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1 THE EVOLUTION OF ALGERIAN HYDROCARBON LEGAL REGIME AND THE NEW PERSPECTIVES.

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Presentation on theme: "1 THE EVOLUTION OF ALGERIAN HYDROCARBON LEGAL REGIME AND THE NEW PERSPECTIVES."— Presentation transcript:

1 1 THE EVOLUTION OF ALGERIAN HYDROCARBON LEGAL REGIME AND THE NEW PERSPECTIVES

2 2 SOME FIGURES

3 3 Shape of hydrocarbon reserves The volume of recoverable reserves of crude oil have increased by: –25% between 1990 and 1995 –13% between 1995 and 2000 The production has increased by: –10 % between 1990 and 1995 –13% between 1995 and 2000 end 1990 Produced 56% remaining 44% End 2000 remaining 50% Produced 50% end 1995 remaining 50% produced 50%

4 4 Shape of Hydrocarbon reserves The volume of recoverable reserves of natural gas have increased by: –14% between 1990 and 1995 –15% between 1995 and 2000 The production has increased by: –69 % between 1990 and 1995 –40% between 1995 and 2000 à fin 1990à fin 2000 à fin 1995 remaining 76% Produced 24% Remaining 84% produced 16% remaining 70% produced 30%

5 5 During the last decade the renewal of the reserves has required an exploration investment of $3,2 billion: $3,2 billion en cours 27% Dry 16% positifs 57%

6 6 The development of these new reserves has required an investment of $8,9 billion: SH 31% partners 69%

7 7 MAIN STEPS IN THE EVOLUTION OF LEGAL FRAMEWORK 1- PERIOD BETWEEN 1986 AND 1991:THE FIRST VERSION OF THE LAW 2- PERIOD BETWEEN 1991 UNTIL TODAY: THE AMENDMENTS TO THE LAW OF THE PERSPECTIVE OF A NEW LEGAL FRAMEWORK

8 8 1- PERIOD 1986 / 1991: FIRST VERSION OF LAW OF 1986

9 9 Some principles of law of 1986 Property of hydrocarbon Reserves ==> Nation Exploration /exploitation Activities ==> State ’s monopoly Performance of these activities by state companies which may choose to be associated with a foreign oil company

10 10 Some principles of law of 1986 Performance of activities submitted to the mining licences granted only to a state company. Possibility of entering into partnerships only with foreign companies 4 forms of association contracts autorised by the law specific tax system

11 11 Some principles of law of 1986 Obligation for any foreign investors to enter into Exploration contracts with Sonatrach Partnership on the already discovered fields not autorised Maximum limit of the partners’ share : 49 %

12 12 Some principles of law of 1986 Monopoly on transportation by pipeline Entitlement only to liquid hydrocarbons (equity) no equity on gas no recourse to the arbitration

13 13 Some tax aspects of law of 1986 Royalty from 12.5 to 20% Income tax from 65 to 85%

14 14 PERIOD 1991 UP TODAY

15 15 PERIOD 1991/TODAY: Amendments to law 1986 to allows: Recourse to the Arbitration Extension of partnerships to the appraisal and/or the development of the existing fields Possibility to have equity on gas

16 16 PERIOD 1991/TODAY: Amendments to law 1986 to allows: Possibility for foreign companies to build and to exploit transportation pipe lines Reduction of the royalty ’s right to 10% and to 42% for the income tax Possibility of Tax Credit in the countries of the investors

17 17 MAIN ASPECTS OF THE LEGAL FORMS OF CONTRACTS

18 18 LEGAL FORMS OF CONTRACTS PARTNERSHIP Production sharing contract (PSC) Risk service contract (RSC) Joint venture company (JVC)

19 19 PRINCIPLES –Sharing the rights and obligations up to their rate of participation. –SONATRACH’s participation must be at least 51%. CHARACTERISTICS –Exploration risk supported entirely by the partner –Sharing the production at the field –Each partiy pays a royalty and the oil tax on its share. –The investor finances the whole exploration investment –In case of a conmmercial discovery. SONATRACH reimburses 51% of such investment. Form of partnership

