This article originally appeared on April 15, 2015 in The Huffington Post

Today, a group of Lebanese from across the world launched an initiative focused on supporting a vital sector for the future of Lebanon that we hear relatively little about: Lebanon’s potential oil and gas industry.

While most of the current news out of the country is of political instability, corruption and incompetence, there is an untold story of hope. There are creative individuals working with absolute determination to tackle Lebanon’s toughest problems. They are inspired by the belief that it is possible to make their country a better place. Their small-scale efforts will lead gradually to larger ones and eventually energize a wider change in Lebanon.

The Lebanese Oil and Gas Initiative (LOGI) could potentially be one of such efforts. It is a first of its kind initiative in Lebanon, and its story is one worth being told.

The backstory is that Lebanon could potentially have large oil and gas deposits. While the opportunity could significantly improve Lebanon’s economy and the welfare of Lebanese citizens, high corruption, weak rule of law and limited technical expertise constitute the highest risks to Lebanon’s oil and gas sector. If these risks are not well managed, Lebanese citizens could be left worse off and Lebanon’s economic and social challenges aggravated.

Imagine a Lebanon in the future where oil turned out to be less of a blessing and more of a curse: oil revenues are siphoned away to fund political parties, help them maintain power and undermine democracy; violence and conflict erupt over the ownership of natural resources; and an economy over-reliant on energy exports gets severely impacted by volatile commodity prices … all real life examples witnessed across several countries mismanaging their natural resources.

The timing to proactively address these risks and avoid the resource curse is now! The backbone of the industry is being shaped today and requires our early engagement, before policies are set in motion and contracts locked for decades.

A significant gap witnessed today is the need of an organization that calls for transparency, accountability and sound governance of Lebanon’s petroleum industry.

Beyond that role, given that Lebanon’s petroleum resources are not confirmed yet, there is also an urgent need to prudently manage expectations of Lebanese citizens and government officials. Oil and gas discoveries often trigger an explosion of unrealistic expectations and require a communication strategy that builds a critical mass of citizen understanding through easy to grasp facts.

This is exactly what LOGI is set to do. It strives to inform Lebanese citizens, and influence decision-makers on the key issues facing Lebanon’s oil and gas industry. Its end goal is to help Lebanon maximize the economic and social benefits of its oil and gas wealth, and avoid the resource curse.

If successful, LOGI could play a leading role in creating a system of checks and balances and facilitate coordination across various stakeholders including citizens, civil society, business, government and international organizations.

The talent is out there

There are many Lebanese experts in and outside of Lebanon with a wealth of experience in the oil and gas industry. Some are engineers, geologists, and lawyers. Others are management consultants, economists, and environmentalists. They are scattered far and wide – in countries such as the United States, Brazil, the United Kingdom, Saudi Arabia, Angola, and Australia. What unites them is their love of their home country, and deep expertise of a sector that could profoundly impact the future of Lebanon.

LOGI aims to create a network of these experts and leverage their knowledge, providing a platform to contribute and help Lebanon develop a healthy oil and gas sector.

If properly financed, governed and connected together these concerned Lebanese citizens, regardless of their location, could have a tangible and real impact on Lebanon.

How can you make a difference?

Many of us ask ourselves similar questions: how can I get involved in solving pressing issues in the World? How do I tap my own potential to drive real change?

Supporting LOGI is one way you can contribute to driving change, in a country that urgently needs it.

You can join LOGI’s network of volunteers, donate, and spread the word.

LOGI is about real people doing real things. Join us in this challenging but exciting journey!

Georges Pierre Sassine is an energy policy expert and co-founder of the Lebanese Oil and Gas Initiative (LOGI). He writes about Lebanon’s public policy issues atwww.georgessassine.com.

This article originally appeared on April 15, 2015 in The Huffington Post

Lebanese gains and losses from lower oil prices

A version of this article appeared in the print edition of The Daily Star on February 20, 2015, on page 7.

By Georges Pierre Sassine

April 20, 2014 – NOW interview with Georges Sassine on the role of US diplomacy in resolving the Lebanon-Israel maritime border dispute, and what the newly formed Lebanese government should focus on to develop the industry.

