Libya’s decision to require foreign companies to appoint Libyan chief executives to their joint ventures will come as unwelcome news to oil and gas companies investing there – if the past few weeks haven’t already done so. The country has held four bidding rounds for its substantial oil reserves since UN and US sanctions were lifted earlier this decade, but the furore over the transfer of Lockerbie bomber, Abdul Baset Ali al-Megrahi, from Scotland to Libya highlights the political delicacy for oil companies doing business in Libya.
In a striking example of this, The Times reports today that a consultant for BP spoke to British Justice Secretary Jack Straw on the subject in 2007 – with BP reportedly confirming it did raise concerns over delays in progress of a prisoner transfer agreement. BP had earlier that year returned to Libya after a decades-long absence to sign a $900m exploration deal. The Times story refers to the kind of problems that delays in transfer talks might have caused for BP:
Nick Day, a former MI5 agent and the chief executive of the business intelligence firm Diligence, which has helped British companies to enter Libya, said: “It was an open secret on the ground there that other oil firms were not encountering the same difficulties that BP had … because the whole issue of al-Megrahi was unresolved.”
It notes that Russia and Switzerland have also faced reprisals after offending Libyan authorities.
Meanwhile, the National newspaper ponders whether Libya’s gas and oil are worth the political hassle. Libya has the largest proven oil reserves in Africa, but foreign interest remains muted:
The country’s last oil and gas bidding round, in 2007, attracted tepid interest from western firms, with most of the awards going to state-controlled companies such as Russia’s Gazprom and Algeria’s Sonatrach. They can tolerate lower returns on investment.
Despite flat oil production capacity of about 1.8 million barrels per day (bpd) for the past three years, well below the government’s official target of pumping 3 million bpd by 2015, no further auction is on the cards.
Of course international oil companies are not easily put off by political difficulties – BP is active in Iraq and Angola, for example, and Shell has extensive operations in Nigeria. But in Libya, the unpredictability of the political environment has continued to cause concern, despite thawing relations with the US. The new foreign executive rule is not likely to improve matters much. As one foreign chief executive told the FT:
“This is not good for the Libyan economy,” said the western executive. “Companies which are here will stay, but if you are still deciding, you will think twice.”
Related links:
Oil groups face Libya ultimatum (FT, 04/09/09)
Reform in Gadaffi’s Libya is still shrouded in ambiguity (FT, 28/04/09)
