Agitating Argentine Oil
By Farooque Chowdhury
27 April, 2012
Argentine hydrocarbon-initiative is now agitating capital. It is more agitating to capital-interests as it energizes a trend – national control over national resources. To these interests, it’s “Chavez model”. It seems these interests are being haunted by a Chavez-spirit. A section of mainstream is making almost similar claim.
Capital disapproves people’s rights over people’s resources. Argentina’s move related to local oil company Yacimientos Petrolíferos Fiscales (State Petroleum Reserves, YPF), controlled by Repsol, Spanish oil and gas company, is thus creating furor among all concerned with capital.
In mid-April, Cristina Fernandez de Kirchner, the Argentinean president, introduced a bill in congress that would give Argentina a 51% stake in YPF, the largest oil producer in the country. Cristina said the measure is aimed at recovering the nation’s sovereignty over its hydrocarbon resources, and it “is not a model of statism”. Governors of oil-producing provinces have already withdrawn about 15 oil leases, representing 18% of YPF’s crude production. They complained the company failed to keep its promises to develop them.
Declaring exploration and exploitation of hydrocarbons “national public interest” in order to “guarantee economic development with social equity” Cristina’s bill says building up the country’s supply is a priority. The bill proposes that out of the YPF controlling stake taken over, 51% will be held by the central government and the rest will be distributed to the oil-producing provinces. The government will not extend its hands to the 17.09% of YPF shares traded on stock exchanges. About the 25% stake held by the private Argentine Grupo Petersen is undecided.
Legislative process for recovering of sovereignty will be completed within weeks. There is widespread public support to the initiative: referring to opinion polls the Buenos Aires daily La Nación informed 80% support. A number of opposition lawmakers supported the move. The movement for the recovery of Argentina’s energy sovereignty is also in “complete agreement”. People celebrated the move.
But people and capital-interest don’t move hand-in-hand. The EU turned furious; the European block condemned Argentina’s move; the EU parliament called for Argentina-sanctions; and one conservative member of the European Parliament questioned whether Argentina should be allowed to remain in the G-20. The European Commission warned that nationalizing YPF would be bad for investment climate in Argentina, and said the EC backs Spain, Argentina’s largest foreign investor.
Opposition also came from the usual circle. Robert Zoellick, the World Bank president, and Alain Juppé, the French foreign minister, strongly criticized the Argentine initiative. “It is mistake and the wrong thing to do”, Zoellick said. Felipe Calderón, the Mexican president, said nationalization plan would only damage chances for investments in Argentina and hurt Repsol, in which Mexico’s state-run oil company Pemex holds a 10% stake.
Spain got confused with the US position. A State Department spokesperson explained remarks made earlier by Hillary Clinton, who said that she wanted to study the matter before commenting on it. “She spoke about the need for diverse markets, and certainly that’s one of our core beliefs: diverse energy markets,” the spokesperson said. José Manuel García-Margallo, the Spanish foreign minister, felt disappointed about the US position.
Regular expression is there. The Spanish establishment condemned the move. Soraya Saenz de Santamaria, the Spainish deputy prime minister, reaffirmed “keep looking for new measures” to put pressure on Argentina. The Spanish foreign minister said Spain would respond with “forceful measures”. But he refrained from elaborating. José Manuel Soria, the Spanish industry minister, assured “there will be more actions against Argentina”. In an interview with a conservative Spanish daily, Soria said Spain “will not be announcing the measures; it will just adopt them and keep moving.”
Spain has already decided to limit the import of Argentine biodiesel. A trade war, it seems, is being initiated by Madrid. Spanish newspapers report the EU could boycott Argentine soy and meat, two of Argentina’s biggest exports. Probably, the dream is to strangulate Buenos Aires and teach Cristina a lesson. Mosaddegh-memory is fresh in masters’ minds.
Rating agencies joined the move to warn Argentina. Standard and Poor’s, the famous rating agency with questionable past, downgraded Argentina’s economic and financial outlook to “negative”, after the YPF-initiative. Fitch warned Argentina of “diplomatic isolation” and shortages in foreign direct investment in key sectors – energy, utilities, and telecom.
