Lawless Algeria: Sonatrach falsifies Isarene project documentation in an attempt to illegally transfer control from Petroceltic to itself

• Expropriation of Petroceltic interest in Ain Tsila by Sonatrach CEO Hakkar leads to annulment of all existing contracts including EPC with Petrofac
• In its bid not to re-tender contracts Sonatrach resorts to falsifying documentation purporting to continue the status quo with contractors
• Ill-thought-out termination of Petroceltic beginning to dawn on Sonatrach’s executives who shifted to damage control mode in order to reduce Petroceltic’s rummoured US $2bn claim

A worrying evidence has emerged in the growing international dispute between Sonatrach and its international partner in the Isarene project – Petroceltic. Evidence collected by our reporters points out to borderline illegal activities by Sonatrach officials worthy of international sanctions. Our correspondents have seen a complaint letter and have confirmed by speaking to several former employees involved in Isarene that there have been illegal attempts by Sonatrach senior official to falsify documentation with the purpose of it appearing legal in order to transfer Petroceltic’s interest in the JV Groupment Isarene to Sonatrach itself. Letters have been received by several contractors of Groupment signed solely by Sonatrach officials and clearly missing the joint signature from Petroceltic project managers, purporting to continue the existing contract with each contractor.

As a reminder, the termination of Petroceltic caused the automatic dissolution of the JV Groupment Isarene, which was the counterparty to all the contracts with contractors doing work on Ain Tsila asset, effectively making them null and void.

One contractor shared with us his concern that according to his internal legal advice the notice he received from Groupment post termination of Petroceltic have no validity and that he is gravely concerned about the attempt by Sonatrach official to portray them as valid. It is not clear form the complaint letter if contractors thought that Petroceltic’s employees’ signatures were falsified or they were simply missing. When asked for comment, Petroceltic employee confirmed that Petroceltic has not signed any such letters.

Several contractors have rejected the validity of such notices and have asked for new contracts to be signed. This poses a great problem for Sonatrach, since for the new contracts to be signed, as per Algerian law, Sonatrach needs re-run tender procedures for each contract. The new tender procedure would surely take more than a year, and with contractors having no legal way to be paid in the interim the project would stall.

These developments add to the growing chaos in Sonatrach as result of the fall out from the poorly thought-out illegal termination of Petroceltic’s interest in the Isarene Project. It has now become apparent that Sonatrach never intended to terminate the contract, but merely use the threat of the termination as negotiation leverage to put pressure on Petroceltic to hand over cash to Sonatrach executives, which Petroceltic refused to do. After Petroceltic fended that pressure off, Sonatrach’s management simply could not stop the process and things got out of control.

We have now spoken to people at Sonatrach who have now confirmed that Sonatrach has already accepted that it will be difficult to construct a real case against Petrocletic and that Sonatrach and the Algerian state will end up paying huge sums to Petroceltic and its US and Middle Easten backers. The focus at Sonatrach has now shifted to damage control in order to try and reduce as much the possible a US $2 billion claim that Petroceltic is preparing.