Contractors hoping for fresh start in Algeria

25 January 2012

Investors wait for new Sonatrach head to restore confidence

Algeria has $21.8bn-worth of projects at the study, design or tender phase in the oil, gas, petrochemicals and industrial sectors, according to regional projects tracker MEED Projects.

The majority of these projects are progressing slowly after a corruption scandal at the state-owned oil company Sonatrach in 2010. Sonatrach is key to Algeria’s diversification plans and through holding companies, it has a stake in the majority of industrial enterprises, from oil and gas, petrochemicals and fertiliser plants, to mining of metals and minerals, and renewable energy.

Algeria gas production
Year(Billion cubic metres)
Source: BP

The investigation into the corruption resulted in Mohamed Meziane, former chief executive officer (CEO) of Sonatrach, being sentenced to two years in prison. Several executives and senior members of the firm were also jailed.

The impact of the scandal was a slowdown in the award of contracts in the past two years. According to MEED Projects, about $12bn-worth of schemes across the oil, gas, petrochemicals and industrial sectors are on hold, with a further $6bn cancelled.

“In 2009, a lot of contractors had identified Algeria, along with Saudi Arabia and the UAE as a key market for projects,” says a senior official from an international contractor. “This has turned out to not be the case and even the projects under execution are moving a lot slower than anticipated.”

Despite the slowdown, Algeria currently has $38bn-worth of projects under construction, according to MEED Projects. The vast majority of these schemes are in the oil and gas sector, especially gas infrastructure. Refining and fertiliser projects also figure prominently.

Algeria has huge gas reserves of 159 trillion cubic feet and is regarded as a key energy partner for southern European countries such as Spain, Italy and Croatia.
Two large gas pipeline projects, the $3bn Hassi Rmel to Europe pipeline and the $1.2bn Trans Saharan that will transport gas from Nigeria are making slow progress, but are still ongoing.

The big losers are in the petrochemicals and heavy industry sectors, especially metals. Despite Algeria’s huge gas reserves to drive investment in these sectors, schemes worth $15bn are on hold or cancelled.  

Recent changes to company ownership rules in Algeria are also making it difficult to attract foreign investment into the country. Sonatrach now expects to take a 51 per cent stake in any project in the heavy industry sectors.

Large scale Sonatrach joint ventures on hold include the $3bn Arzew ethane cracker, the $5bn Beni Saf aluminum smelter with the UAE’s Emirates Aluminium and the $2.5bn Jijel steel complex with Luxembourg’s ArcelorMittal.      

It will be interesting to see what direction new Sonatrach CEO Abdelhamid Zerguine will take. Contractors working in Algeria hope the new leadership will fast-track decision-making at the oil giant and that the depressed market of the past two years will now begin to ease.

So far it is too early to tell.  

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