Sonatrach’s dispute with Petroceltic heading towards a disaster outcome for the state oil and gas company.

• The upcoming arbitration process relating to the expropriation of Petroceltic from AinTsila asset is opening Sonatrach to multibillion USD liability after its US$ 500 million settlement offer was dismissed. With skyrocketing oil and gas prices, Petroceltic’s stake could be worth anywhere between US$ 3-3.5 billion post Ukraine events. Algeria may have to resort to external borrowing if it is found that Sonatrach has to pay this amount to Petroceltic

• The long-standing cozy relationship of Mr Hakkar, Mr. Belala and Mr. Al Betata with Petrofac seems to have caused the recent raid of the Algerian security services at Sonatrach offices in search of documents pointing to corruption activities

Things seem to be heading towards a total disaster for Sonatrach in its dispute with Petroceltic, with the Algerian state oil company having missed their chance to settle the dispute outside of the legal process. An attempt by Sonatrach to offer a rumored US$ 500m to Petroceltic to make the problem go away has failed, leaving Sonatrach open to unlimited liability, which may be as high as several billion US dollars given the recent rise in oil and especially gas prices.

The plan to remove Petroceltic from the Ain Tsila project was created by Sonatrach’s CEO Mr. Toufik Hakkar and his trusted advisor Mr. Smail Belala, with the patronage of Mr. Sid Al Betata, President of AlNaft. The reason for the removal of Petroceltic, a UK-based company that was operating in Algeria since 2004, was that it was interfering in the pact that Mr. Hakkar and his circle had with Petrofac to rout part of the invoices paid to Petrofac for EPC work on AinTsila back to them. Petrofac is no stranger to these sort of arrangements – as recently as October 2021 Mr. Lufkin, Petrofac’s former Head of Sales, was handed a two-year sentence after pleading guilty to 14 counts of bribery and admitted making corrupt payments between 2011 and 2018 and offers to influence the awarding of contracts to Petrofac. In the same case, brought by UK Serious Fraud Office (“SFO”), UK High Court ordered Petrofac to pay £77m in fines after Petrofac pleaded guilty to 7 counts of failing to prevent bribery between 2011 and 2017.

Sonatrach made it clear that they had issues with Petroceltic scrutinizing invoices submitted by Petrofac. In their own right Petroceltic did what it had to do to comply with any investigation in its backyard run by UK’s Serious Fraud Office. Petroceltic had no other choice but to apply extra caution when it comes to Petrofac’s invoices and to comply with anti-bribery laws of its home country where Petrofac has been a subject to UK’s SFO investigation since 2017. The only explanation why Mr. Hakkar personally was putting pressure on Petroceltic to approve invoices without checks could be carried out is that the part of the money from these invoices was to be routed back from Petrofac to Sonatrach’s management. Since Petroceltic did not want to budge to threats from Mr. Hakkar, he proceeded to issue the order to remove Petroceltic from the AinTsila project. Without Petroceltic’s presence and with Sonatrach controlling 100% of the multibillion US dollar project, it would become significantly easier to move bribery money from Petrofac to Sonatrach’s top echelon without much challenge. It has become news now that very recently the Algerian security services raided Sonatrach offices in search for documents relating to Petrofac.

A key person on Sonatrach’s payroll that served to route money and defend Petrofac’s interest is Mr. Faiz Zane, the former project director for engineering and management at Sonatrach. Faiz Zane acquired enormous fortune from his corrupt work for Petrofac and managed to get himself a luxury property on Sheikh Zayed Road in Dubai where he currently resides.

In addition to receiving personal bribery money, the expropriation of Petroceltic was politically convenient for Mr. Hakkar since he was under pressure due to Algeria not benefiting from the gas price rise in early 2021 because much of the gas production had already been locked into long term contracts at pre-agreed rates. As AinTsila was the project bringing fresh quantities of gas Sonatrach would stand to benefit when the Ain Tsila project comes on-line. The truth is that politically Algeria always wanted a bigger stake in the project but had no legal way to get it. Sonatrach, AlNaft and Algerian Ministry of Energy managed to blackmail ENEL to hand over their 18% stake in AinTsila to Sonatrach few years ago, but Petroceltic proved a tough nut to crack so Mr. Hakkar with support of Mr. Sid Al Betata fabricated the whole breach of contract claim to effectively steal Petroceltic’s 38% stake in the project. Hakkar’s thinking was that if Sonatrach benefited financially form expropriating Petroceltic’s stake, the ruling Algerian echelon would not challenge Mr. Hakkar about money he received as kickbacks.

Mr Hakkar made one fatal mistake in that he either did not know or did not care that Petroceltic’s money came from Kuwait’s Sovereign Fund and the mighty US money management firm Blackstone that is very well connected to the US Department of Justice and the US Treasury Department. While Petroceltic ownership was in the public domain for some time due to Petroceltic’s securities being listed on the Cayman Stock exchange, Mr. Hakkar probably thought he had the backing for his actions by the security services apparatus in Algeria. This was certainly the case in the past when corrupt payments to the CEO of Sonatrach were routed via Abdelhakim Benferhat, a businessman whose father is the former Algerian secret service (DRS) officer Nourredine Benferhat and whose father-in-law is Mohamed Mediène also known as General Toufik, the powerful ex-boss of the DRS and one of the backbones of the Algerian regime. But the big issue remains where is Algeria going to find that kind of money to pay back the Kuwaitis and the Americans for what it has taken form them? It is unlikely that US$3 billion will just be forgiven. We were told that the Kuwaitis and the Americans have spent a lot of money to collect evidence of corruption and are planning to expose this publicly soon.

A US online blog has reported that Petroceltic asked their American friends to place everyone involved on various sanction lists and asked the DoJ to consider criminal charges against Algerian individuals involved in expropriation. So the upcoming multibillion arbitration looks like the least problematic of the tide of problems coming to Sonatrach and Petrofac executives. If history is any guide, we anticipate that Petroceltic and their backers are fully determined to bury everyone and everything that stands between them and the money stolen from them.