4 December 2024: Audit Bureau 2023 Report leaked
This week we look at the leaked 2023 Audit Bureau report, as well as another visit by the Deputy Russian MoD to Benghazi and a Tripoli court ruling that NOC chairman holds Emirati citizenship.
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Audit Bureau 2023 Report leaked; Crude-fuel barter system significant cause for concern, other corruption and financial violations flagged
Incident: This week, the Audit Bureau Annual Report for 2023 was leaked, resulting in widespread controversy over some of the details included in the 575-page report.
The 19-chapter report provides an overview of Libya’s financial situation, internal audits, and an assessment of the performance of various state sectors. The Bureau warned against politicising the report or using it for personal agendas, stressing its commitment to professionalism and objectivity.
According to the report, Libya’s total revenues for 2023 reached 175.08 billion dinars, while expenditures amounted to 174.00 billion dinars. According to the report, the GNU and its affiliated bodies received LYD 2.237 billion in total funds, of which LYD 1.130 billion was allocated for salaries. Meanwhile, the PC and its affiliates were allocated LYD 448 million, with LYD 353 million designated for payroll alone. The HoR and its entities received a budget of LYD 975 million, with LYD 729 million dedicated to salaries. The HSC reported expenditures of LYD 46 million during the same period, with LYD 29 million allocated specifically for payroll. The Government of National Stability (GNS) is not covered in the report. The public debt balance at the end of 2023 was 84 billion LYD.
The Government of National Unity (GNU) authorised 32.9 billion LYD for the NOC and 7.1 billion LYD for GECOL as part of exceptional financial arrangements.
The opaque crude-for-fuel barter system and spending on fuel subsidies were a major concern flagged in the report.
The report said that the NOC had produced 433,768,097 barrels of crude, 18,284,793 barrels of condensates, and 912,125 million cubic feet of gas in 2023 – this was slightly higher than 2022 but below the intended target figures for the year. Of the NOC’s share of production, only 60% of hydrocarbons were sold directly on the global market; 25% was used for the barter system, 13% for local refineries and 2% for GECOL.
According to the report, the cost of the crude-for-fuel barter system in 2023 was 41.2 billion LYD, noting that this cost was not recorded by the GNU Ministry of Finance meaning the MoF’s figures are distorted, stressing it had warned against this in previous years. The report revealed that the total value of exported crude and derivatives for 2023 was 28.83 billion USD, with 8.8 billion USD worth of crude (31%) exchanged directly for refined fuel via the barter system and around 8.5 billion USD worth of fuel imported. The report noted that using the barter system incurred additional costs of nearly 1 billion USD due to not contracting directly with international refineries, not obtaining the best prices and delays in final settlement procedures.
The report listed the following companies as supplying this fuel via the barter arrangement: BGN International (Turkey), BGN Energy LLC (Turkey), Gulf Upstream Oil and Gas Consulting (UAE), 2E International DMCC (UAE), Petropal FZE (UAE), TPIC (Turkey), Mar Int DMCC (UAE), Terra Energy DMCC (Libya – UAE registration site). According to the report, many of the companies exchanging crude for fuel are recently established and have no record in the global oil industry. Many also do not meet the NOC’s pre-qualification conditions requiring that the companies buying Libyan crude oil be owners of refineries and ‘end users of oil’ in order to protect the selling prices of Libyan raw materials from speculation in the global market.
The report provoked comments from Presidential Council (PC) head Muhammed al-Menfi and NOC Chairman Farhat bin Qadara on the barter system.
On 28 November, Bin Qadara gave a lengthy televised interview in which he acknowledged that fuel smuggling is inextricably linked to Libya’s fuel subsidy programme, providing some suggestions to tackle the issue. These included expanding natural gas usage to reduce reliance on diesel imports, investing in gas infrastructure to minimize subsidy expenditures, and introducing fuel ration cards for Libyans to regulate access to subsidized fuel.
On 29 November, Menfi published comments on X in which he said he ‘seeks to form a joint subcommittee affiliated with the High Finance Committee, which includes the relevant and supervisory bodies and institutions, with the aim of enhancing the governance of oil marketing contracts and fuel purchases and controlling operations according to actual needs, in a way that ensures combating corruption, rationalizing expenditures, and protecting the interests of the Libyan people.’ He stressed the need for unified financial arrangements, with the need to end the oil-for-fuel exchange process, implement joint national supervision of oil marketing operations and fuel purchases, and establish effective mechanisms to enhance transparency and accountability to ensure the protection of national resources.
