Executive Magazine

Resigned to realities

by Moe Ali Nayel March 23, 2013

written by Moe Ali Nayel

Prime Minister Najib Mikati announced his resignation Friday evening, thereby dissolving the current government.

Mikati must now present a written resignation to President Michel Sleiman; according to the constitution, his resignation announced from the Serail is still considered political, and therefore must take official status, and in this case, it is expected the president will asign him to continue as a caretaker Prime Minister until the formation of a new government.

Mikati had almost resigned twice before: first over the funding for the Special Tribunal for Lebanon (STL) and again following the assassination of intelligence chief Wissam al-Hassan last October.

This time he did not bluff. The primary reason cited for the resignation was the opposition within his own government to extend the term of Internal Security Forces chief Ashraf Rifi. “It is necessary for Major General Rifi to carry on with his duties in order to protect the Internal Security Forces institution,” Mikati said in a televised address to Lebanon last night.

Rifi, apart from being a prominent security personal, enjoys a strong popular base among Sunnis in Mikati’s home town Tripoli and further across the Lebanese Sunni landscape. He also has strong Saudi political support, and is a board member of the Naif Arab University for Security Sciences — run by Saudi Interior Minister Prince Mohammed ibn Naif ibn Abdul Aziz al-Saud. If Mikati had supported his March 8 allies decision not to extend Rifi’s term, in a political sense it would have been suicide, and perhaps in a business sense as well.

Whether Rifi was the real cause or merely the trigger, Lebanon has now lost a government that emerged two years ago out of a constitutional vacuum. Mikati headed a government led by March 8 that managed to form a majority thanks to Druze leader Walid Joumblat's political switch in 2011. For the last two years that government has kept close ties to the Syrian regime.

For Mikati, a recognizable Sunni leader, this closeness to Damascus has been politically damaging, with rivals in his home town of Tripoli touting him from day one as being a puppet of a Syrian-Iranian-Hezbollah axis.

The reality was more nuanced. Mikati was keen to promote himself internationally and distance himself from Syria. He has also consistently challenged his political allies, with notable successes including reaching a deal on funding the STL. However, in recent months the pressures on the current government from Saudi and American ambassadors has been growing. The Americans have been keen on removing Hezbollah from government after Bulgaria accused the party of a bombing which killed seven Israelis last summer in the Black Sea city of Burgas.

The fall of this government will remove the only Arab state ally of the Syrian regime. At present Damascus will be loath to see a March 14 government emerge, backed by Saudi Arabia and the US.

The Saudis want a March 14 government that will be in full support of the Syrian opposition. As such all eyes are, again, on Joumblat — if he switches allegiances again, it will allow March 14 to to form the next government.

Speaking last night, Mikati said he hoped his resignation would be "an impetus for leaders to shoulder their responsibilities" — indeed, the responsibilities he has just shed.

Moe Ali Nayel is a freelance journalist based in Beirut

March 23, 2013 0 comments

Investing the money well

by Paul Cochrane March 22, 2013

written by Paul Cochrane

Lebanon’s progress to cultivate wealth from its offshore oil and gas resources has left us with more questions than answers. While the country will not extract any resources for at least five years, the agreements being negotiated in the next 12 months will determine whether Lebanon gets a good deal or not.

Over the course of six days, seven leading thinkers will discuss different aspects of the resources — from avoiding environmental destruction to how to spend the new wealth — each with the aim of helping provoke awareness about what is going on in this crucial period.

For our sixth segment, Paul Cochrane analyses how best Lebanon should invest the profits from oil and gas.

Avoiding a regional war over hydrocarbons

Transparency is not enough

Plan ahead to protect the environment

Will Lebanon's oil be Christian or Muslim?

