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Repsol Sues Argentina for $10 Billion Over YPF Nationalization

Posted by Carmelo Ruiz-Marrero on May 18th, 2012
CorpWatch Blog
Cordoban youth poster supporting the takeover of YPF. Photo: Chupacabras. Used under Creative Commons license

Repsol, a multinational based in Spain, has brought a class action lawsuit in New York courts against the Argentine government for the re-nationalization of YPF, the former Argentine state oil company. The company has also lodged a complaint with the World Bank's International Center for Settlement of Investment Disputes (ICSID).

President Cristina Fernández de Kirchner of Argentina signed a bill on May 4 seizing 51 percent of the company’s shares after over 80 percent of legislators in both the lower and upper houses of parliament voted in favor. Respol, which owned 57 percent of YPF, wants $10.5 billion in compensation although it may find it hard to collect since Buenos Aires has ignored previous ICSID fines.

"When corporate interests are not aligned with national interests, when companies are concerned only with profits, that's when economies fail, which is what happened globally in 2008 and what happened to Argentina in 2001," Fernández said in a speech on May 3 to explain her motives in pushing for the takeover alleging that Repsol under-invested in the company and paid out excessive dividends, essentially stripping out the value.

Fernández’s move has rattled international financial markets but drawn extensive praise from some popular movements.

The Battle Against Privatization in South America


In the 1970s, most oil companies in South America were state owned, just like most utilities. Following the debt crisis of the 1980s, governments in the region were persuaded by the World Bank and the International Monetary Fund to privatize many of these state assets. A number of European multinationals – like Repsol of Spain and Suez of France - jumped at the opportunity to capture lucrative new sources of production and revenues. Financial institutions hailed this wave as an opportunity for the region to attract capital for modernization and to get rid of unnecessary bureaucracy.

Carlos Menem, who was elected the president of Argentina at this time, became the darling of global financial markets for his aggressive privatization strategy that brought in foreign direct investment, cut inflation and boosted productivity, although his policies also caused major unemployment. At the same time Menem also increased borrowing from the International Monetary Fund and failed to control the flight of capital out of the country by the country’s elite. In 2001, the Argentine economy collapsed again.

In 2003 President Néstor Kirchner was elected. He chose to turn his back on the international financial institutions and renegotiate the national debt at favorable terms and engineer an economic recovery. In 2006 he canceled Argentina’s contract for water supply to Buenos Aires with the French company Suez.

He was succeeded in 2007 by his wife, Cristina Fernández, who maintained his policies of keeping the international institutions and multinationals at bay.

The partial nationalization of YPF (49 percent of the company will remain in the hands of local and foreign private investors) repudiates the advice of international economists but is wildly popular in Argentina. It could bring an influx of cash to the Argentine economy but could also backfire, if it does not.

Then there is the threat of Western interests who do not take kindly to being kicked out. Notably, the government of Spain has not taken the news well. Spanish president Mariano Rajoy has threatened economic sanctions against Argentina, and vice president Soraya Saenz de Santamaria has stated that Spain and its allies "will protect the juridical safety of European investments worldwide". The European Union is considering bringing a case against Argentina to the World Trade Organization.

Fernandez says she has a very pragmatic reason for pushing for nationalization: Argentina’s bills for energy imports hit $9.4 billion last year affecting the country’s trade surplus.

Environmental Impact Questionable

She has the backing of some community activists.

"Repsol is still in debt to the people of Argentina and to nature,” proclaimed the National Peasant and Indigenous Movement (MNCI) on their website. “The REPSOL corporation must assume responsibility for the environmental harms it has caused and damages to natural resources, economically compensating the country and the peasant and indigenous communities that have been affected."

But not all movements are convinced that a state owned YPF will be that different. "As an ecologist collective, and being plainly conscious that the Argentina government was not thinking of environmental issues when it made its decision, we will remain vigilant of (YPF's) future actions," said Noelia Sánchez of the Spanish group Ecologistas en Acción.

Indeed Repsol-YPF has been tried three times by the Permanent Peoples Tribunal for environmental and human rights violations and found guilty. For example in 2010 YPF was accused of trampling on the rights of the Lonko Purran community of Mapuche people in the Cerro Bandera oil field.

Others note that YPF plans to exploit the country's "unconventional" oil and gas finds, such as the Vaca Muerta oil deposit in the province of Neuquen, using hydraulic fracturing (fracking) will mean business as usual, no matter who owns the company: "The future scenario could be one of profound environmental and social risk for much of the country, as experience abroad (of the environmental impact of fracking) has demonstrated,” warns Diego Di Risio, a spokesman for Petroleum Observatory South (Opsur)