75587 January 2011 PPIAF Assistance in Algeria Technical Assistance for Algeria’s Energy Sector Algeria has undergone a gradual liberalization process since the mid-1990's that has had some success in opening up the economy to private domestic and foreign participation. Algeria’s economy is dominated by its natural resources—hydrocarbons represent approximately 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria is the fourth-largest gas exporter and has the eighth-largest reserves of natural gas in the world. It was within this context of liberalization that Algeria sought PPIAF support to help restructure its electricity and gas sectors. Both sectors were characterized by strong involvement of state-owned entities Sonelgaz and Sonatrach, electricity and gas prices that did not allow to recover costs, limited incentives for cost control in operations, and limited private sector involvement. In particular, PPIAF support was designed to contribute to two seminars and the translation into English and review of a draft Electricity and Gas Law. The activity also included the design of a capacity and consensus building seminar series on energy sector restructuring that was postponed following discussion with the Ministry of Energy. The first seminar, held in June 2000, was a consensus building exercise aimed at introducing the new legal and institutional framework in the electricity sector to stakeholders including government line ministries and state-owned entities. The second seminar, held in April 2001, focused on a comprehensive strategy for gas sector reform to include private sector participation in order to optimize: (i) the valorization of the gas resources and (ii) the market position of Algerian gas, both internally and for export. The seminar also built consensus around a reorganization of Sonelgaz and the setting up of a regulatory agency. The translation into English of the draft Electricity and Gas Law was deemed necessary in view of the government’s plans to attract additional external private investment. Following the PPIAF review of the English translation of the proposed law, Law N° 02- 01 of 22 Dhu El Kaada 1422 Corresponding to February 5, 2002 Relative to Electricity and Gas Distribution by Pipes was passed. As part of the new law, the Algerian Electricity and Gas Regulation Commission (CREG) was created as an independent body with legal status and financial autonomy. CREG began its role on January 24, 2005. CREG is managed by a steering committee constituted of a chairman and three directors appointed by presidential decree on proposition of the Minister in charge of Energy As a result of the PPIAF seminars, the government reinforced its commitment to public-private partnerships in the energy sector. On May 23, 2001, Sonatrach (51%) and Sonelgaz (49%) established a joint venture, Algerian Energy Co. (AEC), to invest locally and abroad in power generation, transmission and distribution. The first major AEC venture was Sharikat Kahraba Skikda (SKS - Skikda Power Co.) formed in May 2003 to develop an 825 MW Independent Power Plant with SNC-Lavalin of Canada. The $562 million plant was structured as a build-own-operate (BOO) project. Following the SKS project, AEC partnered with U.S. firm Black & Veatch on Kahrama, the country's first independent water and power plant, a 25-year BOO in Arzew close to the GL2Z gas liquefaction complex. The $400 million, 314 MW plant became operational in April 2005. Lastly, a gas-fuelled power station, Sharikat Kahraba Hadjret en-Nouss SpA, with a capacity of 1,227 MW at Tipasa was awarded to SNC-Lavalin. The engineering, procurement, and construction, and operations and maintenance contracts were worth a combined $1.15 billion. The power plant, completed in 2008, is structured as a 20-year build-operate-transfer (BOT) project, and its electricity output is sold to Sonelgaz under a 20-year contract that expires in 2028. The plant is 51% owned by Algerian Utilities International Ltd and 49% by Sonatrach, Sonelgaz, and AEC. The shareholders in Algerian Utilities International Ltd 1 are SNC-Lavalin (51%) and Mubadala Development Company (49%). The project was financed by a mix of $265 million of equity and commercial bank loans from Algerian banks. Results of PPIAF’s Activities in Algeria’s Energy Sector Category Outputs Enabling environment reform Policies prepared or legal or  Translation into English, and review and revision of draft regulatory changes Electricity and Gas Law, 2002 recommended Capacity and awareness building  Journée d’Etudes sur la Restructuration du Secteur de l’Electricité et de la Distribution du Gaz par Canalisation, 2000  Design of Seminar Series on Energy Sector Restructuring, Workshops/seminars 2001  Workshop on designing a comprehensive strategy for private involvement in the gas sector, 2001 Category Outcomes Enabling environment reform  Law N° 02- 01 of 22 Dhu El Kaada 1422 Corresponding to February 5, 2002 Relative to Electricity and Gas Distribution by Policies adopted, legislation Pipes was passed. passed/amended, or regulation issued/revised  As part of the new law, the Algerian Electricity and Gas Regulation Commission (CREG) was created on January 24, 2005. Technical Assistance for Algeria’s Telecommunications Sector In addition to assisting with liberalizing reforms in the energy sector, PPIAF has also supported the reform and restructuring of the telecommunications sector in Algeria. In late 1999 the newly appointed Algerian government indicated its interest in reforming the telecommunications sector to increase penetration, lower tariffs, and decrease the government’s fiscal burden in the sector. The government was interested in improving the sector’s internal efficiency and strengthening its competitiveness through market liberalization, establishment of a sound regulatory framework, and promotion of private investments. In early 2000 PPIAF provided technical assistance to prepare a new telecommunications sector strategy to help the government initiate its sector reform plan, and drafted a policy statement aimed at encouraging increased private involvement in the sector. Following this activity, PPIAF supported the organization of an international investors conference in 2002 to present Algeria’s Telecommunications Sector Reform Program to private investors and provide tendering information on Algeria’s mobile licenses. As a result of PPIAF’s technical assistance, in July 2000 the government adopted the proposed new Telecommunications Sector Policy Statement, which called for the gradual liberalization of the sector and contained a detailed calendar with the sequencing of reform measures, including the privatization of the public telecommunications operator, and stated the government’s commitment to award a GSM license to a private operator in 2001. On August 5, 2000, the President of Algeria adopted a new law, Telecommunications Law No. 3/2000, which allowed for the creation of an autonomous regulator, the Postal and Telecommunications Control Authority. This enabled the emergence of a multi-operator market structure where all operators are on an equal competitive footing with respect to regulatory provisions on tariffs, interconnection, and universal service. 