LIBYA TELLS EXIM - TRUST US, OUR CREDIT'S GOOD

C O N F I D E N T I A L SECTION 01 OF 03 TRIPOLI 000539

SIPDIS

DEPARTMENT FOR NEA/MAG
PLEASE PASS TO EXIM, OPIC, USTR

E.O. 12958: DECL: 9/20/2016
TAGS: EINV EFIN ECON ECIN ETRD CMGT LY
SUBJECT: LIBYA TELLS EXIM - TRUST US, OUR CREDIT'S GOOD

CLASSIFIED BY: Elizabeth Fritschle, Pol/Econ Chief, Embassy
Tripoli, Department of State.
REASON: 1.4 (b),(d)

1. (C) EXIM Bank conducted its first visit in over thirty
years to Tripoli September 5-9. After an introductory session
with Mohamed Siala, Secretary of International Cooperation, the
rest of the week was marked by mixed success pursuing additional
meetings with key GOL entities. EXIM's Vice President for
International Business Development C. Michael Forgione and
Africa Region Director John Richter ultimately met with a range
of private, state-owned and multinational companies that all
expressed a strong interest in developing U.S.-Libyan relations.
However, apart from the Siala meeting, these contacts did not
share specific GOL investment plans for the future, highlighting
both the opportunities and frustrations of investing and
operating in Libya. In addition, the EXIM team heard from both
Siala and Foreign Investment Board Director Rajab Shiglabu that
Libya would not sign an OPIC agreement, or any other proposed
U.S. trade and investment agreements, unless they offered
reciprocal opportunity.

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EXIM Pitches Projects Backed by Sovereign Guarantee
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2. (U) The EXIM team made a consistent pitch to its
interlocutors during its week of meetings, stressing a desire to
build a dialogue to educate both sides and increase comfort
levels after a long hiatus of investment and business activity.
VP Forgione emphasized that at this juncture, EXIM can only
offer financing assistance to US business projects with
government-owned entities in three areas: the aviation sector,
project finance (requiring predictability and hard revenue
streams) and projects backed by a GOL "sovereign guarantee" of
loan repayment. The delegation stressed that US-Libyan
relations are entering a new phase, that US interest in Libya is
serious and long-term, and that the USG and private business
community had the endurance to weather minor difficulties and
frictions during the normalization process.

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Familiar Frustrations - Libya Needs Economic Diversification
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3. (U) Given that EXIM is currently restricted to supporting
US export contracts with government-owned entities, the bulk of
requested meetings were with the GOL. However, these
appointments proved impossible to schedule in the end, and many
of the EXIM team's top priority meetings therefore went unfilled
during its stay in Tripoli. Appointments with the Foreign
Investment Encouragement Board, the Libyan Foreign Bank,
Afriqiyah Airways, Real Estate Investment Company and Chevron
produced a reasonably broad range of discussions on the Libyan
investment and business environment. Furthermore, the team's
visit was welcomed by the local business community as a sign
that relations were normalizing, albeit at a slow and measured
pace.


4. (C) Secretary of International Cooperation Mohammed Siala,
from the General People's Committee for Foreign Liaison and
International Cooperation officially greeted the EXIM team and
provided the most detailed briefing on the GOLs perspectives.
Siala argued the EXIM and other lending organizations should not
take account of international rating systems that according to
him, "are affected by political considerations, or in the case
of Italy, ongoing disputes over old debts." He said that Libya
sought to use oil revenues to fund sustainable development
outside the energy sector. He also highlighted that Libya was
still "looking for the rewards" from its decision to give up the
WMD program, particularly any economic benefits to be gained
from increased international trade and investment. Siala
acknowledged the tension in Libya between those "who think the
pace of reform is too fast and those who think it is too slow,"
but emphasized that the Jamahiriya system is adjusting quicker
than anyone could have anticipated.


5. (C) In terms of economic diversification, Siala said he
and other Libyan offficials were frustrated by international
consultancies that focused on tourism for future growth. "Where
is the added value from building hotels if the furniture is
imported, the construction crews are foreign, the housekeeping
staff and other laborers are foreign?" Siala continued. Libya
would benefit more from manufacturing, agriculture and other
areas that would create employment for Libyans. He mentioned
the special tourism zone established under the direction of
Saadi Qadhafi in the Zwara-Abukammash area, but without
explaining more details, also said that the tourism zone would
include a U.S. operated refinery. Despite Siala's point that
Libya needed to expand beyond tourism and energy, the only other
project he mentioned for prospective cooperation was a 5 billion
power plant at Sirte. Siala said the Koreans won the tender
with a proposal that used 80% Japanese equipment. He said that
the Libyan's were not happy with that mix and might re-issue the
tender. If so, he hoped Bechtel would give a turn-key offer
that would include the plant and also the management of five or
six other facilities.

