Reuters/Dubai
Libya’s rebel government will honour all energy contracts granted legally under Muammar Gaddafi’s 42-year rule and work to restore oil output to pre-war levels within a year, said rebel reconstruction leader Ahmed Jehani. “The contracts in the oil fields are absolutely sacrosanct,” Ahmed Jehani, the head of the National Transitional Council’s (NTC) reconstruction effort, told Reuters Insider TV late on Tuesday. “All lawful contracts will be honoured ... There’s no question of revoking any contract.” Jehani said reconstruction efforts to bring oil and other industrial infrastructure back to normal would take at least nine months. “If we get it all right, we are probably going to be within the nine months to one year. I don’t see why not based on what I see today but I mean it’s rather premature to give estimates,” he said. “Right now we are focused like a laser on stabilisation, how you stabilise security, the services to your people, humanitarian (support). “You get the governance right, you get the economy right, all of these things you need to do and focus on them, then you move into rehabilitation.” Jehani said the NTC would welcome any Chinese investment and financial assistance to help rebuild the country, easing concerns that Chinese and Russian firms could lose out on contracts for not backing the rebellion which began in February. “We encourage it ... We are not making any discrimination. There will be issues as to how we’re going to have to pay for this and whether we have the money,” he said. “These are capacity issues in the non-oil sector. In the oil sector you have no problem.” Libya’s huge reserves of highly-prized light, sweet crude have been missed by European refiners. Italian oil company Eni led the charge back into Libya on Monday and more energy companies with multimillion dollar investments in the country are expected to follow soon. With oil at over $100 a barrel the cost of repairing damaged oil installations will be less of a problem for Libya than the technical challenges of reviving production from the country’s oil fields after months of stagnation. “Luckily, we don’t have much damage to the oil fields other than what has been reported,” Jehani said. “The most difficult part is how much pressure you have lost in the oil fields and how do you bring it up again, how can you clean up the sludge that’s been created by the fact that you are not pumping oil.”
Big oil faces big unknownsBy Una Galani & Fiona Maharg Bravo /Dubai/MadridWith Brent crude above $100 per barrel, foreign entities invested in Libya have a strong incentive to get production back up and running quickly. Italy, one of the biggest investors in the North African country, is confident it will be back to business as usual. But even once the fighting stops, oil companies can expect a bumpy ride. Oil majors don’t need much prodding to return to a country where pumping oil was highly profitable, thanks to low production costs. A more stable and secure environment is key. There must also be some sort of effective, recognisable government. The key question is how the oil majors will be received in Libya. Rebel Libyan envoys have told Rome that Libya will honour existing contracts in the post-Muammar Gaddafi era. There is a long history between the two countries, and Italy’s Eni thinks oil and gas flows could resume before winter. Yet even the countries that supported or took part in the military intervention are likely to be vulnerable. Rebel leaders have said contracts would be reviewed for signs of corruption. The transitional government may come under pressure to renegotiate contracts from a population feeling it has not fully shared in the country’s oil wealth. Libya has tightened terms on production contracts in recent years. But there is scope for more severity. Foreign investors were willing to accept tough terms in Iraq on the basis that it might lead to big-ticket projects later. And there is a queue of oil players hoping to get their foot in the door in Libya. Libya has a clear incentive to resume pumping oil and it needs foreign expertise. But it can afford not to rush into making decisions. The country’s net foreign assets, which should be released from the current freeze once Libya is officially deemed “liberated”, are estimated at around $150bn -enough to cover 37 months’ worth of imports. And even if oil companies manage to hold onto their terms, there is no guarantee on the long-term solidity of the Libyan government’s promises. Oil companies hoping to soon get back to business as usual may be too optimistic.
(The authors are Reuters Breakingviews columnists. The opinions expressed are their own)