Energy : New law on hydrocarbons to attract foreign investment marks the energy sector in 2019

APS - 25 December 2019

ALGIERS- The revision of the hydrocarbons law, with the aim of making energy investment more attractive in the eyes of Algeria's foreign partners, while preserving the country's sovereignty over its natural resources, was one of the most important steps that marked the Energy sector in 2019.

Faced with the decline in oil and gas production in recent years, as well as the growing increase in national consumption, the Government has opted to revise the legal framework of the hydrocarbons sector, particularly with regard to contracts and taxation. The new text essentially aims to restore the attractiveness of the national mining sector in the light of an international situation marked by fierce competition and to attract foreign companies with advanced technologies and the necessary financing for the development of natural hydrocarbon resources.

Regarding the institutional framework, three forms of contracts are introduced into the new law to ensure greater attractiveness in the sector and to save Sonatrach's financial resources for investment. As for the tax regime applicable to upstream activities, excluding prospecting activities, it consists of a 10% hydrocarbon royalty, a hydrocarbon income tax varying between 10 and 50% depending on the efficiency of the project, a profit tax at a rate of 30%, and a tax on the remuneration of the foreign co-contractor set at 30% of the gross remuneration.

In the field of non-conventional and offshore hydrocarbons, whose potential is promising in Algeria, the new law provides for reduced rates of the hydrocarbons royalty, which cannot be lower than 5%, as well as an income tax, capped at 20%. Moreover, this new legal framework broadens offshore operations and enshrines the preservation of the environment and health in terms of the exploitation of non-conventional hydrocarbons. As part of the development of renewable energy, a National Commission for Renewable Energy and Energy Efficiency has been created. It is tasked with drafting a national strategy for the development of this sector and other sectoral strategies in the field.

Concerning national sovereignty, the new law strongly preserves the national interest by submitting all contracts to the Council of Ministers and granting ownership of mining permits to the State. The law has maintained the 51/49% rule governing foreign investment in Algeria for all contracts in the strategic energy sector. In parallel with the revision of this law, the government amended the organic law 18-15 on finance laws to separate the tax regime of upstream activities related to the hydrocarbon sector from the finance laws and to give a strong signal to Algeria's partners as to the stability of this tax system.