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LIBYA

 
  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 19,131     71
     
GNI per capita
 US $ n/a n/a
Ranking is given out of 208 nations - (data from the World Bank)

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



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--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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