Asian energy groups beat Brits in quest for Algerian renewables

British Energy companies are eyeing Algeria’s energy sector, but it’s still Middle and Far Eastern firms, not Europeans, that are closing the deals

A recent push by British companies and officials to break into Algeria’s lucrative energy industry is meeting stark competition from South Korean and Chinese business, according to corporate and diplomatic sources.

A high-level trade delegation led by the UK prime minister’s trade envoy, Lord Risby, in September saw companies such as Shell, Unicommerce, and Mott MacDonald received by the Algerian energy minister, Youcef Yousfi, to discuss furthering British-Algerian corporate relations.

Clarke Energy, a UK energy company, says it sees Algeria as a significant prospect for future business following the visit, especially in unconventional and renewable energy such as biogas.

“Our impression is that finally the renewables market in Algeria is taking off, and we’re targeting the state owned companies, Sonatrach and Sonelgaz,” says Stephane Michaut, a Clarke Energy representative who was part of the trade delegation.

“We are hoping to expand in Algeria next year in the form of power production for Sonelgaz, cogeneration, and renewable biogas. We also have plans for flare gas which we are hopeful of securing by September 2014.”

The visit was designed to be the “door-opening stage” for British access to Algeria’s energy industry, and included a visit to an Algerian solar development unit in Bou Ismail, diplomatic sources told This is Africa.

No contracts have yet been reached, but two memoranda of understanding were signed by delegates, including one arranging for Algerian engineers to gain qualifications from the UK’s Cranfield University. The visit was Lord Risby’s fourth in the last two years.

Eastern favour

International investors from the Far East are also eyeing Algeria’s renewable energy market, however, and it is in their favour that the tide appears to be turning.

Last week a similar delegation of South Korean companies visited the country, and have confirmed a major renewable energy deal. The energy division of Hanwha Corporation has established a contract with Sonelgaz worth almost $450m for the construction of a solar power plant in the province of Biskra, This is Africa has learned.

The deal underlines a growing trend in foreign investment in Algeria, which is increasingly coming from the Far East rather than Europe. China this year overtook France and Italy as the leading exporter to the country.

The Algerian government is seeking to greatly expand energy production from all sources in order to counter falling export revenues (down more than 8 percent this year) resulting from an increase in subsidised domestic demand.

Hydrocarbons are responsible for more than 95 percent of OPEC-member Algeria’s export earnings, but the amount of oil and gas available for export has fallen by more than $5bn this year, leading the government to look to private capital to finance unconventional exploration and production.

Officials have announced a target of sourcing 40 percent of the country’s electricity supply from alternative energy sources by 2030.

Middle Eastern investors are also developing ties to Algeria. The country attracted $3.1bn of foreign direct investment in the first two quarters of 2013, with the majority of the total coming from Qatar, according to the National Agency for Investment Development (ANDI).

The governments of Qatar and Algeria signed a deal in March worth at least $2bn for the construction of a steel complex at Jijel. In accordance with regulation, 5 percent is owned by Algeria’s National Investment Fund, and 49 percent split between Qatar Steel and Qatar Mining.

European investors are seeing their share of the Algerian market fall. Two European deals for construction in solar power have been cancelled this year alone.

In May the Desertec Industrial Initiative abandoned its 2011 plans to export solar power to Europe. A German consortium made up of Centrotherm Photovoltaics and Kinetics Germany then cancelled another solar project with a subsidiary of Sonelgaz known as CEEG.

Tough climate

Fierce competition between international investors for access to Algeria seems at odds with conventional wisdom on the country’s investment climate. Foreign companies have long seen Algerian energy as potentially lucrative, but have found the investment climate uncongenial.

In 2009, state regulation was enacted which was more stringent than any since the country’s oil supply was nationalised in 1971. The new rules mandated majority Algerian ownership of all foreign contracts, meaning the maximum interest foreign companies could hold in any Algerian operation was 49 percent. The World Bank’s Doing Business report ranks Algeria 152nd out of 185 internationally.

Security concerns are also serious. On January 16th 2013 a Sahel militant group known as al-Mulathameen led by renowned smuggler Mokhtar Belmokhtar attacked the Tinguentourine gas field near In Amenas taking 800 hostages. Forty oil workers, all but one foreign contractors, were killed.

