On Wednesday, November 7, the Lebanese cabinet agreed in its weekly session to form the Petroleum Administration, after a delay of months, if not years, that has squandered many opportunities for Lebanon, especially in the context of the achievements made by neighbouring countries. After up to 610 candidates applied to the Civil Service Council, six officials were appointed to the Petroleum Authority, and were subsequently approved by the cabinet in accordance with the standards of service and competence. The appointees were also chosen on the basis of the sectarian quota system in place in Lebanon, as follows: three Muslims: Sunni, Shiite and Druze, and three Christians: Maronite, Greek Orthodox and Catholic. In spite of this, there is no doubt that the six members have a good experience in the oil sector, and have completed their training in fields related to this industry. The term of service in the Petroleum Authority is six years, which can be renewed for one time only. The chairmanship is alternated between the six members, for a term of one year each. The Authority submits its decisions and recommendations to the cabinet through the Energy Minister, who has the right to approve or reject them. Article 10 of the decree relevant to the Petroleum Authority has specified the general functions of the Authority's Board of Directors, which include: Providing training to companies to operate in petroleum-related activities; evaluating applications for licenses; negotiating- with the consent of the minister - with companies that have submitted applications, and evaluating the results of the negotiation; making recommendations and submitting opinions over the provision of licenses; in addition to other responsibilities in governing the oil sector, which makes the Authority the equivalent of a national oil company. The formation of the Petroleum Authority represents the first step for Lebanon, in the long march towards establishing a modern petroleum industry which, should it be successful in discovering and developing oil wells, can support the national economy. But unfortunately, the way the appointment was announced was not proper, as the six names and their sectarian identity were declared without mention of their professional experience. This would have been particularly important because the six members were chosen out of hundreds of candidates, from various segments of Lebanese society. Furthermore, the Authority will be responsible for a sophisticated and advanced industrial sector, which requires those in charge to be well-versed and experienced in fields like petroleum studies, engineering and economics. In addition, the manner the names and sectarian identities were mentioned alone, gives the impression that we are in front of the appointment of a sectarian council rather than a petroleum-related one. Therefore, one big fear here is that the Lebanese experience may become an example to follow for other Arab countries, to which sectarianism has now spread. The Petroleum Authority's agenda will be crammed from day one. Indeed, many international oil companies have expressed their interest in Lebanese territorial waters, and we expect that after the general guidelines of how the Authority will operate are laid down, the first tender for exploration and drilling will be announced. In truth, this process takes months of preparation, studies and evaluation of the bids submitted by various companies, which means that the results of the first tender would not be announced until the end of 2013. The production of oil or gas entails many challenges for producing countries. While oil revenues create many economic opportunities, there are many requirements and conditions for these to end up improving the economy. One of the known challenges is the fact that increased financial revenues of the state delay reform programs, due to ambitious expectations about the funds that will be pumped into the budget. Oil revenues may also be taken advantage of to increase employment in the public sector, whether the state actually needs those jobs or not. This perhaps explains the need to establish a fund to manage the oil revenues, which would be diverted towards the repayment of debt owed by the state treasury, and a development council that would study the needs of the country at the level of infrastructure projects. As is known, Lebanon's sovereign debt is extremely high (around US$ 55.7 billion). Furthermore, 15 years of civil wars and successive political crises have severely obstructed infrastructure projects. These revenues also present another challenge, namely the need to establish an agency for financial oversight with broad and adequate jurisdictions and support. Indeed, Lebanese citizens, even before petroleum has been discovered and the oil industry has launched, started to speak sarcastically about the rampant corruption among the politicians, and their meddling in the sector to fulfil personal interests. In truth, many Arab and non-Arab oil-producing countries have suffered because of this corruption, which involves in certain countries amounts in the billions of dollars each year. Experience also shows that oil and gas production accentuates political challenges, particularly border disputes. As is known, many such disputes have erupted. Some were resolved diplomatically, while others deteriorated into war. It is also known that there are dozens of joint oil fields between the countries of the region. Indeed, geography and geology pay no attention to political borders that exist between different states. But what matters ultimately is how to ensure that these fields are well exploited and managed. Naturally, there are norms that are followed in these situations, such as “unifying" investment in a joint field between two countries, through agreements and joint committees that conduct annual assessment of the fields in question. There are many successful instances of joint investments, for example in the North Sea between Norway and Britain, and also in the Arab Gulf between the Arab countries and Iran, not to mention unsuccessful experiences in Gulf that led to many oil fields not being exploited. There are also of course Iraq's “border" wars with Kuwait and Iran, and the horrors and human and material losses these wars caused. It is known that Lebanon is establishing its oil industry amid a serious border dispute with Israel, a country that Lebanon is in an official state of war with. This is not to mention the threats being made by parties and politicians in both countries about escalating the military conflict to include the disputed maritime areas. All this is also taking place at a time when Lebanon is experiencing a difficult political period, where the authority of the state no less is under threat. Meanwhile, there are U.S. diplomatic efforts taking place away from the limelight for a solution to the issue of the maritime area disputed with Israel. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
