TRANS­PARENCY MEA­SURES PEND­ING AP­PROVAL

Executive Magazine - - Transparency -

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

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