Libya

The Paris Agreement and Environmental Obligations: A Case Study of Libya Introduction Can a country like Libya, heavily reliant on oil exports and facing significant environmental challenges, align itself with global climate action? This article explores how Libya, as a signatory to the Paris Agreement, must navigate the complexities of balancing its economic reliance on fossil fuels with the international call to reduce carbon emissions. The Paris Agreement is a landmark international consensus designed to combat climate change by reducing greenhouse gas emissions and lowering global warming. It’s a blueprint for future development that prioritises sustainability. Libya’s position within this global framework reveals both challenges and opportunities for meaningful climate action. The Paris Agreement: An Overview Adopted in 2015, the Paris Agreement seeks to limit global temperature increases to well below 2°C, with an aim of pursuing efforts to keep it to 1.5°C. At its heart are the Nationally Determined Contributions (NDCs), through which each country outlines its plans to reduce greenhouse gas emissions. This approach embodies the principle of Common but Differentiated Responsibilities, acknowledging that while all nations must act, developed countries bear a greater responsibility due to their historic contributions to global emissions. However, enforcing the Paris Agreement is not straightforward. Though binding under international law, its enforcement mechanisms largely rely on transparency, regular reporting, and peer pressure rather than punitive measures. Countries are expected to enhance their commitments over time, with developing nations encouraged to pursue sustainable development strategies that strike a balance between economic growth and environmental stewardship. Environmental Obligations for Countries under the Paris Agreement Article 4 of the Paris Agreement requires countries to submit updated NDCs every five years, progressively increasing their ambition to curb emissions. For developing nations like Libya, this entails not only setting climate targets but also ensuring that economic development does not come at the expense of environmental sustainability. Libya faces significant environmental challenges, such as water scarcity and desertification, which make adaptation strategies essential. The agreement mandates that all countries implement plans to adapt to the impacts of climate change, a critical requirement for vulnerable nations like Libya. Articles 9 and 10 call on developed countries to provide financial resources and technological assistance to help developing nations meet their obligations. Yet for Libya, accessing these resources is complicated due to logistical and institutional hurdles. What Environmental Obligations do Companies Have in the Context of the Paris Agreement? Corporations, especially in energy-intensive sectors, are pivotal to achieving national emission reduction targets. Governments must create regulatory frameworks that align corporate activities with national and international climate goals. Many companies, particularly multinationals in the oil and gas sector, are increasingly required to measure, report, and reduce their emissions. Libyan companies, especially in the energy sector, will face growing pressure to align with global climate standards. This includes investing in renewable energy, improving operational efficiency, and adopting carbon capture technologies. Such actions are not merely recommendations but will become critical as international scrutiny on emissions intensifies, particularly for countries reliant on fossil fuel exports like Libya. Libya’s Environmental Obligations under the Paris Agreement Libya officially joined the Paris Agreement in 2021, committing to submit its NDCs, which outline the nation’s plans for reducing greenhouse gas emissions and adapting to climate change. As outlined above, countries must submit their NDCs every five years. Libya officially joined the Paris Agreement in 2021, committing itself to submitting an NDC that reflects the country’s climate goals. Libya’s economy is heavily dependent on oil, and balancing this reliance with the need for emissions reductions presents a significant challenge. Libya’s NDC must acknowledge the realities of its oil exports while also outlining aspirations to diversify the economy and explore alternative energy sources. While the country has vast potential for renewable energy, especially solar, the economic and logistical barriers to scaling up such efforts are considerable. Furthermore, Libya’s ability to enforce environmental regulations and climate policies remains limited, largely due to underdeveloped institutional frameworks. Transition to Renewable Energy Despite its dependence on oil, Libya’s geographical location offers significant potential for renewable energy, particularly solar power. Oil and gas companies operating in Libya could invest in renewable energy projects to diversify their energy mix and reduce emissions. Carbon Capture and Storage (CCS) is another strategy that could allow Libyan oil companies to continue their operations while minimising their environmental impact. By capturing and storing carbon