Econostrum | Economic News in the Mediterranean

Libyan economy faces the challenges of water stress and hydrocarbon management

Written by Frédéric Dubessy on Thursday, September 2nd 2021 à 10:25 | Read 669 times

Incessant vandalism of water networks and oil installations, suspension of the president of the national oil company, water shortages, need to diversify revenues, the Libyan economy is struggling to return to a normal rhythm after ten years of civil war.

LIBYA. One conflict often chases another in the news. For the past few weeks, the spotlight has been on Afghanistan, putting in the shade a Libyan theatre that is far from being closed. Here are the latest significant acts of a country that is trying to return to normality.

Since Monday 30 August and until Tuesday 31 August 2021, Algiers is hosting a consultative ministerial meeting of Libya's neighbours in the presence of the Libyan, Algerian, Tunisian, Egyptian, Sudanese, Nigerian and Chadian foreign ministers. But also Ján Kubiš. "The (Libyan) government has made the necessary arrangements for the elections, but we need a legal framework. The deputies are currently finalising the electoral law and we still have very little time (...) I invited them to take their responsibilities and not to waste time," said the special envoy for Libya and head of the United Nations Support Mission in Libya (UNSMIL). According to his words on Monday 30 August 2021, "the Government of National Unity has provided the necessary budget to hold the elections, but it is important that there is a legal framework as soon as possible."

Even if Ján Kubiš would like these riparian countries to send observers during these votes, it is indeed in Tripoli that the provisional governance, resulting from the Libyan Political Dialogue Forum (LPDF), is working on the organisation of the next polls aimed at restoring the stability of the institutions lost since the assassination of Muammar Khadafi in October 2011 in Sirte.

Elections are a prerequisite for a return to normalcy

Upcoming elections should help reunite a fragmented country (map:
Upcoming elections should help reunite a fragmented country (map:
The UN Security Council keeps insisting, as it did on 15 July 2021, on "the importance of free, fair, regular and credible elections" on the scheduled date of 24 December 2021. However, their postponement seems more than likely despite the commitment of all Libyan parties on this deadline confirmed by Ján Kubiš in his speech in Algiers on Monday 30 August 2021.

They would however ensure "the unification of Libyan institutions, good governance and the improvement of economic performance, in particular through an early agreement on a unified budget as well as on the issue of sovereign posts", stressed a Security Council communiqué. And beyond that, of course, a starting point for national reconciliation after two civil wars (February 2011-October 2011 and May 2014-October 2020)

The prerequisite for a return to normalcy was the agreement of a permanent ceasefire signed in October 2020 in Geneva, under the aegis of the UN. And the withdrawal from political life, by throwing in the towel, of the two great enemies who were fighting for authority over the country, Fayez al-Sarraj, president of the Presidential Council of the Government of National Unity (GNA), and Khalifa Haftar, the strongman of the east.

Suspension of NOC boss

For Mustafa Sanallah, president of the NOC, the Libyan oil company remains "the main reason for the unity and stability of Libya." (photo: NOC)
For Mustafa Sanallah, president of the NOC, the Libyan oil company remains "the main reason for the unity and stability of Libya." (photo: NOC)
The first good news of the summer, however, does not come from the political side, but from the National Oil Corporation's (NOC) announcement of an upturn in oil production. The Libyan national oil company is pleased to report record net revenues from hydrocarbon sales in July 2021 with a total of $2.05bn (€1.73bn). The industry has brought in as much as $1.96bn (€1.66bn) from crude oil sales to the interim government's coffers, with an additional $80.98m (€68.48m) in gas and condensate sales, as well as $3.37m (€2.85m) in oil products and $2.79m (€2.36m) in petrochemicals. Libya plans to produce 1.45 million barrels per day (bpd) by the end of 2021 (1.3 million bpd today), 1.6 million by 2023 and 2.1 million by 2025. It has the largest hydrocarbon reserves on the African continent. Sadiq al-Kabir, Governor of the Central Bank of Libya, recently estimated that his country needs to increase oil production by 40% from current levels to meet its expenses and boost the economy. The industry is expected to generate $25bn (€21bn) in revenue by 2021.

"Despite all the circumstances, the NOC has been, is and will always be the main reason for Libya's unity and stability and the main and only support for its economy," Mustafa Sanallah, chairman of the company's board of directors, repeated on Sunday 29 August 2021 at a meeting at the Tripoli headquarters. A few hours later, the man who has been managing the hydrocarbons since 2014 without interruption despite the conflicts - and obtained the anti-corruption medal from the US State Department in March 2021, was suspended from his duties by the new Libyan minister of oil and gas, Mohamed Aoun, appointed in March 2021.

