Argentina’s move to seize control of national oil giant YPF (Yacimientos Petroliferos Fiscales) has cheered domestic supporters of embattled Peronist President Cristina Fernández de Kirchner, but the move has angered Argentina’s trans-Atlantic friends in Spain. What began as a business issue has now become a full-blown diplomatic incident.
The proposed nationalization of YPF follows Kirchner’s previous moves to bring private pension funds and airline Aerolineas Argentionas under state ownership but neither of those transactions involved quite the revocation of international interests that the YPF proposal entails.
Between 1998-2010, 18% of Argentina’s oil reserves have dropped, 54% of which is attributed to Repsol’s mismanagement. Additionally, YPF has lost 25% of its value – the Argentine government arguing that Repsol’s failure to develop shale oil fields has contributed to this stagnation.
Initially, YPF was 98% controlled by Repsol in 1999, though declining to a 58% stake today. Under the proposed plan, the central government will own 29% with Argentina’s provinces’ owning another 28%, leaving Repsol with a much diluted stake at 6%.
Adding to the drama is speculation concerning the recent fallout between the previously close Cristina Fernández de Kirchner and the billionaire Eskenazi family, owners of the Peterson Group, an international investment firm in Argentina.
The Peterson Group currently holds 25% of YPF. A public seizure of YPF from Repsol could leave the Peterson Group in danger of defaulting on loans that Cristina Fernández de Kirchner’s late husband, her predecessor as Argentine president Nestor Kirchner, helped secure though it is Spanish firm Repsol’s credit that is ultimately on the line.
The Argentine government’s move to seize control of YPF is expected in the oil-producing provinces of Argentina, with many there criticizing Repsol’s management of YPF and its exhaustion of current reserves without attempting to develop new sources. Many in the Argentine opposition, among them Daniel Montamat, former Argentine Secretary of Energy, claim that the President is merely looking for a scapegoat from the current energy crisis and, instead of offering a solution, the government is offering a distraction.
Repsol YPF SA promised to challenge any move to nationalize the oil company’s stake in Argentina. Additionally, Argentina’s proposed move is drawing criticism from the European Union. Jose Manuel Barroso, European Commission President, recently stressed the need for Argentina to uphold its trade agreements.
Argentina has among the world’s largest reserves of nontraditional oil in the form of hydrocarbons locked deep underground, requiring billions in investment to tap into them. Critics of the proposed nationalization claim that, opposite of increasing production, the seizure of this privately held corporation by the government will act to scare away private investment and lead to further decreased productivity due to lack of capital.
Yet, Kirchner’s government is under intense pressure to boost oil production, with fears that the fields will merely be drained and future reserves will remained untapped.
Financial analysts point to another reason behind the potential takeover of YPF by the Argentine government. While economic growth was once quite robust, it has slowed dramatically and the government faces a fiscal problem within the next year or so and could be incapable of raising the necessary funds to continue investment and growth. The seizure of YPF would provide it with a new revenue source.
YPF is a national symbol of sorts. Privatized as part of President Carlos Menem’s programme during the 1990s, Yacimientos Petroliferos Fiscales was sold to Repsol for approximately $15 billion and is still the largest oil concern in South America.