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Argentina Is Not Brazil and YPF Is Not Petrobras

April 24, 2012

by Janie Hulse Najenson

After much speculation, Argentine President Cristina Fernández de Kirchner once again proved she has the guts to move forward with a politically controversial government takeover. This time around Spanish oil company Repsol was the victim. In 2009, another Spanish company, Marsans, was forced to cede the Argentinean flagship airline to the government, and in 2008, $30 billion in private pension funds were nationalized.

Ms. Fernández announced a week ago that her government would expropriate 51 percent of YPF from Repsol, which would give the government control of the company. She cited insufficient investment resulting in energy scarcity as the reason for the takeover.

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As with Aerolineas Argentinas' expropriation, the YPF takeover was popularly supported. The majority of Argentineans believe that the state should control strategic resources like oil. According to the consultancy Poliarquía, six out of every ten Argentines support the measure. This figure is lower than the 74 percent support rate reported by a government-friendly poll.

This public support, however, must not be confused with support of the government’s handling of energy policy. Indeed, according to polls, most Argentineans blame the government over YPF Repsol for dwindling hydrocarbon reserves. The public is aware how government price controls and fluctuating subsidies have distorted market forces and made necessary investments less attractive.

Nonetheless, it takes two to tango. Repsol, while known as a Spanish company, is actually owned by various, international financial groups like PEMEX, BBVA and Santander, to name a few. As such, it follows the logic of financial capital and was probably less interested in producing oil than increasing earnings. As the Argentinean government imposed price controls, Repsol-YPF took what earnings it made and invested elsewhere.

This arrangement didn’t bode well for the government, which had to spend $9 billion in energy imports in 2011, or for the Argentineans at large whose strategic resource was benefiting countries in Africa.

It makes sense that a government would want to ensure its energy self-sufficiency and investments in the strategic sector. Argentina, after all, is following in Brazil´s footsteps and hoping for similar results. The Brazilian government, with its 54 percent stake in Petrobras, has not held back the profitability or expansion of the national oil company. To the contrary, Petrobras today is Latin America´s largest companies in terms of revenue. 

“Argentina is not Brazil and YPF is not Petrobras" is a sentiment expressed by some here in Buenos Aires. Brazil is bigger, richer and has established state policies that are carried out from one administration to the next over the course of decades. Brazil´s energy policy, underway since the 1970s, turned the South American giant from energy-dependent to energy self-sufficient in a matter of decades. Its success was largely a result of long-term government policies supporting investment, infrastructure and consumption.

Moreover, while it can be just as bureaucratic and, in some cases, as protectionist as Argentina, it makes an effort to stick to the international rule book and maintain good international relations.

Argentina has no such track record and the only true state policy that it has kept over time is its losing battle for sovereignty over the Malvinas. Even the so-called Kirchner Economic Model (or K model) that has been pushed since 2003 under Nestor Kirchner´s administration has no clear definition. The modus operandi appears to be thuggish, government intervention.

The way in which this government has handled the Repsol-YPF expropriation is nothing short of scandalous. Shortly after the president´s announcement of the expropriation, her ministers accompanied by police barged into the Repsol office and gave executives five minutes to leave the premise. If you just read the press without having any context of the story, you would have thought it was some sort of international hostage situation as “the expat families huddled together at a Repsol executive´s home awaiting repatriation.”

Usurping private property is prohibited by the Argentinean Constitution, but the Kirchner government drew on laws promulgated during the military dictatorship to justify its action. This is quite ironic given the government’s disgust for the military dictatorship, its quest for justice and public support of human rights.

It now remains to be seen how YPF will increase oil production without Repsol. It will have to seek other international partners since its own capabilities and funds are limited. Even before the expropriation has been approved by Congress, the government has initiated talks with Petrobras and will sit down this week with Conoco Philips, Chevron and Exxon. China´s Sinopec, it is rumored, may also be interested in the risky venture since it was considering purchasing Repsol at the time of the takeover. But with so much uncertainty these days, only time will tell who the government can recruit to help its newest state-owned enterprise.

Janie Hulse Najenson is a contributing blogger to AQ Online. She is an analyst based in Buenos Aires, Argentina and the editor and producer of Insights from the Field, a quarterly publication promoting perspectives from within Latin America on politico-economic and security issues affecting the region.

Tags: Brazil, Argentina, Petrobras, Cristina Fernandez de Kirchner, Repsol YPF

To speak with an expert on this topic, please contact the communications office at: communications@as-coa.org or (212) 277-8384.
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