This article is part of Executive’s special report on the oil and gas sector. Read more stories as they’re published here, or pick up October’s issue at newsstands in Lebanon.
In November 2013, then-Minister of Energy and Water Gebran Bassil was busily promoting optimism and working hard to launch the first offshore licensing round for oil and gas. And amid this feverish activity, fears of mismanagement, political and religious favoritism and theft of revenues from the resources were beginning to grow among the public.
But then things stopped. The government was unable or unwilling to pass the two essential decrees related to the maritime blocks and the model exploration and production contract. Momentum evaporated, leaving the licensing round in limbo, open for an undetermined amount of time.
It is speculated that the longer this period lasts, the more likely companies will lose interest or set their negotiations bar high, making the government pay the price for its inability to take decisions. But, on the other hand, it also gives the Lebanese the time to pause for a while and think of what it would mean for Lebanon to become a petroleum producing country, including what challenges and opportunities the commercial discoveries would entail. With Bassil heading the ministry, it looked like him running the 100 meters and us running behind him trying to catch up.
[pullquote]Lebanon is the perfect candidate to fail in managing the oil and gas sector[/pullquote]
Lebanon is not known for its strong institutions or its respect of the environment, nor for transparency and efficiency in public administration, its good management of finances, its diversified economy, or its planning and investment in sustainable development. To add to this grim situation, there is a high level of distrust between political parties themselves and between political elites and citizens. In a sense, Lebanon is the perfect candidate to fail in managing the oil and gas sector, thus turning these resources into a curse for the country and its population. And we all know that Lebanon cannot stand another curse.
However, there are remedies for the government to succeed in managing the sector in an efficient way. Having the political will to keep the sector away from local political bargaining and having a clear strategy and vision on how the revenues will be used are essential. There are also international changes in natural resource rhetoric on which the government and the citizens can rely to benefit from potential oil and gas revenues. The past few years have witnessed global campaigns for open data, open budgets and disclosure of and access to information, especially concerning natural resources. It is becoming more and more difficult for governments and companies to deny the right of the public to know how its money and resources are being managed. The Ministry of Energy and Water, and specifically the Lebanese Petroleum Administration (LPA), the regulatory body of the natural resource sector, had stressed on various occasions that it is abiding by the highest standards to ensure that the licensing process is transparent. It had chosen the prequalified companies according to a set of specified criteria; it intended to have a transparent process during the bidding round and had set clear selection criteria for the winners.
However, with regards to contract disclosure, the LPA was hesitant. It guaranteed that the model contracts would be published on its website, but announced a couple of times that the decision to publish the signed contracts had yet to be taken. On the other side, the LPA has been interested in one of the leading international initiatives on natural resource transparency — the Extractive Industries Transparency Initiative (EITI) — and it is looking into the feasibility of signing up to it. In a country such as Lebanon, with little trust among citizens and between the government and the public, initiatives such as the EITI could be a good start to initiate dialogue and debate for reforms and build trust over the management of the revenues.
[pullquote]It is possible to turn what now might be a curse into a blessing[/pullquote]
Lebanon is bound to become a producing country if commercially viable amounts of natural resources are discovered. Knowing its history in governance, there is great pressure on its citizens — and especially on civil society — to act as the safeguard of the sector and demand that the government put in place key accountability mechanisms, such as setting clear roles and responsibilities of agencies running the sector and information sharing mechanisms. The natural resources sector should become the medium for the government to show its good will in terms of integrity and corrupt-free management style to gain the trust of its citizens. Furthermore, the Lebanese population should work collectively to play the role of watchdog for the government’s policy decisions. And here, civil society’s role will be key. It is possible to turn what now might be a curse into a blessing that will finally put Lebanon on the right track to become a viable, strong and independent state.
So what is the EITI?
