Four years after Libya and its ruler Gaddafi ‘came in from the cold’ and rejoined the mainstream international community, how much concrete progress has been made by way of deals and privatisations until now


Although 2004 will likely be remembered as Libya’s ‘breakthrough year’s with the effective ending of international sanctions, it may just be 2008 that marks the point when this lightly populated, but energy-rich, North African country truly put the past behind it, and moved squarely into a position of global respectability and, quite possibly, global power.

The keystone events of mid 2007 were, of course, critical – the estimated US$2bn BP deal capped by Tony Blair’s state visit in May, the ending of the Bulgarian nurses’s affair in July and the (arguably) linked US$14bn arms, energy and infrastructure package negotiated by French president Nicolas Sarkozy.

But the real work of revising energy contracts, allocating gas exploration rights and testing the degree to which the regime of Muammar Gaddafi is committed to building a stable, competitive playing field may only now be coalescing in practice.

Nothing doing

Indeed, as far as the issue of privatisation is concerned, 2007 offered more in the way of vintage Libyan rhetoric – terse promises of immediate, almost extreme action – and little in terms of even beginning to approach the target of privatising over 360 different state-owned companies by year’s end.

Although the government’s US$5.4bn sale in June of a majority stake in Tamoil, the European petrol station and refinery network, momentarily buoyed hopes that a range of promised reforms would finally be kicked into gear, Gaddafi’s son, Saif al-Islam Gaddafi, ending up stoking more confusion among foreign investors by surprising the Middle East telecoms sector with an announcement of imminent privatisation, only to then withhold details about the proposed move in the ensuing months.

As the Economist Intelligence Unit (EIU) notes in one report on the subject, “while Libya has applied to join the World Trade Organisation, there has been little progress since its initial application in 2004, and there is certainly no indication that the country is ready to sign up to the WTO’s Agreement on Basic Telecommunications Services” – both avenues where movement might, in fact, signal a firm commitment to market liberalisation rather than just mercurial statements of intent.

Similarly, as some French newspapers opposed to Sarkozy’s summer foray argued, even the US$14bn ‘arms for hostages’s deal ended up being more about turning a page than actually booking a deal: according to one investigation by France’s left-wing Liberation daily, only a small portion of the total amount claimed could actually be considered as confirmed investment and/or purchases.

Still, the year did close in impressive fashion on the all-important energy front, which alone accounts for more than 95% of the country’s merchandise exports (US$38.5bn overall), 75% of government revenues and 50% of GDP (US$50.2bn in 2006).


In its favour

To the apparent delight of both the old and the new guard (represented by Gaddafi’s son), Libya’s confidence over its close proximity to Europe, low recovery costs and almost incomparable virgin territories for prospecting paid off handsomely in a string of new deals and renegotiations for the National Oil Company (NOC).

In late November, Occidental Petroleum Corp and Austria’s OMV agreed to reduce their share of production from separate ventures in a bow to record prices, reportedly agreeing to between 10-12% after taxes.

Under previous contracts, foreign companies received as much as 49% of production from oil ventures in Libya before taxes.

That deal came only one month after the Italian firm Eni renegotiated its previous contract with Libya’s NOC to extend and enlarge its projects to 2042 for oil and 2047 for gas, reportedly at a total price tag of US$28bn in joint investment.

Under the new arrangement, Eni will also upgrade the 8bn cubic metres per year Greenstream gas pipeline that serves as an increasingly critical route for gas exports from Libyan fields to Italy (via Sicily) by as much as 3bn cm/y.

Most significantly, however, Eni, as with Oxy and OMV, renegotiated under the Epsa (exploration and production-sharing agreement) IV framework generally viewed as less favourable to oil companies than the previous Epsa II and III iterations – leading the risk analysis firm Exclusive Analysis to the conclusion that the Eni precedent “is likely to trigger a wave of renegotiations between NOC and other energy companies still operating under Epsa II and III conditions? In the next three to five years similar renegotiations will likely involve Shell, Repsol, Talisman, Petro-Canada, Total, Wintershall and companies still regulated by Epsa II and III contracts.”

Sure enough, it was the final month of 2007 that brought perhaps the most interesting string of deals, raising the prospect that the year ahead might indeed be when Africa’s largest holder of proven oil reserves (41.5 bb) – and Opec’s fourth largest member – starts to make good on its two-pronged goal of boosting oil production from 1.8mn barrels per day to 3mn by 2013 and gas exports from 2.7bn cubic feet per day (bcfd) to 3.8 bcfd by 2015.

