Updated April 18, 2008

   Russia is ready to write off Libya’s $4,5 billion debt for the set of large contracts. JSC Russian Railways’ contract for railway construction in Libya will provide the three fourths of the sum – almost $3,5 billion. Moreover, the set of agreements for military equipment supplies is planned also. It is hard to estimate the memorandums signed by Gazprom in money terms yet, but Libya has already confirmed it supports Russia’s energy policy, the initiative to establish the gas OPEC (Organization of Petroleum Exporting Countries) in particular.

   Within President Vladimir Putin visit to Libya in Tripoli was signed the intergovernmental agreement of two countries about financial, trade and economic relations. Vice prime minister, minister for finance Alexey Kudrin was quoted as saying that the original sum of Libya’s debt to Russia was reduced by $100 millions to $4,5 billion within the talks – "on the assumption of some obligations, Vneshekonombank mainly, to the Libyan companies". Parties have also agreed about the full debt write-off.

   Businesslike talks with Libya about this should have been started in the mid-November, 2007: the Ministry of Finance head Alexey Kudrin and deputy minister for finance Sergey Storchak have planned to go to Tripoli on the way from the Republic of South Africa (RAS). Mr. Storchak, who has directly supervised the issue of Libya’s debt, has been placed under arrest the day before the flight, and the Ministry of Finance has also declared then the arrest would postpone the talks till January, 2008. As of January the sum of Libya’s debt has not been verified. It mainly lists Tripoli $3,5 billion debt to the USSR for weapon supplies that has been indicated in a law supplement about the budget for 2007.

   Mr. Storchak has also participated in the analogical scheme development for Algeria’s $4,7 billion debt repayment to Russia – the parties have agreed about debt write-off in March, 2006, and deputy minister for finance was arrested on charge of that scheme. Algeria’s debt was repaid for obligations to buy the weapon to the analogical sum. But Libya will mainly pay by civil contracts to Russia.

   According to Alexey Kudrin, around 70% purchases should provide JSC Russian Railways’ contract that was signed within the visit. It goes about the Sirt-Benghazi railway construction along the Mediterranean coast. Russian Railways should construct a spur 554 km long costing €2,2 billion ($3,49 milliard) for four years. Libya is financing the project. .

   This foreign contract is record one for Russian Railways. It will also construct the analogical spur (520 km long) in Saudi Arabia costing $800 million or $1,5 million per one kilometer, and that is considered the average cost of railways construction in Russia. Libyan contract is signed on the assumption of $6,2 million per one kilometer.

   Within military-technical cooperation the Russian Federation and Libya have signed the contracts for the maintenance of the already supplied Russian equipment: several tens of air defense missile systems C-125 Pechora and Osa-AKM, more than one hundred tanks T-72, frigates and patrol crafts – for more than $300 million. Sources in Sukhoi Company assert that the agreement about supplies of 12 multi-role fighters Su-35 costing more than $600 million has been reached with Libya. But the source specifies that the main part of contracts with Libya will be concluded yet: within Tripoli talks have been signed only memorandums about the intentions. So, Libya has agreed to buy the air defense missile systems S-300PMU-2, air defense systems Tor-M1, 48 tanks T-90C, diesel-electric submarine of 636 project, multiple rocket launcher Grad. If contracts are signed, their cost will total $2,3 billion.

   The sum of memorandums about cooperation with National Oil Corporation (NOC) and African investment fund, which has brought Gazprom from Libya, is not specified. But they stipulate the joint development of the country gas and oil fields, plants construction for gas liquefaction and oil refining and load of operating enterprises, as well as construction of electric power stations. Cooperation for the each project will be stipulated by the separate agreement as it is assumed to establish several joint ventures. Gazprom head Alexander Miller has already declared about the establishment of the first – with NOC. Gazprom Libanon, recently registered in Tripoli, will be the owner of all joint ventures including the first one on behalf of Gazprom. A source in Gazprom was quoted as saying that the joint venture would fund the projects for hydrocarbons extraction and processing with account of the partial write-off of Libya’ state debt. Though, he did not name a sum that can be written off within the gas and oil projects.

   Libya occupies the first place in Africa and the fifth among OPEC-members by the proven oil reserves (5,1 billion of tons) and the fourth place in Africa by the natural gas reserves (1,49 GSm3). 80 million tons of oil and 11,7 bcm of gas are extracted in the country annually.

   Gazprom has been already operating in Libya. In 2006-2007 it was granted a license to the geological exploration and extraction of oil on N 64 block with 20 million tons reserves in the south of Tripoli and on N19 on the Mediterranean shelf. Moreover, Gazprom obtained the 49,9% concessions of the German Wintershall to N96 and N97 by 2026 year, where 6 million tons of oil are extracted a year. Valery Nesterov from Troika Dialog marks that Gazprom has been granted the first concessions in Libya under unfavorable terms to foothold in the country. Europeans, Italy and Germany, have been keeping good positions at the Libyan markets, especially after embargo lifting.

   Within Gazprom and NOC talks have been discussed the details of the tripartite alliance with the Italian Eni – within the framework of its assets change with the monopoly. Eni owns in Libya 50% of Greenstream gas pipeline with 6 bcm capacity a year connecting Wafa and Bahr Essalam fields on the Mediterranean shelf with Sicily. Moreover, the company owns 33,3% stocks in Elephant oilfield (proved reserves are 68 million tons) and four licenses to exploration and extraction in the central country regions, and also a stake in a plant for gas liquefaction in Marsa al Burayqah.

   East European Gas Analysis director Mikhail Korchemkin marks that Gazprom stake in the world gas extraction falls from 19% in 2007 to 13% in 2030. "Gazprom can keep its influence on the world markets only in terms of gas extracted in other countries", Mr. Korchemkin explains. "Therefore the monopoly is interested in Libya not only as a resource basis but also as a transit country for Trans-Saharan gas pipeline from Nigeria, where the proved gas reserves exceed Turkmen one". Gazprom head Alexander Miller confirms that the monopoly is interested in the gas pipeline project (4 000 km, 30 bcm a year, cost – $13 billion), and "preliminary consultations with Nigerian partners" are already held.

   Libya has also promised to provide Russia the resource, as well as political, support on the world energy market. Within the full-dress dinner in honor of Vladimir Putin the Libyan leader Muammar Kaddafi declared that Libya welcomes the idea of incorporation of new countries organization exporting gas by analogy with OPEC.