Contractors await project revival in Libya

15 November 2011

Following the of the Gaddafi regime, contractors are keen to resume work in Libya, but the transitional government is examining contracts for their legality

In numbers

$2.5bn: Value of airport expansion schemes stalled since February 2011

Mid-2012: Until when contractors have been asked to leave guarantees in Libya’s banks

Source: MEED

Libya has always been a high-risk environment for contractors and consultants. Projects were often cancelled at short notice, payments were slow, visa rules changed without prior warning and bureaucracy slowed everything down. Without a cohesive masterplan, state ministries competed for finance and approval for their schemes and, in some cases, sought to bring in companies and projects that suited individual agendas. Despite Libya having the oil wealth to finance whatever it needed, investment was slow and critical infrastructure, such as housing, airports and roads, was left crumbling.

Infrastructure schemes in Libya

In 2006, the government made a renewed effort to improve the country’s infrastructure. Sources in Libya told MEED at the time that the real reason for the projects was that leader Muammar Gaddafi wanted to celebrate his 40th year in power in 2009 by showing the Libyan people modern infrastructure. Whatever the reason, much-needed projects finally got under way, but the ambitious delivery timescale, combined with a government not used to implementing major projects, was not a recipe for success.

If existing projects are only expected to restart in 2012, the award of much-needed new infrastructure contracts remains a long way off

Yet, progress was being made. Airports were a key benefactor, and three expansion schemes at Tripoli, Benghazi and Sebha were under way until the uprising forced firms to flee the country in February 2011. Contracts worth $2.5bn had been awarded for the projects and the combined capacity of the airports would be boosted by 28 million passengers a year. UK-based consultant Capita Symonds is project manager for the $600m Benghazi airport expansion project and it is hoping for a quick return to the country.

“There is no reason why existing contracts cannot continue,” says the firm’s executive director John Southgate. “The transitional authorities have publicly announced they will honour contracts and we have had that in correspondence. They asked us for a copy of our contract so they can find out what is live.”

Benghazi airport was the subject of news stories that said the runway had been destroyed. Southgate confirms this is not the case and that damage to infrastructure was minimal. “There was not a lot of fighting in Benghazi, but there was a lot of looting. We expect the site set-up to be pretty much gone, [but we] don’t expect much damage to the buildings,” he says.

Other companies report similar experiences. Netherlands-based Royal Haskoning was managing the Tripoli breakwater reconstruction project through local company Haskoning Libya. It involves the reconstruction of a 4,700-metre-long rubble mound breakwater structure with concrete top wall. Geneva-registered Archirodon Construction Overseas was the main contractor. “The port area has not been damaged,” says Ronald Stive, director at Haskoning Libya. “But there was a lot of robbery of equipment and materials.”

Archirodon business development manager Athanasios Mamalis says that, in time, he is hopeful the Libyan government will compensate contractors for their losses. “We are waiting for new management to be appointed in the ministry. Consequently, we are expecting they [will] listen to us and find out what we lost. We are hoping they are going to reimburse us.”

Mamalis says the site, quarry and labour camps were affected. “We have not lost a lot on-site, but we lost things from our quarry and camps, and our small cars have gone. But we do have lists of equipment, as we had to obtain a temporary licence. Consequently, there were records of what was existing,” he says.

It is this loss of equipment, combined with outstanding payments, that will hit contractors hardest. Some have already begun to inventory losses through local staff. Others are waiting to return before fully evaluating their losses.

“We have lost all of our buses, our smaller vehicles and generators. We have not yet made an official tally. Once we go back, we can quantify and document,” says the Libya country head of another major contractor.

Counting losses in Libya

Austrian contractor Strabag says its in-country losses currently stand at E50m ($69m) and it has written off a further E350m in forward orders. “We sent people to Libya [in mid-October] and they reported our machinery had been stolen and our camps destroyed,” says a company source. “Strabag will send employees to Libya as soon as security can be guaranteed, although we don’t believe that we will have any news on that before 2012.”

The firm was working on several major projects including the Ras Edjdir to Garabouli coastal highway and the Tripoli Western access road worth E104m, the E434m Tajura infrastructure project, as well as a rehabilitation contract for the airport road.

Unfortunately for contractors, standard insurance policies do not cover acts of war, so the losses will be felt on the bottom line. Combined with millions of dollars worth of outstanding payments, total losses are certain to run in the billions. Turkish contractors say they face $1bn of losses in the country. “[The transitional government needs] to honour payments, we have a lot of outstanding payments. Making these immediately will be a key parameter in our first meeting,” says the Libya head of the major contractor. “We are not the only people tangled up in this. There are a lot of subcontractors with a lot of costs and pain to come. We look forward to the government honouring our commitments.”

Another consultant says it is still owed E100,000 for work completed in 2009, but payments cannot be made until Libya’s assets are unfrozen and the banking system is operational. Contractors say they have been asked to leave their guarantees in the country’s banks until the middle of 2012, perhaps indicating a timescale for construction to restart.

Capita Symonds’ Southgate says theoretically work could begin sooner than this, but a lot of challenges remain to be overcome. “We have a plan for remobilisation in Benghazi that could get us back on-site in the middle of January. However, we think the country will struggle with some of the actions required to implement that plan, as there are a lot of constraints to overcome.”

These challenges include the recapitalisation of the banks, the issuing of visas, the reappointment of personnel in client organisations and the evaluation of existing contracts. Although the transitional authorities are understood to be keen to improve Libya’s infrastructure and restart projects, they will also be scrutinising contracts to ensure they were awarded legally.

“We have heard the new government will honour all previous contracts made with certain types of qualification, but we understand that the intention is for them to be examined by investigative councils. The opposition insinuated corruption on projects. Transparency will be very important from the beginning,” says the Libyan contractor head.

If existing projects are only expected to restart in 2012, the award of much-needed new infrastructure contracts remains a long way off. A new government will have to be in place before any new deals can be awarded and the process for this is set to take months.

The first step, to elect a council of representatives, is scheduled for mid-2012. The council will then select a prime minister who can then appoint the government.

Waiting game

However long this process takes, there is no doubt Libya is badly in need of new infrastructure. In 2010, MEED reported there were 256 ongoing projects in the country with a further 300 to be launched by 2020, including $94bn-worth of housing, and power and water projects. About $50bn-worth of schemes were being driven by the country’s Housing and Infrastructure Board (HIB), which planned to build or rebuild 200,000 homes through 26 housing projects by 2020.

To support this, it was also planning 146 infrastructure projects including 173 new sewage treatment plants, 4,500 kilometres of new water mains and sewage networks and 10 million square metres of new roads, including Tripoli’s third ring road.

Firms working in the country before the civil war hope to be well placed for the influx of work once stability returns. In the long term, contractors and consultants expect competition for Libyan construction work to become fierce. Political positioning began even before the official end of Gaddafi’s regime. New entrants are expected to join the already dominant Turkish, Italian and US firms, with Egyptian companies also looking to their neighbours to absorb the downturn in the local market.

Libya’s huge potential is undeniable, but for now firms can only wait and hope that the transitional authorities will reinstate their schemes, honour outstanding payments and offer compensation for losses suffered.

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