2005 USABC Energy and Water Symposium (Round II)

Hotel Sheraton, Algiers, Algeria, June 04, 2005.

Opening remarks by Dr. Chakib Khelil, Minister of Energy and Mines

Ladies and Gentlemen,

I am honored to welcome you to this second round of the USABC Symposium on Energy and water. All echoes I had about the first round of this Symposium, held last March in Houston, indicate it has been a successful event. I am confident that this round, under the same theme of "Resources management solutions and opportunities through Algerian ?American partnership" will contribute to strengthen this partnership and to enhance trade and investment between the two countries.

Energy has always played a key role in human development. Such a role is more visible in modem times. For Algeria, energy resources endowment in the form of hydrocarbons has a paramount economic significance, which you all are well aware of.

Oil and gas resources are fuelling the Algerian economy in terms of export revenues but also, as the quasi unique energy source to meet power generation, transport, industry and residential users growing needs.

I would like to take this opportunity to inform this audience that the national energy system has shown a great degree of reliability, throughout more than forty years of its history. Contractual commitments to our foreign customers have always been kept, in terms of volumes supplied, regularity of delivery, product qualities and respect of pricing clauses. This may appear obvious to many. May I here stress that such achievements were also observed during the hard times my country experienced during the 1990's. During that same decade, the energy system managed to meet the needs of the Algerian economy and population, with a remarkable performance: neither petroleum products shortages, nor any significant black outs were registered.

These two great achievements both at domestic level and towards foreign partners, illustrate more than any other indicators the reliability of Algeria, not only as source of energy supplies but also as a business partner.

Let me now say a few words about reforms currently underway in the energy and mining sectors of this country.

Endowed with significant oil and gas resources, Algeria has initiated since the turn of the century ambitious reforms of its mining, electricity and hydrocarbons industries.

The mining law and the law on electricity are now gradually implemented. Independent regulatory agencies are already operational, issuing regulations and taking decisions on concessions permit delivery for mining and pricing of electricity.

Such developments ? reform wise ? are to be strengthened with the objective to create a transparent and efficient domestic electricity market, in the medium to long term.

Within the same electricity sector, regulatory and institutional framework is being put in place to promote power generation development for export, primarily to European markets.

Moreover, a critical milestone for the energy sector was the recent adoption by the Algerian Parliament of the hydrocarbons bill, which is to be promulgated as the law on hydrocarbons, soon to be published in the Algerian official gazette. An English version is being prepared for our English speaking partners.

This law, of which an early version has been debated in length at every level and segment of the Algerian society over the last few years, has many merits. I would like to underline, some for your attention.

? It allows the Government to regain its prerogatives in the upstream policy implementation, previously delegated to the national oil Company. Such role will now be devoted to a Government agency, defined as the National Agency for Contracts "AL?NAFT" in charge of bidding, concluding and supervising contracts with E & P investors. This agency funds its budget through a levy from the royalties paid on hydrocarbons production, and thus is independent financially from the Government Budget: It will have the means and capabilities to fully attaining its target of promoting the hydrocarbons domain, while properly supervising the activities of investors.

Another independent agency, defined as the Regulatory agency for hydrocarbons "ARH", will be in charge of supervising the HSE aspects, as well as nondiscriminatory use of the pipeline transport system.

? It offers a more efficient and transparent fiscal system, aimed to be competitive in the global drive for E&P investment.

One feature of this fiscal system is that it offers the possibilities of "consolidation" of income tax, between E&P activities and downstream investments, and thus encourages development of the latter.

This is in addition to a very attractive pricing of natural gas and oil products, locally.

This symposium focus is the US Algerian Partnership in the field of energy and water, and I would like at this juncture to shed light on some aspects of this relationship.

Cooperation between the two countries in the field of hydrocarbons and energy gained a solid momentum over the recent years. Presentations during the first round of this symposium, held last March, highlighted these encouraging developments, in different branches of the energy industry, Le hydrocarbons, electricity (including combination of power generation and water desalination). As you know, such momentum has been observed both at the political level, as well as at the business level.

