Energy Investment Criteria in Fragile Emerging States - The Case of Libya

Energy Investment Criteria in Fragile Emerging States

The Case of Libya A study conducted on behalf of Afren Plc May 2013

CALC

columbia afren libya capstone

About the Columbia Afren Capstone Team (CALC)

CALC is composed of seven second-year masters degree candidates at membership split between the International Security Policy and Energy and Environment programs. The team’s combined professional experience spans a wide range of sectors including: political risk analysis, strategic communications, international development, engineering, architecture, government, and military.

For more than 60 years, Columbia University’s School of International The curricula of SIPA’s seven degree programs all combine training in analytical methods and practical management skills to ensure that graduates are prepared to understand problems and implement solutions.

Students combine these core skills with a focus on a policy area of their choice, and they typically engage in a practice-oriented capstone or workshop experience toward the end of their studies. The School has a global reach, with a student body that is 50 percent international; 17,000 graduates in more than 150 countries; and educational partners in global cities such as London, Paris, Berlin, Singapore, Beijing, Mexico City, and São Paulo.

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© 2013 by the Columbia Afren Capstone Team.

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"Libya is starting from a low baseline and will have false starts, but more is going right than is going poorly.�

- Sir Richard Dalton Former U.K. Ambassador to Libya

**While Afren is considering investment in Libya as part of its ongoing business development efforts in which it looks at many countries, nothing however, has been concluded at the time of this report.

Energy Investment Criteria for Fragile and Emerging States The Case of Libya Table of Contents Executive Summary

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Stakeholders Introduction

2 3

Risk Variable Trends

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Scenarios

16 17

Recommendations

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Gaps (What we don’t know) Final Questions Appendix

23 24

Abstract Recommendations

Minimum Conditions for Investment Methodology List of Expert Interviewees Report Structure

Risk Definitions Evidence Trends Conclusions Likelihood & Impact Chart Scenario 1: Consolidation Scenario 2: Separation Strategic Operational

Security Incidents Map of Security Incidents

I. Executive Summary ABSTRACT As Afren Plc searches for investment opportunity in Africa, Libya stands out as a potentially attractive new region for business development. The country is a major regional oil producer with significant growth potential, but the 2011 revolution has thrown the government into chaos and its security into doubt. This project aims to analyze the security and political risk conditions under which Libya can attract new investment in the oil sector and under what scenarios Afren Plc is best equipped to invest. It identifies six key risk factors: security; institutions and governance; property rights; regulation; financial sector; and social license, and identifies important trends associated with these risks. Based on resulting critical uncertainties, the project describes two plausible scenarios for Libya in the next 18-24 months, along with a number of signposts. With the scenarios in mind, the project lays out a series of strategic and operational risk mitigation recommendations.

RECOMMENDATIONS Strategic: systematize geopolitical risk management in company decision-making.

Afren’s partnership with First Hydrocarbon Nigeria Ltd as a model. geographically.

Operational:

contracts. local hiring and community development prospects.

Petroleum Facilities Guard (PFG) for site security.

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II. Stakeholders General National Congress (GNC): Libya’s interim legislative body with 200 elected members, passing laws during the transition until the constitution is written and elections are held. The chairman of the GNC is President Ali Zeidan.

The two important issues that the GNC is considering at present are the political exclusion law and whether to select or elect the members of the constituent assembly.

National Oil Company (NOC): the state-owned oil company of Libya. It owns the majority of the country’s exploration and production assets. The NOC owns a number of subsidiaries and also has production-sharing agreements and joint ventures with international oil companies (IOCs). The chairman of the NOC is Mr. Nuri Balrwin.

Ministry of Oil and Gas: the nascent arm of the government meant to set oil and gas policy. The Minister of Oil and Gas is Mr. Abdubari Ali Al-Arousi. Once fully established, the Ministry will be responsible for framing the initial terms and timing of new Exploration and Production Sharing Agreement (EPSA) contracts.

Central Bank of Libya: an autonomous organization that maintains monetary stability and sustained economic growth. Some of its functions include managing the Libyan currency as well as foreign reserves, and supervising foreign exchange, etc. The governor is Mr. Saddek Omar Elkabber.

Ministry of Finance: frames macroeconomic and fiscal policies, as well as banking regulations.

Ministry of Economy: regulates foreign investments, including joint ventures, as well as the terms of trade. The current minister is Mustafa Abufunas.

Ministry of Interior (MoI): created after the elections in July 2012, provides for security in Libya together with the MoD. Currently Ashour Suleiman Shuwail holds the position of Minister of Interior.

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Ministry of Defense (MoD): charged with securing the borders and providing security and stabilization to Libya. The Border guards and the Libyan Shield Force fall under the Ministry of Defense. The current minister is Mohammed Mahmoud Al-Bargati.

Brigades: organized groups of armed men that fought in the 2011 revolution.

Today they are split into two main groups, integrated either under the MoD or the MoI. One group, the Supreme Security Committee (SSC), is centered in Tripoli and is currently under the umbrella of the MoI. The full integration of the SSC under the MoI remains problematic. The second group of brigades is the Libyan Shield Force, which falls under the MoD, is widely present around the country in places like Kufra, Sabha, and Zintan.

Local Tribes: Libya’s tribal landscape is divided amongst three large groups: Tuaregs in the West, Tebus in the Southeast, and Berbers in the North of the country. There are also small tribes mostly concentrated in the East except for the Zintan tribe which is close to Tripoli in the West.

Militias: often incorrectly used as a sweeping statement that includes all armed groups including brigades, militias are largely Islamist groups under the umbrella name Ansar al-Shariah. Ansar al-Shariah is more of a label than an organization and has been adopted by conservative Salafist groups across the Arab world. The name means, simply, "Partisans of Islamic Law".1

III. Introduction As Afren, Plc searches for economic opportunity across the African continent, Libya stands out as a potential new region for business development. The country is a major regional oil producer and has significant growth potential with 47 billion barrels of proven reserves.2 However, the 2011 revolution has thrown the country’s government into chaos and its security into doubt. These events have aggravated the political risk of the Libyan oil sector, on top of the technical and economic risks that companies face on any project. Nevertheless, investment in Libya, if initiated at the right time, could serve as a platform to diversify Afren’s production portfolio through lucrative exploration and production sharing agreement (EPSA) contracts. To that end, Afren has retained the Columbia-Afren-Libya Capstone Group (CALC), a project of the School of International and Public Affairs, to explore Libya’s political risks and to advise Afren on the path forward, including risk mitigation measures. This report represents the results of CALC’s research.

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Minimum Conditions. Certain conditions must be present in a country for an oil company to consider investment. These depend on the dispositions of the companies and countries involved. Afren has a track record of investing in post-conflict states and is known for its relatively high risk tolerance compared to its competitors. Accordingly, for Afren to consider Libya, at minimum the country must be able to:

negotiate and sign contracts with oil companies as a recognized counterparty.

