Sonatrach director-general Abdelmoumen Ould Kaddour regularly tours the hydrocarbons giant’s sprawling empire, rallying workers and telling journalists about Algeria’s return to producing oil and gas on a global scale, after years of corruption scandals and management inertia. On his 8 February visit to Hassi R’Mel, he announced that Sonatrach would invest $56bn in 2018-22. In an interview, he referred to discussions with Total on an unspecified $5bn project. After a long period of tensions with the French major, this is likely to be a major new petrochemicals project, giving further substance to claims Algeria is back as a force in the industry.
“We’ll give more details very soon,” Ould Kaddour promised. This might include where the money is coming from. The Algerian state, under pressure since the 2014 oil price slump, has built up arrears to its cash cow Sonatrach, Société Nationale de l’Electricité et du Gaz (Sonelgaz) and other public companies (AE 354/4). Prime Minister Ahmed Ouyahia has promised that the state will not borrow abroad to make up its deficits; rather the Banque d’Algérie will print money to repay dinar-denominated debts and fund investments (AE 354/1). As so often in its 55 years of independence, Algeria is looking inward to solve its problems.
Ould Kaddour was in Hassi R’Mel for the inauguration of a project that gives credibility to the go-it-alone policy: the long-awaited GR5 gas pipeline, linking new south-western gas fields to the export network. Not only will this provide capacity to evacuate 8.8bcm/yr of natural gas from Reggane Nord, Touat and Timimoun, but also “we’re very proud of this project because it was 100% built by Algerian enterprises”, he said. This seems a major breakthrough for a rentier state, where major engineering contracts traditionally go to international companies – even if its completion is years late.
With high rates of return Algeria can be an Eldorado for investors, billionaire industrialist Issad Rebrab told a visiting French business delegation in early February. During the visit, Ould Kaddour and Engie director-general Isabelle Kocher signed an agreement on energy efficiency and renewables for Sonatrach’s production sites. Sonatrach has previously signed agreements to develop solar with Total and Eni.
All this points to a new Algeria emerging, but it remains a fitful, sometimes painful process. Revisions to the hydrocarbons law are expected to improve terms for international oil companies – although they have been put back to at least later this year – but the ‘51/49 rule’, which limits foreign participation to 49% of equity, is expected to remain in place. A new strategy of inviting existing upstream partners into direct negotiations to boost investment makes sense, pending legal changes that will make public bid rounds more attractive. But Sonatrach will have to move carefully as it seeks to boost investment by offering companies bigger stakes in existing acreage and equity in some of the many blocks it now holds on a 100% basis (often because there were no bidders in a string of failed licensing rounds).
Politics intervene even when Sonatrach is on an apparent roll, in an opaque system where a small elite of power brokers dominate. Algeria needs much more than better Sonatrach performance to meet the demands of its young, unemployed population. Speculation around the scheduled 2019 presidential election is focused on whether President Abdelaziz Bouteflika, who turns 81 in March and is largely confined to his residence since a stroke in 2013, will stand for a fifth term. More attention is paid to presidential brother Saïd Bouteflika, Forum des Chefs d’Entreprise head Ali Haddad and their presidential clan than all opposition politicians combined. Cost of living, unemployment and other pressures mean many Algerians are angry at the way their lives are run, but barring an unforeseen event that triggers mass protests, the bulk of the 40m population are likely to keep their complaints behind closed doors.
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