Legal Briefing- May 2019

Petroleum

  • According to the Minister of Petroleum and Mineral Resources Ali Ghanem, Syria could start extracting commercial quantities of offshore natural gas by 2023 after exploration activities in the Mediterranean Sea began last October 2018. On December 25, 2013, Russian energy company Soyuzneftegaz was awarded the contract to explore for energy reserves.
  • Following fuel shortages across the country, Syria received its first foreign supplies in six months from two shipments, one of which reportedly originated from Iran. The situation forced the government to ration fuel products accordingly among the population. The shortages had occurred as a result of two key events, one being a halt to the Iranian credit line last October and another being a move by the Office of Foreign Assets Control, which is linked to the US Department of the Treasury, to threaten any individual or entity anywhere in the world involved in the shipment of petroleum products to Syria with secondary sanctions.
  • The Iraqi Parliament was reportedly preparing legislation that would support neighboring Syria with increased fuel supplies as the latter faced shortages brought on by the US sanctions regime.
  • Kuwaiti oil and gas services company Senergy Group Holding is studying a potential entry into the Syrian market.
  • In an interesting development, three Syrian and Tunisian journalists incorporated a company in Syria to import oil and gas products.

Electricity

  • India’s Bharat company announced its intention to resume expansion works at the Tishreen Thermal Plant in southern Damascus starting in June. The project has a contract value of approximately €305 million.
  • Prime Minister Imad Khamis noted that Syria’s electricity generating capacity increased from 1,200 megawatts in 2016 to 4,200 megawatts today and thus, rationing hours have been reduced accordingly. Before the war, Syria’s energy needs amounted to 9,000 megawatts.

Commerce

  • Syria and Crimea moved forward with plans to set up trading houses to stimulate commerce between the two parties. While a trading house was established in Crimea towards the end of 2018, a similar one is expected to open soon in Damascus to facilitate the import and export of products between Syria and Crimea just as soon as all the legal procedures are completed. Crimea has now become the closest port to call on for Syrian products destined for the Russian markets.
  • Jordan banned the importation of 194 items from Syria into its territory in order to safeguard the interests of local producers and ensure prices of goods remain stable. Jordanian authorities stated that they would reverse their decision if Syria lessens import controls to facilitate the importation of Jordanian goods into Syrian markets. Syria is also attempting to protect its producers and the value of the Syrian Pound, which risks depreciating as imports grow.
  • While importers lay blame on retailers for price rises, the Ministry of Internal Trade and Consumer Protection has warned that it will sanction any merchant who realizes profits of more than 20%. The Ministry is more concerned with profit controls than price controls to avoid high prices.
  • A new trading company District 6 with a share capital of SYP 5 million has been incorporated in Damascus by a leading business personality.
  • Another rising business personality incorporated a trading company in the province of Rural Damascus with a share capital of SYP 25 million.
  • According to the Chairman of the Damascus Chamber of Commerce, merchants desire to be involved in oil, gas, phosphate and cotton projects, and the government should not exclude them and nor should it interfere in their pricing strategies or favor industrialists over them.
  • The Ministry of Internal Trade and Consumer Protection has ratified the articles of association of a company jointly owned by Syrian and Russian investors and engaged in the sale and maintenance of protection systems equipment.

Industry

  • According to Engineer Mohammed Ali, the Director of Industrial Parks in the province of Lattakia, there are four industrial parks currently under construction in Lattakia in addition to a project for expanding the industrial park in Jableh.
  • For the first time in its history, the exhibition event “Made in Syria” has registered the participation of up to 178 industrial companies.
  • The leading Al-Badia Cement Company confirmed plans that it is preparing to list its shares on the Damascus Securities Exchange. The company was incorporated in 2006 as a joint stock company and included Syrian, Saudi and French investors as well as a Chinese contractor. Its investment cost was estimated at $400 million (US) and its annual production capacity amounted to 1.6 million tons of Portland cement.
  • As part of its functions, the Ministry of Internal Trade and Consumer Protection approved the decision of the extraordinary general assembly of a glass company to elect a new board of directors headed up by two UAE nationals. A majority of the company’s share capital is owned by a UAE national.
  • After numerous areas were liberated by the Syrian Arab Army, the General Establishment for Geology has been working to extract rock salt in those territories and has even requested from the Ministry of Economy and Foreign Trade to cease imports of the product since domestic consumption needs can reportedly be met.

