Argentina’s New Oil Rules “Worse Than Nationalisation”

Via The Financial Times, a report on Argentina’s new oil rules:

 

A public relations adage holds that bad news is best released on Friday, so that it’s published in the little-read Saturday papers. And it’s a fair guess that Argentina’s government had an inkling that new rules governing the country’s petroleum industry and public shares in private companies, quietly made public on Friday, would not be warmly embraced.

The first set of rules, laid out in Presidential Decree 1277, labeled “Hydrocarbon Sovereignty”, order the creation of a national hydrocarbon planning commission that will register all companies involved in the sector. As Bloomberg reports:

Companies will have to submit annual investment plans by Sept. 30 and the commission will be able to reject proposals it deems aren’t consistent with the national energy goals that the body sets.

For many investors, that won’t be the worst of it. The commission will oversee companies’ investment plans, sanction them if they fall short and, in the most  controversial aspect of the decree, periodically publish “reference prices for the sale of hydrocarbons and fuels, which will allow [oil companies] to cover the production costs attributable to the activity as well as obtain a reasonable profit margin.”

And who will be tasked with setting oil prices? Step forward Axel Kicillof, the leftist economics professor with the Elvis sideburns (pictured above holding a newspaper) who serves as deputy economy minister to president Cristina Fernández de Kirchner. Known as the brains behind the April nationalisation of oil company YPF, Kicillof has made few friends among foreign oil companies. The Associated Press reports,

As Argentina’s secretary for economic policy, Kicillof, 41, advocated paying nothing in advance to Repsol for expropriating YPF, which had been Argentina’s state-owned energy company for decades before it was privatized in the 1990s. Repsol demanded $10.5 billion for its stake in the company, but Kicillof made it clear that any payment would be much lower and take years to complete.

In an article in Clarín, Argentina’s largest newspaper and one regularly at odds with the Fernández de Kirchner government, an anonymous petroleum consultant vented:

The evaluation by businesses, the financial market, the provinces, government members consulted, and Congressional representatives, is unanimous. The opinion is that Decree 1277 is a serious issue without precedent, not even comparable to the negative effect caused by the law of confiscation of YPF.

Perhaps guessing that the new rules might be seen negatively by the oil industry – which the government is depending upon to turn Argentina from a petroleum importer into an exporter – planning minister Julio De Vido assured Argentines over the weekend:

There is no intervention here. It’s planning, pure and simple, and in terms of the market it will give more predictability, which is what any market in the world needs to operate in an orderly form.

That may not be enough to put the Argentine business community at ease – especially considering the other decree published on Friday. That one, number 1278, gives Kicilloff power over the government’s shareholdings in companies partially owned by the country’s social security agency. No intervention should be inferred there, either, no doubt.



This entry was posted on Tuesday, July 31st, 2012 at 8:06 am and is filed under Argentina.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.