LIPSTICK ON A PIG: LIBYA RENAMES CLAIMS COMPENSATION FUND

C O N F I D E N T I A L SECTION 01 OF 03 TRIPOLI 000413



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ERICKSON; CAIRO FOR ALEX SEVERENS; PARIS AND LONDON FOR NEA

WATCHERS



E.O. 12958: DECL: 5/19/2019

TAGS: PGOV, PREL, ECON, EFIN, EPET, EINV, KCOR, LY, QA

SUBJECT: LIPSTICK ON A PIG: LIBYA RENAMES CLAIMS COMPENSATION FUND



REF: A) TRIPOLI 99; B) TRIPOLI 139, C) DOHA 286



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CLASSIFIED BY: Gene Cretz, Ambassador, U.S. Embassy Tripoli,

U.S. Department of State.

REASON: 1.4 (b),(d)

1. (C) Summary: Libya's National Oil Company (NOC) recently

convoked the major international oil companies (IOCs) in Libya

and presented a new law establishing a fund for charitable

contributions. While the stated purpose of the law is to gather

contributions to support charitable, social and humanitarian aid

programs, NOC officials - including Chairman Shukri Ghanem -

openly conceded that the new law was the government's latest

attempt to prompt IOCs to make "voluntary" contributions to the

fund established under the U.S.-Libya Comprehensive Claims

Compensation Agreement, which is to compensate victims of

terrorism and their families. Citing concerns about potential

violations of the Foreign Corrupt Practices Act (FCPA),IOC

heads here told the Ambassador and emboffs they do not plan to

make any contributions to the new fund. IOCs in Libya are

already obligated under the terms of their contracts to spend a

certain amount on social programs and have initiated programs to

fight diabetes (a growing problem in Libya),and promote road

safety. End summary.



LIBYAN NATIONAL OIL COMPANY CALLS INTERNATIONAL OIL COMPANIES TO

CARPET



2. (C) On May 4, the National Oil Company (NOC) convoked the

Libyan deputy managers of IOCs to a presention on a new law

establishing a charitable contribution fund (Decision number

148-2009). (Note: In Libya, the deputies of IOCs must be

Libyan nationals. End note). The stated purpose of the law is

to gather donations to support charitable, social and

humanitarian aid programs. The fund would manage and monitor

charity contributions coming from all foreign companies and

would encourage them to contribute grants, donations, and

support to the fund. The fund is to be managed by a Management

Committee comprised of a General Manager and four members

nominated by the General People's Committee

(cabinet-equivalent). In addition to "voluntary" contributions,

40 per cent of environmental fines paid by foreign companies,

including oil companies, would go into the fund.



NEW "CHARITY FUND" A THINLY-VEILED VERSION OF OLD CLAIMS

COMPENSATION FUND



3. (C) The NOC officials chairing the meeting admitted the law

was the government's latest attempt to spur the IOCs to make

"voluntary" contributions to the fund created under the

U.S.-Libya Comprehensive Claims Compensation Agreement (see refs

A and B). The deputy managers were told their companies would

get 'better treatment' if they made early contributions to the

charity fund. In discussing potential consequences if they

declined to make such contributions, it was suggested that the

companies could be fined for infringing Libya's environmental

laws, or their employees could be stopped by police for

(alleged) traffic infractions. (Note: The latter is a common

practice here. Police frequently stop vehicles with foreign

commerical license plates and fine their drivers on the spot.

End note.) Since the meeting, the major IOCs have remained

resolute and have not contributed to either the old compensation

fund or the new charity fund. There are persistent rumors,

however, that Gazprom and a few small oil services companies

have contributed to the compensation fund and possibly to the

new charity fund as well. (Note: Gazprom Chairman Alexei Miller

announced publicly earlier this week that Gazprom expected to

conclude an agreement with the NOC in the near future to develop

a large gas field. End note.)



SHUKHRI GHANEM TO MARATHON: BE A "GOOD NEIGHBOR" AND GIVE TO THE

NEW FUND



4. (C) In a recent meeting, NOC Chair Shukhri Ghanem admitted

to a senior visiting Marathon Oil official (strictly protect)

that the GOL had simply renamed the old compensation fund and

presented it as a charity fund. Noting that neither the Libyan

government nor the USG had wanted to contribute to the fund, he

said it had become apparent that IOCs were not inclined to

contribute to it, either. He blamed the refusal of American

companies to pay for the reluctance of other IOCs to contribute.