The United States is an important destination for our oil and gas exports. Algerian Government wants to strengthen such trade relationship, under free market principles.

Algerian oil and gas output is expanding with the involvement of US companies and it is our wish that bilateral trade increases to meet a bigger share of the ever growing US energy needs. Thus Algeria will contribute to enhance security of energy supplies, which is such a critical issue for the US.

Besides its hydrocarbons resources, Algeria enjoys a high potential for renewable energy that it has the ambition to develop, with foreign partnership, and in particular with the US. The development of this potential, notably the vast "reserves" of solar energy would have numerous welcomed consequences for Algeria, its partners and the global community as a whole.

Let me emphasize that development of solar power generation could spare substantial volumes of oil and particularly natural gas, which could be exported to the United States. The positive consequences are double: first by reducing fossil fuel burning, it will reduce Greenhouse Gas (GHG) emissions, while also contributing to improve energy supplies to the US. There are multiple avenues to explore such perspectives and we are looking for partnership with the US companies and the US Government for support.

I wanted my remarks to be brief on the US ? Algeria trade and investment in the hydrocarbons sector, because such developments are well known to most of you here, and they are overall satisfactory.

However, my personal wish ? and that of the Algerian Government ? is that our partnership needs to expand beyond the hydrocarbons and energy to other sectors on the national industry and economy.

Algeria is striving to develop a free market economy with a leading place for the private sector. Hence, bold privatization objectives are set for the short to medium terms. We hope that the US Companies will be more involved in that program. The US Algeria Business Council can play a significant role, in terms of information towards the US business community.

Before moving to my concluding remarks, let me comments on some issues, which I have come to from my experience over the recent years with the US companies active in Algeria.

First, I would like to express my satisfaction in relation to the scale of investment achieved by the US companies in Algeria, as well as to the steady engagement and support of the US Government towards that objective. We wish that such trends be strengthened and that investments continue to expand along our ambitious program for energy resource development.

As you all know, to be successful, a partnership has to be built with a long term vision, with full commitments to the principles founding a mutually beneficial partnership. I would like to quote here one of the speakers of the first round of your symposium, when he stated: "The rule of law and the sanctity of contracts underpin any successful partnership". Let me confirm to you that we are fully committed to these principles and to their spirit.

However, I have to say that recent experience shows that some of our business partners involved in the hydrocarbons E&P activities, have not always abided by these principles.

Doing business in a foreign country entails that investors observe ? in good faith ? their contractual obligation, as well as the spirit of their contracts, but also the laws and rules of the host Government whenever they apply. Unilateral decisions, even if not explicitly forbidden in contracts) should be avoided if they are harmful to the partner.

Cooperation is a two way street, and cooperation with Sonatrach in Algeria, entails full consideration and respect when this same relationship happens abroad.

I would like to add that, even if a company happens to be acting within the limits of its contracts, it should refrain from any move which could be seen as an abuse from a dominant position, within a given segment of the industry or in a given geological basin or producing areas.

As far as I know, and US businessmen know better than I do, American laws do not allow such practices where a strong player in a given business tries, through various indirect ways and means, to reduce potential competition. Such practices are not allowed, whether under anti?trust laws or others.

I wish that companies operating in Algeria abide by such spirit, even if the Algerian laws and/or the contractual settings with those companies do not refer explicitly to such practices.

This being stated, I am convinced that the US companies, and the US business community in general, have the capacity and are far sighted enough to avoid such practices.

The Algerian economy is growing at strong pace. The Government is taking bold moves to consolidate this growth on a sustainable path. Privatization program and enhancement of foreign investment legal and institutional framework are moving forward, as illustrated by the adoption of the hydrocarbons law recently.

Against this background, our aim is to strengthen economic ties with the US. We believe that the US business community can have stronger involvement in Algeria and we are sparing no efforts to that end.

I am optimistic about the relationship between our two countries in other sectors of the economy, which can and should expand, as has been the case for the hydrocarbons sector.

Thank you.