Lyes Boudiaf. Founder & President of Isly Holdings. Algeria. Lyes Boudiaf has been decorated as knight of the honorary Order of Merit of the State of Portugal www.lyesboudiaf.com #lyesboudiaf

1. Algeria: a key player in North
Africa
2015 Pan-African Oil and Gas Tax Workshop
Paris, France
February 2015

2. Page 2
Contents
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop
Recent developments
Institutional framework
Tax and legal framework for
investment
Oil and gas sector overview

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Algeria is located in North Africa
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Oil and gas sector overview
Doing business in Mozambique
2015_Pan-African Oil and Gas Tax Workshop

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Oil and gas sector overview
► Algeria is a key player in the oil and gas sector
► Leading natural gas producer in Africa
► Second-largest natural gas supplier to Europe
► Estimated to hold the third-largest amount of shale gas resources in the world
► Third oil producer in Africa (behind Nigeria and Angola)
► Estimated third-largest amount of proven crude oil reserves in Africa
► World’s fourth world’s exporter of oil and gas
► Oil and gas industry is a key sector of Algeria’s economy and generates:
► 97% of Algeria’s export revenue
► 60% of Algeria’s budgeted resources
► Five oil refineries with a total capacity of 652,500 barrels per day (Algiers, Skikda,
Arzew, Hassi Messaoud and Adrar)
► Three existing transcontinental export gas pipelines
► Two pipelines for transportation of natural gas to Spain via Morocco
► One pipeline for transportation to Italy via Tunisia
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Oil and gas sector overview
Oil and gas deposits: central and eastern areas
► Most wells and deposits
discovered in the Central
and Eastern Sahara
► No transcontinental export
pipelines for oil
► Multiple coastal terminals to
export crude oil, refined
products, LPG and NGPL
through tankers
► Domestic pipeline network
facilitates the transfer of oil
from the production fields to
coastal export terminals
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop
Source: Sonatrach

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Recent developments
Doing business in Mozambique
2015_Pan-African Oil and Gas Tax Workshop

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Recent developments
New discoveries
Eighteen new hydrocarbon discoveries were made in 2014 in Algeria.
► However, there has been limited interest from investors to undertake new oil and gas
projects in the past three licensing rounds due to:
► Repeated project delay resulting from slow government approval, difficulties attracting
investment partners, technical problems, etc.
► The 2013 militant attack on the In Amenas gas facility
► Legal restrictions concerning foreign investment in Algeria (national shareholding requirement)
► To attract more foreign investment to new projects, the Algerian Government:
► Enacted new contractual and fiscal provisions in 2013 (Law No.13-01 of 20 February 2013
amending Hydrocarbons Law No. 05-07 of 28 April 2005)
► Increased security presence at all of its oil and gas facilities
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Recent developments
Drop in oil prices
► Since June 2014, drop in the oil price from US$115 to around US$50 per barrel
► Impacts on Algerian economy include:
► Major cutback in export revenue
► Freeze of hiring in the public service
► Government announcement to diversify economy (industry, agriculture, tourism)
► Reduction in public financing and incentives to local agricultural sector
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Institutional framework
Doing business in Mozambique
2015_Pan-African Oil and Gas Tax Workshop

