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Libya's high stakes

Freeing NOC of political interference is essential if the country and its oil sector are to prosper in 2018

In 2018, after years of trying, political opportunists will finally succeed in capturing the National Oil Corporation (NOC). Investment and oil production will plunge, the Libyan economy will collapse, and the political chaos and increasing criminalisation we have seen in Libya over the past few years will seem trivial compared with the human catastrophe that will unfold.

That's the nightmare scenario—and it is not far-fetched.

Both 2016 and 2017 demonstrated one fact clearly: all Libyans depend on NOC's oil production, but some are trying to grab a larger piece of the pie for themselves. Libya's oil sector faces the general challenge of operating in a divided political environment and an uncertain security situation; but it also faces specific threats—ranging from administrative capture, through blockades and smuggling, to under-investment. Since 2013, NOC has lost nearly $130bn worth of oil production to various blockades. As a result, the country now teeters on the edge of fiscal collapse—its oil production doesn't currently cover the costs of running the state, and Central Bank reserves are depleting fast.

And there's no other engine to drive the economy.

We at NOC are taking active measures to prevent the nightmare from unfolding.

In October, at the UK's Windsor Castle, we brought together key institutions from inside and outside Libya to define concrete, practicable steps to protect Libya's oil industry, and to establish a solid economic platform for political transition. This effort stands squarely behind the UN Secretary-General's Special Representative for Libya Ghassan Salamé's action plan, which he unveiled in September, and which culminates in elections within approximately one year.

The consultation produced some important results. It established the clear international legal basis for NOC's neutrality, autonomy and indivisibility. We understand now that illegal attempts to sell Libyan oil may constitute war crimes by seller and buyer. This leads us to hope that 2018 will be the year the threat of the division of NOC between east and west—and therefore the risk of division of the state—finally dissipates.

Many of NOC's problems are rooted in Libya's distorted welfare state, and fixing them requires root-and-branch economic reform

Other themes explored at Windsor Castle included oilfield security and the role of the Petroleum Facilities Guards (PFG); working with local communities and regional economic development; and adequate funding for NOC. The lack of the latter is a very serious problem, and is already costing billions in lost revenue.

A statement of principles was agreed by the participants, and NOC will forward it to the national conference to be convened by Ghassan Salamé so that it can be agreed by all political actors in Libya. They establish clear parameters for the exploitation of Libya's oil wealth that have been lost in the political uncertainty. They include assertions that the exploitation of Libya's oil and gas resources shall be for the benefit of all Libyan people, regardless of location. They state that NOC should have a monopoly on the exploration, production, transport and export of oil and gas. And they agree that all NOC revenues shall be sent to the Central Bank of Libya in a transparent process, and that NOC and its subsidiaries will be adequately funded to ensure the optimal level of production and exports.

We are now concentrating on achievable goals—concrete policies derived from the principles. Many of NOC's problems are rooted in Libya's distorted welfare state, and fixing them requires root-and-branch economic reform, including scrapping subsidies, diversification of the economy, delegation of fiscal and budget authorities to the local level, and individual economic empowerment. But, in the absence of a unified government, there are serious practical obstacles to these measures being implemented.

In the meantime, NOC should harness its capacities and those of other state agencies to: counter blockades; step up anti-smuggling efforts; push for the reform of the PFG; establish employment policies that work; and, finally, and most important, since the entire Libyan population depends on it, ensure adequate investment in Libya's oil production.

There's no silver bullet to any of these problems, but we can act. We hope next year to increase production. That by itself will keep Libya afloat. We hope to improve security and cut down the rate of interruptions. We hope to cut unemployment. We hope to secure new investment. We hope to restart the Ras Lanuf refinery. We hope a political solution will be reached and that fuel subsidies will be lifted. We hope to finalise and pass our new Petroleum Law. What we hope for 2018, in other words, is progress and a very different outcome from the worst-case scenario.

Mustafa Sanalla is Chairman of National Oil Company

This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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