emissions from extraction and refining processes, these companies could significantly reduce their carbon footprint. Libya’s Legal and Regulatory Framework Regarding Environmental Responsibilities and Renewable Energy Libya’s current legal framework for environmental protection, particularly in the oil and gas sector, is still in its early stages. Law No. 15 of 2003 on the Protection and Improvement of the Environment forms the backbone of Libya’s environmental legislation. It establishes the responsibilities of both the public and private sectors in preventing pollution, conserving natural resources, and promoting sustainability. However, future reforms are necessary to strengthen this framework, particularly to align Libya’s environmental responsibilities with international standards under the Paris Agreement. The establishment of the Renewable Energy Authority of Libya (REAOL) in 2007 marked a step in the right direction, with the goal of increasing the share of renewable energy in the country’s energy mix. In 2023, the Libyan government launched a new initiative for alternative energy (2023–2035), with a focus on solar and wind energy. This initiative represents a long-term strategy to diversify the country’s energy sources and reduce reliance on fossil fuels, while addressing climate change and improving air quality. Under this plan, alternative energy projects are expected to comply with environmental standards, including impact assessments and pollution controls. The Role of Libyan Companies in Addressing Climate Change Libyan oil companies, like their counterparts globally, face growing pressure to reduce their carbon emissions. Global markets are increasingly focusing on sustainability, and companies that fail to adapt may find themselves at a disadvantage. Investment in renewable energy projects and carbon mitigation strategies, such as CCS, is not just a corporate responsibility but a necessity to remain competitive in

Libya’s Banking Sector: Challenges in Credit and Foreign Exchange Access Relevant laws governing Banking sector in Libya: Law No. 1 of 2005 on Banks. Circular No. 02/2024 issued by the CBL. Law No. 46 of 2012 on Credit Information. Introduction Libya’s banking sector faces several challenges, particularly in terms of access to credit and foreign exchange. The country’s financial system is primarily regulated by the Central Bank of Libya (CBL), which plays a central role in managing monetary policy, foreign exchange reserves, and credit allocation. Despite the CBL’s efforts to maintain stability, businesses and individuals in Libya encounter significant difficulties in accessing credit and foreign exchange. These constraints have hampered international trade and raised costs for businesses. The Central Bank of Libya’s Control Over Foreign Exchange The Central Bank of Libya (CBL) plays a fundamental role in controlling foreign exchange, with significant implications for businesses, individuals, and the economy at large. The CBL’s mandate, outlined in Article 5 of Law No. 1/2005 on Banks, allows it to manage foreign reserves, maintain monetary stability, and regulate the country’s exchange rate system. However, this control has created challenges in the availability of foreign currency, with a substantial demand for U.S. dollars in particular, often leading to reliance on the black market due to disparities between the official and black-market rates. These constraints have hampered international trade and raised costs for businesses. Allocation of Foreign Exchange The CBL manages foreign exchange reserves and allocates foreign currency to banks and businesses under strict regulatory controls. These controls, meant to ensure financial stability, often involve significant documentation requirements for businesses seeking foreign currency for imports or international transactions. For example, Circular No. 02/2024, based on Law No. 1 of 2005 on Banks, establishes specific procedures that banks and financial institutions must follow when managing foreign exchange operations. These regulations, although necessary to regulate currency flows, frequently result in delays and additional complications for businesses relying on imported goods and services. On February 1, 2024, the CBL’s Banking Supervision and Regulation Department published Circular No. 02/2024, imposing tighter regulatory controls on foreign currency transactions. These new regulations specifically govern the purchase of foreign currency for opening Letters of Credit (LCs), which are required for importing goods and services. Importantly, these controls were preceded by Circular No. 23/2023, where the CBL identified violations concerning the opening of LCs and failures to comply with anti-money laundering (AML) and counter-terrorism financing (CFT) requirements. The CBL has divided the foreign exchange controls into three segments: LCs for commercial purposes, personal use, and general control measures. Banks are now required to conduct more stringent due diligence, verifying the validity of parties requesting LCs and ensuring that the necessary documentation is provided before approval. Additionally, each transaction must comply with set funding limits based on the nature of the goods