On 10 October 2018 Parliament adopted Law 84 on Transparency in the Oil and Gas Sector (the Transparency Law), which was published in the Official Gazette on 18 October 2018. This law is a major step towards achieving transparency and accountability in the petroleum sector.
Preventing corruption is a key challenge faced by the oil and gas sector worldwide. This is particularly true in developing countries, as the high level of financial resources generated by recent discoveries can create a breeding ground for corruption and abuse.
Corruption in the oil and gas sector can occur at several stages – from the licensing process to exploration – and on multiple levels (eg, small-scale bribery or structural corruption). As such, it was inevitable that Lebanon would enact legislation to:
- prevent and fight potential corruption;
- prosecute perpetrators; and
- limit abuses of authority.
The Offshore Petroleum Resources Law and laws relating to corruption have laid the foundation for preventing and fighting potential corruption by:
- increasing transparency in all transactions to allow active monitoring at the administrative, legislative, supervisory, judicial and civil society levels;
- ensuring the safe management of financial control; and
- establishing administrative control at each stage of facility management by the Council of Ministers (for major decisions), the Lebanese Petroleum Administration (LPA) and related ministries.
The Transparency Law covers all petroleum activities conducted within Lebanese territory (both offshore and onshore) by all stakeholders, including Lebanese and foreign stakeholders from both the private and the public sectors.
Disclosure and publication obligations
Under the Transparency Law, the following entities must disclose to the public within set timeframes information relating to petroleum activities:
- the Council of Ministers;
- the Ministry of Energy and Waters;
- the LPA; and
- ministries, public administrations and bodies that are directly linked to petroleum activities.
Publication and disclosure obligations also apply to all companies which undertake petroleum activities.
The Transparency Law sets out the obligations of the above parties with respect to the disclosure and publication of information at each stage of undertaking petroleum activities. It also imposes disclosure and publication obligations regarding matters such as:
- the sovereign wealth fund;
- employment; and
- the social networking expenses.
Obligations during various stages of petroleum activities The Transparency Law sets out the disclosure and publication obligations imposed on the Council of Ministers, the Ministry of Energy and Waters, the Ministry of Finance, the LPA and rights holders (operators and non-operators) during:
- pre-qualification rounds;
- licensing rounds;
- exploration and production phases; and
- the permanent cessation of operations phase.
The Council of Ministers must publish the draft exploration and production agreement before granting a licence (EPA), as well as the final agreement. This requirement aims to respect the principle of free and fair competition among participating companies.
The Ministry of Energy and Waters, along with the LPA, must:
- publish the adopted conditions and requirements which companies must meet in order to qualify for an EPA;
- ensure the transparency of the bidding process; and
- make available to the public, at all times, all technical information relating to the licensing, exploration and production phases, including the permanent cessation of operations phase.
The Ministry of Energy and Waters and the LPA must also submit quarterly reports to Parliament and the Council of Ministers regarding the functioning of the petroleum sector, including the amounts paid by rights holders under the social expenses initiative and the entities which benefit from such payments.
The minister of finance is predominantly responsible for disclosing and publishing all information concerning the fees and taxes applicable to each of the abovementioned phases.
Rights holders must disclose and publish all information relating to, among other things:
- cost recovery;
- their share and the state's share of any profit oil;
- production data for each fiscal year;
- the method used to price oil for use in the local market;
- royalties;
- the quantities of oil sold and its value;
- termination procedures; and
- estimated future costs and periodic expenditures.
Notably, the Transparency Law states that companies, other than the rights holders, which are licensed to undertake storage and transportation activities are subject to the Transparency Law. Information relating to subcontractors of the rights holders must also be as disclosed and published.
Under the Transparency Law, the Council of Ministers, the Ministry of Finance and the party responsible for the management of the sovereign wealth fund must disclose all information relating to the revenues collected from the petroleum activities, including the payments, investments and yearly returns on such investments.
The Transparency Law requires employers which undertake petroleum activities to publish information pertaining to the identity of their employees who work in the oil and gas sector, including what percentage of them are Lebanese nationals and foreign residents. Further, rights holders must adopt transparent procedures during the employment process to guarantee equal opportunities and diversity among the qualified specialists conducting their petroleum activities. They must also, at all times, disclose other specified information relating to their employees.
