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Energy majors show little interest in Algerian licence offers

Algerian offshore
drill-rig at work
Algiers, Algeria — ESI-AFRICA.COM — 01 April 2011 – “The lacklustre interest from energy majors in the Algerian oil and gas acreage is due to the country’s tax rules,” a senior energy official said in the first public acknowledgement of a problem.

In a licensing round completed earlier this month, Algeria awarded only two out of 10 oil and gas permits on offer, raising questions about whether it has enough new projects coming on stream to maintain output levels. The bid round was the third in a row that has shown flagging investor interest since a new law imposed tougher financial terms.

Foreign energy executives have said the tax terms are not attractive enough, but until now Algerian officials have blamed the global economic downturn for discouraging investment.

“We know that the investors are unhappy with our tax system,” said the energy official, who asked not to be named because he is not authorised to speak to the press on the subject.

“We knew that the licensing round would not be a success, but we were forced to go forward to show that Sonatrach is not weak, and that the scandals and change of leadership did not hit it,” the official told Reuters. He said Algerian energy officials would be meeting early next week to discuss how they can revive investor interest.

Algeria is the world’s fourth biggest exporter of natural gas “’ most of it going to Spain and Italy “’ and it is also a major exporter of crude. Its energy sector was rattled last year when the chief executive of state energy firm Sonatrach was removed from his posts and put under investigation over corruption allegations. The energy minister was also replaced last year.

The two firms which were awarded permits in this month’s bid round “’ Sonatrach and Spain’s Cepsa, “’ signed the contracts at a ceremony here. The combined value of the two permits is US$220 million.