Executive summary

T
he capture and killing of former Libyan leader Muammar Gaddafi on 20 October 2011 made headlines the world over. And rightly so; after dominating Libya since he took power in a military coup in 1969, the death of the mercurial statesman was an event of significant local, regional and global importance. But his passing has also brought with it considerable uncertainty over Libyas future. The capture in late November 2011 of Saif al-Islam, Gaddafis most influential son, and security chief Abdullah Senussi has drawn a line under the last vestiges of the previous regime, but the National Transitional Council (NTC) has its work cut out as it attempts to bring some semblance of normality back to the country. There are signs that this is already happening, however. Oil production in many areas is being brought back up to capacity
MEED Insight

surprisingly quickly, while export facilities have been reopened to enable Libyan crude to access the international market. The speed with which this is happening is testament not only to engineering ingenuity, but also to the fact that Libyas hydrocarbons infrastructure much of it in remote areas has emerged remarkably unscathed from the fighting. It is a similar story in most other sectors. Surveys carried out as part of this report have found that most facilities and projects have experienced relatively little damage as a result of the conflict and that in many existing plants, production is already resuming. Work on projects that were under construction is a separate matter. International contractors have yet to return to the country while they wait for the security situation to improve. However, there is plenty of incentive for them to go back

Oil production in many areas is being brought back up to capacity surprisingly quickly

as most still have performance bonds in many cases up to 10 per cent of their contract values with the clients and much of their equipment is also still in the country. Contractors, spoken to as part of this report, state that advanced parties are reentering Libya to assess the situation and to gauge the right moment to return. If the situation on the ground rapidly improves, then most of them will be in a position to return by mid-2012. The interim government has already stated that it will honour legitimate contracts signed under the previous regime, although much depends on the NTCs definition of legitimate. Certainly, there are concerns among Chinese and Russian companies in particular, due to their governments initial unwillingness to support the rebels cause and it remains to be seen whether there will
www.meedinsight.com

be any lingering animosity towards these firms that could result in them being unable to return. Whatever happens, the hope amongst contractors is that Libya will become a major projects hub. It is fair to say that under the Gaddafi regime, the Libyan projects market was anaemic at best. Despite oil production of more than 1.5 million barrels a day (b/d) and the African continents highest gross domestic product (GDP) per capita, the projects market has consistently underperformed. Over the past decade, total annual contract awards have never exceeded $8bn and have averaged less than $4bn. The fault lay primarily with a bloated and inefficient bureaucracy, which had neither the decision-making authority nor the funding approval to proceed with the governments project plans. This is despite Libya having no shortage of funds and the pressing need for capital investment in almost every sector as the countrys aging infrastructure became increasingly unable to serve the fast-growing population. It was not uncommon for tendering activities and contract award procedures to take years to complete. Projects were frequently cancelled or remained permanently in limbo. Often, contracts were awarded only for the successful contractor to discover that funding had not been approved for the project. Despite four oil
MEED Insight

projects investment and the finance is available to fund this need. From housing and hospitals to roads and railways, there is considerable underdevelopment of existing infrastructure, which will require substantial investment in the medium to long term. In the short run, the emphasis will be on completing existing schemes and ensuring that the nations hydrocarbons and utilities infrastructure is operating at a sufficient rate. The private sector, both local and foreign, will have a key role to play in this projects evolution. The Libyan economy has hitherto been dominated by the public sector. Any new government will be keen to liberalise the economy and attract urgentlyneeded foreign investment into the country. As an investment destination, Libya is fertile territory. For example, its proximity to Europe, cheap power and competitive feedstocks make it a prime industrial investment target, while its thousands of kilometres of unspoilt beaches, ancient ruins and good weather should prove attractive to tourism developers. The emergence of a new Libya offers the prospect of a major new projects market in North Africa. For suppliers, vendors, investors, contractors and subcontractors, it provides a potentially lucrative new market that can offset the increasingly competitive environment in the Gulf. The risks may, for the time being, be relatively high, but so will the potential returns.
www.meedinsight.com

and gas licensing rounds, there was little discernible increase in hydrocarbons activity. The downstream sector remained moribund, while international oil firms have been reluctant to invest in upstream production increases. With the demise of the Gaddafi regime, the hope is that the new government will be more efficient in its capital spending programme. It certainly has the cash to do so. Libya had foreign exchange reserves of close to $170bn as of late 2010, according to the International Monetary Fund, while its foreign assets totalled $152bn. Both

figures compare very favourably with the countrys $96bn GDP. It will take time, however, for spending to accelerate. By definition transitional, the NTC is unlikely to embark on any major capital spending programme. Until an elected government takes over, concrete developments are not expected to take place and may not occur until 2013 at the earliest. But the potential is clear. The Libyan projects market is in the optimum position where there is a pressing need for