by Christian Lowe; Editing by Giles Elgood)
ALGIERS, Nov 1 (Reuters) - An unpredictable succession, suspicion of foreign influence, diplomatic rows, policy uncertainty and the lingering threat of social unrest all pose potential risks for investors in oil-producer Libya.
Here are some risk factors to watch.
Muammar Gaddafi has led Libya for more than 40 years, longer than any living African leader. He is in his late 60s, but there is no framework for his succession and he has carefully avoided designating a successor. Analysts say he appears to be in good health but that, when he dies, years of instability could follow as competing groups and relatives struggle for supremacy.
The liberal-leaning Saif al-Islam Gaddafi, who took a central role in ending Libya's stand-off with the West, has the highest profile among Gaddafi's sons but lacks any official role and Libya experts say he has little support from the army, whose endorsement is seen as vital if he is to hold power.
Two other sons, Mutassim and Khamis, are thought to have stronger power bases in the military. Their policy views are unknown but Libya watchers see Mutassim -- Libya's National Security Adviser -- as close to the old guard that opposes many of the reforms proposed by Saif al-Islam.
Saif al-Islam does not hide his differences with the rival camp. He told reporters the government was incompetent and said "There is no state in Libya."
What to watch:
-- Whether Saif al-Islam becomes head of a body called the Social Popular Leadership, making him the country's de facto second in command.
-- Supporters of Saif al-Islam say he plans to try to have a constitution adopted to set up formal institutions instead of the complex web of informal spheres of influence on which his father's system is based. If he goes ahead with his plan, that could indicate he is staking a stronger claim to the succession.
-- The fluctuating fortunes of Saif al-Islam's media and other projects. Two newspapers allied to him stopped publishing in January, citing problems with the authorities, but they were back on newsstands in July.
As oil money swells the coffers after years of austerity, foreign firms are jostling for billions of dollars of potential deals in energy, housing, transport infrastructure, telecoms and public services. But the environment is fraught with dangers, from bureaucratic lethargy to a captive judiciary and risks tied to land ownership and changing business rules.
Business-friendly reforms are stalled and Libya sits in 146th place out of 178 countries in Transparency International's 2010 Corruption Perceptions Index. That is down 16 places from last year's index.
Diplomatic hiccups can have a devastating effect on companies in Libya. Swiss ties with Libya broke down after the brief arrest of another son of Gaddafi, Hannibal, in Geneva in 2008 and the dispute drew in the European Union, United States and major energy firms.
Libya stopped oil exports to Switzerland and withdrew assets from Swiss banks. It imposed a trade and economic embargo on Switzerland, hurting Swiss business interests in Libya. The two governments agreed to patch up relations and a Swiss businessman caught up in the dispute was allowed home after being held for nearly two years in Tripoli.
Libya showed it was even prepared to challenge its old foe the United States, when it threatened U.S. oil companies with unnamed consequences in response to caustic comments about Gaddafi made by a Washington official. The official later apologised.
What to watch:
-- Any sign that Saif al-Islam's reformist camp is weakening might encourage the government of Prime Minister Al Baghdadi Ali al-Mahmoudi to take a more protectionist line on inward investment and tighten terms for foreign business.
-- Signs the leadership is trying to forge a coherent vision for the economy.
RISK BY ASSOCIATION
Some Western companies and governments have found that being too closely associated with Libya, with its contentious past, and sometimes idiosyncratic leadership, can be harmful.
A panel of U.S. Senators wants to hold a hearing to establish whether BP had any influence on the British decision to release from prison the convicted Lockerbie bomber, Abdel Basset al-Megrahi.. BP said in August it was delaying plans to drill offshore in Libya until later this year. It did not say why.
Italian Prime Minister Silvio Berlusconi came under pressure over his ties to Gaddafi after the Libyan leader, on a visit to Italy, tried to persuade hundreds of Italian women to convert to Islam. An incident when a Libyan patrol boat shot at an Italian fishing vessel was also awkward for Berlusconi. Ties to Libya helped contribute to the downfall of Alessandro Profumo, chief executive of Italy's second-biggest bank, Unicredit. He was forced to step down after some shareholders complained about the increasing role of Libyan investors in the bank.
What to watch:
-- Will other international firms come under pressure for doing business with a country with such a chequered past?
-- How will politicians in Europe and the United States respond as Libya's sovereign wealth fund, which controls about $65 billion, ramps up its investments in developed countries.
Firms including Exxon Mobil, BP, and ENI are sinking billions of dollars into Libya for a share of Africa's biggest proven oil reserves. Foreign players accepted tight production shares when bidding for Libyan acreage and finds have proven disappointing so far, although a vast area remains to be explored.
Experts say project approvals for drilling new acreage and enhanced oil recovery have been moving at a glacial pace. When one firm -- Canada's Verenex -- announced a big find, Libya's government bought the company for less than its market price by force, a reminder of the risks run by smaller players.
What to watch:
-- A new framework hydrocarbon law, Libya's first in more than 50 years, is being drafted and the government has not said whether it will alter conditions for foreign oil firms.
-- National Oil Corporation Chairman Shokri Ghanem commands respect with foreign energy companies but his authority has been challenged by a new Supreme Council For Energy Affairs. The council is dominated by conservatives who may feel Ghanem is a soft touch for oil firms and call for more resource nationalism.
-- Will there be any big new finds? Several international oil companies, including Occidental and Chevron Corp, decided not to renew exploration licences when they expired because they had not found worthwhile reserves. Many others are still looking.
SOCIAL UNREST AND THE ISLAMIST THREAT
A lack of economic opportunities has led to occasional outbreaks of unrest but the government keeps a tight grip on security. Opposition groups are weak and political activity outside the structure of the regime is virtually impossible. The population has grown fast and pressure for better living standards has risen after sanctions. The pardon and release from prison of hundreds of Islamist militants on March 23 shows the government is confident that it has neutralised the threat from the Libyan Islamic Fighting Group (LIFG) that once tried to assassinate Gaddafi.
What to watch:
-- Any sign that LIFG splinter groups based abroad are attempting to revive the movement's activity within Libya or join with al Qaeda's Maghreb wing based in neighbouring Algeria.
-- Risk of unrest in and around Benghazi, an area of opposition to Gaddafi. Civil disturbance often goes unreported in Libya so talk of public gatherings or street violence could be a sign of bigger trouble.
(Writing by Christian Lowe; Editing by Giles Elgood)