Libya’s Recapture of U.S. Business Awaits Security Return

Even a civil war didn’t stop Valmont Industries Inc. (VMI) of Omaha, Nebraska, from growing wheat in Libya this year.

The majority owner of a farm in Benghazi survived shellings, power outages and water shortages. Now it’s struggling because Libya’s disrupted banking system wasn’t able to provide financing in time to plant the next crop, said Greg Cunningham, the farm’s general manager.

“We’ll have to make some decisions on what to do,” said Cunningham, when asked whether Valmont was committed to staying in Libya. “We can’t stay here and lose money for months. We’ll figure something out.”

The ouster of Muammar Qaddafi -- the man dubbed by former President Ronald Reagan as “the mad dog of the Middle East” -- has left some U.S. companies in limbo, unsure if or when they will return to Libya or continue to do business there.

The Libya operations of Hess Corp. (HES), a New York City-based oil company, are suspended, said Jon Pepper, a company spokesman. “It is too early to say when we expect to return to Libya and resume operations,” he said.

Fluor Corp. (FLR), an Irving, Texas-based engineering and construction company, is “currently taking a wait-’n’-see approach,” spokesman Brian Mershon said.

A valley linear irrigation cart waters wheat growing in Benghazi, Libya on a farm run by Farmco, which is a joint U.S. and Libyan venture majority owned by Valmont Industries. Photo: Farmco Close

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A valley linear irrigation cart waters wheat growing in Benghazi, Libya on a farm run by Farmco, which is a joint U.S. and Libyan venture majority owned by Valmont Industries. Photo: Farmco

Return to Libya

Most U.S. companies had to leave the country, which holds the largest crude-oil reserves in Africa, when clashes erupted in February.

Qaddafi died after being captured by forces led by the Misrata Military Council, the group said today. Its troops led the assault on Qaddafi’s hometown of Sirte and acted independently from the interim government, the National Transitional Council.

The pace of any return by U.S. businesses will depend partly on how quickly and how well the National Transitional Council provides security and basic needs such as housing, water, electricity and sewage, said Chuck Dittrich, executive director of the U.S.-Libya Business Association.

Government contracting may be delayed because a new government may not be formed for weeks or months. Still, many U.S. companies are likely to gradually resume or open operations in Libya as long as conditions improve.

“When the war started, everything stopped and some of them lost money,” said Ahmad Miski, executive director of the U.S.- Arab Chamber of Commerce in Washington. “When the new government starts, we expect much bigger business than before.”

Conference Call

In a sign of interest in the country, about 150 companies took part in a conference call last month with the U.S. ambassador to Libya, Gene Cretz, who emphasized that restrictions on business had been lifted for U.S. companies, said Alyce Abdullah, the State Department’s Libya desk officer. Business leaders on the call came from a range of sectors that included energy, transportation and telecommunications.

Grain bins under construction from an Italian firm were abandoned after the Benghazi uprising. Few companies have as longstanding ties to Libya as Valmont, the Nebraska-based agricultural and manufacturing company that began working on irrigation projects in the country in the 1970s. Photograph: Farmco Close

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Grain bins under construction from an Italian firm were abandoned after the Benghazi uprising. Few companies have as longstanding ties to Libya as Valmont, the Nebraska-based agricultural and manufacturing company that began working on irrigation projects in the country in the 1970s. Photograph: Farmco

Among those weighing a resumption of business is Houston- based Halliburton Co. (HAL), which provides energy, engineering and construction services.

“Libya is in an assessment phase and is expected to make a positive contribution in 2012,” Dave Lesar, Halliburton’s chief executive officer, said in an Oct. 17 statement announcing third-quarter earnings.

Joint Venture

Waha Oil Co., a U.S.-Libyan joint venture, plans to resume crude oil output by the end of this year, once repairs to its facilities are completed and a dispute with workers is resolved, said Mohamed Elabdaly, head of the company’s crisis committee, in an Oct. 18 interview in Benghazi.

The company is 59 percent-owned by Libya’s state-run National Oil Corp., with the rest held by Hess, Marathon Oil Corp. (MRO) of Houston, Texas, and ConocoPhillips (COP), also based in Houston.

Secretary of State Hillary Clinton, on a visit to the country on Oct. 18, said Libyans “deserve an economy that delivers jobs, dignity and opportunities to all, not just to the powerful and connected.”

U.S. Ambassador to Libya Gene Cretz speaks during a State Department news briefing in Washington, DC. About 150 companies took part in a conference call last month with Cretz who emphasized that restrictions on business had been lifted for U.S. companies, a State Department official said. Photo: Alex Wong/Getty Images Close

U.S. Ambassador to Libya Gene Cretz speaks during a State Department news briefing in... Read More

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U.S. Ambassador to Libya Gene Cretz speaks during a State Department news briefing in Washington, DC. About 150 companies took part in a conference call last month with Cretz who emphasized that restrictions on business had been lifted for U.S. companies, a State Department official said. Photo: Alex Wong/Getty Images

Leaders of the ruling council have told their U.S. counterparts that they want to broaden Libya’s economic base and eliminate the cronyism that characterized the oil industry under Qaddafi, a U.S. official told reporters accompanying Clinton. The transitional leadership has pledged to honor all Qaddafi-era oil contracts.

