Argentine leader to nationalize oil company
In a bold move to gain control of Argentina s
energy reserves, President Cristina Fernandez pushed forward a bill to
renationalize the country s largest oil company on Monday despite fierce
criticism from abroad and the risk of a major rift with Spain.
In a national address, Fernandez said the legislation put to congress
would give Argentina a majority stake in oil and gas company YPF by
taking control of 51 percent of its shares currently held by Spain s
Repsol.
Both Repsol and Spain strongly oppose the move and have warned that
it could turn Argentina into an international pariah. YPF is vital for
Argentina s energy future, especially after its recent find of huge
unconventional oil and natural gas reserves. But the company is under
pressure from Fernandez s government to raise output while its shares
have plunged in recent months on fears of possible state intervention.
Argentina this year expects to import more than $10 billion worth of
gas and natural liquid gas to address an energy crisis even though it is
an oil-producing nation, according to estimates from the hydrocarbon
sector. "We are the only country in Latin America, and I would say in
practically the entire world, that doesn t manage its own natural
resources," Fernandez said. She said her proposal "is not a model of
statism" but "the recovery of sovereignty."
Critics blame the government for an energy shortage and high gasoline
prices. But Fernandez said the shortage is the result of Repsol s
"emptying" of YPF, and that Argentina had a deficit of $3 billion last
year partly due to energy imports.
Argentines gathered in Buenos Aires main square shouting slogans,
waving national flags and carrying banners supporting the government
takeover.
One of them read: "Today, with Cristina, we recovered YPF." YPF was
privatized in the 1990s. Repsol s subsidiary in Argentina holds 57
percent of YPF s shares. Fernandez said the renationalization was a
long-held desire of her late husband and predecessor, former President
Nestor Kirchner.
"I hope he s watching over me because he always wanted to recover YPF
for the country," she said. But analysts said the planned takeover
risks alienating foreign investors and prompting retaliation from
Spain s government.
"It is a bad decision," said Emilio Apud, a former Argentine energy
secretary who now works as a consultant. "It gives the Argentine
government a bad image" and will discourage investment, he said. Apud
also called the proposed law "a bad way to treat friendly governments
like Spain."
In Madrid, Spanish Foreign Minister Jose Manuel Garcia-Margallo
called the move arbitrary, and said it broke the climate of cordiality
and friendship that had existed with Argentina. He said Spain would
respond with "forceful measures" he did not describe.
The European Commission has warned that nationalizing YPF would be
bad for the investment climate in Argentina, and has said it backs Spain
in the standoff over the subsidiary. Fernandez, however, was unmoved by
the risk of a row with Spain, Argentina s largest foreign investor.
"This president is not going to answer any threat, is not going to
respond to any sharp remark.," she said to applause from business, union
and political leaders. "I am a head of state and not a hoodlum," said
Fernandez, who has also renationalized the country s Aerolineas
Argentinas airline and nationalized the Anses state private pension
funds.
There was no explanation of how, or how much, Repsol and its
stockholders would be compensated. Analysts say that the government
might have to use Central Bank reserves, or funds from the Anses to pay
for the takeover.
"The issue that scares investors is not knowing how far the
governmental participation will go, if it s only YPF or if it is going
to include other petroleum companies in Argentina," said Joe Amador,
Latin America director for Scotia Waterous, the oil and gas arm of
Scotiabank, in Houston, Texas.
Even with its share prices depressed, YPF last week was valued at
$13.6 billion, and buying half of that would deplete Argentina s
treasury of funds it needs to maintain the populist subsidies that have
kept the country s economy afloat.
Repsol released a statement promising to protect the interests of its
shareholders. It called the move "unlawful and gravely discriminatory."
Spanish officials had earlier protested the plan, saying Argentina
risks becoming "an international pariah" if it takes control of Repsol
subsidiary, Repsol YPF SA. Spain s foreign minister last week summoned
Argentine Ambassador Carlo Antonio Bettini to convey concern over
possible nationalization of YPF, which represents 42 percent of Repsol s
total reserves, estimated at 2.1 billion barrels of crude.
Mexico s Economy Minister Bruno Ferrari said in recent days that
Spain had requested that Mexico intervene in the row with Argentina over
Repsol-YPF SA. But Ferrari said Mexico s role in the dispute is still
to be determined. "We will hold talks with Spain over the next days to
exactly determine what Mexico can do," he said ahead of the World
Economic Forum on Latin America 2012 that will be held in the coastal
city of Puerto Vallarta.
At the forum on Monday, Mexican President Felipe Calderon criticized
Argentina s move, calling it "not very responsible and not very
rational." In contrast, Venezuela s foreign ministry issued a statement
voicing support for Fernandez s decision to renationalize YPF.
Venezuela s state oil company also supported the Argentine decision and
said it is willing to help strengthen Argentina s oil industry,
"Venezuela puts all its technical, operational, legal and political
experience of Petroleos de Venezuela at the disposition of the
government of Argentina and its people to strenthen the state oil
sector," the foreign ministry said. Governors of oil-producing Argentine
provinces have withdrawn about 15 oil leases, representing 18 percent
of YPF s crude production, alleging the company failed to keep its
promises to develop them.
YPF has countered that it has invested millions in those areas and
plans to increase production, but Argentine officials have said that
still falls short. How Argentina may try to displace Repsol has been the
subject of wide speculation since the government s pressure campaign
began in February.
The president s proposal would leave Repsol with just a little more
than 6 percent of YPF s shares. Fernandez put Federal Planning Minister
Julio de Vido and Economics Vice Minister Axel Kicillof in charge of
handling the expropriation.
The president s proposal declares that the exploration and exploitation
of hydrocarbons is "of national public interest" and declares that
building up the nation s supply is a priority.