Leaked Report Alleges High-Level NOC Mismanagement

A late Qadhafi-era audit of Libyan state companies found serious mismanagement and possible corruption at Libya’s National Oil Corporation (NOC). The Annual Report by the Control Board for 2010 , written by the Ministry of Inspection and Popular Control at the end of 2010 and due to have been presented to a closed session of the Libyan People’s Congress in March 2011, highlights “murky dealings” and “systematic mismanagement” at NOC, according to Giulio Carini of London-based transparency campaign group Global Witness, who obtained a leaked copy. The allegations come on top of recent revelations that chief US financial regulator the Securities and Exchange Commission (SEC) is investigating Qadhafi-era oil deals (MEES, 16 April).

The audit heavily criticizes NOC, in particular the marketing department, which is responsible for crude sales to foreign buyers. “Marketing managers were retained despite the fact that it had been proven that they had committed infringements and violations,” the report alleges – seemingly an indication of top-level complicity.The report adds that “managers of departments were appointed without any regard to their qualifications or expertise” and alleges that incompetence led to Libyan oil being systematically underpriced during 2010. It also slams the seemingly needless involvement of intermediary trading companies in long term sales deals to regular customers (a tactic that has been used elsewhere to enable the payment of kick-backs without the complicity of end buyers).

Some analysts caution that Qadhafi-era documents of this type were commissioned largely for political purposes – to give former dictator Mu'ammar al-Qadhafi and his inner circle ammunition to attack their potential enemies. But the report seems to have been put together in good faith: one of its main compilers, Samir al-Sharif, now heads up an NTC pro-transparency body, giving its findings some weight even in the present political climate.

With graft almost universally regarded as having been widespread at NOC, finding potential dirt shouldn’t have been difficult. One former NOC executive tells MEES that he left the organization “because it was almost impossible not to be corrupt. If you headed a joint venture, you were paid only $20,000 per year, but your IOC counterpart would get many times that much. The disparity just encouraged corruption.” Almost more surprising – if indeed the report was a genuine attempt to uncover corruption – is how tame many of the allegations are, detailing alleged incompetence more than pure graft.

Indeed, many of the allegations made in the report – particularly with reference to NOC’s crude marketing operations – do not completely chime with the experience of external observers who dealt with NOC during the period in question. One senior trader at an international oil company (IOC) – with many years experience of buying Libyan crude – says he “never saw anything untoward” regarding the probity of Libyan crude sales: “The crude people were professional; though they were tough they were fair.” However he added that the (less important) NOC products trading department “always had a strange reputation” and was “rife with less rigorous terms” – suggesting that contracts could be adjusted for favored customers.

In addition, Khalid Nashnush, head of NOC crude marketing during the period in question, was regarded as highly competent and was well respected within the industry. Mr Nashnush was ousted in late November 2011 amid claims of having supported Qadhafi, to be replaced by Muhsin al-Masawi who came from the Rasco oil storage affiliate of the LERCO (Ras Lanuf) refinery.

The audit also adopts a nationalistic tone: some of the alleged ‘mismanagement’ can be ascribed to a tendency to see every dealing with a foreign company as an attempt to defraud the Libyan people. The report slams a 2009 deal whereby Dubai’s Al-Ghurair Investments took 50% of the 220,000 b/d Ras Lanuf refinery, Libya’s largest, forming the Libyan Emirates Oil Refining Company (LERCO). This was in return for a pledge to invest $2bn in modernizing and expanding the plant. “Spurious justifications” were given for the sale of the plant, which “constitutes a national symbol of the oil industry,” according to the report.

However, few impartial observers would contest the fact that the simple Ras Lanuf topping plant, which produces almost 50% fuel oil despite running light sweet Sarir crude, was crying out for foreign investment and expertise. But, whilst investment was sorely needed, the choice of a partner firm with deep pockets but no previous refining experience brings into question whether the right partner was chosen for the right reasons in an open and transparent manner. The upgrading work that Al-Ghurair was brought in to undertake has yet to begin and, with LERCO’s in-country management and engineering team remaining almost exclusively Libyan, there is little sign of foreign expertise.

The report also slams the “large discounts in the price of natural gas” offered as a sweetener to Norwegian company Yara “on the pretext of encouraging investment”. Yara in 2009 paid $225mn to take 50% of a Marsa El Brega petrochemicals complex which subsequently became the Libyan Norwegian Fertilizer Company, LIEFCO (MEES, 16 February 2009). Whether or not these deals were corrupt – a business case could be made that a discounted feedstock was necessary to attract investment – they highlight a lack of transparency.

Transparent Future

Given that oil accounts for over 70% of Libya’s GDP and 90% of government revenues, Global Witness stresses that oil must be central to any Libyan anti-corruption and transparency drive. “Transparency and accountability in the management of oil are crucial to the future success of Libya as a nation,” according to Mr Carini. The NGO calls for Libya’s current transitional government to publish existing and future oil contracts, and work with international audit organizations to improve accounting practice as well as for oil sector transparency to be written into Libya’s new constitution.

Global Witness would seem to be pushing at an open door with some of these recommendations – many are already government policy. The organization welcomes the transitional government’s setting up a special committee to scrutinize Qadhafi-era oil contracts for signs of corruption but says that “best practice requires a review process after an elected government is in place.” Elections are slated for June.

One reason many observers give for Libya’s oil industry having quickly got up to speed since the revolution is that following the removal of the top level of management, who were often political appointees, their former underlings are much better qualified and are now enthused. However, whilst few observers doubt the NTC’s clear commitment to transparency, there remains an (understandable) degree of disorganization. Tender details and statistics, as well as details of oil deals struck during last year’s conflict, have been published on NOC’s website, but in an intermittent manner and at no regular location, making them difficult to track down.

Overall, foreign oil executives have seen a massive increase in openness in the ‘New Libya’. Global Witness, with its broader goals of promoting transparency in oil contracts, hopes that Libya, in following its recommendations, can provide a shining example for oil industry transparency worldwide.

© Copyright MEES 2012.