Buenos Aires - Argentine President Cristina Fernandez
unveiled plans on Monday to seize control of leading energy company YPF,
drawing swift warnings from key trade partners and risking the country's
further economic isolation.
YPF, controlled by Spain's Repsol, has been under intense
pressure from Fernandez's centre-left government to boost production, and its
share price has plunged due to months of speculation about a state takeover.
Until recently, YPF had a harmonious relationship with
Fernandez, whose increasingly interventionist and off-beat policies infuriate
critics. She praised YPF when it found massive resources of shale oil and
natural gas in late 2010.
However, a surging fuel import bill has pushed a widening
energy shortfall to the top of her agenda at a time of worsening state finances
in Latin America's No 3 economy.
Fernandez said the government would ask Congress, which she
controls, to approve a bill to expropriate a controlling 51% stake in the
company by seizing shares held exclusively by Repsol, saying energy is a
"vital resource".
"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," she said.
YPF's market value is $10.6bn, although an Argentine
tribunal will be responsible for valuing the company as part of the takeover.
Central bank reserves or state pension funds could be used for compensation,
analysts say.
Fernandez, who still wears the black of mourning 18 months
after the death of her husband and predecessor as president, Nestor Kirchner,
stunned investors in 2008 when she nationalised private pension funds at the
height of the global financial crisis.
She has also renationalised the country's flagship airline,
Aerolineas Argentinas.
Such measures are popular with ordinary Argentines, many of
whom blame free market policies such as the privatisations of the 1990s for the
devastating economic crisis and subsequent debt default of 2001/02.
Her announcement of the YPF takeover plan, however, drew
strongly worded warnings from Spain, Mexico and the European Union, a key
market for Argentina's soymeal exports.
Spain vowed "clear and strong" measures over what
it called a hostile decision, while the EU's executive European Commission
warned that an expropriation would send a negative signal to investors.
Mexico's President Felipe Calderon said Fernandez's plan
would damage chances for future foreign investment in Argentina and hurt YPF's
controlling shareholder, Spain's Repsol, in which Mexico's state oil monopoly
Pemex holds a 10% stake.
The US state department said it was following developments.
Repsol described Argentina's move as "clearly unlawful
and seriously discriminatory" and said it would take legal action.
But Fernandez dismissed the risk of reprisals.
"This president isn't going to respond to any threats... because I represent the Argentine people. I'm the head of state, not a
thug," she said.
Venezuela, where socialist President Hugo Chavez has
nationalised almost all the Opec member's giant oil industry during his 13
years in power, applauded her move.
"Venezuela rejects the threats and attempts at
intimidation from Europe... and calls on all the sisterly nations of the
continent to accompany Argentina in the exercise of its sovereign rights,"
its foreign ministry said in a statement.
Fernandez's row with YPF comes as her administration heaps
pressure on Britain over oil exploration off the disputed Falkland Islands,
over which Argentina claims sovereignty.
Investment climate
A decade after staging the biggest sovereign debt default in
history, Argentina has yet to return to global credit markets, and economic
analysts said seizing control of YPF might make it even harder for the country
to get fresh financing.
"YPF's expropriation does little to improve the already
poor investment climate," said Ignacio Labaqui, local analyst for New
York-based consultancy Global Medley Advisors.
Under the terms of the bill, the government would hold 51%
of the expropriated shares and the rest would be held by the country's
energy-producing provinces.
All of the shares targeted by the government belong to
Repsol, which owns 57% of YPF. Repsol's Argentine partner, the Eskenazi
family's Grupo Petersen, will not be affected. Petersen owns a 25.5% stake in
YPF.
Fernandez said she had also passed a decree giving the
government immediate administrative control of the company.
Speculation over a takeover has been weighing on Argentine
asset prices for weeks, meaning Monday's news had been factored in by many
investors. Still, US-listed YPF shares fell 11% before trading was suspended in
New York and Buenos Aires.
The spread between the yield on benchmark Argentine bonds
and comparable US Treasuries widened after the announcement but was up just 2
basis points at 948 basis points at 21:00 GMT, according to the JPMorgan
Emerging Markets Bond Index, in line with the rest of the index.
Energy timebomb
Energy analysts say the government's heavy-handed approach
is unlikely to resolve Argentina's energy timebomb despite the discovery of
the huge shale oil and gas resources.
"In the short term, I don't think this will solve
anything. It doesn't mean that YPF's going to start producing more starting
tomorrow," Argentine analyst Eduardo Fernandez said.
Argentina's hydrocarbons output has been in decline for years at a time of strong demand from industry and consumers.
Crude production fell 5.9% and natural gas output slipped
3.4% last year as power demand rose 5.1%, according to the latest figures from
the Argentine Institute of Petroleum and Gas.
YPF's proven reserves of crude and natural gas - which do
not include the new shale finds - fell 15 % and 31% respectively between 2007
and 2010.
Massive, long-term investment will be required to bring the
shale resources on stream, and the spiralling cost of fuel imports prompted
Fernandez to seek a swifter resolution to the country's growing energy deficit.
Imports of fuels such as liquefied natural gas and diesel
doubled last year to about $9.4bn, playing a major part in eroding the
president's cherished trade surplus.
Bolstering foreign currency stocks is especially important for Fernandez because she uses them to service the public debt, freeing up more spending for the welfare programmes that helped her win a landslide re-election late last year.