Algeria adopts controversial energy law

ALGIERS - Algeria's parliament Thursday adopted a controversial law aimed at boosting investment in the oil and gas sector, state media said, as activists warned that multinational companies would plunder the country's wealth.

The National Popular Assembly vote came a month after the draft legislation had been approved by the government, and ahead of a controversial presidential election, due to take place in December.

Although the text has not been officially published, the plan has stirred passions among a months-old anti-regime protest movement that fears "the nation's wealth" is being sold off to foreign oil companies.

The legislation, which still needs approval by the upper house of parliament, is opposed by the protesters who have been calling for a thorough purge of Algeria’s old guard of rulers.

The opposition and the protesters want to postpone the upper house vote until a new president is elected in the national election on Dec. 12, saying the caretaker government has no authority to draft such a strategic bill.

“We do not know why the government is in a hurry to pass this law right now. The election is only a month away,” said Khadidja Boudine from the opposition Workers' Party.

The demonstrations, which broke out in February demanding the removal of the ruling elite, already forced veteran President Abdelaziz Bouteflika to resign in April.

But the activists remain distrustful of any decisions taken by a regime that has been in place since Algeria's independence from France in 1962.

Hands of the state

Algeria is Africa's third-largest oil producer and a top 10 global gas producer. The OPEC member country relies heavily on energy revenues, but they have been falling for years and in January-September this year were $24.6 billion compared to $29 billion in the same period in 2018.

Oil and gas production in Algeria steadily declined after a previous law was adopted in 2005, as has the interest by foreign companies in Algerian resources. Companies have stayed away from Algeria due to unattractive contract terms, causing a fall in oil and gas output and export revenue, the main source of state finances.

Oil and gas sales account for 60% of the state budget and 94% of all exports, but they have been falling because of a reduction in crude oil prices since 2014 and higher energy consumption inside Algeria.

The new law introduces production sharing, participation and risk services as new types of contracts with foreign companies willing to partner with state-owned oil company Sonatrach in oil and gas projects, replacing the old concession contracts.

The law also provides tax incentives, including simplifying the whole structure of fiscal terms, and removes bureaucratic hurdles mainly by reducing administrative procedures for investors.

“The new law is aimed at achieving goals that serve the economy and national sovereignty. This law is a necessity, not an option,” said lawmaker Lahbib Senoussi from the National Liberation Front party.

The legislation has preserved the main clauses in the current law that limits foreign companies to minority stakes in oil and gas projects. Experts say that despite protesters' fears, the new law is expected to keep Algeria's oil and gas wealth firmly in the hands of the state.

While the text makes "adjustments" to the legislation, "the broad direction of Algerian policy on oil and gas is absolutely not called into question," said industry expert Francis Perrin.

It will guarantee that Sonatrach has a majority stake in all projects involving foreign players, said Perrin, director of research at the French Institute for International and Strategic Affairs.

The law aims to "make the legislative and tax framework more attractive, simple and flexible, to draw more (foreign) investments in the oil and gas sector," he added.

'Lack of credibility'

Paris-based economics professor El Mouhoub Mouhoud said everything "suggests that in this new draft law, the mineral title (rights to underground resources) stays in the hands of the state, while exploitation and investment operations can be shared".

But he added that many Algerians suspect those in power plan to hand over Algerian natural resources to foreign firms with the new law, having already "squandered" oil revenues.

"These opinions are a testament to the current government's lack of credibility in the eyes of the people," said Mouhoud.

The reforms aimed at boosting investment in the energy sector were included in the new oil and gas law as well as the 2020 budget bill.

The budget bill envisages a 2020 deficit of 7.2% of gross domestic product despite cutting spending by 9.2%. It aims to bring down Algeria's imports bill by 13.3% to $38.6 billion, and reduce the balance of payments deficit to $8.5 billion from the $16.6 billion forecast for the end of this year.

However, while it raises taxes on wealth, cars and tobacco, it keeps subsidies on fuel, basic foodstuffs, housing and medicine unchanged at 8.4% of GDP. It also changes the law to allow the government to seek foreign loans.

Opposition lawmakers voted against both the budget and the energy law and criticised some clauses seen by the government as essential to ease financial pressure.

"The government imposes a wealth tax in the absence of a list of the rich. The tax is intended for Algerians to share the burden of the austerity policy," said Lakhadar Benkhallef from the opposition Justice Front party.