Argentina Orders Oil, Mining Exporters to Repatriate Funds
Argentina ordered oil, gas and mining companies such as Xstrata Plc (XTA) to repatriate all future 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 Oct. 23, changed a 2002 decree requiring companies such as Repsol YPF SA (REP), Total SA (FP), Petroleo Brasileiro SA (PETR4) and Pan American Energy LLC to keep at least 30 percent of their export revenue in the country.
The decision by Fernandez, who nationalized the $24 billion pension fund industry and has 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 bank 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.”
Extorre Gold Mines Ltd (XG), a Vancouver-based company that explores for gold and silver in Argentina, plunged 25 percent to C$7.00 at 12:07 p.m. New York time after falling as much as 26 percent, the most in more than 18 months.
Americas Petrogas Inc (BOE), a Calgary-based company that explores for oil in Argentina, declined 21 percent to C$1.47 after tumbling as much as 29 percent, the most in three years. Crown Point Ventures Ltd., also based in Calgary with onshore oil and gas projects in Argentina, dropped 16 percent to C$1.13 after falling as much as 26 percent, the most in 20 months.
Foreign direct investment in Argentina fell to $2.4 billion from $3.5 billion in the first six months of the year, 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.
“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.”
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.
Kristian Rix, a spokesman for Repsol YPF, Spain’s biggest oil company, said the company will “respect the law.” Coeur D’Alene Mines Corp. (CDE), a U.S.-based gold and silver producer, will see no immediate impact from Argentina’s order and is still “keen” to invest in the country, spokeswoman Wendy Yang said.
Jorge Palmes, chief executive officer of AngloGold Ashanti Ltd (ANG)’s Argentine unit, said the company wasn’t aware of the measure. Officials at Vale SA (VALE3) declined to comment. Xstrata spokeswoman Alison Flynn said it’s “too early to comment.” Pan American Silver Corp (PAA) “is still assessing the news and how this could affect our Argentinean operations,” spokeswoman Kettina Cordero said via e-mail.
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 Reading, U.K.-based BG Group Plc and France’s GDF Suez (GSZ) to leave the country. Metrogas SA (METR), Argentina’s largest natural-gas distributor, filed for bankruptcy.
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 (883), until next year as it doesn’t yet have the necessary Argentine antitrust and Chinese regulatory approvals.
Today’s decree in Argentina isn’t likely to affect the sale, BP spokesman Robert Wine said in an e-mailed response to questions today.
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.
Vale, the world’s biggest iron-ore producer, is spending $5.9 billion to build a fertilizer plant in Mendoza province, western Argentina, to export potash. The mine, which is scheduled to start operating in the first half of 2014, is expected to be the world’s largest. Rio-based Vale is building a railway and a port to ship the mineral to Brazil.
Vale Chief Executive Officer Murilo Ferreira told investors May 27 the company’s potash project is “magnificent.” The construction of the project was halted for more than two weeks in June by the provincial authorities, after arguing that it wasn’t complying with required contract demands.
Faced with today’s decision, companies “will have to either reinvest in other Argentinian projects or decrease exposure to the country,” Luis F. Zapata, head of Latin America Institutional Equity Sales at Canaccord Genuity, said.
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