US embassy cable - 05ALGIERS1030

C O N F I D E N T I A L SECTION 01 OF 02 ALGIERS 001030 
 
SIPDIS 
 
STATE FOR NEA/MAG (MCNICHOLAS) 
COMMERCE FOR ITA (DAVID ROTH) 
ENERGY FOR GINA ERICKSON 
 
E.O. 12958: DECL: 05/21/2015 
TAGS: ECON, EINV, EPET, BEXP, AG, Hydrocarbons 
SUBJECT: POTENTIAL FOR GREATER U.S. ACTIVITY IN ALGERIA'S 
DOMESTIC AND EXPORT ENERGY MARKETS 
 
REF: A. ALGIERS 564 
 
     B. ALGIERS 510 
 
Classified By: Ambassador Richard W. Erdman, reason 1.4(b). 
 
CONTAINS PROPRIETARY INFORMATION 
 
SUMMARY 
------- 
 
1. (U) The first half of 2005 has witnessed a small boom in 
U.S. interest in the Algerian domestic energy supply sector, 
with one U.S. firm, General Electric, pressing for 
participation in a new power plant and two other firms 
looking for opportunities in the market.  According to GOA 
officials, including Energy Minister Chekib Khelil, Algeria 
will require a new 1200 megawatt plant every three years to 
meet growing energy demands as the nation expands its 
industrial and residential infrastructure.  Embassy 
conversations with the three U.S. firms reveal that they are 
carefully examining market opportunities and the electricity 
regulatory environment in Algeria.  On the energy export 
side, foreign participation in domestic hydrocarbons 
production is expected to increase as the new hydrocarbons 
law, passed in March, begins to take hold.  Sonatrach 
officials have expressed specific interest in seeing greater 
U.S. participation in hydrocarbons projects, and Sonatrach 
CEO Mohamed Meziane is optimistic on the hydrocarbons law's 
intended effects, namely that it will increase the state's 
revenues, not reduce them.  U.S. multinational BP fared well 
early April in the last exploration bidding round, winning 
three contracts. End Summary. 
 
GENERAL ELECTRIC COMPETING FOR 
SHARE OF 1200 MEGAWATT PLANT 
------------------------------ 
 
2. (SBU) U.S. interest in Algeria's domestic energy market 
has intensified in the first half of 2005.  In a May 18 
telephone call, General Electric Regional Director Kamal 
Kassis briefed Ambassador on the results of G.E.'s early May 
visit to Algeria and their activities in the country.  Kassis 
expressed his deep appreciation for Embassy assistance in 
setting up a May 11 meeting between visiting G.E. 
International CEO Ferdinando Beccali-Falco and Prime Minister 
Ahmed Ouyahia.  Beccali-Falco was pleased with the meeting, 
describing it as the "best such meeting in the past six 
months."  Kassis also said that G.E. was now a finalist, 
along with Siemens, for the construction of the 1200 megawatt 
(MW) Hadjret Ennous gas-powered plant near Cherchell, about 
100 km west of Algiers.  He said the final decision would be 
made in early September.  G.E. is partnering with Canadian 
firm SNC Lavalin on the project, which would be G.E.'s 
first-ever equity participation in Algeria.  (Heretofore, 
G.E. has supplied turbines through commercial sales 
channels.)  The total value of the Hadjret Ennous project is 
estimated at over $800 million, with G.E. and the local 
builder each claiming 25% shares and Sonatrach-Sonelgaz 
hybrid firm Algeria Energy Company (AEC) taking 50%. 
Ambassador said that G.E.'s investment in the project would 
be an important step and recalled that, at the signing of the 
2003 Ex-Im guarantee for the Skikda LNG power plant (awarded 
to SNC Lavalin), Energy Minister Khelil announced Algeria 
would need a new 1200 MW plant every three years, and that 
Algeria was looking for foreign participation in these 
projects. 
 
3. (SBU) There has been a convergence of interest in the 
gas-powered energy sector in Algeria in recent weeks. 
Virginia-based AES has announced a visit to Algiers in early 
June, and Caterpillar Power Ventures Swiss-based office 
phoned the Embassy for discussions on the energy market.  AES 
is targeting the same large-scale power plant market as G.E. 
(1200 MW), while Caterpillar is looking to construct smaller 
plants between 20 and 100 MW that utilize gas from flares to 
produce electricity, a technology they have used in Tunisia. 
 
SONATRACH SEEKS INCREASED 
U.S. PARTICIPATION 
------------------------- 
 
4. (C) U.S. interest in Algeria's domestic energy sector is 
likely to increase over coming months as the hydrocarbons 
reform legislation passed in March begins to take hold, 
liberalizing the energy sector by letting foreign firms 
maintain majority control of their investments (Ref A). 
According to Sonatrach Financing Director Kouider Benaouda in 
an April 12 meeting, during the visit of Commerce's ITA 
Advocacy Center Director Daniel Bloom and adviser Stephen 
Madden, Sonatrach wants to double the number of U.S. 
hydrocarbons service firms in the sector from 50 to 100 in 
order to meet its increased production goals.  Ministry of 
Energy officials have stated (Ref B) that their production 
goal is 1.5 million barrels per day by early 2006, and 2 
million barrels per day by 2010.  As of yet, Algeria has not 
made a concerted effort to attract U.S. service firms not 
already active in the local market.  Its main tender 
dissemination tool, Baosem-dot-com, offers documents almost 
entirely in French, a technical barrier for some U.S. firms 
that is exacerbated by the short submission deadlines. 
However, former Baosem and Central Audit Group Director 
Mohamed Chekired, now Sonatrach Vice President for Transport, 
told Bloom and Madden in the April 12 meeting that Sonatrach 
would begin to translate more tenders into English more 
frequently.  Chekired did not give a date for beginning the 
work, but said it would be a serious effort. 
 
5. (U) On April 9, just days prior to the meeting with 
Benaouda and Chekired, Sonatrach announced the winners of in 
the sixth round of bidding on new exploration blocks. 
U.S./British company BP won three contracts, indicating 
continued competitiveness of U.S. multinationals in an 
increasingly crowded field.  Sonatrach awarded 9 of the 10 
available blocks in this round, an improvement over the fifth 
round when only 8 of 10 blocks were awarded.  Shell, BHP and 
Gulf Keystone were awarded two blocks each.  The sixth round 
was the last round that would be jointly managed by Sonatrach 
and the Ministry of Energy and Mines before the new 
hydrocarbons reform law goes into effect. 
 
SONATRACH CEO COMMENTS ON 
HIS COMPANY'S NEW ROLES 
------------------------- 
 
6. (SBU) Sonatrach CEO Mohamed Meziane told Bloom and Madden 
during an April 12 dinner that Sonatrach would not 
automatically exercise its guaranteed 20-30% participation 
option under the new hydrocarbons legislation.  Projects 
would be evaluated on a case-by-case basis.  Asked if the GOA 
was concerned about loss of revenue with Sonatrach's new 
position as tax-paying entity (and no longer automatic state 
cash cow), Meziane confidently replied that the new 
arrangement would actually increase revenue to the state's 
coffers.  Sonatrach's restructuring under the new legislation 
could take up to six months until September 2005, by which 
time new directors would be named for the tender-issuing and 
resource management authority, Alnaft, and the corollary 
industry regulatory authority. 
 
ERDMAN