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It’s Just Not Spain’s Day



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Via the Wall Street Journal:

BUENOS AIRES—President Cristina Kirchner, in a move that marks a watershed in expanding the state’s grip on the economy, said she will send a bill to Congress to nationalize Argentina’s largest oil-and-gas company, YPFYPF -11.16% SA.  Under the proposal, which declares the petroleum industry of “national public interest,” Argentina’s federal and provincial governments would take 51% of the company, now majority owned by Repsol YPF of Spain. The move is sure to be approved in Argentina’s Congress, where the leftist Mrs. Kirchner’s governing Peronist part holds a majority. The nationalization marks the culmination of a months-long battle between YPF and the Kirchner government.

…The Spanish company had said it would vigorously defend shareholders’ rights in local and international forums if the government tried to expropriate the company without abiding by all legal obligations.

The mismatch in Argentina between rapidly growing energy consumption and languishing oil production after a decade of accelerated economic growth appears to be spurring the country’s increasingly aggressive stance on YPF. Consumption of oil and gas increased 38% and 25%, respectively, from 2003 to 2010, but oil and gas production decreased 12% and 2.3% in that period, according to Barclays Capital.

Mrs. Kirchner blames declining oil and gas output on companies that she says haven’t invested enough. Following her cue, provincial governments in recent weeks have rescinded more than a dozen of YPF’s production concessions and unleashed a wave of vitriol against the company. But critics and industry officials say government policies such as high taxes, price caps on home energy rates and unpredictable rule changes like a suspension of tax breaks on production spending have discouraged investment.

“Critics and industry officials” are quite right.



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