Libya needs more than $100 billion for reconstruction

Rashid Khashana – Despite the continuing conflict between political parties, Libya seeks to increase its oil production to two million barrels per day, a level it has not reached since 2011. This goal depends on the tripartite plan, which is being implemented in cooperation with companies operating in the sector, including two groups. The Italian “Eni” and the French “Total Energies”. Libyan production is currently estimated at one million one hundred and sixty-three thousand barrels per day. This file is supervised by the “Corporation Budget Follow-up Committee” in the Cabinet Office, according to what was agreed upon when preparing the exceptional budget to increase oil production.
This came in the tenth meeting held by the Follow-up Committee in the Cabinet Office last Thursday, in which the institution’s three-year plan was discussed. However, Libyans fear fluctuations in global oil markets and their repercussions on their exports. Mohamed Aoun, Minister of Oil and Gas in the National Unity Government, headed by Abdel Hamid Dabaiba, did not hide his government’s strong criticism of the decision taken by the seven major industrial countries to set a ceiling on the price of Russian oil. Aoun warned of the consequences of that decision, warning that it might cause turmoil in global oil markets. However, Aoun expressed optimism that the cohesion of the Organization of the Petroleum Exporting Countries (OPEC) and “OPEC Plus” will help overcome the crisis, he said. The absence of political and security stability in the country was the most prominent factor that prevented Libya from benefiting from the rise in oil prices. The clashes that took place between groups supporting Dabaiba and others supporting Bashagha in the capital, Tripoli, last month, caused the suspension of oil production more than once.

Gas reserve

On the contrary, and for comparison, Total’s net profits tripled, on an annual basis, in the second quarter of this year, to record $9.8 billion, compared to $3.46 billion a year ago, according to the company’s announcement at the end of last July. Libyan expert in oil and gas affairs, Tariq Shalmani, told Al-Quds Al-Arabi that gas export constitutes one of the main sources of economic income for Libya. Libya currently ranks 21st globally in terms of gas reserves, with a production capacity estimated at approximately 2.2 billion cubic feet per day. Libya has been exporting gas to Italy since 2007 through the “Green Stream” pipeline, which is estimated to be 520 nautical miles long. This joint project between the National Oil Corporation and the Italian Eni Group relies on long-term contracts linked to the price of oil.
Shalmani estimated the regular income from natural gas exports in recent years at $1.1 billion annually. It could rise to 3.3 billion, if oil prices stabilize at $100 per barrel. Expectations indicate that the price of a barrel will remain above $100 until December 22.
By virtue of these long-term contracts, Libya cannot evade its obligations and sell its gas in the spot market, which would generate profits amounting to $11 billion. However, this behavior harms its reputation in the markets, and may expose it to judicial prosecution to pay large compensations, or seize any of its assets.
Experts confirmed that the Libyan economy suffered major losses as a result of the lack of internal development and lack of security, as well as economic stagnation and the failure to attract investments from the private sector. Libya will face a major challenge if oil and gas production falters in the coming period due to political motives, because it needs the revenues to finance the reconstruction effort. Libya needs about 500 billion Libyan dinars ($102.5 billion) in the next ten years, in order to be able to rebuild the country.
Shalmani believes that Libya can strengthen its position in the international market as an important gas producer, but this requires a plan to develop its infrastructure and open the door to more inspection and exploration work. According to information from the Production Department of the Gulf Oil Company (public sector), Libya has a huge reserve of natural gas that has not been explored to date. The National Oil Corporation recently unveiled a strategy that includes an increase in gas production to reach 3.5 billion cubic feet per day by 2024, at a cost of around $60 billion from the government budget, with the rest provided by investors from international oil groups. International groups anticipated the results of the Russian-Ukrainian war and began negotiations with the National Oil Corporation in Libya, to discuss the possibility of increasing Libyan supplies of gas to European countries.
In this context, it was agreed between the former Chairman of the Corporation, Mustafa Sanalla, and the Executive Vice President of the British Petroleum Group, Gordon Pearl, to resume exploration work in Libya, in accordance with the agreement reached by the two parties in 2018. Sanalla also discussed this matter with the CEO of the Total Group. » Patrick Boigny last March, when they discussed developing production and increasing its volume through gas and oil exploration. Sanalla also discussed the issue with the Italian Eni group, in order to ensure its contribution to increasing production in order to respond to the increased demand for gas in the international market. Achieving this goal requires establishing security and establishing stability throughout Libya, not only to raise production levels, but also to ensure that those levels are maintained. There are security threats that cast a shadow on the general situation in Libya, including the economic situation, including the spread of Russian “Wagner” elements, whether in eastern Libya or in neighboring countries. Expert Shalmani believes that America and the major powers will likely put pressure on the Libyan parties to impose on them a minimum level of political and security stability, in order to ensure the arrival of Libyan gas supplies to European countries and compensate, even partially, for the lack of Russian gas supplies. But even if the major powers resort to pressure, and the flow of gas actually improves, this will not change much the deteriorating health of the ailing Libyan economy, as it suffers from the consequences of the political dispute and wars that the country has witnessed, while the financial crisis, represented by the scarcity of liquidity in banks, is growing on a daily basis. Government and private alike, as a result of merchants keeping their money in their private safes, for fear of turmoil in the security situation, or the outbreak of new wars that would affect the work of banks. The International Monetary Fund expected prices and inflation rates to continue rising in Libya during the current year, reaching 3.7 percent, according to a report carried by the official Libyan News Agency in Tripoli.

