Algeria Tightens Rules for Foreign Energy Investors 

OPEC member Algeria, confirming a sharp shift toward resource nationalism, toughened terms for foreign energy investors yesterday by curbing their role in production and imposing a windfall tax on surplus profits.

The provisions, reversing a previous energy liberalization, require state energy firm Sonatrach, Africa's largest company by revenue, to take a mandatory 51 percent stake in all exploration and production ventures. The regulations, posted on the government gazette website, also impose a new tax on foreign oil firms of between five to 50 percent whenever Brent crude oil trades above $30 a barrel.

Their publication is the latest in a spate of moves sweeping the international energy sector in which oil and gas producers from Bolivia to Britain, emboldened by high energy prices, have tried to keep as much output and revenue for themselves.

It is a bold change of direction for a country once feted as one of the most welcoming for foreign energy investors.

Algeria approved a liberal energy law in July 2005 that downgraded Sonatrach's role in the oil and gas sector and gave more scope for foreign energy companies to invest and produce in Africa's second largest country.

But in July 2006 the government dismayed foreign investors by abruptly changing course and saying it planned to issue amendments to safeguard the role of Sonatrach and keep as much oil as possible in the ground for future generations.

Commentators suggested the government had been influenced by the high price of oil and had decided that it no longer saw an urgent need to maximize production and revenues - a need that was uppermost in officials' minds when the law was first conceived in 2000, a time of far lower prices.

"Obviously, the idea behind amending the law is to retake control over the energy sector, and use it as a tool to strengthen Algeria's position internationally," said Lies Sahar, an oil specialist at top French language daily El Watan.

"I have no doubt that international companies present in Algeria will continue to make good profits, though they may show some concern over the windfall taxes," he said.

Early private reaction from international companies was not so sanguine. "The devil will be in the details," one senior executive said. "There's a ton of unanswered questions, such as how do you qualify for the low rate of five percent on the windfall tax. What stops Sonatrach from taking 99 percent of a venture?"

Another executive said that the provisions appeared to refer mainly to oil and did not spell out sufficiently how the measures would affect the gas sector.

The terms give Sonatrach even more prominence in Algeria's energy sector. Traditionally, the firm has had the right to take 51 percent of a given venture, although in practice its share has sometimes been smaller than that.