Agriculture

  • The government raised the price it pays farmers to procure their wheat by 5.7% to SYP 185,000 per tonne compared to last year’s prices. The wheat is being purchased by the state-owned grain buyer Hoboob. The Council of Ministers also approved a move to allocate SYP 400 billion owed to farmers. In addition to agricultural needs aggravated by war and drought, the measures have also been interpreted as a move to appease farmers located in a region in northeastern Syria controlled by Kurdish non-state actors with US support. Although it was once self-sufficient in wheat production, Syria now has to import considerable volumes of wheat, mainly from Russia.
  • A new bill is under consideration that would utilize attractive repayment schedules to exempt farmers involved in modern irrigation techniques from interest payments and penalties on delayed fulfillment of loan obligations. The benefits would also apply to manufacturers of goods that aid in modern irrigation techniques.

Finance

  • According to the Minister of Economy and Foreign Trade, the Central Bank is no longer financing imports after private banks took up this responsibility. Accordingly, this will help to reduce black market activities and hence protect the value of the Syrian Pound.
  • Syria and Oman started discussing potential cooperation between their stock markets – the Damascus Securities Exchange and the Muscat Securities Market.
  • Al-Baraka Bank – Syria offered its shareholders dividends worth SYP 5.250 billion in total, which is equivalent to 105% of the bank’s subscribed capital.
  • A distressed industrial company requested an investment loan amounting to SYP 1.5 billion from the state-owned Commercial Bank of Syria. The application is the first for the bank, which only recently began advertising such facilities.
  • The People’s Assembly approved a bill to increase the minimum share capital of internal money transfer companies. Consisting of 11 articles, the bill provides that the minimum share capital of such companies shall be set at SYP 100 million if they are licensed to provide only internal remittance services and SYP 400 million if they provide this service as well as additional activities listed in the bill.

Taxation

  • The Ministry of Finance explained that the General Commission for Taxes and Fees (GCTF) has not raised taxes but rather reclassified taxpayers as part of plans to increase revenues to the Public Treasury, especially due to significant inflation in the markets brought about by the conflict. Syrian taxpayers are classified into two categories such as those whose taxes are based on incremental brackets and those who are engaged in specialized professions like doctors, lawyers and engineers for instance where a fixed-lump sum is applicable because they may not necessarily receive a fixed income. By modifying the definitions for both categories, the GCTF is able to push through measures to increase revenues without necessarily raising taxes, which in any case may require new legislation.
  • A new bill under consideration proposes to set a 10% excise tax on the sale of cigarettes, tobacco products and alcohol.

Property

  • Land share values in Marota City have reportedly declined recently following the slow execution of construction works and the lack of substantial building permits issued by the Governorate of Damascus. Building permits for construction works are issued after the technical designs and drawings are approved by the Engineers Syndicate.
  • The Board of Directors of the General Commission for Real Estate Development and Investment licensed four new real estate developers, who now have one year to start work on residential projects or they risk having their licenses revoked. Several real estate development zones have been designated while there are 56 licensed real estate developers in the market, including six public sector companies.

Construction

  • President Bashar Al-Assad ratified Law 12/2019, which provides for setting up the Engineering Studies Corporation in Damascus to replace two other entities with similar functions. The Law provides for the incorporation of a state-owned legal entity with financial and administrative independence that is linked to the Minister of Public Works and Housing. It will have the capacity to establish branches throughout the provinces. Its share capital is specified at SYP 1.45 billion, which is comprised of funds and fixed assets obtained from its two predecessors. The company will specialize in studies and consultations in the fields of construction and public works with respect to projects in the public and the joint public-private sectors. Consolidation of various entities in the public sector has been a common feature in recent years.

