Algeria seeks limits for foreign investors

Jul 19, 2006 02:00 AM

Soaring oil prices have sent Algeria's economy on a boom, allowing it to pay off debt, build up major reserves and draw interest from foreign oil companies. But the country, worried about its failure to diversify its economy beyond the energy sector, is moving to slow down foreign exploitation of its rich hydrocarbon deposits.
While amendments to a hydrocarbons law raised comparisons with oil and gas nationalizations in Venezuela and Bolivia, analysts and energy companies say they are unlikely to scare off international investors eager for any slice of Algeria's oil profits.

Earlier this month the Algerian government announced a windfall tax on profits generated by oil prices over $ 30 a barrel, and a clause raising the stake that state energy company Sonatrach must take in new hydrocarbon exploration and transport projects from 20-30 % to 51 %. The level of the windfall tax has not yet been given.
The government said the moves were intended "to meet the needs of national development andto preserve our country's natural riches."

Experts said that while the Algerian measures were driven by pressure from unions and domestic political factors, the North African country will remain attractive to investors since oil prices are expected to stay high and the changes aren't as drastic as in South America.
"The circumstances have changed. The oil companies are desperate, they want to get more oil," said Robert Mabro, a former director of the Oxford Institute for Energy Studies. "The oil companies will scream a bit but in the end they will go and invest."

Oil was driven near $ 80 a barrel as strong demand collided with supply worries caused by violence in the Middle East, pipeline disruptions in Iraq and unrest in Nigeria. Algeria's economy has been soaring thanks to the surge in oil prices, allowing the North African country to accumulate $ 66 bn (EUR 53 bn) in foreign exchange reserves and pay off large chunks of its debt.
Algeria, ranked eighth among members of OPEC, produces about 1.4 mm barrels of oil a day and exported 80 % of its oil, gas and derivatives in 2005. Hydrocarbon exports account for some 98 % of Algeria's foreign currency revenues, and energy earnings make up around 40 % of gross domestic product.

Despite a bloody conflict in the 1990s that pitted Islamic extremists against the Algerian state, the OPEC member has generally been seen as a safe bet for investment because things have since quieted down. But the new amendments go against the liberalizing drive of the hydrocarbons law approved by parliament last year.
Explaining the changes, Energy Minister Chakib Khelil acknowledged that "our current partners are not going to like the fact that we're going to extract a part of their super-profits."
“But,” he said, "we will obtain our objective of safeguarding our natural resources for future generations."

Khelil said the tax on extraordinary profits would apply to contracts signed under a previous 1986 law, but would not be imposed on past income. He said the measures -- which do not need approval by parliament -- would be signed into law before the next round of bids for energy contracts, expected by the end of this year. No contracts had been signed under the original version of the 2005 law.
Gerry Peereboom, chief operating officer of BP in North Africa, said the new tax was cause for some uncertainty.
"Until we know exactly what the situation is, any investor feels less confident," he told. But he added: "We're going to wait and see. Once you know the rules of the game, I think we can live with almost any."

Italian oil and gas company ENI also said it was waiting to see how the situation developed, but described the change as a "normal adjustment to the tax system."
"We do not think Algeria is trying to discourage foreign investment," the company said. Other companies active in Algeria include Norway's Statoil, Spanish-Argentine Repsol-YPF, US-based Hess and Anglo-Australian BHP Billiton.

Energy minister Khelil said the changes were prompted in part by Algeria's failure to diversify its economy beyond the energy sector. He said enough hydrocarbons had been discovered to meet Algeria's production target of 2 mm bpd in oil and 85 bn cm a year in gas by 2010, and that boosting refining capacity would now be a priority.
Opponents of the original version of the 2005 law included Sonatrach managers, trade unionists, and the opposition Labour Party. They delayed its passage for years after it was first proposed in 2001, and had pushed for the amendments.

Hocine Malti, a former vice president at Sonatrach, said it was "a question of sovereignty, non negotiable."
Malti wrote in the newspaper Le Soir d'Algerie: "One should not hesitate, however, to proclaim high and loud, just like the Venezuelans and the Bolivians, that hydrocarbons are the property of the people."

But Amor Khelif, a hydrocarbons specialist who teaches at the universities of Algiers and Nice, said that the Algerian amendments were very different from the South American cases.
"It's completely incomparable," he said. "It looks very favourable for exploration and production investments in Algeria."

Source: The Associated Press/www.businessweek.com
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