Legislation in progress

Talking future regulation with the LPA’s Walid Nasr

Walid Nasr, head of strategic planning at the Lebanese Petroleum Administration
Reading Time: 4 minutes

Recent news that rival political parties agreed on a vision for Lebanon’s oil and gas sector was met with worried optimism – an over three year wait for pending decrees to move the first offshore licensing round forward may be nearing an end. Until early July it seemed that oil and gas would continue to languish at the lowest rungs of the government’s priority ladder.

The politically-induced freeze on oil and gas might not be ending anytime soon (see cover story). But if the sector is to move forward the government will need to resolve a number of legislative details. Executive wondered what stage the Lebanese Petroleum Administration (LPA), the sector’s regulator, has reached in preparing necessary decrees and laws, and of its take on the added value of newly available seismic data. It had, after all, been nearly a year since the last time Executive reached out to the LPA for a formal interview. “Are we moving forward?” Executive asks. With technical preparations, yes, says Walid Nasr, head of strategic planning.

E   Up to this point interpretations of the seismic data suggested high prospectivity for offshore Lebanon, but recently new data has emerged. What do interpretations suggest and why is this new data making headlines?

In 2002 TGS [a geoscience data acquisition company] came to Lebanon and did a survey offshore with 2D seismic lines covering most of the Exclusive Economic Zone. Recently the LPA managed to retrieve this data from the company – at that time [TGS] did not have an official contract with the Ministry of Energy. In 2011 Minister Bassil brought a lawsuit against the company to get the data and settle the issue between the company and the Lebanese government. So we retrieved the data from TGS and did our own interpretation. The added value of the TGS data is that it had lines in areas where we did not have any data before, specifically on the border areas. When we interpreted this data we came to the conclusion that we may have common reservoirs with neighboring countries.

E   That data suggests that there could be, but does not establish, reservoirs that stretch into neighboring countries’ waters?

Final confirmation is by drilling, of course. But what it suggests is that we may have reservoirs across borders that have good prospectivity.

E   Is there any update on a pending petroleum tax law?

The petroleum tax law has been prepared by the Ministry of Finance in collaboration with the LPA. Now it’s in the Ministry of Finance and the minister should be able to submit it to the council of ministers and then it should go to parliament for approval.

[pullquote]If the sector is to move forward, the government will need to resolve a number of legislative details[/pullquote]

E   The argument we often hear when you don’t have fiscal and legal legislation set before a licensing round is that companies may be hesitant to bid because the rules of the game are not clear. Are you pushing for the law to be passed before the licensing round moves forward?

That is what we are working on. This tax law is prepared in line with best practices to have a good fiscal system in Lebanon. We are working with the Ministry of Finance and they are eager to have this law passed before the bidding process ends. What is important is to have this law passed by parliament before the actual date of the submission of the bid so companies can design their offer accordingly. However, the two decrees pending can be issued in parallel or before this [petroleum tax legislation].

Worst case scenario – which we wouldn’t like – the current tax law applies [a 15 percent corporate tax rate]. So companies would design their bids based on the current tax law. Even if they bid [based on the current tax law], we have stability clauses within the Exploration and Production Agreement that could address [future changes to the tax law]. Our preference, and we’re working with the Ministry of Finance on this, is to have [the new tax law] issued so that we have a complete fiscal system with a petroleum tax law in place.

E   There’s also the onshore oil and gas exploration law that is still pending. Is that bill under preparation or ready for referral?

The Ministry of Energy and Water is preparing that; the minister has formed a committee comprised of the LPA and the ministry. We are close to a final draft that will be submitted to the minister and he will, in turn, submit it to the cabinet after which it will go to the parliament. It calls for the LPA to manage both onshore and offshore. It’s technically easier to drill onshore, less costly, less risky and faster in terms of development. The main issue onshore is environmental, it’s more critical and we have some concerns, protecting groundwater for example. The draft law aims to address these concerns.

[pullquote]Our preference, and we’re working with the Ministry of Finance on this, is to have [the new tax law] issued so that we have a complete fiscal system with a petroleum tax law in place[/pullquote]

E   We understand the LPA is drafting implementation decrees and is preparing the groundwork for a law to organize a sovereign wealth fund. Are there any updates? 

There are some application decrees that we are preparing that would complement the Petroleum Activities Regulations. One of them is the Petroleum Register, very important, where you have all the companies and the details of the awards, and the production later on, registered in the Register with all the licensees, including beneficial ownership. This is being prepared now and will be ready before the bidding process.

For the sovereign wealth fund we have a lot of time to establish it because actual revenues will not be flowing in the short term. It’s very important to set it up, so now the LPA is doing some assessments but we are not drafting the law ourselves because this is a national topic that needs to be discussed. The law should be based on [commercially extractable] resources and our vision of how these will be managed – we’ll provide the technical support and advice needed to design this law.

Jeremy Arbid

Jeremy is Executive's former economics and policy editor.