If Lebanon manages to tap its offshore hydrocarbon reserves, the multi-billion dollar question is what to do with the revenues. How much is Lebanon looking to gain? Well, David Rowlands, chief executive officer of prospector British Spectrum Geo which has been carrying out seismic surveys on the country’s offshore resources, told The Times on March 4 that the value of Lebanon's oil and gas could be as much as $140 billion. Others have put it at anywhere from $40 billion to over $70 billion – much depends of course on commodity prices. With Lebanon's GDP at $40 billion, and public debt at $58.7 billion, any petrodollars are a major boon for the country's troubled finances.

In the 2010 Offshore Petroleum Resources Law, it is stipulated that Lebanon must form a sovereign wealth fund (SWF) into which the net proceeds of the government’s revenues will be invested. However, the law is deliberately unclear about how the money will be used once it is in the fund – leaving final decisions dependent on later negotiations.

Early last year, Prime Minister Najib Mikati proposed that the SWF should initially be used to reduce the public debt from 135 percent of gross domestic product (GDP) to 60 percent, but it was unclear whether he had government support for the proposal.

Given the government's less than stellar reputation in spending public money, the crony capitalism-style deals with Lebanese banks in financing the country's debt over the decades at highly lucrative interest rates, and the lack of accountability and transparency within the political process, how best to run a SWF?

Ups and downs

The primary rationale behind a SWF is to ensure the revenues generated from natural resources are appropriately utilized for the present and future generations – money put into the fund is invested, profits are generated and returns can be saved or re-invested for the future. Yet there are both positive and negative sides to SWFs.

On the plus side a SWF can handle greater investment risk than the central bank, domestic investment will boost the local economy, and strategic global investments can ensure a degree of economic and political security for a country.

On the negative side, SWFs are notoriously opaque. In the rankings of oil-based SWFs, only Norway scores well in the SWF Institute's Linaburg-Maduell Transparency Index, and notably Norway is the only democracy in the top 10 SWFs by value. As critics have pointed out, SWFs are popular with authoritarian and semi-authoritarian governments because they don't have to be transparent or accountable. Furthermore, oil and gas producing countries do not necessarily become more transparent if they set up a fund, while some energy producers do not have SWFs at all, such as Iraq and Saudi Arabia.

With Lebanon ranked 128 out of 176 countries in Transparency International Corruption Perception Index 2012, with a score of 30 out of 100 (zero means highly corrupt), hopes for transparency in handling hydrocarbon revenues are dim.

The real danger is that becomes a political tool. In Lebanon's political system, whom controls what ministry and handles the finances is hotly disputed, and no parties really trust one another, so the dangers for managing the SWF are clear.

Where will money be invested domestically that does not benefit one political party, movement or region over another? And if the fund invests internationally, where and what to invest in? Say a March 8 government wants to invest in Iran. Would the March 14 movement accept that? Probably not. Imagine then, hypothetically, if March 14 unseated March 8, would investments in Iran then be transferred elsewhere, such as to Saudi Arabia.

Seeking neutrality

Perhaps a better approach would be to give Banque du Liban (BDL) – the country’s central bank – control over the SWF. The BDL has handled foreign reserves well – certainly gold, with Lebanon ranked 19th globally by the World Gold Council (WGC) this year.

But BDL, like all central banks globally, is also not known for its transparency. Additionally, the recent appointment of Ahmad Safa as an Executive Director at the BDL's Banking Control Commission raises concerns, as he was fingered by the United States Treasury for his role in the money laundering scandal that took down Lebanese Canadian Bank in 2011.

Perhaps the best initial strategy would be to pay off the debt, and invest heavily – possibly through public-private partnerships for added transparency – in the country's dilapidated infrastructure and institutions. Only once that money is spent would it be truly worthwhile debating how best to organize and run a SWF, and where it could invest domestically and globally.

Alternatively, another idea would be to pay off some of the debt and then use the SWF to buy more gold, which could be held partly in Beirut and elsewhere. By holding physical gold the country would be on a solid foundation in terms of reserves and, if needed, to go to the markets for financing, while in the local political context this would arguably reduce the chances of misuse of funds.

