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Powering the Libyan economy

September 2005
Libya's rapprochement with the West and its market reforms have most notably paid off with increased foreign investment in the oil and gas sector. While some of the largest hydrocarbon deals may take several years to come to fruition, there is little doubt billions of dollars are heading towards Tripoli to provide oil for the global economy and gas for the European Union's (EU's) hungry power market. Yet there are fears that the Libyan government's attempts to attract foreign investment into its own power sector may be undermined by the slow pace of economic reform. Oil and gas firms are eager to take stakes in Libyan projects despite the country's notoriously slow bureaucracy.

Some attempts have been made to tackle red tape in recent years but more could be done to create a more conducive investment climate. The attractions of the country's oil sector, including largely untapped fields and low production costs, are generally more than enough to overcome such obstacles. However, the financial rewards are not as great outside the oil sector and Tripoli may struggle to attract investment at a time when many of the world's biggest power companies are reluctant to invest in developing countries. The General Electricity Company of Libya (Gecol) currently dominates the Libyan power sector, to a greater extent than almost any other state-owned power company in the world.

Apart from controlling all levels of the industry, from generation and transmission through to distribution and revenue collection, it acts as the ministry of power within Libya's unique system of government and also as sector regulator. With such extensive influence and authority, Gecol would be expected to be reluctant to give up its position of strength. However, the government has put a management team in place in the parastatal that is prepared to drive through sector reforms.

Gecol is being totally restructured and is increasing its investment in new technology, new management systems and staff training, in an effort to turn it into a commercially driven organisation. Omran Ibrahim Abukraa, the chairman of Gecol, says: "Foreign investment in this sector will take its natural course after all these changes. Some of the bigger companies are beginning to approach us and we are encouraging them to participate in the tendering process." Despite such pledges, it appears reform will take a back seat to ensuring continuity of supply. Abukraa says the "fundamental objective of the electrical Master Plan of the Libyan system is to secure and guarantee the electrical power supply to the growing demand of electrical energy to all sectors in the country".

While national generating capacity has increased rapidly over the past 30 years, from just 150MW in 1970 to 4,700MW today, Gecol's current plans call for this to be almost doubled to 9,000MW by 2012. Although Gecol continues to dominate the power sector, several large contracts have been awarded to foreign firms to construct power plants. The 650MW Western Tripoli plant is currently being built by Tekhnopromexport of Russia, while Hyundai of South Korea is modernising and expanding the Zawiya installation. Another Asian company, Bharat Heavy Electricals Limited of India, is undertaking a similar overhaul of the Tripoli West Power Station and is also supplying Gecol with four 150MW gas turbine units.

However, negotiations with some other companies have failed to yield contracts. For example, Italian company Enelpower eventually decided not to develop the proposed 600MW Western Mountain plant. Nevertheless, further development contracts are likely, particularly on gas fired projects, such as the planned 1,400MW Tripoli scheme and the 800MW Zuwara project. One of the biggest changes in the past decade has been the move away from oil fired plants and towards the use of gas as a feedstock. The government began to improve the domestic gas transmission network in the early 1990s, in order to aid the switch from oil to gas. A main pipeline was developed between Benghazi and Tripoli and most of the country's plants have now been converted from oil to gas, largely in an effort to maximise the amount of oil available for export.

As a result, all new plants are likely to be either gas fired or water and power plants (WPPs). Improvements in desalination technology over the past few years have reduced production costs for both electricity and water. As a result, Gecol plans a series of new WPPs to supply new developments along the coast that will not be served by the country's Great Man Made River (GMMR) project. Until relatively recently, electricity was seen as something of a by-product of desalination schemes but it has now become a key driver of WPPs across the Middle East.

Aside from commercialising Gecol and increasing the role of the private sector, there is as yet no long-term blueprint for the development of the sector. At present, it appears that the company will stay in state hands but its future depends on the general direction of economic policy in the country. Abukraa says: "We are following and monitoring very closely the various experiments taking place in other countries in the region, particularly in neighbouring states, and the experience gained, in order to define the suitable model for our environment."

In the medium term, it looks as if foreign companies will continue to be offered contracts to undertake particular projects, such as plant construction or the development of transmission lines, but the indications are that they are unlikely to be offered the opportunity to manage their own facilities. Apart from any constitutional or regulatory obstacles to setting up independent power plants (IPPs) or signing up for fixed term build own transfer (BOT) contracts, potential investors would require promises on the creation of a more open market before committing themselves. In the absence of such commitments, they would require a level of fixed tariffs to which Gecol and the government would be unlikely to agree. The Libyan economy is opening up beyond the oil and gas sector but there is little prospect of a competitive power market emerging for some time to come.

© The Middle East 2005