20 20 PRINCIPLES –As reimbursment of its expensesand remuneration, the partner receives a share of the production at the loading port free of all taxes. CHARACTERISTICS –The share of the partner cannot exceed 49% of the global production of the relevant field. –Exploration risk supported by the partner. –All or part of the geological and industrial risk supported by the partner. –The partner’s share of profits is free of tax. SONATRACH pays on behalf of the partner a tax on profit which rate equals the general income tax. Form of production sharing contract

21 21 PRINCIPLES –As reimbursment of its expenses and remuneration, the partner receives a payment in kind or in cash free of tax. CHARACTERISTICS –RSC Allows to chose the risk to be supported by the partner. –The payment depends on the risk taken up by the partner. –The partner do not have any equity on the field or the production Form of risk service contract

22 22 Depending the form of the contract, the share of the production of the investor is delivered: – At the field, as part of the production.In such a case the association will have the form of a “partnership”. –At the port of loading, as part of the production free of tax. In such a case the association will have the form of a “production sharing contract” (PSC). –As a payment in cash or in kind free of tax. In such a case, the association will have the form of a “risk service contract”(RSC).

23 23 TAX LIABILITY –The royalty over the whole production and the b oil tax on the result have to be paid:.by SONATRACH when it operates alone or in association in the form of a “production sharing contract” or a “risk service service contract” By SONATRACH and the investor in prorata of their participation when the association is a “partnership” –For the purpose of tax credit, The investor is liable for the paiement of the tax on its profit in case of a PSC or RSC. SONATRACH have to pay such tax on behalf it.

24 24 PRODUCTION ALLOCATION METHODOLOGY: PSC EXAMPLE

25 Production sharing contract: distribution of the production COST OIL COST OIL PROFIT PROFIT OIL OIL

26 Production sharing contract : distribution of the production Production destined to royalty, costs then profit sharing. Distribution between the State, SONATRACH and the partner royalty state Transport costs partner + eventually SONATRACH operating costs Partner + eventually SONATRACH Investment reimbursement partner + eventually SONATRACH Partner’s net profit partner SONATRACH’s part of profits SONATRACH + state

27 Production sharing contract sharing profit oil COST OIL COST OIL Net profit of partner Tax on profit IDP net profit share of SONATRACH PROFIT OIL PROFIT OIL Gross profit of partner Gross profit share of SONATRACH

28 Definition of the state revenues The State revenues are the value of the production after deducing: –The transport costs –The exploitation costs (operating costs and reimbursements of investments), reimbursement Of the costs transport Operating costs Reimbursement of the investments State revenues

29 Sharing the State revenues The state revenues are shared between: –The partner as profit –The state as royalty and tax –SONATRACH as net profit Partner taxes Royalty State SONATRACH

30 30 ROLE OF SONATRACH UNDER THE LAWS OF 1986 AND 1991

31 31 SONATRACH ’s DOUBLE ROLE IN THE CURRENT REGIME REPRESENT THE STATE VIS AVIS THE OIL COMPANIES ROLE OF ANY COMMERCIAL COMPANY CONSEQUENCES: JUDGE AND PARTY

32 32 RELATIONSHIP BETWEEN THE ACTORS UNDER LAWS OF 1986 AND 1991 STATE SONATRACH FOREIGN COMPANY

33 33 PERSPECTIVES OF THE DRAFT OF THE NEW LAW TO IMPROVE THE CURRENT LEGAL FRAMEWORK TO: Elaborate a more simple and attractive contractual system. Give Sonatrach the possibility to be only a commercial entity.

34 34 THE DRAFT OF NEW LAW: MAIN PROVISIONS

35 35 SCOPE AND OBJECTIVES OF THE DRAFT

36 36 SCOPE OF THE DRAFT  COVERS ALL UPSTREAM AND DOWNSTREAM ACTIVITIES EXCEPT NATURAL GAS DISTRIBUTION (GOVERNED BY ELECTRICITY LAW)   OPEN ALL ACTIVITIES TO ALL INVESTORS : - PRIVATE OR PUBLIC - NATIONAL OR INTERNATIONAL