It is CALC’s conclusion that Libya is, or on track with, meeting, these minimum conditions for investment consideration. For Afren to initiate a project in Libya, however, it would be well served to examine, confront, and address a wider array of potential political risk factors.

Methodology. CALC is composed of seven second-year masters degree candidates at Columbia University’s School of International and Public Affairs, its membership split between the International Security Policy and the Energy and Environment programs. CALC conducted its political risk analysis under the direction of Professor Adam L. Shrier, Columbia University, and Osman Shahenshah, CEO, Afren Plc, combining desk research with telephonic interviews. Interviews were held both on and off-the-record with a total of 13 subject-matter experts in energy issues, Libyan politics, finance and security.

Interview subjects were: Ali Aujali, Libyan Ambassador to the United States; Henry Ensher, U.S. Ambassador to Algeria; Sir Richard Dalton, former U.K. Ambassador to Libya (1999-2002), Chatham House; Al Marchetti, VP International Affairs, Hess Corporation; Christopher Chivvis, Senior Political Scientist, Rand Corporation; Adrian Creed, Partner, Clyde & Co., a commercial law firm with operations in Libya; Leopold Zetner, Senior Associate, Clyde & Co.; Tarek Alwan, Managing Director, SOC Libya, an investment consulting company.

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Off-the record interviewees include: The Libya Chief of Party for a major international development contractor; U.S. Government economic official with responsibility for Libya; Libya field advisor with an international electoral assistance organization; Government Affairs executive with a major international oil company; Executive at a pipeline services firm with operations in Libya; Executive at a logistics firm with operations in post-conflict environments.

Report Structure. The report will be structured as follows: Section II will examine Libya’s major political risk factors in the context of recent events and delineate important trends. It will then align these trends with Afren’s own risk mitigation framework. Section III will identify the critical uncertainties facing Libya and will describe two plausible scenarios for the country in the next 18-24 months, along with a number of signposts. With the scenarios in mind, Section IV will lay out a series of risk mitigation recommendations. Section V will discuss the limits of CALC’s research. Section VI will conclude with further inquiries that Afren may pursue.

IV. Risk Variable Trends Institutional/ Governance Risk The risk of losses due to instability and the transitional nature of the government and its institutions.

Evidence: The Libyan constitutional process is still in its infancy as the GNC struggles to appoint a constituent assembly. Libya’s current constitutional procedure, found in Article 30 of the constitutional declaration has now been amended twice, on March 13, 2012 and on July 5, 2012. The process of forming the constituent assembly has been delayed due to the GNC’s inability to decide whether to select or elect members. On April 11, 2013, however, the GNC finally opted to elect members of the constituent assembly.3 A series of events slowly moving towards the process of writing a constitution for a democratic Libya, though with a lot of mistakes and roadblocks, signals that the transition so far is on the right track, though is moving at a slower than expected pace.4

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The current politics of the country are also very much in flux, and the state has little history of party involvement, which was outlawed by the previous regime.5 The GNC is unusual in that only 80 of its 200 parliamentary seats were open to election by party ticket in July, the rest being reserved for various independent candidates from Libya’s three regions.6 The current coalition government under Mr. Ali Zeidan consists of representatives from both the National Forces Alliance (NFA) and the Muslim Brotherhood's Justice and Construction Party (JCP).

The GNC has been slow in the process of drafting new laws. These include the Political Isolation Law, which would ban members of the Gaddafi regime from government; the Decentralization Law, which would establish regional autonomy; and the Law establishing a new National Army. The Political Exclusion Law especially has significant implications for the Libyan government and government agencies and has caused a lot of tension. On March 5, 2013, protesters held GNC members hostage demanding them to pass the Isolation Law forcing the chairman to suspend proceedings temporarily.7 The GNC on April 11, 2013 resolved that the Political Exclusion Law is constitutionally acceptable.8 Another trend defining the Libyan transition is the rising demand for more federalism among Libyans outside Tripoli. Celebrating the second anniversary of the revolution in Benghazi, people expressed displeasure in the concentration of power in Tripoli.9 The Libyan transition is thus largely defined by the emergence of local power centers as well as rivalries between armed groups from different tribes and cities. The government at Tripoli is aware of the situation of this rising 10 discontentment. In November 2012, in an attempt to address demands to decentralize authority of the oil ministry and expand administration outside of Tripoli, the oil minister announced plans to separate refining and petrochemicals activities from the National Oil Corporation (NOC) based in the east of the country, with a 11 branch in the west. However, the issue still remains a cause of tension that needs to be resolved.

Trends: The process of writing the constitution is moving at a slower than expect ed pace. While civil unrest and general public frustration seem to be on the rise as a result of a slow and interrupted constitutional process, the risk of a major uprising challenging the de facto government in charge is unlikely.

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Trends (cont.): The system of personalized politics and decision-making that has persisted for so long makes the process of institution building in Libya slow and difficult. There is also a major distrust in government agencies owing to its lack of transparency. Massive civil unrest however remains a risk and will cause an extremely destabilizing effect upon its occurrence.

The perception of the concentration of power and authority in Tripoli has caused discontent and there is a rising demand for decentralization. The government has not been able to resolve the situation and it is difficult to predict which way the future will unfold.

The failure of the government to write a constitution and establish a legitimate rule of law would result in chaos endangering foreign business. The highly transitional nature of the constitutional and political process complicates the search for a credible counterparty in any future oil investment.

Security Risk The risk of property damage or loss of life due to violence such as terrorism, crime, tribal conflict, and civil strife.

Evidence: The attacks on the American Embassy in Benghazi last year and on the gas complex in Algeria in January have made many oil and gas companies uneasy about the prospects for safe and successful investment in North Africa. Two major sources account for this risk: Islamist militias and locally raised brigades of former revolutionaries.

Militias During the Libyan revolution Salafist groups endorsed efforts in Libya to topple the Gaddafi regime. These groups are organized in separate militias and take strength from the regional power vacuum and from the expansion of Al Qaeda in the area. However, the militias have limited operational capacities and account for less than two percent of the number of armed groups operating in the country.12 The trans-border characteristic of jihadist groups operating across the Sahara pose a security threat to oil facilities. Loose border controls and the desert terrain allow terrorists to move freely. The conflict in Mali has provided a safe haven for terrorists operating in the region. Algerian officials stated that militants who seized the In Amenas gas field traveled through Niger and entered through the Libyan

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border, just 30 miles from the facility. Weapons are also allegedly being smuggled into Mali from Libya, and there is fear that Islamist militants may be flowing in the other direction seeking refuge from the fighting there.

