Minister of Energy and Mining
Washington, June 23rd 2003
Mr. Chairman,
Excellencies,
Ladies and gentlemen,
Allow me, first of all, to extend my sincere thanks to Mr. Albert C Zapanta and Richard P Holmes, respectively Chairman and Executive Director of US- Algeria Business Council who organized the meeting and kindly invited to join you here today.
It is indeed with pleasure that I accepted the invitation to attend today’s event and give you an overview of the current US-Algerian economic relations as well their forthcoming development prospects based on the vast Algerian business opportunities. I welcome this initiative aiming at enhancing bilateral co-operation and enlarging the scope of mutual interests.
Ladies and Gentlemen,
I would like, at the outset, to underscore the excellent economic and political relationships existing between Algeria and the United States. I welcome the fact that our trade relations with American corporations are highly satisfactory, particularly in the hydrocarbons sector.
The United States, for a long time now, is a major trade partner of Algeria and the total volume of exchanges, for the last four years, (including imports and exports) amount to approximately 3.5 billion dollars. Algeria is the first US trade partner in the Maghreb; at a global level the United States are our third client and second supplier.
We export essentially liquid hydrocarbons (98%); gaseous hydrocarbons, of a total value 120 million dollars, represent barely 5% of our exports of LNG and 22% of US imports of LNG. Algeria imports from the US 1.8 billion dollars of industrial products, mechanical and electrical equipment and components for its steel and oil industries (52% of the total amount for oil sector) and agricultural goods (28% of total imports).
As for the hydrocarbon sector, I won’t be able to cite all the American firms that contribute to the progress of trade relations with Algeria and that have been working in the exploration, development and services: they are all renown corporations and allow me to name few of them : BP AMOCO ARCO, EXXON, AMERADA, HESS, SCHLUMBERGER, HALLIBURTON, ANADARKO, BURLINGTON, Air Products and Chemicals, Bechtel, they do work in Algeria or in partnership in a third countries such as HUNT OIL in Peru.
US- Algeria industrial exchanges cover other sectors such as pharmaceutical products with PFIZER, food products and air transport.
The overwhelming part played by energy in our exports is such that we are trying to correct and balance this structural factor. We are modernizing and opening up our economy in order to adapt it to the globalization of trade and in so doing foster our hydrocarbon products along the value chain and at the same time promote the non-hydrocarbon production.
This is a realistic and irreversible trend for which we have taken several legal and institutional provisions, in favor of transparency and liberalization, in order to ensure a sustainable growth.
In so doing we are paving the way for more business opportunities, for direct foreign investments and all types of partnership. However, business men get to know better each other and be adequately informed about the respective trade opportunities in both countries.
I am confident that members of US-ABC will spare no efforts in pursuing this approach.
Ladies and gentlemen,
US investments in Algeria amount to four (4) billion dollars mainly in the upstream hydrocarbon sector and a small part of it is invested in the sedimentary basins of the south.
According to the US Department of Trade forecasts, this amount can fairly be doubled in three years time; we are bound to make this expectation a reality.
The volume of trade between the two countries is set to increase during the coming years following the decision of the EXIM BANK to suppress the ceiling limits of its credits, to forgo the Algerian state guaranty of non- hydrocarbon sectors and for first time, to cover (as from October 2002) non-commercial risks of Algerian SMI/SME loans granted by American commercial banks to buy goods and services in the United States.
Since the free trade zone agreement has been delayed because Algeria is not yet member of WTO, a ‘’provisional phase’’ has been established so that my country can benefit from the general preferential system (G PS) for trading with the US.
We have taking note of political Affairs ‘Under Secretary Grossman’s recent statement inviting Algerian firms to avail themselves of the TIFA bilateral agreement which offers a wide range of trade opportunities.
On the financial front, the situation has significantly improved specially for the state exports guaranty. We welcome the new American position and the confidence enjoyed by Algerian trade potentialities which materialized in September 1999 when EXIM BANK granted a 300 million dollars credit line and OPIC (the Overseas Private Investments Corporation) stated its readiness to guaranty up to 1 billion US$ of American investments in Algeria.
A decision to guaranty long term loans, without any ceiling, was taken following the visit to Algiers, in December 1999, by the EXIM BANK Chairman and since January 2000, EXIM BANK has spread the scope of its activities to non-oil and gas sectors.
Algeria’s country risk shifted from category 5 to 4, a step that has been followed by a notable reduction of its insurance premium as established by the EXIM BANK; relations between Algeria and EXIM BANK benefited from this new synergy.
EXIM BANK has shown its readiness to support SONATRACH’s financing schemes, preferably those based on a guaranteed income of the "projects financing" type; however EXIM BANK remains open to support export credits.
