By Ulf Laessing and Ayman al-Warfalli
CAIRO/BENGHAZI Libya (Reuters) - A self-styled rival government controlling Libya's capital announced its own oil policies this week, drawing a rebuttal from Prime Minister Abdullah al-Thinni who said oil revenues continued to go to the elected government.
Underscoring the turmoil gripping the major oil producer, at least 17 people were killed on Friday in the main eastern city Benghazi where pro-government forces backed by locals are ```fighting Islamists. A suicide bomber killed three, witnesses and medics said.
Libya is struggling with two competing governments vying for control after Operation Dawn, an umbrella of armed groups from the western city of Misrata, seized Tripoli in August, forcing Thinni's government to withdraw to the east.
The Misrata-led forces have since formed their own rival parliament and government, which has taken over some ministries and effectively controls parts of western and central Libya.
Oil traders are concerned about the uncertainty over who is in charge of Libya's vast oil reserves after the Misrata group appointed its own oil minister and took over the official website of state firm National Oil Corp (NOC).
The power struggle adds to uncertainty about the oil industry, which had just started to show signs of recovery after Thinni managed to end a blockage of major eastern ports by groups of rebels demanding autonomy.
In an interview with local news agency Press Solidarity, the newly appointed oil minister, Mashallah al-Zawi, said the ministry was working to resolve oilfield protests and discussing early retirement schemes for staff to make room for fresh recruits.
"The ministry is working to resolve the issue of sit-ins by youth through dialogue and by meeting some demands," he said, outlining his policies the first time, according to the agency's website.
WHO IS IN CHARGE?
Thinni, whose government is recognised by the international community, responded from Bayda, a town east of Benghazi, where his government has relocated and is trying to stay in contact with ministries almost 1,000 km (620 miles) away in Tripoli.
He said oil revenues for the OPEC member state continued to enter a Libyan bank, which transferred them to the central bank.
"They are under the control of the state of Libya and the government approved by the Libyan parliament," he said, referring to the elected House of Representatives, which has moved to Tobruk, east of Bayda near the Egyptian border.
Libya's de facto oil minister is the chairman of National Oil Corp, Mustafa Sanallah, who has given no statement since his appointment by the Thinni government last month.
Thinni spoke to a channel his government set up on Thursday in Bayda, after the previous state TV channel was taken over by the new rulers in Tripoli.
Thinni and Zawi both cited the same figure of 800,000 barrels per day for Libya's oil production, three years after the fall of Libyan leader Muammar Gaddafi, down from about 1.4 million in mid-2013, before a wave of protests broke out at oil facilities.
Zawi said oil revenue, Libya's sole source of income, would be around only a fifth of last year's level due to the wave of protests at oilfields and ports.
National output had recovered to 900,000 bpd in recent weeks but has recently fallen again due to a new protest at eastern oilfields.
Armed factions in the country often seize oilfields or export terminals to pressure officials into accepting their political or financial demands. A blockade of its biggest oil ports lasted a year.
Western powers worry that the conflict between the Bayda- and Tripoli-based governments will lead to civil war and that the elected government's nascent army is no match for former rebels of various factions who defy state authority.
(Reporting by Ayman al-Warfalli, Feras Bosalum, Ahmed Elumami, Omar Fahmy and Ulf Laessing; editing by Jason Neely, David Evans and Tom Brown)