As capital’s sentinel mainstream media was not silent. In an April 20 editorial The Washington Post observed “The [Argentine] president’s further lurch toward the left […]”, which it said “is bad news”. It echoed the conservative voice: remove Argentina from the G-20 and replace by Chile. (“Argentina’s president rejects stepping into the future”) It seems they are the lords of the world to do and undo everything.
There are more harsh and crude voices. Repsol Executive Chairman Antonio Brufau said the measure “will not go unpunished” and threatened to “take all legal actions within its reach.” Spanish officials predicted Argentina risks becoming “an international pariah”. In a responsible tone, Cristina reciprocated: “This president is not going to answer any threat, is not going to respond to any sharp remark. I am a head of state and not a hoodlum.”
It’s “resource nationalism”, the mainstream considers. The world business and investors smell risky situation. To a section in the mainstream, Cristina’s initiative is nothing but an attempt to cover up domestic problems.
However, the song of condemnation failed to echo in all the corners of the world. Voices of solidarity reverberated. Venezuela’s foreign ministry and the state oil company expressed support to Argentina’s move. The company expressed its willingness 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 strengthen the state oil sector”. Evo Morales, Bolivia’s president, said: “It is an issue between Argentina and Spain.” Daniel Ortega, the Nicaraguan president, expressed solidarity: “President Cristina Fernández de Kirchner … is exercising the right of the State of Argentina to defend its patrimony.” He rejected the EU’s reaction, saying the EU has acted with “arrogance, bravado and thuggery against the decision of a sovereign people and government in Argentina.” “What we can advise the EU is that they should stop their bullying, stop the threats. Look for dialogue, negotiate with the Argentinean government and look for a way out where the legitimate rights of the people of Argentina are recognized,” Ortega said. Jose Mujica, the Uruguayan president, told he respected Argentina’s decision, saying “it falls within the framework of sovereignty, whether you like it or not.” Regarding the EU’s condemnation and threat, Mujica expressed “solidarity with Argentina, in good and bad times” and lashed out at the “arrogance of wealthy Europe.” Haroldo Lima, the head of Brazil’s National Petroleum Agency, hailed the move as “excellent news for Latin America.” He called the decision “historic” and said “it was not against Spain... It was not against anyone. It was in favor of Argentina.” Chilean officials reacted cautiously. Chile government was studying the effects on Chilean investments in Argentina, in particular in one of Repsol’s wells. However, the Chilean opposition Socialist Party, hailed the move as sovereign action saying that as an independent nation, Argentina “has the right to decide how to exploit its natural resources for the benefit of its citizens.”
Seemingly to increase pressure on Argentina, US Senator Richard Lugar, member of the Subcommittee on Latin America, asked questions on Argentina during a congressional hearing. A report from Hillary Clinton reviewed the Argentina-IMF relation and trade “barriers”, restrictions on remitting of benefits and dividends overseas, implemented by Argentina.
Argentina is having a difficult relation with the IMF. The US considers Argentina is obliged to submit its economic statistics to be validated by the IMF, and US will support the IMF. Citing a report La Nación informed the US is “most disappointed” as Argentina having suspended such annual submission since 2006.
Once again, the battle line has been drawn. Trenches are being dug. Two interests stand opposed to each other, and a trend turns stronger providing example to peoples and ruling elites in other countries.
Argentina has a version different from that of the Repsol, Spain, EU and Co. The country’s petroleum production fell 27% between 2001 and 2011 turning the country an importer of oil. Repsol was not producing enough oil to meet the country’s needs. This year Argentina estimates to import more than $10 billion worth of gas and LNG, almost equal to the country’s trade surplus last year although it is an oil-producing country, and it was self-sufficient for over two decades. This exposes the efficiency of Repsol, and also of private capital.
“We are the only country in Latin America, and […] in practically the entire world, that doesn’t manage its own natural resources,” Cristina mentioned as a burning fact. Argentina’s proven reserves have fallen by 50% 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. Argentina had a deficit of $3 billion last year partly due to energy imports. The center of gravity of the EU’s position is clear.
