The Algerian constitution clearly states that the subsoil, the mines and quarries, and the natural sources of energy belong to the public community. Law No 19-13 dated 11 December 2019 (the “Hydrocarbon Law”) provides that discovered or undiscovered hydrocarbons in the soil and subsoil of land territory and maritime spaces are the property of the national community. The Algerian State oversees their management and mining titles belong to the Algerian State. They are issued exclusively by presidential decree to the National Agency for the Valorisation of Hydrocarbon Resources (Agence Nationale pour la Valorisation des Ressources en Hydrocarbures or “ALNAFT”). The award of an upstream concession or the conclusion of a hydrocarbons contract is subject to ALNAFT obtaining a mining title. The mining titles issued do not confer ownership rights over the soil or subsoil.

The institutions in charge of hydrocarbon activities are as follows: 

• the Ministry of Hydrocarbons;
• the National Agency for the Valorisation of Hydrocarbon Resources (Agence Nationale pour la Valorisation des Ressources en Hydrocarbures or “ALNAFT”); and
• the Hydrocarbon Regulatory Authority (Autorité de Régulation des Hydrocarbures or ARH).

The main powers of these institutions are as follows:

• the Ministry requests the allocation of mining titles which are granted to ALNAFT by presidential decree, and it requires the approval of the hydrocarbons contracts and their amendments by the Council of Ministers;
• ALNAFT remains the holder of the mining title, and is responsible for organising calls for tenders for upstream activities, drafting templates of hydrocarbons contracts, and granting the right to carry out exploration and/or exploitation activities within a defined perimeter; and
• the ARH remains the regulatory authority responsible for ensuring compliance with the technical regulations applicable to hydrocarbon activities and the standards applicable to the construction of pipeline and storage transport infrastructure.

Sonatrach

Société Nationale pour la Recherche, la Production, le Transport, la Transformation, et la Commercialisation des Hydrocarbures (“Sonatrach”) is the Algerian national oil company. Sonatrach’s role is of a commercial nature, similar to the role of a private oil company, but maintaining its status as a state-owned entity.

Since 2005, Sonatrach has lost any regulatory role, which now falls under two independent agencies (ALNAFT and the ARH).

Sonatrach is the leading hydrocarbon group in Africa. In existence for over 50 years, its mission is to develop Algeria’s significant hydrocarbon reserves. This major player in the oil industry is a fully integrated group across the entire hydrocarbon value chain.

Upstream

In the upstream sector, Sonatrach operates, on its own or in partnership with foreign oil companies, some of the world’s largest fields in various regions of the Algerian Sahara: Hassi Messaoud, Hassi R’Mel, Hassi Berkine, Ourhoud, Tin Fouyé Tabankort, Rhourde Nouss, In Salah and In Amenas.

Infrastructure

In terms of transport, Sonatrach has an extremely dense network of pipelines which today extends over nearly 22,000 square kilometres of national territory. Sonatrach has also developed four oil ports for loading hydrocarbons, Algiers, Arzew, Bejaia and Skikda, in order to allow the loading and unloading of large tankers with a capacity of 80,000 to 320,000 MT and liquefied natural gas (LNG) carriers.

Downstream

In the downstream sector, Sonatrach has six refineries in operation in the country and two petrochemical complexes, four LNG liquefaction complexes and two liquefied petroleum gas (LPG) separation complexes.

Employees

Sonatrach employs nearly 50,000 permanent employees nationwide and more than 200,000 people at the Group level.

Goals

By 2030, Sonatrach aims to generate more than USD68 billion in additional revenues, of which 50% will contribute to national wealth and 50% will be invested in the renewal of reserves, production capacities, staff training and the development of expertise within Sonatrach.

The principal petroleum law and regulations (for upstream, midstream and downstream operations) in Algeria are as follows:

• the Hydrocarbon Law which is set to create a more competitive and flexible environment for oil and gas investment and provide attractive opportunities for investors; and
• about 40 texts implementing the law, the main ones being the following:
1. Decree No 21-98 of 11 March 2021, setting out the rules and procedures for the transfer of hydrocarbons contracts;
2. Decree No 21-176 of 3 May 2021, defining the modalities for granting reduced rates for hydrocarbon royalties and income tax on hydrocarbon;
3. Decree No 21-227 of 24 May 2021, setting the terms and conditions for the issuance of mining titles for hydrocarbon exploration and exploitation activities;
4. Decree No 21-242 of 31 May 2021, setting the rules for the conservation of hydrocarbon deposits;
5. Decree No 21-317 of 14 August 2021, setting the determination modalities of the costs of a site’s abandonment and restoration programme, the periodic revision of such costs and the calculation of the annual provision and its indexation; and
6. Decree No 21-319 of 14 August 2021, relating to the exploitation authorisation regime applicable to hydrocarbon installations and facilities, as well as the approval modalities of the risk studies applicable to research activities and their findings.

The Algerian State grants the right to prospect, explore and develop oil and gas reserves to ALNAFT through the delivery of mining titles.

ALNAFT is in turn entitled to grant three types of authorisations which are required in Algeria in order to explore and produce oil and natural gas, namely: 

• a prospecting permit whereby the operator is authorised – on a non-exclusive basis – to carry out prospecting activities within a defined perimeter; 
• an upstream concession whereby upstream activities are carried out by Sonatrach alone; and
• hydrocarbons contracts whereby the upstream activities are carried out by Sonatrach and international oil companies. 

The key features of the prospecting permit, upstream concession and hydrocarbons contracts can be summarised as follows.

The Prospecting Permit

With the exception of exploration activities carried out under an upstream concession or a hydrocarbons contract, prospecting activities on a perimeter can be carried out under a prospecting permit issued by ALNAFT, for a period of two years, renewable once for a maximum period of another two years. The conditions and procedures for obtaining the prospecting permit are defined by ALNAFT.

