It’s been three years the nascent oil and gas sector in Lebanon was brought to a complete halt. The relative success of the pre-qualification round in 2013 brought the sector to center stage and contributed to the hype surrounding it. But the pre-qualification round was not followed by a tender, which was put on hold for various rational and irrational reasons. No licenses were awarded. No exploration was conducted. Not a single discovery was made.
Yet, the oil and gas debate in the country appears to be oblivious to these realities.
Conferences abound, though on a much smaller scale than a couple of years ago. And, instead of investments and grandiose ambitions, we are left with capacity building and activism. Nearly every university in the country has launched new majors to prepare the Lebanese youth to work in the petroleum industry in Lebanon. The first batch of graduates will soon hit the market, in the complete absence of a petroleum industry. But, perhaps the strangest debate in town, the one attracting all the passion in the past weeks and months, is the question whether or not Lebanon should establish a National Oil Company… now. Sooner rather than later.
Article 6 of the 2010 Offshore Petroleum Resources Law provides for the establishment of a national oil company “when necessary and after promising commercial opportunities have been verified”. The law includes a degree of prudence that is welcome, however this article is now being associated with conspiracies to isolate the State from petroleum activities in favor of the private sector, and with squandering the Nation’s wealth. Calls for establishing a national oil company years before any verification is possible is at best questionable and raises fears that the company would face the same crippling challenges most other public institutions in Lebanon have long suffered from: patronage and mass-staffing, at the expense of productivity.
The debate lacks a strategic vision. And, as is the case with public institutions in Lebanon, particularly those operating in a lucrative sector, these are regarded more as tools of political influence than as instruments intended to effectively implement a particular policy.
It is not enough to call for the establishment of a national oil company at this stage, though it is not a complete anomaly to establish a NOC prior to any oil or gas discovery. But there is a series of questions that must be carefully considered, particularly because we are at the pre-discovery phase.
What will the NOC’s mandate and objectives be? This could range from the relatively reasonable to the very ambitious, and may require revising the legislative framework, with inevitable interferences and stalling whenever deemed necessary by one or more political sides. Is there a risk of institutional proliferation? The multiplication of institutions all addressing the same issues without a clear division of roles and responsibilities cannot guarantee a sound management and presents the risk of duplication of work. It is also important that ambition matches reality and resources available. That explains why grandiose ambitions are often disappointed.
Does it have the capacity to carry out its mandate? It is critical to understand the time and resources needed to develop the required capabilities, and factor in possible hurdles. It is also important to be fully aware of the weaknesses, and resist the urge to brush them off, by, for example, claiming we could seek the services of the talented Lebanese diaspora. Experience shows that the “Lebanese diaspora” argument is more frequently used than the actual services of said diaspora are.
How large will its workforce be? And how will the staff be selected? In Lebanon, it is very hard to resist clientelistic tendencies and the urge of mass-staffing public institutions. Some of those calling for establishing a national oil company at this stage have a poor record in this regard.
What are the resources needed to carry out its role, knowing that the revenue stream will possibly not be enough at the pre-discovery stage? It is critical to understand the financial requirements and have the means to meet them. At the pre-discovery stage, and with little (onshore) to no (offshore) exploration activity, expenses must be kept under control.
What guarantees are the proponents proposing to alleviate fears that this company would not be mismanaged or would not dry up public funds? Following the experience of Electricité du Liban, consider the Lebanese as traumatized and address their fears. Are there any valid reasons to believe this company will be an exception and will not be managed the exact same way public companies in the country are managed?
If recent experience with Lebanese public companies is any indication, there is a real threat that a national oil company would suffer from the same problems plaguing other already established companies. These include mass staffing, at the expense of quality (rendering the overall work less efficient), and possible corrupt practices.
A generational conflict?
Finally, it’s worth noting that those that are most active in calling for establishing a national oil company all belong to a certain generation that has experienced the past ‘glories’ of nationalization in resource-rich countries. However, today’s context is fundamentally different than it was in the 1960s and 1970s. Maybe what is needed more than a national oil company at this stage is for professionals and specialists who have a relevant experience in today’s oil and gas industry to set the framework for a national debate.
Establishing a national oil company is not necessarily a bad idea. But the subject deserves to be addressed from all angles and to be more carefully considered.
This article was published in the May 2016 edition of Executive Magazine.