Libyas National Oil Company (NOC) issued a decree on 4 October 2012 that gave its branch in eastern Libya the autonomy to independently run operations in the east of the country
On 11 October, however, the decision was revoked, following protests by NOC employees in the west. It is yet unclear if the decree would have allowed the eastern Libya NOC to sell its own oil or sign its own contracts.
It would have allowed the company to do everything short of that, including managing refining, production and exploration activities.
Eventually it may come down to a choice of an autonomous eastern NOC, the regions being allowed to spend a significant portion of oil revenues derived from production on their territory, or secession.
The two main determinants of secession are whether the east is allowed to spend a significant portion of its oil revenues without intervention by Tripoli, and whether the militias in Tripolitania are integrated into security forces.
Regarding the division of oil revenues, the division can either result from an autonomous NOC in the east or from constitutional clauses that give regions the right to spend revenues derived from production within their territory.
We note that establishing an autonomous NOC in the east is not sufficient to prevent secession unless militias in Tripolitania are also folded into government security forces.
Political scenario
In the July 2012 elections for the 200-seat General National Congress (GNC), the National Forces Alliance (NFA), led by former interim Prime Minister Mahmoud Jibril, won 39 out of 80 seats allocated to political parties.
The remaining 120 seats were allocated to individuals whose affiliation is regional or tribal, not ideological. Therefore, they are likely to ally with whichever political party best serves their local constituency, and alliances are likely to shift frequently.
As such, any cabinet will have to be based on a broad coalition that will be forced to reconcile competing regional agendas and ideologies to survive and to make policy, causing delays to new legislation, contract approvals and economic decision making. The Constituent Assembly would be tasked with drafting a new constitution, once its selection process has been completed.
Regional impact
It is important to note that each region has two or three militias that rule in conjunction with elected local councils, making regional autonomy a fact on the ground that would eventually have to be approved in the constitution.
Regions are likely to be allowed to spend a large portion of oil revenues derived from production on their territory. This would probably create a large number of regional institutions, which are likely to be used by local politicians to maintain networks of patronage, therefore increasing the risk of contract frustration and corruption for companies looking to invest in Libya.
In view of this, an autonomous NOC in the east is likely to be established, paving the way for de facto federalism. Such a decree would very likely be followed by attempts by eastern Libyan representatives in the GNC to allow the eastern NOC to sell oil independently of the company's management in the west.
Such a scenario would be unlikely to increase contract risks to Exploration and Production Sharing Agreements (EPSAs) signed with the NOC in Tripoli. However, it would force firms seeking future contracts to negotiate concessions in the east and in the west separately.
It is worth noting that the exact selection process of the Constituent Assembly (CA) has not been agreed yet, with some factions demanding that its members be directly elected and others demanding that the General National Congress select it.
Once it is selected, the assembly would be tasked with drafting a new constitution.
In the unlikely event that the CA does not reach an agreement with the regions over the allocation of oil revenues, eastern Libya, which accounts for 66 per cent of oil production and 25 per cent of the population, would probably attempt secession.
This would significantly raise the risk of civil war in the Sirte Oil Basin, the Gulf of Sirte and in Benghazi.
Under either scenario, however, existing EPSAs are very unlikely to be affected by renegotiations or revisions.
Both east and west would have to prioritise maintaining oil production, for which the involvement of foreign oil firms is needed, in order to finance any possible war between them and in order to have the funds to contain civil unrest.
Article provided by Exclusive Analysis Ltd
