Algeria enacts controversial oil law to draw foreign investors

Algerian experts said the country’s oil and gas sector has been set back by leadership shifts within Sonatrach.
Sunday 17/11/2019
A general view of an Algerian oil installation on the outskirts of In Amenas. (AFP)
Economic lifeline. A general view of an Algerian oil installation on the outskirts of In Amenas. (AFP)

TUNIS - Algeria’s military-backed authorities, desperate to increase oil and gas exports, approved a hydrocarbon law supported by “five American firms” but opposed by Algerian energy experts and protesters.

Algeria’s People’s National Assembly approved legislation November 14 aimed at luring in foreign oil and gas firms and bringing in new technology to boost foreign investment, expand output in the country’s ageing oilfields and help discover new oil and gas resources.

The law was passed three days before Algeria’s official presidential election campaign began. Algeria is to have presidential elections December 12 and parliamentary polls shortly afterward.

The legislation stipulates that state-owned oil company Sonatrach must hold a majority stake in all projects involving foreign players but adjusts to accommodate foreign investors to make Algeria a more competitive destination.

Among the changes is the inclusion of a production-sharing contract system that proved successful in the 1980s. That system helped Algeria make some of its largest oil and gas discoveries, including the discovery and development of the Berkine basin.

That law was scrapped in 2005, however, before being tweaked in 2006 and 2013. The later changes caused concerns about legal instability and pushed away foreign investors, causing the country’s oil and gas production to decline considerably.

Oil and gas comprise Algeria’s economic lifeline, helping provide for an economy that depends largely on imports.

Algeria’s oil and gas exports totalled $24.6 billion in the first nine months of this year, down from $29 billion in the same period of 2018 despite the rising price of Algeria’s Saharan Blend crude oil, official figures show.

Algerian Energy Minister Mohamed Irkab defended the new law as necessary to “attract new investment and advanced technology to help relaunch the development of the economy to create more wealth and satisfy the needs of the citizens and create jobs.”

Irkab’s remarks drew criticism from protesters demanding a complete overhaul of Algeria’s ruling class. Algerian experts, including former Sonatrach managers, also pushed back against the new law, arguing that changing legislation before elections would not reassure foreign investors.

“The change of the law in 2005 and 2006 was extremely negative for Algeria’s partnership with foreign investors and since then nothing worked for Algeria’s hydrocarbons,” said former Sonatrach CEO Abdelmadjid Attar.

“If the next government modifies this new law it will be an extremely negative signal for our investment partners because foreign investors seek legislative stability.”

Algerian energy expert Mourad Preure said: “Algeria had been stable for 20 years and then in the span of one year — 2005-06 — the legislation changed twice and then in 2013. Foreign firms are frightened by legal instability.

“We see the effect of such instability today as our oil output shrunk 18% since 2006.”

Economist Mustapha Mekideche said that Algeria needs to change its law but now is not the right time.

“The true issue is that such law should be part of a national strategy about the whole energy sector which comes after a national consensus over Algeria’s energy transition,” Mekideche said. “This can only be forged after the election of a president and a legitimate parliament and following a broad national debate.”

Energy experts said Algeria’s energy future lies in the development of renewable energy, such as solar.

“This law is vague. It includes no quantified targets,” said former Sonatrach Vice-President Tewfik Hasni. “No official has told the public for example what the profitability would be in the investment in the shale gas activity.”

“Energy lobbies and business interests in the United States and France relentlessly block Algeria from tapping into and developing its renewable energies. They seek to prevent Algeria from becoming an energy power by successfully developing and exploiting solar energy.”

Algerian experts said the country’s oil and gas sector has been set back by leadership shifts within Sonatrach, which often reflects the struggle between factions of the Algerian leadership.

Rachid Hachichi, a senior manager at Sonatrach, was appointed Sonatrach CEO in April, replacing Abdelmoumen Ould Kaddour, who had close ties to former Algerian President Abdelaziz Bouteflika. Hachichi was replaced by Kamel Eddine Chikhi a few hours after the new law was approved.