On December 9, the NOC announced the Algerian state-owned firm Sonatrach, in partnership with Oil India and Indian Oil Corp, had won a series of blocks, along with Russia’s Gazprom, in the country’s first major gas sector licensing round. (Shell and Poland’s PGNiG were the only other winners, although Oxy and Germany’s RWE were awarded blocks for which no other companies had bid).

Over the next several days, Petro-Canada announced it had agreed on new Epsa IV terms to jointly invest US$7bn in exploration projects; Portuguese energy firm Galp Energia inked a US$8.4bn deal to develop petrol and gas reserves in Libya; the Russian foreign minister signed a US$20bn investment partnership which includes a new railway for both commercial and passenger uses; and, after Libyan officials called on Greece to consider the possibility of constructing a gas pipeline between Libya and Crete, it emerged that Greek companies were planning to bid to secure energy, telecom and construction projects worth US$28bn in Libya.

“It’s been a rash of deals lately, especially in the gas sector,” explains Bill Farren-Price, energy director at Medley Global Advisors in London.

“They’ve introduced the new upstream contract and it has been used with some success to attract a fairly broad interest in its offerings? I think it’s fair to say that the strategy has been to award a mix of fields which includes offshore, frontier and well-established petroleum basins – with the expectation that the discoveries will roll in.”


Balance of power

Although always an important player in Opec, the new activity, coupled with rising expectations, has also helped to bolster Libya’s role as a key swing producer among member states.

“Libya is playing a crucial role in balancing decision-making,” explains Majdoline Hatoum, energy reporter for Dow Jones Newswire. “During Opec meetings one frequently sees the Iranian or Saudi representative taking aside the Libyan representative to lobby one way or another? They are really positioned as a swing vote.”

Still, Libya’s relationship to Opec provides another, very different window into just how unsettled Gaddafi’s transition to a position of respectability and power remains – and how the country’s drive towards its ambitious output targets in the coming years could be derailed by a number of factors looming on the horizon.

At the last Opec heads of state meeting in November, Gaddafi very publicly refused to attend, although the Libyan delegation led by NOC chairman Shokri Ghanem did.

The apparent reason for the snub: an ongoing feud with Saudi King Abdullah over his involvement in a 2003 assassination attempt against the monarch.

The non-attendance followed another no-show in March at the Saudi-hosted Arab summit.

Gaddafi had taken that opportunity to tell Al-Jazeera satellite channel, “We feel for them [Arab monarchs], the poor things. We know they are in a position of weakness. They have no power or strength.”

The picture that has emerged since then, is one of low-level conflict between the two countries across the span of the Middle East: Gaddafi is blamed, at least in the Saudi-influenced media, for supporting anti-Saudi Houthi rebels in Yemen and, more recently, for involvement (via his son) in attacks on the ostensibly pro-Saudi Awakening Councils in Iraq.

Several stories have also emerged in the Saudi-influenced media that Gaddafi is bent on supporting Syria and Iran against the kingdom – even to the extent of forming (or joining) a ‘Shiite’s axis (Gaddafi’s comments about “reviving” a Shiite Caliphate in North Africa did little to help).

Although to those outside the region, the conflict may seem like jockeying among competitors, it can also be read as an important indicator of the precarious position in which the Libyan regime as a whole finds itself at what is shaping up to be a decisive moment of transition.

Even as oil revenues continue to pour in, the question of succession, for one, has yet to be publicly worked out.

Against a backdrop of numerous coups over the years, rising Islamic militancy in North Africa and, now, the announcement by Al Qaeda that Libya would be attacked for serving its “Washington masters,” the flush of energy, infrastructure and tourism deals may bring even more domestic friction – all the more so as the pressure for reform gains greater momentum among slices of the ruling elite and professional class, and greater opposition among the old-guard nationalists.

Which raises the possibility that Gaddafi may at some point feel enough real internal pressure (and perhaps enough of a cushion with US$74bn in foreign currency reserves) that he might revert back to form – as he seemed to do just over a year ago when he explained simply that “the country is not suitable for the private sector” insofar as energy is concerned.

Medley’s Farren-Price disagrees. “Libya,” he says, “has turned a page. I just don’t see it going backwards.”

The question that lingers, however, especially for foreign investors seeking opportunities outside of the energy sector, is whether Gaddafi himself has turned that page.

  • Not much, argues Nicholas Noe.