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Brooke F Adams  09/26/2006 10:16:02 AM  From  DB/Inbox:  Brooke F Adams

Cable 
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C O N F I D E N T I A L        TRIPOLI 00539

SIPDIS
CXCAIRO:
    ACTION: ECON
    INFO:   PA POL IPS CONS FCS FAS DCM AMB AID MGT

DISSEMINATION: ECON
CHARGE: PROG

VZCZCCRO616
RR RUEHEG
DE RUEHTRO #0539/01 2671421
ZNY CCCCC ZZH
R 241421Z SEP 06
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC 1257
INFO RUEHTRO/AMEMBASSY TRIPOLI 1423
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHAS/AMEMBASSY ALGIERS 0312
RUEHEG/AMEMBASSY CAIRO 0429
RUEHRB/AMEMBASSY RABAT 0295
RUEHTU/AMEMBASSY TUNIS 0559
RUEHVT/AMEMBASSY VALLETTA 0110
RUEHRO/AMEMBASSY ROME 0201

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. 
 
---------------- 
EXIM Pitches Projects Backed by Sovereign Guarantee 
---------------- 
 
¶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. 
 
----------------- 
Familiar Frustrations - Libya Needs Economic Diversification 
----------------- 
 
¶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. 
 
-------------------------------------- 
 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. 
 
--------------------------------------------- -- 
Reciprocity Deemed More Important Than Meeting Libya's Immediate 
Investment Needs 
--------------------------------------------- --- 
 
¶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. 
 
-------------------------------- 
Oil Companies' Concerns over Visa Issuances 
-------------------------------- 
 
¶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. 
 
 ------------------------ 
Snapshots from the Visit 
------------------------ 
 
¶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