Original article can be accessed on this link.

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By Georges Pierre Sassine on March 19, 2013

A version of this article appeared in the March 2013 online edition of Executive Magazine.

Lebanon is making progress in developing its oil and gas resources. Offshore seismic surveys are completed, the Petroleum Administration is finally formed and the licensing round for oil companies to bid on offshore exploration has been launched.

The Lebanese government is rightly focusing on developing petroleum resources in its direct waters. However, Lebanon has yet to fully demarcate its maritime borders with Cyprus, Syria and Israel. Petroleum discovered in contested areas could prevent Lebanon from extracting parts of its resources and risk to pose a serious security threat.

The focus so far has been on the border dispute with Israel. Traditional resolution strategies of maritime border disputes are not easily applicable to the Lebanese-Israeli case.Georges Sassine

The focus so far has been on the border dispute with Israel. Traditional resolution strategies of maritime border disputes are not easily applicable to the Lebanese-Israeli case.

Direct negotiations between the two countries or joint development agreements – where Israel and Lebanon cooperate to access hydrocarbons instead of dividing the territory – are not applicable. The countries are at war and will not negotiate face to face.

Another option is to resolve the dispute through formal legal proceedings. The International Court of Justice, the International Tribunal for the Law of the Sea and the Permanent Court of Arbitration are all different platforms that could resolve the dispute.

However, Israel has not signed or ratified the United Nations Convention on the Law of the Sea (UNCLOS), which means that Lebanon cannot force Israel to court. Lebanon could pursue an international media and diplomatic campaign to get Israel to sign the UNCLOS, enabling Beirut to bring Tel Aviv before a binding judicial tribunal or panel of arbitrators. But this remains a challenging path to undertake given that Lebanon does not acknowledge the existence of the state of Israel, and political resistance is to be expected as part of Lebanese public opinion perceives international courts to be biased towards Israel.

Searching for a settlement

As such, the most realistic proposal may be for some kind of indirectly negotiated settlement, though any such process will be lengthy and complex.

It is not unlikely that a new oil and gas field will be found in disputed Lebanese-Israeli waters while at the same time extending into Cypriot waters.Georges Sassine

As exploration in the Eastern Mediterranean continues it is not unlikely that a new oil and gas field will be found in disputed Lebanese-Israeli waters while at the same time extending into Cypriot waters. Cyprus is divided into two main parts: the Republic of Cyprus – a member state of the European Union – and the Turkish controlled area in the north. This is likely to pull both the European Union and Turkey into the fray.

Lebanon could then find itself in a scenario where instead of dealing only with Israel it is drawn into a multi-stakeholder dispute directly involving Cyprus, Turkey, the EU and probably the United States as a broker.

Such a scenario has been studied by Harvard Professor, Meghan O’Sullivan, and several students from Harvard University and the Massachusetts Institute of Technology (MIT) in a Geopolitics of Energy competition. In looking for ways to avoid a conflict, two broadly different approaches have been suggested.

The first is the ‘politics before economics’ pathway, which suggests that a complete political resolution of conflicts between Lebanon and Israel on one hand, and Turkey and Cyprus on the other hand need to be resolved before the gas can be developed. The development of eastern Mediterranean gas would be included in a comprehensive regional peace initiative. Until then, petroleum resources in disputed areas would remain untapped and conflict avoided. However, immediate prospects for such a regional agreement are slim at best.

The second proposal suggests the development of disputed oil and gas fields while waiting for a final political resolution of territorial disputes. In this case, Lebanon and Israel as well as Cyprus and Turkey would agree to disagree. Each side would hold on to its claims but agree to a third party developing disputed oil resources until big political issues are resolved. Revenues could be split or frozen in foreign accounts and by the time a political resolution of disputed areas is reached revenues would then be distributed according to each country’s respective share.

