State-owned hydrocarbons distributor is set to aggressively seek partnership schemes in response to liberalization
ENERGY

NAFTAL has encouraged private-sector companies to build and operate the bulk of its branded service stations since the 1980s

The energy sector has been the heart and lungs of the Algerian economy ever since independence. It accounts for about a third of the country’s total GDP, and brings in almost all its foreign earnings. Reserves – not least of gas – are extensive enough to guarantee the sector’s dominance for the foreseeable future, although the government is keen to diversify away from too heavy a reliance on a limited range of energy products.
Europe’s seemingly insatiable demand for gas, as a more environmentally-friendly alternative to other fossil fuels, means the current expansion of gas production is likely to continue. New pipelines across the Mediterranean are envisaged. The United States is also a significant energy market for Algeria, although the main focus of U.S. interest in the country has been in oil exploration.

Well-known U.S. companies like Andarko are present in a big way, providing not just injections of capital, but technical expertise. Such partnerships with foreign companies are likely to mushroom over the next few years, as a more liberal legal framework comes into force.
This will mean not only that Algeria will no longer have to shoulder so much of the risk associated with fluctuating oil prices alone, but it will also be able to compete more effectively with other energy producers.
The oil and gas sector is dominated by the state-owned giant Sonatrach Group. Although most of the group’s production activities are at the national level, Sonatrach is increasingly involved in regional initiatives. It has been developing partnerships with Algeria’s neighbors, including Morocco, Tunisia and Mauritania, and is now spreading its net wider to Sudan and Equatorial Guinea. Though Africa produces only about 10 percent of the world’s oil at present, that figure could well rise in the medium term.

Sonatrach’s largest wholly-owned subsidiary is the hydrocarbons distribution company NAFTAL, whose name is familiar to every Algerian because of the hundreds of gas stations it runs all over the country. In fact, many of these are actually owned by private partners, as NAFTAL’s CEO, Akli Remini, explains.
“In the early 1980s, NAFTAL started to encourage the private sector to operate under our brand and to invest in the building of gas stations, with NAFTAL providing the equipment” he says. “So out of the 1,700 existing service stations, 1,200 are totally privately owned and operated on behalf of the company.”

NAFTAL has a turnover of around $2 billion a year. It currently meets Algeria’s needs for the storage and distribution of the whole gamut of petroleum-based products, including gas for vehicles, liquid gas and other fuels and lubricants. A few of those products, including lubricants and aviation fuels, are already open to competition, but in future, NAFTAL will have to work in a much more comprehensively competitive marketplace.
Mr. Remini is confident the company will continue to thrive in the new climate. “NAFTAL has been preparing itself psychologically for this opening-up since 1995,” he says. “We know very well that a monopoly situation is not viable in the long-term. NAFTAL will have to surrender a significant part of the market to others, but it will maintain its status as the leader nationally, because it is a strong business.”

He is also optimistic about the level of client loyalty. “I know that most consumers in our country won’t forget us if competition arrives tomorrow. But what is certain is that from now on we have to do our work differently, with more marketing and getting closer to the consumer.” NAFTAL also intends to beef up its activities in the community, to stress its role as what Mr. Remini refers to as a ‘citizen enterprise’. The company already sponsors a number of sporting teams. And during the floods at Bab-el-Oued in November last year, it looked after the needs of 300 villagers during the Islamic holy month of Ramadan.
The changes within the company are becoming visible to the consumer. The recently-opened service station at Cheraga, with its fresh colors and design, is the first of a new generation of NAFTAL outlets. “People have got to understand that we have changed and today’s NAFTAL is not yesterday’s NAFTAL,” Mr. Remini says.

He predicts that by the end of 2003, there will be about a hundred of these new-style service stations across Algeria. “So, renewing our distribution network is a priority for NAFTAL, whether we are talking about the level of service as such, or the new image that we will be putting across through the new type of service station.”
Another major element of the company’s strategy for the next five years is to forge strategic partnerships with companies abroad. Mr. Remini believes that these days, oil and gas distribution companies cannot limit themselves to their home market; they have to look for outlets elsewhere.

