US Businesses in Libya Made Certain They Could Operate in the Rogue State
The only people more terrified of the foreign mercenaries or anti-aircraft missiles or the fighter jets deployed to shell protesters than Libyans are the businessmen working for oil and gas companies in Libya. In fact, this whole democracy thing is a nightmare for companies in Libya that fought just over two years ago to ensure the market in Libya would not be restricted by an amendment that aimed to prevent companies from doing business with rogue states designated as state sponsors of terrorism.
Financial Times reports escalating violence in Libya has kept oil prices at two and a half year highs. Many of the oil ports and refineries are now shut down. International oil companies are evacuating their staff from the “world’s 12th largest oil exporter.”
All the violence, protest and political tension in Libya and the wider Middle East and North Africa seems to have led the US-Libya Business Association to make a cold calculated decision to disappear from the Internet for the time being until calm returns to Libya. RAW STORY reported on February 21 that the website of the US-Libya Business Association (USLBA) went down.
The group, which incorporated in 2005, describes itself as “the only US trade association” focused on the US and Libya.
Most recently, US-Libya Business Association Honorary Chairman Ambassador David Mack and Executive Director Charles Dittrich participated in a Middle East Institute-sponsored discussion in Washington, DC, titled, “US-Libya Relations: Surviving the WikiLeaks Controversy?” The two, who visited Libya for five days and met Libyan government officials in mid-December were scheduled to discuss their “impressions regarding the political and economic climate in Libya and the implications for both overall US-Libyan relations and the prospects for American business interests.”
A cache of the USLBA website reveals the companies affiliated with the association. Founding members include Chevron, ConocoPhillips, Hess Corporation, Marathon Oil Corporation, and Occidental Petroleum. General members include Dow Chemical, Fluor, Halliburton, Midrex Technologies, Motorola, Raytheon, Shell, United Gulf Construction, Valmont, and White & Case LLP.
Cables released by WikiLeaks on Libya so far do not explicitly name the USLBA. The cables do specifically deal with some of the member companies. They reveal that one of the chief objectives of diplomats in Libya over the past years have been to improve and ensure that the energy sector is able to have maximum commercial opportunities. This led the USLBA, the National Foreign Trade Council, the National Association of Manufacturers and the US Chamber of Commerce to urge Secretary of State Condoleezza Rice to “pursue waiver authority for Section 1083 for countries that have been removed from the list of state sponsors of terrorism” on February 28, 2008.
Section 1083 of the 2008 National Defense Authorization Act (also known as the “Lautenberg Amendment”) made it easier for “plaintiffs in terrorism-related lawsuits to seize foreign government-owned assets to satisfy US court judgments.” It caused concern among US firms, especially those in the oil & gas sector, because the Libyan National Oil Corporation (NOC) informed American oil companies that this was “their problem” to be solved.
Big Oil Companies Face Possibility of Seized Assets
Libya, which had terror claims lawsuits pending, worried this could impact business. The NOC wanted to cut business altogether to avoid any problems.
A little over two weeks before the USLBA and other organizations launched their pursuit of a waiver in February, a cable was filed explicitly dealing with Section 1083 on behalf of US businesses that were to be impacted. The author of 08TRIPOLI113 explicitly addresses the risks to oil & energy companies as a result of Section 1083:
OIL PRODUCING & OIL SERVICES COMPANIES AT GREATEST RISK
-2. (SBU) U.S. companies participating in joint venture partnerships with Libyan national oil companies assess themselves as being at greatest risk under section 1083 of the National Defense Authorization Act. This list includes Occidental, ConocoPhillips, Marathon and Amerada Hess. These companies are involved in jointly developing Libyan oilfields and in extracting and lifting crude oil. The three U.S. partners in the Oasis Group (Marathon, ConocoPhillips and Amerada Hess, who are partnered with Libyan state firm Waha) pay $2 million/month to the GOL in operating fees, and $100 million/month in taxes and royalties. Company reps assess that these payments — as well as jointly-held facilities and equipment — would be exposed to court-ordered attachment and seizure under section 1083. U.S. oil service companies, such as Halliburton, may also be exposed, according to local company reps, and most service companies have frozen further expansion until the risks are clarified. Company reps have expressed concern to us that their GOL partner companies would view any U.S. court-ordered attachments of payments or equipment as a breach of contract, potentially leading to termination of their work in Libya.
