In the revised Algerian Hydrocarbon Law, submitted to Parliament on the last week of September 2012, tax will be calculated based on the profit from a project, as opposed to the current system where tax is levied on the basis of turnover, which was a reason why investors stayed away.
Algeria is desperate to kickstart a shale gas exploration and production activity. Projects involving such resources will be largely incentivized. They will be governed by their own special provisions in the amended hydrocarbons law.
A windfall tax, levied on an investor’s revenues once the oil prices exceed a certain threshold, will remain. Some foreign majors have disputed the tax, but the source said such taxes are standard practice throughout the world.
Sonatrach will continue to have at least a 51-per-cent stake in new projects, but this time it will carry a bigger share of the risk if the project is a failure.
It’s important to understand the context in which Algerian energy technocrats pushed through these revisions in the Hydrocarbons Law, which had led to years of underinvestment in the country. The politicians and, especially the military, who hold the levers of power in the country are much more interested in laws that get the most tariff for the state.