In addition, corruption charges have been aimed at key industries. In July 2013, 17 executives in Algeria’s power sector, including head of Sonelgaz Noureddine Boutarfa, and his predecessor Abdelkrim Benghanem, were saddled with corruption charges relating to contracts awarded to two major internationals, the French firm Alstom and General Electric.

Analysts believe the charges may be linked to power struggles between senior officials in the Algerian intelligence service (DRS) and allies of President Abdelaziz Bouteflika, who is set to run for a fourth term in office in April’s presidential elections.

Western worries

“It’s fair to say we’re cautious on Algeria. On paper it’s a great prospect with huge gas reserves, but in reality there’s also political risk. Perhaps more importantly there’s not yet the political will to bring in the subsidies needed for renewables like biogas,” says a representative from a British Energy company looking at Algeria, who requested anonymity.

But large natural reserves, a GDP higher than any regional competitor besides Egypt, and levels of state spending on infrastructure totalling more than $250bn appear to be generating more than enough interest in Algeria.

Algerian officials have also signalled that some regulation will be loosened. The Algerian elite have vested interests in all production contracts, but while the 4 percent rule is here to stay, they have been willing to tweak the regulation in areas such as unconventional energy, analysts say.

At the end of October, the government announced the completion of a $2.3bn processing facility at El Merk designed to increase the country’s maximum production. Real growth is forecast to average 3.4 percent over the next five years.

Representatives from the trade delegation praised the British embassy’s role in organising access to Algerian officials but said problems remain in closing deals.

“On the one hand there was Sonelgaz saying they want to proceed by themselves and everything’s going to be run by the state, and on the other there’s the state regulator saying there will be feed-in tariffs and private companies will be able to sell to Sonelgaz, so it’s ambiguous,” says Clarke Energy’s Mr Michaut.

He stresses that the energy industry is highly competitive: “We’ve spent two years marketing biogas and landfill, and the need for private corporate financing. In a way we’ve been doing this job for us and our international competitors, but that’s how it has to be.”

The latest figures released by Algerian Customs confirm that in the first three quarters of 2013, the UK has risen to 10th among countries exporting to Algeria, but still trails behind France, the US, China, and even The Netherlands.

“Western companies are still a little more wary of the political and security risks in Algeria, where Middle and Far Eastern investors are more willing,” says Riccardo Fabiani, Middle East and North Africa analyst for Eurasia Group.

“Of course the traditional energy partnerships with southern Europe aren’t going anywhere, they’re reinforced by permanent pipelines, but Algeria is looking further afield for energy export revenue: to Britain, and especially to the Far East.”

This article was originally published with Financial Times: This is Africa on November 25th.

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Western Governments underestimate Libya’s instability

Western powers are in danger of underestimating the regional effects of Libya’s political instability, according to Hugh Robertson, the British Foreign Office minister responsible for the Middle East and North Africa.

Robertson told the Foreign Affairs Committee that there are around 400 arms dumps in Libya, 75% of which are not under government control. He also said the British, French and US governments have underestimated the capability of the region’s militant groups to exploit the political chaos.

The level of state security in Libya has dramatically worsened in the last month, as rising militia violence and declining state power edge the country ever closer to all-out anarchy. Deputy Intelligence Chief Mustafa Noah was abducted from Tripoli International Airport on Nov. 17 before being freed following the intervention of the Zintan Shura Council.

Noah’s abduction was the highest-level attack on a government official since the kidnapping of Prime Minister Ali Zeidan by the Libyan Revolutionaries Joint Operations Room on Oct. 10. Zeidan was also released within 24 hours.

Violence centered in Tripoli’s Ghargour district last weekend resulted in the deaths of at least 45 people and a further 460 wounded after Misrata militias opened fire on protesters demanding the withdrawal of their forces from the capital. The resulting clashes between rival militias were the worst since the 2011 overthrow of Moammar Gadhafi.

Evidence collected by Human Rights Watch from Tripoli’s Abu Salim and Zawiya Street hospitals suggests the majority of casualties were caused by heavy weapons, including anti-aircraft guns and rocket-propelled grenades.

