[Premium] Lebanon Delays First Licensing Round Again

Just a week before Lebanon was scheduled to close bidding in its first offshore oil and gas licensing round, the ministry of energy extended the bid deadline another month, until October 12.

The decision (in Arabic) comes on the recommendation of the regulator, Lebanese Petroleum Administration (LPA), a ministry statement said without further explanation.

This is not the first time Lebanon has postponed its licensing round. In January, the government finally passed needed decrees that had stalled the bidding round since 2013 – one decree delineating Lebanon’s offshore waters into 10 biddable blocks and the other publishing the Tender Protocol and model Exploration and Production Agreement.

With the regulations approved, the government endorsed a ministry of energy roadmap to sign exploration awards by the end of 2017. In addition to the bid deadline originally scheduled for September 15, the roadmap had added a deadline earlier this year for new companies to prequalify for the bid, joining those that had prequalified 4 years ago. At the moment, 51 applicants are eligible to pitch for licenses in the now twice-delayed bid.

Press reports last week suggested that because lawmakers have not fixed the tax rate, bidders would not know what to assume in their calculations: it could be 20% as per a draft of the petroleum tax legislation; or at the new corporate income tax rate of 17% that parliament approved in August but whose implementation was frozen pending review by Lebanon’s highest court, or 15% that corporates were taxed before last month’s change.

This wasn’t going to be an issue, the LPA said in remarks published by Executive Magazine August 2016. Walid Nasr, head of strategic planning at the LPA, told the monthly that, “companies would design their bids based on the current tax law. Even if they bid [based on the current tax law], we have stability clauses within the exploration and production agreement that could address [future changes to the tax law]."

But, it turns out, the bid was not only delayed because companies were confused about the tax rate. The LPA released a letter explaining its recommendation to the minister, according to a press statement from local non-profit Lebanese Oil and Gas Initiative (LOGI).[1] In addition to the confusion to companies over the tax rate, the LPA says the delay was also at the request of companies.

The companies, according to LOGI’s statement, asked for more time to gather documents required by the Tender Protocol. They’ve been granted that time and now have another month to compile those papers and submit their bids. And as for fixing the tax rate, parliament has set the petroleum tax law on its agenda for September 19-20, Mona Sukkarieh, a local political risk consultant covering Lebanon’s oil and gas, tweeted September 7.

The first postponement delayed the licensing round for nearly 4 years, and this latest disruption allows only a month for the government and parliament to reach a deal. So even if a petroleum tax deal is reached in late September, that gives only a few weeks for companies to adjust their bids.

Jeremy Arbid is a founder and current board member of Lebanese Oil and Gas Initiative and is a journalist with Beirut-based business publication Executive Magazine.