Rights holders must publish accurate information relating to their social networking expenses and beneficiary expenditure and must abide by the ceiling defined by the applicable laws. Further, beneficiaries must publish the amounts that they have received from companies and the modality of their disbursements.
As a general note, the Transparency Law requires the national anti-corruption committee to undertake continuous monitoring of the credibility, reliability and quality of all information published and disclosed by concerned parties. As such, the credibility of the disclosed information will be monitored insofar as the decisions and policies relating to petroleum activities are compliant with the applicable laws. The information's reliability will be monitored based on the trustworthiness of the petroleum activities concerned. Further, the information's quality will be examined by analysing and rating the documents according to international standards and Lebanese law.
Prohibition on investment in petroleum activities
To prevent abuses of authority, the Transparency Law prohibits, among other things, the following persons from investing, directly or indirectly, in petroleum activities – or assuming the position of chair or member of a board of directors or general or principal manager in companies that participate directly or indirectly in petroleum activities – while they are in office and for three years thereafter:
- any person holding an important political post or senior position in Lebanon (ie, the president, the prime minister, the parliamentary president and ministers and members of Parliament, as well as their assistants and advisers);
- the president and heads of Lebanon's judicial organs;
- directors in the governmental and public sectors;
- Lebanese ambassadors and consuls;
- the heads of Lebanon's security organs; and
- the heads, board members and executives of companies completely or partially owned by the state or states with a mixed economy.
The Transparency Law prohibits any person or entity from granting or receiving any offer, compensation, payment, gift, promise or other benefit to facilitate the licensing of an oil and gas company, rights holder or operating company. It also prohibits such persons or entities from providing oil and gas companies, rights holders or operational companies with any confidential information relating to licensing rounds, petroleum activities or competitors. This prohibition also applies with respect to subcontractors of such rights holders or operating companies.
Persons who breach this obligation will be imprisoned for at least four years and ordered to pay a penalty ranging between double and triple the amount of the expected or achieved financial benefit.
Scope of accountability and right to bring suit
The following persons can be held responsible for an infringement of the Transparency Law:
- any person holding a position of public authority, whether by election or appointment;
- any person appointed or elected to provide a public service, whether paid or not;
- any employee of a public administration, institution, municipality, army or security force or government administration or institution;
- any worker, contractor or consultant of the state or an abovementioned person;
- any person who has helped an abovementioned person to perform tasks assigned thereto; and
- rights holders, operators that are not rights holders and subcontractors.
Under the Transparency Law, any person or entity which has suffered damage, as well as transparency support associations (discussed below), have the right to bring a criminal suit for bribery, corruption and abuse of authority. However, the law sets out clear conditions in this regard.
During such judicial procedures, the competent courts cannot order the permanent cessation of a petroleum activity. Rather, only preventive measures to safeguard the plaintiffs' rights can be decided.
Any fines imposed by the competent courts and paid by the concerned party will be disbursed to the sovereign wealth fund.
The Transparency Law has granted the civil society, through transparency support associations, the right to continuously monitor the transparency of petroleum activities. The main aim of such associations is to enhance transparency and fight corruption in the oil and gas sector.
These associations also have the right to continuously verify that entities participating in petroleum activities are complying with their obligations.
Transparency support associations are subject to the laws applicable to associations in general and must obtain the required authorisations. The Transparency Law also sets out requirements concerning the members of such associations.
Parliament's adoption of the Transparency Law is Lebanon's first step towards increased transparency and combating corruption. However, a fully-fledged framework concerning transparency and anti-corruption monitoring, and the full application of the Transparency Law, require the establishment of a national anti-corruption committee. Under the law, this committee will be tasked with controlling transparency and anti-corruption in petroleum activities at all levels. Until the committee has been established, the Transparency Law has given the Cassation Public Prosecution the role of controlling the credibility, reliability and quality of the information disclosed by concerned parties.
For further information on this topic please contact Mohamed Y Alem or Jana Tebbo at Alem & Associates by telephone (+961 1 999 717) or email ([email protected] or [email protected]). The Alem & Associates website can be accessed at www.alemlaw.com.
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