“Libyan citizens have paid with their lives for the reckless acts of unaccountable militias,” said Sarah Leah Whitson, Middle East and North Africa director at Human Rights Watch. “Libya needs security forces who don’t stand by as militias kill unarmed protesters.”

Robertson said that huge quantities of arms were now unsecured in Libya and were potentially available to well-resourced regional militant organizations.

“You add to that the ability of insurgents, through kidnap for ransom and other things, to raise sums of money like 40 million pounds ($64 million), and in a market that is oversupplied, where there is a lot of kit [military equipment] available, you can absolutely see the dangers,” he told the committee.

The minister compared the danger posed by militant groups in the wider Sahel region to armed groups that fought in the Bosnian war. British government officials said poor border security in Libya and North Africa is making effective monitoring of militant groups difficult.

Simon Shercliff, head of the Foreign Office’s Counter-Terrorism Department, said, “The size of the problem is immense. There are huge desertified borders, often not actually demarcated in any sensible way, and, as we mentioned earlier, ancient trade routes, used either for licit or illicit reasons, criss-cross the whole region.”

Foreign Office officials said that the British government is lobbying for cooperation between North African states on border-security issues, and has a permanent border-security adviser stationed in Libya.

A regional border-security conference was held in Rabat last week that resulted in the announcement of plans to establish a training facility in Morocco. Algerian representatives did not attend the conference due to diplomatic tensions between the two countries.

Algeria instead independently announced that it would built 80 new outposts, each manned with 40 guards, along its long Saharan border with Morocco, Mauritania, Mali, Niger, Tunisia and Libya.

Misratan militias based in Tripoli, including the al-Nusour brigade, which is widely held responsible for the recent spike in violence, have now withdrawn from bases in the capital in line with orders received from Misrata. Tripoli and Misrata regional leaders are believed to be engaged in regular meetings with the aim of defusing the tense political situation.
Instability is having significant effects on the operations of businesses and international oil companies in Libya, which has proven reserves of almost 48 billion barrels of oil — the largest in Africa.

National oil production has sunk to levels well below an average of 1.5 million barrels per day, and even below the levels expected by some international companies on their sites. The closing of oil fields, terminals and ports by militias (along with coordinated labor action in some areas) has led investors and oil companies to shrink their operations and in some cases, look to exit the country.

The majority of the country’s oil terminals, which are located in the east around the Sirte basin, remain closed. However, the Mellitah export terminal and associated Greenstream pipeline, which runs from Western Libya to Italy, reopened Nov. 18 after a labor dispute with Amazigh workers ended in a negotiated settlement.

Separatist militia leader Ibrahim al-Jathran, who is responsible for many of the closures, this month announced the establishment of his own oil company based in the country’s east and outside the authority of the central Tripoli administration. Libya’s oil exports primarily go to Europe, with roughly 10% shipped to China.

Oil companies said that both security concerns for their staff resulting from a lack of state control and the effect the closures are having on production are fueling their highly cautious positions toward Libya.

The overwhelming majority of the Libyan government’s revenue comes from oil production and exportation.

Tripoli is currently experiencing its first general strike in recent memory as the majority of the public sector and private businesses close and only pharmacies, hospitals and gas stations remain open.

This article was originally published with Al-Monitor on November 19th.

Gaps in Africa’s Continental Highway prove lethal to Niger migrants

Missing links. (All rights reserved.)

Work on Africa’s cross-continental road network, the Trans-African Highway, has slowed to a crawl, as scores of migrants die attempting the unmade Sahara crossing.

Last week, rescue workers in Niger found the bodies of of 92 people – 52 of them children or teenagers – who died of thirst after their vehicles broke down on the difficult Trans-Sahara crossing, part of the long-delayed Trans-African Highway (TAH) project.

Around 80,000 migrants cross the Sahara every year on their way to North Africa and Europe. The highway section, part of the Lagos to Algiers road, has been marked for construction for more than a decade but is currently little more than an unmade track.

The New Partnership for Africa’s Development (Nepad), which is responsible for finishing the TAH project, claimed on October 23 that construction of the Saharan road section was “almost complete”. But progress on the Sahara Highway and much of the whole TAH project has in fact stalled in recent years, This is Africa has learned.

