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Mar 25, 2022
How Does Algeria Protect Foreign Investors in the Hydrocarbon Sector?
Introduction
In 2019, Algeria passed a new hydrocarbon law, Law No.
19-13 of 11 December 2019, to generate more investment in
the upstream industry.
While this law has yet to produce a significant increase in
investment in the hydrocarbon sector, there is investor interest in
Algeria's new legal and fiscal framework, especially regarding the
investment protections available to foreign investors.
Contractual and political risks are two of the main concerns of
investors in Algeria. Concerns about investment protection
available to foreign investors in the country are justified as,
over the last few years a number of disputes (between contractors,
on the one side, and the national oil company, Sonatrach, or the
government, on the other side) have resulted in arbitrations.
The purpose of this legal insight article is to provide a general
analysis of the two main investment protection tools generally
offered to foreign investors: arbitration and a
bilateral investment treaty (BIT).
Arbitration
Art 54 of Law No. 19-13 of 11 December 2019 states
that hydrocarbon contracts include an arbitration clause
("clause compromissoire") allowing for international
arbitration. Despite the reference to international arbitration,
Art 54 is quite general, and, without more detail,
it is difficult to evaluate the protection provided by such an
arbitration clause. Specifically, it is difficult to understand
whether this arbitration clause is able to provide contractors with
an arbitration that is at the same time "international" both in its
legal design and in its subsequent implementation.
Although it precedes the 2019 law, the 2004 Model
Production Sharing Contract (PSC) may offer some guidance
on how the arbitration clause in hydrocarbon contracts based on
Law No. 19-13 of 11 December 2019 may look.
Art 34.2 Arbitration of the
2004Model PSC states that:
- If a conciliation attempt is not successful, the parties must
resort to an ad-hoc arbitration (with a three-arbitrator panel)
according to the UN Commission on International Trade Law
(UNCITRAL) rules.
- The parties designate the International Chamber of Commerce (ICC)
as the authority to appoint the arbitration panel.
- The applicable law is Algerian law, specifically Law No.
86-14 of 19 August 1986 (as amended - this law was the
then upstream hydrocarbon framework law) and its related
regulations.
- The place of arbitration is Geneva, Switzerland - in our opinion
the French word "lieu" refers here to both the "seat" and the
"venue" of the arbitration.
For clarity, the seat indicates the legal place of the arbitration,
whereas the venue indicates the physical location.
Since 1988, Algeria has been a signatory to the United
Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958 (the New York
Convention). This is an additional guarantee to foreign
investors, as Algeria's courts generally grant enforcement to an
arbitral award obtained in other New York
Convention contracting states.
Bilateral Investment Treaties (BITs)
Algeria has a network of BITs (and
Multilateral Investment Treaties (MITs)) that may
offer various substantive investment protections - for example,
fair and equitable treatment (FET), compensation because of
expropriation, and a most-favored nation (MFN) clause. The
substantive protections across the range of the signed BITs are
mostly standardized, but there may be differences. It is important
to check the wording of the BIT being relied on.
Almost all Algeria's BITs provide a list of the assets included in
the definition of "investment," but the list is accepted as
non-exhaustive. Generally, rights granted by law or contract,
including concessions granted for prospection, exploration, and
extraction and exploitation of natural resources, are included in
the definition of "investment."
Some BITs state that if negotiations are not successful,
arbitration is the only means to resolve a dispute. Some of these
BITs provide the option of choosing from the International Centre
for Settlement of Investment Disputes (ICSID), UNCITRAL, or an Arab
Investment Tribunal of the Arab Investment Convention arbitration.
However, most of Algeria's BITs permit a choice between the local
courts and some arbitral institutions.
Conclusion
Algeria's Law No. 19-13 of 11 December 2019 states
that hydrocarbon contracts may include an arbitration clause based
on international arbitration. Yet, the reference to international
arbitration is quite general, and, without more detail, it is
difficult to evaluate the protection provided by such an
arbitration clause.
However, if we assume the arbitration clause included in contracts
based on Law No. 19-13 of 11 December 2019
(royalty & tax contracts comprising a partnership between
Sonatrach and one or more contractors, PSCs, and risk service
contracts) might be quite similar to the arbitration clause
included in the 2004 Model PSC, the new
arbitration clause will result in an international arbitration
clause offering reasonable guarantees to investors.
Moreover, though investors generally recur to the protections
offered by BITs only as a last resort procedure, Algeria has a
network of BITs, which may offer various
substantive investment protections (FET, defence against
expropriation, and an MFN clause). The substantive protections
across the range of signed BITs are mostly standardized, but there
may be differences.
This article is an excerpt from the longer, more detailed,
legal insight "Investor Protections in Algeria," delivered to you
by the Petroleum Economics and Policy
Solutions (PEPS) service.
The full report is available to our Connect subscribers.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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