New Sonatrach chief has work to do

24 November 2011

Abdelhamid Zerguine takes over a company coming out of a turbulent two years

After two turbulent years, Algeria’s state-owned energy company Sonatrach had the opportunity to initiate fundamental changes to its operations in mid-November. Unfortunately it does not seem interested in taking it.

The government has appointed Abdelhamid Zerguine as Sonatrach’s new chief executive officer, replacing Nordine Cherouati who had been in the role since early 2010.

Algeria oil revenues
e=Estimate. Source: Sonatrach

Cherouati himself took over from the disgraced Mohamed Meziane, who was sacked, then subsequently jailed amid a corruption and embezzlement scandal at the company.

Energy insiders in Algiers say that while Cherouati has brought in “stringent governance mechanisms”, the pace of Sonatrach’s projects is sluggish to say the very least.

Since the corruption scandal, Sonatrach has witnessed bottlenecking of deals and a lack of high-level decision-making unprecedented in its history. According to insiders, getting even simple permits and procurement forms signed over the last two years at Africa’s largest company has been a struggle of epic proportions.

Mena region projects tracker MEED Projects says about $9bn of projects involving Sonatrach are officially on hold. These include the $3bn Arzew ethane cracker that is a Sonatrach joint venture with Qatar Petroleum and France’s Total.

MEED Projects says there are about $13bn-worth of projects currently being planned by Sonatrach. However, many are delayed with issues ranging from financing to not getting the requisite approvals from Sonatrach.

Delayed projects include huge midstream pipeline schemes, such as the $3bn Galsi Gas Pipeline between Algeria and Italy, and the $1.2bn Trans Saharan Pipeline between Algeria and Nigeria. Downstream has also been affected, with the $1.3bn Skikda Ethylene Complex revamp also being hit by delays due to issues with organisation.

Upstream projects are moving slight quicker than infrastructure and downstream, with several essential gas processing plant awards with values of about $150m being awarded in 2011.  

Licensing rounds for the country’s remaining hydrocarbon exploration areas are not faring quite so well. Many exploration companies have cited unreasonable terms set by Sonatrach as the cause and are looking towards what they perceive to be more welcoming governments in countries such as Kazakhstan, as well as the semi-autonomous Kurdish region in Iraq.

The move towards a more nationalised energy industry may score political points in parliament, but Sonatrach’s insistence on 51 per cent ownership of any major project is going to drive foreign investment towards other countries.

However, at the end of 2011 Algeria estimate its earnings from hydrocarbons will be $71bn, so it will definitely have the funds in place to execute all of its projects.  

Just how much power Zerguine will be allowed to wield remains debatable. It will be interesting to see how many projects start to move again and how linear the decision-making process at the company will become over the next 12 months.

Sonatrach might now be better equipped to combat corruption and embezzlement, but still needs to address its draconian ownership requirements and woeful inefficiency if it is to live up to its mantle as Africa’s largest company.

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