Energy Investment Criteria in Fragile Emerging States: The Case of Libya

As Afren Plc, searches for economic opportunity across Africa, Libya stands out as a potential new region for business development. The country is a major regional oil producer with significant growth potential, but the 2011 revolution has thrown the country’s government into chaos and its security into doubt. To that end, this project analyzed the security and political risk conditions under which Libya can attract new investment in the oil sector and under what scenarios the client, Afren Plc, is best equipped to invest.The team's methodology combined desk research with interviews, held both on and off-the-record, with 13 subject-matter experts in energy, Libyan politics, finance and security. 

Key risk factors applicable to extractive industries operating in fragile emerging states were: security; institutions and governance; property rights; regulation; financial reform; and social license. The variables were examined using Afren’s potential investment as a test case. Based on their likelihood and potential impact, the most important risks in Libya were:  

• security incidents that cause major disruption to operations, even to the point of shutting down facilities; and
• government failure to write a constitution and establish rule of law, resulting in chaos and endangering foreign business.

Two plausible scenarios for the country in the next 18-24 months were described, along with a number of signposts. Following the scenarios, the team designed a series of strategic and operational risk mitigation recommendations.