3.(SBU) U.S. companies engaged exclusively in the exploration (as distinct from production), such as Chevron and ExxonMobil, assess themselves to be subject to less risk for the moment, since they make no regular payments to the GOL that would be subject to attachment (the signing bonuses agreed in connection with winning their Exploration and Production Sharing (EPSA) agreements have already been paid to the GOL, and day-to-day exploration work is contracted out to largely non-GOL entities). Nevertheless, company reps say that they are concerned about the longer-term impact of this legislation on their future plans in Libya.
Shukri Ghanem, Libya’s NOC Chairman, reacts swiftly to the recent legislation and instructs “all international partner companies to cease conducting transactions in U.S. dollars.” Through contacts with US oil companies, US officials find out that NOC would like to “reduce its exposure to U.S. courts, since dollar transactions are routed through the U.S. financial system.” Furthermore, the cable shows that US companies believe the legislation could “find” the companies “in breach of their contractual obligations if US courts disrupt their montly payment of operational fees to the NOC.”
Leader and Guide of the Revolution Threatens Retaliation
08TRIPOLI214 , a cable filed on March 12, 2008, features Leader Gaddafi giving oil companies a “browbeating” for the fact that the passage of Section 1083 is coinciding with litigation over a settlement to compensate victims of the UTA Flight 772 bombing.
U.S. OIL COMPANIES TREATED TO BROWBEATING 2.(C) ConocoPhillips CEO Jim Mulva was summoned to Sirte for a half-hour “browbeating” by Leader Muammar al-Qadhafi during his visit to Libya on/about February 24. Country manager Page Maxson told P/E Chief that the entire conversation focused on al-Qadhafi’s “personal ire” about the so-called “Lautenberg Amendment” (section 1083 of the National Defense Authorization Act of 2008) and the USD 6 billion award against Libya in the UTA bombing case, and al-Qadhafi’s view that Libya had not been sufficiently compensated for its decision to give up WMD and renounce terrorism. Al-Qadhafi passed a copy of his recent letter to the President on the subject (ref B) to Mulva. Telling Mulva that he and his fellow U.S. oil company CEOs needed to engage members of the U.S. Congress and the Administration on the matter, al-Qadhafi threatened to dramatically reduce Libya’s oil production and/or expel out U.S. oil and gas companies. Al-Qadhafi claimed Libya would rather “keep its oil in the ground” and wait for a more favorable overseas investment climate than continue high levels of production in an environment in which sizeable portions of its oil-related assets could be seized.
3.(C) In a related development, Exxon-Mobil Country Manager Phil Goss told P/E Chief that Shukri Ghanem, Chairman of Libya’s National Oil Corporation, had chastised him during a meeting on February 25 for nearly an hour on the “dire political signal” represented by the Lautenberg Amendment and the UTA judgment. Ghanem told Goss that U.S. oil and gas companies should “tell Washington” that Libya was serious in its threat to “significantly curtail” its oil production as a means to “penalize the U.S.” for Lautenberg and UTA. According to Goss, Ghanem — a U.S.-educated former Prime Minister — was emotional in insisting that Libya “would not tolerate” Lautenberg and UTA without taking some retaliatory measures. Privately, Goss questioned whether the GOL could really afford to significantly curb oil output at a time when it is making massive investments in infrastructure as part of the run-up to the 40th anniversary of the military coup that brought al-Qadhafi to power on September 1, 2009. Stressing the erratic nature of decisionmaking in the GOL, Goss was careful not to rule out the possibility that Libya could choose “to do something stupid”.
Days later, a discussion to focus on three major outstanding claims cases in US venues: Pan Am 103, LaBelle, and UTA is urged. Plans to settle and use the high-profile case to “find a mechanism to mitigate the effects of Section 1083” are made by Libya and US officials. This indicates that the US was likely seeking to use the power of Section 1083 to force a pay out from the Libya government before finding a loophole for US-Libya business relations to return to normal.
New Freedom to Establish Position in a Lucrative Market
By August, the two countries managed to come to an agreement over Section 1083 and the outstanding claims cases in US courts. The reaction to the agreement was favorable. 08TRIPOLI666 summarizes:
Reaction among ordinary Libyans and well-informed contacts to news that the U.S. and Libya finalized a comprehensive claims settlement agreement has been enthusiastic. Coverage in state-owned media has been positive but limited, in part to minimize questions about the parameters of the compensation package and potential criticism from old guard elements. Some informed contacts have characterized the agreement as a “grand opening” in U.S.-Libyan bilateral relations, as compared to the “soft opening” between the re-establishment of diplomatic ties in 2004 and the signing of the claims agreement in 2008. There are high expectations in some quarters that the U.S. will seek to capitalize on the new tenor of the relationship to press Muammar al-Qadhafi to open further political space – particularly with respect to respect for human rights, freedom of the press and an expanded role for civil society – in what remains a tightly-controlled society.
