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by Dr. Chakib Khelil Minister of Energy and Mining

Democratic and Popular Republic of Algeria. Ministry of Energy and Mining. fefefef. Good Governance. by Dr. Chakib Khelil Minister of Energy and Mining. Chatham House London – 11 July 2006. Table. fefefef. Reminder of the main aspects relating to Good Governance

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by Dr. Chakib Khelil Minister of Energy and Mining

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  1. Democratic and Popular Republic of Algeria Ministry of Energy and Mining fefefef Good Governance by Dr. Chakib Khelil Minister of Energy and Mining Chatham House London – 11 July 2006

  2. Table fefefef • Reminder of the main aspects relating to Good Governance • Laws relating to Mining, Power and Hydrocarbons • Energy & Mining Sector and Good Governance • Conclusion Ministry of Energy and Mining

  3. 3000 km 2000 km 1000 km Algeria : a strategic position fefefef Ext. Debt: $ 14 billion (2005) Population: 32.6 million Drastic decrease in 2006 GDP: US$ 107 billion Forex reserves : US$ 65 billion Growth rate : 5.4% Ministry of Energy and Mining

  4. Reminder of the main aspects relating to Good Governance fefefef The Energy & Mining Sector and E.I.T.I • The Energy and Mining Sector, represented by Sonatrach, has participated to workshops on Transparency of Extractive Industries which were held in : • - London, 12 February 2003 • - London, 17 July 2003 • - Johannesburg, 26 September 2005 • - London, 17 March 2005 • - London, 1 and 2 June 2006 Ministry of Energy and Mining

  5. Reminder of the main aspects relating to Good Governance fefefef The Energy & Mining Sector and E.I.T.I The participation of the Sector to these workshops demonstrates its interest in all that concerns transparency and its commitment to generalize the principle of Good Governance in the Energy and Mining Sector in Algeria. Ministry of Energy and Mining

  6. Reminder of the main aspects relating to Good Governance fefefef Good governance is based on some basic principles • Clarity of the roles, objectives and responsibilities of the NOC and the State : • Objectives of the NOC • Decision-making within the NOC • Powers enabling the NOC to fulfill the roles assigned to it • Fiscal and budgetary relationships between the NOC and the State Ministry of Energy and Mining

  7. Reminder of the main aspects relating to Good Governance fefefef Good governance is based on some basic principles • Transparency of financial and accounting data • Transparency in the process of recording earnings • Transparency in the process of awarding investment contracts • Transparency in the process of awarding operating contracts • Sustainable development Ministry of Energy and Mining

  8. Reminder of the main aspects relating to Good Governance fefefef Institutional reform : 2000- 2005 • The Energy and Mining Sector has developed three laws : • Mining Law No. 01-10 dated 03 July 2001 • Power Law No. 02-01 dated 05 February 2002 • Hydrocarbons Law No. 05-07 dated 28 April 2005 Ministry of Energy and Mining

  9. The Algerian State suppresses the monopoly held on mining activities Any national or foreign operator may have access to the mining domain, in all transparency,on the basis of competitive bidding Mining Law No. 01-10 dated 03 July 2001 fefefef Ministry of Energy and Mining

  10. The National Agency for Mining Property (ANPM) is responsible for establishing the mining register, delivering and managing mining permits and authorizations The National Agency of Geology and Mining control (ANGCM) is responsible for establishing the national geology service, supervising mining operations, ensuring the compliance with the mining art and protecting environment Mining Law No. 01-10 dated 03 July 2001 fefefef Creation of two agencies Ministry of Energy and Mining

  11. Defines the rules for the production, transportation, distribution and marketing of power and the production, transportation, distribution and marketing of gas by pipelines Gives access of any operator, whatever its nationality, to the mining domain in all transparency,on the basis of competitive bidding Suppresses the monopoly held by the Algerian State in the production of power formerly through national company Sonelgaz Law No. 02-01 of 05 February 2002 relating to Power and gas distribution fefefef Ministry of Energy and Mining

