Algeria energy official:tax law turns off investors

Thu Mar 31, 2011 6:14pm BST

Quotes

   

* Foreign firms showing little interest in bid rounds

* Company executives blame tough tax terms

* Algerian officials until now denied tax was the problem

By Lamine Chikhi

ALGIERS, March 31 (Reuters) - The lacklustre interest from energy majors in Algerian oil and gas acreage is due to the country's tax rules, a senior energy official said, in the first public acknowledgement of the 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. [ID:nLDE72G0XO]

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 they (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.

INVESTIGATION

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 CEP.MC, signed the contracts at a ceremony on Thursday. The combined value of the two permits is $220 million.

Cepsa acquired blocks 401d, 401c and 403f in the Rhourde Rouni II license area in south-eastern Algeria's Berkine Basin, covering an area of 3,034 sq km.

At the same ceremony, Algeria has also signed five gas sales agreements for exports to be shipped via the newly-completed Medgaz pipeline to Spain. Officials said the pipeline was to start commercial operations on Friday.

The sales agreements were concluded with Cepsa and fellow Spanish firms Iberdrola (IBE.MC) and Endesa (ELE.MC) (ENEI.MI) and France's GDF Suez (GSZ.PA). (Editing by William Hardy)