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ENERGY-ARGENTINA: Handing Out Concessions ‘In Perpetuity’

Marcela Valente

BUENOS AIRES, Sep 20 2007 (IPS) - Political leaders and activists have asked the justice system in Argentina to rule on the legality of the Chubut provincial government’s extension until 2047 of a foreign corporation’s concession to the country’s largest oil reserve. The decision was taken 10 years before the current concession expires.

By taking this decision, which was approved by the provincial legislature, the authorities of the southern Argentine province have in effect renounced their power to rescind the concession if Pan American Energy (PAE) does not fulfil its investment and environmental obligations in the next decade.

“Only the justice system can revoke this unconstitutional contract,” Hipólito Solari Irigoyen, a former national senator for Chubut belonging to the opposition Radical Civic Union (UCR) party, told IPS. He presented the appeal against the extension of the concession to the Cerro Dragón oilfield, the most productive in Argentina.

The appeal is supported by non-governmental organisations and political leaders from different parties, including the governing Justicialista (Peronista) Party (PJ), at the national and provincial levels.

The Chubut provincial government regards the disputed agreement as “a model” for renegotiating other contracts in the oil and natural gas industry in the province that are due to expire in 2017, as well as in other regions, the coordinating minister of the provincial cabinet, Norberto Yahuar, said enthusiastically in August.

Chubut Governor Mario Das Neves, who like Argentine President Néstor Kirchner belongs to the PJ, was reelected on Sept. 16, garnering more than 71 percent of the vote.

“Now I dream of becoming president,” Das Neves said this week in an interview with the Buenos Aires newspaper La Nación.

With the tacit agreement of the centre-left Kirchner administration, Das Neves signed an extension of PAE’s concession to exploit the reserve, which was due to expire in 2017, for 10 further years, with an option to renew the contract for another 20 years, until 2047.

In May, provincial lawmakers approved the agreement, which is now under review in court. The provincial government and PAE jointly pressured the Chubut High Court to rule on the appeal, but the Court referred the matter to the lower court judge hearing the case.

“The secrecy of the negotiations, which have gone on for four years, has prevented public debate of the extension of the concession, worth between 45 and 50 billion dollars, without a public tender,” said Solari Irigoyen.

“The reserve could be exhausted by the time this extension runs out, so we are talking rather about the sale of resources rather than an extended concession,” he said.

The few dissenting voices in the provincial legislature were hushed by large numbers of trade unionists who shouted and cheered for the measure to be passed immediately, without a debate.

“The government says that Chubut will receive 778 million dollars over the next decade, but even if that’s true, what it failed to say is that the company will earn 12 billion dollars in profits,” Solari Irigoyen said.

The oil deposit, which contains nearly 25 percent of Argentina’s known crude reserves, is located for the most part in the south of Chubut, while 10 percent of it is in Santa Cruz, Kirchner’s home province.

The Santa Cruz government, also dominated by the PJ, has authorised the extension but the legislature has refused to ratify it.

PAE’s major shareholders are British Petroleum (BP) and Amoco (United States), and to a lesser extent Bridas (Argentina). BP and Amoco have worked the oilfield, under different names, since 1957, when the formerly state-owned Argentine YPF (Yacimientos Petrolíferos Fiscales) first opened it up for lease.

“This is a case of concession in perpetuity,” Félix Herrero, vice president of the movement for the recovery of Argentina’s energy sovereignty (MORENO), which joined Solari Irigoyen in lodging the appeal, told IPS.

The appeal against the extension agreement was also backed by several leaders of the PJ itself, “in defence of national and provincial natural wealth.”

“We are completely against this renegotiation and are hopeful that the appeal will succeed,” said Herrero. “How does the Chubut government expect to enforce the conditions of the contract with PAE if it has already extended the company’s concession ahead of time?”

In Herrero’s view, at a time when concessions in perpetuity are in crisis all over the world, it is unthinkable that Argentina should hand over its reserves to foreign companies.

He said that he regarded it as illegal for governors and lawmakers to presume they have the right to concede extensions beyond their own elected terms of office, and for them to do so without debates in the national congress and civil society.

He also criticised PAE, which is securing twice the profit margin they have in other parts of the world.

“Negotiations on this contract have been ongoing since 2003, but surrounded by an air of secrecy,” said Solari Irigoyen. The agreement, a preliminary version of which was signed by Federal Planning Minister Julio De Vido, sets the company’s royalties at 12 percent.

“Nowadays, higher royalties are being negotiated around the world. Bolivia, for example, insists on 50 percent” for its natural gas, said Herrero. In addition, PAE’s promised investments are conditional upon no royalty increases, and continued high crude oil prices.

Sergio Acevedo, a former governor of Santa Cruz who stepped down over differences with Kirchner, broke his year-long silence in August to criticise the renegotiation of the contract in Santa Cruz and Chubut.

Seven PJ provincial legislators in Santa Cruz have make known their opposition to the agreement, while social and religious organisations have begun collecting signatures in both provinces to force a referendum, in the hope of quashing the extended concessions.

At an open meeting on the issue convened in August by MORENO in the city of Comodoro Rivadavia, in Chubut, at which MORENO’s leader, film-maker Fernando “Pino” Solanas, Herrero, Solari Irigoyen, Acevedo and others made presentations, members of private sector oilworkers’ unions physically attacked the speakers.

The private sector trade unions are in favour of the renegotiated contract, because they agree with the government’s argument that the extension will stimulate investment and guarantee stability of employment in a sparsely populated province, where agriculture and livestock production are underdeveloped.

There is a precedent that may not help the cause of those promoting the appeal. In 2000 the provincial government of Neuquén, to the north of Chubut, also granted an extension 17 years in advance to the Spanish firm Repsol to continue exploiting the country’s main gas reserve at Loma de la Lata.

The rightwing governor of Neuquén, Jorge Sobisch, gained the support of then President Fernando de la Rúa (1999-2001) to extend Repsol’s concession, which was to expire in 2017, for another 10 years, in exchange for an annual concession fee of 300 million dollars payable by the company to the national government.

Like Das Neves, Sobisch, a member of the Neuquén Popular Movement, a provincial political party, is campaigning as a presidential candidate for Argentina’s Oct. 28 elections.

Loma de la Lata produces 28 percent of Argentina’s supply of natural gas. The extension granted so far ahead of time also limits oversight of Repsol’s fulfilment of its obligations under the concession, including protection of the environment.

Repsol had been accused of contaminating groundwater around the gasfield, to the detriment of Mapuche indigenous communities. The provincial government distributed mineral water to the local people for some time, and built a water treatment plant, but many animals died from the pollution.

In Cerro Dragón, the Santa Cruz government ordered PAE to close 47 oilwells after finding evidence of contamination of groundwater.

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