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Tuesday, Apr 17, 2012 1:30 AM UTC

Argentine leader moves to nationalize oil company

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Argentine leader moves to nationalize oil companyArgentina's President Cristina Fernandez announces a bill to nationalize Spain's controlled oil company YPF, at Government House in Buenos Aires, Argentina, Monday April 16, 2012. Fernandez said in an address to the country that the measure sent to congress on Monday is aimed at recovering the nation’s sovereignty over its hydrocarbon resources. Behind Fernandez is a scale model of an iron sculpture of Argentina's former first lady and second wife of late President Juan Peron, Eva Peron. (AP Photo/Natacha Pisarenko)(Credit: AP)

BUENOS AIRES, Argentina (AP) — In a bold move to gain control of Argentina’s energy reserves, President Cristina Fernandez pushed forward a bill to renationalize the country’s largest oil company on Monday despite fierce criticism from abroad and the risk of a major rift with Spain.

In a national address, Fernandez said the legislation put to congress would give Argentina a majority stake in oil and gas company YPF by taking control of 51 percent of shares held by Spain’s Repsol.

Both Repsol and Spain strongly oppose the move and have warned that it could turn Argentina into an international pariah.

YPF is vital for Argentina’s energy future, especially after its recent find of huge unconventional oil and natural gas reserves. But the company is under pressure from Fernandez’s government to raise output while its shares have plunged in recent months on fears of possible state intervention. Argentina this year expects to import more than $10 billion worth of gas and natural liquid gas to address an energy crisis even though it is an oil-producing nation, according to estimates from the hydrocarbon sector.

“We are the only country in Latin America, and I would say in practically the entire world, that doesn’t manage its own natural resources,” Fernandez said. She said her proposal “is not a model of statism” but “the recovery of sovereignty.”

Critics blame the government for an energy shortage and high gasoline prices.

But Fernandez said the shortage is the result of Repsol’s “emptying” of YPF, and that Argentina had a deficit of $3 billion last year partly due to energy imports.

“There’s something worse than hiking up the price of gasoline on people and that is not having any gasoline at all,” she said.

Argentines gathered in Buenos Aires’ main square shouting slogans, waving national flags and carrying banners supporting the government takeover. One of them read: “Today, with Cristina, we recovered YPF.” YPF was privatized in the 1990s. Repsol’s subsidiary in Argentina currently holds 57 percent of its shares.

Fernandez said the renationalization was a long-held desire of her late husband and predecessor, former President Nestor Kirchner.

“I hope he’s watching over me because he always wanted to recover YPF for the country,” she said.

But analysts said the planned takeover risks alienating foreign investors and prompting retaliation from Spain’s government.

“It is a bad decision,” said Emilio Apud, a former Argentine energy secretary who now works as a consultant. “It gives the Argentine government a bad image” and will discourage investment, he said. Apud also called the proposed law “a bad way to treat friendly governments like Spain.”

In Madrid, Spanish Foreign Minister Jose Manuel Garcia-Margallo called the move arbitrary, and said it broke the climate of cordiality and friendship that had existed with Argentina. He said Spain would respond with “forceful measures” he did not describe.

The European Commission has warned that nationalizing YPF would be bad for the investment climate in Argentina, and has said it backs Spain in the standoff over the subsidiary.

Fernandez, however, was unmoved by the risk of a row with Spain, Argentina’s largest foreign investor.

“This president is not going to answer any threat, is not going to respond to any sharp remark.,” she said to applause from business, union and political leaders.

“I am a head of state and not a hoodlum,” said Fernandez, who has also renationalized the country’s Aerolineas Argentinas airline and nationalized the Anses state private pension funds.

There was no explanation of how, or how much, Repsol and its stockholders would be compensated. Analysts say that the government might have to use Central Bank reserves, or funds from the Anses to pay for the takeover.

“The issue that scares investors is not knowing how far the governmental participation will go, if it’s only YPF or if it is going to include other petroleum companies in Argentina,” said Joe Amador, Latin America director for Scotia Waterous, the oil and gas arm of Scotiabank, in Houston, Texas.

Even with its share prices depressed, YPF last week was valued at $13.6 billion, and buying half of that would deplete Argentina’s treasury of funds it needs to maintain the populist subsidies that have kept the country’s economy afloat.

Repsol released a statement promising to protect the interests of its shareholders. It called the move “unlawful and gravely discriminatory.”

Spanish officials had earlier protested the plan, saying Argentina risks becoming “an international pariah” if it takes control of Repsol’ subsidiary, Repsol YPF SA

Spain’s foreign minister last week summoned Argentine Ambassador Carlo Antonio Bettini to convey concern over possible nationalization of YPF, which represents 42 percent of Repsol’s total reserves, estimated at 2.1 billion barrels of crude.

Governors of oil-producing Argentine provinces have withdrawn about 15 oil leases, representing 18 percent of YPF’s crude production, alleging the company failed to keep its promises to develop them. YPF has countered that it has invested millions in those areas and plans to increase production, but Argentine officials have said that still falls short.

How Argentina may try to displace Repsol has been the subject of wide speculation since the government’s pressure campaign began in February.

The president’s proposal would leave Repsol with just a little more than 6 percent of YPF’s shares.

Fernandez put Federal Planning Minister Julio de Vido and Economics Vice Minister Axel Kicillof in charge of handling the expropriation.

The president’s proposal declares that the exploration and exploitation of hydrocarbons is “of national public interest” and declares that building up the nation’s supply is a priority.

____

Associated Press writers Luis Andres Henao in Buenos Aires and Jorge Sainz in Madrid contributed to this report.

More Almudena Calatrava.

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