Firms beat path to ... Libya

A Libyan official said this week he expected oil firms to help normalize US ties.

It's not unusual for the five-star Corinthia Bab Africa Hotel which towers above this city's waterfront to be completely booked, many of its 299 rooms filled with foreign oil tycoons eager to tap into the country's untold reserves.

After more than 20 years as a global pariah, Libya is coming out of isolation. Most international sanctions have been lifted since its enigmatic leader, Col. Muammar Qaddafi, abandoned his weapons program, renounced terrorism, and accepted responsibility for the 1988 bombing of Pan Am Flight 103, compensating the victims' families.

"With the end of the Lockerbie issue, relations returned to normal and there were many delegations of Congress who visited Libya. I think all efforts are heading towards ending animosity," Colonel Qaddafi said in an interview with the United States-funded Arabic TV channel Al-Hurra last week.

Now, the companies that helped create Libya's oil industry in the 1970s are returning as Qaddafi rebuilds bridges to the West that he burned long ago, and this may help to precipitate political, as well as economic, change.

In a major step, ExxonMobil, the world's largest publicly traded oil company, signed an exploration and production deal with Libya last month. Marathon, Amerada Hess, and ConocoPhilips who together form the Oasis group also negotiated their return at the end of December since being forced out by sanctions in the mid-1980s, while Occidental returned in August last year. The Oasis group was producing 400,000 barrels of oil per day before it pulled out.

Indeed, the country suffered severely from the economic sanctions that were imposed by the US in 1986 after Libya was blamed for the bombing of a Berlin disco that killed two American servicemen. The consequence included a sharp decline in oil production, which fell to around 1.4 million barrels per day in the 1990s, from peak production of 3.3 million barrels per day in 1979. Output at the country's dilapidated liquefied natural gas plant, built by ExxonMobil in the late 1960s, has fallen to just 15 percent of capacity. Unemployment rose to about 30 percent.

In Tripoli's commercial center, a short walk from the shiny new Corinthia Hotel, which houses existing foreign oil firms, signs on the office doors clearly directed at locals in search of work state in both English and Arabic that there are no vacancies.

While Libya remains on the US State Department's list of states that support terrorism, and certain limited sanctions have yet to be lifted, it is pursuing a return to full normal relations with the US. Tarek Hassan-Beck of Libya's National Oil Company (NOC) told Reuters Wednesday that he expected the newly returned Oasis group "to put the right message across to the US government" to remove Libya from the hit list. Qaddafi has made this possible by publicly condemning 9/11 and agreeing to a three-phase disarmament program, as well as paying compensation to the families of the 270 victims killed on Pan Am Flight 103 over Lockerbie, Scotland.

But Qaddafi remains an autocratic leader, and genuine economic and political reform is nowhere on the horizon, according to many Libyans. "Whatever he says, the people must do it without question," says Ibrahim, a young Libyan who runs a small tour group in Tripoli.

Meanwhile, endemic corruption and high unemployment persist, and the lack of real economic incentives is driving skilled professionals out of the country, says Ezzedin Dibashi, an oil consultant based in London who used to work at NOC. "Doctors, engineers, and economists are going elsewhere, rather than subsist on 600 Libyan dinars ($450) per month."

Other issues seriously obstructing Libya's political and economic development include the state ownership of banks, a government controlled media and the ban on political opposition parties.

"This is a country that has responded to international criticism," says the Chairman of business consultancy group MEC International and former British Ambassador to Libya Oliver Miles. "But how and how far is where it gets difficult."

With oil prices on the rise, none of these difficulties are deterring foreign oil companies from aggressively competing to win exploration rights and investment opportunities in Libya.

"It has become a very attractive place for oil firms to do business," says Mr. Miles. "There are opportunities in Libya that do not exist in other Middle Eastern countries."

One encouraging sign of change recently was the agreement by British ministers in October to send terror suspects back to Libya on the condition of 'no torture, no death penalty.'

But foreign energy companies are not the only ones enjoying newfound access to Libya. Nongovernmental organizations like Amnesty International, which was allowed access for the first time in 15 years in 2004, have expressed serious reservations about the Qaddafi regime's human rights record. Torture and suspicious prison deaths, said an Amnesty International report, continue in Libya.

Despite Libya's recent prisoner releases, judicial reforms and efforts to overhaul its image, some NGOs are asking Western governments to proceed with human rights standards in mind.

"[Qaddafi] and his inner circle appear unwilling to implement genuine reform," says a Human Rights Watch report released this week, "especially in the areas of free expression and association, which might weaken their three-decade grip on power."

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