Governance
It’s time for a strategic review of Lebanon’s oil and gas sector

This article was published in LOGI's July 2020 newsletter in partnership with Kulluna Irada

 

The near-freeze on new global oil and gas development projects enforced by the economic fallout of COVID-19 presents an opportunity for Lebanon to undertake a strategic review of its oil and gas sector, which has seen lackluster performance over the past year for a number of reasons. Some are the result of the global pandemic’s disastrous effect on international hydrocarbons markets, and are difficult to address. Others, like issues with governance and a homogeneous transparent approach to the sector  -- should be rectified 

LOGI and Kulluna Irada believe that a holistic, multi-pronged analysis of the sector’s legal framework and governance structures, in addition to outside influencing factors, is in order. Lebanon needs an assessment of the track record of the past and analysis of what the future may hold, in order to lay out a clear strategy for managing this sector during a time when the country is mired in a deep crisis. 

“The question is: how do we shield critical activities from a failed state,” Ghassan Moukheiber, a transparency advocate and former MP told LOGI. “We do this by improving quality management through these quality bubbles, bubbles of integrity and quality, and that is largely done via legislation and enhancing texts.”

We present three main avenues for evaluation and planning. 

1. Legal framework: What legislation needs to be adopted, amended or implemented?

2. Governance: Where has the executive authority -- including the Lebanese Petroleum Administration -- succeeded or fallen short in its management of the sector?

3. Outside developments: How do COVID19, East Med gas competition and renewable energy factor into Lebanon’s oil and gas plans? 

LOGI and Kulluna Irada have identified a set of issues/recommendations for each of these categories.

 

Legal Framework

One of the main issues hindering the oversight and input of civil society in Lebanon’s oil and gas sector is civil society’s inability to actively participate in the development and revision of relevant laws and decrees before they are passed either by parliament or council of ministers. These issues can be addressed via parliament’s endorsement of a public consultations law that makes it mandatory for the parliament and /or government to consult the public on key issues. Additionally, parliament should amend Article 34 of its bylaws in order to allow all committee meetings to be made public. 

Lebanon has adopted a number of laws that should enhance transparency in the oil and gas sector, but a number of their articles have not been implemented. These include basic issues such as publicly declaring the number of people employed in the sector and the criteria of their 

employment, to lack of access to quarterly reviews of the sector which the Lebanese Petroleum Administration should be sending to the parliament. 

The government has not yet appointed the National Anti-Corruption Commission, a key oversight body that is tasked with enforcing a number of anti-corruption laws, including a law on the right to access information. 

Legal provisions should also strengthen the role of the sector’s main regulatory authority, the Lebanese Petroleum Authority, which has taken on an advisory role rather than a leading, independent role. This is especially important given Lebanon’s unprecedented crisis. 

The Council of Minister is yet to add to its agenda the ratification of the petroleum registry, which will enforce beneficial ownership disclosure of all companies working the oil and gas sector, as mandated by article 10.7 of law 84/208 “Enhancing Transparency in the Petroleum Sector.

 

Governance

To address governance issues in Lebanon’s oil and gas sector, Lebanon must first have an oil and gas strategy to work towards. Till today, no such strategy exists. 

Having a failed state run an oil and gas sector is a recipe for disaster. Lebanon first requires strong state institutions and processes, and then a clear strategy, before this sector can be properly developed. The poor management by authorities of the country’s crisis shows that the current power system sidelines the interests of the Lebanese people as it perpetuates its own power.

“Lebanon lacks a modern and comprehensive oil and gas policy, let alone an energy policy, which should be aligned with the country’s broader economic objectives — and I am not sure the latter are clearly defined,” Carole Nakhle, an energy economic and CEO of Crystal Energy told LOGI.

If we peer inside the way the sector is governed today, the energy ministry makes the decisions with the approval of the Cabinet, while the sector’s prime regulatory authority, the Lebanese Petroleum Administration, plays an advisory role. The LPA’s role should be bolstered, and the energy ministry’s role limited.

“The challenge is to provide greater authority to the LPA. It has been operating technically independent of the government, but is always limited by its need to have decisions ratified by a minister or the Cabinet.” 

The LPA is hampered by the appointment of its members through sectarian power sharing, rather than relying entirely on a clear and transparent merit-basic mechanism. It is also working in a legally-grey caretaker status due to the expiry of its mandate in 2018.
 

COVID19, Geopolitics & Renewables

Lebanon’s oil and gas sector must be evaluated within the context of several prime regional and global factors, the top three being the effects of the coronavirus pandemic, high competition between gas-exploring nations in the East Med, and the rise of renewable energy. 

International oil and gas companies have significantly cut capital spending, which has led to a decline in hydrocarbon exploration. This pushed the energy ministry to postpone Lebanon’s second offshore licensing round till before the end of 2021. 

“Lebanon does not rank favorably from an investment perspective, and the economic and political uncertainty engulfing the country have simply worsened its outlook,” Nakhle said. “Lebanon will face tough competition for international capital, which will be more cautious, selective and disciplined.”

Lebanon has been largely left outside of oil and gas alliances and forums that have been forming in the East Med. This leads to uncertainty about Lebanon’s ability to export or trade in gas in the future — should it be found. Authorities should make clear what Lebanon’s options are. 

Finally, the global rise of renewable energy promises to eat away at a successively larger chunk of the international energy market long reserved for hydrocarbons. Lebanon itself has pledged to achieve 30 percent renewable energy by 2030 - a goal that it is far from achieving. 

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Experts have called on Lebanon to use an energy mix rather than relying heavily on hydrocarbons. Authorities should make clear how renewable energy factors into its oil and gas policy.

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