Algeria: These Are The Main Axes Of New Hydrocarbons Law

Sonatrach’s call, a few days ago, on public authorities to accelerate the adoption of a new hydrocarbons law, revealed the urgency of a new legislative text for the most important economic sector in the country, in light of the limited old text adopted in 2006 by the regime of the ousted president, as Hydrocarbons began a downturn that has not abated starting from 2007.

A Sonatrach document published a few days ago urged the authorities to speed up the adoption of a new hydrocarbons law to attract and stimulate foreign partnership, avert a decline in production, by forsaking the current hydrocarbons law, which does not spur the national energy sector.

In view of the amount of national production of hydrocarbons in terms of quantity (tons of oil equivalent), the relevant sector has witnessed a decline since 2007, and continued to shrink until 2019, ironically, the drop in production began only a year after the entry into force of the hydrocarbons law in force (during the Bouteflika era).

According to the new draft hydrocarbons law, of which “Echorouk” possesses a copy, the draft focused on the main axes, especially the tax and customs exemptions for many activities and measures to transfer the shares of foreign companies in the case of acquisition by other companies, in addition to the activity of handling, employment and production sharing and entailed risk .

The document provided for incentives in the tax and fiscal field, where the upstream activity (research, exploration and production) was exempted from value-added taxes (VAT) in relation to the import of goods and services directly pertaining to this activity.

This activity has also been exempted from VAT, in addition to exemptions from duties, taxes and customs rights on imports of goods and equipment, materials and products used in exploration and / or exploitation of hydrocarbons.

The document also abolished fees on bank localization related to the import of services destined for Upstream (Exploration and Production).

The new project also comprised the scrapping of taxes, duties or other charges not referred to in this heading (upstream activity), created for the benefit of the state, local communities and any legal entity in public law.

Pipeline transportation (oil and gas) has also been exempted from value added fees related to goods and services pertaining to these energy-related activities.

The new text dealt with what is known as the right of preemption exercised by the National Hydrocarbon Group “Sonatrach”, to head off the transfer of the shares of foreign companies in oil and gas fields to other companies, as it grants the right of preemption to Sonatrach, which can be exercised within a period not exceeding 60 days from the date of notification by the valuation agency Fuel Resources “ALNAFT” in request for transfer of assets.

The project included the retention of investment rule 51/49 on partnership with foreigners in point and gas projects, the same approach like the Finance Act 2019, which scrapped this rule but kept it in the strategic sectors with on focus the hydrocarbons one, with the possibility of granting deals through forward agreement contracts.

The exploration and production licenses have been extended from 2 to 7 years, which can be extended for an additional two years. The maximum duration of exploitation of oil and gas fields will be set at 32 years.

The new hydrocarbons law extended the terms of gas and oil exploration licenses from (02) in the current law to seven years, extendable for an additional two years, due to possible operations to develop shale gas fields, while the maximum period of exploitation of the fields, including the exploration phase will be 35 years.

The projected law plans to resolve disputes with foreign partners within friendly options before resorting to international arbitration.

With regard to fuel, the draft law in our possession is set to reduce fuel subsidies of all kinds in addition to electricity and gas.

The project gave preference to national (local) companies in terms of handling activities related to oil and gas projects being implemented in partnership between Sonatrach and foreigners, in addition to prioritizing the recruitment of skilled Algerian personnel in relation to their specific needs for upstream activities (exploration, research, exploration and production).