Algerian Oil Workers Poised to Win Pay Increase

ALGIERS — Algeria's top energy officials Sunday said they plan to meet "legitimate" pay-increase demands by employees of state oil-and-gas company Sonatrach Spa in a bid to solve a protest that could have threatened production and vital export revenue.

Several workers at the Hassi-R'Mel gas field, Algeria's largest, went on hunger strike last month, demanding effective payment of bonuses and various compensations that had been negotiated as far back as 2002.

The looming pay concessions, which could be approved by the Sonatrach board on Tuesday, show how Algerian authorities are using their oil-and-gas checkbook — energy accounts for 97% of export revenue here — to appease social conflicts which are multiplying in the North African country.

Founded in 1963, a year after Algeria won its independence war against colonial ruler France, Sonatrach is both the backbone of the nation's economy and a yardstick of social climate in the country.

"If the response falls short of our expectations, we will radicalize our protest," Sonatrach employee representative Ali Arhab said in a telephone interview from Hassi-R'Mel.

Algeria's Energy Minister, Youcef Yousfi, said authorities were willing to improve the conditions of employees who work in remote parts of the Sahara desert. "It's normal to review claims when they are reasonable," he said in an interview.

Yet, economists say the government risks draining Algeria's hard currency reserves of some $150 billion if it continues bowing to all sorts of protests in an apparent effort to avoid uprisings similar to those that led to the ousting of authoritarian rulers in Tunisia and Egypt earlier this year.

On Sunday, hundreds of local police officers protested in central Algiers for the second time in a month, saying they wanted to have the same pay and same benefits as national policemen. Last week, the government pledged to give full fledged contract to about 20,000 supply teachers, some of whom had been demonstrating across the street from the office of Algeria's President Abdelaziz Bouteflika for days.

Longer term, economists say the government may have to tap directly into Sonatrach's coffers, limiting the company's ability to develop new hydrocarbon resources and maintain export levels.

"If the government keeps behaving like a rentier, Algeria could suffer from a lack of gas to meet fast-growing domestic demand and export contracts as early as 2017," said Algerian economist Abderrahmane Mebtoul.

Sonatrach Chairman and Chief Executive Nordine Cherouati said such fears were unwarranted because there is a clear distinction between the oil and gas firm's books and the state budget. Moreover, he said, current oil prices meant Sonatrach was flush with cash.

"We can self-finance all our projects," he said in an interview.

Mr. Yousfi, the energy minister, also dismissed any cash concerns saying Algeria could afford to respond to social demands without sacrificing expansion of its oil and gas industry.

Still, he said his ministry was focused on conducting more geology research to add proved and recoverable reserves to Algeria's current portfolio of 4,500 billion cubic meters – enough for 45 years at the 2010 rate of production.

"Of course, if we stay immobile, reserves will drop," he said. "But the potential for more is there and we must turn it into reserves."

Sonatrach's Mr. Cherouati said market conditions were improving for suppliers to Europe – where a supply gas glut had pushed down spot prices in recent years – since last month's earthquake in Japan. The Asian country lost part of its nuclear-power generation and relies on additional gas imports to produce electricity.

"This will help remove some of the excess supply," he said. "As evidence, European spot prices are already higher."

Not only Algerians are in a scrap with their government for a bigger share of oil export revenue.

In 2009, U.S. company Anadarko Petroleum Corp. initiated arbitration against Sonatrach to contest a windfall tax Algerian authorities had introduced two years earlier. Anadarko says terms of its production-sharing contract with Sonatrach should have insulated it from the windfall tax.

The Geneva arbitration court handling the case could issue a ruling this summer but Mr. Yousfi said he was hopeful that "an amicable solution will be reached." Anadarko officials could not be reached for comment on Sunday.