Furthermore, in a period of quantitative easing with the US Federal Reserve printing money – some $1 trillion is to be added to the Fed's balance sheet per year, according to Forbes – holding gold is a way to hedge against any devaluation in the world's reserve currency, the greenback, which is crucial for Lebanon, given two-thirds of all bank deposits are held in US dollars and the Lira pegged to the dollar.

Additionally, there has been a growing move in recent years by governments (the US excluded) to buy gold as a hedge against inflation and currency devaluation, with official holds surging from $2 trillion in 2000 to $12 trillion in 2012, according to the WGC. Indeed, last year, central bank gold purchases were up 17 percent on 2011, to 534.6 tons, the highest level of buying since 1964. While buying gold would not be a panacea for what to do with hydrocarbon revenues, it should be considered as an option in these trying economic times, certainly to diversify the government's portfolio as well as to prevent political bickering.

March 22, 2013 0 comments

The Buzz

Lebanon’s Prime Minister resigns

by Executive Staff March 22, 2013

written by Executive Staff

Lebanon's prime minister Najib Mikati has resigned, he has announced.

Mikati has been frustrated in recent weeks at the failure of the government to agree a strategy for the ongoing public sector strikes and the failure to renew the term of Internal Security Forces (ISF) head Major General Ashraf Rifi.

Mikati said he hoped his resignation would lead to a "gateway" to a solution.

He formed a government in June 2011, having been nominated as prime minister in January that year.

Shortly after the resignation, there were reports of fresh clashes in the northern Lebanese city of Tripoli.

More from The Daily Star, the BBC, and Reuters

March 22, 2013 0 comments

The Buzz

Morning briefing: 22 Mar 2013

by Executive Staff March 22, 2013

written by Executive Staff

Economics and Policy

PayPal will finally launch in Lebanon and Egypt in 2013, the general manager of the online payment gateway, Elias Ghanem, announced at the ArabNet conference on Thursday.

Will Lebanon’s oil be Christian or Muslim?

by Malek Takieddine March 21, 2013

written by Malek Takieddine

Over the course of five days, seven leading thinkers will discuss different aspects of the resources — from avoiding environmental destruction to how to spend the new wealth — each with the aim of helping provoke awareness about what is going on in this crucial period.

For our fifth segment, legal expert Malek Takieddine discusses the danger that oil and gas will allow Lebanese politicians to maintain the failing sectarian system.

Avoiding a regional war over hydrocarbons

Transparency is not enough

Plan ahead to protect the environment

The Lebanese oil and gas resources are a greasy fetus waiting to be born. This fetus might not know its own religion yet, but as soon as it is out of the few holes in the ground, it shall be baptized, circumcised and taught how to pray five times a day.

Most likely, however, Lebanon’s oil and gas baby will not appreciate these imposed religions, and it shall declare itself the messenger of an entirely new religion. Oil temples and gas synagogues will flourish across the country. Current Lebanese warlords will declare themselves the legitimate descendants of the oil prophet and tell the story of how their morals have been crucified on the dollar sign. Lebanese worshipers would be told that the oil prophet wants them to walk barefoot towards the oil and gas temples and to sacrifice themselves, their children and what is left of their dignity at the footsteps of the dollar sign.

This may seem like a bleak future should Lebanon’s expected oil and/or gas resources be discovered and produced in commercial quantities. We can never be certain but there are few indications that things will be any better than the state of the other (few) lucrative industries/sectors in Lebanon.

Lebanese warlords and influential politicians are rushing towards promoting their business subsidiaries to gain advantages in the oil and gas industry within the framework of friendly/favorable laws and regulations that their other subsidiaries have enacted. It is fair to predict that this situation shall continue even after the award of the exploration and production agreements (EPAs) to consortiums of international oil companies and, most likely, a few Lebanese partners. What will come after the award of the EPAs are subcontracts, a lot of them.

