Libya vets big fuel import deals in Istanbul

Reuters, Saturday 5 Nov 2011

Top oil majors and trading houses met Libyan oil officials in Istanbul this week for their first chance to win multi-billion dollar deals to supply fuel needed to keep the new government on its feet

Libya plans to purchase nearly three million tonnes of gasoline alone, worth close to $3 billion at current prices.

Across a plush hotel lobby, highly focussed competing teams from big oil companies such as BP and ConocoPhilips brushed shoulders with Italian, German and Turkish rivals before heading into meetings.

"Everyone wants to deal with Libya," said one oil man.

All of Libya's former trading partners were invited. The big companies present were used to dealing with managers hand-picked by Gaddafi, who they say lacked hard experience at the negotiating table and were unfamiliar with many of the logistical details of the trade.

The newly-appointed managers of Libya's National Oil Corporation have been quick to distinguish themselves from their predecessors.

"They haven't come here to mess around. They get here and go straight to the point -- how much and what can you offer," said the head of a team from Italy.

All offers from Istanbul would be reviewed by a committee back in Libya, one member of the NOC delegation said, who declined to be named.

"We will report back on everything that we have done here and who we have spoken to," he said. "We have to do this for Libya, for the thirty thousand people who died in the revolution and all the years of suffering."

Oil traders said the Libyans had refused all invitations to lunch or dinner and kept to a tight schedule.

"Before, everything was done under the table and with bribes. Now I haven't heard anything about bribes and tenders are being used to buy and sell," one said.

"Even those that were corrupt before would not think of doing anything wrong now," the Libyan delegate said.

Around 15 managers from the NOC have been sacked for supporting Gaddafi or engaging in corrupt activities, he said, but added no one in Libya's oil sector could escape working with the autocrat and his children.


International trading company Vitol pioneered the supply of vital fuel to the Libyan rebels in the earlier stages of the war. Trafigura, one of its leading peers, was present in Istanbul, hoping to sell gasoline.

But smaller traders were present too, like BB Energy which supplied several cargoes of fuel during the conflict.

Contracts were expected to be divided between the largest refiners in the Mediterranean. NOC aimed to secure supply from a diversity of sources at the best price, and firms would be pressed to bring their proposals into line.

"Companies that played a big part during the war think they should be big players now, but that's not how it is going to work," warned the head of Libya's delegation Fathi Rajab. also head of marketing at Libya's largest refinery of Ras Lanuf.

Sales agreements were likely to rest on open credit terms that a number of companies, including Vitol and rival Glencore, have already offered on previous deals to supply fuel during the conflict, according to traders present.

At the height of its debt with Vitol, the NOC was thought to have owed the trading house close to $1 billion, while its outstanding payments the to Glencore have been estimated at $300-$400 million.

The NOC team said they had received around 25 offers and planned to draw up a shortlist of companies that would be invited to improve their final proposals in a second round.

These would be submitted on Friday and the final agreements would be sealed by fax. Either by mistake -- or in effort at transparency -- at least one mailing list of invited parties was visible to recipients.

The NOC's fuel bill for the war totaled nearly $1.6 billion the interim oil and finance minister said in October, and close to $1 billion was still unpaid.

A flexible financing agreement is likely to remain a requirement because Libya's oil sector, along with the rest of the country, faces a severe liquidity crisis.

Virtually all of Libya's $170 billion of assets are still frozen in the lengthy process of undoing measures imposed by sanctions.

Queues are growing outside banks and Libya's new central bank governor has said the crisis will persist until the end of the year, when the first shipments of banknotes are due to land.

As a result, companies' ability to compete will also depend on their means to offer flexible payment terms, with some requiring approval from their respective ministries, while others will have to check with internal regulation.

On the flip side, bargaining over an estimated $6 billion in unpaid fuel exported from Libya at the start of the conflict and still unpaid for will also feature in negotiations.

Traders also expected the reformed NOC to usher in a new era of efficiency, after deals with its eastern subsidiary Agoco, which managed sales and purchases during the war, had been conducted via email.

Previously, oil firms would have been required to send representatives to Libya and reach agreements in person.

The delegation said that Libyan refined oil products were already trickling back into international markets. One straight-run fuel oil cargo had already been exported from Zawiya, while a cargo of LPG was due to load at Mellitah on Friday.

In addition, naphtha and condensate had been exported from the eastern port of Tobruk.

More cargoes were expected to be available for export before the end of the month.

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