Algeria revises hydrocarbons law

To lure investors in the oil and gas sector, Algeria grants additional tax advantages to foreign partners.

By Fidet Mansour for Magharebia in Algiers

[Fidet Mansour] Energy Minister Youcef Yousfi says the current law regulating oil production is obsolete.
Following a steep drop in foreign investment, the Algerian government decided to amend the 2005 law on hydrocarbons.

The new bill, approved by the Council of Ministers on Monday (September 17th), aims to “maintain Algeria’s attractiveness for foreign energy investment”, according to the statement released after the meeting.

The amended law sets out tax arrangements to encourage operations in areas that have seen less activity or where complex resources are required. The bill is designed to develop new hydrocarbon extraction technologies.

“One of the most important incentives in this area is that exploration risks will be shared between Sonatrach and the foreign partner in the exploitation of non-conventional hydrocarbons,” APS quoted Sonatrach CEO Abdelhamid Zerguine as saying.

Developments in the oil market have made the 2005 law obsolete, according to Energy Minister Youcef Yousfi.

“The 05-07 law was passed in a context where such technologies did not exist and the price of oil was around 20-30 dollars,” Yousfi pointed out.

In 2006, the government introduced an amendment which imposed a “tax on profits” for all negotiated partnership contracts, of which there were about thirty. American company Anadarko was particularly affected, along with BP and Total. The introduction of the 2006 tax triggered rumours that foreign companies might leave Algeria.

Under the new law, Sonatrach retains its advantages. The state-owned energy giant will still control the lion’s share of hydrocarbon production and exploration, in both gas and oil operations. The draft law leaves untouched the 51/49% agreement, which gives Sonatrach a majority share in any investment project involving foreign groups.

In addition, the draft law gives Sonatrach exclusive rights over transporting hydrocarbons in pipelines.

At the end of the debate, President Abdelaziz Bouteflika underlined the need to step up Algeria’s “efforts in exploration across the whole national mining sector and to mobilise all other sources of energy, particularly renewable energies”. Priorities rest with diversifying the national economy and broadening the production system, “which is the sole guarantor of lasting wealth”, according to the president.

Related Articles
Algeria seeks alternatives to hydrocarbon economy
2011-08-10
Corruption probes rock Algeria
2010-02-10
Algeria names new Sonatrach chief
2011-11-22
Sonatrach seeks to improve image
2011-02-02
Algerian energy conference weathers criticism, volcanic eruptions
2010-04-21
The central question now is whether the revised law will indeed bring more investors to Algeria.

“Oil companies are very wary about sudden changes in the laws governing the sector,” economist Amine Houidel said. “It smacks of instability, which is the number one enemy of investment. These companies will watch how the law is applied, and they will certainly demand clarification and information on some of the more obscure points before resuming their investment.”

Algeria will need to revise the law once again over the coming years to remove all obstacles holding back investment in the sector, journalist and economist Karima Saouli said.

“Of course Algeria has the raw material, but because of a lack of resources and technology, it is unable to exploit its deposits without help from its partners,” she told Magharebia.

.