Tripoli based Libyan Prime Minister, Abd Alhamid Aldabaiba, held an expanded meeting at the National Oil Corporation (NOC) yesterday. The Tripoli government says the meeting was held to discuss ‘‘enhancing disclosure and adopting new measures to ensure transparency in oil sector contracts, as well as reducing the impact of parallel spending (by the eastern Libyan administration) on the (FX) value of the Libyan dinar’’.
Besides the NOC Board, its Chairman and Acting Oil Minister, Khalifa Abdel Sadeg, the meeting was also attended by the head of the Audit Bureau, Khaled Shakshak.
NOC’s efficiency in spending its budget
At the televised one-and-a-half hour meeting, Aldabaiba reviewed, and at times questioned, how efficiently the NOC spent its budget – including its Extraordinary Budget. He said the Libyan people needed disclosure and transparency from their oil sector as it is their main source of wealth. He celebrated the fact that now 98 percent of oil sector employees are Libyan nationals and commended the NOC on its work in the sector.
However, he said the NOC had received billions in an Extraordinary Budget, which the public had the right to know where and how it was being spent. He said this budget was granted in order to increase production and that the NOC had maybe spent it elsewhere.
The NOC: Libya’s predominant source of hard currency
Explaining his rationale for the public accountability meeting, Aldabaiba said the NOC revenues provide the overwhelming (95 percent) majority of Libya’s hard currency and that the attempt to rationalise hard currency spending must start from the NOC. He said stability starts from the NOC because if something goes wrong in the NOC something will go wrong with the whole Libyan state.
Attempting to defend the NOC and the Oil and Gas Ministry, NOC Chairman Masoud, Acting Oil and Gas Minister Abdel Sadeg, and several NOC Board members intervened from time to time.
They pointed out that while the world average cost of producing a barrel of oil is between US$ 8 to 10 and Libya’s price is perceived as US$ 5 to 6, this is not a realistic price. They pointed out that as Libya’s oil infrastructure, including pipelines, is dilapidated, with many sections over 60 years old. This all needs a replacement budget; hence not all the allocated budgets will be reflected in immediate oil production increases.
Ending the fuel barter purchasing system
Aldabaiba also announced (or confirmed what was already reported on by media) the ending of the use of the barter system used to purchase fuel. He said angrily ‘‘the barter system will stop whether I liked it or not’’.
The controversial system is deemed untransparent and was suspected of corrupt practices including hiding the real cost of imported fuel subsidies. The oil sector reconfirmed that the barter system had been ended since the start of March this year.
Aldabaiba said the barter payment system was being used when he became PM and that he was warned that if he stopped the barter payment system fuel supplies to Libya would stop. He said ‘‘they’’ (implying those gaining from the barter system or those who wanted civil unrest) even stopped fuel supplies to prove the point.
Fuel imports to be paid for via a hard currency LFB account
All present agreed that going forward, the NOC will use some of its hard currency revenues to pay for fuel imports. It was agreed that this money will be set aside in hard currency in a Libyan Foreign Bank (LFB) account (Libya’s overseas bank account where all its oil revenues are held). This amount will not be transferred to Libyan dinars into the state’s Central Bank of Libya account – as this will complicate the matter, they agreed.
A review of local private sector company contracts – focus on the controversial Arkno contract
Aldabaiba announced the formation of a joint committee with the Audit Bureau and the Administrative Control Authority to review NOC contracts with local private sector oil companies, with a focus on the controversial Arkno Company contract.
Aldabaiba said there is a public perception that some companies, and especially Arkno, was selling Libyan oil without oversight and that the NOC gave the company wells that are already producing oil.
He said there is much public suspicion regarding this company and that there must be transparency over the contract. He said NOC contracts must be seen by the public to be distributed fairly, and the processes must be more than transparent.
Defending the Arkno contract process
Putting up a defence, the Acting Oil Minister and NOC Chairman explained that the driver for allowing the Libyan private sector into the oil and gas sector was to involve the Libyan private sector and to fill the financial void left by the state. The policy was to reduce the demand on the finite state budget.
With regards to Arkno, they said that it had gone through due diligence and the application process like many other, and succeeded because it had a major international partner, Schlumberger. Arkno had paid the un-refundable US$ 1 billion to the Arabian Gulf Company (AGOCO), because the wells where in its area (eastern Libya).
They said Arkno was given 250 stalled wells in peripheral fields, some were not producing for as long as 20 years. The contract was passed unanimously by the whole NOC Board.
Aldabaiba said, nevertheless, the US$ one billion should have gone to the NOC to redistribute not to AGOCO.
Suspension of the Arkno contract
Finally, on this matter, Aldabaiba reminded all that he had issued a decree suspending the Arkno contract. He asked why the NOC had contravened this decree?
He said the NOC needed to make more effort in its public relations through the media clarifying this controversial matter.
Brega Marketing Company to review the quantities of fuel it distributes – to mitigate smuggling
Aldabaiba also instructed Brega Marketing Company to review and reduce the quantities of subsidised fuel it distributes to various state entities such as the General Electricity Company of Libya, the Army etc. He said an independent assessment must be made of their real needs. They should not get the quantity they request, he said, just because they ask for it. He said fuel smuggling starts at and with Brega. He said uncontrolled fuel distribution feeds fuel smuggling.
NOC’s legal duty to transfer all currency oil revenues to Central Bank of Libya within 48 hours
Notwithstanding anything previously mentioned in the meeting, Aldabaiba also reminded the NOC of its legal duty to transfer all hard currency oil revenues to the Central Bank of Libya within the prescribed 48 hours.
This is a reminder that the NOC is a technocratic entity and must not get drawn into political tugs of war, as had happened in the past when the previous NOC chairman Mustafa Sanalla had temporarily held back revenues from the CBL.
The NOC chairman Masoud confirmed his intention to continue this legal practice and confirmed that the transfer process happens automatically.
Building fuel storage tanks to provide strategic reserves
Aldabaiba also reminded the NOC of the fact that his government had provided land for the building of fuel storage tanks to act as strategic reserves. He said these storage tanks must be constructed. This would give the NOC’s subsidiary, Brega Marketing Company, the company charged with importing, storing and distributing fuel in Libya, a buffer to avoid fuel shortages, queues at petrol stations and the possibility of resulting civil unrest.