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Institutional framework
Main institutions
The Algerian State
► Owns all oil and gas resources but does not participate in exploration and production
activities
Ministry of Energy and Mines
► Responsible for implementing hydrocarbon policy, ensuring coordination and
rationalization of hydrocarbon production and ensuring optimal development of
hydrocarbon resources
National Agency for the Valorization of Hydrocarbon Resources (ALNAFT)
► Issuance and management of exploration and/or production contracts
► Works in partnership with Sonatrach for exploration and exploitation activities
Hydrocarbon Regulation Authority (ARH)
► Responsible for controlling and regulating activities in the hydrocarbons sector
Sonatrach
► National oil company (NOC) with key role in both upstream and downstream oil and gas
activities
► Obligation for foreign companies to work in partnership with Sonatrach, which must hold
at least 51% ownership in petroleum contracts
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Institutional framework
Main institutions
Sonatrach (cont’d)
► Algerian state-owned company
► The largest state-owned company in Algeria and top corporation in Africa (before the
Angolan Sonangol Group and the Nigerian National Petroleum Corporation) with a
consolidated turnover of around US$100b in 2013
► Owns roughly 80% of total hydrocarbons production in Algeria; remaining 20% owned
by international oil companies (IOCs)
► Activities (alone or in partnership with other oil companies)
► Upstream: research, exploration, development and production operations
► Pipeline transportation: transcontinental export and domestic network
► Downstream: production of the natural gas liquefaction units, LPG separation and refining
processing
► Marketing: management of shipping and sales transactions on the international market
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Institutional framework
Main institutions
Sonatrach (cont’d)
► Ongoing projects and investments
► Upstream projects in Mali, Niger, Libya, Mauritania, Tunisia and Peru
► Ongoing negotiations for exploration and production activities in West Africa
► Shareholding in various gas-processing companies in Europe (in Spain and Italy, with 36% in
Medgaz, 49% in PropanChem respectively)
► Establishment of an additional transcontinental gas pipeline towards Italy via Sardinia and a
direct pipeline linking Nigeria to Algeria
► Approbation of US$100b investment in Algeria to increase oil and gas output between
2014 and 2018
► Future projects
► To begin shale gas production by 2020
► To become a top producer exporting enough gas to meet 20% of Europe's gas demands
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Institutional framework
Relations with private oil companies
► International oil companies with notable stakes in oil and gas fields: Cepsa (Spain),
Repsol (Spain), BP (UK), Eni (Italy), Total (France), Statoil (Norway), Anadarko (US),
Shell (Anglo-Dutch)
► Exploration and production (E&P) contracts
► Provide for Sonatrach’s participation in the contract revenue at a minimum of 51%
► Investment costs exclusively borne by the operator (IOC) during the exploration period
► Costs then reimbursed by Sonatrach up to its participating share if a commercial discovery
is made
► During production period, all parties, including Sonatrach, contribute to operating costs
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Institutional framework
Relations with private oil companies
► Local content requirements under Algerian law
► National shareholding requirement (51/49 rule)
► Obligation for operators to give priority to Algerian subcontractors who offer the same quality,
price and time frame for procurement of goods and services relating to the execution of
operations under E&P contracts
► Obligation for operators and subcontractors to employ Algerian personnel in preference to
foreign workers with the same qualifications
► Obligation to pay for annual training of ALNAFT and Sonatrach personnel
► Requirement for oil companies to participate in the local economic and social development
of the country
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Doing business in Mozambique
2015_Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Legal framework
► Law No. 86-14 of 19 August 1986 regulating the prospecting, exploration, production
and transportation of hydrocarbons, amended and completed by Law No. 91-21 of
4 December 1991 (Law 86-14) and its provisions for application
► Law No. 05-07 of 28 April 2005 on hydrocarbons, amended and completed by
Ordinance No. 06-10 of 29 July 2006 and Law No. 13-01 of 20 February 2013
(Law 05-07) and its provisions for application
► These laws provide for two different regimes, applicable depending on the date of signature of
the petroleum contract: Law No. 86-14 for contracts concluded before 19 July 2005 (the entry
into force of Law No. 05-07) and Law No. 05-07 for those concluded as of 19 July 2005
► Algerian Direct Tax Code
► Petroleum contracts’ provisions
► Law No. 07-11 relating to the New Accounting and Financial System (NSCF)
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
E&P companies’ common contractual instrument
► Association of enterprises
► Association of enterprises constituted by two or several legal entities, for an undefined duration,
in order to implement any necessary mean to facilitate or develop their economic activity,
improve and increase the results of the activity
► Legal personality and registration with the Algerian Trade Register
► Subject to national shareholding requirement (51/49 rule)
► Consortium
► Temporary association of enterprises in order to realize a project
► No legal personality
► Members jointly liable toward clients, but each member realizes its part of the project and
receives corresponding payment
► No profit sharing
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Specific regime under Law No. 86-14
► Regulated activities
► Activities of prospecting, exploration, production and transportation of hydrocarbons
► Construction and installation of sites enabling these activities
► Titles (for exploration and exploitation) exclusively granted to Sonatrach, which may
partner with one or many foreign companies for the performance of petroleum activities
► Types of contracts of association available
► Prospecting agreement
► Production-sharing agreement
► Service agreement
► Transportation concession
► Obligation to include a clause awarding Sonatrach at least 51% interest in the petroleum contract
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Specific regime under Law No. 86-14
Tax regimes applicable
► Royalty: standard rate of 20%, possible reduced rate of 12.5% and 16.25%, subject to
specific conditions
► Tax on remuneration: rate applicable under the common tax regime but cannot be less
than 38%
► Tax on extraordinary profits or windfall tax: from 15% to 50%, depending on the amount
of production
► Withholding tax on service fees: 24% (subject to provisions of double taxation
treaty [DTT])
► Personal income tax, payroll-related taxes and social contributions
► Exemptions
► Tax on professional activity (TAP)
► All other taxes on income and results of the exploitation
► All taxes on distribution income (i.e., including the 15% branch remittance tax)
► Value-added tax (VAT) on equipment imported or purchased locally and used for oil activity
purposes, or on services
► Customs duties (limited to imported equipment used for oil activity purposes)
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Specific regime under Law No. 05-07
► Regulated activities
► Exploration, production, transportation and refining of hydrocarbons
► Commercialization and storage of petroleum products
► Construction and installation of sites enabling these activities
► Titles (for exploration and exploitation) exclusively granted to ALNAFT, which must
partner with Sonatrach and may associate one or many foreign companies for the
performance of petroleum activities
► Types of contracts available
► Contract of exploration and/or production
► Transportation concession
► Obligation to include a clause awarding Sonatrach at least 51% interest in the petroleum contract
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Specific regime under Law No. 05-07
Tax regimes applicable
► Main taxes applicable to upstream activities
► Royalty: from 5.5% to 20%, depending on the amount of production
► Petroleum income tax (Taxe sur le Revenu Pétrolier): from 30% to 70% depending on the
cumulative value of production
► Additional income tax (Impôt Complémentaire sur le Résultat): 30%
► Tax on extra profit (Taxe sur les Profits Exceptionnels): between 5% and 50%
► Transfer tax: 1% of the value of the transaction
► Surface tax
► Exemptions: TAP, VAT, all other taxes on income and results of the exploitation, customs duties,
social contributions
► Main taxes applicable to downstream activities
► Application of the common tax regime (IBS, TAP, etc.)
► Exemptions: VAT and customs duties on goods and services linked to oil activities
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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Tax and legal framework for investment
Oil service companies’ tax regime
► No specific tax regime for oil subcontractors
► Application of the common tax regime, and notably:
► Corporate income tax (Impôt sur les Bénéfices des Sociétés): 23% (since Finance Act for 2015)
► Tax on professional activity (Taxe sur l’Activité Professionnelle): 2% of the annual gross amount
of professional revenue or turnover net of VAT
► Withholding tax (subject to provisions of DTT):
► Dividends: 15%
► Interest: 10%
► Branch remittance tax:15%
► Service fees and royalties: 24%
► Personal income tax: progressive scale from 0% to 35%
► Training and apprenticeship taxes: respectively 1% of payroll
► VAT: 17% (standard rate)
Algeria: a key player in North Africa
2015 Pan-African Oil and Gas Tax Workshop

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