75793 July 2011 PPIAF Assistance in Lebanon Technical Assistance for Lebanon’s Gas Sector Lebanon’s lack of domestic energy sources and an increasing energy demand are major contributors to the country’s chronic trade and current account deficit. In 2002 Lebanon’s trade deficit accounted for more than US$5.3 billion, or about 30% of annual gross domestic product (GDP) and the country’s public debt stood at US$29.5 billion, equivalent to 170% of GDP. That same year, the oil import bill reached about US$720 million. The government of Lebanon recognized the significant impact energy imports had on its fiscal position. To improve its public finances, the government decided to introduce natural gas into the Lebanese energy market, initially targeting power generation. An increased usage of natural gas and a subsequent substitution of the relatively more expensive fuel were expected to have a positive impact on Lebanon’s foreign exchange position, trade balance, and the financial viability of the electricity sector. Thus in 2003 the government of Lebanon requested PPIAF support as part of a broader World Bank hydrocarbon strategy study to assist the government with the formulation of an appropriate legal framework and draft model law for the natural gas sector, as part of a comprehensive long-term strategy for the future development of the hydrocarbon industry in general, and the introduction and utilization of natural gas in Lebanon, in particular. PPIAF provided assistance to the Ministry of Energy and Water to review the existing legal framework and prepare a draft model law for private sector entry into the oil and gas sectors in line with government policy objectives. The review of the legal framework and the preparation of the draft law formed part of the World Bank’s 2004 Hydrocarbon Strategy Study Report. The report presents a discussion of the gas law and recommends its adoption by the government as a way to foster the creation of a competitive sector structure with private participation. In December 2003, a stakeholder workshop co-financed by PPIAF was held to discuss the report’s recommendations, including the legal and regulatory framework. This enabled government officials to better understand sector issues and the importance of having an appropriate legal and regulatory framework to ensure the sector’s sustainable development. In August 2010, Lebanon's Parliament unanimously ratified the long-awaited oil and gas law, paving the way for exploration of major natural gas reserves. The law called for the establishment of a treasury and a committee to oversee exploration and drilling off Lebanon, and organized the process of surveying, exploration, and production of energy. The law will allow oil and gas exploration off Lebanon's Mediterranean coast. It is expected that by the end of 2011 Lebanon should have demarcated its maritime borders and divided the area into blocs in order to be able to sign production sharing agreements with private companies. Finally, the law also called for the establishment of an entity under the auspices of Ministry of Energy and Water in which a sovereign wealth fund would be created to manage and invest potential energy revenues. Results of PPIAF’s Activities in Lebanon’s Gas Sector Category Outputs Enabling environment reform  Review of the existing legal framework for private participation Analysis/assessments prepared in the oil and gas sectors, June 2004 1 Policies adopted, legislation  Preparation of a draft law for private participation in the oil and passed/amended, or regulations gas sectors, June 2004 issued/revised Capacity and awareness building  Stakeholder workshop to discuss recommendations for an Workshops/seminars appropriate legal framework for the oil and gas sectors in Lebanon, December 2003 Category Outcomes Enabling environment reform Policies adopted, legislation  Oil and gas excavation law unanimously passed by Parliament, passed/amended, or regulations allowing private exploration and production of natural gas, issued/revised August 2010 Capacity and awareness building  The government was pleased with the outcome of the workshop, which enabled government officials to better Consensus achieved understand sector issues and the importance of having an appropriate legal and regulatory framework to ensure the sector’s sustainable development, 2003 2