or services. CBL Exchange Rate Adjustments and Instability In response to economic pressures, the CBL has made several adjustments to the official exchange rate over the years. For instance, in 2020, the Libyan Dinar was devalued to unify the exchange rate and attempt to stabilize the economy. In 2024, the CBL issued Resolution No. 15, imposing a 27% tax on foreign currency exchange rates. However, the removal of this tax by the newly appointed CBL governor on September 30, 2024, was followed by a conflicting decision the day after from the CBL branch in the east of Libya, which retained the 27% tax. Black Market for Foreign Currency Due to restricted access to foreign currency through official channels, Libya has witnessed a flourishing black market for foreign exchange. The black-market rate is typically much higher than the official rate, contributing to inflation and diminishing the purchasing power of ordinary Libyans. Businesses that cannot access foreign currency officially are often forced to buy from the black market, driving up their costs and creating a complex financial planning environment. Obstacles to Credit Access Another major issue in Libya’s banking sector is the limited availability of credit, which has stifled business growth, particularly for small and medium-sized enterprises (SMEs). Libyan banks have become highly risk-averse, often refraining from extending loans due to the political instability and the lack of reliable creditworthiness assessment mechanisms. Additionally, the CBL’s strict foreign exchange policies, particularly those laid out in Circular No. 02/2024, further hinder access to credit. Banks are required to fully fund documentary credits at the time of submission, and businesses seeking credit must provide extensive documentation and adhere to strict limitations based on the nature of the goods or services involved. For example, the maximum value of service-related LCs is set at USD 2 million, while credits for commercial goods are limited to USD 3 million, and industrial goods can be funded up to USD 7 million. Transactions that exceed these limits require approval from the CBL’s Banking and Currency Control Department, further complicating the process. The CBL’s caution in issuing credit stems from the broader economic risks and uncertain environment, which leaves businesses struggling to access the financing they need. Conclusion: Navigating the Regulatory Landscape with FS Legal Services Libya’s banking sector is heavily constrained by structural and regulatory challenges, particularly in the areas of credit access and foreign exchange. The Central Bank of Libya’s control over foreign currency, coupled with the cautious lending environment, presents significant obstacles for businesses attempting to navigate economic uncertainty. At FS Legal Services, we assist clients in understanding and complying with the constantly evolving regulatory environment. Our expertise in Libyan banking laws and close monitoring of fast-paced changes allow us to offer strategic guidance, helping businesses effectively manage their financial transactions, obtain necessary licenses, and navigate foreign exchange regulations. As the Libyan economy continues to face uncertainty, we are committed to helping our clients find solutions that enable them to grow and thrive within these complex frameworks. Schedule a Consultation Reach out to our legal experts for personalized guidance tailored to your specific needs. Book Your Consultation Now!

Investments play a pivotal role in shaping national economies, driving both economic and social progress. Recognising this, Libya’s policymakers have increasingly focused on attracting foreign investments through the enactment of laws and regulations designed to create a favorable investment climate. These legal frameworks are essential for drawing investors, as they outline interests, define obligations, and safeguard rights. The primary legislation governing investment in Libya is Law No. 9 of 2010 on Investment Promotion (the “Investment Law”), along with its executive regulations enacted by Executive Regulation (Decree No. 499 of 2010). This law was introduced to provide a range of incentives aimed at stimulating private investment. Since its enactment, no significant amendments or new investment laws have been introduced. This article explores Libya’s Investment Law, offering foreign investors valuable insights into the investment climate and how this legal framework impacts business opportunities in the country. Investment Scope and Restrictions Article 2 of the Investment Law specifies that the law applies to national, foreign, or joint venture capital investments in the areas targeted by the law. Foreigners are allowed to invest in most production and service activities in Libya, as confirmed by Article 8 of the Investment Law. However, Article 27 excludes oil and gas projects from the scope of foreign investment. The Executive Regulation further elaborates in Article 4 by reserving three specific oil and gas activities—exploration, extraction, and marketing—exclusively for Libyan investors. This opens the possibility for foreign investment in other segments of the oil and gas industry, such as