YPF: Questions and answers
Tags: YPF Posted date: April 26, 2012 |
1. Why was YPF SA expropriated or nationalized?
On April 16, 2012 the President of Argentina, Cristina Fernández de Kirchner sent to Congress a bill for Argentina to recover YPF SA, claiming 51% of the assets of the undertaking of public utility and subject to expropriation . Over recent years, the interests of the majority shareholder (Repsol SA) were different from the objectives of development of Argentina. Although the Argentine government implemented incentive programs to promote exploration and production of oil and gas, the increases needed in investment were not observed as well as in production and in the horizon of reserves preserve the foundations of the economic growth model with social inclusion established in 2003. Thus, it was necessary for YPF SA to return to state control.
2. What was the evolution of YPF SA's participation in the production of oil and gas before and after its privatization in 1999?
While many private companies, both foreign and domestic, expanded their investment and with it production, there was a progressive decrease in the relevance of YPF-Repsol SA local production of hydrocarbons. In 1997, YPF accounted for 42% of oil production. In 2011, Repsol YPF accounted for 34%.
In 1997, YPF accounted for 35% of gas production. In 2011, accounted for 23%.
3. Did YPF-Repsol SA have some responsibility for the drop in oil and gas production in Argentina?
Between 1998 and 2011 the total oil production in Argentina decreased by 15.9 million m3 per year, of which 8.6 million m3 (54%) were the responsibility of YPF-Repsol. The total gas production decreased between 2004 and 2011 at 6.6 million m3 per year, of which 6.4 million (97%) of these YPF-Repsol. If Repsol YPF had maintained the levels of oil production achieved in 1998 and gas production levels of 2004, the fall in oil production would have been halved, while gas production would not have registered any reduction.
4. What were the consequences for the Argentine energy sector after collapse of oil production and gas-Repsol YPF?
The behavior of YPF-Repsol in Argentina involved a sharp deterioration in terms of the ability to self-sufficiency in fuels. The result of this movement was a growing need for fuel imports, which in turn led to greater external vulnerability and emphasized policies of growth with social inclusion that since 2003 allowed, among other things, that the unemployment rate decreasedfrom 24.7% in 2002 to 6.7% of the current economically active population. Due to the policies implemented by YPF-Repsol, for the first time in 17 years, Argentina registered a trade deficit in fuel, which reached U.S. $ 3,029 million in 2011. Evolution of trade balance in fuels (in millions of dollars):
5. What were the economic and financial consequences for YPF-Repsol of their own policies?
The analysis of the financial economic strategy followed by REPSOL shows that between 1997 and 2010 the income of U.S. $ 16,600 million and paid dividends of U.S. $ 14,200 million. To distribute 85% of the profits as over dividends generated in that period, the chances of capitalization of the company were almost canceled. At the same time, since 2007 REPSOL-YPF doubled its debt and produced a virtual depletion of the capital of the company.
As stated by President Cristina Fernandez de Kirchnerwhen the expropiation was announced:
"And how was it that so much profit was obtained? Very simple, they segmented the market. What did they do? With gasoline, the oil taken out of here refined to 80 percent for the Premium, the paying public that pays the most expensive gasoline, the premium products. All that was JP1, which is a very expensive fuel for aircraft, all that was Premium, that was what was profitable. And we have to import diesel and fuel oil to keep all agricultural production livestock and maintain all production of electricity in Argentina. That's the key, they segmented the market and what whatever was extracted was only dedicated to Premium products, and the rest, well, the rest was just taken away."
6. How will it the stake in YPF SA be formed after nationalization?
The State and the provinces will control 51% of the shares of the company, maintaining the form of a corporation. Therefore, there will be a state company. In the following chart you can see the shareholding of the company before and after expropriation.
7.- Has any domestic or international standard been violated?
No. The expropriation was adopted under the Constitution, Law 21,499 and there is provision for itin the bilateral investment treaty signed with Spain in 1991.
8. - How will the appraisal? Be defined:
When Congress approves the expropriation, the Court of Appraisals of the Nation will determine the value of the company.
9. – Will the expropriation of YPF affect minority investors?
No, by contrast, it will benefit them as the management company is not added value for shareholders. A proper sustainable development policy will give a greater time for business activities and ultimately increase the valuation of the company. The business model of Repsol YPF was not viable in the long term due to predation by the company Repsol, for lack of investment in exploration and production of hydrocarbons.
10. - How does the expropriation influence the investment climate in Argentina?
President Cristina Fernandez de Kirchner has indicated that: " As long as the Argentine Companies, whose shareholders are foreigners, accompany the growth of the country, we will continue working closely, as we had to work with the automotive industry when we helped General Motors, a company with shareholders of U.S. origin. "
This article was published in the Newsletter of the Embassy of Argentina in the United States.