Such a model has its challenges as well but nevertheless has been proven viable. In the 1940s Saudi Arabia and Kuwait both claimed a 5,770 square kilometer area along their borders and as such created a neutral zone. They shared equal rights to oil concessions until they reached an agreement to formally divide the territory in the mid-1960s. Australia and East Timor provide a similar case in 2003 as they postponed the settlement of their boundaries for 50 years and pursued the development of common resources under agreed guidelines.

There is no doubt that potential oil and gas resources in contested waters provide serious risks to Lebanon. While the current unspoken agreement seems to be that both Lebanon and Israel will not explore in the conflict area, Lebanese remain nervous that Israel would decide to unilaterally develop these fields and provoke retaliation from the Lebanese Armed Forces or Hezbollah. Any option to avoid this issue will prove complex. This is why as the Lebanese government accelerates the exploitation of undisputed areas it should in parallel devote time and resources to manage risks on its maritime borders. A team of legal, diplomatic, military and political experts should plan and prepare for Lebanon to successfully defend its rights, develop its entitled resources and avoid conflict.

Georges Pierre Sassine holds a master’s degree in public policy from Harvard University’s John F. Kennedy School of Government. He writes about Lebanon’s public policy issues at www.georgessassine.com

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LEBANON’S ELECTRICITY SECTOR BETWEEN REGULATION AND DECENTRALIZATION

By Georges Pierre Sassine

A version of this article appeared in the December 2012 print edition of Executive Magazine, on pages 78 & 80.

Rolling blackouts have become a symbol of the political crisis affecting the Lebanese government. According to the World Bank, Lebanese citizens incur on average 220 interruptions of electricity per year, which is the worst performance in the Middle East.

Today, electricity production stands at around 1,500 megawatts (MW) while demand exceeds 2,400 MW at peak times, resulting in rationing cuts from between 3 to 20 hours a day, depending on where you are in Lebanon. Although the government signed a $360 million deal to lease electricity-generating barges from a Turkish company in July, which is expected to generate 270 MW, this will mainly offset losses as restoration works are carried out on existing power plants.

Building a few facilities to bolster generation capacity should not be too challenging, knowing that China builds plants at the rate of one a month. Instead the problem lies in the sector’s governing system: Lebanon’s electricity sector is dominated by the state-owned Electricite du Liban (EDL), which has thus far proven inept in addressing the country’s energy shortfall.  

Moving forward, solutions to Lebanon’s electricity crisis are constrained by a limited government budget, a heavily subsidized electricity sector, low collection of electricity bills, an ageing infrastructure, human resources challenges and various interest groups resisting change.

Politicians are discussing various options, including different models of privatization and even the decentralization of Lebanon’s power generation. The fundamental debate drills down to two key questions. The first is a choice of regulation versus deregulation, which addresses the degree of government involvement in Lebanon’s electricity sector. The second is whether electricity generation should be centralized or decentralized.

These choices are in line with the debates occurring today in the global energy system. As such Lebanese policymakers can learn from the successes of others and adapt them to local conditions.
 

REGULATION VERSUS DEREGULATION

The electricity sector’s restructuring has featured on the Lebanese government’s agenda since 1998 when a revised electricity law emphasizing privatization was first proposed. Following that an electricity decree was passed by parliament in 2002, more than 60 consultant reports were prepared, and the Council of Ministers, Lebanon’s cabinet, adopted different policies in 2002, 2006 and 2010. But very little progress was made on implementing any of these initiatives due to disagreements across the political spectrum around privatization. Some believe that utilities are the business of the government, while others argue for different forms of private sector involvement — spanning from full privatization to various models of public-private partnerships.

The success of electricity reform in other countries is mixed. Success depends on the design and implementation of competition laws.Georges Sassine

The truth is that in Lebanon some form of private sector participation is inevitable. More than 20 percent of the country’s electricity needs are already covered by private generation. Due to crippling public debt, the Lebanese government cannot single-handedly provide the required investment to reform the sector. Complicating matters, any plans to directly privatize EDL would be difficult to implement in the short to medium term, as private investors would be reluctant to invest before operational and managerial capacities are improved.

