ALGERIA: NEW APPLICATION TEXTS OF THE NEW LAW ON HYDROCARBONS
New application texts of Law No. 19-13 of 11 December 2019 governing hydrocarbon activities were
published (“Law 19-13”) in the Official Gazette on 21 March 2021:
The new application texts consist of four executive decrees, which are summarized below:
- Decree No. 21-97 of 11 March 2021 setting out the method for determining the base prices of
- Decree No. 21-98 of 11 March 2021 setting out the rules and procedures for the transfer of
- Decree No. 21-99 of 11 March 2021 setting out the method for calculating the amount of the
monthly provisional payments of the tax on hydrocarbons revenues (IRH); and
- Decree No. 21-100 of 11 March 2021 setting out the method for calculating the provisional
instalments of the tax on foreign partner’s remuneration
Please find below a summary of these texts prepared by Rym LOUCIF.
1. Decree No. 21-97 dated 11th March 2021
The base prices used for the calculation of the hydrocarbons royalty and the income tax on gaseous hydrocarbons due for the production of month (n) are determined as follows:Article 207
— For gaseous hydrocarbons for export: the price resulting from the sales contract for the month (n-1)
— For gaseous hydrocarbons subject to a contract for the sale of gas to the customer referred to in Article 146 above: the price freely negotiated between the seller and the buyer, which must be higher than the price of gas intended for the national market;
— For gaseous hydrocarbons sold for the purpose of hydrocarbon production and recovery: the price is freely negotiated between the seller and the buyer;
— For gaseous hydrocarbons sold to electricity producers and gas distributors, intended for the national market: the prices determined in accordance with the provisions of Article 147 above. When the base prices are mentioned in foreign currency, the exchange rate used to convert them into Algerian dinars is the average exchange rate for the month to which the said prices correspond, determined on the basis of the exchange rates published by the Bank of Algeria. The terms of application of this article are defined by regulation.
The purpose of this decree is to set the terms and conditions for determining the base prices of gaseous hydrocarbons.
For the purposes of calculating the hydrocarbons royalty and the tax on hydrocarbons revenues, for each exploitation perimeter subject to an upstream concession or a hydrocarbon contract, the gaseous hydrocarbons are valued according to their purpose.
For instance, in the case where the perimeter is subject to a partnership agreement or a production sharing contract, the price derived from the gas export sales contract for the month (n-1) preceding the month of production (n), means: (i) the price derived from the gas sales contract, in the case of joint marketing of the gaseous hydrocarbons; or (ii) the price of the sale on account, in the case where Sonatrach agrees to market the gaseous hydrocarbons on behalf of the contracting parties.
The base price of gaseous hydrocarbons for export is determined and notified monthly, for each exploitation perimeter, by ALNAFT in US dollars per million British thermal unit (USD/MMBTU).
2. Decree No. 21- 98 dated 11th March 2021
Section 4: Transfer and assignment of hydrocarbon contracts
Art. 96. — The interests resulting from a hydrocarbon contract, as well as the rights and obligations attached to these interests, are transferable and assignable under the conditions provided for in the deed of allocation (“acte d’attribution”) and the hydrocarbon contract, in compliance with the provisions of this chapter and those of Article 205 below.Art. 96
Art. 97. — The contracting parties may, individually or collectively, directly or indirectly, transfer their rights and obligations under the hydrocarbon contract, including when the operation results from a change of control. The transfer may take place between the contracting parties or to a third party provided that the latter meets the requirements of Article 7 of this law.Art. 97
The provisions of the preceding section apply to the participation of the national company which exceeds the minimum rate of 51%. The national company is entitled to transfer all or part of its rights and obligations corresponding to the difference between its participation rate in the hydrocarbon contract and the minimum rate of 51% provided for by this law. Any transfer must be previously approved by ALNAFT, within a period of ninety (90) days from the receipt of the transfer request, in compliance with the terms and conditions defined in the hydrocarbon contract and the deed of allocation. The transfer request must include details regarding the economic and financial terms and conditions of the transfer. ALNAFT may be assisted by any expert having the skills to analyse a transfer request submitted for its approval.
Art. 98. — Except when the transfer is made to an affiliated entity, the national company has a right of pre-emption on any transfer of interests in a hydrocarbon contract. The national company may exercise this right within a period which may not exceed sixty (60) days from the date of receipt of a copy of the transfer request, communicated by ALNAFT. The right of pre-emption shall be exercised under the same terms and conditions as the proposed transfer. If this deadline is not complied with, the national company is deemed to have waived its right of pre-emption.Art. 98
Art. 99. — In the event of a change of control of one of the entities constituting the contracting parties, the Minister may decide that this operation is incompatible with the continued participation of the entity concerned in the hydrocarbon contract. This option shall be exercised within ninety (90) days from the receipt by ALNAFT of the information and documents relating to the said change of control.
In this case, the rights and obligations of the said person shall be transferred to the national company and/or the other contracting parties, in return for fair compensation.Art. 99
Art. 100. — Any transfer made in violation of the provisions of this law is null and void.Art. 100
Art. 101. — The terms of application of the provisions of this section shall be defined by regulation.Art. 101
Transfer of the rights and obligations under the hydrocarbon contract by the foreign partner:
- Any proposed transfer by the foreign partner (including to an affiliate) of all or part of its rights and obligations under a hydrocarbon contract is subject to the approval of the National Agency for the Development of Hydrocarbon Resources (“ALNAFT”) of the proposed transfer.
