Policy Paper – Licensing and Upstream Petroleum Fiscal Regimes: Assessing Lebanon’s Choices

 

Executive Summary

Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream petroleum fiscal terms and strategies to award oil and gas licenses. This is not surprising given the fact that it is a completely new experience for Lebanon, a country often stuck in stalemates stemming from political disagreements. Despite this, there are some internationally
recognized guiding principles that Lebanese policymakers can follow. In terms of the allocation strategy, Lebanon selected competitive bidding, which is a positive step since this method is increasingly popular and supported by the international community. The key concern in Lebanon, however, is the choice of biddable parameters, which should be reviewed further. In terms of block delineation, Lebanon’s offshore block sizes do not fall outside the reasonable range, especially when the exploration risk and the relinquishment rule are taken into consideration. With respect to petroleum regulations, Lebanon seems to offer a middle ground between Cyprus and Israel. Some question whether the choice of petroleum fiscal regime Lebanon made is the correct one. In reality, the type of regime is less relevant. Fiscal regimes can be made equivalent in terms of both control and overall economic impact, for given oil and gas prices.

The design of the regime, the interactions of different fiscal and quasi fiscal instruments, the details related to the imposition of different instruments, among others, are by far more important. The government should not focus on a specific instrument and instead take into account the net impact on the fiscal regime and the investment climate.

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