As Lebanese policymakers continue their deliberations, they seem to be drawing little from other countries’ experiences. The fact is that the electricity industry in many countries has seen a movement from heavy state involvement towards a greater reliance on market processes. The main rationale being that competitive markets raise investments, improve efficiencies and lower electricity prices.

However, the evidence on the success of electricity reform is mixed. In countries such as the UK, Australia and Chile, liberalization reduced electricity prices by as much as 35 percent. Yet, deregulation caused, for example, Sweden’s electricity prices to spike to one of the highest in Europe. The key lesson is that deregulation’s success depends on proper design and implementation of competition laws. Getting market structure right at the opening of new power markets is crucial for the success of any electricity reform; this requires a deep understanding of sophisticated regulation and market dynamics in order to be effective.

Thus, as Lebanese policymakers consider various options for private sector involvement they need to understand the requirements to properly design and implement such a transition. Failure could lead to deteriorating electricity provision and higher prices.

CENTRALIZATION VERSUS DECENTRALIZATION

Another proposal put forward by Lebanese politicians suggests a decentralized electricity sector. The Ministry of Energy and Water would cede control to regions or municipalities. Supporters of such an initiative believe it will help tackle corruption, reduce political bickering and improve governance. However, this raises political sensitivities as some fear that regional electricity production could lead to political decentralization and, in a worst-case scenario, to the countries’ undeclared partition.

A hybrid centralized and decentralized system is possible. It is a matter of finding the appropriate mix that best suits Lebanon and the political will to implement it.Georges Sassine

In a centrally planned system, electricity is produced at large generation facilities, transmitted and distributed to millions of consumers over large geographic areas. It achieves economies of scale, and has been successful in providing consumers with a continuous and reliable flow of electricity. However, today the trend is reversing. Priorities have shifted, and the conditions that created centralized systems no longer hold true.

Renewables and distributed technologies emerged and are becoming more cost competitive, while policymakers’ concerns are increasingly focused on climate change and energy security challenges. This has driven energy planners in the EU and other nations to consider the transition from centralized to decentralized energy systems.

However, decentralized energy systems do not come without their challenges. Technical and engineering challenges abound when integrating large shares of distributed generation into the grid, and could adversely impact the protection and safety of the electric network.

Scoping the map, degrees of decentralization vary from country to country. Brazil has a strong centralized electricity system, whereas Canada’s is decentralized. India and Australia are currently transitioning from a decentralized to centralized structure. There is no unanimity on a universal model. Each provides different benefits and challenges, and needs to be assessed within the local context. In Lebanon, however, the motivation behind decentralization remains solely political and fails to account for technical, economic, environmental and energy security dimensions.

In its current form, Lebanon’s electricity sector already has some components of a hybrid centralized and decentralized model. EDL provides only 75 percent of the country’s electricity needs through six large, centrally controlled power plants; the rest is supplied through a network of small-scale backup generators. The only loophole is that these private generators are technically illegal and as such are not integrated into a wider regulated system.

A pragmatic approach would entail the Lebanese government leveraging the existing infrastructure of private generators across the country and adopting a policy of cooperation and coordination in the medium term, recognizing its inability to fully cover Lebanon’s electricity needs overnight.

In the longer run, a hybrid system combining the best attributes of both the centralized and decentralized structures is possible. It is a matter of finding the appropriate mix that best suits Lebanon and the political will to implement it.

In conclusion, some form of private sector participation in Lebanon’s electricity sector is inevitable under government oversight. But the success of public-private partnerships will be heavily linked to the design and implementation of competition laws. This is particularly pertinent in Lebanon considering existing draft anti-trust and competition laws have been left unimplemented for years on government shelves.

A realistic approach would also require the government to synchronize and leverage existing private generators. This is a stopgap solution until the most suitable mix of central and decentralized structure for Lebanon is agreed upon. However, this proposal and any other attempt to reform Lebanon’s electricity sector can only be meaningful in the presence of strong political will.