Brigades Since January 2013, competition for resources has triggered armed confrontations among brigades, centered at least partly on ethnic and tribal allegiance. These events have targeted the Libyan government, rather than Western interests, through selective kidnappings and killings of officials. In response, the government has raised the idea of imposing a curfew in Benghazi due to the increase in violence in which the vast majority of the victims have been security officials and policemen.13 Related tribal clashes include those between the Zintan and the Shegayga last year that killed over a hundred,14 as well as between the Zway and the Tebu.15 Access to paid jobs for securing oil and gas facilities has been a source of ethnic clashes including the March 2013 dispute between the Zintan and Zuara tribes at the Mellitah oil and gas complex.

The government is attempting to address the country’s persistent security challenges through its recent announcement to expand of the Petroleum Facility Guard (PFG), an armed detachment of the National Army deployed to secure oil and gas facilities, from 3,000 to 12,000 men.17 However, this expansion may be slowed by the competition for manpower among the Interior and Defense Ministries and the recently established Warrior’s Affairs Committee, an institution created under the prime minister’s office to integrate revolutionary fighters providing educational and economic incentives. Another encouraging development is the government’s welcoming of a EU border security technical assistance mission to help the country re-establish credible control of its frontier.

Trends: brigades. and National Army reform are unlikely until there is a constitutional settlement. in-arrears could aggravate the economic incentives for extortion and kidnappings.18

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The record of recent security incidents since January 2013 indicates:19

near term long term

Security incidents can cause major disruption to operations, even to the point of shutting down facilities. Due to the persistent pattern of low level violence and continued presence of armed non-state actors, the likelihood of security incidents is worrisome. However, the nature of the attacks reflects ethnic and socioeconomic tensions, rather than anti-western animus.

Regulatory Risk The risk of losses due to changes in regulation and legislation, short of expropriation and nationalization, which impedes an international oil company’s ability to conduct business.

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Regulations for foreign companies were enacted by the National Transitional Council (NTC) and the GNC after that. The new government, through the Ministry of Economy, has issued contradictory decrees affecting FDI and the creation of joint ventures: Decree No. 103 (2012); Decree No. 207 (2012); and Decree No. 22 (2013).i These decrees have targeted the shareholding structure altering the maximum engagement percentage for foreign partners.21 Legislation and regulations, written before and after the revolution, result in a complex and confusing body of laws. This poses a significant challenge for companies to understand what is required of them.22 Libya’s tax regime was reformed in April 2010 aimed to attract foreign investors.

All local source income is subject to income tax at progressive rates (10 to 40 23 percent) and profits are subject to a corporate tax rate of 20 percent. As a result of individual negotiations between the foreign company and the Libyan tax authorities, these enterprises tend to enjoy favorable tax exemptions.

Libya’s labor market is heavily regulated with specific provisions regarding minimum wage, working hours, night shift, dismissal procedures and training requirements.24 Joint venture companies and branch offices of foreign companies have the right to recruit non-Libyan nationals for positions that cannot be filled by Libyan nationals. However, at least 75% of a company’s workforce must be made up of Libyan nationals, and in some sectors, some positions can only be filled by nationals.25 Trends: bureaucratic delays and lack of transparency in project approval; under developed transportation and communications infrastructure; lack of clarity in investment laws; a small domestic market, and a large informal sector. i

Decree 103 (2012) maintained the 65% foreign – 35% national structure for joint stock companies but allowed foreign shareholding to be as much as 80% under certain circumstances. However, the Ministry of Economy, facing pressure from factions that favor tighter regulation on foreign investment, changed this decision. Thus, Decree 207 (2012) raised the minimum engagement required for the Libyan partner from 35% to 51%. Under exceptional circumstances, with permission from the Ministry of Economy, a foreign company can increase its share in the joint stock company to 60%.

In January 2013, the Ministry issued Decree 22, which amended some of the provisions of Decree 207. An extension was granted for joint ventures that were established prior to Decree 207 allowing them to amend participation to comply with the 49% foreign - 51% Libyan participation rule.

Decree 22 states that the extension expires when all business-related laws and decrees have been reviewed. However, no date to conclude such review has been established.

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Changes in laws relating to taxation and/or corporate organization, if done erratically and arbitrarily, will significantly complicate doing business in Libya by affecting profits. However, under most circumstances it will not threaten a company’s ability to operate. All evidence suggests that until and even after the Libyan Congress enacts a constitution, contradictory decrees and laws will continue to be issued as Libya struggles to formulate consensus on the correct disposition of the oil regime in the national interest.

Financial Risk The risk of incurring losses due to changes in the state of a country’s financial markets and the trajectory of its fiscal and monetary policies.

Additionally, a recent law banning the collection of interest on loans and other financial agreements would stymie the nascent financial market unless credible Islamic finance products and institutions are installed.28 While the Central Bank of Libya has some discretion as to when this law goes into effect, the overhang of this potential ban is a risk to companies with financial arrangements in the country.

The greatest financial uncertainty to foreign oil companies investing in Libya may well be the country’s unsustainable budget trajectory. At present, the government is spending more than ever before on public employee salaries, subsidies and reconstruction projects, even as it is collecting less money from oil production due to lingering facilities damage. While the government has begun on the path towards subsidy reform and payroll reductions, the IMF predicts a budget deficit by 201529, if not earlier.30 Though the government has taken constructive steps and may right its finances soon, an oil producing nation slipping into a budget deficit could result in attempts to extract additional resource rents--or, for that matter, to accelerate programs to open new areas to exploration.

Trends: The Libyan Government maintains a stable currency peg as well as business friendly exchange policies backed by strong reserves. Medium and long term fiscal pressures may impact the viability of these positions in the long term.

The Libyan Government is running an unsustainable fiscal balance in the long run. Without reforms to subsidies and payrolls, the state will erode its wealth.

The Government of Libya has begun the slow process of subsidies reforms31, and while it has begun a much needed investigation into identifying its effective work force, more needs to be done to ensure that payrolls fall.

The reaction of the government to chronic fiscal imbalances in terms of oil-company relations is uncertain.

The financial sector in Libya is “shallow�, and the possible introduction of interest bans without Islamic finance available might further hamper the nascent non-oil private sector.

While oil companies are largely divorced from these concerns, the failure of private sector development will magnify other risks, such as loss of social license and security risks.

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In the long-term, fiscal imbalances can put pressures on the Libyan macroeconomic system that could impact other risk categories such as property rights, regulations, and social license. However the likelihood of an unstable currency in the short-run is not high.

Property Rights The risk of nationalization, expropriation, and contract default or cancellation by the host country.

Evidence: Despite cases of attempted nationalization and expropriation of oil companies and their assets in the 1970s, no significant attempt has been made in the past couple of decades.