An investigation into the Sahara Highway revealed that the project was said to be 85 percent complete ten years ago, but missing links in Niger still remain. Stephen Karingi, regional integration and infrastructure director of the United Nations Economic Commission for Africa (Uneca), says that a road had been constructed up to the Algerian border but that work in Niger was still “under development”.

The stranded migrants are believed to have spent days waiting for rescue on the unmade track near Arlit before leaving the path to search for water on foot.

Uneca first proposed construction of a Trans-African Highway after the majority of African states had completed decolonisation in 1971. Nepad was founded in 2001 to work on continental development projects, including finishing the TAH. “For the first time, Africans have conceptualised, developed and presented a continental plan that was to effectively address all its developmental challenges,” says Nepad’s infrastructure specialist, John Tambi, about the organisation’s role.

But progress has been very slow. A Uneca official told This is Africa that 21 percent of the TAH is still unconstructed. The project was 75 percent complete in 2003, meaning just 2,000 km of the 54,000 km network has been built in the last decade.

The TAH plan incorporates nine primary highway routes totalling 54,000 km of modern road, more than enough to wrap the entire circumference of the earth. One of the central sections, the Cairo to Dakar highway, which runs for 8,640 km across North Africa, was fully completed in 2005 but all eight of the other branches have significant missing links. A new 7,000 km highway, connecting Djibouti to Libreville and Bata in Equatorial Guinea, is set to be announced as part of the network this year.

Mr Karingi claims that despite the slow progress, work is now being done to fill the Sahara gaps. “This is the only TAH route with its own bureau, named Trans-Saharan Road Liaison Committee, which is pushing for its completion,” he argues. “No doubt, the progress has been slow if we are to look at the achievements in the last 10 years. But that has changed with the current increased momentum to complete the missing links.”

African road networks carry almost $200bn in annual trade, but routes are geared towards port connections rather than linking African countries, inhibiting continental trade. Trade between African countries is estimated at just 10-12 percent of the continent’s total external trade. By contrast, intra-European Union trade represents 64 percent of the external trade turnover of EU member states.

Fewer than 40 percent of people living in rural Africa live within 2km of an all-season road, according to the World Bank’s Africa Infrastructure Country Diagnoses. Road density is on average 5 km per 100 square km, less than half the level of Latin America. In Central Africa, 65 percent of the planned highway network is still missing.

The IMF noted in October’s regional economic outlook that a key structural constraint on growth was that “cross-border trade within sub-Saharan Africa remains low”. David Wheeler, a lead economist at the World Bank, has suggested that full completion of the network could yield as much as $250bn in economic benefits in sub-Saharan Africa alone, with much of the value going to the rural poor.

Safety on Africa’s highways remains a concern. The number of people killed in road crashes, partially as the result of poor safety standards and poor quality of infrastructure, is estimated at 322,000 per year.

An African Development Bank report lists financial constraints as the major obstacle to completion. “Most road administrations have a reasonably good idea of how much money would be required to maintain and develop the national road network, but they are not provided with the amounts they consider necessary,” the report says.

Political and security factors also weigh heavily on project planners. Some of the national borders that the network was built to transverse, such as the Moroccan/Algerian border, are closed. Police, customs officials, and other militias have also been found to be operating illegal roadblocks along central TAH routes. The roadblocks mean additional, illegal charges are forced on road users. In one assessment project, monitors found that on the route between Abidjan and Ouagadougou, which covers a distance of about 1,000 km, 65 unofficial controls were in place.

World Bank programme manager for the Africa transport policy program, Jean-Noel Guillossou, tells This is Africa that merely building better highways is not sufficient for improving regional integration and trade.

“Filling the missing links is important but to have safety, to have efficiency and law that will bring trade and save lives you also must have a framework of cooperation and standards so that the people who use roads actually benefit,” he argues.

Mr Guillossou says schemes that aimed to harmonise standards on the existing Trans-African Highway had succeeded in the past. In one study transit times were cut by 75 percent through better cooperation between national authorities in Kenya and Uganda.

Uneca said it is currently working on an intergovernmental agreement on minimum standards for security and maintenance on the TAH network, due to be presented at the next conference of African Transport Ministers. The conference was originally scheduled for November, but a World Bank official disclosed that it had been postponed until next year.

This article was originally published with Financial Times, This is Africa on November 6th.