Georges Pierre Sassine is an energy policy expert and holds a master’s degree in public policy from Harvard University’s John F. Kennedy School of Government. He writes about Lebanon’s public policy issues at www.georgessassine.com

A version of this article appeared in the December 2012 print edition of Executive Magazine, on pages 78 & 80.

(Executive Magazine: a leading business, economics and policy magazine in Lebanon and the Middle East)

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By Georges Pierre Sassine

An Arabic version of this article appeared in the print edition of Annahar Newspaper on December 12, 2011.

Territorial disputes will prevent Lebanon from developing part of its oil and gas resources. While Lebanon is yet to demarcate its maritime borders with Cyprus and Syria, the main area of tension today is with Israel over the discovery of potential offshore petroleum resources. What are the options for Lebanon to resolve its maritime border dispute with Israel? The examination of similar cases sheds light on resolution strategies available to Lebanon.

Maritime boundary disputes are extremely common and are not unique to Lebanon and its neighbors. In each of the world’s major seas such disputes can be found. A prime example is the South China Sea where seven states – China, Indonesia, Malaysia, the Philippines, Taiwan, Vietnam, and Brunei – have laid claim to subsea energy supplies. Other examples include the United States and Canada dispute over the hydrocarbon rich Beaufort Sea; or the Thailand-Cambodia disagreement which is freezing oil and gas exploration in the Gulf of Thailand.

There are about 200 potential maritime boundaries that remain unsettled in the world, but another 200 cases have already been resolved. Five different resolution strategies were adopted by several countries – all within the legal structure of the United Nations Convention on the Law of the Sea (UNCLOS): direct negotiations, third party mediation, joint development agreements, and formal legal proceedings through a judicial tribunal or panel of arbitrators.

Maritime boundary disputes are extremely common and are not unique to Lebanon and its neighbors. In each of the world’s major seas such disputes can be found.Georges Sassine

Direct negotiations and joint development agreements are not options for the Lebanese-Israeli dispute. Both countries are at war and will not negotiate face to face. Joint development of hydrocarbons would let both countries access resources of the disputed area instead of dividing the territory. While such cooperation schemes are encouraged by the international community, they are not applicable to this case.

In addition, Israel has not signed or ratified the UN Law of the Sea, contrary to Lebanon, which means that Lebanon cannot force Israel to court. This leaves Lebanon with one course of action: third party mediation through the United Nations, for example, and if that were to fail pursue an international campaign to get Israel to sign the UN Convention of the Law of the Sea. This would ultimately enable Lebanon to bring Israel before a binding judicial tribunal or panel of arbitrators including the International Court of Justice, the International Tribunal for the Law of the Sea or the Permanent Court of Arbitration.

Israel has not signed the UN Law of the Sea, which means that Lebanon cannot force Israel to resolve maritime disputes through an international tribunal.Georges Sassine

Lebanon’s success will thus depend on its ability to master the rules and procedures of the international law of the sea, and its ability to wage a successful international media and diplomatic campaign.

In the meantime, Israel is in a rush to develop offshore resources, and Lebanon is running behind. Israel is speeding up gas developments in response to increased disruptions to its natural gas supplies, which resulted from nine attacks on Egyptian pipelines to Israel in the past 10 months as well as Egypt’s intention to potentially raise the price of its natural gas supplies. Israel has already licensed fields to oil companies and has started exploration and construction. Lebanon, on the other hand, is progressing at a slow pace and is expected to open exploration license bids in early 2012.

As a result, as Lebanon pursues the lengthy and complex settlement process, it should work in parallel to exploit petroleum resources in areas that are not under dispute. It is in the absolute interest of all Lebanese factions to rise above internal divisions and accelerate the exploitation of undisputed areas.

Georges Pierre Sassine is an energy policy expert, and Harvard University alumnus. The opinions expressed herein are his own. He wrote this commentary for ANNAHAR NEWSPAPER.

An Arabic version of this article appeared in the print edition of Annahar Newspaper on December 12, 2011.

