (SGC), Abbas hopes Syria's gas output will rise to 39-40 MCM/day by 2010. At present gas production is averaging about 26 MCM/day, including gas being re-injected into the fields to boost oil reservoir pressure.

SGC has a distribution unit, the Syrian Company for Gas Distribution (SCGD), formed to provide compressed natural gas (CNG) for running vehicles (NGVs) in the sector of public transport. On March 12, 2005, Reuters reported that the state-owned GAIL (India) Ltd was aiming to set up a JV with SCGD to distribute natural gas for vehicles and homes in Syria.

The Ministry of Petroleum and Mineral Resources had invited offers to qualify companies interested in setting up a joint venture with SCGD. GAIL was among eight shortlisted for the second round of bidding, and it was to submit technical and commerical bids "soon".

Many vehicles in large Indian cities have been running on CNG for a few years. GAIL on March 11, 2005 said in a statement the first phase of its plan for Syria was to set up three to five CNG stations in Damascus and its surburbs, and then expand to other large cities. Reuters on March 12 last year said the JV was to build the stations, a pipeline network for supplying gas to them from the transmission system, and workshops to convert vehicles to run on CNG. Reuters added: "It must also set up a pipeline network for supplying gas to residential customers. GAIL has been casting its eyes abroad for growth opportunities".

In February 2005, GAIL bought a 9% stake in China Gas Holdings Ltd for US$31.2m, giving it a stake in China's small but fast-growing gas market.

SGC has the ambition of turning Syria into a major regional corridor of energy between the Middle East and Europe through oil and gas pipelines from Iran and Egypt, passing through Iraq in Iran's case and through Jordan in the case of Egyptian gas (see gmt12SyriaGasTradeMar20-06).

However, Syria under the Ba'thist regime has earned itself a reputation of a country where projects promoted by both the public and private sectors take a long time to materialise. In some cases, projects have been promoted for several years without serious takers.

Examples Of Projects Waiting: The highway between Damascus and Beirut cuts through some prime, as yet undeveloped, Syrian real estate not far from the Syrian capital. The area is a focus for some of the billions of dollars of foreign investment which were touted loudly several months ago by the Syrian government. But a quick look around a sparsely furnished room in the offices of the Arab Investment Holding Co. (AIHC)) in the centre of Damascus makes clear that Syria has been there before - in much better times - and all it has to show for it are some mock-ups.

The Financial Times on March 15 quoted AIHC General Manager Bashar Dardari as saying: "They all [investment projects] got stuck". The FT said Dardari was pointing at "several models of large-scale real estate developments, some meant for exactly the same roadside locations as those now being considered".

Dardari was quoted as saying that Syria's domestic obstacles to foreign investment, such as endemic corruption, resistance by hardline Ba'th Party bureaucrats wedded to a centrally planned economy and its failure to enact reforms killed the AIHC projects.

The Ba'thist regime, still under political pressure over a UN investigation which implicated it in the murder of Rafiq Hariri, the former Lebanese prime minister, has recently tried to put a positive spin on its ability to withstand economic measures.

Recently the US government sharpened its sanctions against Syria as it ordered US banks to terminate accounts involving the Commercial Bank of Syria and a subsidiary, the Syrian Lebanese Commercial Bank.

In anticipation, Damascus in February switched from the US dollar to the euro as its reserve currency for foreign trade. Such a climate may not encourage investors.

Yet, the FT said the Deputy PM for Economic Affairs, Abdullah Dardari, a cousin of the AIHC general manager, "has on several occasions said interest expressed by foreign private investors has, if anything, increased since the trouble started". In an interview with the Financial Times late in 2005, Deputy Premier Dardari said many Arab investors regarded Syria as "the last man standing" and would not let it fall, like Iraq had. His government has highlighted several announcements by Arab investors, such as Dubai-based Emaar and al-Futtaim and the Aref Group of Kuwait.

During a visit to London late in 2005, Deputy PM Dardari told reporters that Syria would pull in more than US$2 billion (1.7 bn) in foreign direct investment in 2005. The government had signed a US$1.2 billion refinery deal with China and was negotiating with Russia on a US$2.4 billion oil project.

One of the most visible foreign investment projects which came to fruition in 2005 was the opening of a 13m cheese factory which the French Bel company built for its La Vache Qui Rit brand on the outskirts of Damascus.

The FT pointed to one Syrian economist, Samir Seifan, a consultant, as being "sceptical about any deluge of investment". The paper quoted him as saying: "They are mostly expressions of interest and I doubt much will come of it".

He and Dr. Nabil Sukkar, another prominent Syrian economist, estimate actual foreign investment in Syria at some US$300 million. The FT quoted Saifan as saying: "That is the size of a single project in many other countries".

Rather than improving, foreign investment has been flat over the last couple of years. Like Bashar Dardari of the AIHC, Saifan put the blame squarely on Syria's domestic investment climate. This, rather than international pressure, is what has frightened off foreign investors all along.

Saifan said: "Not even Syrian businessmen want to invest in this country. And a lot of money is leaving the country, rather than coming in". The government has promised economic and institutional reforms which should make Syria more attractive to investors; but after initial banking reforms, the pace has slowed.

The task does look daunting and the need for reforms ranges from the legal to the financial, from the field of insurance to the area of currency control. Saifan colleague, Dr. Sukkar, agrees on the analysis of the source of the problems but is convinced that actual reform is around the corner.

Dardari of the AIHC thinks the companies which have now expressed interest in investing will have an easier time of it than him. The FT quoted him as adding: "Things have changed a bit over the last five years. We were the first, but now people are more used to it".

Dardari's partners include some of the top names in the Saudi business community including the Bin Laden Group and Hariri's company, now led by the son of the slain Lebanese politician/billionaire, Sa'd Hariri. The FT quoted Dardari as saying politics did have an impact. The paper added: "His Saudi partners froze all activities in 2004 when the UN [Security Council] passed resolution 1559, which called on Damascus to end its presence in Lebanon.

According to the FT, both Dardari and Seifan say the really big players will stay away as long as Syria's overall relationship with the West, and with the US in particular, does not improve. "In the past", the FT said in conclusion, "every time the country's economy did well, this coincided with a thaw in relations with the outside world".