In the event that a perimeter, which is the subject of a valid prospecting permit, becomes the subject of a call for tenders for the conclusion of a hydrocarbons contract, the prospectors who have carried out prospecting activities on this perimeter (or a part of this perimeter) will benefit from a right of preference under the conditions set out in the call for tenders. Such preference right will also apply to prospectors whose prospecting permits expired, at the most, one year before the date of launching the call for competition relating to the relevant perimeter.

Within a period not exceeding one year following the expiry of the prospecting permit issued to them, the prospector and Sonatrach may jointly request ALNAFT to issue an “award deed” with a view to concluding a hydrocarbons contract on all or part of the perimeter that was the subject of said prospecting permit.

The Upstream Concession

Sonatrach may carry out upstream activities alone, under an upstream concession granted by ALNAFT.

An upstream concession may be granted for exploration and exploitation or for the exploitation of discovered deposits.

Sonatrach may decide to transfer some of its rights and obligations in an upstream concession. In this case, a hydrocarbons contract is entered into with the transferee, according to one of the forms provided for below.

Hydrocarbons Contracts

The Hydrocarbon Law provides for three types of hydrocarbons contracts:

• the participation contract;
• the production-sharing contract; and
• the risk services contract.

The participation contract

This is entered into between Sonatrach (at least 51%) and one or more Algerian or foreign contractors.

The upstream operations are financed by the contracting parties in proportion to their participating interests.

There is a possibility for an advance of funds by the partner to the benefit of Sonatrach during the research period, under the conditions to be agreed in the contract.

The extracted hydrocarbons become the property of the parties at the measurement point.

The participation contract must provide for the joint commercialisation of the gas extracted from the perimeter. Alternatively, Sonatrach may be entrusted with the commercialisation of the gas on behalf of the contracting parties.

The contracting parties must also agree in advance on the terms of a joint operating agreement, setting out their respective rights and obligations.

The production-sharing contract

The Hydrocarbon Law has reintroduced the production-sharing contract that existed under the former Law No 86-14 of 19 August 1986 regarding exploration and production activities, which was in its time regarded as successful, and generated many great discoveries of the 1990s.

The production-sharing contract is entered into between Sonatrach (at least 51%) and one or more foreign contractors.

The upstream operations are financed by the foreign contractor(s). Sonatrach has an option to participate in the financing according to the terms defined in the contract.

The extracted hydrocarbons become the property of Sonatrach at the measurement point, and Sonatrach must pay all the applicable taxes.

The foreign contractor becomes the owner of the extracted hydrocarbons at the delivery point, for the reimbursement of cost oil and profit oil up to a maximum of 49% on the total production from the perimeter.

The production-sharing contract must provide for joint commercialisation of the gas. Alternatively, Sonatrach may be entrusted with the commercialisation of the gas on behalf of the contracting parties.

The contracting parties must also agree in advance on the terms of a joint operating agreement, setting out their respective rights and obligations.

The risk services contract

The risk services contract is entered into between Sonatrach (at least 51%) and one or more foreign contractors.

The upstream operations are financed by the foreign contractor. Sonatrach has the option to participate in the financing according to the terms defined in the contract.

The extracted hydrocarbons become the property of Sonatrach at the measurement point, and Sonatrach must pay all the applicable taxes.

The foreign contractor receives cash income for the reimbursement of cost oil and profit oil up to 49% of the total value of the production from the perimeter.

Responsibility for the way upstream operations are conducted is defined in the risk services contract or in a joint operating agreement agreed in advance.

The contracting partners in a hydrocarbons contract are selected through a public tender process organised by ALNAFT.

Such tender process is open only to pre-qualified companies (which means those companies holding a certificate issued by ALNAFT in consideration of legal, technical and financial criteria).

The Hydrocarbon Law also provides that Sonatrach may enter into a hydrocarbons contract through direct negotiations, after consultation with ALNAFT.

Under the former law, the decision to depart from the principle of competitive tendering could only be taken by the Minister of Hydrocarbons, who could only make such a decision following a proposal from ALNAFT, and if reasons of general interest motivated such a decision.

ALNAFT, after having obtained the mining title relating to the perimeter, grants an “award deed” (an administrative deed known as acte d’attribution) to the contracting parties of a hydrocarbons contract.

For the conclusion of a hydrocarbons contract, ALNAFT grants, by means of an award deed, the right to the contracting parties to carry out exploration and/or exploitation activities on a perimeter.

ALNAFT then submits the upstream concession or the hydrocarbons contract (accompanied by the award deed), as the case may be, to the Minister of Hydrocarbons for approval by decree issued by the Council of Ministers.

Indeed, the upstream concessions and the hydrocarbons contracts themselves and any amendments thereto (except for minor changes) must be approved by a decree issued by the Council of Ministers. 

The upstream concessions and the hydrocarbons contracts come into force only when such decree(s) is published in the Official Gazette.

The tax regime applicable to upstream activities is composed of the taxes described below.

One of the key benefits of the new Hydrocarbon Law is the possibility to benefit from a reduced rate system under certain conditions.

Following the application of planned taxes, reductions in the rates of the hydrocarbon royalty and the hydrocarbon revenue tax may be applied in order to achieve reasonable economic profitability, if a perimeter presents:

• a complex geological situation;
• technical difficulties in extracting hydrocarbons; or
• high development and/or operating costs, which may compromise the project’s economy. 

The benefit of the reduced rates is granted, by joint order of the Minister of Finance and the Minister of Hydrocarbons, during the allocation process or later (when the development plan is presented or during the exploitation period). 

The reduced tax rates cannot, however, be lower than:

• 5% for the hydrocarbon royalty; and
• 10–20% for the hydrocarbon revenue tax (depending on the profitability rate of the project).

Fiscal Terms

Surface tax

Amount/rate: The rate per square kilometre varies according to the phase of the project (from DZD7,000 or approximately USD58 to DZD40,000 or approximately USD330).

Tax base: Area of the contractual perimeter used during the year preceding the payment.

Periodicity: Annual.