2 Following the adoption of the telecommunications law, the government awarded a mobile license to Djezzy GSM (Djezzy) in July 2001. Djezzy launched services in February 2002 as the first private mobile company in Algeria, competing with state-owned incumbent Algérie Télécom’s Mobilis. Djezzy was formed by Orascom Telecom Algeria S.P.A., a consortium made up 51% by Orascom Telecom Holdings (Orascom) and 49% by local and regional investors and institutions. Orascom signed the license agreement on July 31, 2001, having submitted a payment guarantee to the government for $368.5 million (the initial installment of the $737 million license fee offered by Orascom in its bid to win the GSM license). In December 2003 the government awarded an additional mobile license to Wataniya Telecom Algérie (owned by Kuwaiti National Mobiles Telecommunications Co.). Wataniya won the 15-year license to operate Algeria's third cellular phone network after placing the highest bid of $421 million. Final approval of the sale was completed in January 2004. In August 2004, Wataniya Telecom Algérie officially launched the GSM mobile network under the brand name Nedjma, committing to invest about $300 million in initial infrastructure. By 2009 Djezzy and Nedjma had made combined investment commitments in physical assets totaling over $3.5 billion, with a combined 23 million mobile subscribers. Djezzy’s 14.6 million subscribers made it the largest mobile provider in the country. Competition brought about by market liberalization has led to significant decreases in mobile tariffs for consumers. For example, since 2002 Djezzy’s prepaid connection fee has fallen over 95%, and its prepaid tariff per minute has fallen over 60%. In addition to the two mobile licenses, the government also chose to award a fixed-line license to Consortium Algérien de Télécommunications (CAT) in March 2005, worth $65 million. The license allowed CAT to build and operate national and international fixed-line networks for a period of 15 years, with a possibility of an extension. The new license was awarded to overcome the large unfulfilled demand for basic residential telephony and to end the monopoly of state-owned Algérie Télécom. CAT was a joint venture between Egyptian Orascom Telecom (50%) and Egypt’s state -run Telecom Egypt (50%). However, CAT later exited the market in 2008 citing regulatory barriers that made it impossible to compete with the incumbent Algérie Télécom. The government has since announced that the fixed-line telecommunications sector will not be privatized and has promised to invest $6 billion into its mobile, fixed, and fibre networks over five years until 2014. By the time of its exit from the market in 2008, CAT had made investment commitments in physical assets totaling $400 million in support of its fixed-line license and had gained around 500,000 fixed-line subscribers. Results of PPIAF’s Activities in Algeria’s Telecommunications Sector Category Outputs Enabling environment reform  Study on the Economic Impact of the Telecommunications Analyses/assessments prepared Reform, 2000 Policies prepared or legal or  Avant – Projet de Déclaration de Politique Sectorielle Relative regulatory changes aux Télécommunications, 2000 recommended  Review and revision of draft law, 2000 Capacity and awareness building  Workshop to Discuss Policy Recommendations, 2000 Workshops/seminars  International Symposium on Information and Communication Technology, 2002 Category Outcomes Enabling environment reform 3  In July 2000, the government adopted the proposed new Policies adopted, legislation Telecommunications Sector Policy Statement, which called for passed/amended, or regulations the gradual liberalization of the sector. issued/revised  On August 5, 2000, Telecommunications Law No. 3/2000 was adopted.  The passing of the new Telecommunications Law allowed for Institutions created or adopted the creation of an autonomous regulator, the Postal and Telecommunications Control Authority. Project cycle related assistance  Mobile license awarded to Djezzy GSM (Djezzy) in July 2001, with a bid of $737 million. Djezzy launched services in February 2002 as the first private mobile company in Algeria, competing with state-owned incumbent Algérie Télécom.  Mobile license awarded to Wataniya Telecom Algérie in December 2003. The 15-year license was won with a bid of Transactions facilitated $421 million. Final approval of the sale was completed in January 2004. In August 2004, Wataniya Telecom Algérie officially launched the GSM mobile network under the brand name Nedjma, and committed to invest about $300 million in initial infrastructure.  Fixed-line license awarded to Consortium Algérien de Télécommunications (CAT) in March 2005, worth $65 million. Category Impacts  From 2002–2009 Djezzy GSM has made investment commitments in physical assets totaling $2.453 billion. Additional private investment in  From 2004-2009 Nedjma has made investment commitments in physical assets totaling $1.28 billion. the sector  From 2005 to its exit from the market in 2008 CAT had made investment commitments in physical assets totaling $400 million.  By 2009 Djezzy GSM had 14,618,000 mobile subscribers. Increased number of people with  By 2009 Nedjma had 8,032,000 mobile subscribers. infrastructure services  CAT added around 500,000 fixed lines between 2005 and 2008.  Since 2002 Djezzy’s prepaid connection fee has fallen over Improved level of services 95%, and its prepaid tariff per minute has fallen over 60%. 4