  12. Creation of the Committee for the Regulation of Power and Gas (CREG) Advising public authorities on the organization and operation of the national power and gas markets Monitoring and controlling the compliance with the laws and regulations in force Ensuring competitive and transparent operations within the national power and gas markets Law No. 02-01 of 05 February 2002 relating to Power and gas distribution fefefef Missions of CREG Ministry of Energy and Mining

  13. Law No. 05-07 of 28 April 2005 relating to Hydrocarbons fefefef • Defines the legal system and institutional framework of the hydrocarbons sector activities • Clarifies the rights and obligations of the people operating in the hydrocarbons sector • The State takes back its prerogatives of Public Power, formerly entrusted to Sonatrach • Exploration, operation and marketing permits are delivered by ALNAFT agency, in all transparency, following competitive bidding Ministry of Energy and Mining

  14. Law No. 05-07 of 28 April 2005 relating to Hydrocarbons fefefef Creation of two national agencies The Minister of Energy and Mining The Authority for the Regulation of Hydrocarbons (ARH) The National Agency for upgrading Hydrocarbons Resources (ALNAFT) - Managing the mining domain - Awarding permits - Implementing and ensuring compliance with the regulation Ministry of Energy and Mining

  15. Main aspects relating to good governance fefefef (Sonatrach case) Clarity of the roles of the NOC and the State Separating the roles of Sonatrach from the role of the State • Suppression of Law • No. 86-14 • (PSA contracts system) • The State takes back its missions as a Public Power • Enactment of a new law (Hydrocarbons Law • No. 05-07) • Sonatrach focuses on core activities as a joint-stock company acting like an IOC Ministry of Energy and Mining

  16. Main aspects relating to good governance fefefef Clarity of objectives and responsibilities of the NOC and the State • Hydrocarbons Law • No. 05-07 • The responsibility of the State is limited to promoting the mining domain, delivering the various types of permits and ensuring the compliance with the regulations especially in the matter of HSE. • The purpose of Sonatrach is the generation of value added like any other commercial company. Ministry of Energy and Mining

  17. Main aspects relating to good governance fefefef Decision-making at Sonatrach Contracts/transactions Projects/Budget/Investment • General Assembly • Preparation of reference terms • Board of Directors • Publication/competitive bidding • Executive Committee • Chairman & CEO • Lining up technical offers • Advising body • Commercial offers • Vice President of the Activity • PUBLIC opening of bids and AWARDING of the contract on the spot • Committee/Working Group Ministry of Energy and Mining

  18. Main aspects relating to good governance fefefef Management of Hydrocarbons earnings • The management of hydrocarbons earnings is governed by the Law on Money and Credit (LMC). • The LMC provides that these earnings must be repatriated or credited into a foreign account of Bank of Algeria within 48 Hours following the receipt of funds. • A system for controlling the volumes of exported hydrocarbons as well as the related earnings has been implemented since the creation of Sonatrach to ensure a large transparency. Ministry of Energy and Mining

  19. Main aspects relating to good governance fefefef Management and control of hydrocarbons earnings Post-export control Pre-export control • Bodies external to Sonatrach • Bank of Algeria • Customs • Foreign Bank of Algeria • Bank of Algeria • Ministry of Finance • Sonatrach bodies • UPSTREAM Activity • DOWNSTREAM Activity • MARKETING Activity • Maritime transport Ministry of Energy and Mining

  20. Main aspects relating to good governance fefefef Fiscal and budgetary relationship between Sonatrach and the State • Under the terms of Law No. 05-07, the State deals with Sonatrach like an IOC. As such, Sonatrach has to pay all taxes provided by this law, which remains the only legal framework linking the company to the State. • Sonatrach has no longer the right to act on behalf of the State and to collect taxes from oil companies. The Law No. 05-07 consolidates transparency and competition and provides an innovating, attractive and stable fiscal system. Ministry of Energy and Mining

