Assets could provide funding, but oil will not flow before a ceasefire
The rebel National Transitional Council (NTC) received a boost on 15 July, when a bloc of 30 countries said it now recognises it as the legitimate authority for governing Libya.
The legitimisation of the council by the “contact group”, which includes the US, the UK, France, and the Arab League, has important implications.
During his 41 years in power, Colonel Muammar Qaddafi amassed a fortune in assets now held abroad, which had been frozen by the international community after the outbreak of the civil war. As the recognised governing entity, the council is in a good position to gain access to those funds.
“We expect this step on recognition will enable the NTC to access additional sources of funding,” Hillary Clinton, US secretary of state, said at the contact group meeting. Officials say that the US alone holds more than $30bn of Libyan assets.
The NTC estimates those assets to total about $100bn. “The most important subject is the unfreezing of assets,” says Mustafa Elhuni, a member of the NTC’s economy and finance committee. “We expect at least a certain percentage to be released or to be authorised as collateral for loans. I hope within the next two to three weeks.”
The council plans to use the funds for non-military purposes, said Elhuni, with food and medicine and salaries of government employees on the list.
Legal hurdles in countries holding the assets still need to be overcome. But should Elhuni’s optimistic projections come true, the assets will go a long way in meeting the $3.5bn the rebels were seeking in June to cover their budget for the next six months.
Another benefit of international recognition is the help the NTC might now receive to get the Libya’s battered oil industry back on its feet.
“That’s one implication of the recognition, helping us resume self-financing through exporting oil,” says Elhuni.
“The recognition probably paves the way for financial, as well as practical, support on a wider scale. This could include technology and repairs at the damaged oil fields,” says Samuel Ciszuk, UK-based energy analyst at IHS Global Insight.
Elhuni estimates that the rebel’s oil production capacity lies between 250,000 to 300,000 barrels a day (b/d), none of which is currently utilised. If that source is tapped, exports could add up to $450m a month to the council’s revenues, says Elhuni.
But as the fighting continues, the prospect of oil exports from Libya remains slim. Qaddafi’s forces have launched several raids across the desert into the oil-rich Sirte basin, damaging facilities and preventing repair and production activities. While the rebels are now advancing along the coast and are fighting for the control of the strategically important town of Brega, regime forces remain within striking distance.
“The rebels’ problem is that Qaddafi forces, for all that we know, still remain camped out within firing distance from some of the key production and transport facilities, making repairs not only dangerous, but potentially futile,” said Ciszuk.
Financing issues apart, the military situation is a key reason for the contact group’s endorsement of the NTC. In spite of the advances made by the rebels, now trained by the West and still enjoying massive Nato air support, the war is still far from decided. Western powers have grown frustrated with the rebels’ inability to break the five-month deadlock, and France last week urged negotiations with Qaddafi.
“It is difficult to see Qaddafi being sidelined by his own regime,” says David Hartwell, analyst at IHS Jane.
The legitimisation of the NTC is a strong signal to Qaddafi that his strategy of wearing down the resolve of the international coalition against him is futile. At the contact group meeting, Clinton made it clear that the despot will not be a partner in future negotiations. At the same time, the US is looking to drive a wedge between the ruler and his support base. It has admitted to having contacted regime members to urge them to enter negotiations without Qaddafi.
Once Qaddafi is out of the way, the reconstruction of the country’s damaged infrastructure can begin. Libya’s offshore assets should help play a role in the rebuilding the country.
“They may use it for some essential reconstruction that would not be funded by private or state-industry investment, such as rebuilding economic and government infrastructure damaged by the bombing,” says Richard Dalton, a former UK ambassador to Libya and an associate fellow at the UK think-tank Chatham House.
The urgent need for funding should not encourage the new rulers to sell off their overseas investments, says Dalton. A rapid injection of huge amounts of capital would be dangerous, as it would stoke inflation. The assets in effect constitute a sovereign wealth fund, the proceeds of which can be used for the benefit of the country. “The assets are huge and are a long-term fund that no successor government will want to run down,” says Dalton.