Since the revolution, however, nationalistic sentiment has gained some voice.32 In February, Libya’s oil and gas minister al-Arousi called for a review of oil and gas agreements to determine if they were “in the interest of Libya and its people.”33 Adding to the the oil minister’s February remarks, Deputy Prime Minister al-Qadi warned contractors to resume operations at the risk of losing their contract, implying that force majeure is no longer a viable argument for contractors that fled the country during the revolution.34,35 Nevertheless, interviewed experts agree that among the Libyan elite, FDI in the oil and gas sector is valued as a source of wealth for the country.36 Given the limitations of its technological capacity it is highly unlikely that new contract terms will be more favorable to Libya.

A committee led by the Ministry of Oil and Gas met in March to begin drafting “a new petroleum law that is free of complications inherited from the previous regime in a way that would serve the Libyan people and encourage foreign investment."37 Reform that brings Libya more in line with international standards (namely OPEC) alleviates nationalization/expropriation risk. However, there is uncertainty as to what exactly the new law will entail.

Presently, the Libyan transitional government is in the process of returning private property expropriated under Gaddafi to Libyan citizens, and ownership rules remain ambiguous.38 According to Libyan customs, the “owner” of a property is the entity that occupied that property.39 When a company may abandon its offices, namely in the event of a security incident, it risks losing its property.

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Libya will continue to rely on oil revenue to offset its budget deficit, and any approach the government chooses in securing those revenues (i.e. tougher terms or liberalization) will have property rights implications. It is also important to note that the last time IOCs were faced with significant threats of expropriation in Libya was following a regime change in an attempt to redistribute wealth.

Trends: the new Libyan regime. have the technical capacity to operate oil exploration and production facilities. companies’ property ownership in cities. contract terms and revamp Libya’s oil and gas law underlines a higher result in more favorable contract terms to outside investors.

Nationalization/expropriation would terminate Afren’s business in Libya and, given Afren’s relative lack of investment diversification, nationalization/expropriation would potentially put the entire company in jeopardy. That said, given Libya’s need for foreign investment to increase oil revenues and its lack of indigenous technical capability, recent trends indicate that such an event is unlikely.

Social Risk The risk of host community action resulting from potential environmental or social impacts of company operations.

The Libyan government recognizes the dependence of hydrocarbons to the econois interested in further developing infrastructure and talent through foreign investment.40 41

This is also demonstrated by the Libyan national reaction to the death of the 14

Given high unemployment rates and limited opportunities in the non-petroleum sector, IOCs are expected to create job opportunities in host communities. Failed expectations can lead to social agitation as seen in the recent clashes over local jobs in transportation and security at Ghani and Dahra oilfields and the Mellitah gas complex.42 Furthermore, armed groups can exploit local grievances, exacerbating the social risk. This risk is especially acute if the writ of the state is weak and it is not able to control volatile situations.

The IMF’s Article IV Consultation Conclusion calls on Libya to diversify its’ economy, create employment opportunities in the private sector, and reduce 43 dependence on hydrocarbons. Economic diversification will make Libya’s economy less vulnerable to oil shocks and ease macroeconomic management.

Trends: commit to developing indigenous hydrocarbon production capacity to bring employment opportunities, especially for unskilled labor in consultation with local and tribal leaders operations, which can be aggravated by limited state capacity to control incidents The absence of social license poses operational and reputational risks for Afren, more so if armed groups are able to exploit social discontent. Given the general attitude towards foreign oil investment, social risk is moderate, although it can be aggravated by wider economic and security conditions.

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V. Likelihood and Impact Chart High Expropriation & Nationalization

Security

Financial

Governance

Regulatory

Social

Low

LIKELIHOOD

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High

VI. Scenarios The present condition of the Libyan state portrays a situation of constant transition and confusion. Despite clearly delineating the variables, it is clearly evident that these trends are interrelated and affect each other. A scenario approach therefore might provide a basis for combining these trends and map out alternative paths by which these variables will unfold into plausible futures. From the variable and trends described above, the security related uncertainties and the governance and institutions related uncertainties have high impact and moderate to high likelihood. Two different scenarios have been constructed based on these uncertainties.

They concentrate on the two above-mentioned uncertainties and try to weave together various interlinked dynamics that result in two plausible futures in the short to medium term.

The two scenarios are based on two different outcomes related to the issue of federalism. The “Consolidation” scenario tells a story about a future where the decision-making happens in Tripoli while the “Separation” scenario describes a future where decision-making is dispersed. Neither scenario is meant to be a “best case” or “worst case.” Both have substantial pros and cons and both and are meant to provoke Afren into thinking about all the risks.

Scenario 1: Consolidation

The Libyan government is successful in achieving a number of substantive improvements in governance, security, and policy and is able to change the conversation away from regionalism towards a centralized state. The Libyan government maintains managerial continuity in the institutions of state power, like the National Oil Corporation and the central bank, while also moving forward on drafting a new constitution for the nation. In deciding how to choose a constitutional assembly, the government errs on the side of selecting experts, scholars, and respected national leaders. This results in a speedy constitutional settlement, but one which lacks input from regional interests and leaves federalism behind.

With the strengthened legitimacy of the central state, Libya accelerates the reintegration of unaffiliated armed groups into the national army. However, the centralized constitution undermines the consultative process needed to negotiate these groups’ futures, and brigade commanders are suspicious of what a single

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command in Tripoli might mean. Thus, the settlement hardens the post-revolutionary bifurcation of Libyan forces between brigades loyal to the Ministry of the Interior and brigades loyal to the Ministry of Defense. Security quickly improves, and radical Islamist militias are driven out of the country, but since neither the MOI nor the MOD has the incentive to reduce its own ranks, the country is left with bloated armed forces and a long-term payroll burden. Worse yet, the government has sown the seeds for institutional rivalry and power struggle for years to come.

The new central government in Tripoli begins to seriously tackle its fiscal problems, reforming or eliminating across-the-board subsidies on food and fuel, introducing targeted cash hand-out programs, and radically reducing its unproductive civil-service payroll. In doing so, Libya strengthens its budget prospects, freeing up government revenue for longer term improvements to infrastructure, education, and development. However, in the short-term, the release of tens of thousands of citizens from steady paychecks causes widespread popular discontent, especially in the more densely populated coastal cities. This government’s choice to forgo a widespread purge of capable officials with ties to the former Gaddafi regime only aggravates the perception that the state is favoring elites at the expense of the people.

Impacts for Afren: The Libyan government is able to assert decision-making authority over key sectors, preserves existing EPSAs and begins a new bidding round for oil and gas exploration and production. While terms are more favorable to oil companies than they were during the record-breaking deals of the late Gaddafi period, they do not become especially lucrative when compared to other countries in the region. The improved security environment encourages new entry by a variety of companies, and thus competition, and the stabilization of Libya’s fiscal position means that the government has no need for a fire-sale. That said, the government is struggling with its incapacity to provide widespread private sector opportunities for its newly unemployed population, and may be willing to give better terms to a company that can provide needed development programming along with its oil investments.