It is good that the Lebanese law requires that the revenue of the state from the oil and gas industry shall be deposited into a sovereign wealth fund; thus separating such valuable funds from the day-to-day balance sheet of the Lebanese government. However, even if the oil and gas funds are properly managed, allocated and invested, the state may incur large financial losses as a result of inefficient petroleum operations that might occur on certain projects and/or in some operational aspects.

Petroleum operations commonly require that the project’s operator rely on and supervise the work of service companies retained by subcontracts in consideration of large sums of money. These subcontracts can cover a wide range of services including the highly technical and risky (e.g. offshore drilling), the less technical yet critical (e.g. transportation of personnel and materials), and the non-technical (e.g. life support services).

In bidding to win such subcontracts, Lebanese service companies will be favored over non-Lebanese companies – provided that the terms and conditions they offer are equal to their foreign competitors (in industry terms this is know as ‘local content’). The dilemma we have here is that Lebanese business equals Lebanese politics. The question that arises is to what extent project operators under Lebanese EPAs would commit to local content requirements under the influence of political interest.

Additionally, if, god forbid, a Lebanese National Oil Company is established, would Lebanon be witnessing a replica of the heavily indebted Électricité du Liban (EDL)? Would such company become a large payroll organization hiring, by ‘wasta’ (informal connections) and for political gains, thousands of employees and consultants who do little work and/or are not suitably qualified? Would the coffers of such company become the checkbook of inefficient and opaque service contracts ready to recognize the competitive service of political allies?

In practice, should the current Lebanese political status quo remain in place, the local beneficiaries of Lebanon’s awaited oil and gas industry will have the financial capabilities to influence Lebanese voters directly or indirectly through actual or promises of employment, contracting opportunities, energy subsidies, and donations.

In light of this, perhaps it is actually understandable why Lebanese politicians would devote themselves to the new religion of oil. Lebanon’s oil and gas resources could be the miracle that sustains the current inefficient public governance system and help keep the people quiet while sectarian leaders maintain business as usual.

Malek Takieddine is a Lebanese oil and gas lawyer who advises oil companies and international organization in Europe and Arab countries. He is based in Beirut and is managing partner at Al Jad Law Firm.

March 21, 2013 0 comments

Economics & Policy

A strategy to legalize civil marriage

by Rany Kassab, Rany Kassab & Rany Kassab March 21, 2013

written by Rany Kassab, Rany Kassab & Rany Kassab

Khouloud Sukkariyeh and Nidal Darwish, two seemingly ordinary people in love, became overnight the poster children for the fight to legalize civil marriage in Lebanon, an uphill fight the positive outcome of which is still far from assured.

Travel agencies, the clergy and even the municipalities of Nicosia and Larnaca can feel safe knowing that Lebanese of different religious denominations, persons of limited financial means and agnostics and atheists will still need to take the 40-minute flight to Cyprus (or alternatively the slightly longer flight to Turkey) to get married in a civil ceremony.

However, if well leveraged, what Sukkariyeh and Darwish were able to do has far-reaching ramifications that can have greater impact than finding a legal loophole that can easily be shut. To their credit, Sukkariyeh and Darwish succeeded in publicizing their case and in placing the issue on center stage, aided considerably by a social media frenzy that gave the topic momentum and forced the leaders of the country, whether political or religious, to take a stand on it.

Yet, the challenge going forward is to sustain that momentum and not allow the issue to wither away and again be relegated to the ranks of a taboo or non-issue — as was the case when late President Hrawi brought it up in the 1990s. This is especially true considering that the political circumstances that helped propel the topic to the forefront, by turning it into a matter of political bickering, are arguably temporary.

Evading elitism

Keeping the pressure on will thus require rethinking the approach to the issue from a more strategic perspective, particularly that any social media campaign, in the context of Lebanon, has its limitations, whether in terms of mobilizing a critical mass of supporters, influencing policymaking or avoiding seemingly preaching to the converted.

In fact, what has hampered efforts to really push through the agenda of separating church from state, or at least giving individuals the freedom to choose whether to be married in front of a clergyman or a notary, is the fact that the issue of civil marriage is still very much “elitist” and of concern to only a few, whereby it is discussed and debated among a handful of intellectuals or social activists and most Lebanese do not feel concerned about it.