- The decree specifies the information to be included in the application for approval, such as the identity of shareholders holding more than 5% of the potential purchaser, as well as a statement of the value of the transaction certified by the seller and the potential purchaser.
- Once the application has been declared admissible, ALNAFT shall take a decision within 90 days of receipt of the application (which may be completed upon request by ALNAFT).
- Sonatrach has a right of pre-emption (except in case of transfer to an affiliate) which can be exercised within 60 days of the receipt of the copy of the transfer request (complete) submitted by ALNAFT. After this delay, Sonatrach is deemed to have waived its right of pre-emption.
- In the case where Sonatrach exercises the right of pre-emption, Sonatrach shall notify its decision to the foreign partner and to ALNAFT. The foreign partner shall then proceed to the transfer of the concerned rights and obligations to Sonatrach, under the same terms and conditions as the initially contemplated transfer.
- In the case where Sonatrach does not exercise the right of pre-emption, (i) the transfer by the foreign partner of its rights and obligations occurs after approval of the transfer by ALNAFT, or (ii) ALNAFT notifies its refusal of the contemplated transfer. Any transfer (including to an affiliate) must be formalized through an amendment to the hydrocarbon contract, entered into between the seller and the purchaser. Except in the case of transfer to an affiliate, the amendment must be approved by a decree issued by the Council of Ministers and published in the Official Gazette of the People’s Democratic Republic of Algeria.
- The deed of allocation shall also be amended.
Change of control of the foreign partner:
- Notification to the Minister of Energy of any change of control directly or indirectly impacting the foreign partner.
- The Minister shall decide within 90 days from the day of receipt by ALNAFT of all the information provided for in the decree, and, if necessary, any additional information requested by ALNAFT.
- In particular, the following information must be submitted to ALNAFT: the main shareholders of the partner or of the person controlling it and subject to the change of control, the value of each of the partner’s assets in Algeria, etc.
- The Minister may make four types of decisions:
- Decision that the change of control is compatible with maintaining the foreign partner’s interest in the contract;
- Decision that the change of control is compatible with maintaining the foreign partner’s interest in the contract if prerequisites defined by the Minister are satisfied;
- Prior to any decision of incompatibility, the Minister may authorize the partner to transfer its rights and obligations under the contract to any other person within a specified period of time;
- Decision that the change of control is not compatible with maintaining the foreign partner’s interest in the contract, in which case, the rights and obligations of the contract are transferred in priority to Sonatrach or divided equally between the other contracting parties (unless otherwise agreed between them), in return for compensation. This compensation is set by mutual agreement and in case of disagreement, an expert is appointed according to the provisions of the hydrocarbon contract.
3. Decree No. 21-99 dated 11th March 2021
Art. 187. — The tax on hydrocarbons revenues of a financial year is paid in twelve (12) monthly provisional payments, paid at the latest on the 25th of each month, being considered as instalments on the tax on hydrocarbons revenues for the financial year.
The methods of calculation of the instalments are determined by regulation. At the end of each financial year, the national company or the contracting parties shall proceed to the payment of the tax on hydrocarbons revenues and shall pay its amount, after deduction of the instalment already paid, at the latest on March 31st ofArt. 187
the financial year following the financial year for which the said tax is due.
In the case where the amount of the instalments paid exceeds the amount of the tax on hydrocarbons revenues due, the excess shall be set off against subsequent payments.
The tax on hydrocarbons revenues is deductible from the calculation of the income tax.
The purpose of the decree is to determine the methods for calculating the amounts of the monthly instalments on the provisional payments
of the tax on hydrocarbons revenues (“IRH”). The amount of the monthly instalment on IRH, due for a financial year, is determined on the basis of:
(i) the hydrocarbon revenues resulting from the value of production, calculated for a month, and the monthly deductions provided respectively by Articles 3 and 4 of the Decree, and (ii) the applicable IRH rate, determined in accordance with Article 6 of the Decree. The amount of the monthly provisional instalment is considered as an advance on the IRH due for the financial year and is declared and paid to the tax authorities, the month following the month of production, by Sonatrach in the case of an upstream concession, a production sharing contract or a risk services contract or by the contracting parties in the case of a partnership
The annual payment of the IRH is carried out by Sonatrach in the case of an upstream concession, a production sharing contract or a risk services contract or by the contracting parties in the case of a partnership contract.
4. Decree No. 21-100 dated 11th March 2021
The tax on foreign partner’s remuneration shall be paid in twelve (12) provisional instalments for each financial year.Article 195
The foreign partner shall file the declaration of the provisional tax instalment by the 25th of each month.
The methods for calculating the provisional instalment are determined by regulation.
The purpose of this decree is to determine the methods for calculating the provisional instalments of the tax on foreign partner’s remuneration, as well as the methods for its annual payment, depending on whether the remuneration of the foreign partner is determined in cash or in kind.
The tax on foreign partner’s remuneration is determined on the basis of its gross remuneration for the financial year. It gives rise to the payment of twelve (12) provisional instalments and a liquidation balance.
The tax on the remuneration shall be paid by the foreign partner involved in a production sharing contract or a risk services contract. The latter makes the calculations and prepares the declarations, while Sonatrach makes the filing and payment to the tax authorities.
By Rym Loucif