Algeria under pressure over energy industry

May 24, 2013 at 4:12 PM
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ALGIERS, Algeria, May 24 (UPI) -- Algeria's government is under growing pressure to ease its much-criticized foreign energy investment laws following this month's BP warning it may delay important projects in the North African state's gas-rich south because of security concerns.

The moves by BP and other foreign oil companies could jeopardize ambitious plans announced in November by state-owned energy monopoly Sonatrach to invest $80 billion in oil and gas projects in the next five years.

The objective is to revitalize an industry battered by a bloated bureaucracy, rampant scandals and a political power struggle between President Abdelaziz Bouteflika and Gen. Mohamed "Tewfik" Mediane, powerful chief of Algeria's DRS intelligence service.

This political crisis is gathering intensity as the country heads toward a presidential election next April that many observers say could transform Algerian politics.

Bouteflika, who was first elected in April 1990 and oversaw an end to the civil war (1992-2002) in which the military-backed regime eventually defeated Islamic militants, has sought to control the cabal of generals who are the main power in Algeria.

The isolationist generals, who oppose giving foreigners any control over Algerian affairs, particularly something as strategic as energy production, have been one of the main obstacles to opening up Algeria's energy riches.

The government announced in April Bouteflika had collapsed after a stroke and was flown to Paris for treatment. Little has been heard of his condition since but the indications are he won't be running in 2014.

Although BP cites security concerns, "BP's primary goal is to use the security threat and changes in the global energy market to push the Algerian government, which is in growing need of foreign investment and technology, to ease regulations," the U.S. global security consultancy Stratfor said.

Algeria badly needs to develop production, particularly in natural gas. It supplies about 20 percent of Europe's gas requirements but has had no major oil or natural gas discoveries for 20 years.

So, said Stratfor, BP's May 2 announcement "casts significant doubt over Algeria's ability to meet future production targets, which include a 50 percent expansion of liquefied natural gas production and exports, scheduled to be met in the latter half of 2013.

"But Algeria may not have the political flexibility to adapt its investment laws, due in part to a convoluted political system and a need to fund costly social spending programs aimed at controlling popular unrest," Stratfor noted.

"Perhaps the biggest obstacle to Algerian energy production, despite long-term, fundamental European interest, is the uncertain political and security environment in the region.

"In particular, Algeria's political system reduces the ease of addressing the other issue affecting reform in Algeria."

The government said a year ago it would amend its hydrocarbon law to attract more foreign investment to develop potentially large reserves of non-conventional resources, including shale gas production.

But three bidding rounds for new concessions have attracted lackluster interest.

The Middle East Economic Digest said this was due to "harsh terms of investment, an investigation into alleged corruption in the award of Sonatrach contracts and an unfavorable global economic climate."

Meantime, developing gas prospects in the southwest has fallen years behind schedule.

So, MEED observed, "A country that in recent years was announcing plans for a rapid acceleration in gas output is facing a stiff challenge just to maintain production."

Sonatrach has been caught in the crossfire of Algeria's political battle and has suffered heavily. Its top executives, mostly allies of Bouteflika, were thrown into prison on corruption charges.

These messy scandals have played havoc with Algeria's strategy of boosting reserves, particularly natural gas, raising production and exports, and attracting large amounts of foreign investment to pay for it all.

These efforts suffered a major setback in January when a 40-man force of jihadist fighters allied with al-Qaida in the Islamic Maghreb seized the In Amenas gas complex in the southern Sahara in apparent retaliation for French military intervention against Islamic militants in Mali.

In Amenas, which the government wants to develop as part of its expansion strategy, produces 15 percent of Algeria's gas supplies.

The Algerian army, apparently fearing the raiders planned to destroy the complex operated by Sonatrach, BP and Statoil of Norway, stormed it, killing most of the attackers and 37 captive foreign technicians.

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