Payment: Paid to the Public Treasury by Sonatrach (for upstream concessions, a production-sharing contract and a risk services contract) and the contracting parties (in the case of a participation contract).

Deductibility: Not deductible for the purposes of hydrocarbon revenue tax and income tax.

Hydrocarbon royalty

Amount/rate: Rate of 10%.

Tax base: Value of hydrocarbon production extracted from the contractual perimeter measured at the measurement point, using the monthly average of the basic prices, after deduction of the transport tariffs by pipeline, costs related to the liquefaction of natural gas, and costs associated with the separation of LPG.

Periodicity: Monthly.

Payment: Paid to ALNAFT by Sonatrach (for upstream concessions, a production-sharing contract and a risk services contract) and the contracting parties (in the case of a participation contract).

Deductibility: Deductible for the purposes of hydrocarbon revenue tax and income tax.

Hydrocarbon revenue tax

Amount/rate: The rate depends on the profitability of the project, with a minimum rate of 10% and a maximum rate of 50%.

Tax base: Same tax base as the hydrocarbon royalty minus authorised deductions (such as the hydrocarbon royalty).

Periodicity: Monthly plus annual regularisation.

Payment: Paid to the Public Treasury by Sonatrach (for upstream concessions, a production-sharing contract and a risk services contract) and the contracting parties (in the case of a participation contract).

Income tax

See 2.4 Income or Profits Tax Regime: Upstream.

Tax on the remuneration of the foreign contractor

See 2.4 Income or Profits Tax Regime: Upstream.

Other taxes

These include a flaring tax, water tax, transfer fees, etc.

Tax Regime

Income tax

Amount/rate: 30%.

Tax base: Income made by Sonatrach as a result of upstream concessions or production-sharing contracts or risk services contracts or a participation contract. For the contractor (other than Sonatrach) in a participation contract, the income tax is based on the consolidated profits of all the oil activities carried out in Algeria.

Periodicity: Annual.

Payment: Paid to the Public Treasury by Sonatrach (for upstream concessions, a production-sharing contract and a risk services contract) and the contracting parties (in the case of a participation contract).

Tax on the remuneration of the foreign contractor

Amount/tax base: 30%.

Tax base: Gross remuneration of the foreign contracting partner under a production-sharing contract or a risk services contract.

Periodicity: Monthly plus annual regularisation.

Payment: A foreign investor files declaration and obtains a tax credit (for a production-sharing contract or a risk services contract). This is payable by Sonatrach in the name and on behalf of the foreign contractor.

Sonatrach benefits from a number of special rights, which include the following.

• In the participation contract, Sonatrach’s participation rate is set at a minimum of 51%.
• The Hydrocarbon Law also allows Sonatrach to carry out independent upstream activities, under an upstream concession granted by ALNAFT, for an initial period of 30 years.
• In the participation contract, Sonatrach can benefit from cash advances from the contracting party under the conditions provided in the participation contract.
• Sonatrach is also not obliged to participate in the financing of upstream operations under a production-sharing contract or a risk services contract.
• Except in the case of a transfer to an affiliated entity, Sonatrach has a right of first refusal on the occasion of any transfer of interests in a hydrocarbons contract.
• In the case of expropriation by the Algerian State of the land necessary for the exercise of upstream activities, Sonatrach will be the exclusive beneficiary of such expropriation.

The local content requirements can be summarised as follows.

• Preference for the supply of Algerian goods and services: the hydrocarbons contract must include provisions that give preference to Algerian companies for the supply of goods and services produced in Algeria, provided that the conditions of price, quality and delivery times are competitive.
• Priority of employment for Algerian workers: the contracting parties and their subcontractors must give priority to Algerian workers for the upstream operations.
• Obligation to train Algerian workers: the contracting parties must also ensure, at the start of upstream operations, that the training of Algerian workers under the conditions laid down in the hydrocarbons contract takes place.

It is ALNAFT’s responsibility to ensure the promotion of local content in the context of upstream activities. In this regard, the development plan – to be approved by ALNAFT – must contain local content provisions.

The discovery of a deposit must be notified to ALNAFT under the conditions and within the deadlines set out in the upstream concession or the award deed.

Any commercial discovery is subject to a development plan; it being specified that all commercial discoveries under an upstream concession or a hydrocarbons contract are subject to a single development plan.

The development plan (and any revision thereto) must be submitted to ALNAFT for approval, delivered within 60 days from the date of submission.

Sonatrach and the contracting parties must submit the work programmes annually to ALNAFT, according to the terms and conditions and within the deadlines provided in the upstream concession or the hydrocarbons contract, in order to verify their conformity with the approved development plan.

Any modification of the work programme must also be submitted to ALNAFT for prior approval.

The other key terms of the upstream concession and of the hydrocarbons contracts are as follows.

Applicable Law

Hydrocarbons contracts are governed by Algerian law.

Jurisdiction

Hydrocarbons contracts must provide an amicable settlement of disputes mechanism before referral to the competent court. They can also provide an international arbitration clause.

Pledge

Hydrocarbons contracts and the rights arising therefrom must not be subject to any pledge or guarantee.

Absence of Sovereign Guarantee

The state does not assume any financing obligation or guarantee of financing in relation to upstream activities and is in no way responsible for the facts or acts resulting from the exercise of these. No claim may be made against the Algerian State or ALNAFT for any damage or consequences, of any nature whatsoever, resulting from upstream operations and/or their conduct.

Domestic Supply Requirements

ALNAFT may ask the contractor to contribute to the satisfaction of the domestic market’s needs in hydrocarbons. The terms and conditions of such contribution are defined in the award deed and in the hydrocarbons contract.

The quantities of hydrocarbons taken as part of such contribution are sold to Sonatrach.

The price of such hydrocarbons is determined as follows:

• for liquid hydrocarbons the price is equal to the basic price determined according to the average free on board (FOB) prices, published by a specialised publication, of liquid hydrocarbons produced in Algeria; and
• for gas, the price is based on the average of the prices weighted by the quantities of gas of the various sales contracts, resulting from the perimeter.