“Thanks to such international alliances, one gets to familiarize oneself with new technologies, with a spirit of openness and with always doing better,” he says. “NAFTAL is in particular looking for partners to enter into joint ventures, including going into new countries, especially in Africa.”
Discussions have been under way not just with neighbors, including Morocco and Tunisia, but also France, Spain, Mexico and even the US. “We are in contact with the AMERIGAZ company,” Mr. Remini cites as an example. “There is nothing concrete as yet, but we talked with them during the LPG conference that was held in San Diego.”

Mr. Remini has been in the oil and gas business for three decades, most of it inside NAFTAL, though for a while he worked in the Ministry of Energy and Mines. He has therefore been a key figure in implementing reforms that will make the sector more responsive to the demands of a modern, liberalized economic environment. That means not just encouraging public-private partnerships, but also preparing institutions and their labor forces for competition.

“NAFTAL is a profit-making enterprise,” he points out, “and as such will spare no effort in developing partnership schemes. We have an extensive investment program for the next five years, which will contribute to upgrading the capacities of our facilities. That will enable us to reduce the administrative costs of our existing facilities and to develop the most reliable and least costly means of transportation.”

NAFTAL’s ability to maximize profits is still circumscribed in some fields by government regulations, but Mr. Remini has been forceful in promoting an enterprise culture within the organization since he became its head last year. “Our concern, as a commercial company, is to be aggressive and to realize our potential,” he says. “Having said that, I must stress that NAFTAL achieves maximum profit on products whose prices are not set by regulation – such as bitumen, aviation fuel, lubricants and tyres – but that is not the case for Liquefied Petroleum Gas (LPG), for which we hardly recover our costs, because of price regulation.”

Despite this liberalization, the state still sees itself playing three roles in the energy sector: as owner of the territory where mines are located; as an investment promoter; and as a protector of national interests.

ENVIRONMENTAL
concerns are setting the agenda at the national oil refining company, NAFTEC

Oil refining in Algeria is currently the sole responsibility of a wholly-owned subsidiary of the national oil company, Sonatrach. The company, NAFTEC, operates four refineries, at Algiers, Arzew, Skikda and Hassi Messaoud, supplying the domestic market with gasoline, naphtha and other oil-related products, as well as selling on the international market.
NAFTEC exports more than 14 million tons of refined products to the United States, Europe and Asia, including light and heavy fuels, kerosene, aromatics and lubricants. It operates a refinery in neighboring Mauritania, supplies the market in refined products and hopes to expand its operations elsewhere in Africa. A major priority for the company is to keep product standards up to international norms in a global trading climate that is ever more exacting.

“It is vital to keep up to date with and adapt to developments linked to our products,” says NAFTEC’s CEO, Salah Cherouana. “This is particularly important because European and American specifications are moving in the same direction, albeit at different speeds. In the United States, laws relating to a reduction in pollutants are much stricter than in Europe. So we have to adapt ourselves to the most demanding specifications.”
Environmental concerns are setting much of the agenda for the company – domestically as well as internationally. NAFTEC has pledged to reduce and eventually remove lead from gasoline and sulphur from gas oil that it sells on the local market.

The necessary modifications to its refining plant will require considerable investment. Though NAFTEC is financially sound and credit-worthy, the sums involved will be so huge that supplementary foreign funding will be essential. “We have already called in foreign companies to help us analyze our facilities and to work out what needs to be done,” says Mr. Cherouana. “The modernization of our instrumentation is the second, and very important, element.”

These changes are taking place at a time when Algeria’s oil and gas industry has to open up more to foreign competition, as a result of the new association agreement with the European Union, Algeria’s aspirations to join the WTO, and general trends in globalization. At the moment, NAFTEC is quite well sheltered, as only a few specialized products, such as lubricants and bitumen, are imported.
“We have to adapt ourselves right away to the opportunities and threats that will present themselves with the opening up of the Algerian market to imported products and maybe even to oil refiners,” says Mr. Cherouana. “That is why our strategy is now so focused on offering high-quality products at competitive prices.”

The American connection is considered highly important, not just for NAFTEC but for Sonatrach’s operations and subsidiaries as a whole. “Apart from their significance as customers, the Americans are at present working in Algeria upstream as well as downstream,” Mr. Cherouana points out. “We have always had good relations with the United States and we hope to reinforce these, in both the economic and technological spheres.”
He adds: “We know lots of American companies that are very specialized, especially in instrumentation, and we know that the refinery business in the U.S. is highly successful.”