Algeria eyes retroactive oil and gas windfall tax

Jul 13, 2006 02:00 AM

Algeria is to retroactively implement a windfall tax on oil and gas contracts signed under the old energy law as part of amendments to the country's new hydrocarbon bill, Oil Minister Chakib Khelil said. The windfall tax will be used as one method to preserve Algeria's oil and gas resources for future generations, Khelil told a briefing at London's Chatham House.
"The contracts that were signed under the old law didn't have a way to capture windfall profits, and the new amendments include a clause that will correct that," Khelil said.

Earlier, the Algerian cabinet approved a bill amending the new hydrocarbon law that was approved last year but not signed into law. The amendments need to be passed by parliament and approved by the president before they become law.
But the fact that the amendments have already been approved by the cabinet is a signal there's already significant political support behind the bill, said one insider familiar with Algerian politics.

Retroactive introduction of windfall taxes have dominated the news in many oil- and gas-producing countries this year as oil prices have soared higher than expectations at the time the contracts were signed.
In Algeria, most of the contracts were signed while the oil price ranged from $ 10-$ 30 a barrel. But in the past two years, oil prices have skyrocketed. Earlier, US oil prices hit a record high of over $ 75 a barrel.

As the budget is calculated on an assumed oil price of $ 19-$ 22/bbl, Algeria's coffers are flush with cash from the high prices, and its foreign reserves stand at a comfortable $ 66 bn.
"It may be that we're the victims of our own success," said Khelil. "We have $ 66 bn in reserves, and there's been a big discussion and political debate to leave some of the resources for future generations," he added.

However, analysts said the move was not a positive one for investors seeking to enter the country because it creates more uncertainty and confusion over investment conditions. Until the amendments were announced, the hydrocarbon sector in Algeria, an OPEC member, had long been viewed as one of the more transparent and stable within the group.
Khelil himself said "it's possible" that some potential investors could be put off by the amendments but added that it was a political decision, not an economic one.

Gerry Peereboom, president of BP Algeria said he was worried about the potential tax.
"I'm worried, but we have to wait and see what the new amendments actually say," he said.

Oil major BP has invested over $ 4 bn on huge gas projects in Algeria's Sahara desert. Other oil companies investing in Algeria that could be affected by the retroactive windfall tax include Norway's Statoil, US-based Anadarko Petroleum and Spain's Cepsa and Repsol-YPF.
Companies will be looking to see what the rate of the tax would be, how it would be applied and which companies or contracts would fall under the new provision.

Going forward, any contracts signed under the new 2005 hydrocarbon law will be governed by a tax royalty system which is relatively straightforward to increase if oil prices keep going up. So far, there have been no contracts signed under the new law.
Algeria's current target to reach 2 mm bpd of crude oil output by 2010 from around 1.4 mm bpd now won't be affected by the amendments to the law, Khelil said.

Source: Dow Jones Newswires
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