October 2, 2014
‘No winners or losers in deal with Repsol’
By Tomas Brockenshire
Opposition leaders question government’s valuation of YPF at US$9.7 billion
Government officials yesterday tried to convince senators that the US$5 billion Argentina will pay to Spanish firm Repsol was a good deal because the value of the company at the time of the 2012 expropriation was US$9.69 billion.
In a move that raised eyebrows in the Senate committee, government officials that had long criticized Repsol seemed at times to be defending the Spanish company.
In a joint session of the Mining, Energy, and Fuels and Budget Committees, which featured sharp exchanges and complex discussions about the market value of YPF and alleged environmental damage left by the Spanish firm.
Legal and Technical Secretary Carlos Zannini, Economy Minister Axel Kicillof and YPF CEO Miguel Galuccio took part in the joint session and energetically defended the expropriation of a 51 percent stake in the company, which President Cristina Fernández de Kirchner signed into law in May 2012.
Earlier, Daniel Martín, president of the Ad hoc tribunal in charge of establishing the value of YPF at the National Valuation Tribunal told senators that the assets held by YPF and the companies it controlled at the time of the expropriation was US$9.69 billion. Argentina’s expropriation law requires payment according to an assessment by the National Valuation Tribunal.
Zannini, making his first appearance before a Senate committee spoke at length about the settlement that he helped to negotiate, calling it “balanced and satisfactory to both parties” and added that it marks “the beginning of a new phase” for YPF and the Argentine energy sector.
The Legal and Technical Secretary told the senators in the Salón Azul, that the government had successfully “managed to have the expropriated party, in a conciliatory process, agree to the price of the assets but also the payment method” which “is by no means a minor issue.”
Economy Minister Axel Kicillof followed this theme, making reference that the agreement did not “have winners nor losers” while also stating “this is a great investment for Argentina”.
Kicillof embarked upon an extensive review of the valuation of YPF in the period after the expropriation and how the agreed upon price was justified on the grounds of market valuation as well as savings and strategic value for the company.
After explaining that Repsol will receive a payment capped at US$5 billion in dollar-denominated bonds for the shares in exchange for the withdrawal of all legal complaints against Argentina, he went on to add that in the two years since the expropriation US$2 billion in dividends had not been distributed, the company’s market value increased US$1.6 billion increase in market value in the company as a result of a higher stock price and US$1.2 billion in savings from a reduction in gasoline imports following a YPF increase in the production of gasoline.
On that count, the payment for the 51 percent of YPF was by the minister’s estimation “a great investment” on the grounds that the expropriation had already brought in US$4.8 billion in benefits.
CEO Miguel Galuccio, also presenting to the Senate for the first time, opened his remarks by valuing the importance of public-private nature of the new incarnation of YPF.
The oil industry veteran also said that he saw Norway’s Statoil, which has been key to the country’s oil sector, as the model that he would like YPF to follow under state leadership.
Radical Party (UCR) Senator Gerardo Morales was the first to ask questions, continually stressing that his party approved the expropriation in 2012 and the government’s decision to provide compensation to Repsol. Still, he zeroed in on the valuation of YPF’s shares and how precisely the value had been established, suggesting that the settlement overvalued the company.
Morales also suggested that there had been rumours that Repsol chief Antonio Brufau was “celebrating with champagne.”
Indeed, Morales told the session that the Radical vote will depend on receiving further confirmation about how YPF was valued by the National Valuation Tribunal and announced that they would be studying its resolution on the matter.
Meanwhile, Senator Fernando “Pino” Solanas passionately criticized Repsol’s alleged environmental abuses and responsibility for damaging water tables and contamination of soil in the Neuquén area and blamed the current government for the drastic decline in YPF’s production starting in the 2007-2008 period.
Kicillof responded by saying that “unfortunately, and this is painful to say, but the majority of the pollution was carried out by the previous sate-run incarnation of YPF, not Repsol.”
Experts invited by opposition senators will speak to the joint committees on Tuesday next week and a vote is expected on Wednesday so that the Senate chamber can vote on the compensation agreement on March 26.