beyondbrics

As usual, Argentina has a ready explanation.

But the timing of the government’s decision to scrap an incentives plan to encourage big oil companies to produce and refine more, coming as it does amid the revival of YPF nationalisation talk, looks like a punishment, or at least a government flexing its muscles and keen to show who is boss.

The government announced last Friday that it was scrubbing the Petróleo Plus (Oil Plus) and Refino Plus (Refining Plus) programmes for large companies, saying “the decision is based on changing conditions in the markets in which these programmes were structured in 2008, like for example the domestic price of a barrel which has moved from $35 to $70”.

The move will affect PanAmerican Energy, which is controlled by China’s CNOOC and the Argentine Bridas family; YPF, the Argentine wing of Spain’s Repsol-YPF, Occidental-Sinopec, which is now Chinese owned; Pluspetrol of Argentina, France’s Total Austral, Enap Sipetrol of Chile and Petrobras of Brazil.

The government is happy: it will save some $460m at a time when cautious husbandry of state accounts is needed. And it says that projects undertaken under the auspices of the programme have advanced significantly and some have even been finished “so the initial objectives have been accomplished”.

The government says the programmes boosted oil reserves by 130m barrels and production rose by 17m barrels, while $2bn was invested in boosting Argentina’s refining capacity by 37 per cent for petrol and 16 per cent for diesel.

But at the same time, it has clobbered YPF, the former monopoly and market leader, which is part of Spain’s Repsol-YPF, repeatedly in recent days, accusing it of failing to invest enough.

“Although YPF has 60 per cent of the fuel market, it has not conducted the investment necessary to expand its refineries in the timeframe needed by the sustained growth in demand in the country,” Planning Minister Julio De Vido said in a statement at the weekend.

YPF, which is keeping its head well down, says it is investing $1.5bn in expansions of its Luján de Cuyo and La Plata refineries, which should be up and running by early next year at the latest.

Though YPF was, last year, the poster child of the sector, announcing massive shale deposits that could kick off an energy revolution here, De Vido also had fault to find. In the statement, he said:

There were companies that made the most of the (Oil Plus) benefits and boosted reserves, like Apache, Medanito, Roch and various small companies but unfortunately the overall fall could not be reversed because our country’s biggest oil company, YPF, did not invest in exploration or start up the shale oil developments or even present a credible and sustainable schedule to develop them.

Enter Amado Boudou, the vice president. YPF, he said, had had a vision “more financial than productive, in the sense that they have explored and made discoveries that have served to be included in their books but have not helped either the company or the country”.

Ouch. And this is a company that used to be very chummy with the government. Antonio Brufau, Repsol-YPF’s chief, is in Buenos Aires for a meeting – as yet no date is confirmed – seeking to kiss and make up with Cristina Fernández, the president.

What is clear from all this is that the government is pragmatic and prepared to switch from being your friend to being your biggest public critic if circumstances, from its point of view, dictate.

Leaving aside the moot point about who is to blame for the situation of falling reserves and production and soaring imports, will the bullying boost reserves and production?

Some oil companies are hugely excited by the shale prospects of Argentina, and, it must be said, oil companies tend to take a long-term view because projects take so long to put into production, are used to dealing, in various parts of the world, with difficult investment regimes or tricky governments.

But companies in other sectors may be less prepared to put up with abrupt changes in the rules. And though Argentina is going flat out to substitute imports, it presumably still wants companies to keep investing.

Related reading:
Argentina: the heat turns to YPF, beyondbrics
Argentina and YPF: nationalise while the going is hot? beyondbrics
Repsol: Argentina matters, Lex
Turbulence forecast for victorious Fernández, FT
Argentina: Cristina’s Catch-22, beyondbrics