In February 2003, EXIM BANK agreed to a preliminary pledge of one (1) billion dollars. For Sonatrach such a preliminary pledge is a comfortable ceiling allowing the company to comply with tenders procedures and enhance competition amongst commercial banks when dealing with American suppliers.
Moreover, Exim Bank agreed to guaranty the American share (85%) of the financing (US $120 million) of the "high seas cargo loading" project [SPM] the commercial contract was concluded with the American firm FMC. It’s the BNP Paribas New York branch that was commissioned by Sonatrach to set up the financing architecture for it had been successfully selected during the public opening of financial offers. The Skikda Power Station project (800MW) was awarded to SNC LAVALIN Company on the 7th of June 2003, has benefited from a 350 million dollars guaranty for financing turbines supplied by General Electric.
Contrary to achievements on the upstream segment, progresses on the downstream part of the oil industry are slow. It is a fact that Algeria offers good economic opportunities upstream as well as outside the oil sector.
It should be noted that the US Trade Development Agency has shown a specific interest to the mines and electricity sectors in supporting the mines (ENOR) and power project (COMELEC).
US – Algerian trade relations are not at the level of our potentialities and mutual capabilities The United States favors investments in the hydrocarbon sector, particularly exploration and production and mainly in areas where the oil potential is confirmed. American firms are showing a new interest in other sectors of the economy, although this trend is to be encouraged; there are a lot of untapped business opportunities.
Apart from natural gas and oil research, prospects for developing further Algerian American relations will be based on existing industrial partnerships (revamping of LNG units, development of gas fields, petrochemical projects, maintenance and repair of gas turbines.
Ladies and gentlemen,
With its huge confirmed resources, Algeria has in fact increased its production capacity of crude oil since 19990 and doubled its gas exports. Total crude oil production will increase from 0.9 million b/d to 1.5 barrel/day in 2005. As for natural gas, exports will increase from 60 billion m3 per year to 85 billion m3 in 2010.
The prime objective of our economic policy is to ensure sustainable and constant income for the country thanks to the diversification of investments, development of activities and exports.
In the same vein, Sonatrach is considering to invest 23 billion dollars to enhance its export capacity of hydrocarbon products and promote downstream activities (petrochemical essentially) in partnership preferably or in joint ventures with interested specialized firms.
As for upstream activities, exploration and development of our reserves have significantly increased in recent years. Between 2001 and 2002 about twenty (20) contracts have been signed with foreign companies in order to intensify and extend explorations. More than a dozen firms are actively exploring fields. In this context, relations with American firms have reached a significant level and should continue developing.
During the past two years, partnership evolved and has been enhanced by the new two-tier tender procedures (technical and commercial offers) thus ensuring fairness and speeding up transactions. From now on, these last steps are clearly stipulated in the laws governing mines and electricity.
For the sake of transparency and efficiency, calls for tenders are now part of the systematic procedure followed in the mines and energy sector. Approximately twenty association contracts for exploration, development and production of hydrocarbons have been signed with successful bidders during the years 2001 and 2002.
Given the success of the bidding procedure, the same approach has been extended to others branches: procurement contracts, equipment and services.
International partnership has been a decisive leverage in favor of such remarkable increase, since 50% of our crude oil production will be achieved in partnership in the year 2005.
A large number of US corporations such as Anadarko, LLE, Burlington, Amerada Hess, Gulf Keystone participate with us in exploring, exploiting and developing important oil fields. For instance, recoverable reserves from jointly exploited fields with American companies, amount to 543 million m3 for crude oil, 46 billions m3 for gas and 25 million tons for condensat.
Associations activities will be reinforced during the year 2003 through :
Algeria has a huge hydrocarbon potential and its vast sedimentary basins are untapped; wells density is 8 per 10.000 km2 although at the global level the ratio is more than a hundred wells and in the US, the average number is 500 wells per 10,000 km2.
It is then easy to assess the magnitude of opportunities generated by the new exploration projects and development of fields with promising returns and profits for all our partners in this endeavor.
As regard downstream activities, SONATRACH’s strategy is to develop and enhance the value of hydrocarbons along with the diversification of national production and exports of oil products.
Decisions taken and important projects are the best proof of our determination to pursue such a strategy in all connected activities such as gas-electricity convergence (new power stations coupled with desalination plant, helium units, condensate refinery , news production and transportation means for NLG).
Discussions are held with potential renowned partners in order to achieve important petrochemical projects for production of aromatics and olefins in Skikda. In the same time we will rehabilitate all the refineries, modernize and upgrade them according to internationally required standards.
Algeria has undoubtedly many comparable advantages that can further the installation of new subsidiaries within the partnership formula that benefits the state budget, establishes risk sharing and distributes equal profits between partners.
