WASHINGTON, DC —The National Commercial Bank of Libya, in partnership with the US-Libya Business Association and the Libyan British Business Council, on Aug. 1 held a conference on foreign direct investment opportunities in Libya’s strategic economic sectors, with a focus on energy and finance.

Libyan officials, including the Deputy Minister of Oil & Gas Omar al-Shakmak and National Oil Corp. Executive Board Member Mustafa Sanalla, discussed pending legislative reforms in the oil and gas sector, oil reserves, reservoir recovery, and natural gas supply forecasts.

Shakmak noted that a committee of ministry and government officials had been formed to review Libya’s oil law and that foreign partners would be invited to contribute comments related to foreign participation in the industry before proposals for reform were submitted to the Libyan legislature in the fall. A draft of the proposals is expected later in August.

Libyan officials are interested in attracting foreign investment to boost oil and gas production as well as recovery rates, which Sanalla said currently averaged 35%, down 15% from pre-revolution figures. The oil industry’s immediate target is to increase the average recovery rate 10% to 15%.

According to the US Energy Information Administration, Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), holds the largest proven oil reserves in Africa and is an important contributor to the global supply of light, sweet crude.

Libya had total proven oil reserves of 47.1 BBbl as of January 2012 – the largest reserves in Africa and among the ten largest globally, according to Oil and Gas Journal. Close to 80% of Libya's proven oil reserves are located in the eastern Sirte basin, which also accounts for most of the country's oil production.

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Prior to the 2011 revolution, Libya had been producing an estimated 1.65 MMb/d of mostly light, sweet crude oil. Libya’s production capacity had increased over the previous decade – from 1.4 MMb/d in 2000 to 1.8 MMb/d in 2010 – but still remained well below the peak levels of more than 3 MMb/d achieved in the late 1960s.

Libya’s oil sector suffered from months of disruptions after the start of its uprising in February 2011, and only began to recover in September of that year. As of May 2012, crude oil production had been restored to an estimated 1.4 MMb/d to the surprise of many analysts.

According to the US Department of State, oil accounted for approximately 95% of Libya’s export earnings, 75% of its government receipts, and 25% of its gross domestic product prior to the revolution.

Karim Mezran, senior fellow at the Atlantic Council’s Rafik Hariri Center for the Middle East, urged the international community to provide the Libyan government security assistance in the form of military aid, training, equipment, and perhaps a United Nations peacekeeping mission to bolster the fragile security situation and keep the government's oil revenue flowing. “Foreign intervention will be needed” to mitigate further instability stemming from the continued existence of rival armed militias and to help foster a security environment to which foreign investors would be confident enough to commit.

Chuck Dittrich, executive director of the US-Libya Business Association, encouraged the Libyan government to sign an investment incentive agreement to enable the Overseas Private Investment Corp. (OPIC) to provide political risk insurance to prospective foreign investors in Libya’s economy.

Hoda Atia Moustafa, senior counsel for the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, reiterated Mezran’s security-investment “Catch-22” dilemma: “Without security there is no investment and without investment there is no security.” She noted that Libya, designated as a “conflict-affected and fragile state,” had been approved as eligible for an “initial loss layer” of political risk insurance coverage, of which the agency offers five types. These include:

• currency incontrovertibility and transfer restriction;
• expropriation;
• war, terrorism, and civil disturbance;
• breach of contract; and
• non-honoring of financial obligations.

However, Shakmak pledged that oil contracts signed prior to the revolution would be guaranteed. “Libya has the financial muscle to pay its obligations,” he said.

Questions from the audience quickly turned to ongoing political unrest, corruption, and the security of oil facilities in Libya. The afternoon of the conference, international media reported that Libyan oil exports had been cut by nearly 330,000 b/d from 1.3 MMb/d in 2012 after security forces assigned to guard export terminals shut two down, reportedly to exert pressure over salary negotiations.

Shakmak said “one of the key problems is financial corruption,” but Sanalla downplayed security risks to the oil industry.

Despite political activities disrupting industry operations, the ministry is “not seeing any problems with sabotage of oil installations, Sanalla said.

If oil revenues are not distributed to the population in a manner generally perceived as equitable, however, the political climate for foreign investment will become increasingly hostile.

On Aug. 3, Libya’s Deputy Prime Minister Awadh al Barassi resigned over what he described as a “dysfunctional” government that was failing to establish security and meet its development goals.

Prime Minister Ali Zeidan announced Aug. 5 that he intended to reestablish the Qaddafi-era Internal Security Agency in an effort to suppress ongoing militant and terrorist threats to the central government.