Tourism

  • The Ministry of Tourism is considering new investment formulas apart from traditional build-operate-transfer (BOT) contracts for projects involving the private sector and will look into other options made available by the Public-Private Partnership Law.
  • The Ministry of Tourism announced the launch of the largest touristic project in the province of Daraa to be named Daraa Gate with an estimated cost of more than SYP 1 billion.
  • British and Irish tourists visited the ancient Syrian city of Palmyra, which on two occasions fell to ISIS control before it was retaken by the Syrian Arab Army.

Transport

  • A Russian company that provides shipping and maritime services and transport for petroleum products has opened a branch in Tartous following approval from the Minister of Economy and Foreign Trade. The move follows a public-private partnership agreement signed between the Ministry of Transport and the Russian company Stroytransgaz to invest in Tartous Part and manage the facility for a period of 49 years.
  • The public-private partnership (PPP) agreement signed between the Ministry of Transport and the Russian company Stroytransgaz could start to be implemented this coming July depending on the timescale for the People’s Assembly to ratify the contract and for President Bashar Al-Assad to sign off on the law. The PPP agreement provides for Stroytransgaz to invest in Tartous Port by managing, operating and expanding the facility for a period of 49 years and making it competitive with regional ports. The port will still remain in the ownership of the Syrian state and no sovereignty rights are affected. A main objective of this project is for Syria to develop international trade and transport ties via Russia and specifically Crimea to help offset the effects of US and EU sanctions. According to the Syrian Minister of Transport, Russia will invest more than $500 million (US) into Tartous Port, upgrade and increase its capacity, and guarantee job security for its current employees. According to the investment agreement signed between both parties, any disputes that may arise will be subject to arbitration overseen by the Council of State, which functions as the Syrian administrative court. According to the investment agreement, Syria will receive 25% of revenues regardless of the costs with its percentage increasing to 35% gradually until the expansion is completed. The Minister elaborated by stating that under the current circumstances, the port can generate a maximum revenue of $24 million (US) annually but that as a result of this investment agreement, Syria’s annual revenues will amount to $84 million (US) annually. In addition to its investment in Tartous Port, Stroytransgaz has signed similar PPP agreements with the government to invest in the gas, phosphate and fertilizer sectors. On a similar note, Lattakia Port will be managed by an Iranian company starting in October after the Syrian authorities decided against renewing their contract with the port operator consortium comprised of Souria Holding and CMA CGM.
  • There is some controversy and confusion over a report that a government project was transferred to a private investor without the knowledge of the concerned minister. It was alleged that officials at the Ministry of Transport contributed to the transfer of government-owned land to a private investor to build a shipyard for the construction and maintenance of ships at an initial cost of €350 million although the Syrian General Establishment for Maritime Transport was entrusted with the execution of the project on the same land. The officials at the Ministry of Transport apparently forwarded the application for the investment proposal to the Syrian Investment Authority without first referring it to the Minister of Transport, which caused the latter to pause the project in order to investigate the matter. The issue looks set to be sent to the Council of Ministers for deliberations.
  • The General Establishment for Syrian Railways announced that it will develop a roadmap for proposing potential investments throughout the provinces on public-private-partnership (PPP) models, including a build-operate-transfer (BOT) structure, in order to raise financial revenues without creating a burden on the Public Treasury. The state’s coffers have been under heavy stress as a result of the conflict and the government is seeking to alleviate this problem by launching PPPs pursuant to the PPP Law.
  • Maintenance is underway on the railway line between Syria and Jordan that will enable the transport of goods between both countries. The railway link was active before the war.
  • The recently incorporated private airline company East West Airlines is set to lease three aircrafts. As part of the final step before commencing flights, the Syrian Ministry of Transport dispatched a technical team from the Civil Aviation Authority to Jordan to inspect the planes.
  • Dubai-based carrier Emirates Airlines is currently awaiting evaluations of reports on the safety of Syrian airspace and the facilities at Damascus International Airport before moving forward with a decision to resume flights between Dubai and Damascus.
  • Syrian privately-owned airline Cham Wings announced its intention to resume flights from Damascus to Muscat.
  • Iraqi Airways was expected to revive flights between Baghdad and Damascus for the first time since 2011 but retracted its decision immediately before being given approval to do so. While it was meant to be a hopeful moment, Iraqi Airways postponed its decision to resume flights citing administrative and regulatory reasons. However, there is speculation of US interference in this matter.
  • While Russia proposed that its companies would be interested in investing in the international airports in Damascus and Aleppo to rehabilitate and renovate them on a build-operate-transfer (BOT) basis, there have been no negotiations to proceed forward to date.

