Algeria's tough energy terms are self-defeating

01 January 2010

Algiers must take a long, hard look at its attitude to the firms it is asking to spend millions of dollars

When Algeria’s energy minister, Chakib Khelil, announced the results of the country’s latest oil and gas bid round on 20 December, he struggled to hide his disappointment. Of the 10 exploration and production licences on offer, only three had attracted bids.

Perhaps, he reasoned, in the aftermath of the financial crisis and with low demand for energy, international oil companies (IOCs) were wary of committing to new expenditure.

But Khelil, an industry veteran, must know that the excuse of financial strain is wearing thin. It was trotted out after the December 2008 bid round, when Algiers awarded only four of the 16 licences on offer.

One year on, the economic outlook is rosier. The exploration areas on offer in the latest round were picked by the IOCs themselves, and the auction came after more than six months of negotiations over contract terms.

While global demand for oil and gas is currently weak and many IOCs are still suffering from the economic crisis, Algiers’ problems lie closer to home.

Oil executives complain about how hard it is to work in Algeria, how tough the terms offered by Algiers are, and how the country’s ingrained bureaucracy slows down projects.

Algiers is right to try to negotiate the best deal it possibly can. But the country’s government must take a long, hard look at its attitude to the international firms it is asking to spend hundreds of millions of dollars to develop oil and gas facilities in return for a share of reven-ues that might not materialise for another five to 10 years.

The IOCs, meanwhile, could also help both themselves and Algiers by being less taciturn in the run-up to bid rounds. A more sharply defined set of demands would help everyone, not least Algiers, which could then plan for the future far more effectively.

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