Financial Times Tuesday: "US oil companies determined to return to Libya"
Business set to gain from ending of sanctions
By Mark Huband in Cairo
The handover of the two Libyans accused of the
Lockerbie bombing cleared the way for the suspension
of United Nations sanctions against Tripoli, opening up
the possibility for foreign companies to take big stakes
in infrastructure and transport projects worth up to
$14bn.
The sanctions regime imposed by the UN Security
Council on December 1 1993 froze Libyan assets held
abroad, with the exception of oil and gas earnings, and
banned the sale to Libya of equipment for use in
downstream oil and gas sector operations. The
sanctions also imposed a ban on flights to and from
Libya, and led to the suspension of operations by Libyan
Arab Airlines (LLA), the national carrier.
British Aerospace of the UK has been in discussions
with Libya aimed at securing a $9.6m deal to refurbish
LLA's fleet by providing new aircraft, as well as training
pilots and technicians and reconstructing airports.
Discussion of post-sanctions business was deemed by
the UK government not to have broken the sanctions
regime.
Libyan plans to build a new 2,178km railway the length
of its coastline and inland are expected to lead to
contracts worth $4bn, while the upgrading of port
facilities is also a probable area in which foreign
companies will play a big role.
European oil companies have accelerated investments
in Libya ever since the US government abandoned plans
in May 1998 to fine any foreign company investing more
than $40m annually in either Libya or Iran.
With European oil companies well established in the
country, US companies are now determined to resume
their presence in Libya. This was halted in 1986 when
US unilateral sanctions, which are still in force, were
imposed, forcing five big US companies to abandon up
to $2bn worth of fixed assets and forfeit business worth
up to $2.1bn a year. Libya has said their assets will be
returned to the companies when they resume
opera-tions in the country.
Growing European demand for Libyan oil, which
currently stands at 1m barrels a day, and gas, has
intensified the US companies' determination to return.
"We still have assets there, operated by the Libyan
government. And if we were permitted by US law we
would go back," said a spokesman for Conoco of the US
earlier yesterday. "We don't believe that unilateral
sanctions are very effective, and we would take the
position that [with the UN sanctions lifted] there
shouldn't be a unilateral stance by the US. If they are
lifted, we will definitely go back."
Col Muammer Gadaffi, the Libyan leader, last year
promised Italian companies they would be given priority
in the awarding of post-sanctions contracts. Up to 31
per cent of Italy's oil consumption is accounted for by
Libyan supplies of around 490,000 b/d, and the 51 per
cent state-owned oil company Eni is now advancing
plans to build a $3.8bn gas pipeline between Libya and
Italy.
Libya's attraction to the non-hydrocarbons sector will,
however, be strongly influenced by its ability to pay for
the contracts which are under discussion. Oil price
fluctuations have allowed Libya to limit the impact of
sanctions on its economy for much of the past 20 years.
But it now faces 30 per cent unemployment, 25 per cent
inflation and the burden of a state sector that employs
700,000 people, or 20 per cent of the population.
"They do need capital because of the fall in the oil price,
but we have to weigh the possibility of investment
against the attractions of the other markets in the
region," says Angus Blair, head of equities for the
Middle East and North Africa at ABN Amro. "The
Libyans will have their work cut out for them when
competing with the others that have already opened up
to foreign capital."
Libya's economic growth has been influenced strongly
by declining oil prices, with oil revenues in 1999
expected to be down 24 per cent on 1998. Even so,
government figures show the hydrocarbons sector
contributing 22.9 per cent of GDP in 1997, a 40 per cent
drop since 1980.
But oil accounts for 95 per cent of foreign earnings and
50 per cent of government receipts. While the
government had based its 1999 budget on an oil price of
$18 a barrel, receipts have been down 35 per cent,
equivalent to $11.7 a barrel.
Observance of the sanctions regime has meanwhile
greatly diminished detailed knowledge of what potential
exists outside the main infrastructure and
hydrocarbons-related projects that are Libyan priorities.
"Very few companies have been looking at Libya
carefully," says a senior US banker. "We will have to go
back to looking at what there might be. But it has
significant potential for project finance. After Algeria, it's
a big one."
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