Libya's interim government is drafting a proposal that would shrink the responsibilities of the National Oil Corp (NOC) to make it a purely commercial organisation, a member of the interim government has told Reuters.

The North African country is trying to restore oil production after more than six months of fighting between rebels and forces loyal to Muammar Gaddafi which have caused foreign oil companies to flee and led to infrastructure damage to oilfields and export terminals.

Libya's new leaders are preparing a draft proposal to give more power to the oil ministry and carving up the NOC's responsibilities, according to Mustafa el-Huni, a member of the National Transitional Council (NTC) with responsibility for oil.

The ministry should make policy. The NOC is a commercial entity, while the ministry is a political (one) and should be involved in international participation and putting policies in place, El-Huni told Reuters late on Wednesday.

This would be a change from the system under Gaddafi where the NOC handled both the daily operations of the oil sector and represented Libya on the world stage at OPEC meetings.

The oil ministry is now run by Tripoli-based Ali Tarhouni, at least until the liberation of the country is declared.

El-Huni said more freedom would be given to subsidiaries such as the Arabian Gulf Oil Company (Agoco) under the new plan.

THREE-WAY SPLIT

There are also plans to split the NOC into three parts to separate oil production and exploration, or upstream, from oil refining or downstream activities.

This model is old and many countries, especially in the Gulf, have split the upstream and downstream elements. This will focus attention on the different activities, said el-Huni.

A third branch would handle renewable energy projects like solar power to help Libya to catch up with other North African countries such as Algeria and Morocco.

The NTC's top priorities upstream would be to prepare for a new exploration round and to eke out more production from existing fields in a move that would hike output significantly from the pre-war level of 1.6 million barrels per day (bpd).

On upstream, we could focus on new technology with joint ventures for secondary recovery and giving more concessions such as offshore Benghazi or in the Kufra Basin. This is a virgin basin and has lots of potential, said el-Huni.

Downstream, he said Libya would look to upgrade its largest refinery Ras Lanuf to increase its yield of gasoline and to build a sixth refinery of about 200,000 bpd.

Libya has long been reliant on imports of refined products to meet domestic use because of insufficient refining capacity.

Oil was Libya's main industry before the revolt and is responsible for the lion's share of the country's income, so running the sector efficiently will be one of the biggest challenges for the country's new leaders.

One hurdle to reform is likely to be relations with subsidiaries which may push for further financial independence. The eastern Libyan oil firm Agoco has gained increasing independence this year and has acted like a defacto oil company as international sanctions have prevented dealings with the NOC.

Agoco has handled both the sale of crude oil and imports of refined products after receiving a U.S. sanctions exemption.

Some see no need for an NOC.

I don't want an NOC. It is the biggest error that they control everything. They should leave more flexibility for national companies to compete with international companies, said Agoco spokesman Abdeljalil Mauf, who worked in the company's exploration department before the revolt.

Crude oil Renewable energy Libya Algeria