Sonatrach in Rhourde Yacoub Block 406 A

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MIGA has provided $50 million in reinsurance to the Compañía Española de Seguros de Crédito a la Exportación (CESCE), the Spanish export credit agency, for its $144 million guarantee to the Compañía Española de Petróleos S.A. (CEPSA) of Spain. CESCE's insurance covers CEPSA's $240 million investment in a Production Sharing Contract (PSC) with Sonatrach of Algeria in Rhourde Yacoub Block 406A Oil fields. MIGA's reinsurance provides coverage against the risks of Expropriation, Breach of Contract, and War and Civil Disturbance. In 1997, MIGA provided $10 million in reinsurance to CESCE for a portion of its coverage of an investment made by CEPSA in the Rhourde el Khrouf oil field, which will continue production through 2004. The current investment includes the expansion of CEPSA's activities into a new oilfield (the Ourhoud field), as well as existing activities. The project is located in the Algerian interior in the Sahara desert, some 80 miles from the border with Tunisia. The surface facilities of the field will consist mainly of a Central Processing Facility where the crude gathered from the different satellite stations will be treated and stored for export. Under the PSC, an organisation integrated by CEPSA, Sonatrach and other companies with interests in the fields, provides exploration services, production equipment for petroleum extraction in existing wells, and overall technical and managerial assistance.   The project involved one of the first PSCs signed by the state and a foreign firm in Algeria, and at the time provided an important demonstration effect for other potential foreign investors. While the "demonstration effect" of the project is no longer a key issue (given the important number of other foreign parties that have since invested in the country), the project continues to provide other important benefits for Algeria. During the period of maximum output of the new oil field, which is expected to be from 2004 to 2009, royalty payments to the Algerian government will average $315 million per year, a figure equivalent to 16 percent of the 2000 national budget. Thus, the PSC agreement has allowed the Algerian government to fund its investment programs in other economic sectors, including health and education. The project will continue to bring to the country managerial and technical knowledge, which will permit an efficient and environmentally-sound exploitation of the country's natural resources. The project will support human resources initiatives with two US oil firms operating in neighboring exploration blocks, by constructing permanent housing and health facilities for workers at a combined cost of approximately $53 million.

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