A former Libyan representative to the Opec (Organisation of Petroleum Exporting Countries) and a rival of Mustafa Sanallah, Mohamed Aoun holds a post that has remained vacant since 2012. He accuses the president of the NOC of having violated a government rule requiring all senior officials to seek permission before travelling abroad. And of having run the company while he was outside the country. According to the Libyan press, his provisional successor appointed by the minister, Jadalla Oakely, a member of the NOC's board of directors, refused to replace him. Libya could have ignored this dispute. Especially in this delicate period during which decisions are more important than ever for the future of the country.

1.6 billion to finance energy activities

Hydrocarbons remain a barometer of the Libyan economy. The NOC has been studying for months a reinforcement of its production. This would involve projects for the construction of several refineries. The objective is to avoid Libya, one of the most important producing countries, from importing refined oil products. But also to benefit from other sources of revenue, while better covering its domestic demand, especially in terms of fuels, mainly with the conversion of natural gas into high quality diesel.

These new facilities would be financed by local and international investments under the Public Private Partnership (PPP) formula. Present in the country since 1959, and benefiting from a joint venture with the NOC, the Italian group ENI seems to be in pole position. Its CEO, Claudio Descalzi, met in Tripoli only a few days after his nomination in March 2021, Abdul-Hamid Dbeibah, Prime Minister of the national transitional government, in the presence of Mohamed Aoun. On the menu of the discussions, natural gas, while ENI is already the main gas producer in Libya and the main supplier of gas on the local market, with a share of about 80%. "Our company is ready to continue to develop the immense Libyan reserves already discovered while enhancing its significant exploration potential," said an ENI press release.

Representatives of the Italian group and their Libyan counterparts attended the latest steering committee meeting in Milan at the end of August 2021, devoted to the development of offshore gas installations, named "A" and "E" by the company Mellitah Oil and Gas, a joint venture between ENI North Africa and the NOC. They are part of the strategic projects under the Exploration and Production Sharing Agreement and the Gas Production Exploitation Agreement signed between Libya and Italy. ENI is also involved in the Bahr Essalam offshore field (110 km off Tripoli) and the Sabratha platform.

To date, Libya has four refineries: Zawiyah (near Tripoli), Tobruk (East), Sarir (East) and Ras Lanouf (Gulf of Sirte). An October 2013 plan called for the creation of two more, one near Tobruk (capacity of 300,000 barrels/day) and one at Ubari (50,000 b/d) in the Fezzan region, in the south-west of the country.

At the same time, the new government had allocated, in April 2021, a budget of 1 billion Libyan dinars (€180m) to restart crude oil exports from the port of Marsa Al Hariga in the east of the country. This decision came one month after the vote of a $1.6bn (€1.33bn) package to finance the country's energy activities, a third of which was allocated to the NOC. The company will use this money to rehabilitate installations heavily affected by ten years of civil war. All the more so as the damage to the infrastructure continues. And that the projects continue to come up against the lack of available funding, as Mustafa Sanallah reminded us at the end of August 2021.

An urgent need to protect water infrastructures

Water distribution in the port of Tripoli by UNICEF (photo: UNICEF/Giovanni Diffidenti)
Water distribution in the port of Tripoli by UNICEF (photo: UNICEF/Giovanni Diffidenti)
It is not only oil facilities that suffer from vandalism and obsolescence. There are also, unfortunately, problems with water distribution, and not just because of a low resource due to increasing demand or climate change.

In a study on the impact of water scarcity on children in the Middle East and North Africa (Mena) published on 23 August 2021, the United Nations Children's Fund (Unicef) notes that of the seventeen countries most affected by water stress, eleven* are in this region. The World Resources Institute (WRI) ranked Libya sixth in the world in August 2019 in the category of nations with the highest water stress and placed it in the highest category ('extremely high'). This think tank starts talking about water stress when in a region an individual has less than 1,700 cubic metres per person per year, equivalent to eight to nine glasses of water per day.

"Some 90% of children in the Middle East and North Africa (MENA) countries live in areas of high water stress," the UNICEF report said, adding that in this part of the world, nearly 66 million people lack basic sanitation facilities and very little wastewater is adequately treated. "Water scarcity has a profound impact on children and families, starting with their health and nutrition. Water scarcity is also increasingly becoming a factor in conflict and displacement," warns Bertrand Bainvel, UNICEF Deputy Regional Director for the Middle East and North Africa.

