What’s wrong in Algiers?

Even inside the labyrinthine central circle of Algeria’s governing regime, the magnitude of last month’s failure to auction off shares in the country’s energy reserves has not been lost.

While the officials that head the Agence Nationale pour la Valorisation des Ressources en Hydrocarbures (Alnaft) frantically try to determine why just four of the 31 oil and natural gas concessions the country offered to international energy companies this year were taken, former state energy executives are openly expressing their dismay.

Algeria is home to the second largest natural gas reserves in Africa and the fourth largest proven oil reserves. It is not only by far the biggest country by area on the continent, but also in the whole of the Mediterranean basin. Its state energy company, Sonatrach, is the largest in Africa.

Nevertheless, failure to attract international investors is not new in Algeria. This is the fourth attempt in six years to attract the oil majors that has has proved disappointing. But the extent of this failure is new. None of the previous licensing rounds offered anything like this number of concessions and news that just a handful of companies would actually sign deals fell hard.

This time was supposed to be different. A new law was in place offering more favourable terms to foreign companies and fears in European capitals about the declining security of Russian gas supplies were driving interest in alternative exporters like Algeria. Abdelmalek Sellal, the prime minister, had been hard at work meeting with high level European officials, including Federica Guidi, the Italian industry minister, whose country derives almost half its energy from natural gas.

What went wrong, and where were BP, Anadarko, Spain’s CEPSA, or French giant Total?

A common explanation for the low level of interest in Algeria among international investors is political uncertainty generated by the combination of 77 year old President Abdelaziz Bouteflika’s poor health and the supposed lack of a clear successor.

But Bouteflika has been ill for years without dramatic consequences for political stability. And as Dalia Ghanem-Yazbeck of the Carnegie Endownment for International Peace has argued, the number of possible successors to Bouteflika is small. Aside from the president’s brother, Said Bouteflika, the likely favourite is Ahmed Ouyahiya, minister of state and director of the president’s office. Both are members of le pouvoir, the secretive and inscrutable elite that runs Algeria, and of the close coterie that surrounds the current president. So there is little reason to fear sudden changes in direction at the top.

Another explanation may be security concerns. The opportunities that were offered to international companies included blocks in the vast southern deserts, which in January 2013 were the site of the In Amenas attack where – after months of labour unrest and with lax security – Mokhtar Belmokhtar’s militant group attacked an energy installation and took 800 hostages, 40 of whom were subsequently killed.

But the security explanation fails to take into account the high level of initial interest in the concessions when they were first unveiled this year. According to one European diplomat in Algiers, more than 50 companies expressed interest with full knowledge of the security situation and the locations of the reserves.

The answer may instead lie in the nature of the impenetrable system of rules, delays and procedure that Algeria’s ruling elite has built around it and which certainly operates in the energy industry. Even those with deep knowledge of Algerian politics find the system difficult to navigate. “I put it down to the old bureaucratic headaches here,” the diplomat said, in support of this thesis.

Much of what goes on in Algeria does so in the shadows. A prime example came during the auction when Abdelhamid Zerguine, chief executive of the state energy company Sonatrach (which by law must have at least a 51 per cent share in any project in Algeria), was sacked in favour of interim appointee Said Sahnoun on July 26.

Depending on who you ask, Zerguine was fired at the behest either of the energy minister Youcef Yousfi, or the powerful businessman Ali Haddad whose conglomerate Groupe ETRHB is rumoured to be looking for a way into the hydrocarbons sector and had found the previous CEO unsympathetic.

Either way, Zerguine’s dismissal was less ignominious than that of his predecessor, Mohamed Meziane, who lost the job after being arrested along with his two sons on corruption charges in 2010.

“Algeria continues to fare poorly compared with other emerging hydrocarbon producers in terms of operating costs, bureaucratic delays, insurance costs, labour regulations, and profit repatriation,” said Riccardo Fabiani, a Middle East and north Africa analyst at Eurasia Group who specializes in Algeria.

“In the current global hydrocarbon environment, with emerging oil and gas markets in Africa and other areas and the shale revolution under way, it’s hard for an IOC to justify why it should invest in a place like Algeria, where business operations border the impossible,” he told beyondbrics.

In all likelihood it is precisely the closed, sclerotic nature of Algeria’s political system that is holding international energy companies back.

There have been some positive signs for the country’s energy industry. On October 8 Russia’s Gazprom said it had made its third find after successful drilling in the Berkin basin and this month the energy ministry claimed natural gas production had returned to growth for the first time in 18 months. Meanwhile, the state itself has announced a massive expansion in energy investment which may amount to as much as $100bn.

However, Algeria relies on hydrocarbon exports for 60 per cent of its revenue and those exports have been falling hard. Production has slowed and domestic demand is rising, leading to a loss of $5bn in revenue in 2013 as exports dropped 7.5 per cent. In the first quarter of 2014 exports fell a further 9 per cent.

Global oil prices dropped to multiple year lows last week and, with plans to bring in international capital to develop the reserves falling flat, even large scale state investment may not be enough to cushion the blow. An incomprehensible political system run by an entrenched, ageing elite may soon become too expensive a luxury to maintain.

This article was originally published with the Financial Times on October 21 2014.

