The Minister of Energy, Mohamed Arkab, said on Tuesday during the presentation of the draft hydrocarbons law before the National People’s Assembly (APN), that the exploration of new oil and gas reserves has become an urgent imperative for Algeria, hence the need for an adequate legal framework.
The suggestion of this new text aims to restore Algeria’s prominent position on the world energy market in the 1990s, thanks to the advantages offered to Sonatrach and its partners by the 1986 hydrocarbons law, the Minister explained during a plenary session chaired by APN Chairman Mr Slimane Chenine, in the presence of the Minister of Relations with Parliament, Mr Fethi Khouil.
He recalled, in this sense, that no fewer than 83 contracts had been signed under Law 86-14, 20 of which remain in force to date, adding that “following the 1991 amendment, Algeria continued to attract foreign investment with the signing of 50 research and exploitation contracts between national hydrocarbons group Sonatrach and 30 foreign partners, which also remain in force”.
In addition, Mr. Arkab, said that since the 2005 amendment, the number of new research and exploitation contracts concluded under the partnership have decreased, specifying that out of a total of 67 blocks subject to competition, since 2008, Algeria has received only 19 offers and concluded only 13 contracts.
For Mr. Arkab, “the necessity” of the draft hydrocarbon law is imposed by the decline in exploration activity in Algeria, in view of the impossibility for Sonatrach to bear the colossal costs of this activity alone in a context where domestic demand is growing at an unprecedented rate and the European market is facing fierce competition from the largest producers.
Recalling that Algeria had exhausted nearly 60% of its primary conventional reserves, he pointed out that the lack of interest of foreign companies in investing in oil exploration activities in Algeria had led to an increase in Sonatrach’s average annual investments, from USD 370 million between 2000 and 2009 to USD 1.67 billion between 2010 and 2016.
Faced with this critical situation, which could cause Algeria an energy crisis by 2025-2030 due to the great imbalance between supply and demand, the new draft law on hydrocarbons comes with new legal, institutional and fiscal measures to guarantee openness to foreign partnership, which brings its own financial and technological capacities, and to strengthen the Sonatrach, he further underscored.
Turning to the details of the provisions of this bill, Mr. Arkab indicated that the proposed legal regime guarantees flexibility in the conduct of upstream activities through different types of contracts, including the “Upstream concession” contract, which grants Sonatrach, and only Sonatrach, a concession right for the conduct of Upstream activities.
The draft law, he added, also proposes three other types of partnership contracts, namely the production sharing contract between Sonatrach and its partners, under which, in the event of oil exploration, a production share not exceeding 49% is allocated to the co-contractor for the reimbursement of its oil costs with a taxable remuneration.
It also includes the “risk services contract” and the “participation contract”, at which Sonatrach’s participation rate is set at a minimum of 51%. All these contracts must be submitted to the Council of Ministers for approval before being signed, Mr. Arkab underlined to this effect.
Regarding the institutional framework, the Energy Minister explained that the proposed text maintains the current framework consisting of the Ministry and the National Agency for the Development of Hydrocarbon Resources (ALNAFT) and the Hydrocarbon Regulatory Authority (ARH) with amendments to make the exercise of activities less restrictive and to strengthen the control of the agencies and consolidate the institutions that form them, including the Supervisory Board.
On the fiscal side, the relevant text proposes its revamping to make it more competitive, argued Mr. Arkab.