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Scenario 2: Separation The Libyan government initially struggles with the dispersion of power left after the fall of Gaddafi, and the federal state which takes shape, while democratic, is a radical departure from the centralized apparatus he left behind. The General National Congress begins a program to transform the fundamental organs of the Libyan state, like the national oil company and the central bank, splitting their offices, staffs and powers between Tripoli and Benghazi to accommodate the new reality of strong regional governments, all who want a say in the nation’s future.

The government slowly moves towards a constitutional settlement, but is delayed again and again by new events, regional demands, and ongoing consultations with leaders across the country. The resulting Constitutional Assembly, while not wholly composed of Libya’s finest political or academic minds, is a fair regional representation of the new Libya. The document which comes out of the assembly is a mandate for federalism and shared duties between the central government in Tripoli and Libya’s long neglected regional interests.

One consequence of Libya’s long and winding road to political accord is the successful reintegration of much of the country’s unaffiliated armed groups.

Brigade commanders across the country, uncertain about the future of their organizations and their own personal power in the new Libya, are assured that their interests are being represented through the new regional structures. The disarmament, demobilization and reintegration (DDR) process is accelerated and the national army, supplemented by regional security forces, is able to bring security back to Libya in the medium term. However, concerns remain as the national and regional governments struggle to settle on responsibility for border protection and the fight against Islamist extremist militias remains disorganized for some time.

Throughout this period the government in Tripoli struggles to decide how to put its fiscal house in order. In the hopes of driving support for the new constitution, the state puts off further reforms to subsidies and bloated government payrolls, and appeases popular demands to purge high level officials from government with ties to the former regime. The resulting bureaucratic instability, both from the splitting of critical government departments and the lack of capable managers, leads to a slowdown in government policymaking in both the oil sector as well as in the wider private sector. When policies are made, they are often countermanded and serve to discourage all but the hardiest investors.

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Impacts for Afren: The split of Libyan government departments between Tripoli and Benghazi creates possible arbitrage opportunities for companies willing to take the continued risks in Libya. EPSA terms will differ across regions as each tries to attract investment, but given the national government’s overall fiscal stress, and an unwillingness by many companies to be the first ones in, the terms will be very favorable. That said, Libya’s dispersed constitutional settlement slows down decision-making in its first years and a new bid round is only announced relatively late. In the long-term, however, the capacity of the government to reduce its fiscal burdens is put in question and the national government begins to carefully review its recent contracts with oil companies to see if they are in the interests of the people of Libya.

VII. Recommendations Strategic Recommendations 1. Establish distinct assessment & monitoring responsibilities to systematize geopolitical risk management in company decision-making.

In keeping with Afren’s “High” rating for geopolitical risk on its likelihood and impact chart,44 Afren should staff qualified personnel that fill key positions responsible for assessing and monitoring political risk in countries of operation.

Currently, Afren tentatively assigns this responsibility to EHSS and Country Directors who have other responsibilities.45 A permanent geopolitical risk assessment capacity could take two forms. First, individuals with intimate knowledge of political dynamics of their assigned countries could support Country Directors. They would monitor national and local politics and would liaise with government parties, supplementing the Country Directors’ relationships with critical decision-makers. In the near term, Afren should appoint a Tripoli-based associate to collect information while Afren builds its capacity at its headquarters.

Second, Afren should establish a small, centralized team to monitor regional dynamics and consider risks from countries neighboring Afren projects. The team would provide Afren the ability to surge resources and focus at critical times in specific countries. It would also research new regions or countries where Afren lacks robust intelligence and existing networks.

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2. Identify ways to develop Libyan domestic oil production capacity, using Afren’s partnership with First Hydrocarbon Nigeria Ltd as a model.

Libya’s lack of indigenous technical capacity with respect to the energy sector provides Afren with an opportunity to distinguish itself in negotiations with the Libyan government. By drawing on Afren’s demonstrated leadership with First Hydrocarbon Nigeria Ltd (FHN), where it assists the Nigerian government in developing indigenous production, Afren can identify a means to translate such a model of partnership to the Libyan context. In the near term, Afren should identify Libyan professionals or organizations to steer the formation of the company.

3. Expand into Libya’s renewable energy sector.

According to a Libya Herald special report titled “Libya’s Investment Needs 2013,” Libya has the second highest levels of solar irradiation in the world as well as numerous geographic areas that have high average wind speeds. This provides another means to partner with the Libyan government to develop its indigenous technical capacity in renewable development, a lucrative market for energy export to Europe, and the opportunity for Afren to diversify its own technical expertise and asset base. In addition, Afren can highlight that such investment could be a critical tool for developing a vibrant non-petroleum private sector in the country.

In the near term Afren should formulate a business plan involving outside technical partners with renewable energy expertise.

4. Diversify investment in Libyan energy institutionally and geographically.

Afren should develop cordial ties with both the Ministry of Oil and the National Oil Corporation. It remains unclear which of these bodies will exert greater influence, therefore Afren needs to avoid the appearance of bias. Furthermore, Afren should consider investing in more than one region or basin to arbitrage political leverage in the case of regional factionalism.

Operational Recommendations 1. Sign open-ended long-term contracts Afren should sign long-term contracts with stability clauses that adequately protect their assets against political turmoil. These contracts should ensure that changes in oil resource laws, as well as constitutional settlements, do not negatively impact Afren's interests. Possible clauses may include: non-renegotiation agreements; reserve funds in third countries; international arbitration requirements.

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2. Conduct extensive due diligence on property rights prior to signing contracts.

In the wake of the 2011 revolution, the current government is investigating ways to return real estate property expropriated during the Gaddafi regime. This process may complicate international companies’ holdings and leases, especially because temporary vacancies could lead to a loss of title. Afren must safeguard unoccupied property--such as office space in Tripoli--in its contracts.

3. Conduct a social impact assessment of affected communities to evaluate local hiring and community development prospects.

The social impact assessment should identify a baseline of community assets and needs where Afren plans to invest, covering topics such as demographics, skills and income levels. This would anticipate local grievances and would allow Afren to avoid adverse host community action. It would identify hiring opportunities for Libyan nationals in technical and non-technical capacities and could assess voluntary programs to facilitate local community development in non-petroleum sectors. It would contribute to a local development strategy coordinated with the Libyan government and local leadership.

4. Ensure the presence of legitimate government forces such as the Petroleum Facilities Guard (PFG) for site security.

Since the 16 January 2013 attack on the In Amenas gas facility in Algeria, oil companies operating in the region have begun to accept host nation armed guards to provide site security as a prudent measure against the ongoing threat from regional armed actors. PFG presence could prevent entanglements in local tribal or militia politics over security provision.