Duration

The upstream concession is granted for an initial period of 30 years.

A hydrocarbons contract and an upstream concession are concluded for an initial period of 30 years from the date of coming into force. Such period includes: (i) an exploration period which may not exceed seven years, unless exceptionally extended for two years; and (ii) an exploitation period which starts from the approval of the development plan.

The term of a hydrocarbons contract may be extended for a period not exceeding ten years.

Where the hydrocarbons contract relates to one or more discovered deposits, the term of the contract is 25 years, which may be extended for a period of up to ten years.

Relinquishment

The perimeter, excluding the exploitation perimeter or the retention area, is reduced at the end of each phase of the exploration period, according to the terms and conditions laid down in the upstream concession or the award deed. At the end of the exploration period (which may be extended), the surfaces and geological horizons of the perimeter not covered by the development plan are returned to ALNAFT. At the end of the exploration period (which may be extended), ALNAFT automatically withdraws the upstream concession or the award deed of a hydrocarbons contract if Sonatrach or the contracting parties have not declared a commercial discovery.

Sonatrach and the contracting parties may also relinquish all or part of the perimeter during the exploration period under the terms and conditions laid down in the upstream concession or in the award deed.

Abandonment

Abandonment and site restoration operations relating to the exploration period are the responsibility of Sonatrach for the upstream concession and the responsibility of the contracting parties in terms of the hydrocarbons contract.

The decommissioning works at the end of the exploitation period are financed by provisions constituted each calendar year, as from the date of the start of production by Sonatrach under the upstream concession or by the contracting parties under the hydrocarbons contract. 

The amounts of such provisions are paid into bank accounts opened by Sonatrach, which manages them in order to carry out, under its responsibility, the decommissioning works at the end of the exploitation.

The abandonment and the decommissioning works are further detailed in Decree No 21-317 dated 14 August 2021, relating to abandonment and decommissioning. 

Decree No 21-317 provides, among other things, rules relating to: 

• the abandonment of wells; 
• the abandonment of surface and base facilities; 
• the restoration of sites; 
• the establishment of an abandonment and restoration programme to be added to the development plan; and
• the amounts to be provisioned to cover abandonment works costs.

The control of the abandonment and restoration of the sites is carried out by the ARH.

The interests resulting from a hydrocarbons contract can be transferred by Sonatrach or the foreign partner on the terms and conditions set out in the award deed and the relevant hydrocarbons contract, in accordance with the provisions of the Hydrocarbon Law.

Sonatrach may transfer its interests under a hydrocarbons contract provided it retains a minimum 51% interest.

Decree No 21-98 of 11 March 2021 sets out the rules and procedures for the transfer of a hydrocarbons contract.

Rules and Procedures

Transfer of the rights and obligations under the hydrocarbons contract by the foreign partner

Any proposed transfer by the foreign partner (including to an affiliate) of all or part of its rights and obligations under a hydrocarbons contract is subject to the approval of ALNAFT.

Decree 21-98 specifies the information to be included in the application for approval, such as the identity of shareholders holding more than 5% of the potential purchaser, as well as a statement of the value of the transaction certified by the seller and the potential purchaser.

Once the application has been declared admissible, ALNAFT must reach a decision within 90 days of receipt of the application (which may be completed on request by ALNAFT).

Sonatrach has a right of pre-emption (except in the case of transfer to an affiliate) which can be exercised within 60 days of receipt of the application file. After such delay, Sonatrach is deemed to have waived its right of pre-emption.

In a case where Sonatrach exercises the right of pre-emption, Sonatrach must notify its decision to the foreign partner and to ALNAFT. The foreign partner will then proceed to the transfer of the concerned rights and obligations to Sonatrach, under the same terms and conditions as the initial contemplated transfer.

Where Sonatrach does not exercise the right of pre-emption, (i) the transfer by the foreign partner of its rights and obligations occurs after approval of the transfer by ALNAFT; or (ii) ALNAFT notifies its refusal of the contemplated transfer.

Any transfer (including to an affiliate) must be formalised through an amendment to the hydrocarbons contract, entered into between Sonatrach, the seller and the purchaser. Except in the case of transfer to an affiliate, the amendment must be approved by a decree issued by the Council of Ministers and published in the Official Gazette of the People’s Democratic Republic of Algeria.

The award deed must also be amended.

Change of control of the foreign partner

The Minister of Hydrocarbons must be notified of any change of control directly or indirectly affecting the foreign partner.

The minister must decide whether the change of control is compatible with maintaining the foreign partner’s interest in the contract within 90 days from the date of receipt by ALNAFT of all the information provided for in Decree 21-98, and, if necessary, any additional information requested by ALNAFT.

In particular, the following information must be submitted to ALNAFT: the main shareholders of the partner or of the person controlling the entity subject to change of control, the value of each of the partner’s assets in Algeria, etc.

The minister may make one of four decisions:

• the decision that the change of control is compatible with maintaining the foreign partner’s interest in the contract;
• the decision that the change of control is compatible with maintaining the foreign partner’s interest in the contract if prerequisites defined by the minister are satisfied;
• prior to any decision of incompatibility, the minister may authorise the partner to transfer its rights and obligations under the contract to any other person within a specified period of time; or
• the decision that the change of control is not compatible with maintaining the foreign partner’s interest in the contract, in which case, the rights and obligations of the contract will be transferred in priority to Sonatrach or divided equally between the other contracting parties (unless otherwise agreed between them), in return for compensation (this compensation is set by mutual agreement and in the case of disagreement, an expert is appointed according to the provisions of the hydrocarbons contract).

The change of control (including to an affiliate) must be formalised through an amendment to the hydrocarbons contract, between Sonatrach, the assignor and the assignee. The amendments formalising the transfers to an affiliate do not need to be approved by a decree issued by the Council of Ministers and published in the Official Gazette. The award deed must, however, be amended.

