PRIVATIZATION LIBYAN STYLE: AN INSIDER'S VIEW OF THE

C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000869

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E.O. 12958: DECL: 10/28/2019
TAGS: ECON PGOV EFIN LY EPET
SUBJECT: PRIVATIZATION LIBYAN STYLE: AN INSIDER'S VIEW OF THE
BENGHAZI TANNERY'S EXPERIENCE

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CLASSIFIED BY: Joan Polaschik, DCM, U.S. Embassy Tripoli, U.S.
Department of State.
REASON: 1.4 (b),(d)

1. (C) Summary: The head of the Benghazi Tannery Company, one
of Libya's state-owned firms set to be privatized, alleged that
the Libyan authorities in charge of privatizing his firm (and
others) are using the process to sell off state-owned assets at
below market rates, earning kick-backs in the process. Phone
calls to a few firms already privatized indicate that this could
be true, as General Managers of at least two firms stated freely
that they were members of Libyan leader Muammar al-Qadhafi's
close circle ("al-rifaq"),hinting that this made them beyond
reproach. If the Tannery Manager's allegations are true, they
would represent a credible explanation for why information on
Libya's fitful privatization project remains hard to come by.
And although the Tannery faces liquidity problems and is saddled
with debts, it enjoys strong demand from an international client
base, making it an attractive target for Libya's powerful
elites. End summary.

TANNERY MANAGER SEES CORRUPTION IN PRIVATIZATION


2. (C) Khalil Najim, a 28-year veteran of the Benghazi Tannery
Company (BTC) in eastern Libya, shared with Econoff his
frustrations in running this state-owned company, which is one
of many firms that the Libyan government is preparing for
privatization. According to Najim, the company is one of the
largest tanneries in North Africa, with a good supply of hides
from the livestock industry in eastern Libya and a strong demand
for leather from an international client base, including Korean
leather apparel companies. However, in his view, the Libyan
authorities in charge of privatizing his firm (and others) are
simply using the process to sell off state-owned assets as
expeditiously as possible, and in the process, earning
kick-backs for themselves.


3. (C) The Benghazi Tannery is one of 15 state-owned companies
that are undergoing the process of privatization. According to
Najim, the Privatization Board completed a study of the
company's assets several months ago and now this information is
being "analyzed." Until the assessment is finished, Najim
understands that potential investors are not allowed to tour the
factory. According to other sources in the Benghazi area,
however, the Secretary of Libya's privatization board, the
General Board for Ownership Transfer and Investment, Dr. Mahamud
al-Ftise, recently brought some foreign businessmen to tour the
factory.


4. (C) In Najim's view, al-Ftise sees the Tannery as "a problem
to be dealt with," either through liquidation or a quick sale.
Privately, he told local staff that he believes the reason the
assessment of the company has dragged on is that the
Privatization Board is planning to assess the value of the
company at less than its real market value. The company would
then be sold to an "investor" who would pay a bribe to the
privatization board (or even al-Ftise himself) in return for
receiving a bargain. Najim believes the privatization board may
have already contacted foreign investors.


5. (C) While it is unclear who the potential Libyan investors
might be for the Tannery, Post has contacted other companies on
the list of firms to be privatized, and it appears several of
the firms are being sold at preferential rates to those loyal to
the al-Qadhafi regime, particularly "al-rifaq," or close friends
of the Leader since the time of the 1969 coup. In one case the
person who answered the telephone said he was the company's
general manager, and that he and his partners had bought the
company, freely admitting they were all part of the "rifaq." He
said foreign investors would be welcome to visit the company and
to assess if they wanted to enter into a joint venture. In
another instance, when we called another company, the person who
answered as the general manager seemed annoyed to even be called
and said he did not need to answer to anyone because of his
relation to Qadhafi.

BACKGROUND ON THE TANNERY'S BUSINESS OPERATION


6. (C) Established in 1980, BTC is located in Benghazi, the
largest city in eastern Libya, and includes 13 hectares of land.
The company produces four million feet of leather per year,
processing hides from cattle, sheep, goats, and even ostriches
on a limited scale. Najim noted that the ostrich leather was in
demand, although the factory could not produce large quantities
due to a lack of specialized equipment. The factory purchases
hides from three slaughterhouses in Benghazi. One of the main
expenses is the chemical inputs that are required to process the
hides, most of which must be imported from overseas (including

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France, Germany, Italy, and Spain). Najim said most of the
product was for export to countries such as Korea, Italy,
Turkey, and Tunisia. The company has entered into a
joint-venture with a small Italian firm. Najim said his company
would welcome international partners, including American
companies.


7. (C) The number of employees has decreased from 400 employees
ten years ago, to a mere 100. Najim said he expected the number
of staff to further decrease to 60, as employees leave the
company for higher-wage jobs. The average monthly salary at BTC
is 250 dinars (approximately 210 US dollars). The main problem
the company faces is a lack of liquidity. Najim admitted the
company owed 400,000 dinars (350,000 US dollars) to the Libyan
government in past contributions to the Social Security Fund
(which pays pensions for retired workers).


8. (C) Comment: Najim's allegation that the Benghazi Tannery is
being prepared for a sale to investors who would pay kick-backs
to the privatization board appears to ring true. Having spent
his whole career at this state-owned factory, Najim took a risk
by speaking frankly with officials of the Embassy about the
realities of the government's efforts to privatize the company.
He pointed out that while he is only 42 years old, his hair is
graying and his face is worn, as he has worked tirelessly to
keep his company running. At the same time, it is not unlikely
that he has also used his management position in the company to
benefit from various deals over the years. With the impending
sale of the Tannery (in whatever scenario),any "on-the-side"
livelihood is in jeopardy.
Information on Libya's process for privatizing its state-owned
enterprises is lacking; if the process is linked to political
favors and corruption as Najim portrays it, this would offer a
credible explanation for why details are so hard to come by.
End comment.
CRETZ