MercoPress. South Atlantic News Agency

Argentine government and YPF can’t agree on the future of the oil company

Axel Kicillof said there are no guarantees that the company will reinvest and that shares dollars won’t flee from Argentina

Argentina and Repsol-YPF oil corporation again clashed on Wednesday over the future of the Spanish owned company while members of President Cristina Fernandez administration said measures “can not be discarded” thus re-launching fears about further government actions.

During a crucial Repsol-YPF board meeting held at the oil giant offices in Buenos Aires Argentine government officials rejected a proposal brought by Repsol CEO Antonio Brufau to recapitalize the company by returning last two years dividends to shareholders.

Spanish owned Repsol-YPF is under strong Argentine government pressure to increase oil and natural gas output in order to reduce the country’s fuel imports bill (9 billion dollars last year) and avoid a trade surplus drop. The Argentine government wants those profits turned into a special investment fund to prop oil and gas production.

Planning Ministry’s coordinator and Argentine State representative at the company’s board Roberto Baratta was part of the meeting along with Economy Deputy-Minister Axel Kicillof, and Energy Secretary Daniel Cameron.

Kicillof told reporters that “there was a big controversy generated between us and the company's direction as they rejected our proposal of creating an investment fund with the dividends of the past two years.”

Wednesday’s meeting was crucial as to define what is going to be done with the company’s last two year’s revenues as during the last Board meeting held on March 8, Baratta had refused to approve last year’s balance sheet and asked for using the last two years dividends to create an investment fund or reserve to be reinvested in the exploration for new hydrocarbon reserves.

Last week, Planning Minister Julio de Vido bashed Spain’s Industry Minister José Manuel Soria by saying though oil company YPF is run by Spanish investors it should not be considered an asset of the European country. “YPF assets are Argentine and must be used to help develop the economy”.

Baratta said that the company proposed instead of “distributing dividends in money, issuing shares, but this is no guarantee that dividends will be invested where they have to be invested. It is essential for YPF to revert its production declining tendency”.

Kicillof said the Argentine delegates demanded a clear precise investments plan for 2012 but there was no reply and the board meeting can only be described as negative. “Recapitalizing the company is no guarantee of more investments and can be seen as a speculative operation that influences the value of shares, and no guarantee that dollars will flee from the country”.

However the recapitalization initiative was approved and will now have to be considered by the shareholders assembly.

Kicillof said that withdrawing production licences from YPF is not decided by the federal government but rather by provinces with oil and gas production, and “this can be done if companies don’t invest sufficiently in increasing output”.

Argentina Energy secretary Cameron said that YPF must “reconsider its strategy in Argentina” and expects the company to present an investment plan that ensures a real and balanced growth in production.

An YPF release following a three hours board meeting said that “the proposal to recapitalize the company was approved by a majority, which means that the earnings from 2010 and 2011, totalling 5.789 billion Argentine pesos (approx 1.3 billion dollars) will remain in the company”.

“The Argentine state through its representative Roberto Baratta voted against”, adds the release pointing out that that “the board’s decision does not mean an outflow of hard currency or demand for dollars in the local market”.

Repsol-YPF CEO Antonio Brufau said that the “strong recapitalization proposed is solid evidence of the solid commitment of shareholders towards the community and its activities and clear proof of the high sensitivity towards the current situation, investment needs and the commitments of the company”.

This is certainly not the last chapter of the ongoing confrontation since Argentina remains desperate to enjoy a healthy trade balance and an inflow of investments since it is still barred from voluntary money markets because of the 2001/02 default.

On Tuesday Cabinet Chief, Juan Manuel Abal Medina, told state-run news agency Telam that the government “cannot discard taking measures regarding Repsol-YPF oil giant”, after President Cristina Fernández administration accused the company of not investing enough to revert its production’s fall.

Last week, Abal Medina had said that Cristina Fernández was not looking to nationalize the company. However several Argentine provinces (Neuquen, Chubut and Santa Cruz) have rescinded oil and gas licences and others (Mendoza, La Pampa, Salta) have anticipated similar measures if the Spanish company does not turn up with a solid credible long term investment plans.

Argentine oil and gas imports have soared but companies argue that heavy regulation which means they receive only a fraction of what oil and gas fetch internationally, encouraged the current situation, which has been boosted by the heavy subsidies handed out by the Argentine government to keep transport and utility rates prices frozen for years.

Repsol, Spain's largest energy company owns a 57.4% stake in YPF. Argentina's Grupo Petersen, which operates the unit, owns another 25.5%. The government owns 0.2% and holds a so-called golden share, which entitles it to block certain decisions, such as takeovers. Under the terms of the sale through which Petersen bought its stake in 2008 from Repsol, YPF distributes 90% of annual net income in dividends in semi-annual payments.