A matter of clarification

Executive talks oil and gas with energy minister Arthur Nazarian

While Lebanon opened its first offshore oil and gas licensing round in May 2013, international companies have not yet been able to submit bids because cabinet has not approved two necessary decrees (one outlining the tender protocol and model exploration and production sharing agreement, and another delineating offshore blocks up for bid). In April 2014, shortly after Prime Minister Tammam Salam formed his government, cabinet appointed a ministerial committee to study the draft decrees before approving them. The committee finished its work in July and sent the draft decrees back to the Lebanese Petroleum Administration (LPA), an advisory body with regulatory powers which reports to the Ministry of Energy. In a written response to Executive’s questions for this report, the LPA says the updated drafts of the decrees have been submitted to the prime minister “along with a request to put them on the council of ministers’ agenda.” Executive sits down with Minister of Energy and Water Arthur Nazarian to discuss the decrees, state revenues from seismic data sales, transparency and whether or not Israel is stealing Lebanon’s gas.

E   The government has been receiving revenue from the sale of seismic survey data. How much revenue does the government have from these sales to date?

I don’t think these are the questions you should ask. Governmental officials can ask, no problem. The audit court can ask. But this is not public information. Am I allowed to ask you how much money you have in your bank account?

E   No, but…

This is the same thing. This is not public information. We cannot say we have this much or we have that much revenue. This is state secrecy. But any government official or the audit court can ask, that’s no problem. Anyway, it’s in an account in the central bank. Of course, it is all transparent.

E   If you say so. Are there any plans for how to use the money?

Not for the time being, no.

E   A ministerial committee was formed on April 2, 2014 to study two decrees prepared in early 2013 necessary to move forward with the first licensing round. The committee submitted decrees back to the LPA in July of this year. It met twice, correct?

We met two or three times. But individually, the LPA went to each one of the committee members and met with them or their advisors. If [members or their advisors] had some questions or clarifications, the LPA answered. It was all discussed.

E   Can you tell us what specific changes to the decrees resulted from the committee’s comments and questions?

There were too many comments from variuos ministers to give a specific answer. The Ministry of Finance had financial questions. The Ministry of Environment had some environmental concerns. Each ministry had comments. Some of them were incorporated, some of them were not because they contradicted the LPA’s professionally drafted recommendations.

E   So, was this more of a learning exercise for the various ministers or did they have numerous relevant comments which resulted in substantial changes to the decrees?

Not every minister is an expert in the oil and gas industry, so it was a learning experience. But some of them had their own advisors who knew about the subject, so there were some informed questions or clarifications. Some changes to the decrees were made, but not, of course, substantial changes. The LPA drafted the decrees, and they are knowledgeable on the subject so the decrees were already well drafted. The LPA also had assistance drafting the decrees from foreign experts, the Norwegians for example.

E   There is an article in the pre-qualification decree that allows a non-qualified company to partner with a qualified company to pre-qualify as a joint venture. MP Joseph Maalouf calls this a loophole that invites the possibility of corruption and says it must be closed, meaning the decree should be changed and the three joint ventures that benefited from this article should be disqualified. Do you agree?

The article allows for joint ventures. A certain company can partner up with another company and they jointly apply to be pre-qualified. And they are pre-qualified because both of them have the credentials. It’s not that a non-qualified company applies with a qualified company. It’s a joint venture. A qualified company and another, any company, become one company. The credentials of both will become qualified.

E   MP Maalouf says specifically that this is a loophole that must be closed. It was the first point he made when describing his oil and gas transparency law to us. Do you agree?   

We gave him explanations to all the questions he asked. If there is any loophole, he should clarify where the loophole is. You can say there’s a loophole. It’s a saying. But if you specify the loophole, then we will see.

E   MP Maalouf did. He pointed very specifically to this article and said it’s a problem and it needs to be fixed. Did he say that to you and do you plan to do anything about it?

We answered each and every one of his questions. We gave an explanation.

E   Do you know who wrote this article in the pre-qualification decree? We know the decree was drafted by the LPA, approved by the ministry and then finally approved by cabinet. Only the final published version, not the drafts. Who wrote this article and what was the rationale behind it?

Do you think everything should be public?

E   Yes.

There are certain people, parliamentarians or government officials, that have the right [to see draft legislation], and they represent the people, no? MPs represent the people. So if anybody has any questions, they can ask through their members of parliament. We cannot go to the public with every issue and ask everybody for their comments because I don’t think anything would be finalized. It would never end.

E   Can you give more detail on what specific steps are underway for Lebanon to implement the Extractive Industries Transparency Initiative (EITI)? For example, has the LPA or the ministry drafted an unequivocal statement of intention to join the EITI, the first step in the EITI standard?

There are things that need to be prepared locally before we take the first step published in the standard. Implementing the EITI doesn’t involve only the Ministry of Energy. It’s government wide. When the LPA says steps are underway, this means the preparations are underway locally to take the first EITI steps. The first step for the EITI is this unequivocal statement. However, for the government to commit to this statement, there is some work to be done locally with the Prime Minister, Minister of Finance, and others. We are preparing the ground so the government is ready to make such a statement. Once we have the approvals, and relevant ministries are ready, and it is in line with our laws and so on, then we can commit to the EITI. This is what the LPA means when they say they are preparing the ground. They’re doing analysis of the existing legal framework concerning disclosure of information, for example, and so on. If the EITI contradicts our laws, we cannot make the unequivocal statement.

E   In July 2013, former Minister of Energy Gebran Bassil spoke at a press conference about Israel’s Karish gas field, which is near the border of Lebanon’s Exclusive Economic Zone. He said Israel is capable of stealing Lebanon’s gas. Speaker Nabih Berri has said Israel is stealing Lebanon’s gas. If I remember correctly, you’ve said the speaker never presented his evidence to you…

No. I said I don’t personally have any evidence. I didn’t ask the speaker if he had any evidence. I said if there is a joint field, the Israelis could be exploiting it. A joint field can happen between any two countries. Whichever country starts exploiting a joint field first, they have a potential advantage.

E   This seems to be a very important national issue – whether or not Lebanese gas is being stolen. Your predecessor said Israel was capable of this. The speaker says Israel is doing it. Are you following up on this in any way?

Israel might have the technology to do this, we are not sure. Maybe they are stealing our gas, maybe they’re not.

E   But you’re not following up in any way? You haven’t tasked the LPA with following up on this?

The LPA prepared a report describing what is technically feasible in theory. And this report was submitted to the cabinet. Now for an actual investigation, you need to be in the field to actually assess whether this is occurring or not, and that we cannot do ourselves. It is possible they are stealing our gas, we’re not saying it’s not.

E   The speaker says Israel is actually stealing Lebanon’s gas. But Lebanon is taking no actual steps to find out if this is true?

Maybe Berri has evidence I’m not aware of.

Matt Nash

Matt is Executive's Economics & Policy Editor. He has been reporting on Lebanon since 2007 with a focus on oil and gas, policy and legal matters.