TRANSPARENCY MEASURES PENDING APPROVAL

Cabinet is the ultimate authority for oil and gas policy in Lebanon and must approve all decisions related to the sector. Since 2013, two successive cabinets have been studying two decrees necessary to close the first offshore licensing round – one stipulates the tender protocol and outlines a model exploration and production sharing agreement between the state and oil companies, while the other deliniates the offshore blocks available to be licensed. The model contract draft decree includes two articles addressing transparency, the LPA says in a written response to Executive: “Article 41 of the EPA model (right holder conduct) contains provisions to insure transparency that are also based on anti-corruption and anti-bribery provisions. Additionally, Article 42 stipulates provisions concerning conflicts of interest between the direct or indirect interest of the right holder and its affiliates, and the interests of the state.” As the model contract is still awaiting cabinet approval, it is yet unclear when the decrees might be placed on the cabinet’s agenda for debate. Cabinet also has the legal authority to alter them so their final text is also, at this point, uncertain.

After nearly one year of being reviewed by a ministerial committee, the LPA tells Executive that all relevant ministerial comments have been incorporated and that the decrees are now with the prime minister’s office waiting to be added to cabinet’s agenda for debate. While this is a hopeful sign, Prime Minister Tamam Salam told the Washington Post in a September interview that, “We cannot reach an agreement between the political factions to adopt a policy to help us explore oil and gas in our economic zone.” So it seems unlikely that the two decrees will be passed in the near term.

A systematic local legal framework to complement international legislation is crucial to curb corrupt and illicit behaviors once Lebanon’s oil and gas sector moves forward. Ideally, these rules will be in place and implemented before the government signs any contracts but, Maalouf admits, the priority may be focused more on passing the decrees in the cabinet than legislating in the parliament. What follows are real examples from Lebanon’s nascent petroleum sector that anti-corruption legislation will help mitigate: 1) The potential for bribery Earlier this year, a former executive of PetroTiger Ltd – an oil and gas company registered in the British Virgin Islands, a go-to jurisdiction to mask ownership identity – pleaded guilty in U.S. federal court to conspiracy to bribe a Colombian government official. The executive admitted to conspiring to make illegal payments to the Colombian official to the tune of $333,500 for his assistance in securing a $45 million contract.

That type of bribery is just one of the illicit activities people like Fouad Makhzoumi (see Q&A page 34) fear will be common in Lebanon’s oil and gas industry. An unsubstantiated allegation surfaced recently in al-Diyar, a local Arabic language publication. The author claimed an unnamed Lebanese official solicited a bribe from Italian oil and gas company ENI, one of the prequalified operators in Lebanon’s first offshore licensing round. Responding by email to Executive’s inquiry on the matter, ENI says the allegation is “completely false.” Tougher anti-bribery legislation can help ensure news items like this are never true. 2) Who ultimately benefits? The garbage crisis has reinvigorated scrutiny over the registration of companies in jurisdictions that obscure or completely withhold ownership and shareholder information – Sukleen’s parent company Averda is owned by two companies registered in the British Virgin Islands.

When it comes to Lebanon’s oil and gas sector, disclosure of ownership is important, Maalouf says, because it will reveal who ultimately benefits from a company and also removes a layer of ambiguity that government decision makers could use to mask personal relationships or familial ties to companies. Executive last year looked into the Lebanese companies bidding in the offshore licensing round and found Apex Oil and Gas has obscured its ownership. The company is registered in Hong Kong – so it should be categorized as a Chinese participant, not Lebanese as the LPA still identifies it – and its true owners include UniGaz CEO Mahmoud Sidani and Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon Chairman Mohammad Choucair.

Maalouf says measures in his draft law will require the disclosure of beneficial ownership. In addition, Daniel Kaufmann, president of the Natural Resource Governance Institute and an EITI board member, tells Executive that governments and companies should expect beneficial ownership to be an EITI reporting requirement in the not-so-distant future (see Kaufmann Q&A page 28). According to the pre-qualification decree for Lebanon’s first offshore licensing round, the government is already collecting partner and shareholder information from those pre-qualified companies – details it has previously declined to provide to Executive.

A SYSTEMATIC LOCAL LEGAL FRAMEWORK IS CRUCIAL TO CURB

CORRUPT AND ILLICIT BEHAVIORS

3) Tracking draft legislation There is limited transparency in the way legislation is drafted in Lebanon generally, and writing the rules for oil and gas has been no different. For example, the aforementioned company Apex has no experience in the oil and gas industry. It pre-qualified because existing legislations says that a company with no experience can find a qualified partner and qualify as a joint venture (see Q&A page 38). Last year Stephen Dow, a lecturer in energy specializing in emerging markets at the University of Dundee, told Executive that allowing nonexperienced companies to pre-qualify in ultra-deep water jurisdictions like Lebanon is uncommon but not “intrinsically