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Windfall tax on foreign firms could amount to $1b a year
A tax on windfall foreign oil company profits could earn Algeria $1 billion in 2007, a move that is both fair and politically necessary in view of high prices, the country told energy multinationals.
- Reuters
- Published: 00:00 November 24, 2006
Algiers: A tax on windfall foreign oil company profits could earn Algeria $1 billion in 2007, a move that is both fair and politically necessary in view of high prices, the country told energy multinationals.
Energy and Mines Minister Chakib Khelil told a candid open meeting with foreign executives and reporters the government had decided the details of the tax and would publish them shortly ahead of a new oil exploration round planned for next year.
Challenged by Anadarko Vice President for International Operations Dick Holmes, who said the tax could affect the sanctity of his contract with Algeria, Khelil said the measure was both fair and politically savvy.
"The tax on exceptional profits is not an injustice but the re-establishment of justice in view of the quadrupling of the price of the barrel," Khelil said.
"We hope for revenues of the order $500 to $600 million this year and $1 billion in 2007."
Referring to resource nationalist policies in Bolivia and Venezuela, Khelil told Holmes the tax could relieve political pressure for even more sweeping measures affecting foreign energy firms.
He added: "Experience shows that when you have situations of that sort ... then we could have a situation where the companies could be losing more than just a tax on excess profits."
Foreign oil companies keenly await the details of the new tax - seen by many as an example of the resource nationalism sweeping the global energy patch - because its detailed provisions will affect their rate of return.
Among the details they will be seeking are a definition of the excess profits that will now be subject to a windfall tax in any month in which Brent crude averages over $30 a barrel. Brent was trading at just above $59 a barrel on Wednesday.
The rate at which the tax is applied has an enormous margin of variation, from five to 50 per cent. Companies will be looking for an explanation of how that rate will be set.
Khelil said some foreign firms would be more affected than others, because they have different financial terms in their contracts, but insisted the new tax was fair overall.
He said that in Algeria, foreign oil companies' "rate of return is now excessively much larger than it was expected to be."
"It creates a political problem, which has to be solved and it had to be solved through a reasonable share of the profits."
Many foreign oil firms have been concerned by news of the tax, part of a reversal of hydrocarbons legislation that was meant to make the country more accessible to outside investors.
Opec member Algeria has at least 11.8 billion barrels of proven oil reserves, putting it among the top 20 largest reserve owners, and it produces about 1.4 million barrels per day. Its state oil firm Sonatrach is Africa's largest company by revenue.
Khelil said the details of the new tax would be published in the government gazette shortly, while the investment terms would be published in their entirety early in 2007. Until the details are public, the new investment law cannot be implemented.
Anadarko is the biggest foreign operator. Others include Royal Dutch Shell, BP, BHP Billiton, ENI and Hess.
Khelil noted oil prices had risen sharply from the $15 a barrel seen at the time many production contracts were first signed. Asked if he was satified with Khelil's reply, Holmes said he would have to see the new tax terms before replying.
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