Algerian power and paralysis - News for the Oil and Gas Sector

The Algerian government has set out steps intended to bring an end to the discontent that has left the country paralysed since February.

An election date has been set, for December 12, and steps have been taken to contain today’s protest in Algiers.

A vote in December will lack legitimacy, with protestors rejecting the electoral process, but the way forward appears complicated. Arrests of prominent protestors have increased in recent weeks, putting further strain on the relationship between the people and the army.

Political progress is required to allow economic progress. The country’s reserves are running down and foreign earnings from gas exports are said to have slipped by around 8% this year. Hydrocarbons account for around 20% of Algeria’s GDP and 85% of exports. The price for oil and gas feeds directly into the country’s economic outlook – and the need for change. High prices for exports would give the government time to hash out a solution to the political problems, while lower prices would shorten the amount of time available.

The people

The man in charge is Ahmed Gaid Salah, the Armee Nationale Populaire’s (ANP) chief of staff. Nominally in charge is Abdelkader Bensalah, who became interim president following Abdelaziz Bouteflika’s resignation on April 2.

Bouteflika had been in power for 20 years but had largely stepped back from public life, with rumours swirling around his infirmities. He had been due to be confirmed in an election that was to be held in mid-April but it became evident that this would be impossible in the face of mounting protests.

The resignation of Bouteflika, and the removal of his group, was supported by Gaid Salah, who as the head of the army is the most powerful man in Algeria. The army has broad support in Algeria, with many seeing it as safeguarding the will of the people. Relying on conscription provides the ANP with a broad base of support but this also sees the institution reflecting – to an extent – the will of the people.

The removal of Bouteflika led to Bensalah’s elevation. This was a constitutional procedure, moving the speaker of Algeria’s upper house into the office of the presidency. Bensalah’s term was officially limited to 90 days, though, with his mandate expiring in July. As a result, Bensalah and his cabinet lack a mandate, which has helped drive the sense of Algerian paralysis.

Gaid Salah serves as the kingmaker. He has demonstrated an eagerness to purge the government of Bouteflika loyalists, such as former prime minister Ahmed Ouyahia, and a number of high-powered businessmen have been arrested on corruption grounds.

Since the beginning of September, the government has arrested a number of prominent protestors, including Karim Tabou, who has been accused of weakening the ANP’s morale. While the protests are largely in opposition to the government, rather than putting forwards their own representatives and suggestions, Tabou was seen by some as a potentially unifying figure. His arrest demonstrates a setback for the chances of democratic change in Algeria.

Tabou is not the first to be arrested. The head of the Workers’ Party Louisa Hanoune was seized in May and the 86-year old Lakhdar Bouregaa veteran of the revolution was arrested in July.

“If there’s more repression, the people’s opinion may turn against the army. It seems that Algeria is going to be more unstable over the next five years than it was in the last five years,” Fitch Solutions’ head of MENA country risk Andrine Skjelland told Energy Voice.

The votes

Elections had been scheduled for July. These were abandoned after it became clear that they would lack legitimacy with no one able to represent the protestors. This seems set to be repeated.

Gaid Salah is faced with the challenge of finding a candidate who can gather popular support. Bensalah is unable to run. Ali Benflis may be the best option for the ANP. He has expressed a desire to run in December, after having earlier refused such a move.

Benflis served as prime minister under Bouteflika and then ran against Bouteflika in stage-managed presidential elections. In the 2014 vote, he won just over 12% of the vote, while Bouteflika won 81.5%, despite not actually campaigning.

Assuming the vote is held, the turnout is likely to be low, with people rejecting the validity of the choice. Public officials, such as mayors, have also shown some opposition to a vote and may prevent such a process from taking place.

There has been some pressure from protestors for a reworking of the constitution, as was seen in Tunisia after its 2011 revolution. The army has rejected such a move, instead appointing a six-person panel – led by Bensalah – to consider the options. This group went on to pick December 12 as the date for a vote, in a move widely seen as dictated by the ANP.

The army’s decision to block access to Algiers on September 20 in order to halt protests is seen as part of its drive towards imposing order. Political certainty is seen as a necessity to allow economic progress, with reforms urgently needed.

The reforms

Amid the political paralysis, there is a growing sense that there must be economic changes. Algeria’s cash reserves are running down and there is a new push to secure investment and even sign up external financing. What appears to be off limits, at least for now, is the option of cutting subsidies.

A drive to sell off state assets without coherent leadership is likely to lead to corruption and mismanagement, a regional analyst told Energy Voice, requesting anonymity. “There is a pressing need to rationalise spending and some appetite, but there’s a lack of political leadership. Subsidy reforms would take thought and strategy – but none of that is available and the government is unwilling to provoke confrontation.”

“There has been talk of borrowing from the international markets. Bouteflika was always opposed to such a notion but there are signs that the old guard way of thinking has passed. There is an opening. Algiers would most likely opt to borrow money externally if this allows the country to postpone fiscal reforms,” Fitch Solutions country risk analyst Axel Dalman said to Energy Voice. Sonelgaz, Algeria’s electricity and gas distributor, has said it may seek foreign financing.

Grabbing the headlines has been discussion of a move away from the 51:49 rule, under which 51% of a venture must be owned by the state, leaving the smaller 49% share for a foreign partner.

The hydrocarbons

Rule changes will come for non-strategic sectors, the head of LPA-CGR avocats Algiers office Rym Loucif told Energy Voice. Hydrocarbons – in addition to banking, insurance and telecommunications – are likely to be considered strategic.

“There are other reforms under way that will apply to the hydrocarbon sector and should make the country more attractive to foreign investors,” Loucif said. A first proposal on oil and gas laws was set out in January and a new draft in June. The changes are expected to be put into law following the election.

“The energy reforms clarify areas of uncertainty and provides some flexibility in the upstream. It reintroduces the PSC structure from the 1986 law. This was the law that most projects now producing were signed under, such as Anadarko Petroleum and Neptune Energy. It contains a pragmatic approach to taxation. Where a project’s economic outlook is threatened by taxes, it provides for tax reductions to achieve reasonable economic profitability,” Loucif said.

Changes to the hydrocarbon law became necessary following the failure of the 2014 licence round. During this offering, only four blocks of the 31 on offer were awarded.

“Foreign investors need to know whether a new government will abide by contracts. They will have to assess how secure the leadership looks,” Fitch Solutions’ Andrine Skjelland said. “It seems likely that some form of simmering social instability will linger on, but there’s also a chance of escalation and that could eventually bring about a more fundamental shift.”

Total is in the process of acquiring Anadarko’s African assets, via Occidental Petroleum. In Algeria, Anadarko was producing around 319,000 barrels of oil equivalent per day gross, making it a major player. This sale has been somewhat complicated. Initially, Algerian Energy Minister Mohamed Arkab had appeared to oppose the sale, although his tone subsequently softened. Opposition to the deal was also seen at some demonstrations.

While the sale is likely to go ahead eventually, the interim government is unlikely to take the decision to approve it. This is not unique to Total.

Algerian officials are unwilling to take decisions given the potential scope for change in the near term. This matches the attitude of potential new investors who are unsure how political changes will play out. For now, everyone is waiting and watching.

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