petrochemicals, fertilizers, and refineries. Foreign investors in the oil and gas sector must ensure compliance with these restrictions to avoid legal complications. Minimum Capital Requirements Under Article 5 of the Executive Regulation, the minimum investment capital required for a foreign investment project is five million Libyan Dinars (LYD). In contrast, Libyan investors are required to invest a minimum of two million LYD for their projects. These capital thresholds are designed to ensure the financial stability of investment projects and promote sustainable economic development. Eligible Commercial Entities for Foreign Investors According to Article 8 of the Executive Regulation, foreigners can register an investment project through any of the legal forms outlined under the Commercial Law of Libya. The registration must be done with the Investment Board, and follow the procedures outlined in Article 9 of the Executive Regulation. Allowed Legal Entities: Branches of foreign companies Joint stock companies Limited liability companies However, Article 8 explicitly excludes the following forms of business for foreign investors: Individual activities Partnerships (Partnership companies) Joint venture companies These legal forms are reserved for Libyan nationals, meaning foreign investors must operate within the allowed commercial entities to ensure legal compliance. Incentives and Privileges under the Investment Law 2010 The Investment Law offers a comprehensive range of incentives designed to attract and support foreign and domestic investors. These include operational flexibility, financial rights, tax exemptions, and sector-specific benefits that help reduce the cost of doing business and promote long-term investment. The key incentives and privileges are outlined in Articles 12, 10, and 15 of the law. Operational and Financial Incentives (Article 12) Article 12 provides investors with significant operational flexibility and financial rights to facilitate the smooth functioning of investment projects: Banking Access: Investors can open bank accounts in local or foreign currencies with banks operating in Libya. They are also eligible to obtain financial loans from both local and foreign banks, in accordance with applicable laws. Capital Repatriation: If a project is terminated, liquidated, or sold (in whole or in part), foreign investors are entitled to re-export their invested capital. Additionally, if unforeseen circumstances prevent investment within six months of capital importation, the capital may be transferred abroad in the same manner it was originally brought in. Profit Transfer: Investors have the right to transfer annual net profits derived from their foreign capital investments. Employment of Foreign Workers: When no suitable national workforce is available, investors may recruit foreign workers. These workers are eligible for renewable five-year residence visas, along with multiple-entry and exit privileges. These incentives ensure that investors have the operational freedom and financial flexibility necessary to efficiently manage their projects in Libya, with support for banking, capital mobility, and workforce management. Tax and Duty Exemptions (Article 10) Article 10 outlines a series of tax and customs duty exemptions aimed at reducing the initial and operational costs of investment projects. These exemptions are key to promoting business growth and reducing financial barriers: Machinery and Equipment: Projects are exempt from taxes, customs duties, and similar fees on the import of machinery, equipment, and devices necessary for project execution. This helps reduce the upfront capital required for setting up a project. However, certain fees, such as port and handling charges, are excluded from this exemption. Operational Inputs: A five-year tax exemption is granted on operational inputs such as spare parts, raw materials, and advertising items essential to project management. This gives investors financial breathing room during the early years of their operations. Export Benefits: Goods produced for export are exempt from production taxes and customs duties, making Libya a competitive location for manufacturing and exporting on the international stage. Income Tax Exemption: Income generated by the project is exempt from income tax for five years from the date of licensing. This is a key incentive, as it allows investors to enjoy tax-free earnings during the critical initial years of their business. Profits from Shares and Equities: Profits generated from shares, mergers, sales, or changes in the project’s legal structure are also exempt from taxes, provided these changes occur within the tax exemption period. This encourages flexibility and adaptability without the burden of additional taxes. Reinvestment Incentives: Interest earned from project activities is exempt from taxes if reinvested into the venture, promoting a cycle of reinvestment that benefits both the investor and the local economy. Stamp Duty Exemptions: All project-related documents, transactions, and agreements are exempt from stamp duties, further minimizing bureaucratic costs. These tax and duty exemptions significantly reduce both initial capital outlay and ongoing operational