Any transfer (including change of control) is subject to payment by the seller of a non-deductible transfer fee of 1% of the value of the transaction (except for transfers between affiliates and transfers by Sonatrach). 

Decree No 21-318 of 14 August 2021 defines the method of calculation and liquidation of such transfer fee.

Algeria has been a member state of OPEC since 1969.

According to the Hydrocarbon Law, restrictions on hydrocarbon production may be applied exceptionally and for a limited period of time.

Restrictions on hydrocarbon production are subject to a decision by the Minister of Hydrocarbons, who sets the quantities, the effective date and the duration. 

ALNAFT decides how these restrictions will be apportioned among the different exploitation perimeters on the basis of their respective production and technical constraints.

The Hydrocarbon Law contains a limited number of provisions concerning downstream activities, which are divided into three types of activities:

• transport by pipeline;
• refining and processing; and
• storage and distribution of petroleum products.

Such activities are further described below.

Transport by Pipeline

See 3.10 Laws and Regulations Governing Transportation.

Refining and Processing

Refining and processing activities are carried out by Sonatrach, independently or in partnership with any other Algerian or foreign entity, on the basis of authorisation awarded by the Minister of Hydrocarbons, decided on a recommendation of the ARH.

Storage and Distribution of Petroleum Products

The activities of storage and/or distribution of petroleum products are carried out by any person in accordance with the legislation in force, on the basis of authorisation delivered by the Minister of Hydrocarbons, upon the recommendation of the ARH.

Any person has the right to use the infrastructure for the storage of petroleum products on the basis of the principle of free access for third parties, subject to the payment of a non-discriminatory tariff.

Any person planning to carry out a project for the underground storage of hydrocarbons and petroleum products must prepare and submit a feasibility study and a risk management plan to the ARH for approval.

The implementing regulations regarding the storage and distribution of petroleum products have not as yet been published.

The Hydrocarbon Law sets out a principle of free access for third parties to the hydrocarbon pipeline infrastructure, subject to payment of a non-discriminatory tariff.

Decree No 21-258 of 13 June 2021 further details the terms and conditions of the principle of free access of third parties to the infrastructure of transport by pipeline.

The concessionaire must allow third parties, within the limits of available capacity and on a first-committed-first-served basis, free access to the pipeline infrastructure for the transport of hydrocarbons, subject to payment of a non-discriminatory tariff.

Such access is granted on equivalent contractual arrangements, defined in two standard transport contracts (one for liquid hydrocarbons and another for petroleum gases).

For international pipelines, the terms and conditions of the access to infrastructure are specified in the order determined by the Minister of Hydrocarbons granting the concession of transport by pipeline.

The refusal of access to transport infrastructure by pipeline can only be based on the following grounds:

• a proven lack of available capacity; and/or
• technical aspects related to the condition and safety of pipeline transportation systems.

Finally, it is worth noting that Executive Decree No 21-259 of 13 June 2021 defines the pricing and methodology for calculating transportation rates. 

The ARH must approve the transportation rates for a relevant period.

The determination of the transportation rates is based on the following principles:

• to offer the lowest possible rate to users while respecting applicable legislation and ensuring continuity of service; and
• to allow the concessionaire to cover operating expenses, pay taxes, amortise investments and financial costs, and achieve a reasonable rate of return.

Executive Decree No 21-320 dated 14 August 2021 (“Decree 21-320”) sets out the rules and conditions for the exercise of hydrocarbon refining and processing activities.

An order of the Minister of Hydrocarbons, dated 22 September 2022, introduced the standard specifications for hydrocarbons refining and processing activities, distinguishing between (i) the activities in the crude oil and derivatives, condensate and gasoline, natural gas, ethane and LPG sectors; and (ii) the activities of manufacturing base oils by regeneration of used oils.

Also refer to 5.2 Environmental Obligations for a Major Hydrocarbon Project regarding the environmental authorisations to be obtained.

The refining and processing activities covered by Decree 21-320 are as follows:

• the refining of petroleum and/or condensate in order to obtain petroleum products and derivatives;
• the processing of products derived from petroleum refining and/or condensates and/or gasoline to obtain aromatics, olefins and derivatives and other products;
• the liquefaction of natural gas to obtain LNG;
• the processing of natural gas to obtain methanol and its derivatives;
• the processing of natural gas to obtain ammonia and its derivatives;
• the processing of natural gas to obtain fuels, olefins and alcohols;
• the separation of LPG at plants and LPG separation units, excluding separation units of upstream activities, to obtain propane and butane in liquid phase;
• the processing of ethane and/or LPG to obtain olefins and derivatives; and
• the regeneration of used oils to obtain base oils.

The petroleum products falling within the scope of Decree 21-320 include ammonia, pure bitumen, condensate, aromatic hydrocarbons, olefinic hydrocarbons, methanol, paraffin, etc.

The activity of refining and/or transforming petroleum products and derivatives is carried out by Sonatrach alone or in partnership.

Any infrastructure project must be integrated into the national development plan for refining and processing infrastructure approved by the Minister of Hydrocarbons.

Prior to the start of works of any refining and processing infrastructure, the applicant must obtain the prior approval of the Minister of Hydrocarbons.

After verification of the conformity of the infrastructure, once it is built, the effective exercise of the activity is subject to obtaining a final approval issued by the Minister of Hydrocarbons.

The applicant will have to accept and respect specifications appended to the final approval, which define the conditions of exercise of the activity.

Any purchase or transfer of any infrastructure in operation for the exercise of the activity, requires the purchaser to obtain an approval issued by the Minister of Hydrocarbons.

In return for the processing of the files, the applicant will pay a study fee to the ARH, as defined by the Minister of Hydrocarbons.

The applicants are then free to carry out the activities covered by their final authorisations, subject to compliance with the legislation in force and the relevant specifications.

The Hydrocarbon Law does not provide for a specific tax regime applicable to midstream and downstream operations, which are governed by ordinary tax law.

