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Books on Libya
REPUBLICAN REFERENCE
Area (sq.km)
1,759,540
Population
5,499,074
Capital
Tripoli
Currency
Libyan dinar
Leader
Col Mu'amar al-Qadhafi
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Update No: 035 - (03/10/06)
Oil Companies Should Get Ready to Pay More
As previously noted, the next round of Libyan oil concessions will be more
costly, as China and Japan want to secure oil resources away form the more
volatile Middle East region to other oil producing areas of the world.
Expectations that oil concessions will be more expensive in Libya (and in
neighboring Algeria also) have become more credible, as Libya stung the oil
industry by retracting earlier promises to de-regulate its oil sector. Indeed,
Libya's oil industry appears to be heading in a more nationalist and
protectionist direction. Algeria has chosen to impose a tax on surplus profits
of oil companies of up to 50% (when oil prices exceed $30/barrel) while
demanding that the state controlled Sonatrach receive a majority stake in all
oil production activities in that country - whereas it was expected that
Sonatrach would have to operate in a more competitive environment vis-à-vis
foreign companies. Libya appeared to have been using the Sonatrach proposed
liberalization example as a model to reform the National Oil Company (NOC), and
by dissolving the People's General Secretariat for Energy (essentially the
ministry of energy) but it too appears to have abandoned liberalization plans as
a Council for Oil and Gas Affairs has been formed to control oil and gas
activity in the country more closely. The Council's members are the general
people's committees (ministries) secretaries for Economy, Trade and Investment,
Tayeb Saffi, for Plan, Dr Tahar Jehimi, for Workforce, Training and Employment,
Maatoug Mohamed Maatoug, for Industry, Electricity and Mining, Fethi Ben
Chatouan and the Finance Minister, Dr Ahmed Menissi. Other members are the
Libyan Central Bank governor, Fathi Ben Gdhara, and several oil experts and
specialists. The Council must report to the Libyan general people's committee,
and it shall rule on matters concerning production quantities and crude oil and
by-product management and development.
The wording of the new Council's mandate is
nationalistic and some oil industry analysts worry that this hails a return to
the nationalist polices of the early 1970's, when foreign oil companies (mostly
American and British ones) were being increasingly squeezed to support massive
infrastructure and public welfare interventionist projects. Fears over the
resumption of an excessively 'nationalist' approach to dealings with the oil
industry are also being fueled by the fact that several members of the new
Council are close to Col. Qadhafi himself - even as Shukry Ghanem, chairman of
NOC and known for his more liberal economic leanings, is also a member.
Nevertheless, considering the wide range of infrastructure projects being
considered (and needed) in Libya for the construction of a railway from Tripoli
to Benghazi and to a proposed Hong Kong - like free-market city (see below) it
is hardly surprising that the Libyan leadership tries to earn more funds through
hydrocarbons. Libya has not yet achieved any of the often talked about economic
reforms to stimulate growth in sectors other than oil while the welfare state
remains the main source of political legitimization. In addition the rules of
the oil game have been changing in recent years. As interested as Libya appeared
in promoting a more liberalized oil sector, demand from the rapidly growing
economies in Asia and continued fears of instability in the Middle East and Gulf
regions (factors that have contributed to high oil prices in themselves) have
made North Africa an even more attractive area for oil companies. So long as the
main oil and gas producers in the region, Libya and Algeria, continue to rely on
these resources for most of their income - and domestic stability - the risks of
liberalization remain too high. The fact that the renewed impetus toward
nationalization has come now, might also have been prompted by Russian
intervention in the Sakhalin Energy project (ostensibly because of environmental
concerns) to secure a higher stake for Russian energy companies Gazprom and
Rosneft. Last March, Venezuela also started demanding a higher share of profits
as all oil companies were forced to sign production sharing agreements with the
Venezuelan state oil company PDFVSA. Interestingly, Algeria, Libya, Venezuela
are all countries belonging to the Non-Aligned states movement, suggesting that
Malaysia and Indonesia (also members of the movement) might also institute by
similar policies, ways to draw more profits from their resources.
The Libyan leader had exhorted, in a speech in
September - when nationalist tones are raised in occasion of the anniversary of
the 'Revolution' - Libya to become more involved in the oil industry. The
leader's speeches typically hail changes in current 'thinking'. The wording of
the new Council's mandate does have nationalist overtones with its accents on
'national interests' and 'maximum revenue'. However, the formation of the new
mandate has not been followed by any statement concerning the agenda for the
forthcoming EPSA-IV round on December 20. The renewed nationalist trend of
Libya's energy sector might warrant the government to alter existing oil
contracts, demanding renegotiation. For the time being there are no hints of
changes to EPSA as the NOC announced that it has qualified 47 companies to
compete for acreage in its third oil and gas licensing round since the lifting
of sanctions. The latest and third round since the lifting of US sanctions in
2004 lists 12 offshore blocks and 29 onshore areas. The 47 companies include
majors such as Exxon and Chevron; however there is also a notable and continued
interest from Chinese, Indian and Japanese firms, which did well in the previous
EPSA round. Their presence, and demand, is said to be contributing to the lower
margins that can be expected for oil companies in Libya.
If the oil industry is getting tighter, Libya
will need more revenue to help it achieve some of the grandiose infrastructure
projects being discussed, from the railway to a special free-market zone, a new
city located in Libya but essentially functioning outside the current Libyan
system, in what some have described as Libya's version of what Hong Kong is for
China. Plans for the city were unveiled by Al-Saadi Qadhafi, who said the city
would offer easy access (the planned location for the 40 square km. project is
near the Tunisian border), low taxes, offshore banking and a liberal social
regime that would allow a variety of faiths. The idea is, according to the son
of the Libyan leader, is to "create an environment that enables investors
to make projects like they do in Paris, New York and London." The British
engineering firm Atkins has already been working on plans for the city, while
Dubai's Emaar might be involved in the construction, which could start in two
years with a tourism project. From a political standpoint, the idea of the
Libyan Hong Kong might offer Libya the opportunity to experiment with a
micro-model of the free market Libya has that has been discussed since the end
of US sanctions in 2004, but which the oil industry and political expediency
continue to make obsolete. Libya could apply the much touted investment
frameworks and institutions promised to investors in a new bureaucratic
framework, facilitating joint ventures and foreign investment. Should such a
'city' be developed, however, there will be less drive to reform Libya proper
and companies, including and especially oil ones, can expect continued state
involvement.
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