Laying the foundations Hydrocarbons law

16 December 2005
The hydrocarbons law strips Sonatrach of its role as the state's hydrocarbons regulator and its responsibility for the tendering process, ends the company's monopoly over oil distribution, storage and refining and replaces its right to take a 50 per cent interest in all projects with an option to take a stake of 20-30 per cent.

'The law creates a wholly new cadre for hydrocarbons in Algeria,' Sonatrach chief executive officer (CEO) Mohamed Meziane told MEED on 7 December. 'Sonatrach becomes a player like anyone else, private sector companies are given the opportunity to be operators across the whole hydrocarbons chain and a new fiscal regime is introduced.'

Energy Minister Chakib Khelil argues that all parties will benefit from the new law. 'The new regulator will provide more efficient supervision because it is a specialist organisation,' says the minister. 'IOCs [international oil companies] appreciate the transparency of the law and its non-discriminatory approach. And the new law provides incentives for Sonatrach. The new payments system is based on profits, and greater profits will bring more revenue for both the state and the international partner. Sonatrach will be a better and stronger company because it will have a contract for each one of its fields, whereas before it was just one ball with more and less efficient fields.

'Sonatrach is very happy to see the new system in place, because it is already seeing the relationship between investment in particular fields and the results of that investment. It's the same for pipelines - Sonatrach will be rewarded for the efficiency of the system, rather than just recovering costs.'

The instruments of the bill's implementation are already in place. On 14 November, heads were appointed to the new regulatory agency and the resource valorisation agency that will take control of the tendering process and the payment of taxes and royalties.

'Of course the recruiting process and the establishment of the agencies take time,' says Khelil. 'But they are already in charge. Bills for the application of the law were drawn up with the original bill three years ago, so we don't expect any delays. There is a 90-day period between the installation of the new agencies and when they begin to sign contracts, so they will effectively be operational from 14 February. Nothing has stopped to wait for the bill - Sonatrach is carrying the ball in the transition period.'

The bill has its imperfections. 'There are better ways to optimise profits from oil and gas fields than the system being introduced,' says an analyst at a UK university. 'It doesn't remove the element of uncertainty that IOCs have when they're considering the development of a field whose profit potential may be marginal, for example. On the other hand, it is an improvement on the old system. And the new system of charges may enable company liabilities to be reduced through international agreements on double taxation.'

Local opponents of the new bill have complained that the new payments system for IOCs will eat into national resources, but Khelil denies the charge. 'There is no difference in the fiscal revenues to the state between the old law and the new law. In fact the new law addresses a number of shortcomings of the old legislation. A study we conducted showed that if the new law had been in force in 2004, revenues would have been slightly higher.'

Among IOCs, the reaction has been positive, although some have indicated that they may bide their time before diving in. 'I don't think it will necessarily take five years before the new law takes hold, as some have suggested,' says Gerry Peereboom, country manager for the UK's BP. 'Given our experiences of similar legislation in other countries, it could be two-to-three years before we know exactly what the impact of the new law will be. But it is a very positive step, and we

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