Libya lifts force majeure on its oil exports – report and analysis

By Sami Zaptia.

(Logo: NOC).

London, 10 July 2020:

Libya’s state National Oil Corporation (NOC) announced that it had today lifted its force majeure on all oil exports. It reported that he first vessel to load is the Kriti Bastion from its Es Sider oil port.

However, it warned that technical problems will keep production low. Without indicating a timeline, it explained that increase in production will take ‘‘a long time’’ due to the significant damage to reservoirs and infrastructure caused by the illegal blockade imposed since 17 January.

“We are very glad finally to be able to take this important step to national recovery, and I wish to thank all the parties to recent discussions for helping to bring about this successful outcome,” NOC Chairman Mustafa Sanalla was quoted as saying in the NOC statement.

“This should be recognised as an important moment of common national purpose to build on to bring lasting peace and stability to the country.”

“For NOC, the work has just started. Our infrastructure has suffered lasting damage, and our focus now must be on maintenance and securing a budget for the work to be done. We also must take steps to ensure Libya’s oil production is never again held to ransom.”

“On the top of the $6.5 billion in lost production we as a nation have suffered, NOC faces huge extra costs to repair infrastructure damage. The costs of repairing the pipeline network and surface equipment and of well workovers will run to the billions of dinars.”, concluded Sanalla.

Analysis

At the time of going to print, there had been relatively little reaction from the two belligerent sides in Libya’s political and military split to the announcement considering its importance. This is no doubt partly due to the fact that the news broke on the weekend.

The US Embassy welcomed ‘‘the announcement by the National Oil Corporation of Libya to lift the force majeure at the national level, resume its vital work on behalf of all Libyans, and to cooperate with the United Nations Support Mission in Libya to ensure that revenues are not embezzled and preserved for the benefit of the Libyan people.

The Embassy commends the efforts of all Libyan parties to facilitate the operations of the National Oil Corporation. The Embassy will continue to support Libya’s financial transparency and, through the United Nations-led dialogue, promote mutual understanding among Libyans on the equitable distribution of oil and gas revenues’’.

The lines in US Embassy statement ‘‘ensure that revenues are not embezzled and preserved for the benefit of the Libyan people.’’, ‘‘financial transparency’’ and ‘‘equitable distribution of oil and gas revenues’’, refer to purported grievances by Khalifa Hafter, his Libyan National Army and many Libyans in the east, that Libya’s oil revenues are at best inequitably distributed or at worse are embezzled in the west and used by the west to finance Islamists, western-based militias and terrorists.

It is reported, for example, that Libyans in the east are unable to open Letters of Credit (LC) at the preferential official exchange rate offered by the Tripoli Central Bank of Libya – in the east. They are forced to physically take their money and deposit them in western-based branches of Libyan banks headquartered in eastern Libya – to be able to open an LC.

Equally, the Tripoli CBL has stopped the bank clearance/settlement system to bank branches in the east, thereby cutting off Libya’s eastern banking system. The Tripoli CBL is also refusing to send liquidity to banks in eastern Libya. This is suffocating banks in the east forcing them to use up all their liquidity – including their legal cover. This had previously forced the eastern CBL into printing money in Russia, and if the Tripoli CBL continues with its suffocation policy, it will further force the east into the arms of Russia. It is also in danger of collapsing the banking system in the east – which would in turn bring down the whole Libyan banking system

It will be recalled that the NOC had revealed that the ‘‘deal’’ to restart Libya’s oil exports involves the NOC holding any oil sales revenues in a temporary escrow account until the politicians agree on how it would be spent and distributed. Historically, Libya’s oil revenues are paid by its foreign customers into its Libyan Foreign Bank (LFB) and transferred to the Tripoli CBL’s account within 24 hours.

In an interview to Libyan media on 6 July, Sanalla had denied that the negotiations to restart oil exports included the establishment of a special account for oil revenues abroad (food for oil) or the redistribution of Libya’s oil revenues fairly under international supervision.

He had said that the initiative was that oil sales revenues would be placed in the NOC ‘s accounts and would remain under its supervision for a ‘‘certain period’’ (unspecified) until financial and security arrangements were coordinated by the conflicting parties. He did not give any details on these.

He had insisted that the process is transparent, and that the NOC would continue to disclose Libya’s oil revenues on a regular basis. He had stressed that there would be no international supervision by any foreign party of Libya’s oil revenues.

He had said that the ensuing financial arrangements out of this initiative would mean more disclosure and transparency in institutions in the east and west by the Central Bank of Tripoli and the Central Bank in the east through the announcement of expenses and the unification of the exchange rate.

With regards to the initiative’s security arrangements, it would include rearranging the securing of Libya’s oil installations and the discarding of the PFG. Again, he gave no further details.

A new Libya political deal?

If the political ‘‘deal’’ struck to allow the export of Libya’s oil does indeed hold up, it would be a great breakthrough. Libya’s conflicting parties have become extremely polarised and there seemed to be no consensus in sight.

If a compromise for the resumption of oil exports was able to be forged by the international community, then this oil deal could auger well for the possibility of reaching an overall Libyan political agreement – including a ceasefire.

It will be recalled that it was only last Wednesday that the eastern-based Petroleum Facilities Guards (PFG), aligned to Khalifa Hafter, had foiled the NOC‘s first attempt to lift force majeure at Es Sidre port.

It was muted that Libya’s east were not yet fully satisfied with the deal. Something must have changed since Wednesday and it must be assumed since the eastern forces are in total control of Libya’s eastern oilfields – they are now satisfied with the new deal.

The devil is in the detail, however. It is not clear how long will the NOC hold Libya’s oil revenues in escrow, waiting for the polarized politicians to agree. History is not encouraging. Libyans have been unable to agree since overthrowing Qaddafi in 2011. Since the 2014 Tripoli militia coup that forced the west-east split, Libyan political polarization has widened increasingly.

However, the prize at the end of successful negotiations would be a formula that could act as the way forward for Libya’s rentier wealth distribution. If a formula is agreed it would, could, remove one of the main grievances between western and eastern Libya, and pave the way forward for progress and development – to a thriving civilian-led, democratic Libyan state. It would remove one of the main grievances from eastern political separatists and those in the east supporting a military regime in Libya.

It would also flush out parties that are hiding and using what could be genuine public grievances to further their own personal and political goals and ambitions. Many in western Libya, and internationally, believe Hafter was only ever interested in gaining power for himself and reinstating a Qaddafi-type family/military regime – spurred on by Egypt and the (democracy-loathing!?) UAE.

There will be increased pressure as time goes on the NOC, by the Tripoli CBL and Tripoli government, to release the oil funds in view of the dire economic situation the country finds itself in. If the negotiations on how to spend the funds drag on, the NOC will find itself in an unenviable position: between a rock and a hard place.

The distribution of Libya’s oil wealth is one grievance of the east. The other major issue is the failure to conduct security sector reform (DDR of western militias) – as prescribed by the Skhirat 2015 Libyan Political Agreement, and the collapse of the Presidency Council consensual rule mechanism.

Currently, Faiez Serraj rules unilaterally by decree without any real kind of transparency or accountability. He is very vulnerable to pressures by western militias. The east believes he is in the pockets of eastern militias. The LPA had included eastern representatives in the Presidency Council system. The system broke down, yet Serraj has continued to rule western Libya in a triumvirate with the Tripoli CBL Governor, the head of the Tripoli Audit Bureau – and to a lesser extent, the High State Council.

Hence there is a lot at stake in these oil wealth redistribution talks. If the negotiations on how to spend Libya’s oil wealth collapse, Libya could be back to square one with the east shutting down oil exports again.

 

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