Algeria tightens its grip on hydrocarbons industry

2006-10-18

With a flourishing hydrocarbon market, Algeria is taking the opportunity to maximise profits and control of the industry by amending laws favouring Sonatrach, the country's national oil company.

By Mohand Ouali for Magharebia in Algiers – 18/10/06

[File] Sonatrach is now guaranteed a majority stake in all its activities.

Algeria's National Popular Assembly passed an amendment to a hydrocarbons law on Sunday (October 15th) to return control of the market to Sonatrach, the country's national oil company. The law also imposes a tax on foreign oil companies for "exceptional profits".

The Council of Ministers passed draft amendments on July 9th to an April 2005 hydrocarbons law. A government communiqué said the proposals "aim to adapt it to the developments seen in the international energy market and to strengthen the management of our resources so that they can be preserved for the benefit of future generations".

The 19 new amendments, which were passed with near unanimity, grant Sonatrach a minimum 51% share of all exploration, operation and refining contracts with foreign companies. The new law also taxes Sonatrach's foreign partners on profits when the price per barrel exceeds $30. This tax, which started August 1st, ranges from 5%-50%.

According to Banque d' Algérie report, "The share for Sonatrach's partners has increased to exceed $2.77 billion dollars in the first half of 2006, compared with $2.12 billion for the same period in 2005."

Other amendments grant Sonatrach exclusive transport rights for hydrocarbons via pipelines and protect it from appeals to international arbitration in the case of a dispute with one of its foreign partners.

"This achievement will strengthen the state's role in controlling the [energy] sector, which will have a positive effect for future generations," Energy and Mining Minister Chakib Khelil said of the law.

The 2005 Algerian law on hydrocarbons created a regulatory authority and an agency called ALNAFT to promote investment, administration of contracts and management of databases.

The law discharged Sonatrach from public body prerogatives and required it to concentrate solely on its economic duties. A clause allowed Sonatrach to keep its old oil reserves and secured an option to allow it a 30% stake in any new commercially-viable reserves. Foreign companies will be authorised to retain a 70%, if not a 100%, share of all contracts.

The argument given for allowing foreign firms to take majority stakes was that it would increase the attractiveness of the Algerian market in the face of competition to guarantee the resources necessary for the country to continue its development.

The "production share" formula in was judged to be out of date and a new law was needed to exploit a largely unexplored mine extending around 1.4 million square kilometres.

Algeria derives 97% of its foreign exchange receipts from the sale of hydrocarbons, which were nationalised on February 24th 1971. Foreign hydrocarbon companies were permitted to start doing business in Algeria within a partnership with Sonatrach in 1986. The process was simplified in 1991.

According to the Algerian Bank report, exports of hydrocarbons rose to $35.39 billion by the end of August. Its currency reserves on the same date reached $70.29 billion, while foreign debt had fallen to $7.7 billion in September.