Analysis: The Sonatrach corruption scandal

06 April 2010

Senior staff under investigation for alleged corruption in contract awards

On 14 January, the Algerian press revealed that Sonatrach president and CEO, Mohamed Meziane, had been put under judicial supervision along with Chawki Rahal, vice-president for marketing, and four other senior members of the firm. Several executives were jailed, including two other vice-presidents – Belkacem Boumedienne, responsible for upstream, and Benamar Zenasni, head of the pipelines division – and Meziane’s two sons.

The actions followed investigations by the state security service, Departement du Renseignement et de la Securite (DRS), into alleged corruption in the award of contracts. Meziane was replaced by the one vice- president to escape charges, downstream head, Abdelhafid Feghouli. Investigations are ongoing.

The significance of the removal of almost all Sonatrach’s upper management cannot be overstated. Chakib Khelil, Algeria’s oil minister, has been at pains to point out the executives are innocent until proven guilty, and their replacement is purely an interim measure until investigations are complete.

But the fact that the investigation is taking place is of great political significance. Government ministers insist President Abdelaziz Bouteflika initiated the investigations, and they are part of a wider effort to tackle corruption. But observers in Algiers say the more likely explanation is the DRS, which helped bring Bouteflika to power in 1999, wishes to remind the president that his authority still rests on their backing.

The events undermine the authority of both Bouteflika and Khelil, whose position as minister has already been threatened on two occasions. He survived a similar scandal in 2007 when an associate was jailed for corruption in the direct award of contracts to Brown Root Condor, a consortium of the US’ Halliburton and the Algerian state. And he was also thought to be close to resignation when elements of the hydrocarbons law that he personally sponsored in 2005 were removed the following year, but continued in office with the backing of the president.

Now again his position is precarious. He was involved in the appointment of several of the executives under investigation, including Meziane, and what is described as the ‘decapitation’ of the country’s oil company, cannot fail to reflect badly on the energy ministry. There are reports in Algiers that Feghouli is co-operating more closely with the prime minister, Ahmed Ouyahia, than Khelil.

As in 2007, the allegations relate to corruption in the direct award of contracts rather than the use of open tenders. In 2004, regulations were introduced stipulating that a tender system be used, but it allowed for ‘exceptions’ in the case of contracts needed to be awarded quickly.

In this instance, it is possible that contracts were awarded directly as Bouteflika sought to deliver on government promises ahead of the 2009 elections, in which he secured a third term. No official statement has been made as to which contracts are under investigation, though press reports state they relate to the award of pipeline and service contracts.

The immediate impact of the scandal will be a slowdown in the award of contracts. The government has insisted the investigations will not affect current projects.

But the replacement of almost the entire upper management will undoubtedly have an impact on the willingness of executives at the company to take responsibility for decision-making. Sonatrach has a reputation for being bureaucratic, with decisions taken only at the highest level, and this will only be exacerbated with a new team that knows it is under scrutiny.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications