Naturgy seeks to renegotiate agreements with its Sonatrach partners to deal with the consequences of the pandemic
Although the confinement is over, its consequences continue to plague businesses and are a real headache. Adjustment plans, restructuring plans...autumn is looking very complicated and companies are trying to adapt to the uncertainty of the coming months. The collapse of gas prices and the pandemic have led Spanish energy company Naturgy to renegotiate supply contracts and review its strategic plans with its partners at Sonatrach, with whom it operates the Medgaz gas pipeline that supplies gas to Spain from Algeria. This company has its own problems and does not want to renegotiate downwards the contracts signed until 2030.
Despite this, Naturgy sources stress the desire for understanding between both parties in order to reach new agreements. This is not the first time that Spanish energy has had to renegotiate with its Algerian partners. Ten years ago they clashed in court and Naturgy finally had to pay 1,300 million euros and incorporate Sonatrach into the board because they took over 4% of the shares.
Algeria is highly dependent on energy exports and the country is going through a very serious crisis as a result of the pandemic and the collapse of oil and gas prices. To these circumstances we should add the political transition the country is undergoing, which is not easy either. Sonatrach is experiencing all these changes at first hand, and the company's managers have gone so far as to consider layoffs in order to lighten an oversized workforce for political reasons. Naturgy is the company's second most important energy customer by turnover level, so doing without them is not a viable option either. The Spanish company and Sonatrach are partners in the management of the Medgaz gas pipeline, which starts in the heart of Algeria, crosses the Mediterranean and Morocco in two branches, flows into the south of Spain and is one of the main oil and gas inputs to Europe.
Sonatrach also hopes to reach an agreement with the Spanish energy multinational to avoid international arbitration, as its executive director, Toufik Hakkar, assured the Efe agency on 18 August. Hakkar assured that both parties are in the final round of negotiations. "We are in the final phase of negotiations and we hope to reach an agreement soon," he said without offering any further details. However, the collapse of oil and gas prices at the beginning of the year due to the pandemic has led to a dispute between the two which led Sonatrach to warn in May that it "will use any legal instrument to adapt its international natural gas contracts to the current market circumstances". "In the relationship between the sale and purchase of gas there is not only the price, but other considerations: flexibility, energy security, all this brings the two parties together", he pointed out to Efe Hakkar, who recalled that the energy relationship between Algeria and Spain is over 50 years old. Before looking at the market and prices, other parameters must be considered", he said.
Poor business results have led Naturgy to announce adjustment measures and to bring forward the review of its strategic plans. Profits in the first half fell by 43.5% and this has forced the company to rethink its entire strategy. Reynés has stated that his intention is to reach new agreements and only resort to legal proceedings or arbitration as a last resort. In 2018 Reynés set out a new five-year strategic plan to turn around the company's situation. The strategy followed by the manager during this time has been to disinvest, restructure the debt and choose those investments that were more profitable. The beginning of the year is very complicated, especially because the company wants to maintain its dividend policy, although the real dimension of the economic crisis brought about by the pandemic has yet to be known.