The oil company, YPF, was privatized in two stages, in 1993 and 1999, under the former president Carlos Menem. Since then the state has held less than one percent of the shares of YPF.
Buenos Aires accuses Repsol of sucking YPF’s profits out of the country instead of investing in Argentina’s future. Repsol 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 Cristina.
Aníbal Fernández, an Argentine Senator, said the government “will pay the real price […] of YPF and not what Repsol’s chairman wants.” Repsol chairman has a bargain tag in his bag. Argentina and Spain are now setting a price on the transaction.
Cristina said the real problem was not about foreign companies or their profitability, but the lack of investment. She cited her government’s positive relationship with foreign automotive companies. Italy’s Fiat and the US’ General Motors receive soft loans from the Argentine state to boost local production and keep workers in jobs, Cristina said.
Argentina has minimized Spain’s retaliatory decision to reduce bio-diesel imports. Argentina “is in condition to absorb” that production. “We won’t question Spain’s sovereign decision, no matter which one it takes. They are going to pay their businessmen a more expensive bio-diesel and I don’t know how that will impact their economy”, Cristina said. “We’re not going to appeal to the World Trade Organization nor are we going to complaint about the decision to block Argentine exports. We don’t act that way. We are […] very respectful of other peoples’ sovereignty”, she said. The difference between Argentina and the EU, the organization that is failing to manage its own affairs but always is delivering sermons to the Third World countries on democracy, etc., on the principle of non-interference is clear.
All interests are not happy with Cristina’s initiatives. Argentina has already issued legal warnings to banks involved in the Malvinas Islands’ oil industry. In 2008, Cristina nationalized Anses, privately run pension funds with many Spaniards’ investment. She also nationalized Aerolíneas Argentina airline, owned by a Spanish firm now bankrupt. An alliance of organizations, American Task Force Argentina, is making effort to resolve Argentina’s $132bn debt default in 2001.
The country is having resources that allure capital from other lands. Edison Investment Research, a research firm, has claimed that the Falklands stood to benefit from a $176bn tax windfall as the result of oil and gas drilling. Of the four major prospects under way, the largest, Loligo, potentially holds more than 4.7bn barrels of oil. Argentina has recently found huge unconventional oil and natural gas reserves. A few months ago, YPF announced a large oil find known as the Vaca Muerta field that Repsol officials estimated could yield four billion barrels. BP now produces 74,000 barrels of oil daily in Argentina. Its natural gas production is more than its European operations combined.
Argentina is the world’s main supplier of bio-diesel almost exclusively from soy oil, and the country produces bio-diesel “at a cheaper price than Spanish manufacturers”. Last year exports reached 1.7 million tons of which 700.000 tons, equivalent to 985 million dollars were exported to Spain. Around 120 British companies including HSBC, Unilever and GlaxoSmithKline are now operating in Argentina.
Initiatives, in many forms, within existing limitations including class equation and historical perspective, are there in Latin America. These are trying to assert sovereignty, claim fair share of resources. An emerging political stream is trying to change resource map in Latin America in favor of people. Political leadership’s acumen, its capacity to mobilize people, its management efficiency are vital questions related to managing resource. It’s a long, complicated struggle. Initiatives should not be brushed aside with rhetoric. At the same time, class composition behind initiatives should be taken into account. Bureaucracy, a bulky burden, is there. Instead of expecting a perfect set up one should find out the reality within which a leadership has to move. The leadership carries marks of history. Ignoring these factors will send one to frustration, and to adventurism.
The initiative is operating in a geopolitical reality, where Europe is struggling within, where EU’s options regarding Argentina are limited, where competition within a crisis-reality has put masters of the world in a difficult position, where masters are facing problem in their home-turf.
Argentina will be an experience useful to the countries and the movements struggling to recover people’s resources, assert sovereignty over public resources, and aspiring to challenge neo-liberalism in respective economy.
Farooque Chowdhury from Dhaka contributes irregularly.
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