37 37 PRINCIPAL OBJECTIVES (1) qESTABLISH COMPETITION IN A FREE MARKET qIMPROVE ENVIRONMENTAL STANDARDS qPROVIDE CLEAR, SIMPLE, & COMPETITIVE FISCAL REGIME & CONTRACTUAL CONDITIONS qSEPARATE GOVERNMENT AND COMMERCIAL ROLES

38 38 PRINCIPAL OBJECTIVES (2) qDECONTROL PRICES qPROVIDE RATIONAL EXPLOITATION SECURING OPTIMAL CONSERVATION qENABLE SONATRACH TO FOCUS ON ITS COMMERCIAL ACTIVITIES

39 39 THE ACTORS

40 40 THE ACTORS Ministry in charge of hydrocarbons 2 Agencies Sonatrach Others investors

41 41 THE ADMINISTRATION: MINISTRY IN CHARGE OF HYDROCARBONS  ISSUES LAW ENFORCEMENT TEXTS AND MODEL CONTRACTS  APPROVES E&P CONTRACTS  ISSUES PIPELINE CONCESSIONS

42 42 TWO INDEPENDANT AGENCIES  LEGALLY, ADMINISTRATIVELY AND FINANCIALLY INDEPENDANT  BUDGET APPROVED BY THE MINISTRY FUNDED FROM PART OF THE ROYALTIES PLUS FEES FOR SERVICES

43 43 FIRST AGENCY: REGULATION AUTHORITY..  CONTROL THE APPLICATION OF THE REGULATION FOR UPSTREAM AND DOWNSTREAM (TECHNICAL ISSUES, HSE, NORMS AND STANDARDS)  MAKES RECOMMENDATIONS FOR THE AWARD OF PIPELINE CONCESSIONS  SEES TO THE APPLICATION OF THE REGULATIONS GOVERNING TPA FOR PIPELINES AND STORAGE FACILITIES  ISSUES CONSTRUCTION & OPERATING PERMITS FOR DOWNSTREAM ACTIVITIES

44 44 SECOND AGENCY : ALNAFT..  PROMOTES E&P INVESTMENT  MAINTAINS AND UPDATES NDB  CONDUCTS TENDERS FOR E&P BLOCS, IN VIEW OF CONTRACTS AWARD  SIGNS E&P CONTRACTS AND OBTAINS MINISTRY APPROVAL

45 45 … ALNAFT  APPROVES DEVELOPMENT PLANS AND ANNUAL I & E PROGRAMS  COLLECTS ROYALTY AND SEES TO PAYMENT OF OTHER TAXES  SECURES EASY ACCESS TO INFORMATION REGARDING GAS MARKETS

46 46 THE STATE COMPANY: SONATRACH  TO BE TREATED LIKE ANY OTHER INVESTOR  TO FOCUS ON ITS COMMERCIAL VOCATION  TO FINANCE ITS PROJECTS WITHOUT STATE GUARANTEE  TO CONTINUE TO ADMINISTER THE CONTRACT ALREADY CONCLUDED

47 47 THE INVESTORS ANY LEGAL ENTITY HAVING THE TECHNICAL AND FINANCIAL CAPACITIES INVESTORS CAN BE ALGERIAN OR FOREIGN, PRIVATE OR PUBLIC ENTITY

48 48 STATE AGENCIES Regulation Contracts COMPANY COMPANY COMPANY SONATRACH Relations under the draft of the new law

49 49 MAIN PROVISIONS CONCERNING THE UPSTREAM ACTIVITIES

50 50 UPSTREAM  CONTRACT AWARDED BY TENDER ON THE BASIS OF A SINGLE CRITERIA :  WORK PROGRAMME OR  SIGNATURE BONUS OR  ROYALTY RATE ABOVE MINIMUM FIXED BY THE LAW

51 51 UPSTREAM  CONTRACT GRANTS EXCLUSIVE RIGHT TO E&P HYDROCARBONS  ALL PRODUCTION OWNED BY CONTRACTOR AT THE MEASUREMENT POINT  CONTRACTOR MARKETS ITS PRODUCTION  CONTRACTOR PAYS ROYALTY AND TAXES

52 52 TERM OF CONTRACT  MAX. DURATION 32 YEARS (EXPLO. PERIOD 7 YEARS & EXPLOIT. PERIOD 25 / 30 YEARS)  EXPLOITATION CONTRACT : RIGHT TO EXPLORE IN EXPLOITATION AREA  CONTRACTOR DECIDES OF THE COMMERCIAL EXPLOITABILITY  RETENTION PERIOD