Expect inflation to fall

The report expected Libyan GDP growth to reach 3.5 percent this year, and to rise to 4.4 percent next year, dropping to 3.6 percent in 2027. The report indicated that medium-term expectations are also low, against the backdrop of war and weak capabilities. Last March, the Governor of the Central Bank of Libya, Al-Siddiq Al-Kabir, requested during a meeting with the Director of the Middle East and Central Asia Department at the International Monetary Fund, Jihad Azour, and the Deputy Director of the Financial and Monetary Markets Department, Miguel Savastano, that the Fund should support the capabilities of the Libyan Central Bank in the field of statistics, indicators, monetary policies, and the program of team visits. The Fund’s technical assistance to Libya. As for Human Rights Watch, it warned, in a special report, that the Russian invasion of Ukraine exacerbated food problems in five Arab countries, including Libya, where prices rose.
The organization revealed, in a lengthy report monitoring the food crisis and its repercussions, that imports from Ukraine constitute more than 40 percent of wheat imports to Libya. She added, “During the first week of the comprehensive Russian invasion of Ukraine, the prices of wheat and flour soared, and merchants’ concerns about the lack of stock increased, so they increased prices by up to 30 percent.” The organization also revealed that, according to the World Food Programme, before the crisis in international food markets, as a result of the war in Ukraine, “12 percent of Libyans (or 511 thousand people) needed assistance in 2022.” This imposes additional burdens on any government that takes power, especially in light of the expected price increases in the coming months. While the Dabaiba and Bashagha governments seem unable to find real solutions to the social crisis, the Dabaiba government launched an initiative to gain votes in the upcoming elections, which consists of facilitating marriage procedures and owning an apartment for young people. In a country where young people feel the difficulty of living without a dream, the “Youth Housing Initiative” came to revive hopes of marriage and obtaining a home. In the first phase of this project, the government promised to enable 18,000 young people to obtain loans, and also promised to distribute 21,000 residential plots of land.
In Benghazi (east), 51,759 candidates applied to benefit from the housing loan program. A statement issued by the unity government stated that a meeting of government officials and experts was recently devoted to studying the mechanism of work in the program for the second phase of “lending and land distribution,” with the distribution to begin after the municipal subcommittees complete the work of sorting the applicants and identifying the beneficiaries who receive priority. This initiative falls within the framework of an attempt to contain the anger of young people, who are suffering from various crises, and some of them are forced to join drug networks or armed militias to ensure a monthly salary. Hence, it seems difficult for the economy to reform society in light of the pressures of the budget, half of which goes to the eastern region, part of which is consumed in disbursing salaries and purchasing weapons, and the rest of the expenses are directed to ministries, members of parliament, and political institutions. Therefore, the current government and future governments will face great difficulty in financing reconstruction plans.

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