The new Electricity Law and the public distribution of gas have enhanced and diversify our downstream development of gas resources. I would like just to remind that the main objectives of this new law are the following:
In order to implement this law, studies are carried out with the technical assistance of the World Bank to restructure SONELGAZ and to establish a regulatory body : CREG "la Commission de Regulation de l’Electricité et du Gaz".
The mandate, the functioning and the information system of CREG have been already defined and members appointed. This commission will be soon operational.
Sonelgaz is now a joint-stock company, run by an executive board and a general assembly of shareholders.
Subsidiaries are been put in place: two power generation companies will be established; three gas and electricity distribution firms, one power transport company and gas transportation for the local market.
In the framework of the new law, several projects for integrated sea water desalination units with power generation were launched in Arzew, Algiers and Skikda on the basis of new partnership schemes.
Downstream, we are involved in desalination program in order to alleviate water scarcity constraints specially in the region of Oran; soon the first desalination unit will be producing 90,000 m3 a day and it is coupled with a power station of 300MW capacity which is been built without any financial guaranty neither from the State nor from Sonatrach. The plant will be built and operated under the sole responsibility of a foreign supplier, under a new partnership formula, BLACK And VEACH Company, which holds 80% of the equity capital.
Other plants are to be erected, tenders are publicized for one plant in Algiers with a total capacity of 200,000 m3/day coupled with EL HAMMA power station; in Skikda, following a successful call for tender, a new power station with 800MW capacity is been built. These projects are carried out by a joint SONATRACH-SONELGAZ- Algerian Energy Company subsidiary.
As for harbors facilities, the rehabilitation works are under way in order to improve the operations of oil ports. The contract, to build a high sea loading and cargo site (SPM) for liquid hydrocarbons, was awarded to the American corporation (FMC OFEC). On the other hand, the rehabilitation of all ports facilities is planned: it is Sonatrach with a national enterprise in charge of ports will start jointly the rehabilitation and modernization works with the co-operation of a foreign company specialized in management and operation of oil ports.
Shipping of hydrocarbons and the related evacuation facilities represent an important part of regional and international co-operation that Algeria is looking for with foreign partners.
Two contracts were signed for buying two methane tankers for LNG transportation, jointly with two Japanese companies Itochi/Mitsui on the one hand, and in partnership with Norwegian ship-owner Bergesen for a total amount of 380million US$.
Both methane tankers will be delivered in 2004.
Just like the electricity sector, the Mines sector benefited from the momentum induced by the new Mine’s law passed in July 2002.
The implementation of this very attractive law resulted in granting more than 220 mining titles in 2001 and 2002 and has created 2000 jobs.
Private sector is very active in mines and quarry with 720 enterprises involved in extraction of marble, salt, aggregates and other material. The total work force is 12,700 , and the turnover is around AD 10 billion which represents 42% of total sales for this sector.
The new policy has attracted foreign investors, such Zachem company (from Lebanon) already engaged in gold exploration in the Tririne-Hanane field, after successfully biding for the feasibility studies and development of the gold field.
There are also joint venture with national companies which bring in the much needed capital and technologies, creating wealth and employment for our technicians and senior staff.
ENOR, the national gold mines enterprise, has opened up its capital to an important Australian Group (GOLD MINES) which will become the major shareholder, is resolutely involved in the development of the TIREK and Amesmassa gold mines. 300 new jobs will be created.
The national company FERHOS is another striking example of the growth potential that exists and can generate dynamism of the recently restructured economy.
Under the new mining law, FERHOS and ISPAT, the Indian company, are associated in the exploitation of iron ore fields of OUENZA and BOUKHADRA ; supply of iron ore is guaranteed and the outcome of this partnership is satisfactory: steel production has doubled , production tools and equipment are modernized, employment is maintained and the economic efficiency has improved.
Ladies and gentlemen,
SONATRACH has launched a series of restructuring projects recognized by the European Union as "a priority of regional dimension and interest". With two gas pipes already connecting Algeria to Spain via Morocco, and Algeria to Italy via Tunisia, two new ones will directly link Algeria to its European partners.
Following agreements signed respectively with Spain and Italy, two under water gas pipes will be built with our partners MEDGAZ and GALSI along with the 2 submarine electrical cables. Electrical cables plus the fiber optic links will benefit from the gas pipes installation and enhance the economics of the project.
Feasibility studies for the MEDGAZ pipe were finalized and when operating the gas pipe will have an initial capacity of 10 billion m3. Building shall start soon.
The GALSI pipe will have a similar capacity, connecting Algeria to Sardinia and will supply the northern part of Italy; the coupled power cable will have 1,000 MW capacity.