53 53 RIGHTS OF SONATRACH nRIGHT TO PARTICIPATE TO BID ROUNDS IN THE SAME CONDITIONS THAN OTHER INVESTORS nSONATRACH’S OPTION TO ACQUIRE INTEREST IN ANY PROJECT (20 % - 30 %) nOPTION VALID WITHIN 30 DAYS AFTER DEVELOPMENT PLAN APPROVAL FOR DISCOVERY n MARKET JOINTLY WITH CONTRACTOR IF GAS DICOVERY

54 54 SOME RIGHTS OF THE INVESTORS  INTERNATIONAL ARBITRATION  CONTRACTOR OWNS FIXED ASSETS FOR LIFE CONTRACT  RECEIVING AND MAINTAINING EXPORT REVENUES ABROAD IS GARANTED

55 55 SOME RIGHTS OF THE INVESTORS  DEPRECIATION AT THE VALUE OF US $ THE LAST DAY OF FISCAL YEAR  IMPORT FOREIGN EXCHANGE TO COVER LOCAL COSTS ALLOWED  RIGHT TO USE LOCAL CURRENCY REVENUES TO COVER LOCAL COSTS  RIGHT TO REMIT IN FOREIGN EXCHANGE ANY LOCAL CURRENCY SURPLUS  EXEMPTION FROM VAT AND TAX DUTIES

56 56 UPSTREAM TAX ASPECTS  SURFACE RENT : (PER KM 2, ZONE & PERIOD)  ROYALTY : (ZONE & AVERAGE B.E.P/DAY) PAID MONTHLY IN CASH  PETROLEUM REVENUE TAX (PRT) :   RATE ESCALATES WITH VALUE OF CUMUL. PROD.  RIGHT TO USE UPLIFTS  PRT IS DEDUCTIBLE  INCOME TAX (CIT) : CONFORM TO GENERAL CORPORATE INCOM TAX

57 57 …..UPSTREAM FISCAL PACKAGE  EXEMPTION FROM ALL OTHER TAXES OR IMPOSITIONS  CONSOLIDATION OF ALL ACTIVITIES IN ENERGY SECTOR IN CALCULATING CIT  ALLOW DEVELOPMENT OF MODEST SIZE DISCOVERIES  PROVIDE INCENTIVES TO EXPLORE IN FRONTIER AREAS

58 58 DOWNSTREAM  IMPORTATION AND SALE OF HYDROCARBONS AND PETROLEUM PRODUCTS IN ALGERIA ARE FREE  DOMESTIC PRICES ARE DECONTROLLED AFTER TRANSITION PERIOD

59 59 Main provisions concerning midstream and downstream activities

60 60 MIDSTREAM: TRANSPORTATION BY PIPELINE  CONCESSION FOR 50 YEARS  OPEN ACCESS  NON DISCRIMINATORY TARIFFS

61 61..DOWNSTREAM TAX ASPECTS nPOSSIBILITY TO INVEST IN ANY DOWNSTREAM ACTIVITY nINVESTOR SUBJECT TO GENERAL TAX SYSTEM nTHE ACTIVITIES OF TRANSPORTATION, LIQUEFACTION, LPG SEPARATION ARE EXEMPTED FROM :  VAT PAYMENT  CUSTOM TAX AND DUTY

62 62 LEGAL PROTECTION OF INVESTORS’ RIGHTS IN SIGNED CONTRACTS

63 63 EXISTING CONTRACTS nEXISTING CONTRACTS REMAINS VALID nRIGHTS AND OBLIGATIONS OF PARTNER ARE MAINTAINED nSONATRACH WILL CONTINUE TO MARKET STATE’S SHARE OF THE HYDROCARBONS nFOR EACH ASSOCIATION CONTRACTS, A PARALLEL CONTRACT’ WILL BE CONCLUDED BY ALNAFT AND SONATARCH TO FIX TAXES TO BE REVERTED BY SONATRACH TO THE STATE

64 64 THANK YOU FOR YOUR ATTENTION


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