This is mainly because the discourse around civil marriage has been process-driven rather than being benefit-centric. Instead of focusing on the social, cultural, economic and even political benefits of allowing civil marriage, all the talk has been on how it would lead to numerous complications on areas such as inheritance, for instance, while concurrently shrinking the role (and some might say control) of religious institutions in the daily lives of citizens. Irrespective of whether the latter is true or desirable, it remains that the majority of Lebanese, out of religious fervor, cynicism, perceptions of the existence of more pressing priorities or demographic concerns and existential fears, continue to be neutral at best to the idea of legalizing civil marriage.

Accordingly, if the proponents of civil marriage in Lebanon are to translate their recent breakthrough into an actual change in legislation, their focus should be on convincing their fellow countrymen of the benefits of such an option of marriage, prior to getting politicians on board. Any attempt to circumvent the need to build a popular base of support for the topic would surely lead to failure, as politicians would only endorse the issue if it is seen as enjoying significant public legitimacy and thus the “quintessential” political/electoral trade-off between having the support of constituents and that of the clergy is favorably tipped to the former.

In that regard, “social lobbying” should supersede any “political lobbying” strategy, whereby the case for civil marriage should be seen as a concern to all Lebanese by explaining to them what it would mean to them if civil weddings were to become the legal standard. It could reduce sectarianism and political tensions, promote social cohesion and genuine citizenship, having one law applied to all citizens regardless of their religious denominations, or lower the cost of marriage, among others.

Social lobbying, by definition, would require an all-inclusive effort in reaching out to all Lebanese, beyond simply to the receptive ears of the left-leaning and socially-progressive intelligentsia, by using all available communication channels in helping effect a paradigm shift in attitudes and perceptions through a focused, benefit-heavy argumentation and content.

While social media can help reach a certain segment of audiences, other mass-oriented channels to leverage could include an all-encompassing media campaign; television and radio shows; conferences and seminars; school and university meetings; media roundtables; articles and editorials in major publications; and a testimonial campaign by key opinion leaders, helping break the stigma or accusations of heresy for supporting civil marriage.

Changing public perception

Social lobbying can effectively culminate, in a parliamentary elections year, by having all candidates take a clear stand in support or opposition to civil marriage, rendering the topic a central theme in their program, with constituents later holding them accountable if they ever win the much-coveted seat in Parliament.

Traditions are hard to break, especially when they are fuelled by the fear of the unknown or of opening up a Pandora’s box. Yet, through a concerted effort in changing public perceptions and attitudes, on a national scale, “honor” killing, another practice long combated by the “elites”, was eventually outlawed in Lebanon too, leaving hope for the possibility that one day in the near future civil marriage could become a reality in the country.

In the end, the larger question remains whether we need to separate church and state, and whether doing so would be detrimental to people’s faith, as some proclaim. It can be argued that most countries that go through bloody civil wars eventually emerge at least with some gains on the political or social levels, as did the French after the revolution with the “Code Civil” and later in 1905 with the law on the separation of the church and state. One can wonder why after the long war in Lebanon, nearly nothing was achieved in terms of reforming the country’s governance system or establishing a new social contract between the state and its citizens.

Rany Kassab, Zeina Loutfi, & Ramsay G. Najjar work for S2C

March 21, 2013 0 comments

The Buzz

Morning briefing: 21 Mar 2013

by Executive Staff March 21, 2013

written by Executive Staff

Economics and Policy

Cyprus has turned to Russia for emergency help to avert a financial meltdown.

Wall Street’s Lebanese connection

by Maya Sioufi March 21, 2013

written by Maya Sioufi

Executive is in New York. As we embark on our 2013 mission to engage the successful and influential Lebanese diaspora in order to relay their stories, inspire hope and propose solutions to the country’s numerous challenges, we are meeting with some of the biggest Lebanese names in global finance for a special feature in April’s magazine.

