INTERVIEW: Lebanon planning new tax law to exploit potential offshore energy reserves
12 January 2017
By Nada Al Rifai
Lebanon will introduce a new hydrocarbon tax later this year, as plans to exploit its offshore energy resources begin to gather pace, one of the country’s senior politicians said in an interview with Zawya this week.
“The exploration and production agreements have already been approved. Yet, there is another bill that has to be approved by the parliament that has to do with the taxation law (for the hydrocarbon sector),” Fouad Siniora, a former Lebanese Prime Minister who held office from July 2005 to May 2008 and remains head of one of the largest political parties in the country, said on Wednesday on the sidelines of an energy forum in Abu Dhabi.
“By this, we will be able to have the necessary grounds for starting the process, and I believe that this would allow us to proceed most probably this year,” he added.
Two decrees were issued last week by the new Lebanese government, the first mapped out the different blocks within the country’s offshore exclusive economic zone, while the second specified the terms and conditions for the tendering of the exploration and production contracts.
Ten exploration blocks were marked out by Beirut officials, but two of these, which are in an area believed to hold substantial natural gas reserves, are the subject of a maritime border dispute with Israel.
“We have a problem in the region with Israel claiming incorrectly that it has certain parts of the exclusive economic zone of Lebanon. The same thing is practically happening without noise by the Syrian side,” Siniora said, adding that he did not consider the dispute to be an obstacle to Lebanon progressing with its plans.
“Irrespective of the normal risks that might take place in the region, I think Lebanon will be in a position to make this round work, and probably we may have the interested parties to bid for one or two of these blocks.”
While the Lebanese Energy Minister, Cesar Abou Khalil, last week confirmed that five of the exploration blocks will be auctioned off in the first licensing round, Siniora believed it was not a good idea to offer contracts contains more than two blocks to one bidder.
“It is not wise to make agreements in more than two blocks for the time being until we develop our expertise and knowledge in this field,” he said.
Signing up partners
Seismic surveys conducted in Lebanon estimate the new blocks may contain around 96 trillion cubic feet of natural gas reserves and 865 million barrels of oil offshore, but more precise figures will be possible once exploration and drilling activities commence.
In 2013, 34 companies qualified for non-operational tenders, including OMV and Dana Petroleum, while 12 companies qualified as operators, including Royal Dutch Shell, Eni, ExxonMobil and Chevron.
“Gulf countries and companies from Gulf countries are welcome and we are really interested in their bidding in this process,” he added.
Lebanon hopes that the potential oil and gas reserves will help resolve the country’s chronic power shortage issues and relieve the high debt burden on the Lebanese economy. However, Siniora said the government should learn from the experiences of other countries.
“It is high time for Lebanon to learn from the good and the bad lessons that other countries had fallen into. We do not want to end up in what is called ‘the oil curse’ or ‘The Dutch Disease’ and there are plenty of other diseases in this field,” he said.
In economics, ‘The Dutch Disease’ refers to the negative impact on a country’s economy, primarily associated with a natural resource discovery, and was a term coined after the Netherlands fell into economic crisis following the discovery of a large natural gas field in 1959.
“Over the past 10 years when we started actively moving along the lines of trying to see whether we do have proven reserves or not, we started to work with a party that has proven to have the best policies: the Norwegian side,” Siniora said.
He added that Lebanon has already entered into partnerships with Norwegian companies for training and legal expertise. “This gave us some sort of an idea about what are the good lessons that we should really adopt and what are the bad lessons that we should avoid,” he concluded.
(Editing by Shane McGinley)
© Zawya 2017