Additionally, the diplomat who authored this cable comments, “There is also the belief that expanded political and economic engagement with the U.S. and the West, which is expected to accelerate with the lifting of the Lautenberg Amendment and potential asset seizure, will help solidify internal Libyan reforms undertaken in recent years. Many Libyans hope that expanded engagement with the U.S. will include U.S. advocacy for political reform and greater respect for human rights. A key challenge for al-Qadhafi will be to temper expectations that fully normalized relations with the U.S. will prompt an immediate shift in the nature of the regime and its reluctance to move quickly on political reform.”
Sec. of State Rice Travels to Libya to Seal the Deal
On September 5, 2008, Secretary of State Rice traveled to Libya. One of her key objectives was to help come up with a solution to this Lautenberg Amendment kerfuffle. A “scenesetter” was prepared for Rice so she could be prepared to help mediate this conflict over US company operations in Libya. It reads:
10. (C) Libya’s economy is almost entirely dependent on oil and gas. Libya has the largest proven oil reserves (43.6 billion barrels) and the third largest proven natural gas reserves (1.5 billion cubic meters) on the African continent. Libya currently produces about 1.7 million barrels/day of oil; only Angola and Nigeria produce more in Africa. Oil and gas infrastructure suffered during the sanctions period. The lifting of sanctions has opened the way for new exploration and improved production. New technology and refined management techniques introduced by international oil companies (IOC’s) are a key part of Libya’s plan to increase oil production to 3.0 million barrels/day by 2013. Most of Libya’s oil and natural gas are exported to Europe – Italy, Germany, Spain and France are key customers. Major U.S. energy companies active in Libya include Amerada Hess, ConocoPhillips, Marathon, Chevron, ExxonMobil and Occidental. Joint ventures involving U.S. companies currently account for about 510,000 barrels/day of Libya’s 1.7 million barrels/day production. A large number of small to mid-sized U.S. oil and gas services companies are also working in Libya.
11. (C) After years of isolation under sanctions and limited spending by the GOL, Libya is currently in the midst of an economic boom, partly driven by a desire to complete large-scale infrastructure projects as tangible symbols of the regime’s achievements in advance of the 40th anniversary of al-Qadhafi’s revolution on September 1, 2009. High oil prices have helped fuel the outlays. Western companies, eager to establish a position in what is expected to be a lucrative market, are arriving in sizeable numbers. A temporary pause prompted by adoption of the Lautenberg Amendment in January 2008 and concern about asset seizure is coming to an end on news of the comprehensive claims agreement. XXXXXXXXXXXX Despite great promise, Libya remains a challenging business and investment environment. Contradictory regulations, inefficient government bureaucracy, limited human capacity and rampant corruption (in 2007, Transparency International ranked Libya 133rd out of 180 countries in terms of being most corrupt) are significant challenges that could hamper greater investment.
The Washington Consensus think tank, the Council on Foreign Relations, notes Libya was designated a state sponsor of terrorism in the early 1970s after “Gaddafi established terrorist training camps on Libyan soil, provided terrorist groups with arms, and offered safe haven to terrorists” from groups like the Irish Republican Army, Spain’s ETA, Italy’s Red Brigades, and Palestinian groups such as the Palestine Liberation Organization.
The Pan Am Flight 103 bombing in 1988, the bombing of a French passenger jet over Niger in 1989, and the Libya-sponsored bombing of a Berlin disco that killed two US soldiers all helped keep Libya on the list. The Libya government was also believed to be in pursuit of WMDs.
In the late 1990s, the Gaddafi regime began to take steps that led the US to alter the designation. It began to offer to surrender its WMD programs and cut ties to terror groups. It finally agreed to compensate victims of the Pan Am 103 bombing and also sent a letter to the UN Security Council taking responsibility for the attack.
Most importantly, the past ten years have seen the world close in on peak oil (if that point has not been passed already). Libya, in the past few years, has begun to privatize and open up its resources to development and exploitation by foreign companies. US companies that are a part of USLBA have greatly benefited from measures, which US diplomats have been keen to advocate for in meetings with Libyan government officials.
The last thing USLBA companies want right now is to see revolutionary change that leads Libya to no longer be opened for business .
Photo from the NY Daily News