One eye open

Keep oil & gas pro­duc­tion trans­par­ent

Executive Magazine - - Contents -

In the midst of Le­banon’s first off­shore oil and gas li­cens­ing round, the Le­banese Oil and Gas Ini­tia­tive (LOGI), an in­de­pen­dent NGO aim­ing to de­velop a net­work of Le­banese oil and gas ex­perts, com­mis­sioned a study about the 52 com­pa­nies that had pre­qual­i­fied to bid. This re­search al­lowed LOGI to eval­u­ate the com­pa­nies based on six cri­te­ria cov­er­ing two main ar­eas: cor­rup­tion track records and anti-cor­rup­tion poli­cies, and en­vi­ron­men­tal track records—criter­tia not as­sessed by the gov­ern­ment.

The li­cens­ing round ended in Oc­to­ber, and a con­sor­tium made up of three com­pa­nies—France’s To­tal (the op­er­a­tor), Italy’s Eni, and Rus­sia’s No­vatek—was the only bid­der, sub­mit­ting two sep­a­rate of­fers (Block 4 and Block 9). The Coun­cil of Min­is­ters awarded the bids in De­cem­ber and tasked the en­ergy minister with sign­ing con­tracts by the end of Jan­uary. In this one-bid­der sce­nario, it is cru­cial to re­visit the find­ings of our re­port,with re­gard to these three com­pa­nies. We found that none have a com­pletely clean record.

The re­port found that while To­tal dis­closes its ben­e­fi­cial own­ers—the en­ti­ties or in­di­vid­u­als that ul­ti­mately own the com­pany—there are still trans­parency is­sues that the com­pany must ad­dress. Our re­search found that To­tal was in­volved in a num­ber of bribery in­ci­dents, such as one in Iran in 2013 where the com­pany ad­mit­ted guilt in re­turn for a de­ferred pros­e­cu­tion agree­ment with the US De­part­ment of Jus­tice for pay­ing third-party bribes for work. To­tal is also listed in the TRACE cor­rup­tion data­base as en­gaged in anti-bribery law­suits. On the en­vi­ron­ment, To­tal were fined af­ter fail­ings led to a gas leak in one of its plugged wells in the North Sea.

Eni, for its part, has a pub­licly avail­able an­ti­cor­rup­tion pol­icy, yet in 2010, the US Se­cu­ri­ties and Ex­change Com­mis­sion brought cor­rup­tion charges against the com­pany re­lated to a bribery scheme in Nige­ria in­volv­ing con­struc­tion con­tracts. It also has other on­go­ing cor­rup­tion law­suits ac­cord­ing to TRACE.

No­vatek, a Rus­sian firm, does not dis­close its ben­e­fi­cial own­ers. But a re­view of avail­able lit­er­a­ture re­vealed that one is Gen­nady Tim­chenko, a Rus­sian bil­lion­aire and mem­ber of Putin’s in­ner cir­cle. For a coun­try such as Le­banon, where for­eign po­lit­i­cal play­ers have sub­stan­tial in­flu­ence on all in­ter­nal po­lit­i­cal dy­nam­ics, it is crit­i­cal to know whether po­lit­i­cally ex­posed peo­ple are as­so­ci­ated with in­ter­na­tional oil com­pa­nies work­ing in Le­banon.

Based on these find­ings, LOGI pro­poses that Le­banese reg­u­la­tory au­thor­i­ties pub­lish the signed EPA con­tracts, es­tab­lish a mon­i­tor­ing mech­a­nism for ne­go­ti­a­tions be­tween the gov­ern­ment and the com­pa­nies that in­cludes a civil-so­ci­ety watch­dog, and pub­lish the out­comes of the ne­go­ti­a­tions to se­lect a fi­nal win­ner.

In ad­di­tion, LOGI strongly rec­om­mends that the Ex­trac­tive In­dus­try Trans­parency Ini­tia­tive, a tool to fa­cil­i­tate the dis­clo­sure of in­for­ma­tion, be im­ple­mented as soon as pos­si­ble, and that the draft law pre­sented by MP Joseph Maalouf en­ti­tled “Strength­en­ing Trans­parency in the Oil and Gas Sec­tor in Le­banon” be passed. The main aim of the due dili­gence re­port was to push the Le­banese gov­ern­ment to adopt cri­te­ria that LOGI in­cluded in its eval­u­a­tion of com­pa­nies ap­ply­ing to pre­qual­ify for bid­ding in sub­se­quent li­cens­ing rounds, both off­shore and on­shore.

LOGI also rec­om­mends that No­vatek’s ben­e­fi­cial own­ers—both ac­tual and eco­nomic ben­e­fi­cia­ries—is pub­lished by the gov­ern­ment.

Fur­ther, LOGI rec­om­mends that the cur­rent Strate­gic En­vi­ron­men­tal As­sess­ment, a pol­icy pre­pared in 2012, be up­dated as soon as pos­si­ble so that newly avail­able data can be used as a base­line for fu­ture En­vi­ron­men­tal Im­pact Assess­ments. These assess­ments should be manda­tory dur­ing the ex­plo­ration phase be­cause crit­i­cal en­vi­ron­men­tal plan­ning as well as health and safety mea­sures need to be put in place prior to the start of any ex­plo­ration ac­tiv­ity.

The oil and gas in­dus­try world­wide has been, and will con­tinue to be, among the top in­dus­tries as­so­ci­ated with cor­rup­tion, con­flicts, and in­creases in poverty and un­em­ploy­ment rates. Man­ag­ing these re­sources, from award­ing rights to sus­tain­able use of rev­enues, in a trans­par­ent and ac­count­able man­ner will ren­der pros­per­ity to its own­ers, the Le­banese peo­ple. For Le­banon to en­sure good gov­er­nance at the early stages of award­ing li­censes it must adopt stricter cri­te­ria for the pre­qual­i­fi­ca­tion of com­pa­nies, and bet­ter hold con­tractees to ac­count.

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