Argentine senate okays YPF nationalisation
30 April 2012
The Argentine senate has approved a forceful seizure of Spanish oil giant Repsol YPF SA's majority stake in Argentine oil company YPF which it acquired in 1999. The expropriation bill now has to be ratified in the chamber of deputies next week, where also it is likely to pass.
The nation's president Christina Fernandez de Kirchner's shocker is likely to brighten her waning popularity, as the government knew that the decision for re-nationalisation of the country's largest company would touch people's emotions, say commentators. YPF was privatized in 1993.
Spain, the European Union and the World Bank have strongly criticized the Argentine decision.
Last week, Fernandez revealed plans for presenting the proposal to the table for legislative approval. (See: Argentina moves closer to nationalising Repsol's Argentinean unit YPF)
''We need to have sovereign control of our resources, I am absolutely certain that this is the only road possible for us,'' Fernandez said about the controversial decision.
Allies as well as opposition members in the senate voted in favour of the bill, 63 to 3, while 4 members abstained from voting.
Repsol considers the Argentine measure manifestly unlawful and gravely discriminatory and stated that the government decision would not affect the company's development plans or its corporate strategy. It further avowed the company would carry out all pertinent legal actions to preserve the value of all its assets and the interests of all their shareholders.
Major share holders of Madrid-based Repsol YPF are Spain's Caixabank (12.8 per cent), engineering and construction company Sacyr (10 per cent) and Mexican state-owned petroleum company Pemex (9.5 per cent) and the rest is free float.
YPF produces a third of Argentina's oil and a quarter of its gas and holds over 50 per cent of the country's refining capacity.
Argentine government accused Repsol of draining YPF since it gained control over the company and further charged that it did not invest enough to keep pace with the rising demand for oil and gas necessitated by the country's rapid economic growth.
Argentina's production of both oil and gas are in decline in recent years, leading the country to depend increasingly upon energy imports up to the tune of $12 billion. Oil production dived 22 per cent from 2000 to 2010, while demand swelled 40 per cent, according to government data.
Repsol refuted the charge, saying that the company invested $20 billion in the country. It blames Argentina's energy policies such as subsidies, price caps and export taxes for the production decline.
According to Oil & Gas Journal estimates, Argentina had proven natural gas reserves of 13.4 trillion cubic feet (Tcf) as of 1 January 2011, which is 50 per cent lower than the estimate a decade ago. However, a recent analysis by Energy Information Association (EIA) indicated Argentina had an envious 774 Tcf of technically recoverable shale gas reserves.
Exploration and exploitation of these new reserves would require huge investments and the latest government decision to seize control of YPF by acquiring a 51-per cent stake from Repsol YPF could put capital inflows into the country's energy sector at risk.
Earlier in February, YPF said an investment of $25 billion a year would be required to put its estimated 23 billion barrels of shale oil and gas reserves into production.
Argentina's deputy economy minister Axel Kicillof, mentioned last week in congressional testimony that Repsol might not get any financial restitution once YPF's alleged liabilities are considered, and derided Repsol's demand for $10 billion in compensation, Dow Jones Newswire reported.
Despite the government's controversial resolve, and subsequent cancellation of LNG delivery from Repsol, YPF pledged it would continue to provide liquefied natural gas to its customers.
"There will be five million additional cubic meters per day" because of greater production and increased purchases from Bolivia, Argentina's federal planning minister Julio de Vido said in a statement.