The Hydrocarbon Law does not provide for a specific tax regime applicable to midstream and downstream operations, which are governed by ordinary tax law.

See 3.1 Forms of Private Investment: Midstream/Downstream regarding the monopoly granted to Sonatrach on the pipeline transport of hydrocarbons.

The Hydrocarbon Law does not provide specific requirements in terms of local content in midstream/downstream operations.

See 3.1 Forms of Private Investment: Midstream/Downstream and 3.3 Issuing Midstream/Downstream Licences.

No specific surface rights or condemnation/eminent domain rights are granted to private investors constructing infrastructure.

The approval awarded by the Minister of Hydrocarbons, referred to in 3.3 Issuing Midstream/Downstream Licences, is accompanied by a document identifying the refining or processing infrastructure (the “IRT identifier”) of the corresponding infrastructure, which must be attached to any subsequent administrative file concerning that infrastructure.

The above approval covers all subsequent corresponding infrastructure that carries out the same activity for the same entity.

Before undertaking any project of expansion, relocation, extension or modification, the authorised entity must obtain preliminary approval from the Minister of Hydrocarbons, according to the same procedure described in 3.3 Issuing Midstream/Downstream Licences. 

Sonatrach has a monopoly over the activity of transport of hydrocarbons by pipeline, which is exercised on the basis of a transport concession awarded for a duration of 30 years (extendable).

The procedures for applying for a concession for transport by pipeline are set out by decree.

Intra-state Pipeline System

The transport of hydrocarbons over the pipeline is provided on an exclusive basis by Sonatrach under a transport concession granted by order of the Minister of Hydrocarbons, upon recommendation of the ARH.

The terms and conditions of the pipeline concession are defined in the specifications appended to the ministerial order.

Inter-state Pipeline System

For international pipelines arriving at Algeria’s borders to cross the territory, and for international pipelines which originate in national territory, the approval of the Council of Ministers is also required.

In addition, international pipelines arriving from outside the national territory to cross it are subject to a right of way (the terms and conditions of which are defined in the specifications appended to the ministerial order).

Finally, the minister may require Sonatrach to acquire a stake in any international pipeline transport concession.

Executive Decree No 21-256 dated 13 June 2021 (“Decree 21-256”) sets out the operating procedures of the system of equalisation of transport tariffs for petroleum products and the rules for the use of storage facilities for petroleum products.

Access to Essential Infrastructure

Access to the relevant infrastructure is guaranteed to any distributor undertaking the storage and distribution of petroleum products, subject to the payment of an equalised access fee.

The fuel and LPG essential infrastructures were determined by an order of the Minister of Hydrocarbons dated 2 December 2021.

For the transit of petroleum products through the essential infrastructure, the fuel transport and storage network operator and the LPG transport and storage network operator are required to enter into:

• a contract for transit through the essential infrastructure with each distributor; and
• a contract for transit through the essential infrastructure with each refiner and each processor.

Two orders were published by the Minister of Hydrocarbons on 2 December 2021 to define the principles for the establishment of transit contracts through the essential infrastructure.

Network operators are responsible for managing the product flow in order to optimise the use of their infrastructure and ensure the regular supply of petroleum products to distributors.

The ARH may call on an independent expert to ensure satisfactory execution of the commitments contained in the contracts and, in particular, to supervise the implementation of non-discriminatory access by distributors to essential infrastructure.

Decree 21-256 sets out the principles for determination by the ARH of infrastructure access tariffs payable to network operators.

Access to Non-operational Infrastructure

At the beginning of each quarter, the ARH publishes a list of (non-operational) infrastructure and storage facilities eligible for open access.

The operator is required to accept the request to use its storage infrastructure or a facility that is part of its storage infrastructure that is not in use. 

Access to such infrastructure is based on the terms of the storage contract negotiated between the operator and the applicant, which must contain a number of clauses defined by Decree 21-256.

All signed storage contracts must be sent to the ARH, at the latest five days from the date of signing.

Any person carrying out the distribution of petroleum products to the local market must be authorised by the Minister of Hydrocarbons on the recommendation of the ARH. See 3.1 Forms of Private Investment: Midstream/Downstream for further details.

Pursuant to Article 67 of the Hydrocarbon Law, the gas produced in Algeria can only be exported either jointly by Sonatrach and its foreign partners through a joint venture (JV) or by Sonatrach alone on behalf of the parties, on the basis of the take-or-pay principle.

In practice, the most common option remains the marketing of gas by Sonatrach acting alone on behalf of its foreign partners. 

In addition, refer to 2.8 Other Key Terms: Upstream regarding the priority given to meeting the domestic market’s needs in terms of hydrocarbons, which might restrict exportation.

The Hydrocarbon Law does not provide a specific procedure regarding the transfer of assets in midstream and downstream operations.

Decree 21-320 provides that any purchase or transfer of refining or processing infrastructure in operation requires the purchaser to obtain approval from the Minister of Hydrocarbons. See 3.3 Issuing Midstream/Downstream Licences for further details.

The Hydrocarbon Law allows international arbitration for disputes arising out of hydrocarbons contracts between Sonatrach and international oil companies. However, decisions taken by ALNAFT and the ARH can only be appealed before the Algerian courts.

Generally speaking, from an Algerian law perspective, the legal entities governed by public law, including the Algerian State and Algerian State entities, are authorised to have recourse to arbitration only in the context of their international economic relationships or within the framework of public procurement contracts.

Indeed, the Algerian investment law provides that the Algerian courts are competent to hear disputes between the Algerian State and foreign investors except if an arbitration clause is provided in international treaties entered into by the Algerian State.

Algeria has entered into bilateral treaties on investment protection (“BITs”) with numerous countries such as France, Germany, Switzerland, Italy and the UAE.

Some BITs provide for arbitration established in accordance with the ICSID Convention, and other BITs leave it to the parties concerned to choose other arbitration rules, such as those of the ICC or UNCITRAL.

