UPDATE 1-Algeria says to revise tax on some energy projects-paper
* Changes aimed at reviving flagging foreign investment
* Minister says planned gas route to Italy under review
* Equipment fault reducing Arzew refinery output:minister (Adds background, comments on export pipeline, refinery)
By Christian Lowe
ALGIERS, April 11 (Reuters) - OPEC member Algeria plans to change the way it levies tax on some energy projects so that foreign oil companies pay tax on profits they make from the projects and not on turnover, a newspaper quoted Energy Minister Youcef Yousfi as saying.
The minister also said a decision would be made on the planned Galsi gas pipeline to Italy by the end of the year after a review of its feasibility and that technical problems would reduce output for up to three months at the Arzew refinery.
Algeria has promised changes to its tax regime to make the country more attractive to foreign energy companies after three consecutive bid rounds for oil and gas acreage failed to attract much interest.
Yousfi, quoted by the online edition of the El Khabar newspaper late on Tuesday, said the new tax mechanism would apply only to oil and gas projects that are not currently in production and are considered high risk.
"The tax imposed will be based on their profitability of the projects, not as before, based on turnover," the newspaper quoted Yousfi as saying in an interview.
The changes are included in draft amendments to the hydrocarbons law drawn up by the energy ministry.
A ministry working group has now finished drafting the amendments, Yousfi said, and presented them to the government for approval. The next stage will be for parliament to vote through the amendments.
Foreign energy executives have said the terms stipulated by the current hydrocarbons law are not attractive enough for them to buy into Algerian acreage.
The shortage of new exploration projects has led some analysts to question whether Algeria can meet its natural gas export targets over the next few years and fill new pipeline capacity which is scheduled to come on stream.
In the interview, Yousfi suggested there were now serious questions over the Galsi pipeline.
The 8 billion cubic metre pipeline had been scheduled for start-up in 2014, but since it was given the go-ahead, European demand for natural gas has slumped, changing the economics of the project.
The project is not canceled but the partners need to "know the scale of demand in Italy and the size of the market," the newspaper quoted Yousfi as saying. "We hope there will be a final decision on the project by the end of the year."
The project has already faced delays because of concerns about the route and hold-ups in obtaining approvals from the Italian government and local authorities.
Partners in the Galsi project include Algerian state energy firm Sonatrach and Italian utilities Edison, Enel , and Hera.
Algeria already provides Italy with about 35 percent of its imported gas. Most of it comes via an existing pipeline, which passes from Algeria into neighboring Tunisia and then under the Mediterranean Sea to Italy.
Yousfi was also quoted as saying that Algeria's Arzew refinery will operate below full capacity for another two to three months because of problems with equipment used for gasoline production.
The refinery, which also produces diesel, was partially closed for several months for maintenance and improvement work. Energy officials previously said it would re-start around the middle of February.
Yousfi said work was under way to repair the faulty equipment at the refinery. Refinery outages in the last few months have prompted Algeria to increase the number of shipments of refined products it imports. (Editing by Bob Burgdorfer)
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