Greasy politics in oil and gas

Fouad Makhzoumi is searching for a secular future for Lebanon’s oil and gas sector

A picture of Fouad Makhzoumi meeting Pope Francis sits on a mantel next to photos of other global figures in the salon of his multi-story mansion in Lebanon’s posh Ramlet el Baida district. Executive had asked for a meeting with the businessman, philanthropist, and politician to discuss Lebanon’s potential petroleum resources. Makhzoumi has thus far organized two conferences aiming to build consensus in Lebanon’s oil and gas sector, and is planning another conference for later this year focusing on corporate ethics in the oil and gas industry.

Makhzoumi is chairman and chief executive officer of multinational company Future Pipe Industries, a manufacturer of pipe system solutions for the water, oil and gas, and industrial sectors. He is the man behind the Makhzoumi Foundation, a local non-governmental organization providing vocational training, healthcare, and micro-financing to underprivileged individuals. His political career includes founding Lebanon’s National Dialogue Party, a self-described secular political party publishing al-Hiwar newspaper.

E   What is your vision for developing Lebanon’s oil and gas sector?

I [returned]to Lebanon from the Gulf in the early 1990s. For me, everybody that succeeds abroad has an obligation to come back and pass on some of their experience. Unfortunately, we were wrong because what we have seen is a system that does not allow professionals to come in.

I believe that if we want to go for real development, we need to go for the underdeveloped regions. Plus, economically it makes a lot of sense – I need land, I need access to main roads, I need access to the borders because most of our industry is for export – it makes sense. I would like to concentrate not on Batroun where the minister would like to – Batroun is a touristic [area], and people there are not hungry. Where we need to develop instead is in Akkar and in the South. In Akkar I have two options – one is to train for oil and gas, and the second is to plan for the reconstruction of Syria. This should be the vision.

E   In your view, is oil and gas just another political bargaining chip?

Oil and gas is the future of our country, that’s why we went for it. Historically what we have seen is that every potential income generating sector is divided [along] sectarian [lines]: telecommunications, Sukleen, the airport, the duty free, the port. This is yours and mine, but we will both approve the transaction in the cabinet and the parliament so that nobody can claim [corruption]. [The 1940s] was the first time we drilled for oil in this country, so we have known about it for 60 plus years. But the regional powers, Syria and others – why would they allow Lebanon to become economically independent when really there are so many political issues that are still boiling?

The whole dynamics of the region is changing. For Lebanon it means [that] until this regional solution is settled, why would you allow warring parties in Lebanon access to cash in order to stop being in a position [where] they have to negotiate for a settlement. You starve the country – which is what’s happening. During this period our politicians figured maybe let’s see if we can divide the future wealth of Lebanon among ourselves, so that when the deal is allowed, then I [as a corrupt politician] have my concessions on this one, my option of 10 – 20 percent, my upfront fees, and this way we can secure [wealth for] our [families]. And this is what we have fought to stop.

E   How might they divide the future offshore oil and gas wealth?

It is easy. Lebanon is divided geographically [and] by sect – Shiite, Sunni, Druze, Maronite. So each one of these [former warlords, who now lead these communities] decided that if [a discovery is made out at sea, nearest to their] territories then it is theirs; not theirs [in the sense that] there is a registered certificate with it, but it is theirs politically under the [notion that] ‘I need to develop my people’ and to create jobs for them. But most of their people have nothing to do with the deal, because the deal is personal.

E   When you say politicians have divided up the country and each one has his area, would they have some sort of role in the partnership of a joint venture?

No, you know better. To allow the government to sign with ENI or Total, or with Gazprom, it means [the company would] have to [take care of a politician’s son] so that [the politician] basically has an option [to gain] 10 percent of that field if you were to find gas or oil.

E   How does that work?

It’s very simple. Instead of paying you a fee to be my [official] representative I can get two things from you: an upfront fee to [ensure] the government will sign with you, this is the cash part. And then, like a derivative, in case you start drilling I [as the corrupt politician] have the option to own 10 percent of [a concession], [and] sometimes it’s running up to 30 percent, against which if there is an actual [discovery] I can sell that to a third party. So it means I am buying [potentially] hundreds of millions of dollars on a piece of paper that [I] can sell at anytime and get out.

E   Aren’t there rules in the law to limit this sort of behavior?

In every country in the world the first thing you do is create an authority which is non-political. You get professionals, civil society members – you get everybody involved. What we have done – the [Lebanese Petroleum Administration] they are all professional – but at the end of the day, each represents a sect; the Greek Orthodox, Maronites, Sunnis, Shiites, Druze, and Greek Catholic. The fact that I appointed you as my religious, sectarian group – you better be nice with what I tell you because I will have them kick your ass out. So now we have a series of ceilings – the LPA has to report to the [Ministry of Energy and Water], the ministry has to report to the Prime Minister, the Prime Minister will have to go to the Parliament. But actually the people who are deciding are the ones who appointed you to be a member of [the LPA].

E   What is your motivation in organizing the National Wealth Forum for Oil and Gas?

Before [this year’s June] conference I went down to visit the LPA [and I asked them to] show me what [they] do. They were very defensive. I said it’s one of two things: either you show me what you do or I’m going to attack you. So recruit me, and since I’m not for sale you have to recruit me based on facts. We spent a few hours there. These are good people, they have good intentions. Unfortunately they have political bosses. So instead of trying to undermine the LPA and to join the band by attacking them, let’s capitalize on their strengths, give them the platform to explain what problems they’re having, and this way you create enough consensus behind them so that slowly you can move them away from the political influence that they are put in.

Jeremy Arbid

Jeremy is Executive's in house energy and public policy analyst.