Libya aims to jump start foreign investment

6 February 2017
31 January 2017, Issue 674, Week 3

The troubled North African state has opened its doors to investors, and has held talks with various foreign governments’ officials, writes Gary Lakes

WHAT: Libya is open for business, according to NOC’s head.

WHY: Reconstruction may cost more than US$100 billion in order to reach NOC’s targets.

WHAT NEXT: Interest is increasing, both from companies and countries.

As Libya’s crude oil production rises to 700,000 bpd – around half of the 1.2-1.6 million bpd capacity that the country had prior to the 2011 revolution – the head of the National Oil Corp. (NOC) is looking to attract foreign investment. This push comes despite the continued risks posed by working in the country.

Fighting in Libya between a number of factions, and the closure of oilfields and export installations following their illegal seizure, has resulted in production falling below 300,000 bpd at times, and losses of tens of billions of dollars in oil sales for the Libyan economy.

Speaking in London last week, NOC’s chairman, Mustafa Sanalla, said Libya was ready to consider a new era of foreign investment in its hydrocarbon sector. Libya’s export terminals are now open and “the oil is flowing,” Sanalla said.

“We intend, in the coming months, to lift our self-imposed moratorium since 2011 on foreign investment in new projects to achieve the best national interest for the Libyan oil sector and for Libya as a state,” he said. The North African OPEC member hopes to raise production to 1.3 million bpd by the end of this year and to 1.6 million bpd by 2022.

Libya and Nigeria are exempt from the restrictions on oil output imposed late last year by OPEC. The two countries received exemptions owing to the degree of instability that they were both suffering. While Nigeria has made little progress in improving its production, Libya has ramped up output – even while dangers persist.

Whether Libya can make genuine progress this year, to nearly double its current output and place another 600,000 bpd on the market, remains to be seen, but any signs of success will put additional strain on OPEC’s accord.

The US and European countries, which participated by supporting the rebels in the 2011 civil war, have been criticised for failing to provide state-building support thereafter. Sanalla said the international community could reclaim its lost moral authority if it were now to help Libya re-establish its hydrocarbon industry through foreign investment. The oil industry is what can save Libya, he said.

Sanalla has repeatedly criticised Libya’s politicians for failing to work towards compromises that will re-unite the country. A government put in place by the United Nations – the Government of National Accord (GNA) – is based in Tripoli and has limited support, while a government comprised of members of the House of Representatives (HoR) has established itself in Tobruk and has the military backing of General Khalifa Hifter.

The capture by Hifter’s Libyan National Army (LNA) of several key export terminals along Libya’s Mediterranean coast and their subsequent handover to NOC’s control have effectively set the stage for Libya to make its oil comeback. This has also shown that Hifter is able to recognise and co-operate with an official entity of the Libyan government that has international recognition.

The NOC chief has called upon the new Washington administration of US President Donald Trump to become involved in Libya, citing the continuing terrorist activity in the country. Sanalla claims that millions of dollars’ worth of oil is being smuggled out of the country and will be used to finance further attacks on Europe.

“There is a connection between smuggling, migration and terrorism,” Sanalla was quoted by The Guardian as saying. “The volume of money that smugglers are now gathering is hundreds of millions of dollars. With this, they can make terrorist attacks on Europe. It’s a well-organised, systematic, criminal machine. We need international help to bring it to an end.”

Co-operation will be essential in restoring the country’s fortunes. “The LNA has its hands on the taps. And the [GNA] has [UN Security Council resolutions] 2259 and 2278. Each side has one key to the treasure room, but both keys are needed to open the door. And for the moment the oil is flowing. This can be an important foundation of stability in Libya if we build on it,” he said.

Investment

Sanalla has called for the Central Bank of Libya to make more money available to NOC in order for it to carry out repairs to oilfields and export infrastructure. He has estimated it may require US$100-120 billion to increase production over 1 million bpd, as it was before the revolution. During his visit to London, Sanalla met with executives of a number of top oil companies that have previously been active in Libya, including BP. Whether they will risk returning to Libya in its current state is an unknown.

There are some signs that sentiment on Libya is thawing. Italy recently reopened its embassy in Tripoli, after closing it in 2015. On January 30, the Turkish government also announced plans to return to its embassy, with a reduced staff in the initial stages. Turkey also has a consulate in Libya’s northwest.

In addition, a report from Reuters last week said OMV had agreed to buy Occidental Petroleum’s 7% stake in Nafoura oilfield. The companies did not comment on the report, but Oxy is known to have been considering the sale of its Libyan assets.

While in London, Sanalla also held talks with Egyptian Minister of Petroleum and Mineral Resources Tarek El Molla.

Picking sides

Sanalla also argued against more money going to the Petroleum Facilities Guard (PFG), which was ousted from the export terminals by Hifter’s forces. Sanalla said the PFG should be downsized to about 4,000 men and put under NOC’s control, as it was before the revolution. He described the current PFG as a criminal organisation. While it has a reported 27,000 men on its roster, most of these do not exist, the chairman said, but are a means of extracting money from the GNA. The remainder of the actual existing members of the PFG should be transferred to the LNA, he said.

It was a mistake for the UN to side with the PFG against Hifter, according to Sanalla. That, he said, cost the international community its credibility in Libya.

Sanalla also said it was important that NOC remain outside politics and work for the whole country under the guidance of technocrats, not politicians. The appeal of this statement is evident, but the practicality of such a move remains questionable, given the deep-running divisions within Libya.

While Sanalla was in London talking of foreign investment, Hifter’s forces made further gains against Islamist fighters in Benghazi. Fighting can be expected to continue in eastern Libya until the region is secured, either for Hifter or for the government in Tobruk. A growing concern in the West must be not only Hifter’s growing power within the country, but also the burgeoning relationship between the general and Russia. The head of the LNA visited a Russian aircraft carrier, off the coast of Tobruk, in mid-January.

It may comec as an uneasy realisation for the West to have participated in the overthrow of one Libyan dictator with historical ties to Russia just to see the country seized by another who also has close ties to Moscow. It might make the West wish that it had paid closer attention.

Edited by

Ed Reed

Editor

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