The Libyan Iron and Steel Company (Lisco) is planning slightly higher overall production next year, its chairman told Reuters, but shortages of electricity and gas will continue to disrupt its recovery following the country's civil war.

Chairman Mohamed Abdelmalik al-Faqih said that despite problems in producing base liquid steel, the company would expand its capacity in finished products in 2014, and was seeking a new market in Algeria while demand in Egypt and southern Europe remains weak.

State-owned Lisco, one of North Africa's biggest steel makers, was launched under Muammar Gaddafi as Libya tried to diversify from oil exports. It shut down operations during the 2011 Nato-backed uprising which ousted Gaddafi and resumed production last year.

Faqih said Lisco, which is one of Libya's biggest corporations, would continue to face problems in the new year.

"Overall production is improving," he said in an interview. "We have a production plan for the coming year...forecasting a slight increase."

"But we're still facing many challenges, most importantly a shortage of power capacity and also natural gas," he added.

Power cuts have hit Tripoli and other major cities as militias and tribesmen demanding higher pay or more political rights have blocked gas pipelines, oilfields and seaports to press their demands.

These have hampered Lisco's production this year, forcing the shutdown of a melt shop - where liquid steel is produced - for almost a month in September.

"From May until now we have been suffering from power capacity or gas problems," Faqih said in the interview, conducted on Sunday. Lisco has operated only one or two gas plants throughout the year, leaving its third standing idle.

"Based on discussions with the power company it seems the problems of power shortages will continue next year," he said, adding that during night shifts the restarted melt shop was operating only two of the five furnaces.

In 2012 the plant, which has a maximum capacity of 1.6 million tonnes, aimed to produce just over 1 million tonnes yet managed only 350,000, company officials said earlier this year. This was due to technical problems and the reluctance of foreign experts to work there due to Libya's insecurity.

Next year Lisco plans to produce 1.1 million tonnes of liquid steel. Faqih said the plant's melt shop 1 would produce 650,000 tonnes, up from around 400,000 tonnes in 2013 which was 70 percent of the firm's original plan.

The melt shop 2 is planned to produce 450,000 tonnes next year. He gave no overall output figure for 2013, but said it was working at slightly below 60 percent of the target.

Lisco, located in the central port city of Misrata, aims to continue with a 3 billion Libyan dinar ($2.44 billion) expansion plan dating from the Gaddafi era.

It is increasing capacity in finished products. A new bar mill with an annual capacity of 800,000 tonnes will come online in mid-2014 with an initial output of 225,000 tonnes of reinforcing bars (rebars). This will come on top of targeted rebars output from existing operations of around 400,000 tonnes next year, an amount it produced in January-October this year, he said.

For 2014, Lisco plans to produce 1 million tonnes of direct reduction iron, up from 900,000 in 2013, Faqih said, reading out from the production target plan.

Output of hot briquetted iron, another steel making ingredient, would be 500,000 tonnes in 2014, 100,000 tonnes more than this year. A wire mill would produce 100,000 tonnes.

Faqih said Lisco is in talks to export steel to Algeria to offset weaker European markets such as Greece, Italy and Spain, which have suffered in the euro zone crisis, as well as Egypt which is also struggling with turmoil.

"Now we are trying to open a new market which is Algeria because in Algeria steel demand is very high," he said. "We are in talks with Algerian traders."

The company was also planning to open a new cold rolling mill at the end of 2014 in addition to the bar mill as part of the expansion laid out before the revolution.

"The total investment...is around 3 billion (Libyan dinars). The projects which are contracted are in the range of one billion," he said, adding that hopefully the remaining 2 billion would be rolled out in the next two years.

Libya's budget situation has worsened since the militias and tribesmen reduced oil exports to 110,000 barrels a day from more than 1 million in July. Oil revenues are the main source for the budget and dollars to fund basic food imports.

Since its restart, Lisco is relying on Brazil's Vale and Samarco for iron ore pellets since Sweden's LKAB, its long time supplier, stopped contracting the Libyan firm, he said.

"Vale and Samarco are the main suppliers," he asked about contract plans for next year.-Reuters