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How far can Lebanon go with transparency measures in its oil and gas sector?

Too good to be true

by Laury Haytayan

Last year, Lebanon signed two contracts to explore potential oil and gas resources in its offshore waters. It took the authorities nearly four years to close the country’s first offshore licensing round, with the two contracts awarded to a consortium of companies—France’s Total, Italy’s ENI, and Russia’s Novatek—for two blocks, one in Lebanon’s northern waters and the other in the south. Drilling is expected to begin late next year, and the government has already announced its intentions to launch a second offshore licensing round this December. It is encouraging that Lebanon is moving forward toward drilling, but the country needs legislation and regulation to ensure strong transparency and accountability in this sector.

A step toward transparency

The near four-year delay in the first licensing round was caused by political deadlock that led to total paralysis in institutions. The government was unable to take decisions, Parliament twice extended its own mandate and was unable to elect a president for two and a half years. Lebanon does not fair well in international rankings, with a high score for perceived corruption from Transparency International, and ranks low for ease of doing business and trust in politicians according to the World Bank and the World Economic Forum respectively. With these indicators, it would be easy to assume that the oil and gas sector in the country would get caught in the same cycle of corruption, yet there have been positive steps.

Despite the poor transparency indicators, Lebanon did manage to attract three international oil and gas companies. The government, in a show of good faith, published the two signed exploration contracts, for Block 4 and Block 9, despite being under no obligation to do so. Legislation organizing offshore oil and gas exploration, the Offshore Petroleum Resources Law (OPRL), does not include provisions requiring publication of the contracts, and the law does not mandate disclosure of information to the public. The disclosure was therefore a voluntary act by the Ministry of Energy and Water (MoEW), allowing the public to monitor the implementation of the commitments of the companies and of the government—and to hold them to account if contractual obligations are not met.

A lack of trust

The publication of the contracts was a very encouraging measure, but contract disclosures and the public dissemination of information should be norm and mandated by law. And, sooner than expected, at the end of September,  Parliament did ratify an oil and gas transparency law that ensure disclosure and prevent conflicts of interest. Despite this, people are still worried; many have lost faith in the leadership of the country, believing that the oil and gas sector will be another means by which the political class will siphon Lebanon’s wealth. We need to safeguard the transparency gains in the oil and gas sector and ensure that these gains will have a positive spillover effect on other sectors in the country.

How can we do this? The leaders of the country need to work hard to gain the trust of their citizens, so that citizens can believe that when Parliament ratifies a law, the government will then enact the needed regulation to ensure the law is followed. In addition to the transparency law, there are two crucial regulations that must be approved by the next cabinet: a decree concerning beneficial ownership and another on subcontracting. The subcontracting decree seeks to ensure fair and competitive bids for services and goods that will be needed throughout the exploration phase and, hopefully, for the production and sale of oil and gas. The beneficial ownership decree is designed to help prevent politicians and state officials—or their relatives or close associates, acting on behalf of these officials—from dominating the sector and controlling the allocation of work contracts. Control by politicians or officials over subcontracts in the services and goods sector would be catastrophic for the country, as dangerous as the mismanagement of the revenues. One of the main problems Lebanon has is that politicians and their friends typically control the economy and secure the biggest deals for themselves. If they do the same in this sector, it will deprive businesses that are not close to the political elite of the right to fair competition, and keep the country’s wealth concentrated in the same hands.

We need to make sure that the companies are publishing data on their progress. They should be transparent and disclose information on their exploration plan milestones and timelines to the public, so that there is clear understanding of what the companies will do and when.

Access to information

In addition, we need to make sure that the Lebanese Petroleum Administration (LPA), Lebanon’s oil and gas regulator,  continues setting in place transparent systems and mechanisms. Recently, the LPA sent a delegation to Ghana to share their experiences in open and competitive licensing with their Ghanaian counterparts. Sharing best practices with counterparts is a positive indicator of the LPA’s management of the sector thus far. Information sharing is a strong suit of the LPA via its web presence, especially when compared with other ministry of energy and water “sister” sites such as the Lebanon oil installations website. The LPA’s website is the place to go to gather information about the sector, but there is room for improvement—for instance, by increasing the accessibility of disclosed information through different formats; producing easily searchable and user-friendly documents, or formatting information in visual forms so that the general public can understand the complexities inherent to oil and gas issues.

Recently, the Natural Resource Governance Institute (NRGI) released a new study on the best practices in licensing, titled “Open Contracting for Oil, Gas and Mineral Rights: Shining a Light on Good Practice.” This report is based on research identifying 16 global good practices that governments have used to improve transparency across the processes by which they award and manage oil, gas, and mining rights. Lebanon was mentioned in this report as a country with some best practices in licensing, but there is more that can be done. The recommendations put forward in the report can help the Lebanese authorities to improve transparency, and we encourage authorities to adopt them.

The oil and gas sector, if managed effectively, could go some way toward restoring the reputation of Lebanon’s political elites.

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Laury Haytayan

Laury is MENA director at the Natural Resource Governance Institute.

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