5. Minimize in-country cash until the interest rate issue is resolved.

The financial sector in Libya is shallow, and the possible introduction of interest bans without an underlying Islamic finance system might further hamper the nascent non-oil private sector. While oil companies, which normally retain third-party banks to manage their international payments and financial transactions, are not directly affected by these concerns, a breakdown in in-country financial payments could lead to more drastic financial actions such as exchange restrictions, leading Afren to lose access to dinar-denominated cash.

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VIII. What We Don’t Know CALC successfully interviewed fourteen industry, regional, security, and civil society experts. The group also closely followed events in Libya since the 2011 revolution and their implications for the oil industry in North Africa. However, given the project’s focus on desk research and expert interviews, CALC had a limited scope of information, and lacked access to important field intelligence such as Libyan citizens’ views on the trajectory of the security situation, their opinion of international oil companies and outside investors, among other factors.

Apart from the problems of distance, CALC also faced the challenge of not having insider information. This includes:

negotiations in Libya.

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IX. Final Questions Going forward in the investment process, Afren will need to conduct further research in order to take advantage of favorable conditions for investment as well as manage against the political risks explained above. Owing to the transition currently unfolding in Libya and limitations to CALC’s research, a more detailed and informed inquiry will better aid Afren’s investment plans. Listed below are a few questions that Afren should consider before deciding on a Libyan Investment strategy. bidding?

mitigating investment and financial risks?

interest, and what is their historical relationship with the Libyan government? surrounding prospective Afren operations? personnel?

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X. Endnotes 1

CNN, “What is Ansar al-Sharia, and was it behind the consulate attack in Benghazi?” http://www.cnn.com/2012/11/16/politics/benghazi-an sar-al-sharia (November 2012).

2

U.S. Energy Information Administration, Libya Analysis, http://www.eia.gov /countries/country-data.cfm?fips=LY (retrieved April 22, 2013).

3

Valerie Stocker, “The Constitutional Commission will be elected and the political isolation law is constitutional, rules Congress,” Libya Herald, April 11, 2013 (http://www.libyaherald.com/2013/04/11/the-constitu ent-assembly-will-be-elected-and-the-political-isolation-law-isconstitutional-rules-congress/).

4

Phone Interview: Sir Richard Dalton, Associate Fellow, Middle East and North Africa Programme, Chatham House, March 4, 2013.

5

Raymond A. Hinnebusch , “Charisma, Revolution, and State Formation: Qaddafi and Libya,” Third World Quarterly , Vol. 6, No. 1 (Jan., 1984), pp. 59-73.

6

“National Forces Alliance sweeps party lists as election results finally announced,” Libya Herald, July 17, 2012 (http://www.libyaherald.com/ 2012/07/17/national-forces-alliance-sweeps-paty-lists-as-electionresults-finally-announced/).

7

Libya Herald, April 11, 2013.

8

Libya Herald, April 11, 2013.

9

Houda Mzioudet, “Demands for federalism still strong in Benghazi despite celebrations,” February 17, 2013 (http://www.libyaherald.com/ 2013/02/16/demands-for-federalism-still-strong-in-benghazidespite-celebrations/).

10

Phone Interview: Christopher Chivvis, Senior Political Scientist, Rand Corporation, February 27, 2013.

11

Economic Intelligence Unit, “Libya Country Report,” February 2013.

12

Brian McQuinn, “After the Fall: Libya’s Evolving Armed Groups,” Small Arms Survey, Working Paper 12, October 2012, (http://humansecuri tygateway.com/documents/SAS_AftertheFall_LibyasEvolvingArmed Groups.pdf).

13

“Curfew mulled for Benghazi,” Libya Herald, January 17, 2013 (http://ww w.libyaherald.com/2013/01/17/curfew-being-mulled-for-benghazi/).

14

“Libya’s tribal clashes leave 105 dead”, BBC News, June 20, 2012 (http://w ww.bbc.co.uk/news/world-africa-18529139).

15

Michel Cousins, “New fatal clashes in Kufra,” Libya Herald, January 8, 2013 (http://www.libyaherald.com/2013/01/08/new-fatal-clashes-in-kufra/).

16

“Army secures Mellitah complex, some production still stopped,” Libya Herald, March 4, 2013 (http://www.libyaherald.com/2013/03/04/ army-secures-mellitah-complex-production-still-stopped/).

17

“Libya Oil Guards Protect Nation’s ‘Blood’ Against Enemies”, Bloomberg, March 7, 2013 (http://www.bloomberg.com/news/2013-03-06/libya oil-guards-protect-nation-s-blood-against-enemies.html).

18

Phone Interview: Chief of Party for a major international development contractor.

19

See Appendix for security incidents.

20

World Economic Forum, Global Competitiveness Report 2012 – 2013, Geneva: WEF, (http://www3.weforum.org/docs/WEF_GlobalCompeti tivenessReport_2012-13.pdf) 234.

21

Abdulla Boulsien, “The ‘Oligarch Decree’ is bad for business: Ali Zeidan’s new government must overturn it”, Libya Herald, October 31, 2012, (http://www.libyaherald.com/2012/10/31/the-oligarch-decree-is-badfor-business-ali-zeidans-new-government-must-overturn-it/).

22

Adrian Creed, “Libya: The Libyan Ministry Of Economy Issues New Decree Amending Decree No. 207 of 2012”, Clyde & Co., January 29, 2013, (http://www.mondaq.com/x/218322/international+trade+investment/ The+Libyan+Ministry+Of+Economy+Issues+New+Decree+Amending+ Decree+No+207+Of+2012).

23

Amellerer Legal Consultants, Doing Business in Libya: Opportunities and Challenges of the Transition, January 2013, (http://amereller.de/filead min/PDFs/ALC_Doing_Business_in_Libya_Jan_2013.pdf), 9.

24

African Economic Outlook, Libya 2012, (http://www.africaneconomicout look.org/fileadmin/uploads/aeo/PDF/Libya%20Full%20PDF%20Coun try%20Note.pdf) 13.

25

Ameller Legal Consultants, op. cit., 13.

26

International Monetary Fund. Libya - Staff Visit Concluding Statement.

Washington: IMF, 04 May 2012. (http://www.imf.org/external/np/ms/ 2012/050412.htm). Point 11

27

International Monetary Fund. Libya – 2013 Article IV Consultation Conclud ing Statement. Washington: IMF, 06 Mar 2013. (http://www.imf.org/ex ternal/np/ms/2013/030613.htm). Points 3,4

28

Ibid, Points 11,18.

29

IMF. Libya - Staff Visit. 04 May 2012. Point 14

30

IMF. Libua – 2013 Article IV Consultation. 06 Mar 2013. Point 13

31

Zaptia, Sami, and Ashraf Abdel Wahab. "The 2013 Budget: a Breakdown of the Main Sectors." Libya Herald [Tripoli] 22 March 2013 Web. 21 Apr. 2013. (http://www.libyaherald.com/2013/03/22/the-2013-budget-abreakdown-of-the-main-sections/).