Running up and down Madison and Park Avenue, we are engaging Lebanese financial executives in debates to understand how they made it to the Big Apple and what advice they have to Lebanese graduates kicking off their careers.

See also: The Lebanese Empire

How Lebanon could raise $1 billion a year

“I would love to see Lebanon becoming a center for capital markets in the Middle East. You have all the ingredients in place except for the political and regulatory landscape,” says Beirut-born Anwar Zakkour, vice chairman of JP Morgan investment banking, as he explains what he would like to see from his home country. “There are lots of expatriates who would love to see it happen and who would love to invest in something like this but for some reason or another, we never see it flourish.”

With roots in Bcharre, Habib Kairouz, managing partner at venture capital firm Rho Capital Partners, says convincing talented young Lebanese not to emigrate is key to the country’s development. “I don’t want to encourage people to follow my path as I want people to stay in Lebanon. Through every organization I am involved with, such as Endeavor [a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets] and LIFE [Lebanese International Financial Executives], I work to convince people to stay,” he says. “But if my son was graduating from a college in Lebanon today, could I consciously tell him to put his career path in Lebanon? It’s a tough one.”

We are also aiming to address what the expatriate community want to see in terms of reforms before they would consider returning and deploying further capital in their home country. “Lebanon is in dire need of public service and of people giving back to make their country a better place. But look at the confessional system, we still have to appoint each person based on their sect,” says Marc Malek, founder of alternative asset management firm Conquest Capital. “If I decide tomorrow I want to shut everything I have here, go back and live in Lebanon, dedicate my life to public service and do it for free, I won’t be allowed because I am from a minority Christian sect, Syriac orthodox.”

As we reach out to the expatriate community, we strive to contribute to the advancement of the country by inspiring the Lebanese youth, putting forward alternative solutions critical to Lebanon’s current investment climate and reviving faith that a better future is possible.

March 21, 2013 0 comments

Economics & Policy Lebanon's oil and gas

Plan ahead to protect the environment

by Ricardo Khoury March 20, 2013

written by Ricardo Khoury

For our fourth segment, Ricardo Khoury argues early planning can protect Lebanon from environment catastophe.

Avoiding a regional war over hydrocarbons

The launching of the prequalification process for Lebanon’s first oil and gas licensing round is a significant step towards the development of hydrocarbon resources in the country. But while many topics are being discussed related to the offshore finds, little is being spoken about the potential environmental impacts of the sector.

A lack of planning could lead to severe environmental and social impacts. While most people are concerned with the risks of major oil spills that could have devastating impacts on our shorelines — although our neighbors are probably more at risk than we are because currents will mostly drive spills towards the north — there are many other issues to be dealt with and that are more certain to occur in the event of major hydrocarbon finds.

So far although a strategic environmental assessment (SEA) study has been prepared, as required in Lebanon’s Offshore Petroleum Law as an environmental planning instrument, it has not yet been disclosed to the public. Not much is known about the results of the study and whether it has provided strategic inputs to guide environmental decisions early on in the sector’s development process.

The SEA could help, for example, to guide the Petroleum Administration in designing the licensing bid and providing guidance to developing sound environmental policies for the sector. Environmental criteria could, for example, be used when deciding on the number and the geographical location of the blocks under the first licensing round.

The scale and significance of environmental impacts associated with the exploration and production of petroleum resources in Lebanon are intrinsically related to outcomes of the exploration phase of the first awarded block(s). For instance while the impacts associated with exploration activities — which may include some additional seismic surveys, drilling of exploratory wells, and establishment of on-shore support facilities — may not be significant, impacts in the case of multiple production areas (in which exploration activities revealed commercial findings of gas) could cause significant pressure on the Lebanese environment. The potential for routine and accidental damage are even higher if both gas and crude oil commercial findings are revealed.

