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Rome’s colonial past key to Libya’s Eni stake

December 10, 2008

By Guy Dinmore in Rome

Published: December 10 2008

Libya’s decision to buy a stake of up to 10 per cent in Eni, Italy’s oil and gas company, was agreed in advance with Italy’s centre-right government and assisted by Rome’s agreement to pay compensation for its period of colonial rule, official sources said yesterday.

Franco Frattini, Italy’s foreign minister, yesterday gave a green light to the deal, saying he saw no political problems in the stake. He told reporters that the notice given by Libya “demonstrates their intention of not seeking control of the company, but a financial investment”.

Silvio Berlusconi, Italy’s prime minister, had warned of the dangers of oil-rich countries making unwelcome bids for Italian companies. Rome seemed to be caught unawares in October when Libyan investors built a 4.23 per cent in UniCredit when the Italian bank was weakened by the global credit crisis.

The comments by Mr Frattini, who is co-ordinating a government committee examining the issue of sovereign wealth funds, underlined that Rome welcomed Libya’s intervention and was informed in advance. The Italian government owns about 30 per cent of Eni.

Libya’s decision – announced at the weekend – reinforces a long and close energy relationship, as well as strong political ties between the two countries.

Mr Berlusconi’s signing last August of a colonial compensation agreement worth $5bn over 25 years with Muammar Gaddafi, the Libyan leader, facilitated Libya’s entry into Eni, official sources said.

Eni is the largest and longest established foreign oil company in Libya, extracting more than half of Libya’s production of some 1.7m barrels per day, with equity of 300,000 b/d.

Italy is the largest purchaser of Libyan oil.

Libya has also displayed a canny sense of timing. Last June, when oil was trading at some $140 a barrel, it negotiated better terms for itself with Eni while extending Eni’s concessions for another 25 years. At that moment, Eni’s share price was €24.50.

With oil closing below $40 last week, shortly before Libya said it would buy a stake, Eni’s share were trading closer to €15.50. They have since risen above €17, making a 10 per cent stake worth more than €7bn ($9.1bn).

It is not known when Libya will make its purchase on the market, if it has not already done so.

Libyan officials have also mentioned a possible investment in Telecom Italia.

However, industry sources said yesterday that this was not likely to happen. Libya has long held a stake in Fiat, the carmaker, and Juventus, the football club.

Italy is keen to consolidate its leading energy position in Libya, which has Africa’s largest known oil reserves, before US energy companies can catch up as relations between Washington and Tripoli improve.

One aspect of the relationship between Libya and Italy that analysts say has troubled the Bush administration is an agreement that Eni has made with Russia’s Gazprom to swap oil assets in a major Libyan oil field for assets in Russia. Details of this agreement have not been finalised.

Paolo Scaroni, Eni’s chief executive, happened to be meeting Igor Sechin, Russia’s deputy prime minister, in Milan when news of the Libyan stake-building emerged on Sunday.

Eni said the two sides agreed that Eni and Gazprom should implement all their projects “as soon as possible”.

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