  21. Main aspects relating to good governance fefefef Fiscal and budgetary relationship between Sonatrach and the State The Law No. 05-07 requires from any NOC or IOC operating in Algeria the payment of the following taxes : Specific payments Taxes • Tax on transfer of rights • Surface tax • Specific tax on flared gases • Royalty • Specific tax on water • Tax on oil revenue • Specific tax on transfer or assignment of credit relating to emission of greenhouse gases • Complementary tax on income Ministry of Energy and Mining

  22. Transparency in processing and presenting data fefefef Financial data Other information • Financial statements issued • in US GAAP from 2006 • Info Express (internal) • Market News (internal) • Accounts certified by • external auditors • BAOSEM (invitations to bid) • Various Sonatrach magazines • Publication of a very detailed Financial Report • Regular press conferences • Publication of periodic • activities reports • Inter-sectors labour exchange • Web Site: www.sonatrach-dz.com Ministry of Energy and Mining

  23. Powers enabling Sonatrach to fulfill its role fefefef • Sonatrach is a joint-stock company. The powers of the Board of Directors and the Chairman & CEO are provided for in the company’s by-laws, which are approved by a presidential decree. • The powers of the company are very wide and concern all activities. • Several years ago, Sonatrach adopted a charter of responsibilities which defines the prerogatives and responsibilities at every level. Ministry of Energy and Mining

  24. Enablement to fulfill the role assigned fefefef • This Charter of responsibilities, to which is attached a delegation of authority handbook, is regularly reviewed by the company. • Some powers of the Chairman & CEO are clearly delegated to the Vice Presidents and Executive Directors of the company. Ministry of Energy and Mining

  25. Sustainable development fefefef • The Energy and Mining Sector has committed itself to working for sustainable development. • Through Law No. 05-07, it has obliged all the oil companies including Sonatrach to eliminate flared gases from 2008. • To this effect, all companies will be taxed on flared gases. • The Sector has started a large sensitization campaign towards the various companies for a strict respect of HSE rules and praises a sustainable development culture. Ministry of Energy and Mining

  26. Main aspects of good governance / Law No. 05-07 fefefef • Law No. 05-07 is based on the following principles: Sustainable development Competition Separation of roles • The awarding of permits to companies including Sonatrach shall be made on the basis of competitive bidding. Obligation to eliminate flared gases and to respect the HSE rules provided in the law. • The State deals with Sonatrach like an IOC. Transparency in the tax payment • Companies shall declare and pay taxes in all transparency. Ministry of Energy and Mining

  27. Main aspects of good governance / Law No. 05-07 fefefef Principle of wealth redistribution IOCs/NOCs Collection of taxes Algerian State $19-22/b $ addit. Education Justice Annual Budget Regulation Fund Environment Health Solidarity Agriculture Repayment of Ext. Debt Boosting economy Ministry of Energy and Mining

  28. Sonatrach, a Citizen company fefefef Principle of Solidarity with the civil society Sonatrach Special budget Tassili Foundation Support to scientific research Professional training Solidarity Culture Sport & Health Ministry of Energy and Mining

  29. Multiparty system introduced as early as 1990 National economy reoriented towards opening Institutions and systems related to Good Governance are implemented by the State : Autonomy of Bank of Algeria from the executive system Parliament organized in two houses : the National Popular Assembly and the Senate Reinforcement of the Court of Accounts prerogatives Large prerogatives to the General Inspection of Finances Generalization of auditors in companies Generalization of internal audit of companies Creation of an anti-corruption body directly linked to the Presidency Conclusion fefefef

  30. Transparency is a reality for the managers of the Energy and Mining Sector in their daily activities. International institutions and foreign investors and suppliers testify that transparency is a daily reality in the Energy and Mining Sector. The State has showed its willingness to ensure transparency, through the reforms introduced in strategic sectors (mining, power, hydrocarbons). Conclusion fefefef

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