The EITI is an international initiative to improve transparency and accountability in the oil, gas and mining sectors. It was established in 2003, as a response to harsh criticism and a vast campaign from international organizations on opaque oil and gas management in resource rich countries with high poverty rates. The current EITI board is formed of 20 members representing implementing countries, supporting countries, civil society organizations, industry and investment companies and a secretariat, which is responsible for reaching out to countries with natural resources and supporting them to implement the EITI.
Countries decide voluntarily to sign up and must meet a number of requirements to obtain and preserve the status of compliance with the initiative. Currently 46 countries are using EITI to improve natural resource governance. Recently, the UK, France, Germany, Italy and Australia committed to implement it.
For countries implementing the EITI, natural resource companies are required to publish what they pay to governments and governments are required to publish what they receive. The mutually provided numbers are then reconciled by an independent auditor; any discrepancies are investigated and a report is produced. Participating countries in the EITI are required to disclose information on licenses and license allocations, in-kind revenues, transportation revenues, data production, social expenditures and sub national payments. It is also important to note that the EITI encourages contract and beneficial ownership disclosure, which identifies the real owners of the natural resource companies.
Each EITI implementing country forms a multi-stakeholder group (MSG) that includes representatives from the government, companies and oversight bodies — the latter mainly coming from civil society. Some MSGs also include parliamentarians. This group oversees the EITI process and the production of reports. It also ensures that the reports are disseminated to the public and discussions over reforms are launched. The findings of the produced report are communicated to the public to raise awareness and initiate debate about better management of the sector.
[pullquote]All this will eventually create pressure to make the government more accountable[/pullquote]
Benefits of the EITI
The EITI goes beyond producing a report that contains contextual information and production figures. It is a tool that requires collective action from different stakeholders in identifying the substantial information that needs to go into the report, which will be the bases for debate, discussion and advocacy around the management of the resources. Moreover, this voluntary initiative has benefits for governments, companies and civil society organizations.
A government will benefit by demonstrating a commitment to transparency that would improve its national and international reputation with both citizens and the international community. It also benefits a government by improving revenue collection and management processes — Nigeria was able to find $553 million in owed taxes in 2009 after using the EITI — as well as sovereign ratings.
Companies and investors benefit by mitigating political and reputational risks, and by strengthening the investment climate by addressing opaque governance and securing long term stability in extractive industries, where investments are capital intensive and dependent on long term stability to generate returns. Reducing such instability is beneficial for business, as is demonstrating corporate social responsibility (CSR) and contribution of payments to national development. Transparency of payments made to a government can also help to demonstrate the contribution that their investment makes to a country.
Civil society benefits by using the tremendous amount of information that will be available to the public through the publication of the reports. This information will empower civil society organizations to set advocacy plans, as well as help media outlets with reporting and investigating the numbers and data provided. All this will eventually create pressure to make the government more accountable. The rules of EITI require that civil society organizations be formally and fully involved in each stage of the initiative. This gives them a voice in a permanent consultation and participation framework that allows for an ongoing discussion with the government and companies.
What does Lebanon need to do?
If Lebanon were to decide to sign on to the EITI even before production starts, it will need to undertake the following steps:
• The government should announce publicly its desire to adhere to the EITI.
• It should nominate a key person that will act as the national coordinator and will be responsible for implementing EITI requirements and interacting with the EITI secretariat in Oslo.
• It needs to commit to work with civil society and companies, and establish an MSG to oversee the implementation of the EITI.
• The government should submit an EITI candidate application to the EITI board that will decide either to accept or refuse the application.
The important element is for civil society organizations to be ready and able to choose their representatives in the MSG. Currently the Lebanese civil society movement is shy and hesitant when it comes to tackling the natural resource issues, and not close to establishing a coalition of organizations capable of injecting its representatives within the MSG. Therefore, civil society’s readiness is crucial for any future steps towards signing up to the EITI. Without this readiness, Lebanon can dismiss any hope for properly managing any resources — and optimally benefitting from them.