Algeria: No Change Yet for Worried Gas Companies

From Afrika

By Adam Robert Green

By targeting expatriates in Algeria’s gas sector, jihadist terrorists went for the jugular. Energy accounts for 98 percent of the country’s exports and 70 percent of tax revenue, with the In Amenas plant accounting for 12 percent of Algeria’s gas output. Hence the government’s uncompromising response, killing the captors (and, unintentionally, some of their hostages) to comprehensively dissuade other armed groups from trying their luck.

Beyond cautious statements about ‘reviewing security’ and communicating grave concern for still-missing workers, the major international oil companies in Algeria – including BP and Statoil – have not said much of substance yet about whether and how the tragedy has affected their views about the country in the long term. It is unlikely to prompt any large-scale pull out, but these events cap a longer term deterioration in the operating environment of Africa’s biggest natural gas producers, where new investment has all but dried up, with steadily decreasing numbers of successful oil round awards.

On the regulatory side, a windfall tax in 2006 marked the beginning of increased resource nationalism, says Anthony Skinner, head of the middle east and north africa region for Maplecroft, the risk management consultancy. While the government later cancelled the tax, the new draft law on oil and gas offers little grounds for optimism for companies.

Tax incentives are present, but for unconventional gas resources which state-owned Sonatrach lacks the capacity to deliver. At the same time, the draft law – in keeping with earlier regulatory measures – would strengthen Sonatrach’s role in everything from pipeline infrastructure to oil processing. “By and large, the business feeling is that it is not going to significantly improve the regulatory environment to attract conventional investment,” says Mr Skinner.

Of course, tax revenues are needed by government for its own diversification and development agenda. The government is using a portion of its revenues for a $23 billion programme of public grants, lending programmes to boost the SME sector, and a steady increase in public spending of 27 percent annually during the past 5 years. Spending on education has been particularly impressive, at 6 percent of GDP over the decade up to 2011.

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