Libya could exhaust wheat reserves in 2-3 months without new supplies

By Ulf Laessing

TRIPOLI, Feb 10 (Reuters) - Libya will exhaust its wheat reserves in two or three months unless a state fund tasked with ensuring supplies receives money held up as a result of the political turmoil gripping the country and a slump in oil revenues, a top official said.

The North African country is in chaos, with two governments and parliaments allied to armed factions vying for power four years after the overthrow of Muammar Gaddafi.

Neither side -- the recognized government holed up in the east since losing the capital in summer or a rival outfit now running Tripoli -- has prepared a budget for this year. Both are busy fighting for territory, oil facilities, and control of the central bank and the country's vital oil revenues.

Wheat imports have been disrupted by fighting between the rival factions. Air strikes on the western port of Misrata have made shippers reluctant to deal with Libya, while local banks suffer from a dollar shortage due to a slump in oil revenues.

As a result, Libya has been forced to halve flour supplies to bakeries to 65,000 tonnes a month. Despite this, the country's wheat reserves will run out within a maximum of three months without fresh supplies.

Jamal El-Shibani, head of the state Price Stabilisation Fund (PSF), which provides finance for mills importing wheat, played down talk of a crisis, but told Reuters there was a shortage of flour. "We have flour security for one month and we have wheat reserves which I expect to last until the start of April."

In an indication of the difficulties of bringing in imports, a state agency has been trying for three weeks to buy 50,000 tonnes of milling wheat and 25,000 tonnes of rice but payment issues have prevented a deal, European traders have said.

A budget crisis has undermined the funding of imports. The power struggle has knocked out almost all oilfields. Oil exports, Libya's lifeline, have fallen to around 200,000 barrels a day -- a fifth of the levels seen in 2013.


Shibani said the central bank, which is limiting spending to as oil receipts decline, had stopped transfers to his fund, leaving it with obligations of more than 3 billion dinars ($2.2 billion) owed to millers or wheat importers.

For three months the PSF had been waiting for the release of 200 million dinars as a short-term financing facility.

"If our financial obligations are not met, (wheat) reserves will run out in two or three months," he said. "We know that Libya, the state, cannot pay everything (but) there are bank obligations. The obligations need to be paid in tranches."

State-owned Matahan, a Tripoli-based mill which buys wheat abroad, said it had received a shipment of 25,000 tonnes of wheat from Hungary this week, with another cargo expected later this month.

But Chairman Mustafa Abdel-Majid Idris said the state had failed to guarantee 32 million dinars it had opened as a letter of credit. Its bank was now threatening to charge interest should it fail to come up with the funds. The mill has debts of 173 million dinars due to unpaid state bills.

With no fresh money arriving, Shibani has become a crisis manager on all fronts. He spent hours on Monday meeting African storage workers, who are on strike because they have not been paid since October.

"Our accounts have been completely frozen but I managed to persuade them to return to work," he said. But a Reuters reporter visiting a flour storage facility on Tuesday saw the workers still refusing to unload almost 20 trucks. "We'll work when we get paid," one worker told a manager pleading with them to resume work.

Shibani said there was no bread crisis. Loaves are available, although some bakeries in Tripoli and Benghazi have closed while those still working produce less bread.

The biggest headache for authorities is that Libya has probably the world's highest bread consumption. A loaf is sold for 2 cents -- a legacy from the time of Gaddafi, who wanted to buy loyalty by subsidising basic food items.

Each Libyan consumes 15 kg of flour a month. "The closest runners-up are countries with a consumption of five or six kilos," Shibani said.

Libyans are used to buying plastic bags full of bread -- much ends up in garbage bins or is used as animal feed. Even worse, bread subsidies are a major source of corruption.

Traders smuggle trucks full of flour to southern neighbours Niger and Chad. "They do not need to import any wheat," said Idris.

Libyan officials have been saying for years that the subsidies system is too expensive, but with armed groups effectively running the country nobody dares to touch it.

Shibani also said imports of sugar, macaroni and other subsidied products had stopped, although stocks were available. (Editing by Giles Elgood)

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