Search This Blog

Two Tales for Petro-Lebanon: Stagnation in the “Middle Ages” or Quantum Leap towards Modernity

Dr. Karim El Mufti
Political Scientist
Social Entrepreneur

9 October 2012 

As the number of reports on the new oil and gas wealth Lebanon holds in its sea is on the rise – understand between 40 and 100 billion dollars worth of reserves, depending on the estimates[1] – it does not seem like the current Lebanese political groups are giving this piece of information the attention it deserves.

Recently, Prime Minister Najib Mikati has put much of his international networking skills fetching not only aid for the tens of thousands of Syrian displaced on Lebanese soil (during the latest UN Summit in New York), but for the cost of ammunition for the Lebanese army[2]. In recent tweets[3], M. Mikati promised not to raise the issue of public wage hike to the Council of Ministers before the Treasury could find a way to finance it (about 1.2 billion dollars), showing a chronic lack of imagination for diversifying the State revenues (the “Mikati Floor”, raising the VAT rate), just as if the newly established resources do not exist.

More preoccupying is the inability of the government to name the members of the Board of the new Petroleum Administration, the body in charge of managing the process that would supervise the drilling offshore, not to mention the need to adopt a law on the oil sovereign fund and to issue the executive decrees pertaining to oil and gas regulations.

As Lebanese different political factions are triggering their electoral campaigns, there is no mention, let again a vision, of a financial strategy of how to use these newly discovered resources (that can in theory be accessible within 6 to 10 years, and this is tomorrow[4]) for the sake of the economic welfare of the country and its population.  Only Minister Bassil, in his capacity of Minister of Power and Hydraulic Resources showed eagerness to use the newly found gas to help solve the electricity crisis in Lebanon[5], but this is as far as his political platform has to offer on this issue.

Yet, the wealth potential of Lebanon is not without consequences at the level of the country’s political economy. Taking the “Corruption turn” and it is stagnation in the Middle Ages era – the country is still enduring 20 years after the end of the civil war – that awaits[6]. Last September 2011, LCPS Director Sami Atallah already warned that this matter “has the potential to greatly undermine Lebanon’s economic and political system should gas revenues be mismanaged[7]. Pressure and momentum should be optimized without any additional delay to secure an alternative tale for Lebanon’s economic future that would give the necessary means and tools for a true modernization process nationwide.  

Three national economic priorities – at least – can be identified at this stage.

First, reducing Lebanon’s National Debt that is dangerously increasing year after year, reaching today 55.27 billion dollars[8]. This has put a lot of pressure on the ability of the Treasury to finance itself through international credit mechanisms and has doomed any chance of a financial independence for the country. With billions of dollars of extra revenues each year thanks to oil and gas, Lebanon holds the power to renegotiate its internal and external debts (while erasing some parts of it). Above all, the newly acquired status of oil and gas exporter would render easier access to financial markets with a better grading (today a mediocre “B1” according to Moody’s ; “BB” for Standard & Poor’s) and lower interest rates. This would provide greater visibility for the Lebanese authorities in the future in dealing with public finance, maybe even favor the lowering of specific taxes and encouraging both investment and consumption.

Second, Lebanon is in great need of investing and modernizing its urban greater infrastructure. From its scattered urban tissue in the capital Beirut to the marginalized urban areas of the rest of the country, there is a real urge in reshaping the urban structure. By redesigning towns, providing cheaper electricity and telecoms, connecting households to gas and water, upgrading the sewage system, dealing with solid waste, integrating the necessary road, rail, port, aerial and ferry infrastructure that would support passenger commuting and merchandise transportation, Lebanon would finally cross the modernity line. This investment plan, implemented through public-private partnerships and other public management tools, would enhance job creation and increase Lebanon’s GDP by at least 5 points, and more importantly, drastically improve the population’s well being. Furthermore, the State would be able to afford constructing public buildings instead of wasting 500 million dollars in rent each year for the offices of its various ministries and public institutions.

Thirdly, the newly established wealth should be used to strengthen social and health programs nationwide. The National Social Security Funds (NSSF) is chronically indebted[9] and proved catastrophic management, rendering social and health benefits hazardous for low-income households. Modernizing the NSSF, financing public hospitals, generalizing access to health and improving social programs (such as the war handicapped whose fate fall under the national responsibility of the ruling war lords or, for instance, caring for street children), would prove essential for the well being of the population.

As Lebanon enters a new round of electoral confrontation, a special focus should be given to the means of accessing greater wealth for the State which should gain a rapid national consensus, rather than sterile cleavages over regional choices that don’t even depend on the will of the local war lords. The issue of modernizing Lebanon has been pending for the past 40 years; needless to say it must be addressed immediately by the competing political groups, at least through a national debate with all stakeholders and civil society on the strategic implications of this new component of Lebanese richness that would open a window of opportunity for a much needed “quantum leap”.  This debate is now open...

[1] Britain-based Geo Ltd. Spectrum Company made an initial assessment of the 3,000 square kilometres indicating there may be 25 trillion cubic feet of gas in the entire zone, source, estimating it is worth $40 billion, The Daily Star, 25 September 2012, available at Roudi Baroudi, secretary-general of World Energy Council, pointed out that Lebanon’s oil and gas wealth is much larger than what was unveiled by Spectrum: “We estimate that Lebanon’s offshore can produce up to 90,000 barrels of oil per day over the next 20 years, with the market value of this output is around $100 billion”, The Daily Star, 22 September 2012, available at$40-bln-gas-reserves-off-lebanese-coast.ashx#ixzz28jWvJFwV
[3] On his account @Najib_Mikati, 3 October 2012, 4.53am
[4] Before reaching the production phase, oil and gas operations go through four stages starting with reconnaissance, exploration (three to five years), appraisal, (one to two years) and development (two to three years), in The Daily Star, 25 September 2012, op. cit.
[5] Bassil: One gas well provides 99 years electricity, The Daily Star, 25 September 2012, op. cit.
[6] During the period 1991-2006, Lebanon has spent 7.24 billion dollars on its infrastructure reconstruction and consolidation projects, with the poor results we see today. Source: Council for Reconstruction and Development, available on
[7] Managing Lebanon’s Gas: Pursuing a Pipe Dream? Al Akhbar English Edition, 15 September 2011, available at
[8] A 3% increase compared to end of 2011, figure for the end of second quarter of 2012, source: Quarterly Bulletin of the Ministry of Finance, Issue No. 21, Quarter II 2012, available at
[9] Approximately 3 billion dollars, source: Byblos Bank Economic Analysis, Issue 258, April 2-7 2012, available at

No comments:

Post a Comment