In terms of recognition of arbitral awards, the Algerian State acceded to the 1958 New York Convention on 7 February 1989.

Algeria also ratified the Convention on the Settlement of Investment Disputes, which came into force in Algeria on 22 March 1996.

Finally, the Algerian investment law grants a certain number of guarantees to foreign investors, such as the intangibility of the investment law, meaning that the effects of revisions or repeals to the legal system in the future do not apply to investments made under the investment law, unless this is expressly requested by the investor.

The BITs also provide for traditional guarantees, such as fair and equitable compensation for expropriation, and fair and equitable treatment of foreign investments, etc.

Algeria is a member of the League of Arab States.

The Founding Pact dated 22 March 1945 was ratified by Algeria through Decree No 64-49 dated 2 March 1964. 

On the grounds of this pact, the League of Arab States decided in 1946 and in 1948 to boycott the State of Israel.

Algeria still enforces this boycott.

The Algerian environmental framework consists of the Environmental Law No 03-10 of 19 July 2003 relating to the protection of the environment, as modified (“Law 03-10”) and various executive decrees. 

Law 03-10 provides that any person whose activities cause or are likely to cause damage to the environment bears the expense necessary to prevent the pollution, to reduce the pollution and to rehabilitate the areas and their environment (“polluter-pays principle”).

Criminal liabilities are provided for by Law 03-10, for a certain number of offences.

The Hydrocarbon Law contains environmental provisions relating to environmental matters. The provisions of the Hydrocarbon Law on environmental protection are immediately applicable to all hydrocarbon activities.

In application of the Hydrocarbon Law, Executive Decree No 21-319 dated 14 August 2021 defines the operating authorisation regime for hydrocarbon installations and facilities, as well as the procedures for approving risk studies for research activities and their content.

The major regulators in charge of applying such environmental regulations are the Minister of Environment, Minister of Hydrocarbons and the ARH.

Operation of Hydrocarbon Installations and Facilities

Decree No 21-319 dated 14 August 2021 (“Decree 21-319”) sets out the operating authorisation regime for hydrocarbon installations and facilities, as well as the procedures for approving risk studies for research activities and their content.

Decree 21-319 defines the installations and facilities involved in hydrocarbon activities which, given their importance and the dangers or effects that their operation generates, are subject, as the case may be, to an environmental impact study and a hazard study or to an environmental impact report and a hazard report.

More specifically, these installations and facilities are divided into two categories, listed in the appendices to Decree 21-319:

• category (A) – refining facilities, hydrocarbon extraction and processing facilities, hydrocarbon transport pipelines, petroleum product transport pipelines, fuel storage facilities, etc; and
• category (B) – liquefied flammable gas filling facilities, liquefied flammable gas storage facilities (for a quantity of less than 200 tons), service stations, etc.

The authorisation to operate an installation or a facility related to hydrocarbon activities is granted after a two-phase procedure:

• a preliminary phase leading to the issuance of prior approval for the creation of the facility; and
• a post-construction phase of the installation leading to the issuance of an operating authorisation.

Preliminary phase

Prior approval is issued by the ARH for category (A) facilities and by the wali (ie, a senior official responsible for a wilaya, an administrative division) for category (B) facilities, as appropriate.

Prior approval is issued within 15 days of the approval of the impact and danger studies/reports, and after receipt of the results of the public survey.

Construction work on the above installations and facilities may not be started until approval and the necessary sectoral authorisations have been obtained, in particular, the building permit.

As soon as prior approval is obtained and the construction site is opened, the applicant must start the process to obtain authorisation to introduce the products and/or energy to carry out the operating tests.

Post-construction phase

Once the construction phase is completed, the Hydrocarbon Commission (depending on the administrative division or wilaya) proceeds to visit the site in order to verify its conformity with the requirements of the prior approval.

Once any reservations have been lifted, the operating authorisation is signed, as appropriate, by the Minister of Hydrocarbons for category (A) facilities or by the wali for category (B) facilities.

Within six months of obtaining operating authorisation, the applicant must submit an environmental management plan and a safety management system to the ARH for approval.

If an installation or facility is permanently shut down, the operator is required to abandon and restore the site. The operator is required to send a programme of abandonment and a site restoration works programme to the ARH and the Hydrocarbon Commission.

Risk Studies Relating to Research Activities

Prior to any exploration activity, under an upstream concession, a hydrocarbons contract or an exploration authorisation, the applicant must submit a health, safety and environmental risk study.

Before the actual start of any research works, a detailed reassessment of the risks inherent to such works must be sent to the ARH for examination.

The ARH then sends the study to the wali for the opening of a public survey.

The ARH also notifies the applicant of any reservations concerning the risk study and the results of the public survey.

After the lifting of any reservations, the ARH notifies the applicant and ALNAFT of the decision to approve the risk study.

See 5.2 Environmental Obligations for a Major Hydrocarbon Project.

General Requirements

Decree 21-319 sets out the requirements and objectives relating to the abandonment and restoration of sites regarding hydrocarbon installations and facilities and research activities. See 5.2 Environmental Obligations for a Major Hydrocarbon Project.

The environmental management plan submitted by the operator to the ARH must include an abandonment and restoration programme.

If the hydrocarbon installation or facility is permanently shut down, the operator is required to abandon and restore the site. Three months before the date of the final shutdown, the operator is required to send the ARH and the Hydrocarbon Commission a programme of abandonment and site restoration work.

The impact studies and the risk studies indicated in 5.2 Environmental Obligations for a Major Hydrocarbon Project must also include the abandonment and restoration programme.

Responsibility for the preparation and funding of the abandonment and restoration programme

Upstream activities

See 2.8 Other Key Terms: Upstream.

Pipeline transportation

The concessionaire (Sonatrach) will proceed, at its own expense and under its own responsibility, with the abandonment and restoration of the sites. For this purpose, Sonatrach must constitute provisions for each calendar year from the date of commissioning.