Not quite so offshore

If commercial findings are made, the infrastructure required to transport, process, store and offload hydrocarbon finds range from ultra-deep water subsea installations and pipelines to relatively large on-shore supply bases which support the offshore installations. What some people may not realize is that while the production facilities are off-shore, most of the significant impacts may actually occur on-shore or near-shore.

Relatively large areas (possibly in the order of hundreds of thousands of square meters) will be required for hydrocarbons processing, storage and further delivery for use. This will undoubtedly impact on land-use (in an already densely populated coastal area), air emissions (mainly associated with flaring and further increasing Lebanon’s carbon footprint), noise, pressure on transportation infrastructure, and waste generation.

Furthermore in the case of gas, once processed, it would need to be transported to the local power plants (if priority is first given to domestic use). Current plans are to convey gas along an on-shore coastal pipeline running across the entire coastline.

The environmental impacts of such a plan need to be more carefully studied bearing in mind the various crossing of the pipeline with surface water bodies and other land-uses. Such detailed studies would be needed to ascertain that safety zones can be secured along the densely populated littoral. This is where not only environmental, but a more holistic health, safety and environmental assessment of such projects become instrumental planning tools to be used by regulators and planners.

Furthermore, while economic analyses may indicate that an onshore pipeline is more cost-effective than an offshore one, if resettlement of those people living in affected areas is required to meet safety standards then associated costs would rise significantly.

The recently established Petroleum Administration (PA) has the challenging job of understanding the potentially significant negative environmental impacts early on in the process and designing mitigation strategies and policies that will avoid them.

Early planning will lead to savings in the long term, both financially and environmentally. For example given the very limited availability of space onshore, the PA may encourage the adoption of off-shore floating solutions such as FPSO (floating, production, storage and offloading vessel). Such an option, although expensive, would not only relieve the coastal area from significant pressure, but may also protect marine habitats as lengthy pipelines bringing hydrocarbons onshore would not be needed. Such solutions also provide flexibility in the long-term, as they can be moved to another location once fields are exhausted, and do not require the decommissioning of extensive areas onshore.

There are other areas where the PA should provide policy directions as early as possible, such as in the areas of flaring (by promoting the adoption of zero-flaring philosophies in design) and waste management (will drill cuttings be allowed to be disposed in the sea or need to be sent for treatment and disposal offsite?).

Given the limited waste infrastructure, the PA could promote treatment of wastes in common offshore facilities to be established (introducing the concept of shared off-shore infrastructure facilities among the different fields and operators) or even promote transboundary cooperation (notably with Cyprus).

These are just a few of the myriad issues to be considered if Lebanon is to successfully extract oil and gas without causing irrevocable damage to the environment. They can only be dealt with if the government and the PA take a proactive approach to addressing a lack of health and safety legislation related to oil and gas, the lack of a national contingency plan (current plan considers only the case of natural disasters and foreign invasion, but not the case of large scale oil spills), data deficiency, and a lack of waste management infrastructure.

Development of the Lebanese hydrocarbon resources will not come without environmental impacts, however these can surely be controlled with sound environmental planning. The earlier such planning is integrated in the government’s activities, the better it will be for our environment’s and people’s welfare.

Ricardo Khoury is a senior environmental engineer and managing partner at ELARD, a regional consulting firm providing specialist services to the oil and gas sector. He consults for major international oil companies, government bodies, engineering firms and contractors operating in the sector, with a particular focus on the Middle-East and GCC region.

March 20, 2013 0 comments

Economics & Policy Lebanon's oil and gas

Transparency is not enough

by Zara Rahman March 20, 2013

written by Zara Rahman

For our third segment, OpenOil's Zara Rahman discusses how to push the government to be transparent.

Avoiding a regional war over hydrocarbons

Transparency has become something of a buzzword for Lebanese politicians, most recently former Prime Minister Fouad Siniora, as they suggest ways to avoid corrupt practices and bad governance in the country's nascent gas industry. But publishing information and signing up to transparency initiatives is not enough; this transparency needs to be coupled with information accessibility in order for the information provided to bring actual value to the process, and it needs the Lebanese people to stay involved and interested in what the government is doing with their natural resources.

