Algeria: Local firms earmarked for role in transport
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As part of Algeria’s several hundred billion dollar infrastructure programme, the government has enacted new measures to encourage greater participation from local firms. Recent amendments to the 2010 public procurement law also introduce new rules for foreign companies bidding on Algerian contracts and outline special procurement procedures for state-owned enterprises (SoEs).
When the current public procurement law was first adopted in October 2010, it provided new preferences to domestic companies. Under the legislation, foreign firms could participate in public tenders only if they partnered a domestic company with a majority Algerian shareholding. The legislation also allowed the government to launch tenders solely for the domestic market, with foreign companies permitted to bid in these instances only if no domestic match could be made.
Local companies were given more scope for winning tenders, even when their bids are higher than those of foreign bidders. Prior to the 2010 law, domestic companies could be given preferential treatment only if their bid was no more than 15% higher than the bottom foreign bid. The new law increased the threshold to 25%.
This move came as the government embarked on a wave of massive public work projects in a bid to address the specific challenges Africa’s largest country faces in developing its transportation networks, particularly its roads.
A number of major projects are already in place under the umbrella of the 2005-25 Strategic Plan for Road and Highway Development, including the East-West Highway, the Hauts Plateaux Highway and the North-South Highway, with approximately AD60bn (€568m) allocated to the second five-year phase of the initiative, which runs from 2010 to 2014.
With the first phase of the initiative completed in 2009, the Minister of Public Works, Amar Ghoul, announced in December 2010 that the government would be reducing its reliance on foreign companies and giving priority to local outfits for the next wave of projects.
The minister said the number of Algerian engineers rose to 5000 by 2010, up from 30 in 2005, on the back of government investment in the first phase of the road and highway development plans. He added that local engineering firms and construction companies also expanded over the same period, up from 100 to 600 and 1000 to 7000, respectively.
Alongside the move to increase domestic participation in large-scale projects, the government is now working to continue attracting foreign investment both for construction and management contracts. In November 2012, the Algerian Highway Management (l’Algérienne de Gestion des Autoroutes, AGA) announced plans to seek out a foreign partner who would help it manage the East-West Highway and develop local expertise. AGA has indicated that in time, it plans to take sole responsibility for managing the project.
To address concerns that have arisen since the original public procurement law was passed in 2010, new amendments to the public procurement code were adopted in December 2012. These amendments change the rules governing procurement by SoEs, alter the investment requirements for foreign investors and define new penalties in the event that problems arise during government contracts.
To reduce delays and improve the competitiveness and efficiency of SoEs, the amendments exclude state-owned firms from following the rules outlined in the public procurement law. These companies are now allowed to establish their own procedures based on the principles of freedom of access, fair treatment and transparency.
Because one of the largest players in the construction industry is state-owned Cosider Groupe, this change is likely to influence activity in the transportation infrastructure sector. Supply companies may see an increase in business as a result of the more flexible rules, while firms bidding on contracts may face increased competition from the SoE.
Regarding investment requirements, the old code required foreign bidders to commit to investing in a partnership if they wished to participate in Algerian projects, regardless of the project. Under the amended code, this requirement applies only to specific projects as identified by the Algerian authorities — typically those in strategically important sectors.
Finally, the amendments outline sanctions that can be placed on foreign companies if the methods and delivery deadlines outlined in the contract are not met. These sanctions may include termination of the contract, financial penalties of up to 20% and/or the inclusion of the offending party on a list companies banned from bidding on future contracts.
The long-term impact of the amended public procurement code will take time to gauge. While the new rules may prompt some international firms to rethink their options in Algeria, many will also be aware that the completion of new transport infrastructure will open up a significant number of additional avenues across the industrial landscape.