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Sovereign Guarantee? Trust Us, Our Credit's Good
--------------


6. (C) Asked what government entity was authorized to issue a
sovereign guarantee, Siala demurred and said that the GOL tried
to avoid that type of commitment. He claimed that Libya had
never defaulted on any loans, "even paying all outstanding debts
in advance when we became aware that our accounts would be
frozen under the sanctions regime." He later qualified his
statement and said that there were some private debts that
couldn't be resolved due to a lack of documentation, but even in
those cases the GOL was negotiating settlements to "split the
difference" when amounts were in dispute. "Look at our
history," Siala urged, "any lender should be anxious to do
business here, especially since our foreign currency cash flow
is encouraging." In the example of an entity like the General
Electric Company of Libya (GECOL),Siala claimed that the
national budget was a guarantee. Any Libyan project that was in
the budget had been voted on by the General People's Congress
and the "cabinet" would have issued authority for a tender and
for contract signing, therefore a defacto sovereign guarantee
existed. When pressed, Siala also said that both the General
People's Committee for Finance and the Central Bank could issue
sovereign guarantees. But, "EXIM should have full confidence in
any Libyan project that has government funding," Siala concluded.

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Reciprocity Deemed More Important Than Meeting Libya's Immediate
Investment Needs
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7. (C) In Siala's opinion, the U.S. is not competitive in its
trade and commercial activities, especially since the proposed
OPIC agreement is not acceptable to the Libyan negotiators. He
pointed out that Libya had already signed "agreements for the
encouragement of investment" with many countries, as well as an
agreement on double taxation with France. Libya expects
reciprocity in trade agreements, and expects that since Libya is
active in the U.S. stock market, that it should receive more
encouragement in bilateral trade. In comparison, Siala cited
his impression that Europeans and Asians are willing to invest
in small, private ventures, exploring the Libyan free zones at
Misurata and elsewhere, and taking advantage of the potential to
access African consumers through Libya. Similarly, Rajab
Shiglabu, Director of the Libyan Foreign Investment Board, told
the EXIM team in a separate meeting that Libya would not
consider the pending OPIC agreement because it did not offer
reciprocal treatment. Shiglabu said Libya would consider
signing a broad bilateral investment treaty with reciprocal
terms, and then addendums such as an OPIC agreement could be
discussed later. When asked why Libya doesn't consider the
OPIC agreement as a "seal of approval" or signal that "Libya is
open for business" Shiglabu consistently argues that intrepid
businesspeople will gain great rewards engaging with Libya under
its own protections; they do not need or desire any additional
assurances. (Embassy Note: the proposed Libyan agreement is
with OPIC for further review. End Note.) Elaborating on
European cooperation, Siala noted that disputed Libyan debt to
Italy was being resolved as part of a "political package of
compensation". He said that Italy was being asked to build a
coastal road as compensation for its occupation of Libya, and
that the Libyan debt to Italy would be subsumed within the joint
cooperation.

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Oil Companies' Concerns over Visa Issuances
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8. (U) Chevron's local representative briefed the EXIM team
on the difficulties of working in Libya, particularly due to
visa issuance problems, both for getting Amcits into Libya and
getting Libyans into the U.S. Oil companies are relatively
better positioned, both for obtaining Libyan visas (thanks to
NOC facilitation) and attracting qualified Libyans for
employment, than other entities. Service providers to the oil
companies and other firms face a far more difficult time
obtaining Libyan visas, which in turn hinders business growth
and personnel development. The Chevron representative also
explained that U.S. companies suffer from a "generation gap"
(due to the sanctions period) because Libyan employees did not
have U.S. training in the 80s and 90s. Now, the companies face
ongoing obstacles sending Libyans to the States for training.

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Snapshots from the Visit
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9. (SBU) During the EXIM team's meetings several tantalizing
new developments emerged:

-- The Real Estate Investment Company (REIC) - a Libyan-owned
company owned by the Central Bank and its five subsidiary banks
- seeks to form a joint company with the Tennessee Development
Corporation (TDC). This joint company would undertake a number
of high-value construction projects around Tripoli totaling an
estimated $700 million. EXIM may be approached to provide
financing for some of these projects, although it is not clear
that support would be forthcoming, absent a sovereign guarantee
by the GOL. Also, the well-connected REIC is also working to
import one million metric tons of cement via a Miami-based US
company to fuel its construction and road-maintenance projects.

-- US company Delta Aluminum is apparently engaged in
discussions to build an aluminum smelter, partnering with GECOL
or a Libyan natural gas supplier. Libya is an attractive
location for the smelter given low local fuel costs (energy
needs constitute roughly 40% of the cost of aluminum
production); raw materials would be imported from Latin American
or Guinea. The estimated value of the project is 2-3 billion
USD.

-- Dow Chemicals is in negotiations with the National Oil
Company (NOC) to take-over an existing GOL petrochemical plant
and double or triple its capacity.

-- The EXIM team urged the Financial Director of Afriqiyah
Airlines to consider the purchase of Boeing aircraft, but was
informed that Afriqiyah intended to honor its July 2006 MOU with
Airbus to purchase up to $1.9 billion USD worth of aircraft.

-- Up to three free trade zones are being planned for Misurata.


10. (U) The EXIM delegation did not clear on this cable before
departing post.
BERRY