Gaddafi demise leads to questions over contracts

The demise of former Libyan Leader Muammar Gaddafi raises the questions about whether the new Libyan administration will honor contracts involving Russian companies, which were signed with the Gaddafi government.

The Libyan Transitional National Council has reported the death of fugitive Libyan leader Muammar Gaddafi who was seized in his hometown and stronghold of Sirte by NTC forces.Russia and Libya’s NTCRussia, along with four other countries, including China and Germany, abstained from voting on military intervention in Libya, criticizing the way NATO interpreted the UN mandate as exceeding the primary mission of protecting civilians.There have been repeated questions over the status of business contracts and agreements involving Russian companies, which have been signed by the Gaddafi regime, and whether they will be honored.  They generally involve oil or gas development and exploration, but also include railways and military cooperation. Last month the Russian Foreign Ministry recognized the Transitional National Council of Libya as the current authority, adding that it expected existing contracts to be honoured."We proceed from the assumption that the treaties, signed by the Russian Federation and Libya, as well as other mutual commitments, will remain in effect in relations between the two countries and will be unfailingly observed," Mikhail Margelov, Russian President Dmitry Medvedev’s Envoy for Africa, commented in September that he believes the TNC will evaluate contracts signed with Russia by the Gaddafi regime."At present the Transitional National Council is analyzing the contracts, signed by the Gaddafi regime, in order to establish whether or not they are transparent. I do not think the new Libyan government will begin with the evaluation of contracts with Russia by political criteria,” Margelov said, adding that it would be more correct for the new government to analyze the contracts from a technical and economic perspective.Energy ties resumed Two days ago German energy producer Wintershall, and Russian partner Gazprom announced that they had resumed oil production in the Libyan Desert in concessions 96 and 97 which they operate.They had suspended and sealed off production operations in the concessions, 1000 kilometers south-east of Tripoli in February.  Wintershall said the facilities are undamaged and production has now been started up again as agreed with the Libyan National Oil Corporation (NOC), according to Wintershall Chairman Dr. Rainer Seele."We reached a production level of about 20,000 barrels per day shortly after beginning operations. Now we have to technically stabilize the production,"As well as the production operations on the Libyan mainland, in which Gazprom holds a 49 percent stake, crude oil production was resumed a few weeks ago on the Al Jurf offshore platform in the Mediterranean. Wintershall holds a 6.75 percent share in Block C 137 together with the national oil company Mabruk Oil with 73 percent and France's Total with a 20.25 percent stake.Economic tiesThere has been an increase in Russian-Libyan economic ties since 2008, with Russia writing off Libya's national debt of $4.5 billion dating from the Soviet Union era.Russian Railways signed a contract for 2.2 billion euros to build a 550 km long railway line connecting Sirt and Benghazi, with 2010 seeing Rosoboronexport sign a $1.3 billion contract on supply of arms and weapons to Libya.In 2007 Gazprom signed a memorandum of cooperation with the National Oil Corporation of Libya, providing access to Mediterranean oil shelf. Since that time "Tatneft", "Monolitspetsstroy", "Stroytransgaz", "Lukoil", "Technopromexport" and "Tatneftegeophysica." opened branches in Libya. Experts still doubt that Russia can count on same contract conditions in Libya signed during Gaddafi regime. Head of Russian-Libyan business alliance, Aram Shegunts, believes all will become clear when a new government is determined in Libya.“Until there is no constant government, and no clear message that Libya remains united country rather than divided into several tribes, there is nothing to say about the future of Russian companies in Libya. Lest you forget, they said they do not favor Russian companies in Libya”Vladimir Feigin, Head of the Institute for Energy and Finance, believes that the new Libyan government will avoid drastic steps “On one hand, Russia was not among the first to recognize the transitional national council, but on the other hand, Russia did not interfered with the humanitarian mission in Libya.”

In the wake of the latest developments in Libya including the capture of sirte and reports of the death of Muammar Gaddafi, Russian Energy Minister, Sergei Shmatko, says he is expecting to wait until a new government is formed in Libya.  He added that full reconstruction of the oil infrastructure in Libya could take some time, but noted that negotiations had already been conducted with Italian energy giant, ENI, adding that Russian producers should follow in its path. “Now it is necessary to wait until the situation in Libya is stabilized in order to obtain all the prerequisites for the development and rehabilitation of infrastructure, for normal and peaceful life. The recovery, in particular for the oil industry in Libya, may take 1.5 years or more. As far as I know, the head of the Italian company Eni, which works with Gazprom in Libya, already signed a deal with the new government of Libya on the principles of interaction. I think we also ought to conduct negotiations, in any case, to understand the attitude and mood of the new Libyan government for such projects.”