Argentina Prepares to Grab All Corporate Oil/Mineral Profits - Can Outright Nationalization Be Far Off?

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Argentina ordered oil, gas and mining companies to repatriate all export revenue as the government struggles to stem accelerating capital flight from South America’s second-biggest economy.

President Cristina Fernandez de Kirchner, in her first move since winning re-election on Oct. 23, changed a 2002 decree requiring companies such as Repsol YPF SA and Pan American Energy LLC to keep at least 30 percent of their export revenue in the country. Today’s decree, published in the official gazette, applies to future sales.

The decision by Fernandez, who nationalized the $24 billion pension fund industry and called for a limit on purchases of farmland by foreigners, is part of an effort to slow capital flight estimated at $3 billion per month that is draining central banks reserves. The policy may make it harder to attract foreign direct investment to Argentina that the United Nations estimates fell 30 percent in the first half of the year.

“These types of controls only discourage investment and thus hurt exports,” said Juan Pablo Fuentes, a Latin America economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The oil sector is already hampered by controls and regulations. This will only add to those problems.”

Tumbling Investment
Foreign direct investment in Argentina fell to $2.4 billion from $3.5 billion in the first half, while increasing 54 percent to $83 billion for Latin America as a whole, according to a UN report published yesterday. Faced with inflation economists estimate at 24 percent, Argentines pulled $9.8 billion out of the economy in the first half of this year, compared with $11.4 billion in all of 2010.

Export sales from oil, gas, petrochemicals, gold and copper in Argentina totaled $10.7 billion in 2010, or 16 percent of total exports, according to the national statistics agency. Argentina places a 100 percent tax on oil exports above about $45 per barrel, compared with a global price that has ranged from $75 to $114 per barrel this year.

The move ensures “equal treatment to all production activities,” according to a statement in today’s official gazette. Mining companies had been exempt from the policy requiring that 30 percent of export revenue be repatriated since 2004.

Falling Reserves
Capital flight prompted the central bank to sell $2.7 billion of reserves in August and September to curb a depreciation in the peso, which has weakened 6.1 percent this year. Reserves have fallen to $47.8 billion this year from a record $52.6 billion while central banks in Brazil, Mexico and Chile build up savings.

"This shows the problems the government is having in trying to stop capital flight,’’ said Walter Molano, an emerging markets analyst with BCP Securities. "The government is willing to take strong measures to stop it."

The yield on Argentina’s peso bonds due in 2033 rose 4 basis points to 11.83 percent. The benchmark Merval index rose 0.3 percent to 2,857.89 at 10:32 a.m. New York time.

Kristian Rix, a spokesman for Repsol YPF, Spain’s biggest oil company, said in an e-mailed statement the company will “respect the law.”

Company Reaction
Jorge Palmes, chief executive officer of AngloGold Ashanti Ltd’s Argentine unit, said in an e-mailed response to questions the company wasn’t aware of the measure.

A Vale SA official in Rio de Janeiro, who declined to be named citing corporate policy, said the company didn’t have an immediate comment.

E-mails to Goldcorp Inc, Pan American Energy, Pan American Silver Corp. weren’t immediately returned today. Officials at YPF SA, Argentina’s biggest energy company, Xstrata Plc, Chile’s state-oil refiner Enap and Petroleo Brasileiro SA weren’t immediately able to comment.

Fernandez, 58, has tapped central bank reserves to pay debt and steady the peso, nationalized carrier Aerolineas Argentinas SA and fined economists who question official inflation reports since taking office in 2007. She has also kept caps on utility prices, causing Berkshire, U.K.-based BG Group Plc and France’s GDF Suez to leave the country. Metrogas SA, Argentina’s largest natural-gas distributor, filed for bankruptcy.

Delayed Deals
BP Plc, the U.K.’s second-biggest oil company, said yesterday it may delay completion of its sale of a $7.1 billion stake in Pan American Energy to Bridas Corp., co-owned by Cnooc Ltd, until next year as it doesn’t yet have the necessary Argentine antitrust and Chinese regulatory approvals.

Bridas, also owned by Argentina’s billionaire Bulgheroni family, agreed in November to buy BP’s 60 percent stake in Pan American that it doesn’t already own. The deal can be terminated by either party if the approvals aren’t received by Nov. 1, unless both sides agree to an extension.