1986 Bombing

Libya was mostly shut off from U.S. business after President Ronald Reagan bombed Qaddafi’s Tripoli compound in 1986 because of his support of terrorism. It experienced a surge in U.S. business interest after 2004, when President George W. Bush lifted most sanctions in return for Qaddafi agreeing to abandon his nuclear weapons program.

U.S. exports to Libya grew to $665.5 million last year, up from $39.2 million in 2004. Imports have also grown, along with trade deficits. U.S. imports from Libya, mainly oil, totaled $2.1 billion last year, up from $331.6 million in 2004, U.S. Census Bureau data show. The U.S. ran a trade deficit with Libya last year of $1.45 billion.

Before the war, several U.S. oil companies had invested in Libya’s energy production, including Hess, Occidental Petroleum Corp. of Los Angeles, and ConocoPhillips, according to the Congressional Research Service.

Libya produced 1.8 million barrels of oil per day, or about 2.9 percent of global oil trade in 2009, the CRS said in a March 10, 2011, report.

The war’s economic cost to U.S. companies can be measured partly by the drop in monthly U.S. exports to Libya this year, which fell to $1.1 million in August from $72.6 million in January.

European Competition

Ali Aujali, the Libyan ambassador to Washington, has said companies from the U.S. and other NATO countries that aided the rebellion will be favored in deals and investments.

“We will of course deal with the countries who helped us and supported us,” Aujali said in an interview last month with Bloomberg Businessweek. “It will be a different treatment than the countries who hesitated.”

Still, some European companies may be better positioned to win that work because their countries were more prominent in the military effort to overthrow Qaddafi, said Larry Allen, president of Allen Federal Business Partners, a procurement consulting firm.

“It is very serendipitous for some of these companies that Libya is now opening up as an opportunity,” Allen said.

Exports and Imports

Libya exported more oil and other goods to Italy, France, China, Spain and Germany than it did to the U.S. in 2010, according to the CIA World Factbook. For imports, the leading countries were Italy, China, Turkey, France, Germany, South Korea and Egypt.

The U.S. is likely to face competition in several areas, including defense. With much of the Qaddafi regime’s Soviet-made weaponry destroyed by the NATO air campaign, Libya may be a lucrative market for companies such as Lockheed Martin Corp. (LMT) of Bethesda, Maryland, and Dassault Aviation SA (AM) of Paris.

Since the Arab Spring movement began in January, toppling regimes in Tunisia, Egypt and Libya, the Obama administration has injected funds into the region to bolster economies and foster trade and investment, both with and within the Middle East and North Africa.

Clinton pledged $2 billion in March through the Overseas Private Investment Corporation, the development financing arm of the U.S. government, to support private-sector investment in the region.

Commerce Department Advice

The U.S. Commerce Department, through its Market Access and Compliance Office, is fielding phone calls from U.S. companies interested in Libya and advising them of the situation on the ground as information is available, said Parita Shah, deputy director of public affairs.

Few companies have as longstanding ties to Libya as Valmont, the Nebraska-based agricultural and manufacturing company that began working on irrigation projects in the country in the 1970s.

After sanctions were lifted in 2004, Valmont began supplying equipment to the Benghazi farm and took over its management two years ago in a joint venture, said Richard Berkland, a vice president of international sales.

The farm’s management company, Farmco, is 52 percent owned by Valmont, 28 percent by CNH Global NV (CNH) of Amsterdam, and 20 percent by the Libyan government, said Greg Cunningham, the general manager, in an interview from Benghazi. The farm produced more than half the wheat grown in Libya this year.

When the war broke out, Cunningham said, “The Libyans really stepped up and pulled through. We did not lose a single piece of equipment.”

Villager Protection

Villagers protected the business, putting up roadblocks and screening people entering the property, he said. By April, rebel forces had stationed troops on the farm to protect it, and the harvest yielded 4.5 tons of wheat.

The company got permission from the State Department to continue operating under sanctions on the grounds that food was needed in Benghazi and the company had no connection to the Qaddafi regime, Cunningham said.

While the future of the farm operation is still unclear, lobbyists such as Dittrich say there is plenty of reason for optimism for Valmont and other companies to prosper in a new Libya.

“The potential is really strong,” he said. “It’s a country with a relatively small population. They have a tremendous amount of resources and money that’s immediately available. All of the ingredients are there for this to work out well.”

To contact the reporters on this story: David Lerman in Washington at dlerman1@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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