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OPINION AND ANALYSIS | 23-01-2021 10:19

Your Petrol Frizzled

If Vaca Muerta is indeed a dead cow, then Argentina will end up importing fuel, a move which will surely cost more dollars than those denied YPF to service its debts.

No prophet is welcome in his own country, they say, and that would also seem to apply to architects. Tucumán’s César Pelli (1926-2019) completed the Petronas twin towers in Kuala Lumpur in 1998, the world’s highest building for the next six years at 452 metres and still the world’s tallest twin towers. A decade later Pelli brought his talents home with the Torre YPF in Puerto Madero (160 metres high but still imposing) and today this pandemic white elephant is up for sale for an optimistic US$400 million – throw in an extra billion bucks or so and you have the entire current market value of the state-run oil giant, which was worth US$15 billion when Carlos Menem privatised it to Spain’s Repsol in 1999.

YPF has its niche in this week’s news despite some powerful competition – not only Joe Biden’s inauguration in Washington but also the ongoing vaccination saga (with the persistently rumoured creation of a national health scheme in the background) and the crescendo for a return to classes which is increasingly pushing at an open door with an electorally driven government (Argentina might have 1.4 million teachers but far more parents who, even where indifferent to their offspring’s schooling, would appreciate some babysitting by now). On the brink of last weekend YPF hiked its petrol prices 3.5 percent hard on the heels of a 2.9 percent increase only 10 days previously – moving entirely in the opposite direction to the price clampdown which the government sees as an electoral imperative with midterms later this year. And then in the course of this week there arose insistent reports of the exit of YPF president Guillermo Nielsen, confirmed by the economist himself in midweek.

Nielsen (no known relation to the late Canadian-born Hollywood actor Leslie Nielsen, and not to be confused with the latter’s most famous role of Frank Drebin either) leaves at precisely a time when a job for which he had no previous background was starting to play to his strengths of financial expertise – this columnist remembers then-Finance Secretary Nielsen as the real brains behind the successful bond swap of 2005. It was precisely a bond swap offer for its entire debt of US$6.2 billion which YPF presented early this year – a move into which YPF had been forced by last September’s tightening of capital controls obliging companies to come up with their own dollars to pay debt. If indeed it deserves to be called an offer since it rolls over any payment of either capital or interest for the next two years, virtually tantamount to a default and seen as such by the creditors, who have predictably stonewalled it. A situation calling for the special skills of Nielsen to tweak and fine-tune the offer but he’s headed for the exit door.

Headed or heading? A moot but perhaps also academic point as to whether he is being forced out as part of a continuous Kirchnerite ideological purge within the Frente de Todos government or whether Nielsen (who turns 70 in April) is simply fed up and only too happy to leave a sinking tanker. Hopes were so much higher 13 months ago when a brand-new government was flashing the Peronist V-sign, in this case standing for Vaca Muerta and its fabulous shale wealth for which Nielsen was to serve from the YPF helm as the capital market link tapping investors. But today a company which cannot keep its creditors on board is never going to attract investors – Vaca Muerta (and also Vicentin) are painful reminders of the ambiguity of the V-sign, as explained to Winston Churchill in the film Darkest Hour.

The jury might still be out on whether Nielsen’s exit is voluntary or involuntary but there can be no ambiguity whatsoever about his replacement Pablo González – what choice could be clearer than the lieutenant-governor of Santa Cruz Governor Alicia Kirchner’s first term, especially when lacking any direct experience in the energy sector?

As for the constant YPF increases of oil prices at all odds with the electoral priority of taming inflation, that reminds me of a familiar pattern from the Kirchnerite past. Until the Santa Cruz crony capitalist family Eskenazi started moving into YPF as from 2008 as “experts in regulated markets,” petrol pricing was on the same populist track as electricity, gas and other utility billing, frozen at increasingly absurd levels with increasingly costly subsidies. But the Eskenazis acquired their YPF shares without paying a cent, instead undertaking to redeem the purchase price via their future dividends – from that point YPF virtually stopped investing to pay out insanely high percentages of its earnings in dividends, sometimes even exceeding profits. That was the main funding for crony capitalism but from that point petrol prices also started creeping up steadily. As they did when then-Economy Minister (and now Buenos Aires Province Governor) Axel Kicillof bought 51 percent of YPF shares from Repsol for US$5 billion in 2012 – petrol could not be cheap enough while Repsol owned YPF but there was no such thing as too much once it passed to state sovereignty.

We have not heard the last of the Eskenazis – their share rights have fallen into the hands of the Burford Capital vulture fund, who are suing the Argentine state in New York judge Loretta Preska’s courtroom for up to US$14 billion (i.e. almost 10 times YPF’s current market value).

The immediate future looks grim – if Vaca Muerta is indeed a dead cow, then Argentina will end up importing fuel, a move which will surely cost more dollars than those denied YPF to service its debts. But the longer term looks even bleaker. Oil prices might now be above US$50 per barrel instead of below US$20 as in the second quarter of last year but we should also bear in mind that Joe Biden took office in Washington on Wednesday with John Kerry as his climate change sidekick with a Green New Deal in their sights. If YPF’s market value of US$1.4 billion compares so feebly with almost US$100 million for Mercado Libre (the Latin American Amazon) or over US$8 billion for Globant software designers, this points to a changing product mix in Argentina, never mind the world. Oil is no longer black gold, simply black.

 

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Michael Soltys

Michael Soltys

Michael Soltys, who first entered the Buenos Aires Herald in 1983, held various editorial posts at the newspaper from 1990 and was the lead writer of the publication’s editorials from 1987 until 2017.

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