A few weeks ago, Cristina Brugiolo, Deputy Special Representative in Libya for the same organisation, was alarmed by the situation on the ground. "When access is cut off, children are often forced to rely on unsafe sources. This increases their risk of contracting diseases, especially among very young children." She was responding to the vandalisation of a main station of the Great Man-Made River (GMR) affecting the water supply of four major cities: Bani Walid, Misrata, Al-Khums and Zliten. This underground infrastructure of more than 3,000 km, built during the time of Muammar Gaddafi between 1991 and 2010, provides 60% of the fresh water used in the whole country.
This act came after the destruction and total decommissioning, at the end of July 2021, of one of the wells of the Al-Hasawna water supply system, Al-Juffra, with a daily production capacity of 5,000 cubic metres of water.

These incidents are in addition to illegal connections and closure at gunpoint. Cutting off water to pressure (sic) has become a very common practice of armed gangs. In mid-August 2021, soldiers threatened to sabotage the network by demanding the release of Abdallah al-Senoussi, former head of internal security under Gaddafi and incidentally his brother-in-law, from prison in Tripoli. This led to a pre-emptive shutdown of supplies to the west and southwest of the country for ten days by the Great Man-Made River Authority (MMRA).

"The repeated attacks by assailants on its main systems threaten the security of water throughout Libya and put millions of people at immediate risk of no longer having access to drinking water," said Unicef in a statement. For Bertrand Bainvel, "in this context, it is even more unacceptable that combatants in conflicts target water infrastructures. Attacks on water infrastructure must stop.
The organisation calls on "national and international partners to make the urgent issue of protecting water infrastructure a priority concern and to strengthen security measures, including the deployment of civilian forces to water fields".

The UN Support Mission in Libya, however, welcomed on 26 August 2021 the creation of a joint force "from both sides of the demarcation lines to secure the Great Man-Made River". During an inspection on Sunday 29 August 2021, a patrol discovered an explosive device ready to explode in one of the air valve shafts south of Shwerif at the Al-Hasawna site of this underground infrastructure.

Freeing the country from its dependence on oil and gas

On Sunday 29 August 2021, the President of the Libyan Council, Mohamed Al Mnefi, and his Minister of Economy and Trade, Mohamed Al Hweij, discussed the country's economic prospects, stressing the need to diversify revenues and investments in various economic fields to free the country from its dependence on oil and gas. Four days earlier, REAol (Libyan Renewable Energy Authority created in 2007) announced the construction of a solar power plant in Bani Walid. With a capacity of 50 MW, it would be built on a site of seventy-five hectares.
In November 2013, the Libyan government at the time set REAol very (overly?) ambitious targets of 6% of electricity consumed coming from renewable energies (photovoltaic power plant - CSP - and solar water heating - SWH -) in 2015, 10% in 2020, 25% in 2025 and 30% in 2030.

In 2020, a study financed by the European Union and carried out with the World Bank, the United Nations and USAID, set water and electricity as priority investments. Based on these recommendations, in August 2020, an agreement between the World Bank, the United Nations Support Mission in Libya (UNSMIL), the United Nations Development Programme (UNDP), USAID and the Libyan Local Investment and Development Fund (LLIDF) led to several small-scale photovoltaic projects. They are intended to supply pumping stations drawing on the non-renewable aquifers of the Nubian Basin. Installed along Libya's Great Man-Made River, these plants would improve the region's drinking water supply while reducing the need for traditional oil-fired electricity.

On Tuesday 31 August 2021, Energy Capital & Power (ECP) announced that a Libyan Energy and Economy Summit will be held on 22-23 November 2021 in the Libyan capital, in collaboration with the government. The African Energy Investment Platform refers to it as "the first major international energy event to be held in Tripoli for many years". Local investors, industry leaders, politicians and financiers will meet with the aim of "revitalising the national hydrocarbon sector" by attracting foreign capital, technology and expertise to this vital sector. "Libya is one of the most influential oil and gas markets on the continent, with a strategic position on the Mediterranean and vast underexplored basins estimated to hold significant frontier potential," comments Kelly-Ann Mealia, president of ECP in a statement. "This Libyan administration has been proactive in re-establishing the industry structure, rebuilding regional and global links, and reallocating budgets to rehabilitate existing energy infrastructure. ECP is supporting Libya in its transformation to become an integrated and sustainable energy power," she continued.

Read also our special Libya series in six parts

* Bahrain, Iran, Jordan, Kuwait, Lebanon, Libya, Oman, Israel and Palestine, Qatar, Saudi Arabia, United Arab Emirates.

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