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Challenges for Future Nationalised Oil Co. in Argentina

BUENOS AIRES, Apr 18 2012 (IPS) - One of the big challenges facing the Argentine government in its plans to regain state control of the country’s biggest oil firm, YPF, is to make up for the time lost under private management, when production and exploration fell.

President Cristina Fernandez decreed intervention of the YPF board and sent Congress a bill Monday Apr. 16 to expropriate 51 percent of the shares of the company, which is controlled by Spanish energy firm Repsol.

The move radically changes the country’s energy scenario. YPF, founded as Yacimientos Petrolíferos Fiscales (“State Petroleum Reserves”) by the Argentine state in 1922, is the largest oil and gas producer in the country. It was privatised in two stages, in 1993 and 1999, under the administrations of former president Carlos Menem (1989-1999).

Since then the state has held less than one percent of the shares of YPF.

The takeover decision was mainly based on a sharp decline in production. Argentina had to import over 9.3 billion dollars’ worth of fossil fuels in 2011, after being self-sufficient for over two decades.

The centre-left Fernández government disagreed with Repsol’s policy of prioritising dividend payments over reinvestment in exploratory drilling and production in Argentine territory. Instead, the company has used its profits to fund investments in Alaska, the Gulf of Mexico, the Caribbean Sea and North Africa.


If this policy continues – draining fields dry, no exploration and practically no investment – “the country will end up having no viable future, not because of a lack of resources but because of business policies,” said Fernández when she made the announcement.

A number of opposition lawmakers expressed support for the president’s decision, in spite of their disagreements with certain aspects of the bill and their criticism of the government’s energy policy.

Demonstrators gathered in the Plaza de Mayo square in front of the Casa Rosada, the government house in Buenos Aires, to celebrate the move to regain state control of YPF.

Félix Herrero, the vice president of the movement for the recovery of Argentina’s energy sovereignty (MORENO), told IPS he was in “complete agreement” with the bill, which declares the achievement of self-sufficiency in oil and gas to be “in the public interest” in order to “guarantee economic development with social equity.”

After several months of bickering with Repsol, Fernández sent Congress her bill, which also stipulates that out of the YPF controlling stake expropriated (51 percent), 51 percent will be held by the federal government and 49 percent will be distributed to around ten oil-producing provinces that have recently revoked YPF concessions due to a lack of investment by the company.

The president said nothing about the fate of the 25 percent stake in YPF held by the private Argentine Grupo Petersen since 2007, although she did say that the government had no plans to make a bid for the 17.09 percent of YPF shares that are traded on the Buenos Aires and New York stock exchanges.

“This is the start of a nationalisation process that should reach 100 percent,” said Herrero, a former director of various state energy companies in Argentina. MORENO has always been critical of the private management of YPF and has called for the state to regain control of it.

According to Herrero, if the state gains control of the company by acquiring a 51 percent stake, it will receive annual revenues of about two billion dollars that it can reinvest in the firm, building up its share ownership until it obtains 100 percent.

However, other economists are dubious about how the state will finance its acquisition of the company in the first place, or its future investments to expand proven reserves and to explore for non-conventional fossil fuels such as shale oil and gas.

Experts in this field say that extracting shale oil and gas from the Vaca Muerta shale formation, which occupies an underground area of 30,000 square km in the southern provinces of Neuquén and Río Negro and the western province of Mendoza, will require several times the sum needed to buy 51 percent of YPF shares from Repsol.

Mariano Lamothe, an economist with the consulting firm Abeceb, told IPS the project announced by the president so far implies only a change of hands. “We will have to wait and see what plans the state has for getting the company on a productive footing, and how it will finance it,” he said.

In Lamothe’s view, the government has waited too long to take action on an energy policy that has been failing to encourage investment. “The authorities allowed most of the profits to be transferred abroad, and now there is an eight-year backlog in investments,” he complained.

He added that the future state-controlled company would have to move towards a model of partnerships with the private sector in order to fund necessary investments. And he thought it was premature to celebrate the government’s move this week.

At the unveiling of the initiative, Fernández said YPF would continue to be a “sociedad anónima” or public limited company, with private participation. “I want to make it clear that this is not nationalisation, but the restoration of sovereignty and control over an essential instrument,” she said.

She maintained that Argentina’s plan “is not a new invention,” and ran through a list of industrialised and developing countries where the state controls the oil and gas industry. For example, she noted that in Brazil, the public sector owns 51 percent of oil giant Petrobras.

But on this point, Herrero said, the president “is mistaken.” Constitutionally, the Brazilian state cannot own more than 51 percent of Petrobras, and actually owns 32 percent, while the rest of the company is in the hands of federal states, the state-owned National Development Bank (BANDES), workers’ mutual funds and private individuals and corporations, he said.

“The private sector has investment certificates (in Petrobras), but no voting rights at shareholders’ meetings. The board is made up exclusively by representatives of the state,” he said.

But Herrero said the new Brazilian company, Petrosal, which will manage all contracts to exploit huge oil reserves discovered under the floor of the Atlantic Ocean, below a thick layer of salt, “is 100 percent state-owned.”

After repeated failed moves towards nationalisation and discussions with representatives of Repsol and the Spanish government, Fernández came out with her surprise announcement Monday and presented the bill made up of 19 articles and lengthy sections explaining its legal basis.

She also decreed the intervention of YPF and appointed Planning Minister Julio de Vido seconded by Deputy Economy Minister Axel Kicillof to run the company.

Flanked by government officials, state governors, members of the business community, trade unionists and governing party supporters, the president had a presenter read out the text of the bill and then explained the reasons for her decision.

Fernández pointed out that in 2011 Argentina had again become a net importer of oil and natural gas, spending a total of over 9.3 billion dollars, almost as much as the country’s total trade surplus last year.

She reported that Argentina’s proven reserves have fallen by 50 percent since 2001, although YPF has not posted losses because it has spent so little on reinvestment.

The company more than doubled its sales since 1999, making net profits of nearly 16.5 billion dollars since then, and distributing dividends of 13.2 billion dollars, she said.

Fernández said the real problem was not about foreign companies or their profitability, but about the lack of investment, and she contrasted the situation at YPF with the positive relationship her government has with foreign automotive companies.

Italy’s Fiat and the U.S. General Motors both receive soft loans from the Argentine state to boost local production and keep workers in jobs, she said.

Fernández said the bill to nationalise YPF is “a policy of state,” and asked lawmakers of all political party affiliations to support it.

 
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