The report also highlighted many concerns around how funds have been spent by various state entities, including the NOC.
Various incidents of corruption and financial violations were highlighted in this report, including lavish spending on private jets, high-end cars and accommodation for state officials. In particular, the amount of spending on the salaries and expenses of embassies and overseas diplomats was notably high. Meanwhile the NOC spent 50 million dinars on the purchase of cars and nearly half a billion LYD on training programmes. Furthermore, the report expressed concern about increased expenditures under certain budget headings (e.g. development funding being spent on operational costs) and the lack of detailed reporting to justify these disbursements.
Comment: It is understood that the 2023 report was completed some time ago. Audit Bureau head Khaled Shakshak has been sharing the report privately with key stakeholders over the last few weeks. In previous years, the AB reports have been used to pile pressure on certain actors and measures. However, although there is usually a big fanfare and much outrage and controversy over the corruption and overspending highlighted in these reports, significant changes in the wake of these reports have been few and far between.
Libya is reliant on costly imported fuel due to its excessive fuel subsidies, which mean fuel is extremely cheap to buy, and due to the significant volumes of fuel lost to smuggling (which remains lucrative due to the subsidies). The barter system means it is hard to assess exactly what the state is spending on fuel, meaning reforming the system is even harder. The barter system (introduced in 2021) is highly problematic for the Libyan economy and oil sector, creating an opaque vehicle which can be used by the NOC and the powerful elite to trade fuel and oil with little oversight or regulation.
Significance: Despite calls from the Audit Bureau for this report not to be politicised, its leaking is undoubtedly a political event. While the report paints a rather bleak (though predictable) picture of the levels of corruption and financial mismanagement across the board in Libya, it is arguably more damning to the GNU and NOC. The concerns around the barter system and the wider state of affairs within the NOC and oil sector are likely to increase the pressure on Bin Qadara and could trigger renewed moves to try to reform the fuel subsidies and barter system. However, reforms are unlikely to be successful anytime soon, with vested interests and the structural reality of the Libyan economy, let alone the lack of a unified government, very likely to limit progress on this front. As such, fuel smuggling and dependence on foreign imports of fuel and gas are likely to continue and even expand in the coming period, along with the associated costs (and potential for associated shortages within Libya).
The report is also likely to increase pressure on Dabaiba specifically, with his opponents hoping to use the report to highlight to the international community, as well as normal Libyans, the extent of corruption and mismanagement within the GNU and associated entities. However, this report alone is unlikely to significantly shift the political dial in the short term.
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Russian Deputy Minister of Defense Yunus-Bek Yevkurov visits Libya again
Incident: On 26 November, Russia’s Deputy MoD Yunus-bek Yevkurov arrived in Benghazi again for a visit. He was welcomed at Benghazi-Benina airport by LTG Khairi al-Tamimi, Secretary-General of the LNA, MajGen Khaled Haftar, Chief of Staff of the LNA Security Units, and MajGen Fawzi al-Mansouri, Director of Military Intelligence. Thereafter, Yevkurov met with LNA Commander Khalifa Haftar at the LNA General Command’s HQ in al-Rajma. Yevkurov praised the role of the LNA in maintaining security and stability, while maintaining the unity of Libya.
Tripoli Court rules Bin Qadara holds Emirati citizenship; Bin Qadara denies all decisions issued by him have been cancelled
Incident: On 1 December, after more than a year of legal battle in this regard, the Tripoli Court of Appeal issued its final ruling confirming that Farhat Bin Qadara, Chairman of the Board of Directors of the National Oil Corporation (NOC), holds Emirati citizenship. Shortly afterwards, reports circulated on Libyan media that the Court officially cancelled all decisions and actions issued by Bin Qadara, as holding a double citizenship violates Libyan Nationality Law No. 24 of 2010. On the same day, the NOC issued a statement declaring that the news circulated on the Court of Appeal’s decision ‘is false and does not represent the truth’ adding that the ‘subject of the case is actually an appeal to cancel a decision to transfer an employee’.
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