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Algeria to Offer Incentives to Energy Investors

Source: Reuters 11/2/2012, Location: Africa

Algeria plans to start linking taxes on foreign energy firms to profits instead of turnover, according to draft amendments to its hydrocarbons law aimed at making the sector more attractive to investors.

The draft, obtained by Reuters, also offers fiscal incentives for companies wishing to invest in unconventional energy resources and offshore exploration. The amendments maintain state energy firm Sonatrach as a majority partner in all upstream and downstream projects.

Algeria's last three rounds of bidding for oil and gas permits attracted lacklustre interest from foreign firms, raising questions about whether it has enough new projects coming on stream to maintain output levels and meet growing demand.

In a 2008 round, just four blocks were awarded, while in 2009 only three were picked up, and last year it awarded two permits.

The goal is "to introduce new incentives to improve the attractiveness so as to intensify the exploration effort and discover new reserves of conventional and non-conventional hydrocarbons," the text of the draft read.

In addition to tax incentives, the amendments introduced specific provisions to support the development of unconventional energy resources.

Investors in unconventional hydrocarbons would be granted prospecting licenses for up to 11 years and exploitation licenses of 40 years for shale gas and 30 years for shale oil.

Conventional resource licenses were kept unchanged at seven years for prospecting and 25 years for exploitation, with a five-year supplementary period for natural gas deposits.

OPEC member and gas exporter Algeria seeks to develop technology-intensive shale gas and offshore production to help ensure security of supply in the long run. It currently favours a role for foreign oil majors in helping achieve those goals.

Sonatrach in July this year said it was in talks with Royal Dutch Shell and ExxonMobil on shale gas exploration. That followed Italy's Eni agreement with Sonatrach last year to carry out shale gas exploration. Sonatrach officials earlier this year said shale gas production could start within the next three years.

The amendments also stipulate that foreign energy firms interested in partnerships with Sonatrach in the refining sector are required to have their own storage capacity.

That comes as Algeria plans to build five new refineries with a total production capacity of 30 million tonnes per year to increase the country's refining products output to 52 million tonnes from 22 million tonnes now.

The current output is much lower than demand because of a growing number of car owners, forcing the government to approve a plan for importing 2 million tonnes of gasoil and 300,000 tonnes of gasoline this year.

Algeria, whose oil and gas sales account for about 97 percent of total exports, has said it plans to invest $80 billion in its energy sector in the next five years.

The draft amendments, which also give Sonatrach a monopoly on domestic oil and gas pipeline networks, is due to be discussed later this year by parliament, in which parties allied to President Abdelaziz Bouteflika have an overwhelming majority.

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