By Jessica Donati and Joseph Logan
TRIPOLI (Reuters) - Thousands of Libyans fleeing fighting in the besieged cities of Sirte and Bani Walid are straining the resources of struggling nearby towns, but the emergency relief fund set up by foreign donors says it is no longer its job to help.
The fund was set up in a Qatari account to circumvent sanctions in order to help the erstwhile rebels during the war against Muammar Gaddafi.
It has swollen to more than half a billion U.S. dollars, but only a fraction of the money donated, unfrozen or on loan has been spent.
The fund says it is no longer responsible for providing emergency cash and its current mandate is to invest in long-term projects, its manager Mazin Ramadan told Reuters. International aid organizations should tackle the humanitarian crisis, he said.
"We want to fund civil society in Libya, we need to do a better job of communicating that," Ramadan said.
He said confusion had arisen because of the fund's early involvement in emergency activities, but it was now focusing on designing a program to fund future non-governmental organizations based in Libya.
When Qatar set up the fund in April, the aim was to provide Libya with a lifeline down which other countries could channel funds without violating sanctions. Qatar was the first Arab state to recognize the then opposition and donated the first $100 million.
Many Libyans are still desperate for money and it is no longer clear where they can hope to obtain cash, or who will help the swelling numbers of internally displaced people.
"Unfrozen money has been put in the Temporary Financing Mechanism, but it takes a long time for them to use it," secretary of finance Emraja Gaith told Reuters in an interview.
Cash freed up by foreign governments should be transferred directly to the central bank, he said, because it could process urgent payments more effectively.
But local authorities say they have only received a fraction of the money they need to cope with the flood of families escaping the fighting in the last two places where Gaddafi loyalists are still holding out; Sirte and Bani Walid.
Some have even journeyed to the capital, cap in hand, to ask new government head Mustafa Abdel Jalil directly for funds.
As Jalil met the Canadian ambassador, Hakim Badran from Mizdah council waited to see him and ask for money he said was urgently needed to cope with the thousands taking shelter in schools and homes in his village, just west of Bani Walid.
"Jalil told me if I came here I could speak to him," Badran said.
In Tripoli, officials said the capital's resources were also being tested by the arrival of thousands of internally displaced people and more money was needed to provide services in the capital.
"In Tripoli we have only received a small amount of the money we asked for. We have 15 million dinar ($12.2 million) ... this is not enough," said Ahmed Al Tarhouni, an aide to the council's head, Abderrazzaq Buhagiar.
Officially the Temporary Financing Mechanism now tops $500 million, after $400 million was released from frozen Libyan assets in the United States, further donations were made from Bahrain and Kuwait and Germany made a loan in August.
About $130 million has been spent so far; on fuel, hospital bills and salaries delivered to a remote mountain region that had been struggling without cash for months.
Fund officials say further projects will go to non-governmental organizations able to meet the needs of Libyans who have lost their homes, incomes or family in the war, and decentralize some spending power to local government.
But many of the councilors interviewed were unaware of the fund, or did not know whether they qualified for money.
Most of Libya's estimated $170 billion in frozen assets are still out of reach, and despite pledges by global powers to make money available, just one third of a promised $15 billion has been unfrozen.
The National Transitional Council has spent $1.6 billion so far, the bulk of which has been handed to local councils to provide salaries in many areas which had not seen a pay packet since the uprising began in February.
(1 = 1.23 Libyan dinars)
(Editing by Jon Hemming)