Algeria limits foreign oil role
2006-09-10 19:45
Algiers - Opec member Algeria, confirming a sharp shift towards resource nationalism, toughened terms for foreign energy investors on Saturday by curbing their role in production and imposing a windfall tax on surplus profits.
The provisions, reversing a previous energy liberalisation, require state energy firm Sonatrach, Africa's largest company by revenue, to take a mandatory 51% stake in all exploration and production ventures.
The regulations, posted on the government gazette website, also impose a new tax on foreign oil firms of between 5% to 50% whenever Brent crude oil trades above $30 a barrel.
Their publication is the latest in a spate of moves sweeping the international energy sector in which oil and gas producers from Bolivia to Britain, emboldened by high energy prices, have tried to keep as much output and revenue for themselves.
It is a bold change of direction for a country once feted as one of the most welcoming for foreign energy investors.
Algeria approved a liberal energy law in July 2005 that downgraded Sonatrach's role in the oil and gas sector and gave more scope for foreign energy companies to invest and produce in Africa's second largest country.
Future generations
But in July 2006 the government dismayed foreign investors by abruptly changing course and saying it planned to issue amendments to safeguard the role of Sonatrach and keep as much oil as possible in the ground for future generations.
Commentators suggested the government had been influenced by the high price of oil and had decided that it no longer saw an urgent
need to maximise production and revenues - a need that was uppermost in officials' minds when the law was first conceived in 2000, a time of far lower prices.
"Obviously, the idea behind amending the law is to retake control over the energy sector, and use it as a tool to strengthen Algeria's position internationally," said Lies Sahar, an oil specialist at top French language daily El Watan.
"I have no doubt that international companies present in Algeria will continue to make good profits, though they may show some concern over the windfall taxes," he said.
Early private reaction from international companies was not so sanguine.
Devil's in the detail
"The devil will be in the details," one senior executive said. "There's a ton of unanswered questions, such as how do you qualify for the low rate of 5% on the windfall tax. What stops Sonatrach from taking 99% of a venture?"
Another executive said that the provisions appeared to refer mainly to oil and did not spell out sufficiently how the measures would affect the gas sector.
The terms give Sonatrach even more prominence in Algeria's energy sector. Traditionally, the firm has had the right to take 51% of a given venture, although in practice its share has sometimes been smaller than that.
Under the now-aborted liberalisation, Sonatrach's profile would actually have shrunk, because it would have been limited to between 20% and 30% of a given enterprise.
The 2005 liberalisation was never carried out because its detailed implementing measures were never published. Similarly,
implementing measures for the latest amendments must be published before they can take practical effect.
The new amendments give the energy minister, in exceptional circumstances, the right not to follow standard tender procedures for upstream projects if the cabinet finds this is "in the general interest in the framework of energy policy".
Windfall tax
The amendments state: "Contracts for exploration and production, and contracts for production, must contain an obligatory clause giving participation to the national enterprise Sonatrach."
"In the two cases, the rate of participation of Sonatrach is fixed at a minimum of 51%."
On the tax provisions, the amendments described the measure as "a non-deductible tax on surplus profits made by foreign associates and applicable over the share of production they own when the monthly average of the Brent oil price is above $30 a barrel."
"The tax will be implemented from Aug 1 2006... The rate of the tax applicable to the production output belonging to the foreign associate will be from a minimum of 5% to a maximum of 50%."
Algeria produces about 1.5 million barrels of oil per day and 62 billion cubic metres of gas a year. It is a major supplier of gas to Europe.
Sonatrach's foreign partners earned about $4bn from their involvement in oil and gas production in 2005 while Sonatrach itself earned about $41bn.