Sunday, Apr 15, 2012

By Benoit Faucon

DOW JONES NEWSWIRES

LONDON (Dow Jones)--International campaigning group Global Witness Sunday called on the new Libyan government to draw lessons from an audit conducted by the former regime into its oil sector, which it said showed millions of dollars may have been mismanaged.

The official report, obtained by Global Witness, outlines allegations of mismanagement against the National Oil Co. and the government of Col. Moammar Gadhafi.

Gadhafi was toppled last year partly out of discontent over the regime's handling of its oil sales, which makes up 90% of government revenue.

"The systematic mismanagement of the country's oil wealth has effectively denied millions of dollars to the people of Libya," said Giulio Carini, of Global Witness, which campaigns for more accountable revenue management in resource-rich nations. "The case for reform of the country's oil sector couldn't be stronger or more urgent."

The Wall Street Journal reported last week that authorities in the U.S. and Libya are investigating oil giants over their past relations with the fallen Libyan regime.

But the Global Witness report shed light on possible government mismanagement during the Gadhafi era, including under-pricing of oil and selling lower-quality crude than advertised, according to the audit of which Dow Jones has also obtained extracts separately. The audit also says large discounts were given to select foreign companies such as the Norwegian fertilizer company Yara International ASA (YAR.OS).

A spokesman for Yara said: "In general terms, [natural] gas prices are always central in any agreement regarding our production sites." He declined to comment on whether the discounts were scrutinized as part of a Norwegian probe into the company's investment in Libya.

A separate letter obtained by Global Witness shows at least one company complained it was overcharged for the type of crude it received.

Exxon Mobil Corp. (XOM) in 2008 informed NOC that the quality of two cargoes of crude purchased from the state company that year was of a quality consistently lower than the Libyan state oil company advertised. The U.S. company said in a letter that this had caused a direct loss of $3.99 million. Exxon Mobil declined to comment.

Long-time Libyan anti-corruption activist Abdelhamid El Jadi told Global Witness that these documents reinforced his own findings into Gadhafi's extensive history of mismanagement of the oil sector and his knowledge of shoddy practices within the NOC.

In an e-mail to Dow Jones, Najwa El Beshti, a former head of oil contracts at NOC who confirmed she was one of the contributors of the report, said she had received death threats under Gadhafi for raising the issues contained in the audit. But she also said they are still valid regardless of the fact they were raised by officials of the former regime.

Global Witness applauded a decision by NOC to publish all proceeds from its oil sales under the new government. But the campaigning organization said "allegations of past mismanagement in the oil sector show the need for actions...to ensure good management of its oil sector."

In particular, it called on the government to publish existing and future oil contracts and work with international audit organizations to ensure there is the ability to accurately measure and report revenues.

"Libya's newly elected government should also establish a review of all contracts--under parliamentary oversight," while a future Libya constitution should enshrine safeguards that reflect the principles of transparency and accountability, it said.

-By Benoit Faucon, Dow Jones Newswires; +44 20 7842 9266; benoit.faucon@dowjones.com

(END) Dow Jones Newswires

15-04-12 1600GMT