New Algeria Energy Minister Is Advocate of Domestic Price Hikesby and
Low prices have encouraged rising consumption of gas, power
North African nation’s gas exports are in long-term decline
Algeria appointed an advocate of higher domestic energy prices as its new energy minister, as the OPEC member grapples with falling production and declining export revenue.
Noureddine Bouterfa, former chief executive officer of Algeria’s domestic gas and electricity company, was sworn in as Minister of Energy and Mines on Sunday. As head of Sonelgaz, he advocated higher domestic electricity prices, saying costly subsidies were unsustainable. The appointment suggests the North African country’s government is shedding its reticence to raise prices for fear of popular unrest, said Ferhat Ait Ali, an independent financial analyst based in Algiers.
“Bouterfa has always called for an increase in electricity tariffs,” said Ali. The minister’s outspoken views explain his appointment and put him “on the front line” of the effort to increase domestic prices, he said.
Algeria’s income from oil and gas exports, which account for nearly 60 percent of the economy and 95 percent of foreign receipts, plunged by almost half over the past two years as prices fell. Domestic gas consumption rose 10 percent a year over the past decade as electricity use increased 6.6 percent, according to Sonelgaz. Rising demand coincides with declining natural gas production, squeezing export volumes.
Keeping domestic energy prices low costs the Algerian government money and also encourages faster-growing consumption. The International Monetary Fund this month called on the nation to cut spending to ease the “shock” of an oil slump that helped slash its reserves last year by $35 billion, or about a fifth of the total.
Electricity costs were increased in this year’s budget for the first time since 2005. There should be more price hikes, Bouterfa said in an interview with state radio on June 5. Other Algerian leaders have acknowledged the need for changes to the subsidy regime, but the government hasn’t acted yet for fear of stirring unrest of the sort that swept through the region in 2011.
Algeria is the largest gas producer in Africa, pumping 83 billion cubic meters last year, according to data compiled by BP Plc. Production fell 5.9 percent over the past decade due to a combination of aging fields, a new hydrocarbon law that dimmed the interest of outside investors and security fears after a 2013 terrorist attack that killed 38 foreign workers. Exports by pipeline and shipments of liquefied natural gas both fell by more than 36 percent since 2005, the data show.
Bouterfa joined Sonelgaz in 1974, rising through the ranks to become CEO in 2004. He holds degrees in physical sciences and engineering, according to the website of the Association of Mediterranean Transmission System Operators, of which Algeria is a member.
He replaces Salah Khebri in a cabinet shuffle ordered by President Abdelaziz Bouteflika. During a ceremony in Algiers Sunday, Bouterfa called on leaders of the sector “to join forces to cope together with the huge challenges facing the sector, in a spirit of consultation."
Six other posts were also changed including the finance minister. Earlier this month, long-serving central bank Governor Mohamed Laksaci was replaced with Mohamed Loukal after he was criticized for his performance during the plunge in oil prices that damaged the country’s finances. Khebri, who was only in the job for a year, failed to convince fellow Organization of Petroleum Exporting Countries members to cap production at a meeting on June 2.
Bouterfa is not perceived as a fan of renewable energy, once even calling it a “utopian” idea at an industry event in February. That makes his appointment “inconsistent and even surprising” as it goes against official policy to promote alternative forms of energy, said Abdelkader Mechdal, an independent economic analyst based in Algiers.