One way of understanding transparency in the extractive industries can be as making information public about what is going on, at every stage of the value chain. To prevent hidden favors, governments should be publishing contracts, releasing procurement tenders online and announcing licensing rounds and bidding rules to the wider public at the same time.

But the problem with this type of transparency, at least in the extractive industries, is that often the information released cannot be understood by the vast majority of the population. As such its value is lost, simply because it is not coupled with the tools needed to understand and use that information. The fact that a government is putting information online – often without advertising how to find it or putting in a format easily read and understood – does not necessarily contribute in concrete terms towards making it a 'transparent' government.

Take, for example, the Kurdistan Regional Government, which has published their signed contracts online. This step was welcomed as a clear sign of their commitment towards a transparent and open extractives sector, and rightly so, but the fact that the contracts are available only in Adobe Flash format has a huge effect on the way they can be understood. This format means that only one page can be viewed at a time from the KRG website, and also that only one page can be printed at a time. Without being overly critical – because their very decision to put the contracts online has been a great step in the right direction – the format they chose (whether this was a conscious decision or not) hindered the accessibility of the information.

Other countries have released statements saying that they have decided to put their contracts online; but a search for them comes up with nothing. Whether that means that they then decided to take them down, that they put them online on an obscure URL where people are unlikely to find them, or whether they were simply lying in the first place is not clear. What is clear, though, is that statements of transparency effectively mean very little unless a government takes the extra time to ensure sure that people can easily access that information.

Furthermore, we need to help people get past the legal jargon as oil contracts are often seemingly impenetrable to the untrained eye. To an oil and gas contract lawyer, these contracts can reveal huge amounts of information about what was focused upon in the negotiating room, what was conceded by the company and the government, and who is getting the 'best' deal out of the contracts. But to anyone else, reading the contract from scratch can be a thankless task; like reading a foreign language without a dictionary.

International organizations are taking steps now to make these contracts accessible: including (disclaimer: a project the author was involved in) OpenOil, which produced the first non-specialist guide to understanding contracts last November, released under the Creative Commons license. This book was designed to be a guidebook to allow citizens to really understand the issues covered in oil contracts, in order for them to act as an effective and real watchdog upon both their government and companies.

Other tools are also available, in the form of training courses around contracts and policy issues, and internet-based resources such GOXI – the social network which brings together experts working on governance of the extractive industries worldwide.

So let's say, in theory, that the Lebanese government really commits to transparency, and provides a single resource center where information on the process can be found – including any contracts the government may sign with international companies and clear announcements for calls to tender. The next crucial step is finding people within Lebanon to take that information and use those tools to really get inside the process and understand what is going on.

This group of people does not, necessarily, have to be civil society; it could also be people from the local private sector, who want to ensure that they have the best possible chance of gaining business from the deals their government is making with international oil companies. Or it could be engineering students who want to be sure that they are getting the opportunity to be trained to international standards by the companies – in contract speak, that there is a strong “local content” clause. Or, even better, a mixture of many different groups – the more people involved in really understanding that information and making well informed decisions on what should or should not be happening, the better.

These people need to take the tools available now, and begin to really understand what can, or should, be going on in the industry. This group of people, however small, can then disseminate the information to the wider public in more comprehensible terms; essentially democratizing the whole process and allowing the highest number of people possible to really have a handle on what is going on with their oil and gas industry.

In order for Lebanon to have the best chance of a corruption free and responsibly managed oil and gas sector, the commitment towards transparency needs to come from all levels of society. The government cannot do this alone; it needs citizens to act as a watchdog, both for the government itself and on the companies it is doing business with. These citizens must make sure that every party involved is acting in an economically and socially responsible way. Knowledge is power; and this power should belong to the Lebanese people, just as the natural resources do.

Zara Rahman is a Research Associate at Berlin-based transparency organization and publishing house, OpenOil

March 20, 2013 0 comments