32

Phone Interview: Sir Richard Dalton, Associate Fellow, Middle East and North Africa Programme, Chatham House, March 4, 2013.

33

Economic Intelligence Unit, “Libya Country Report,” February 2013.

34

“Deputy Prime Minister warns foreign contractors to resume work or lose contracts,” Libya Herald , March 22, 2013 (http://www.libyaherald.com /2013/03/22/deputy-prime-minister-warns-foreign-contractors-toresume-work-or-lose-contracts/).

35

“Foreign Contractors Resorting to Force Majeure under Libyan Law,” Libya Business News, July 20, 2012 ( http://www.libya-businessnews.com/ 2012/07/20/foreign-contractors-resorting-to-force-majeure-underlibyan-law/2/).

36

Phone Interview: Adrian Creed, Partner, Clyde & Co., March 6, 2013.

37

“Libya Begins Review of Oil and Gas Law,” Middle East Economic Survey, March 20, 2013 (http://www.mees.com/en/articles/7201-libya-begins-re view-of-oil-and-gas-law).

38

Brigitte Scheffer, “Libya Plans Law to Return Qaddafi Land, Buildings to Owners,” Bloomberg, February 27, 2012 (http://www.bloomberg.com/ news/2012-02-27/libya-plans-law-to-return-qaddafi-land-buildings-toowners.html).

39

Phone Interview: Sir Richard Dalton, Associate Fellow, Middle East and North Africa Programme, Chatham House, March 4, 2013.

40

Phone Interview: Adrian Creed, Partner, Clyde & Co., March 6, 2013.

41

Phone Interview: Al Marchetti, Government Relations, Amerada Hess, February 21, 2013.

42

“Clashes at Sirte Basin oilfields,” Libya Herald, March 20, 2013 (http://www. libyaherald.com/2013/03/20/clashes-at-sirte-basin-oilfields/).

43

International Monetary Fund, “Libya - 2013 Article IV Consultation Conclud ing Statement,” March 6, 2013 (http://www.imf.org/external/np/ms/ 2013/030613.htm).

44

Afren Plc, Annual Report: “A World Class Asset Base. Afren plc Annual Report and Accounts 2011, pp 21.

45

Afren Plc, ”Afren Corporate Risk Register Rev 05,” September 1, 2012, pp 6.

Appendix Major security incidents since January 1, 2013 Source: Libya Business News Security Weekly Incidents Update Report Date (excerpts) January 8 Fighting erupted in late December between the rival Qadhafa and Awlad Suliman tribes in Sabha’s al-Manshiya district, following a small altercation that escalated into violence. This led to several days of fighting by rival groups in the area. A separate report claimed that a cease-fire was now in place between the two tribes, which was overseen by the Awlad Abu Yousuf tribe.

Sabha, where Magarief and his entourage were staying, came under attack on the night of 3 January, two security personnel were subsequently reported to have been killed in the attack.

The area from Benghazi to Tocra, Al Abyar, and Al Marj, in addition to Derna and the Jebel Al Akhdar region also remained active.

January 15 According to the Ministry; crime has soared in Libya in the past year. The murder statistics and shop thefts represent alarming increases; 503 percent and 448 percent respectively.

The death of a suspected drug dealer, Najmi Ibrahim Al-Abani, on 6 January at the hands of the Al Nawasi Brigade in Fashloum (Triploi) triggered several days of demonstrations and unrest in the capital. Reports suggested that at least six deaths resulted from the clashes.

The initial fallout of the incident saw clashes in the Suq al Juma (Tripoli) region on 8 January, with some reports claiming the death of up to eight people. Four drug gang members were reported killed in the Gharat area on 9January and the Al Nawasi base inside the Mitiga Airbase was also reported to have been targeted.

The Libya Herald reported that unrest continued on 11 January when an estimated 100 young men, mostly from Tripoli’s Fashloum and Suq Al-Juma districts, gathered on Martyrs’ Square during the evening to protest against the Nawasi brigade.

January 15 (cont) Italy’s Consul-General in Benghazi, Guido de Sanctis, was attacked in the city late on 12 January. Gunmen were reported to have opened fire on an armoured minibus carrying the Consul-General.

The Libya Herald reported that a bomb was thrown at a police vehicle in Benghazi’s Kish district near Fuwaihat on the evening of 14 January. One police officer, believed to be the driver was reported killed.

January 20 The Libya Herald reported on 17 January the murder of Sheikh Fakhri Hussain Jahani in Misratah on 15 January. The sheikh was reported to have been killed in a hand grenade attack as he was leaving the Omar Ibn Khatab mosque after prayers.

On 19 January, the Ghadames local council reported that it was under siege by a group of militiamen positioned around the town; the council condemned the use of force and called for help to end the siege. During the past year, there have been several clashes in Ghadames and surrounding areas between Arabs and Tuareg who were accused of supporting Gaddafi during the revolution.

The recent spate of attacks against security officials and security locations in the Benghazi area has continued. On 14 and 15 January two police officers were killed in separate bombing incidents within the city.

January 29 The recent spate of murders seen in Misrata has continued, the most recent being the assassination of a local councilor on 26 January.

Two guards at the Sirte check-point were seriously wounded, 24 January after a group of 14 men opened fire on them. Gaddafi supporters’ from the Qasr Ben Gahir brigade were blamed for the attack. The Libya Herald reported the assassination on 24 January of a relative of an early defector from the Gaddafi regime during the revolution. The attack took place in the city’s al-Laithi district. The week has also witnessed the continued downward spiral of security in Benghazi.

Further security breaches of government buildings resulted in the temporary closure of the al-Jalah hospital in Benghazi on 24 January.

February 4 The attacks appear to be being perpetrated by the same constituency, namely Islamist extremists such as Ansar al-Sharia. There undoubtedly remains a serious security issue in Libya but that should not be applied in a blanket form to the whole country nor should it curtail carefully planned and risk assessed travel to Tripoli and other areas in the west of the country such as Zuwara, Az Zawiya, al Khums, Zlitan and Misrata, and coastal towns such as Ras Lanuf. The levels of violence remain localised to particular flashpoints such as Benghazi.

February 11 Concerns about Cyrenaican federalists protesting and also the potential for salafists to hijack the occasion.

Further up the coast to the east a car bomb exploded in Beida on 8th February near to security forces headquarters wounding 3 people.

February 18 Separately there was a small explosion, thought to be an Improvised Explosive Device at a hotel in Derna.

February 25 An own goal explosion has exposed the presence of an anti-government terrorist cell with ties to the Gaddafi regime in Bani Walid. The explosion occurred on Thursday and killed Yousef Rahim Dabia, a former member of Gaddafi’s Revolutionary Committees and the Khamis Brigade, and wounded two other cell members.

