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Friedrich Ebert Sifting-Presentation September 13 2017

This presentation outlines the economic strategy and road map for Lebanon to benefit from the oil and gas sectors. It includes assumptions, expected revenues, outcome without reform, strategy and reform, deficits and debt, and the economic strategy and road map with reform.

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Friedrich Ebert Sifting-Presentation September 13 2017

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  1. Friedrich Ebert Sifting-Presentation September 13 2017 • Economic Strategy & Road Map to Benefit from Oil and Gas Sectors Mounir Rached, Ph.D President- Lebanese Economic Association

  2. Outline • Ia. Assumptions • Ib. Expected O & G Revenues • II. Outcome without reform • III. Strategy and reform

  3. Ia. Assumptions Assumptions can be changed without impacting main conclusions • Lebanon’s share is one fourth of Levant O & G deposits • Production takes place over a 16 year period at 1 million barrels/d to extract all deposits • Production starts in 2024 • Average price of oil per barrel $ 70 during 2024-2040

  4. Ib. Expected Oil & Gas Deposits in LevantThe Levant basin assessment results

  5. II. Expected Revenue from Oil & Gas without Fiscal Reform 2024-2040 • All estimates remain preliminary until actual drilling takes place and the size of O & G is determined

  6. Current reserve estimates are based on a probability of 50 %- F50 in table 1 (slide 4) • Lebanon’s share from total Levant is approximately 25% • At 50%b probability: Lebanon’s share is approximately ¼ Levant Lebanon’s share Oil -mmb 1440/4 = million barrels 360 NGL –liquid gas -mmb 2815/4 = million barrels 700 Natural Gas (bcfg) 112613/4= billion cubic feet 28,153 equivalent in oil barrels million barrels 4854 (based on each barrel 1= 5800 cft) All deposits were converted to oil barrels equivalent as it’s a familiar unit TOTAL reserves in barrels of oil equivalent approx. million barrels 6,000 rounded

  7. Gross Revenue expected from O & G • This amount accrues over a period of 16 years ( for simplicity :assume 1 million barrels per day of production) Total gross value of O & G deposits at $70 = million barrels 6000 *70 = $ 420 billion Lebanon’sshare at 50% (over 2024-2040) = $ 210 billion (includes royalties, taxes and profit/production sharing) The remainder is cost and company’s share Annual flow = $ 13 billion

  8. Present value of Net Revenue from O & G – without fiscal reform • Present value of $13 billion for 16 years flowing annually (at 3% discount) in 2024 : $ 163 bill Deficits start at $ 6 billion in 2024 and increase by 5% annually Present value of allocations during 2023- 2040 to cover non O & G budget deficits assuming no fiscal change: $ 104 bill • Present value of Net O & G revenue (163-104) $ 59 bill

  9. Deficits and debt without reform • Estimated average annual fiscal deficits to 2023 billion $ 6 • Expected additional debt to 2023 billion $ 36 • Debt today -2017 billion $ 80 Debt at end of 2023 billion $ 116

  10. Net position available in 2024- without reform after financing debt Preset value of Net O & G income (end of 2023) $ 59 billion Debt at end of 2023 from slide 9 $ 116 billion Remaining debt if revenue from O& G is used to pay debt $ 57 billion Paying off debt has to be carefully managed and synchronized with commercial banks balance sheet Will continue to have deficits afterwards

  11. III. Economic Strategy & Road Map With Reform Strategy no 1.Need to eliminate the deficit by end of 2023 and continue to balance the budget without the Oil & Gas sector : • Net PV of revenue with reform in 2024: $ 170 billion As no deficits are incurred

  12. Deficit and debt outlook with reform • Estimated annual deficit 2018-2023 Billion $ 3.5 • Expected additional debt with reform Billion $ 21 • Debt today Billion $ 80 • Debt at end of 2023 billion $ 101

  13. Net position in 2024 after servicing debt • Net present value of O & G revenue at end 2023 Billion $ 170 • Net position after servicing debt (170- 101) Billion $ 69 • There is a surplus reserve of Billion $ 69

  14. Compare results without reform & with reform • Without reform Lebanon will exhaust oil revenue • and maintain debt of : Billion $ 57 • With reform, there is a surplus of : billion $ 69 • This surplus can be used for devlopment

  15. III. Cont.. • With reform • Non- O & G Budget balance by end 2023 and maintained to 2040 • To maintain all of oil revenue option to -build the country -pay debt totally or partially -create reserve in the sovereign fund

  16. Strategy no. 1 2017-2023 • Streamline spending and enhance revenue starting now To balance the budget by end 2023

  17. Strategy no. 2. 2017-2023: Define challenges facing the economy • Low quality of all public services • Low economic growth • High unemployment • High interest rates • High current account deficit of BOP • Inflation

  18. Strategy no. 2 2017-2023: cont …. • Reform tax system and its administration • Restructure spending • Prioritize spending • Solve state of poor governance : Lebanon is rated no 113 out of 183 countries

  19. Strategy n. 3 -use O & G revenues 2024 and beyond to: • Remove bottlenecks and build: • Infrastructure • Public services • Labor market

  20. Strategy no.3 cont. • Health plan- Universal health to cover both public and private sectors • Pension Plan : Universal and unified for both sectors • Legal system:

  21. Strategy no.3 cont.. • Develop economic sectors that have a comparative advantage • Industry • Tourism • Trade • Services

  22. Strategy no. 4: How it can be done • Greater role for private sector in private and public sectors • Foreign investment is key to growth • Foreign investment propels: Exports and production for domestic markets • E.g., Singapore exports $390 billion of goods alone • Lebanon exports $ 3.8 billion of goods There is a way to do it.

  23. Strategy no. 5 :Sovereign Fund- Management • As the revenues begin to arrive, the government and communities must decide how to make effective use of the revenues in light of their finite nature and the challenges of commodity price swings. This stage requires deciding how much to save and how much to spend to mitigate the adverse effects of dependency on natural resource revenues, and encompasses long and medium-term planning, as well as annual budgets. • Should be managed under supervision of COM

  24. END

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