Abu Dhabi, UAESunday 15 December 2019

Algerian bill seeking foreign investment in energy sector passed

Reforms still need to be passed by upper house and face opposition

An oil installation on the outskirts of In Amenas, deep in the Sahara near Algeria's border with Libya. Lawmakers in the lower house of Algeria's parliament have passed a bill aimed at attracting more foreign investment in the country's oil and gas sector. AFP
An oil installation on the outskirts of In Amenas, deep in the Sahara near Algeria's border with Libya. Lawmakers in the lower house of Algeria's parliament have passed a bill aimed at attracting more foreign investment in the country's oil and gas sector. AFP

Algeria's lower house of parliament approved reforms on Thursday that will encourage foreign investment in energy projects, allow foreign investors to take majority stakes in non-strategic sectors and enable the government to seek loans overseas.

The reforms, included in a new oil and gas law and the 2020 budget bill, still need to be passed by the upper house and face opposition from a large, sustained protest movement in Algeria.

The oil and gas law aims to bolster the country's energy production capacity by bringing in foreign oil companies, which have stayed away due to unattractive terms, to work with state producer Sonatrach to boost oil and gas output.

Oil and gas sales account for 60 per cent of the state budget and 94 per cent 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 energy law introduces production sharing, participation and risk services as new types of contracts for companies partnering Sonatrach, replacing the old concession contracts.

It provides tax incentives, simplifies the structure of fiscal terms, and reduces administrative procedures. But it continues to limit foreign companies to minority stakes in oil and gas projects.

The bill, however, is opposed by protesters who have been on the streets since February, demanding a purge of the old ruling hierarchy and an end to corruption. They do not believe the interim government, which has ruled since they forced veteran president Abdelaziz Bouteflika to step down in April, should pass any major laws.

Tens of thousands of people are still marching each week.

The budget bill envisages a 2020 deficit of 7.2 per cent of gross domestic product despite cutting spending by 9.2 per cent. It aims to bring down Algeria's imports bill by 13.3 per cent to $38.6 billion (Dh141.8bn), 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 per cent of gross domestic product. It also changes the law to allow the government to seek foreign loans.

Opposition lawmakers voted against 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.

Algeria's crude oil sales fell during the first nine months of this year to $24.6 billion, from $29 billion in the same period of 2018.

The upper house must vote on the bills in the coming weeks but the timing of them then being signed into law would still be in doubt due to a December 12 presidential election, which the protesters are demanding should be cancelled.

Updated: November 14, 2019 09:41 PM

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