One year after Argentina’s nationalization of YPF, the country’s biggest oil company, our forecasts have come true: the firm’s energy production is falling, its debt is rising, and its board has just awarded itself a generous raise.
It’s a movie we have seen many times before — most recently in Venezuela, Bolivia and Ecuador — but the fact that Latin American governments insist on adopting pseudo-nationalistic policies that have failed everywhere never ceases to amaze me.
According to YPF’s official data, the company’s gas production fell 3.7 percent during the first three months this year, while its oil production fell 0.7 percent during the same period. YPF’s energy production fell 0.6 percent in 2012 from already low levels a year earlier.
That’s a far cry from President Cristina Fernández de Kirchner’s vow that the nationalization would increase YPF’s production, put an end energy to imports and help “recover our sovereignty.”
To make things worse, a report in the daily Clarin earlier this week said that YPF’s board of directors has just awarded itself a 67 percent raise. Sources who follow YPF closely tell me that the actual raise was smaller — the calculation of a 67 percent increase comes from comparing this year’s salaries with those of a 9-month period last year — but still significant for a financially-strapped company.
Granted, the decline of Argentina’s biggest oil company did not start when Fernández announced the government takeover of YPF from a Spanish-Australian group led by Spain’s oil giant Repsol early last year. YPF’s production had been declining for several years, and continued falling after the Repsol-led group bought it in 2008.
Argentina — a former energy exporter — had to start importing hydro-carbons in 2010.
The Fernández government says Repsol had “emptied” YPF, failing to invest in new exploration, taking excessive profits home, and forcing Argentina to spend much needed foreign currency on gas imports.
Repsol, in turn, says Argentina’s populist government’s price controls strangled Repsol’s operations, and that the Spanish company nevertheless invested heavily in exploration and discovered the Vaca Muerta reservoir, Argentina’s biggest, and the world’s third-largest shale gas reserve. Repsol is now suing Argentina for up to $10.5 billion.
In a statement on the occasion of the first anniversary of YPF’s expropriation, eight former Argentine energy ministers have published a joint statement denouncing Fernández and her late husband Nestor Kirchner’s energy policy over the past 10 years, saying the policy has been “to consume irresponsibly without investing in stock reposition.”
As a result, Argentina’s energy production has plummeted, they said. The country is producing 25 percent less oil and 13 percent less gas than it produced in 2003.
While critical of Repsol’s management of YPF, the eight former energy officials said that “last year’s expropriation of Repsol’s majority stock hasn’t solved the problem, and tends to worsen it.” That’s because the Fernández government didn’t pay Repsol for the expropriation, which makes it more difficult for the country to attract potential investors in oil and gas exploration, they said.
In a recent testimony to the U.S. House of Representatives, University of Texas energy expert Jorge R. Piñon warned that “Argentina’s confiscation without compensation of 51 percent of YPF shares, owned by the Spanish oil company Repsol, reinforces the challenge of ‘resource nationalism’ in the region”.
He added that if Argentina is allowed “to carry out these policies without having to face the consequences, the rule of law could be seriously undermined, creating a domino effect in other Latin-American countries.”
Now, Argentina’s government is triumphantly announcing that Chevron will step in to invest in the Vaca Muerta deposits, (which would prove that oil companies are not guided by ideology, but by geology). But industry sources say Chevron’s investment, if it materializes, will be far smaller than needed to reverse the country’s energy decline.
My opinion: There are some cases of successful state-run oil companies — such as Norway’s Statoil — but Argentina’s expropriation of YPF is a text-book case of what happens when a populist government with few checks and balances nationalizes a major company.
One would think that the disastrous expropriation of YPF, or the equally horrific outcome of Argentina’s takeover of the Aerolineas Argentinas airline, would have taught Fernández a lesson.
But as I’m writing these lines, I’m reading in the Argentine press that Fernández earlier this week expropriated the Tren de la Costa railroad line and its affiliated companies. No need to spend time guessing how that will end.