Recent prospects of finding gas off the coast of Lebanon have triggered high hopes for the country’s economic outlook. Some analysts predict that gas will reduce the country’s energy bill, pay off the public debt, and precipitate regional development. But in reality, gas is not a means to any of these ends. On the contrary, it has the potential to greatly undermine Lebanon’s economic and political system should gas revenues be mismanaged.
Beyond dealing with maritime disputes with Israel, the primary challenge facing the Lebanese government is how to translate gas revenues into self-sustaining growth accompanied by improvements to socioeconomic welfare. Many countries endowed with oil and gas have failed to do just that. For every Norway that has doubled its Gross Domestic Product (GDP) per person between 1980 and 2008, there is a Nigeria, whose citizens have witnessed no change in their standard of living, or a Saudi Arabia, whose GDP per person halved over the same period. The road to effective management is mired with difficulties that could easily overwhelm the Lebanese government. Five challenges stand in the way:
The first is the ability of the government to bargain for a good deal with multinational companies. A majority of profits for the state must be ensured, as must an agreement on future prices, in order to reap higher returns when prices go up. This is a daunting task for most governments. Many companies have more resources and expertise in estimating the value of the gas to be extracted and hence are in favorable bargaining positions. One way to rectify this imbalance is to create a bidding process that increases competition between firms. The stronger the competition, the more revenue will be reaped by the state. However, Lebanon’s record of holding a competitive process when it comes to contracting is dismal, with many of the state contracts granted to the private sector marred by cronyism and corruption.