Lebanon has entered a new phase in its economic development with the existence of potentially large oil and gas reserves in its offshore areas. The Lebanese Government and the Lebanese Petroleum Authority have set a strong regulatory system to command the International Oil Companies’ (IOCs) hydrocarbon activities while operating in Lebanon. Efforts are still deployed to develop a reliable system that covers all aspects of the petroleum industry, and meet the growing challenges of this intrinsically risky sector. The Lebanese Government and IOCs will have to work closely to manage and mitigate the risks associated with the development of this sector. Different approaches can be adopted, yet clear and comprehensive rules need to be set to manage those risks.
The hazardous nature of crude oil has different impacts on the human, socio-economic and cultural systems, as well as on the atmospheric, aquatic, terrestrial and biodiversity systems of the Host country. Environmental problems may start with exploration activities, intensify during the development and production stages - especially with accidental spills, blow-outs and gas flaring emissions - and continue throughout the decommissioning phase.
Besides the environmental risks, petroleum development has different social impacts on the civil community of a Host Country. All of the environmental and social implications of the hydrocarbon development need to be addressed by the Host Government (HG), first by regulating and continuously monitoring IOCs activities and second by collaborating with the IOCs to manage those implications through comprehensive systems that are in line with the Corporate Social Responsibility (CSR) culture and principles.
CSR has emerged as a business approach for addressing the social and environmental impacts of oil and gas activities. IOCs have been instrumental in development of CSR as the oil industry has to be self-regulated in order to mitigate the high costs of pollution, health problems and dislocation to which it exposes the community. All of the IOCs devote now significant time and effort to stakeholders’ engagement as a key component of risk management.
Oil and Gas Companies have learned from past experiences where Oil Majors have paid reputational costs that their long-term best interests can only be served by a socially responsible behavior and a greater attention to social and environmental issues.
The World Business Council for Sustainable Development (WBCSD) during its first CSR dialogue in 1998 developed the definition of CSR as follows: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.”
Any oil company planning to operate in a new country, such as Lebanon, has to pledge to be a good corporate citizen and follow the same responsible practices it implements elsewhere in the world. In line with CSR Principles, IOCs will have to take the following into consideration:
They shall maintain the highest ethical standard; obey all applicable laws and regulations; respect human rights, local and national cultures; run safe and environmentally responsible operations; integrate environmental and social risks in their management systems; show highest level of engagement/partnership with the community and continuous consultation during the formulation of corporate strategies; improve governance and revenue management by promoting transparency and accountability with respect to revenues earned and their disposition; provide economic and social development through local content and capacity building and transferring of skills and technology; increase of private investment and community development as infrastructure projects.
However as the experiences have shown in the past, IOCs may take advantage of lack of or weak laws and regulations of the host country to run their operations in a socially irresponsible manner despite risking their reputations. The HG needs to be aware that with strong regulations and an effective monitoring system, it can play a crucial role in protecting the national interests of the country. Besides a strong regulatory regime, the HG should establish mechanisms for periodic inspections and periodic environmental and social assessments. Third party independent and technically capable institutions may be appointed to play an important role in supervising IOCs operations and preventing environmental and social degradation.
The Civil society also has an active role to play in exercising social pressure on the IOCs and in contributing to the wellness of the community. In Lebanon, the civil society organizations have to be prepared and educated on oil and gas developments and risks.
IOCs have to put in place systems for identifying, managing, mitigating, and monitoring the environmental and socio-economic impacts of the oil and gas development. Environmental and Social Impact Assessment is the key process to anticipate such impacts. The IOCs must cooperate with the HG and consult with the civil society to identify and adopt clear policies on social impacts. By developing more effective working relationships with external stakeholders, IOCs concerned about protecting their reputations can discern what governments, NGOs, and local community expect of them and work in partnership with their stakeholders to develop new standards and policies for addressing social and environmental issues.
In Lebanon, strong rules were set to form the cornerstone of the CSR principles in the oil and gas sector and to mitigate the environmental and social implications of the petroleum development. The main CSR obligations which oil companies should comply with while operating in Lebanon are:
1-Environmental requirements: Oil companies operating in Lebanon shall ensure that a high level of health, safety and protection of the environment is established, continuously developed and maintained. As one of the key signs of environmental engagement, oil companies shall regularly provide extensive environmental reports. In carrying out Petroleum activities, Oil companies shall employ up-to-date techniques and practices and methods of operation for the prevention of environmental damage.
Environmental Impact Assessment is compulsory in Lebanon during all the lifetime of the oil and gas development and it is an integral part of the development and production, cessation and decommissioning plans that shall be submitted by the oil companies operating in Lebanon.
2- Health, Safety and Environment (HSE) requirements: IOCs shall prepare, regularly update and develop a health and safety plan. Safe working conditions and the good health of workers and the community belong to the social responsibilities of oil companies. In Lebanon one of the main criteria for an IOC to be pre-qualified is submitting proper evidence of an established and implemented Quality, Health, Safety and Environment management systems detailing out how the company intends to handle health, safety and environmental issues. Oil Companies shall give strong consideration to social expectations in the areas of HSE responsibility.
3- Transparency: Oil companies must operate with transparency and enable independent monitoring of their activities. They must open their records to their stakeholders, as well as to local, national and international NGOs, and independent monitors. The Petroleum Authority and the Minister have the right to audit and inspect the Operator’s and each oil and gas company’s records operating in Lebanon. IOCs and their Affiliates shall undertake not to make, offer, or authorize any payment, gift, promise or other advantage to a public official or any political party.
Oil and gas companies shall employ high level of transparency and accountability while dealing with their stakeholders and the public. For example, promoting revenue transparency can be reflected in the participation as a stakeholder in the voluntary, multinational Extractive Industries Transparency Initiative (EITI) as many oil majors have already done. Degree of commitment can also be measured in terms of disclosure of financial data.
4- Capacity building: In the beginning of the production phase no less than 80% of the aggregate number of employees of the Oil Companies licensed to work in Lebanon shall be Lebanese nationals. Each Exploration plan and Development &Production plan shall include a plan for the hiring and training of Lebanese people.
Oil and Gas companies shall pay costs related to the training of public sector personnel relating to Oil and Gas sector in amounts starting at USD300,000 per year (increased 5% each year). IOCs shall fund the training of Lebanese personnel related to petroleum activities.
IOCs and their affiliates may provide training and participate in the preparation of training programs for public sector personnel.
IOCs need to consult with their stakeholders in Lebanon to mainly invest in social and economic development and poverty reduction. Ethical norms turn out to be as important to oil and gas companies in the long run as laws and regulations. Multinational companies are powerful drivers of international trade and have a critical role to play in upholding and advancing business ethics, corporate governance, and social and environmental standards.
In Lebanon, developing and implementing oil and gas regulations effectively, managing the development of the sector in an environmentally, socially and ethically responsible manner, and ensuring the cooperation of the HG, the civil society and the IOCs will be the key factors to determine the success of the country’s oil and gas future.
*Lana Fayad is Partner at Kouatly and Associates-Attorneys
Source: Responsible Business Magazine