A second electric cable will connect, through Spain, the Algerian network to the European one, with a 2,000 MW capacity.
It is in the framework of the Barcelona Summit and in compliance with its own strategy that SONATRACH has undertaken all these projects. The objective of Sonatrach is to reach the final end user at the international level, particularly in Europe in co-operation with all partners along the various segments of the hydrocarbon industry.
These projects are in keeping with the final Declaration of the Euro-Mediterranean Ministerial Meeting held in Athens on the 21st of May 2003. A memorandum of understanding, to establish an electricity Maghrebian open market, competitive and transparent, has been added to the Protocol. The Energy Ministers from Morocco, Algeria and Tunisia have signed the M.O.U with the European representatives.
In the framework of the New African Development Initiative, NEPAD, Algeria and Nigeria have decided to build a new gas pipe connecting Nigeria to the Mediterranean cost. The pipe will be connected to the Algerian network and will substantially contribute to improve gas supply to Europe; it will have a positive impact on socioeconomic life in transit countries and protect the environment in eliminating flared gases.
International co-operation will have many opportunities in financing, supplying equipment and services and hopefully American firms will be present.
Ladies and gentlemen,
In this era of globalization, Sonatrach decided to redeploy its activities and diversify its portfolio in order to minimize risks.
Sonatrach strategy is to find new types of partnership and alliances at all levels, and in order to play a role on the international scene, we have launched a global re-deployment including the Tarragona (Spain) propylene production unit with the German group BASF, the re-gasification terminal in Galicia (Spain) and the co-generation power plant with CEPSA (Spain).
In Peru, SONATRACH is participating in transportation of gaseous hydrocarbons and also in upstream activities as well as in gas liquefaction.
Africa is also within the international outreach of Sonatrach, and several bilateral agreements have been signed during the last three years with Tunisia, Niger, Mali and South Africa …etc.
Such international approach is based on the need to enhance mutually beneficial partnership with international oil companies.
Upstream, SONATRACH strategy is as follows:
Discussions are been held with the Egyptian company EGPC to set up a joint venture for upstream activities to be carried out in both countries or with a third partner.
SONATRACH is currently negotiating with several companies for joint investments in Africa.
Algeria is strengthening its position as "Energy Bridge" between Africa, Europe and the rest of the world, and reaffirming its role within the "American energy initiative for Africa" as stated by Secretary for Energy, Spencer Abraham, I quote:" Algeria may become an important and secure energy supplier for the United States; it is a trustworthy ally, an important source of crude oil and one of the major world NLG producer".
Common interests underline this approach. The United States’ needs for natural gas, the reactivation of the East Cost re-gasification plants, the African Energy Initiative offer a huge co-operation prospects between the two countries.
SONATRACH has been redeploying its international activities to supply the American market; it is present upstream in CAMISEA (Peru) where it holds 21% of the gas pipe, 10% of equity participation in the field, and options in liquefaction unit in order to sell LNG to the West Cost of the USA.
To increase LNG exports from Algeria, Sonatrach has become partner and shareholder in re-gasification plants of the East Cost.
On the multilateral level, we are pursuing our common endeavor with African oil producers in order to concretize political, economical and energy programs of NEPAD and those of the African Energy Commission (AFREC). In the same vein we have enlarged the consultations process to include OPEC and OPAEC.
Within NEPAD such questions as financing economic growth and conservation of ecosystems are frequently addressed. Huge amounts of capital are needed to finance the necessary infrastructures, which are not available in the continent; the international community should bring its contribution in the larger framework of long term financing programs based on mutually beneficial terms.
Jointly with our African partners we are promoting a co-operation scheme involving private and public economic operators within and without Africa.
It is with this objective in mind that regional and continental groupings were established to enhance south-south co-operation : The African Energy Commission, was set up with the headquarters in Algiers, and The Latin - American Energy Organization, OLADE to which we adhere also.
South –South co-operation and North- South co-operation are enhanced within the framework of both organizations.
Ladies and gentlemen,
Let me express the hope that I have clearly stated the consistency and coherence of the overall Algerian mines and energy policy and that I have succeeded in convincing you about the vast range of business opportunities, partnership, alliances that it offers. Investors and American companies should benefit from the comparatives advantages given by Algeria.
The broadening and reinforcement of our bilateral co-operation require an innovative vision in order to take advantage of the existing complementarities. Promising synergies can exist if political will and imagination are decisively committed for our common interest.
For our part, we are determined to follow that path. We are looking forward to establishing soon a free-trade agreement and to conclude sectoriel accords like the promotion of investments, non double-taxation agreement; this is how best we can illustrate that determination.
I thank for your kind attention.