Controversial energy law fuels anger in Algerian streets

Controversial energy law fuels anger in Algerian streets

/ Policy & Regulations / Sunday, 17 November 2019 07:39

A draft law on Algeria's oil and gas sector has been met with hostility by an anti-regime protest movement that fears “the nation's wealth” is being sold off to multinational companies. But experts say the pushback from the streets is not entirely justified, seeing it rather as a symptom of the distrust that dogs any decision taken by authorities deemed “illegitimate” by opponents.

For nearly nine months Algeria – Africa's third-largest oil producer and a top 10 global gas producer – has been swept by an unprecedented popular movement challenging a regime in place since independence from France in 1962.

The draft energy law, which has not been officially published, was sent to Algeria's cabinet on October 14. Since then, it has been added to the protesters' list of grievances with the ruling class, seen by demonstrators as “thieves” that have “plundered” the country's wealth.

“You sold the country, traitors,” demonstrators cried last week as lawmakers began discussing the draft law.

The bill is expected to be put to a vote, roughly a month ahead of presidential elections also widely rejected by the street.

Many Algerians suspect those in power of handing over natural resources to foreign companies with the new law, having already “squandered” oil revenues, said El Mouhoub Mouhoud, economics professor at Paris-Dauphine University.

“These opinions are a testament to the current government's lack of credibility in the eyes of the people.”

Nevertheless, Mouhoud added, 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” more favorably than before for foreign investors.

'Lack of legitimacy'

Francis Perrin, director of research at the French Institute for International and Strategic Affairs (IRIS), said that while the text makes “adjustments” to the legislation, “the broad direction of Algerian policy on oil and gas is absolutely not called into question”.

The law will continue to guarantee that state-owned oil company Sonatrach has a majority stake in all projects involving foreign players.

It aims to “make the legislative and tax framework more attractive, simple and flexible, to draw more (foreign) investments in the oil and gas sector,” said Perrin, who is also a senior fellow at the Policy Center for the New South in Morocco.

The text reshapes taxation, notably with a fixed 30-percent tax on profits and the elimination of a tax on windfall gains.

For Mouhoud, anger in the streets “has crystallized against the law” because of a perceived “lack of legitimacy of the current government”.

The cabinet was named by former president Abdelaziz Bouteflika two days before he resigned in April under pressure from the street, “rendering suspect everything that comes from it,” Mouhoud said. “There is total suspicion of every bill.”

'Politically risky'

In this volatile context, remarks made by Energy Minister Mohamed Arkab at the start of October on past discussions with five major oil companies on necessary legislative changes sparked a backlash.

Protesters took the consultations to mean that the draft law was dictated by big multinationals, despite Sonatrach insisting in September on the urgent need for new legislation to boost partnerships with foreign companies.

Since the adoption of the current law in 2005, oil and gas production has steadily declined, as has foreign companies' interest in Algerian resources.

In the absence of partners, Sonatrach alone bears the risks and steep investments – amid low oil prices – in seeking new deposits.

At the same time national consumption is on the rise, making exploration crucial.

Perrin said these factors “could lead to a deficit of gas supplies” by the next decade.

He said the authorities have become aware of the risk of “serious difficulties over time for the country”, as the sector represents 95 percent of export revenue.

“That said, it is politically risky for a government deprived of the necessary legitimacy to tackle such a sensitive issue.”

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