Along the coast a vehicle belonging to the Supreme Security Committee (SSC) in Ajdabia appears to have been targeted and blown up on Thursday wounding two members of the SSC. March 4 The trouble at the ENI and the Libya National Oil Corporation operated Mellitah complex started on 2 March with an exchange of fire between former fighters from Zuwara and Zintan over who should be guarding the critical gas complex.

March 4 (cont) The Mashashia and Qantrar tribes clashed again in Mizdah. Mizdah is some 150 km south of Tripoli. Clashes began on Friday following the death of a man. The clashes involving heavy weapons have killed and wounded a number of people.

The Army has sent units to try and mediate between the two tribes. Mizdah has been a hotbed of inter- tribal fighting even before the fall of Gaddafi.

Salafist extremists linked to the attack on the US Consulate and to the In Amenas refinery attack remain the greatest threat to western interests and citizens.

There were also tribal clashes in the al-Kufra Province in the far SE of Libya on the border with Egypt involving the Zwai and Tibu tribes.

March 11 Statement to Congress by General Carter Ham, Commander US Africa Command based in Stuggart, that the buyback programme for shoulder launched surface to air missiles (MANPADS) had had only limited success and that 1000s remained unaccounted for following the fall of Gaddafi and his regime.

The Petroleum Facilities Guard remains undermanned and poorly trained and this state of affairs is not being helped by using militia manpower to supplement it.

An uneasy peace reigns in Mizdah, following on from last week’s sustained clashes and tribal violence between Mashahia and Qantrar tribes.

March 18 There was an RPG attack in the early hours of 17 March on a police vehicle outside the Azzarouq district police station in Misrata. There were no casualties.

Finally, last night the home of SSC Commander in Tripoli’s Bu Sleem district, Abdul Ghani Kikli, was reportedly hit by an RPG last night.

Protests continue to hit Libya’s oil and gas sector, this time at Waha Oil’s Gialo 59 Field, south-east of Benghazi. The protests are over the use by an oil services company of labour from outside the local area.

March 25 Protests in the Oil and Gas sector ending at Waha but others occurring sporadically, such as Zueitina residents who took part in a sit-in outside the gates of the oil terminal near Ajdabiya;

March 25 (cont) There have also been a number of attacks in the south of the country centered upon Sabha with a prison break and then a serious attack on an airbase by some 150 fighters.

On 20 March clashes occurred in the Ghani oilfield between the incumbent guard force provided from the Jazira Brigade and members of the Jawdran Brigade. The oilfield, in the western Sirte Basin, is some 50 km north of the Zella oasis, and is operated by Harouge Oil, which is a joint venture between the National Oil Corporation and Petro-Canada. This is merely the latest in a number of such clashes over who should control the security of Libya’s oil fields with militias being incorporated to supplement an undermanned and inadequate Petroleum Facilities Guard.

April 2 An explosion damaged the tomb of Sidi Mohamed Landoulsi, a well-known Sufi shrine, in the Tajoura neighbourhood of Tripoli on 28 March. It is not clear whether this is an extension of the campaign by Islamist extremists to establish a wholly Sunni-based society but fits with the trend that has seen the intimidation of Christians in the east of the country.

Finally, there was an explosion that has caused extensive damage to the lower court building in Derna on 30 March. It is believed that an explosive device was left outside the building.

April 8 On 2 April the National Oil Corporation announced that there had been an explosion and fire on a section of oil pipeline linking Field 103 to the export terminal at Zueitina.

On 5 April there was a Vehicle Borne Improvised Explosive Device that detonated in Beida in front of a government building.

April 16 Concerns have continued to grow in the Oil and Gas sector particularly over security and the perceived lack of it, especially in the south of the country. The French oil services contractor, Ponticelli announced that it was withdrawing from Libya for security reasons. BP have been engaged with Nuri Berruien, the head of the NOC and the Oil Minister, Abdelbari Arusi, over security concerns.

April 16 (cont) A number of shootings have taken place this week from Ali al-Sharie, who was seen as a top former Gaddafi official in Derna having been its Secretary of the General People’s Congress.

The attack on the leader of Ansar al-Sharia took place also in Derna yesterday.

The local intelligence office in Shahat was also attacked this week with rocket propelled grenades, no casualties were reported.

Further south in Kufra tribal clashes have broken out again between the Zway and Tebu. Three days of clashes have resulted in a number of killed and wounded.

This is the latest episode of clashes this year between the Zway and Tebu.

Another attack has taken place in Sabha, this time it was on a police vehicle compound in the southern town. The attack took place on 11 April and resulted in one person being killed. The Libyan authorities have responded quickly to the attack and have arrested 20 people. This is the third attack in this area in as many weeks against government installations: a prison, an airbase and now a vehicle compound.

April 22 A Police convoy taking detainees to the Reform and Rehabilitation Institution in Tajoura, east of Tripoli, was ambushed on 18th April with one prisoner being killed, others wounded or kidnapped. The incident was a significant one although the prisoner who was taken has not been named. This, however, is the latest in a series of such attacks on prisoners being moved. It took place in the Sidi Meri district, near the University.

The authorities have now reported that the recent explosion on the oil pipeline from Field 103 to the Zueitina terminal is assessed to have been sabotage. The explosion that happened late at night on 2 April struck the light oil condensate section of the pipeline seriously, with only minor damage to the crude oil section which was quickly back into operation. Both pipeline sections are now back in operation.

April 23 Car bomb detonated outside French Embassy in Tripoli.

Basin threat overview based on 2013 security trends MURZUQ BASIN Primary threat comes from armed attacks against Libyan government offices and facilities GHADAMIS BASIN Primary threat comes from conflicts between tribes and militias. Secondary threat from groups involved in smuggling activity.

AL KHUFRA BASIN Primary threat comes from weak border controls which could result in attacks on oil facilities by armed groups. Secondary threat from groups involved in smuggling activity.

CYRENAICA PLATFORM Primary threat comes from violent attacks occurring particularly in urban areas along the coast. Secondary threat from host community action specifically targeting oil facilities.

SIRTE BASIN Primary threat comes from violent attacks occurring in urban areas along the central coast.

TRIPOLITANIAN BASIN Primary threat comes from host community action targeting oil facilities. Secondary threat from groups involved in smuggling activities.

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Acknowledgements CALC would like to thank our capstone advisor Dr. Adam L. Shrier; Osman Shahenshah, CEO of Afren Plc; the Columbia SIPA Capstone Programs office; and all of those who graciously agreed to be interviewed over the course of this project.

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CALC

columbia afren libya capstone

Mariana Iturriaga Aly Jiwani Evan McGlaughlin Diana del Olmo Vaidhehi Ravindran Joseph Rozenshtein Jesse Wolfe Dr. Adam Shrier, Advisor