The amount of this provision is paid each calendar year into a bank account opened by the concessionaire, which manages it in order to carry out, under its responsibility, the operations of abandonment and restoration of the site at the end of the concession.

The amount of this provision constitutes an operating expense for the year in question.

The abandonment and restoration programme and the related costs must be included in the pipeline transportation system construction and operation plan.

The methods for determining the cost of the abandonment and restoration programme for the pipeline transport concession, the periodic revision of this cost and the calculation of the annual provision and its indexation, are defined by Decree No 21-316 of 14 August 2021.

The control of the abandonment and restoration of sites under a pipeline transport concession is carried out by the ARH in collaboration with the wilaya services, which are territorially competent.

Ratification of the UNFCCC (1993)

Algeria ratified the United Nations Framework Convention on Climate Change (UNFCCC) in June 1993. 

Algeria has submitted two national communications, prepared with the assistance of the United Nations Development Programme (UNDP), on the measures taken for the implementation of the UNFCCC.

Ratification of the Kyoto Protocol (1997)

As an extension of the UNFCCC, the Kyoto Protocol pursues the objective of reducing greenhouse gas (GHG) emissions.

On 16 February 2005, Algeria ratified the Kyoto Protocol.

Ratification of the Paris Agreement (2016)

On 20 October 2016, Algeria ratified the Paris Agreement on climate.

The Paris Agreement requires each country to communicate a nationally determined contribution (NDC).

A National Climate Committee (“CNC”), under the authority of the Ministry of Environment, was created to monitor and evaluate climate change programmes and propose measures to implement the country’s climate change commitments.

On 26 July 2015, the CNC finalised the Nationally Determined Expected Contribution (NDEP), structured around the two pillars of the UNFCCC: mitigation of GHG emissions and adaptation to the effects of climate change.

In the NDEP, Algeria committed to reducing its GHG emissions by 7% by 2030 based on a business-as-usual emission scheme financed using national means, and by 22% subject to external financial support and technology transfer. 

National Climate Plan (“PNC”) (2019)

The PNC was developed by the CNC with the assistance of the German development agency, Deutsche Gesellschaft für Internationale Zusammenarbeit or GIZ.

The PNC was developed for the period 2020–2030. It aims to translate the objectives of the NDEP into concrete actions.

The PNC is to be updated in 2023 for the period 2025–2030. 

Internally, Algeria has adopted Law No 04-09 of 14 August 2004 on the promotion of renewable energy in the framework of sustainable development, as well as several government plans.

National Action Plan for the Environment and Sustainable Development (“PNAE-DD”) (2020–2024)

The PNAE-DD is the implementation of the National Strategy for the Environment and Sustainable Development (“SNEDD”), developed in 2002 and revised in 2016. It sets the Algerian environmental policy. 

National Programme for the Development of Renewable Energies (2020)

The National Programme for the Development of Renewable Energies, adopted in 2011 and revised in 2015 and 2020, aims to achieve, by 2035, a production of 15,000 MW.

The Ministry of Energy Transition and Renewable Energies (“MTEER”) launched the “Solar 1,000 MW” call for tenders on 23 December 2021. This tender aims to implement the first tranche of the 15,000 MW of electricity generation capacity. On 17 February 2022, the related specifications were published. 

National Green Hydrogen Plan

As part of the Algerian energy transition policy, the development of a National Green Hydrogen Plan is underway.

Article 119 of the Hydrocarbon Law allows the Minister of Hydrocarbons to decide limitations on hydrocarbon production on an exceptional and time-limited basis, for reasons related to the objectives of the national hydrocarbon policy. See 2.10 Restrictions on Production Rates for more details.

Unlike the previous law, the new Hydrocarbon Law no longer distinguishes between “conventionals” and “unconventionals”. There is therefore no special scheme relating to unconventional upstream interests.

Gas liquefaction is part of hydrocarbon processing activities. See 3.3 Issuing Midstream/Downstream Licences for more details.

From an environmental point of view, facilities for the liquefaction of natural gas, including LNG storage facilities associated with liquefaction facilities, are part of category (A) infrastructures, the construction and operation of which must be subject to an impact study and a hazard study. Their construction is then authorised by the ARH and their operation by the Minister of Hydrocarbons. See 5.2 Environmental Obligations for a Major Hydrocarbon Project for more details.

The ARH determines and announces the natural gas liquefaction tariff.

So far, energy transition considerations have not really affected the development and utilisation of oil and gas upstream and midstream assets.

In November 2021, in the framework of the Algerian-German energy partnership, an exploratory study of the potential of Power-to-X (green hydrogen) for Algeria was published by the German development agency, Deutsche Gesellschaft für internationale Zusammenarbeit.

This study reveals that there is a vast infrastructure for the production, use and export of fossil fuels, which can be successfully used, at least partially, for the green hydrogen industry.

The Algerian Hydrocarbon Law adopts a pragmatic approach to the constant concern of allowing the project to reach reasonable profitability.

For example, in fiscal matters, reduced rates applicable to certain taxes can be granted in order to achieve a reasonable rate of return.

Pipeline transportation tariffs must allow the concessionaire to cover its operating expenses, pay its taxes, duties and fees, amortise its investments and financial expenses, and achieve a reasonable rate of return.

The Hydrocarbon Law is also more flexible. It offers the possibility to carry out upstream oil and gas activities under three forms of hydrocarbon contracts. It also allows co-contracting parties to a hydrocarbons contract, either through a tender process or through direct negotiations with Sonatrach.

As explained in 1.1. System of Hydrocarbon Ownership, the Hydrocarbon Law was first enacted on 11 December 2019.

About 40 texts implementing the law have been published, and additional regulations are still expected to apply to the new law.

A call for tenders should be launched soon to allocate certain blocks. 

Contracts have also apparently been concluded with investors under the new law through direct negotiations. The press reports that in May 2022, Sinopec overseas oil and gas limited entered into a production-sharing contract on the Zarzaitine perimeter (Illizi), worth USD490 million.