Algeria has made great strides in integrating itself into the global economy. The country has emerged as a significant player in the international energy sector with an array of interests and commercial activities in Africa, Latin America, Europe and the United States.
Rich in natural resources and with a growing, skilled workforce, the North African country has been building its reputation as a reliable and responsible economic partner with the rest of the world and, by doing so, it has slowly gained stature and influence in the international community.
But that progress has been set back recently by a commercial dispute between Sonatrach, Algeria’s state-owned oil and gas producer, and Gas Natural Fenosa (GNF), Spain’s leading natural gas and power utility. Sonatrach is using fluctuations in the price of natural gas as an excuse to unfairly and unreasonably extract nearly $2 billion in penalties from the Spaniards. Under any objective analysis, the Algerian retroactive compensation demand is excessive and, if ever collected, would threaten Spain’s fragile economy and could trigger a financial crisis that could impact the rest of Western Europe and the United States. Algeria's myopic approach to the dispute shows a lack of understanding of the impact its selfish action could have on interest far beyond those of Spain.
The details of the case are still being thrashed out in arbitration in Switzerland. But the broad implications are clear. Algeria, through Sonatrach, is acting irresponsibly by not accepting Gas Natural Fenosa’s many entreaties to negotiate a settlement. Sonatrach has rebuffed repeated attempts to find a compromise and continues to pursue the retroactive assessment. Observers in Spain and the U.S. have concluded that Algeria has not acted in good faith.
That’s bad news for Algeria – a self-inflected wound that will be hard to overcome. Other nations on the Africa continent worked with the rest of the world to improve their standing and commercial attractiveness. Rwanda, for example, has managed to recover from serious reputational woes in the mid-1990s and has transformed itself into an attractive destination for foreign investment. Its economy, which was ranked 70th in the world for ease of doing business in 2010, is now rated number 58 by the World Bank, making it the most improved country in Africa and the second most improved country overall. Botswana and Ghana have made similar strides.
The Algerian government has also tried mightily in recent years to remove the stigma of its past indiscretions, including a failed socialist experiment, corruption, and gross macro-economic mismanagement. Relics of the country's long and bloody civil war still erupt from time to time through Islamic fundamentalists' assaults on the established government. Algeria has struggled to find its footing internationally amid its on-going disagreements with Morocco over Western Sahara and its questionable record on human rights.
To overcome those problems Algeria has made laudable and significant efforts to become an important ally to the West on counter-terrorism. It has been a bulwark against al Qaeda, especially AQIM in the Sahel. Algeria has also made notable strides toward opening its economy to private investment and taking steps to promote democratic rule.
Because of this progress, Algeria is no longer the global enigma it once was. It has proved to be a member in good standing of the African Union as well as an active participant in mainstream international organizations including the UN, IMF, World Bank, IAEA, WHO and a host of others. As a result, Algeria now has real hope of joining the World Trade Organization and engaging in commerce on an equal basis with other major emerging economies.
Or at least it did. The reach-back penalty assessed by Sonatrach against Gas Natural has soured the view of Algeria by the world’s top decision-makers. Spanish ministers have tried to explain this to Algerian officials and to executives of Sonatrach, but to no avail. I am seeing ripples of discontent begin to flow through the upper reaches of the U.S. government, including among influential members of Congress. This is regrettable; however, the damage can be repaired.
Sonatrach does not have to do much to stop this slide in confidence from permanently damaging the Algerian government. All it needs to do is to accommodate the widely accepted belief that the retroactive compensation is punitive, outsized, and unjust. In other words, Sonatrach’s intractable position against negotiation should be softened and a more even-handed approach adopted.
No one is suggesting that the Spaniards should not pay compensation. To the contrary, the Sonatrach-Gas Natural terms of the contract suggest that some level of equitable compensation should be forthcoming from Spain to make up for the price changes that occurred for nearly a decade. But $2 billion is too much to expect and Spain is unable to pay that monumental sum at this juncture. The last thing the world needs at this still precarious juncture is a weak Spanish economy further diminished by energy-driven inflation, an unsustainable national debt and a fragile corporate sector.
It’s time for Algeria to act more responsibly, abandon it selfish national interests and promote the greater good. In the end, Algeria will gain by equitably resolving this dispute with its long-standing trading partner and ally across the Mediterranean.
Mr. Jeter is a former U. S. Ambassador to Nigeria and a former Deputy Assistant Secretary of State for African Affairs.
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