ALGERIA - The Downstream Structure.

Sonatrach as a group has been restructured several times since 1982, when the oil refining and products distribution units were merged into one division called Naftal. In 1988 the refining unit was separated from Naftal and became known as Naftec, with Naftal remaining in charge of products distribution and local marketing. As part of yet another wave of restructuring in Sonatrach, Groupe Raffinage et Chimie des Hydrocarbures (GRC) was created in June 1996 to be in charge of both the refining and petrochemical sectors. It was to allow efficient functioning of the downstream within an increasingly liberalised economic environment in Algeria. The shift to market economics, backed by the IMF, was then a cornerstone of the government's goal of improving social conditions and of proposed integration with the European Union.

On June 19, 1996, Sonatrach announced three new companies: GRC for the downstream sector; Groupe des Services aux Hydrocarbures (GSH), focusing on well services, drilling and geophysics; and Groupe des Travaux et de Maintenance d'Installation Industrielle (GRM), in charge of construction, maintenance, engineering and technology development. The decision to create these companies followed long negotiations between the Energy Ministry and the powerful National Federation of Oil, Gas and Chemical Workers.

In April 1998, Naftec became a 100% owned subsidiary of GRC. The creation of GRC as a holding company, with a paid up capital of AD12,000m, marked the reintegration of refining and petrochemical operations, with Naftec retaining both refining and products distribution operations in Mauritania called Naftec Sa Mauritanie and Naftal Sa Mauritanie. But within Algeria, the distribution and marketing of petroleum products remained Naftal Spa's responsibility. (Naftal remains an abbreviation of Entreprise Nationale de Raffinage des Produits Petroliers, while Naftec stands for Entreprise Nationale de Commercialisation et de Distribution des Produits Petroliers)

GRC's responsibilities as a holding group include strategic planning, organisation and control as well as co-ordination of the refining and petrochemical sectors in terms of marketing, financial management and personnel. GRC is also responsible for project development and for marketing strategies in the refining and petrochemical sectors. It is in charge of technical decisions related to these sectors as well.

Sonatrach and GRC in 1998 highlighted a $19.3 bn investment plan for downstream projects to be ready by 2002. These included refining, petrochemicals and power ventures. Of the total outlay, Sonatrach wanted foreign firms to provide $6 bn. It was then said GRC was hoping to see total oil refining capacity reach 750,000 b/d by 2002 and 1m b/d by 2010. GRC wanted foreign companies to invest in nearly all the expansions in the refining sector. But there has been no progress on this.

Needed as one of the "priority projects" is a complex 150,000-200,000 b/d refinery to be built for the Greater Algiers area, which Naftec is offering as a BOT venture to be run by a qualified international company. Together with associated facilities, the refinery would cost about $1.5 bn and this is still beyond Sonatrach's financial means, despite higher income from strong oil and gas prices (see background in Vol. 60, No. 5).

The existing Algiers refinery, with a nameplate capacity of 58,000 b/d, is very old and inefficient. Naftec intends to close the plant - after the proposed complex refinery has been built - because it is incurring losses. The Algiers area has been supplied mainly with products from the Skikda complex and from the Arzew plant.

One major obstacle mentioned by the majors is a heavy state subsidy on refined oil products sold to the local market, with the government insisting on maintaining control over product pricing. The other problem is the country's legal framework, still based on a tough attitude towards foreign capital, which is yet to be improved. The majors are awaiting passage of a new hydrocarbons law which the Energy and Mines Ministry hope will happen this year.

Naftec and GRC executives foresee an "eventual solution" to the problem of state control over the pricing of refined oil products, LPG and petrochemicals for the domestic market, although this has been promised since late 1998. Of the fact that the Mediterranean market remains constrained by refining over-capacity, the executives say this does not concern Greater Algiers which would absorb the output of the proposed 150,000-200,000 b/d plant.

Another priority is a 100,000 b/d condensate refinery to be built at Arzew or Skikda. Naftec is also promoting a methanol/MTBE venture to be built at Arzew with a capacity of 800,000 t/y, to use gas and butane feedstocks which are available there at advantageous prices. Other projects promoted by GRC are an aromatics complex to be built at Arzew or Skikda, an ethane-based olefins venture with a capacity of 650,000 t/y and a polypropylene plant with a capacity of 300,000 t/y (see DT No. 7).

Sonatrach is venturing into the IPP business both within Algeria and abroad. It wants foreign companies to become its partners in several IPPs of various sizes. The state gas and power utility Sonelgaz is losing its monopoly over the electricity generation sector (see DT No. 5).

Sonatrach delegations, including GRC and Naftec executives, have been actively promoting these project. They have gone on promotional tours of Europe, North America, the Middle East, and the Far East since the second quarter of 1998. They have made presentations in London, Geneva, Brussels, Berlin and other European cities, Houston, Washington and Toronto. In early 2003 Algerian promoters said methane and ethane were available at Arzew or Skikda at the price of $0.80/m BTU, for example. It is not clear whether this price remains valid now, in view of a big rise in oil and gas prices in the past two years.