Ghanem explained that the new charity fund would give companies

an opportunity to show they are "good neighbors" by supporting

charitable, social and humanitarian aid programs. The issue of

IOCs contributing to the fund had been elevated to the highest

levels and went beyond just the NOC, he said, in an implicit

reference to Leader Muammar al-Qadhafi. Separately, senior

British Gas executives and a Libyan contact with excellent ties

to Ghanem recently told Emboffs that Ghanem and the NOC were



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under pressure from Muammar al-Qadhafi and Prime Minister

al-Baghdad al-Mahmoudi. (Note: The latter was tasked

immediately after finalization of the U.S.-Libya Comprehensive

Claims Compensation Agreement with "accreting" contributions to

the fund for victims of terrorism. End note.) Those contacts,

who expressed shock that the NOC had been so candid in admitting

that they had simply re-named the fund, speculated that Ghanem

was under such pressure to generate contributions that he and

his staff weren't thinking clearly.



5. (C) The senior Marathon executive told the Ambassador his

company did not see any way it could participate in the new fund

since its lawyers assessed that contributions could violate the

Foreign Corrupt Practises Act (FCPA). Marathon's leadership was

worried that if they contributed to the fund this time, it would

establish a dangerous precedent for further solicitations in

Libya and elsewhere. (Note: Post read with interest ref C, which

suggests the Qataris and Libyans may be using the same play

book. End note.) The Oasis Group (also known by its Arabic name

as the Waha Group),which includes Marathon, Amerada Hess, and

ConocoPhillips, already paid Libya USD 1.8 billion in signing

bonuses to re-enter Libya. The request for additional payment

to the charity fund is not something Marathon is in a position

to do. According to Marathon's manager in Libya (strictly

protect),the company is strongly committed to fulfilling its

corporate social responsibility obligations, but is unwilling to

simply hand out cash to a less-than-transparent charity fund.

Some provisions in the new law call for using the fines paid by

companies for breaching environmental codes to fund sustainable

development programs. Contacts at Marathon said this would not

affect Marathon or its Waha partners since they are only

investors (vice operating companies). In addition, Waha's

operations are onshore, vice offshore, and therefore less prone

to environmental infractions.



THE VIEW FROM OTHER IOCS



6. (C) Hess' General Manager (strictly protect) agreed that

the new fund is simply a new name for the old compensation

claims fund. He noted Hess is already devoting resources to

social programs in Libya, including a diabetes awareness and

treatment project with experts affiliated with Harvard

University. To require the company to "voluntarily" pay into a

new fund would be a non-starter for Hess. Chevron's GM

(strictly protect) wondered why the government did not simply

levy a new tax on the IOCs rather than create the new fund.

While the companies would not have liked this, it would have

simplified collecting the funds and provided a more tenable

approach with respect to FCPA issues. Shell's GM (strictly

protect) told the Ambassador he was concerned by the NOC's

decision to convoke Libyan national deputy GM's, an approach he

viewed as "targeting" Libyan colleagues in the belief that they

would be more susceptible to strong-arm tactics. (Note: He

personally assessed that his locally-engaged staff were even

more loyal to the IOCs than the expatriate staff. End note.) He

noted that the NOC typically convoked expatriate general

managers. Even though Shell in Libya was not directly impacted

by the Lockerbie compensation issue, Hope agreed the IOCs needed

to "hold rank" and not succumb to pressure to pay into the new

fund. As Shell is only involved in onshore exploration, its

susceptibility to potential environmental fines is also slight.

He noted Shell is already supporting several social programs in

Libya. They are proud of their road safety program and believe

this program could be partly credited with the government's

recently-enacted requirement that drivers wear seat-belts not

only on highways but also within Tripoli. They also have a

program to help young people start and run their own businesses.

Payments into the new fund would be very difficult to justify

to Shell's shareholders and lawyers, who are concerned with the

bottom line and FCPA issues, respectively.



7. (C) Comment: Efforts to solicit contributions under the new

law reflect the intense pressure Ghanem and the NOC are under

from the most senior levels - likely including Muammar

al-Qadhafi himself- to generate money for the claims

compensation fund. If the law for the new charity fund had been

rolled out a few months from now and had not been blatantly

connected to the compensation fund, IOCs may have been able to

seriously consider contributing. In addition to the fact that

the NOC didn't bother to try to maintain the fiction that the

new fund was different from the claims compensation fund,

slumping oil prices, the global recession and disappointment

with meager oil and gas discoveries in Libya by IOCs to date

make it difficult to impossible for IOCs to seriously entertain



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this latest demand. End comment.

CRETZ