Washington Report, December 1988, Page 25

Trade and Finance

By John T. Haldane

Libyan Oilfield Comes on Stream

The largest oilfield in the Mediterranean Sea, Bouri, off the Libyan coast, has been brought on stream. Although initial production will be modest, present plans see an initial output of 10,000 barrels per day (b/d), increasing to 50,000 b/d in 1989 and 150,000 b/d in 1990. Fifty wells are in the first phase of production, tapping recoverable reserves of an estimated 500 million barrels out of an overall in-place reserve of seven million.

The success of the Bouri field is directing attention to the potential of the waters on and near the formerly disputed median line between Libya and Tunisia. The leaders of the two countries recently met and announced that a contract will be signed shortly providing for joint exploitation of the oil-rich continental shelf of the Gulf of Gabes.

IFC Continues Middle East Investments

The International Finance Corporation (IFC), the World Bank's commercial funding agency, approved total investments of $98.5 million for Egypt and Turkey in the IFC to June 30, 1988. Egypt received $29.85 million for oil development projects in the Western Desert and tourism activities. Turkey received $68.6 million for several industrial projects and for the development of Turkish capital markets. The IFC is identifying projects in Jordan, Oman, and North Yemen suitable for financing.

Good and Bad News for Mideast Exports

The US Department of Agriculture, in its latest "Outlook for US Agricultural Exports," forecasts increased exports to Algeria and Iraq, and slower exports to Egypt and Saudi Arabia. Agricultural exports to Algeria may exceed $300 million in fiscal 1988, with US sales of feed grains, soybean meal, cotton, tobacco, and tallow especially strong.

Food exports to Iraq are expected to continue rising in fiscal 1988, climbing from $519 million in fiscal 1987 to about $700 million. US credit guarantees to Iraq are up, with US sales of wheat, coarse grains, and soybean meal showing great activity.

US agricultural exports to Egypt are not expected to rise in fiscal 1988, despite increased sales of cotton and vegetable oils. US feed grain exports to Egypt have fallen substantially following termination of Egypt's import subsidy, previously set at about 70 percent.

Changes in Saudi Arabian import subsidies are expected to hamper prospects for increasing agricultural exports to that country. Last year the government lowered its barley import subsidy from $81 per ton to only $27 per ton, reducing prospects for significant U.S. barley sales. But Saudi import subsidies continue to help American rice, corn, and soybean meal.

Israel's Koor Industries Faces Bankruptcy

Koor Industries, Israel's biggest company and the largest industrial conglomerate in the Middle East, is facing bankruptcy. The firm's financial crisis was triggered when its New York subsidiary failed to repay a $20 million loan owed to Bankers Trust, a US investment bank.

The $3 billion company is seeking a bridging loan of about $35 million from the five major Israeli banks to ease a cash flow crisis which has left the group unable to purchase raw materials or meet other normal running costs. However, the banks have stated that they will provide such a loan only if a government guarantee can be arranged. The Israeli government reportedly has decided to provide $20 million of emergency aid but is requiring that a recovery plan acceptable to creditors be drawn up.

Koor Industries accounts for about 10 percent of Israel's GNP. Its 300 companies produce a variety of goods, running from weapons to refrigerators. Last year Koor lost $253 million. Its debts now surpass $1.2 billion, of which one third is owed foreigners. Bankers estimate the firm will show a $70 million additional loss for the first half of 1988.

US Sale of Steel Mill to Iraq Falls Through

The Pittsburgh USX Corporation has announced that its letter of intent to Iraq for the sale of a plate mill and related facilities in Baytown, TX has expired without a contract for final sale being reached.

Iraq had been interested in acquiring the plant as part of its post-war reconstruction effort. The $100 million deal would have included Baytown's electric air furnaces, continuous slabcasters, a plate mill, and a pipe mill. This equipment would have complemented the Khor al Zubair iron and steel complex. Built in the late 1970s by a French company, the complex went into production in 1978, but shut down at the beginning of the Iran/Iraq war in 1980.

Arabs Donating to UN Palestinian Fund

The United Nations Relief and Works Agency, which has set up an emergency relief program to meet food and medical needs to aid Palestinians in the West Bank and Gaza Strip,has received over $18 million in contributions from Arab donors. Major contributors were: Abu Dhabi, $1 million; Iraq, $3.2 million; Kuwait, $5 million; Libya, $2.75 million; and Qatar, $2 million.

Overall, more than $32 million has been pledged,with almost half from Western nations such as Australia, Canada, and France. The United States is one of the few major powers not to have made a contribution to the special emergency effort.

In 1987, the UN agency allocated $207 million to relief programs for the 2.3 million Palestinian refugees in Jordan, Lebanon, Syria, the West Bank, and the Gaza Strip. The 1988 budget was increased to $233 million, but the United States, citing "budgetary problems," reduced its contribution from $67 million to only $61 million.

UK Tells Kuwait to Cut BP Holding

The UK government has told the Kuwait Investment Office to cut its $5 billion stake in British Petroleum Company from 21.6 percent to 9.9 percent within 12 months. KIO had built up a 21.6 percent stake in BP, Britain's largest firm and the world's third largest oil giant, late last year.

Kuwaiti bankers reacted with surprise and anger since many of them had expected that, at worst, the Kuwaiti stake would be ordered reduced to 15 percent.

The British Monopolies and Mergers Commission concluded that it would not be in Britain's interest for BP to have a major shareholder who also is a member of OPEC.

GCC Pushing Joint Projects

The Gulf Investment Corp. (GIC), an entity equally owned by the six member states of the Gulf Cooperation Council (GCC), is to invest nearly $800 million in 10 development projects by the end of this year. The GIC wasestablished a few years ago to supporteconomic development and encourage the integration of the GCC economic sectors, as well as assist shareholding countries in the diversification of their sources of income, promote the development of shareholders' financial assets, and encourage private sector participation in regional development by creating sound investment opportunities in local industries. In 1987, intra-GCC cooperation in industrial investment expanded considerably, with the value of private sector joint ventures reaching over $6.5 billion.

The GIC is currently studying about 20 other projects, all of which are based in GCC states and are to be controlled supranationally.

John T. Haldane is a Middle East specialist who has served as a Foreign Service officer in Baghdad, Cairo, and Beirut, and as an international economist in the departments of Commerce and Treasury.