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Resource wealth buried under paperwork

Legislation needed to move oil and gas sector forward

by Jeremy Arbid

Another year of waiting has come to pass and yet there is still no movement for Lebanon’s oil and gas sector. Is it a regional conspiracy to prevent the Lebanese government from taking its own decision, or is it the fault of American diplomats, as Speaker of Parliament Nabih Berri claimed in November 2015? Almost a year after a ministerial committee was formed to reach consensus on two needed implementation decrees, the Council of Ministers has not yet placed the items on its agenda. Parliament, meanwhile, has to approve an adjustment to the tax regime to account for oil and gas and must debate a law to combat corruption in the sector.

A jovial ceremony announcing the launch of Lebanon’s first offshore licensing round back in 2013 promised that the country would soon become an oil and gas producer. In the two years since, the proverbial train has fallen off the tracks. Lebanon’s Council of Ministers, hampered in its ability to manage the country, has failed to pass two needed decrees to move the licensing round forward – one delineating the blocks and coordinates of offshore Lebanon and the other approving the tender protocol and model exploration and production agreement. Parliament, for its part, has declined to legislate for the better part of this period, except, of course, when it risked losing key international financing. Parliament must update Lebanon’s tax regime as oil and gas is – in other jurisdictions – taxed in a higher bracket than the 15 percent corporate rate Lebanon currently has on the books, but it has not opened debate on a draft law submitted earlier this year. Since officials have publicly announced that a new tax law has been drafted, oil companies interested in bidding in Lebanon no doubt know change is coming and could well hold off on investing until the tax rules are clear.

Transparency in Lebanon is always harped on but words are rarely put into practice. With oil and gas being a notoriously dirty industry around the globe, legislation in this sector is of the utmost importance. In early 2015, MP Joseph Maalouf, a member of Parliament’s energy committee, drafted a bill pointing out where corruption might be a risk along the full lifecycle of an oil and gas project. Maalouf had told Executive in August 2015 that Speaker Berri had fast-tracked the bill but Parliament has yet to open debate on the law. In September 2015 Executive asked Minister of Energy and Water Arthur Nazarian about the draft law but the minister seemed largely unaware of the details of the transparency bill.

On a positive note, because it does not require legislation, Lebanon has made progress in further calibrating its understanding of data previously collected through seismic surveying offshore. In 2015, two re-interpretations of the data were carried out to “better understand the sedimentations and the potential reservoir parameters,” the Lebanese Petroleum Administration told Executive in September, but did not elaborate on the results of those studies. As for onshore Lebanon, 6,000 square kilometers were surveyed, providing a baseline of data to indicate where potential oil and gas reservoirs might be located. More narrowly focused studies are needed to build on the acquired data but the ministry of energy has not yet indicated what its strategy for onshore is moving forward.

Lebanon has already begun selling the seismic data collected offshore – last publicly announced at $34 million in 2013, representing the first revenues of the country’s oil and gas sector. When Executive asked the minister for clarification on the government’s share of revenues from the sale of seismic surveying data – a topic on which this magazine has, for two years, continuously sought answers – Nazarian said it was “state secrecy” while simultaneously claiming transparency.

Misinformation, or, as a lesser evil misrepresentation of information, when covering oil and gas is also very concerning – the same wrong numbers keep circulating in the Lebanese media. Lebanon is not blessed with vast energy reserves – only exploratory drilling can confirm whether oil and gas resources are present. In November 2015 Anonymous Lebanon – the self-proclaimed local chapter of a global group of activists and hacktivists – published a video arguing that the government has been intentionally misleading the public, promising the nation would soon become oil rich with revenues to be used to reinvigorate the economy, pay down public debt and build fantastic new infrastructure. The video was later picked up by popular talk show ‘7ki Jelis’. In itself a misled accusation, the numbers Anonymous quotes are based on a misunderstanding of an unclear quote. When then Minister of Energy Gebran Bassil said in 2013 that “the current estimate, under a probability of 50 percent, for almost 45 percent of our waters has reached 95.9 trillion cubic feet of gas and 865 million barrels of oil,” Bassil was speaking of probabilities based on the interpretation of seismic data, not of certainties that only exploratory drilling can confirm. In the end, Lebanon will never know with certainty if it does have oil and gas until it passes the needed decrees to bring exploration companies to drill.

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Jeremy Arbid

Jeremy is Executive's former economics and policy editor.

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