German oil firm accused of withholding €800 million from Libya

A German oil producer has been accused by the head of Libya’s National Oil Corporation of withholding more than $900 million (€811.21 million) from the Libyan state and colluding with unlawful efforts by Libya’s UN-backed government to take over the sale of the country’s vastly profitable oil contracts.

The power struggle between the NOC and Wintershall – which denied that it owed any money, saying it had always met its obligations to the state – has long-term implications for global oil prices and the Libyan economy, since more than 80% of Libyan state revenues are gathered from the oil industry.

Despite Libya facing a political crisis, oil production has been gradually increasing of late, reaching 800,000 barrels per day. The NOC is seen as one of the few bipartisan Libyan institutions capable of keeping out of the political infighting that has dogged the country since Muammar Gaddafi fell in 2011. Libya was producing 1.6 million barrels per day before the uprising, and the NOC has said output in 2017 could reach between 1.1m and 1.2m barrels per day if political obstacles are removed.

The NOC argued that the battle with Wintershall, and the support the company has enjoyed from the UN backed government was of great importance to its ability in order to keep control of decisions on oil contracts away from politicians whilst ensuring that the maximum amount of revenue reaches the state coffers.

Mustafa Sanalla, the head of the NOC, said that Wintershall knew before him of a controversial move by the presidency council – the name of the UN-backed government led by Fayez Serraj in Tripoli – to take over control of decisions on the terms of oil contracts and investments from the NOC.

The legal status of the presidency’s council move, which occurred in March and is known as resolution 270, is now unclear after an appeal court in Benghazi ruled on Monday that the council had over reached itself.

Based in Kassel and part of the chemical BASF Group, Wintershall is one of the oldest established oil companies in Libya, and is regarded as being better positioned than other foreign oil firms to have a further increase in oil production in Libya.

Mustafa Sanalla added that Wintershall had ‘tried to interfere with the Libyan internal politics and to take advantage of the fact that the state is so weak’. He also alleged that staff, nominally advising the presidency council had previously been employed by Wintershall for years, and that the council was making political decisions such as resolution 270 that “were written by Wintershall and designed to help Wintershall”.

In 1966, Wintershall was granted two enterprises in the East Sirte basin, 1,000 km south of Tripoli. By 1996, the concessions were capable of producing 100,000 barrels per day.

Sanalla said a memorandum of understanding was signed in August 2010 extending these two concessions, on the condition the terms of the concessions were made more favourable to the government, bringing them into line with the type of contract agreed by other foreign oil operators in Libya. He said Wintershall had not honoured this agreement.

The two contract terms have differences which amount to $900m, according to the NOC, based on a calculation of the amount of barrels produced, at an average price, plus contract bonuses. The argument has led Wintershall to slash production by more than 100,000 barrels a day.

Sanalla also claimed that the presidency council passed resolution 270 partly to allow Wintershall to evade its obligations under the 2010 agreements. The amendment was drafted with the help of Wintershall to benefit Wintershall, he said. He has also named a senior adviser to the council that he said had been close to Wintershall for more than a decade.

The dispute over oil resources – on which the fragile Libyan state depends to survive – is part of a wider argument about whether the presidency council has failed to honour promises made last November to fund the oil business properly.

The NOC claimed on Tuesday that the council had committed itself to providing LYD 2 billion (€1.31 billion) for investments and repairs but had only come up with LYD 1.6 billion (€1.05 billion).