(Annahar Newspaper: http://www.annahar.com/)

 By Georges Pierre Sassine

Background

Prior to the 2006 war, Lebanon’s electricity sector was in a state of disrepair. The damage to the infrastructure induced by the conflict, which amounted to $114 million, exacerbated its condition. But while the Lebanese Government implemented a series of quick-fix solutions, the sector’s true rehabilitation requires long-term reform.

The electricity supply system is dominated by the state-owned Electricite du Liban (EDL), which is a vertically integrated utility. Its installed generation capacity only meets 85% of the electricity needs, electric interconnections and imports from Syria cover about 10% of the demand and the remaining is being generated by the individual enterprises and commercial facilities.

EDL suffers from poor financial conditions, and is heavily dependent on government budget subsidies for operations and investment. As EDL adopted an electric tariff freeze policy, the government steps in to partially relieve its burdens with the rise in fuel cost; and thus, the power sector is contributing up to an astounding 20% of the national debt burden.

The generation capability itself is characterized by inefficiencies in the power plants and by a lack of available capacity due to aging and unreliable assets. The transmission systems suffer high technical losses (˜ 15%) and the distribution systems from high non-technical losses (˜ 23%), high levels of unbilled electricity consumption and a low collection of electricity bills (˜ 80%).

On top of its ineffective organizational structure, EDL is facing a serious human resources issue with a decrease in its manpower while the number of customers is increasing. The average age of EDL’s personnel is above 51 years and they lack proper qualifications.

The Government of Lebanon was granted multi-million dollar loans in the last sixteen years to reform, restructure as well as to expand electricity transmission. However, the objectives were not completely met and the overall performance of the government was rated highly unsatisfactory. Recent legislations were issued by the Lebanese Parliament (Privatization Law no 228/2000, the law no 462/2002 Organizing the Electricity Sector) and indicated a tendency to promote private sector participation, in line with the international trend. However, no action has been taken so far in that regard.

Since 2000 the Lebanese Parliament issued legislations to promote private sector participation in the electricity sector … No action has been taken so far in that regard.Georges Sassine

Recommendations

The electricity sector reform should adopt the private sector participation which has proven to improve access to public infrastructure services, price and quality.

The private sector participation can take one of many forms but before choosing the most suitable structure there’s a need: First, to develop and establish an efficient regulatory framework that should be governed by an independent and effective regulator. Second, to corporatize the electricity sector which is a prerequisite to any chosen privatization option.

The best privatization option appears to be the unbundling of the Generation from Distribution and to leave Transmission within the government control. The sector needs to be restructured toward a “middle ground” deregulated environment where the regulator controls multiple generators and distributors with one single buyer. This “middle ground” deregulated environment will be an interim step towards an “all level competition” privatization form if seen appropriate later on.

There are no technical barriers to resolve Lebanon’s electricity crisis … reforms can only be meaningful if and only if politicians adopt a serious and determined strategy towards their implementation.Georges Sassine

The Transmission is a natural monopoly and will not be divested in order to remain a neutral ground with open access to all players, which will ensure better competitiveness. The Generation and Distribution on the other hand if split could allow for commercialization of the sector and thus allowing for more competition, an ability to generate profits and thus increase performance, service access, price and quality. The public-private partnership should be properly designed to target poorer population segments and to improve services delivered to them.

A demand-side management strategy should be adopted and the tariff regulation should be amended in a way that would prevent social disturbance and electric bankruptcy. A significant effort should be put in energy efficiency by developing standards, certification and labels, and focusing on public awareness. Renewable and sustainable energies should be encouraged and developed. Solar energy in particular is virtually unexploited and has considerable potential for growth.

This being said, the environmental issue is also important to consider. The Lebanese Government is in the process of adopting the Kyoto Protocol rules and is planning to abide by them.

Conclusion

As outlined earlier, EDL and the Lebanese electricity sector are in significant trouble. In a country where sectarian interests seem to dominate all political and economic decisions, the electricity sector is a highly politicized one. This makes its regulation very hard to reform due to the diversity of stakeholders involved. There are no structural barriers to achieve more efficient public policies, but they can only be meaningful if and only if politicians adopt a serious and determined strategy towards their implementation.