Libya set to ramp up grains purchases - sources

LONDON/HAMBURG (Reuters) - Libya is set to step up commercial purchases of wheat and flour in the coming weeks although western sanctions imposed on ousted leader Muammar Gaddafi and worries over port security will hinder the pace of shipments, trade and shipping sources say.

The country's interim council, trying to heal scars left by Gaddafi's 42-year rule, is keen to assert its grip and relieve hardship after six months of war. Libya was a big importer of food before fighting interrupted supply chains.

Trade sources said Libya will aim to import 500,000 tonnes of wheat and 400,000 tonnes of flour in the next two to three months.

"Libya needs a lot of wheat and flour and I expect them to buy a lot in coming weeks," one trader said. "I expect them to buy a major volume of flour initially as much of their infrastructure is literally shot to pieces including their mills."

The National Transitional Council (NTC) has already bought flour in recent weeks, with purchases routed via companies in Egypt and Tunisia and sent mainly by trucks from Egypt.

"Imports of wheat have been made to Egypt which was then processed into flour by Egyptian mills and sent to east Libya," a second trader said. "Deliveries have been made with payment in advance because banks were unwilling to be involved in financing Libyan deals."

Trade sources said wheat deals would be concluded quicker once the NTC took control of Libya's assets. The NTC has signed at least two contracts to buy French wheat using funds unfrozen in France earlier this month.

"No doubt the aid agencies such as the WFP will make a big interim effort to prevent a humanitarian disaster. But Libya will probably be expected to use up some of its massive financial reserves to feed itself," a third trader said.

The World Food Program is leading a push by United Nations aid agencies to resupply Tripoli after months of conflict and last week's intense fighting left the Libyan capital short of fuel, food, medicine and water.

An estimated $150 billion (92 billion pounds) in sovereign assets once controlled Gaddafi and his inner circle has been frozen abroad by foreign governments and 144 tonnes of gold is held by the Libyan central bank.

The NTC won a $1.55 billion cash injection when the U.N. Sanctions Committee released banknotes in Britain in frozen Gaddafi accounts. The new leaders have said Libya may start pumping oil again in days.

"When the banking system starts working normally and international banks are no longer worried about seeing the word 'Libya' on letters of credit there will be a big rush to get the business," the third trader said.

SHIPPING VITAL

Some anti-Gaddafi officials have warned that Russia alongside China and Brazil may lose out with the new government due to their lack of support or even opposition to international sanctions and a NATO-led military campaign in Libya.

"I do not think Russian wheat will be punished because of Russian support for Gaddafi," a trader said. "I think wheat is too anonymous and Russian wheat is cheap and quickly available."

Analysts say getting Libya's ports and shipping back to pre-conflict levels will be vital for the country's trade. Seaborne activity had been at a virtual standstill for months due to the fighting with ship owners wary of risks to their vessels.

"Uncertainty is likely to continue as the rebels will be required to demonstrate they have the ability to maintain control over the country's major ports and prevent attacks by remaining Gaddafi loyalists seeking to disrupt operations," said Alan Fraser, Middle East analyst with security firm AKE.

"Given their strategic importance, securing the ports will be a priority and they are likely to become busier, particularly those in major cities like Tripoli and Benghazi."

While shipping companies including Maersk Line, the world's biggest container shipping line, are resuming services to the eastern port of Benghazi, other terminals used for general cargo and grains operations such as Tripoli and Al-Kohms in the west have yet to get back on track.

"In the event of fifth column activity after the regime change, this is likely to target people rather than maritime infrastructure, so we do expect port operations to return to normal within the coming months," said Jakob Larsen, maritime security officer with BIMCO, the world's largest private shipowners' association.

There is no immediate prospect of removing Libya from a high risk list by London's marine insurance market.

"As for the ports themselves, there may be unexploded munitions and wrecks and it is unlikely that any proper surveys have been carried out at recently liberated ports, so there is going to be increased risk for some weeks or months to come depending on how quickly practical safety issues can be sorted out," said Philip Roche, a partner at law firm Norton Rose.

"It will be a few brave owners who will want to be first and I imagine that such owners will demand a premium for doing so."

Shipping companies are also expected to remain hesitant in the short-term due to fears of falling foul of sanctions that had been imposed on Gaddafi and his associates.

"Due to the depth of the involvement of the Gaddafi clique with all aspects of Libyan government and private business, it may take some time to legally remove these rights and interests of those people on the sanctions list," said Roche.

European Union sanctions against six Libyan ports, four oil companies and more than a dozen other entities could be lifted as soon as Friday, diplomats said Wednesday.

"There will be a willingness to help the new regime and obtaining permission for the shipment of food and medical supplies should not be a problem, but the sanctions are still in place and they still have force of law so technically a party could be prosecuted if it breaches sanctions and funds end up in the hands of persons on the U.N. list," said Roche.

"Parties must continue to perform suitable due diligence and care in investigating the identity of counterparties."

Lingering sanctions may also deter trade houses with U.S. interests from selling directly to Libya for now, which may boost French sales, a trade source said.

"The French cooperatives are going to be the most likely sellers delivering either French, German or Ukrainian origin and they will do it under French political cover," the source said.

"Everyone with a U.S. dollar in their equity base will not participate because of being afraid of being burnt by sanctions."

(Writing by Jonathan Saul; editing by Keiron Henderson)