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Business Comment

Jim Armitage: So what happened to the billions in oil money that gushed out of Libya?


Global Outlook: With the Muslim festival of Eid al-Adha this week, most businesses in Libya, along with much of North Africa, are taking a few days off to celebrate the public holiday. But at the Libyan Investment Authority (LIA), the sovereign wealth fund set up under Colonel Gaddafi, it has been quiet like this since before the war that killed him and his four-decade regime a year ago.

In London, the fund that some claimed was as big as $100bn (£60bn) at its peak invested Libya’s oil wealth from an office in Mayfair into a vast range of hedge funds, banks, properties, hotels and stock markets. Money gushed out like oil from the wells that created it. Bankers, executives and politicians from the Western world and Africa cosied up to dip their beaks in the money pot.

Then came the brutal suppression by Gaddafi of the opposition, which triggered war and the sanctions in March last year that have been only partially lifted. The cash tap ran dry.

So much for new investments. But what of the existing ones? Essentially, hundreds of companies’ dealings with the fund are now in something of a state of flux.

Take Pearson, the Financial Times owner where the LIA built up a 3.27 per cent stake. There, the fund’s shares have remained frozen – unable to be traded – for 19 months now.  Two dividends (totalling £10.5m by my calculations) also remain frozen, although after a relaxation of the sanctions by the UN and the UK Treasury in September 2011, the two most recent dividends, totalling £11.4m, have been made.

Pearson can handle this minor irritation. But elsewhere the situation is less well ordered. Some governments have been taking advantage of the ongoing instability in Libya to try to wrest control of assets bought by the fund. In Zambia, the President nationalised the LIA’s $257m stake in the local telephone company. In Niger, the parliament voted to nationalise its phone business, breaking promises to sell it to the LIA.

In Italy, the financial police seized LIA-owned assets on the grounds that the LIA is a Gaddafi-controlled entity. These include stakes in UniCredit Bank, the oil giant ENI, Fiat, and even Juventus Football Club. The seized assets total some $1.39bn.

The Italian position seems unfair to the new head of the LIA, Mohsen Derregia. The former Nottingham University professor argues, with some justification, that the LIA’s assets are the property of the new Libyan government, and should be returned for use by the people.

However, you can kind of see why the Italians may be concerned. The LIA was famous for its close ties with Gaddafi’s London-educated son Saif. The political situation in Libya, while not as appalling as some predicted at the time of the conflict, remains extremely  challenging. It was only this week that government-aligned forces “liberated” the town of Bani Walid from alleged Gaddafi loyalists. Much paranoia remains about the whereabouts of Gaddafi family survivors amid claims they could return with another civil war.

Most experts say this is just that: paranoia. The Gaddafi family has been routed. But nevertheless, there is still no effective government yet in Libya. So, to argue that the LIA’s assets are the property of the Libyan government remains unsatisfactory. Meanwhile, it’s unclear what the eventual government, when it does emerge, will want to do with the vast fund.

Another desert-sized headache for Mr Derregia is that the LIA was run amid mismanagement and alleged corruption on a huge scale. He and his team are combing through billions of dollars of investments to locate exactly where the assets are, and how much they are worth. No easy task.

Libyans had feared that the money would largely have been squandered or stolen during the chaos of war and its aftermath. But Mr Derregia reckons the situation is not as bad as all that, estimating over the summer that $50bn to $60bn remained.

As is now blindingly obvious, Western businesses should never have got involved with the LIA. Not only due to the distasteful nature of Gaddafi’s regime, but because the fund was so opaque. Details of its investments were sparse, financial accounts hard to access or impossible to interpret. The concept of “know your customer” must have been pretty much absent in all dealings with the fund.

An investigation last year by Libya’s transition government found “misappropriation, misuse and misconduct of funds” . It said $2.9bn was missing.  A subsequent Financial Times investigation found widespread mismanagement and waste, and even employees admitted to a shambles.

Unpicking the hundreds of investments will take Mr Derregia many, many months. Arguing with expensive lawyers from its former business partners even longer. Among his battles include losses made in investments with Goldman Sachs and Société Générale in 2007 and 2008. Fighting these kind of institutions is never cheap.

Goldman famously lost 98 per cent of the $1.3bn the LIA invested with it. Wonderfully vivid stories emerged later about how the Goldman rainmaker Youssef Kabbaj was dispatched to Tripoli to explain. So scared was he after being balled out by the then-LIA chairman, Mustafa Zarti, in Tripoli that he reportedly hired bodyguards for the rest of his stay. Little wonder: Mr Zarti shouted at him “like a raging bull”. Mr Kabbaj was probably well aware that his unhappy customer was a close friend of both Muammar and Saif Gaddafi.

We should wish Mr Derregia all the best as he seeks to unpick the LIA’s knotty problems. And hope Western firms and governments who dealt with the organisation don’t try to rip him off. The Libyan people need every penny if they are to rebuild their shattered country.

Oil industry needs expat workers to return

A year since the war, and Libya is, of course, nothing like a working, stable economy. Far from it. But its people should be applauded for not allowing the country’s infrastructure totally to collapse. The all-important oil industry is perhaps the finest example.

Production is, I’m told, pretty much back up to the 1.5 million to 1.6 million barrels a day levels of before the conflict. This is a tremendous feat by the mainly local employees of the likes of BP and other big firms.

Whether it can keep up at those levels far into the new year remains to be seen, however. Running an oil field is like spinning plates – you constantly have to keep maintaining, upgrading and drilling to keep the operation going.

The trouble for Libya is that most of this servicing is done by smaller contractors who have yet to return to the country.

Local Libyans deserve praise for their efforts at the oilfields, but expats must return if their hard work is to be fully rewarded in the longer term.