A better deal: new law passed in Lebanon on oil and gas taxation

On 19 September 2017, the Parliament of Lebanon passed a new law with strong ring-fencing measures that will help get a better deal for the country from extractives.

With the recent discoveries of deep-sea gas fields, there are now real prospects of securing substantial revenues which can support better public services. But this will only be possible with the right legal framework and strong oversight from Parliament.

Westminster Foundation for Democracy (WFD) has supported the Lebanese parliamentary Public works, Energy, Water and Transport Committee for two years. Working closely with the committee chair, WFD brings international expertise and convenes meetings of MPs, officials and ministers. This has given the Committee some of the tools it needs to introduce new laws to improve transparency, stewardship and management of the extractives sector. The WFD programme has also supported the Parliament to raise its profile in oversight of the sector and highlight the vital role for Parliament at each stage.

In August 2016, WFD provided the Committee with an international comparative study on management and governance of the oil and gas sector. During meetings to discuss the study, the Committee adopted a recommendation to introduce a new oil and gas taxation bill.

A follow-up workshop with WFD in February 2017 provided an opportunity for Lebanese MPs to debate taxation of the oil and gas sector. This included contributions from Nick Butler, former Group Vice President for Strategy and Policy at BP and a former senior policy adviser to the UK Prime Minister. His recommendations focused on ‘ring-fencing’ to bring the Lebanese system into line with best practice worldwide. As he explained:

“Ring-fencing is a well-established part of energy taxation systems around the world. It allows the profits and the costs associated with each particular field development to be assessed and taxed separately.”

“If a major field is very profitable it can be taxed at the appropriate rate without all the profits being offset by expenditure elsewhere. It ensures companies cannot use losses on other activities – including onshore activities in energy or any other business – to offset their liabilities in respect of the offshore field.”

“Following the discovery of oil and gas in Lebanon, the country is expecting significant changes and lot of reforms are required.”

This resulted in the Committee deciding to amend the bill to strengthen original provisions on ring-fencing. Committee Chair Mohammed Kabbani MP, commented:

“Following the discovery of oil and gas in Lebanon, the country is expecting significant changes and lot of reforms are required. Certainly, the Parliament must play an important role in this process, the collaboration with WFD allowed for this to take place.

“Through the sharing of best practices and information, a comprehensive approach in the adoption of the Oil and Gas Taxation Law was followed, constructive engagement from relevant ministries was facilitated by the programme; the evidence provided on the ring-fencing generated an informed debate and decision. This support reinforced the oversight role of the Parliament and its centrality in shaping key polices.”

(Photo: Oil and Gas Taxation Bill discussed at a WFD workshop with members of the Public works, Energy, Water and Transport Committee.)

Along with ise securing a good deal for the Lebanese public purse, the parliamentary Committee is playing an important role – with WFD support – in transparency, good governance, management and oversight of the sector.

Support from the Foundation recently resulted in Parliament recommending Lebanon completes the process of joining the Extractive Industries Transparency Initiative (EITI), a global standard for the good governance of oil, gas and mineral resources.

Committee member Joseph Maalouf MP has also recently lodged a new draft law on transparency of the Oil and Gas Sector. The Committee launched this initiative at a WFD workshop in November 2016, which brought together Lebanese MPs on the topic: “Oil and Gas- A legislative initiative to fight corruptio” .

On 19 October 2017, WFD will facilitate a workshop on parliamentary scrutiny of the Sovereign Wealth Fund Bill. This will aim at debating and designing a sound model of governance for the fund which will manage Lebanon’s assets.

(Main photo: Lebanon’s General Assembly meet to vote on the Oil and Gas Taxation Bill.)

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