Tunisia’s costly battle against its militants

Tunisia’s streets filled Oct. 26 with voters keen to participate in the national elections for the 217-member National Assembly, but while the country’s political and ideological center rejoices, the shadow cast by its extremist border militias is not receding.

With parliamentary elections ending and preparations in place for the country’s first democratic presidential elections next month, Tunisia is enjoying international praise for having experienced a “peaceful revolution leading to promising stability.”

Meanwhile, senior Tunisian politicians, including Ennahda leader Rachid Ghannouchi, defeated in the elections, say Tunisia offers “a stark contrast to the extremes of terrorism and military intervention seen elsewhere in the region.”

But as the Independent High Authority for Elections was making its final arrangements on Oct. 23, Tunisia’s Interior Ministry announced that security forces had stormed a house west of Tunis that allegedly belonged to a “terror group,” using tear gas, stun grenades and live fire and killing six people, five of whom were women.

Interior Minister Lotfi Ben Jeddou said one of the women had fired on special forces with a Kalashnikov, and that the group was recruiting fighters for the war in Syria. (More fighters have joined the Islamic State (IS) from Tunisia than any other country.) However, Ben Jeddou also confirmed that two children had been present inside the house, and that one of them sustained a head injury.

The government claims that the operation was one of the many this year aimed at countering the influence of extremist militant groups such as the Tunisian wing of Ansar al-Sharia and Katibat Uqba Ibn Nafi, which operate across the country but are primarily based near the border with Algeria and in the foothills of Jebel Chaambi.

In July, Tunisia’s Interior Ministry began its latest push against the Chaambi militants after one of the armed groups attacked a military checkpoint and killed 15 soldiers. Just two weeks earlier, National Guardsmen in the town of Gafsa had arrested more than a dozen people accused of being part of the Ansar al-Sharia network.

More than 100 arrests were made in July in a program that is ongoing against “hard-line Islamists,” headed by National Security Service Director Waheed al-Tojani.

The crackdown on the Chaambi militants has had strong public support since the assassinations of leading secular opposition politicians Chokri Belaid and Mohamed Brahmi last year. The men are believed to have been murdered by alleged Ansar al-Sharia member Kamel Gadhgadhi, who was killed by security forces in February.

On Oct. 14, state forces arrested Hafedh Ben Hassine, the brother of Ansar al-Sharia leader Abu Iyadh along with 11 associates, and on Oct. 16 a man named Alaeddine Tahri, whom the Interior Ministry accuses of being a senior member of the associated Uqba Ibn Nafi Brigade, was arrested in Gabes.

Prime Minister Mehdi Jomaa said the government has arrested a total of 1,500 “suspected jihadists” so far this year.

The militant groups are certainly causing concern to those in power. Plans emerged from the Ministry of Finance on Oct. 24 to raise the national military budget from around $110 million in 2014 to $280 million in 2015, an increase of 150% in a single year.

Tunisia’s government has also initiated a $700 million deal with the US Defense Supply Cooperation Agency for 12 Black Hawk helicopters, complete with weapons systems, radar and Hellfire missiles, in a deal explicitly stated to support counterterrorism operations.

The threat to Tunisia posed by the militant groups is not entirely domestic. On Jan. 14, Abdelmalek Droukdel (aka Abu Musab Abdel Wadud), the leader of the Algerian militant group al-Qaeda in the Islamic Maghreb, is believed to have appointed Algerian fighter Khaled Chaieb (aka Lokman Abu Sakhr) head of a new regional branch in Tunisia.

Katibat Uqba Ibn Nafi, which operates from the western Jebel Chaambi region, was previously allied with Droukdel’s group but has since pledged support for IS. The group has also issued threats to mount attacks during the elections, including threats to assassinate Jomaa and Ben Jeddou.

The country’s two borders with Libya were officially closed by the government for the duration of the parliamentary elections — a decision primarily motived by security concerns.

“Among the broad mass of the electorate, concerns about the economy are trumping those about security,” Anthony Dworkin, a senior policy fellow at the European Council on Foreign Relations, told Al-Monitor. “However, it is a big concern for policymakers, who see the threat of an immediate crisis from a major incident as very serious,” he said.

“With the renewed confidence and profile of the Interior Ministry, there are also fears that given the lack of accountability in the security forces there could be a return to the kind of heavy-handed tactics of the past,” he said.

None of those arrested for the crime of “terrorism” have been tried in Tunisia since the 2011 revolution, but hearings could begin this month. Around 600 defendants are currently facing prosecution, according to the Ministry of Justice.

The triumphalism of the elections should be tempered with recognition that serious economic and security problems remain unsolved, according to a Oct. 20 report by the International Crisis Group.

“Tunisia has successfully overcome successive political crises, yet seems less able to absorb the impact of major [jihadist] attacks,” the report said.

“Whatever the results of the legislative and presidential elections, the Tunisian government needs to confront its critical security challenges by implementing a consensual, balanced and [depoliticized] approach to anti-terrorism,” it said, concluding that the economic, social and ideological grievances that help give rise to militant movements must be addressed.

On polling day, Tunisia’s voters were not alone on the streets. The government claims it mobilized a combined force of military and police numbering 80,000 officers, a figure that reveals Tunisia’s electoral successes are not coming without the threat of blood.

This article was originally published with Al Monitor on October 27 2014.