Telecommunications

  • One of two mobile network operators MTN Syria went public and listed on the Damascus Securities Exchange (DSE) following its initial public offering. The other one Syriatel listed earlier in the year. 5,000 shares of MTN Syria were offered at an initial benchmark price of SYP 7,500 per share. The first proposed share price for MTN Syria of SYP 16,000 per share was rejected by the Board of Directors of the DSE in February. In accordance with DSE regulations, shares can only increase in price by up to a maximum of five percent daily and decrease by 2.5% daily. 26 publicly traded companies now feature on the DSE.

Technology

  • The digital signature project should be prepared by the end of September after work on the infrastructure was undertaken by the National Network Services Authority, which is linked to the Ministry of Communications and Technology, following the signing of an agreement with a specialized Russian counterparty.

Health

  • Pharmaceutical production in Syria consists of 89 factories covering 90% of the needs of the local market despite the war. Locally-produced medication is much cheaper compared to imported brands.
  • A pharmaceutical factory producing 42 types of cancer treatment drugs is expected to begin operations in the next couple of months in the industrial park in Adra. Owned by a prominent businessman, the factory will compensate for imported products which are far more expensive and difficult to procure due to sanctions. As is customary in Syria, the Ministry of Health will price the drugs. In the first stage, the cancer drugs will be geared towards the local market before any decision is made to export them. The cost of the factory is estimated at €28 million and is being set up according to international standards. Before the war, Syria produced all its medicinal needs with the exception of cancer and diabetes drugs, which were imported.

Media

  • Syrian MPs in the People’s Assembly are unhappy with the lack of dedicated media coverage that enables citizens to fully grasp the nature of the legislative proceedings. Proposals on the table include live broadcasts and a specialized YouTube channel as opposed to edited news headlines.

Local Councils

  • The Damascus Provincial Council through its Executive Committee is setting up three committees to consider measures to invest the assets belonging to the Governorate of Damascus, including by means of joint ventures with private businesspersons who may be interested. A legal committee linked to the Damascus Provincial Council will offer its legal opinion on the potential investment opportunities in the Syrian capital.

Reconstruction

  • In a symposium organized by the Czech Ministry of Foreign Affairs in Prague, numerous Czech companies expressed their interest in participating in reconstruction projects in Syria.
  • The Federation of Syrian Chambers of Commerce issued a memorandum stating that the Syrian private sector could cover 40% of reconstruction costs without the need to resort to external financing and it could increase its contribution to 70% of all investments, imports and manufacturing in the next two years.

Social Affairs

  • President Bashar Al-Assad formally opened the Cham International Islamic Center for Countering Terrorism and Extremism, which falls under the purview of the Ministry of Religious Endowments (Awqaf). The initiative should be seen in the light of the new Awqaf Law passed in 2018.

International

  • Syria participated in the Second “Belt and Road” Forum (BRF) for International Cooperation that was hosted in Beijing.
  • The UAE undertook preparations for a food aid program destined for Damascus and Rural Damascus.
  • Although EU sanctions against Syria were renewed for another year, it would take only one EU member state to veto any renewal next year and thereby bring the EU sanctions regime against Syria to an end.
  • The British government announced measures to prosecute any of its nationals who visit the province of Idlib or northeastern Syria without a legitimate reason under a new controversial piece of legislation called the Counter-Terrorism and Border Security Act. The designated areas in question are a hotbed of terrorist activity. If convicted, a person could face a prison sentence of up to 10 years, a fine, or both. An individual presently in those areas has one month to leave from when the order comes into force.