January 20, 2013 5:17 pm

Crisis threatens Algeria’s future growth

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Algerian soldiers secure the airport in Ain Amenas, Algeria©AP

Algeria’s rulers have been sitting pretty for years on an ocean of oil and gas, raking in billions in cash that helped buy off the country’s restless youth and mask the social inequality, mismanagement and corruption that has felled other governments across the region.

But the dramatic hostage crisis at the southern In Amenas gasfield, in which dozens of Islamists and hostages were killed in a still murky stand-off and subsequent government raid, has dredged up old ghosts and threatened to undermine economic growth prospects .

“The economy is the Algerians’ biggest fear at this point,” a US energy industry executive now working in Algeria said in a telephone interview. “I’ve heard from many of my Algerian friends and clients about the international hit to the reputation of Algeria this will cause. They have lived in relative peace for over a decade and they fear this event will plunge them back into the civil war that decimated the country through the 90s.”

The government and its supporters have tried to put a positive spin on the attack and its aftermath. The former director-general of Sonatrach, Abdelmajid Attar, told the daily El Khabar newspaper that losses caused by the attack would be “marginal” and that BP, which operated the site alongside Norway’s Statoil, would soon get the plant up and running. Even during the civil war of the 1990s, more than 40 energy companies operated in Algeria, doubling the country’s petroleum output, he noted.

Far from the country’s densely populated coast, the attack had little impact on most Algerians’ day-to-day lives.

But it is likely to have been fears for the economy that provoked what many describe as Algeria’s heavy-handed response to the hostage-taking, especially amid rumours that the militants had been threatening to blow up the gasfield. Algeria has been a consistent supplier of energy to the west since the 1960s, never allowing wars, political disagreements or trade disputes to halt the flow of oil and gas.

“To be reliable source of gas is a linchpin of Algerian policy,” said Frances Ghiles, a north Africa specialist at the Barcelona Centre for International Affairs. “The idea that supply could be cut is anathema to the Algerian leadership. Trying to blow up a gasfield may have motivated the brutality.”

The In Amenas complex supplies about 2 per cent of Europe’s gas imports. It produces 6 billion cubic metres a year – about 15 per cent of the country’s output.

An official at the country’s state-owned oil company told a local newspaper the four-day crisis had already cost more than $40m in lost gas revenues. Insurance and security costs for both Algerian and international firms doing business in the country will inevitably rise, experts predicted in the local media.

Already BP and Conoco have pulled all non-essential personnel out of the country.

“The brazen attack on the gas plant will reverberate for many years,” said the energy company executive, who has been travelling to Algeria since the early 2000s. “Not sure how many of our partners will be willing to come back after this attack.”

The hostage drama also threatens to derail plans to build on the energy sector to create a healthier and more diverse economy.

President Abdelaziz Bouteflika’s administration is rolling out an ambitious $261bn investment plan employing foreign and local contractors to upgrade Algerian education, healthcare, drinking water, recreational facilities, roads, rails, ports and farmlands that were neglected during the dark years of the country’s civil war.

“The attack means that investors that have a greater appetite for risk will be willing to stay and up security, even if the cost of operations and expanded operations will increase,” said Anthony Skinner, a Middle East and north Africa specialist at Maplecroft, a UK risk-management consultancy. “But if you have companies that are not willing to invest in security or not going to invest. If you’re dealing with consumer goods, tourism, etc., they’re not going to invest.”

Additional reporting by Leyla Doss

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