Sonatrach

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SONATRACH

Holding company for the state's interests in Algeria's hydrocarbon sector.

In the events leading up to the independence of Algeria in 1962, the French government attempted to create a number of arrangements for continued access to Algerian oil, which had been discovered in the Sahara regions of the country a few years earlier. As part of its strategy to put the proceeds from oil sales into industrialization, the government of Algeria formed SONATRACH (Société Nationale de Transport et de Commercialisation des Hydro-carbures). It was headed initially by Abdessalam Belaid, who would become the country's head of centrally guided industrialization—a strategy in which SONATRACH was seen as the financial cornerstone.

The initial difficulty faced by SONATRACH was that all production and marketing of hydrocarbons in the country had been geared toward the requirements of France's economy, a goal now incompatible with the socialist and inward-oriented new development strategy of the Algerian government. Initially restricted to pipeline development and marketing abroad in an effort to break the French monopoly, SONATRACH eventually branched out into all aspects of oil exploration, refining, and marketing, often entering into joint ventures with foreign oil companies for exploration and production. By the early 1970s SONATRACH had become a giant state enterprise and the single largest employer in the country. It not only exercised control over the recovery of oil but managed the major refineries in Algiers, Arzew, and Skikda, and it was the domestic distributor for Algerian oil. In addition, the state enterprise also controlled a large number of oil-related subsidiaries that fueled much of the country's industrialization drive.

Because Algeria was estimated to possess the fourth-largest gas reserves in the world, the Algerian government under President Houari Boumédienne (1965–1978) attempted to index the price of natural gas to that of petroleum. At the same time SONATRACH increased its exploration activities substantially, at a time when the world demand for Algerian natural gas was stagnant or declining. The strategy necessitated heavy investments, among other items, in liquefaction plants built on the Algerian coast, for which the country borrowed extensively on the international market, starting in the mid-1970s. Neither the indexing nor the investments proved sound decisions, and by the early 1980s SONATRACH was forced to renegotiate most of its major contracts and accept lower prices for its natural gas exports. By 1970 SONATRACH directly controlled an estimated 30 percent of Algerian oil production, which accounted for some 34 percent of the country's gross domestic product. By 1977, after a series of nationalizations that ended in 1971, its participation had increased to approximately 75 percent.

The death of President Boumédienne in 1978 brought to a halt the socialist experiment that Algeria had adopted after independence. The June 1980 party congress, guided by the new president, Chadli Bendjedid, stressed the need for increased privatization and liberalization in the Algerian economy. Bendjedid advocated a reorganization of the huge national enterprise to make it more competitive and efficient. A decentralization process thus began, and the giant company was divided into smaller companies, each of which would compete for clients.

Since the early 1990s international companies have been allowed to work in existing oil fields, but the state-owned company still controls the industry. A new hydrocarbon investment law was drafted in 1991, but SONATRACH's complete privatization stalled as it faced staunch opposition from trade unions and, most important, from certain factions within the regime that resisted losing control over the most valuable resource of political and economic power in Algeria. As of 2003, SONATRACH continued to provide the Algerian economy with over 90 percent of its foreign currency revenues.