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Oil-rich Libya not looking for a loan

Oil production aside, Libya has about $50 billion in cash abroad with which to rebuild the country after the six-month conflict without turning to foreign aid like neighbours Egypt and Tunisia. Photo: Reuters.

Oil production aside, Libya has about $50 billion in cash abroad with which to rebuild the country after the six-month conflict without turning to foreign aid like neighbours Egypt and Tunisia. Photo: Reuters.

Published Aug 28, 2011


Libyan rebels needed Nato’s military might to bring Muammar Gaddafi’s rule to the brink of collapse. About $50 billion (R362bn) in cash abroad means they can do without foreign aid to rebuild the country after a six-month conflict.

Airstrikes and logistical support from Nato forces helped reverse the tide in Libya, stopping the advance of Gaddafi’s troops on rebel strongholds and allowing the opposition to score military victories that culminated in a sweep into Tripoli this week.

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As the rebels hunt Gaddafi and his remaining followers in the capital, world leaders such as German Chancellor Angela Merkel are urging the release of frozen Libyan assets abroad to help in the transition to democracy. Those assets and Africa’s largest oil reserves set Libya apart from neighbouring Tunisia and Egypt, which sought outside financial aid after popular revolts ousted their leaders this year.

“We don’t need loans,” former Libyan central bank governor Farhat Bengdara, who broke with Gaddafi’s regime in February, said in Dubai. “Libya has huge financial resources and oil reserves. What it needs is the co-operation of the international community to lift the freeze on Libya’s assets aboard.”

The Libyan economy suffered as much as $15bn in damage during the conflict, according to Bengdara’s estimates. An economic recovery and the release of frozen assets will depend on how fast the rebels can stabilise the country and establish a government, say analysts including Paul Sullivan, a professor at the National Defense University in Washington.

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Bank deposits

The central bank and the Libyan Investment Authority, the country’s sovereign wealth fund, have about $168bn in assets abroad.

About $50bn of that was in bank deposits in European countries including Germany, the UK, France, Italy, Portugal, Spain, Sweden, Belgium and the Netherlands, Bengdara said. The two institutions also held about $40bn in US and European government bonds, he added.

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France is working on a UN Security Council resolution to release funds to the rebels’ National Transitional Council (NTC), a Foreign Ministry spokesman, Bernard Valero, said in Paris on Friday.

“For France, as for all our partners, the priority is to help Libyans to take back their destiny in their hands,” he said. “The Transitional Council must have access to the necessary financial resources.”

The US government was working to release between $1bn and $1.5bn in frozen assets to the rebels for humanitarian purposes, State Department spokeswoman Victoria Nuland said on Thursday. The rebels were in talks with the UK to release Libyan bank notes frozen since the crisis began, Aref Nayed, a spokesman for the NTC and envoy to the United Arab Emirates (UAE), said in Dubai late on Thursday.

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The resources will offset the losses that the economy has incurred, according to Suliman Al Shahomy, the chairman of the Libyan Stock Market, who broke with Gaddafi’s regime in February. “The infrastructure hasn’t been destroyed,” he said in Cairo.

Oil and equity investors rejoiced after the rebels entered Tripoli. The prospects of Gaddafi’s four-decade rule ending helped shares of Eni – the biggest foreign investor in Libya, Ansaldo STS and Total gain. Brent oil fell, narrowing its record premium to the main US grade, on bets Libya’s output will recover.

Libya doesn’t have outstanding debt. The conflict prompted Fitch Ratings to withdraw its credit ratings on Libya on April 13, citing “extreme political instability” and the loss of oil production.

Libya’s oil output, at about 1.58 million barrels a day before the revolt according to data, slumped to a trickle after fighting broke out, according to the International Energy Agency. Output might reach as much as 350 000 barrels a day within three months “if we’re lucky”, said Samuel Ciszuk, the London-based senior Middle East and north Africa energy analyst at IHS Global Insight.

“Until we see stability, it will be hard for the oil industry to recover,” Ciszuk said. “It’s all about bringing what is there back on stream as soon as possible. Some will be a bit hard to bring back on stream. There’s been some long-term damage to some of the older oil fields because they were shut down in a rushed and disorganised manner.”

Sudden takeover

Even so, oil production would recover more quickly than forecast after the “sudden takeover” of fields and export facilities by rebels, Goldman Sachs said in a report last week. Libya would probably boost supply to 585 000 barrels a day in the next 12 to 18 months, Goldman said.

Libyan rebels would restart the Zawiya refinery “in the coming weeks” because its infrastructure was preserved during fighting, Ahmed Jehani, the chairman of the rebels’ stabilisation team, said.

Next, work will resume at the Tubruk refinery, followed by the facility at Ras Lanuf, Nayed said.

Oil aside, the economy offers investment opportunities in industries including tourism, mining, agriculture and financial services, according to Bengdara.

International and Arab banks including HSBC, Standard Chartered, Unicredit and Mashreqbank had applied to set up units in the north African country. Unicredit, Italy’s biggest lender, said in August last year it had won a licence.

“Libya can become the star of the region,” Bengdara said. “Libya’s economic output, which was about $80bn before the revolution, can easily double in no longer than 10 years.”

Even so, lingering protests, labour strikes and political bickering in Tunisia and Egypt show that the transition toward democracy in Libya might not be easy, Raza Agha, a London-based economist at Royal Bank of Scotland, said in a report on Monday.

In fact, Libya may have a harder time, according to Sullivan of the National Defense University. “Libya may have the toughest transition of all of them in north Africa.”

Sullivan added: “Gaddafi gutted the government and there really seems to be almost no understanding among many there about how to transition to a vibrant economy and democracy. Platitudes and hopes are not policies that can be implemented.”

Uncertainty about the nature of the post-Gaddafi government might also delay the release of frozen funds, Stuart Levey, a former US Treasury undersecretary, said. Having the assets still frozen could be used “as a point of leverage for the US and its allies to ensure that they have a legitimate government they can trust in Libya they can give this money to”, Levey said.

Beltone Financial Holding, an Egyptian investment bank that suspended its brokerag in Libya after the fighting broke out, still regarded the north African country as a lucrative opportunity, chief executive Aladdin Saba said on Friday.

“The picture is not yet clear,” he said in Cairo. “But of course Libya is on our map and we hope stability is achieved quickly so that we can contribute to the rebuilding of the country.” – Bloomberg

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