ARGENTINA ON TRACK FOR OIL INDUSTRY REVAMP

Roger Vielvoye International Editor Argentina's whirlwind campaign to deregulate the country's oil industry is on schedule for completion as 1991 gets under way. Centerpiece of state withdrawal from the oil business will be the loss of Yacimientos Petroliferos Fiscales' state corporation status in preparation for progressive transfer to a private sector company.

Jan. 7, 1991

5 min read

Roger Vielvoye
International Editor

Argentina's whirlwind campaign to deregulate the country's oil industry is on schedule for completion as 1991 gets under way.

Centerpiece of state withdrawal from the oil business will be the loss of Yacimientos Petroliferos Fiscales' state corporation status in preparation for progressive transfer to a private sector company.

Jose Estenssoro, brought in as president of YPF as part of the privatization and deregulation process, said his company eventually will become a fully privatized company quoted on the local stock exchange followed by listings on North American and European markets.

In addition to privatization of YPF, foreign and domestic oil companies have started to acquire concessions in marginal producing areas formerly held by the state company. There also are opportunities for acquisitions in more productive areas.

Downstream, YPF is losing its monopoly right to purchase any crude produced in Argentina. It also will rationalize its refining and marketing networks, where there will be greater opportunities for sector companies to expand operations.

Estenssoro, former president of what once was Hughes Tool Co., said state control of the oil industry had led to inefficiency and lack of enterprise. With Argentina's reserves of 2.28 billion bbl, he thinks a deregulated, privatized oil industry can become a substantial exporter.

The countries around Argentina-Chile, Brazil, Paraguay, and Uruguay-import about 700,000 b/d of oil. Estenssoro said it will be feasible for Argentina to meet 50% of this demand when the effects of revitalizing the industry are felt.

Exports will begin with deliveries to Paraguay and Chile of probably not more than 1 0,000 b/d.

Previous government policy indirectly encouraged conservation by aiming production policies at self-sufficiency. This, combined with overmanning, rampant union interference in management, and use of the company for political rather than commercial objectives, led to inefficient operations.

DEADLINE CONFIRMED

Economy Minister Antonio Erman Gonzalez confirmed that the privatization of YPF is to be complete by a Jan. 1 deadline.

Legislation outlining the tax regime under which a deregulated petroleum industry will operate will be presented to Congress in Buenos Aires shortly.

Formal agreement with the main oil workers union on terms for YPF privatization was expected late last month.

All three factors will enable the industry to begin a deregulated life in 1991, the minister said.

Withdrawal of state control of the oil industry is part of a major privatization program by Argentine President Carlos Menem. It's designed to rejuvenate the country's bankrupt economy.

The state controlled airline and telecommunications business have passed into the private sector.

In addition to the oil sector, there are plans to remove the hand of the state from petrochemicals, roads, railroads, industrial companies, the money losing, government controlled Gas de Estado, and even parts of the substantial military machine.

Privatization of the gas industry is required to finance new gas separation plants, storage, trunk pipelines and expansion of the distribution system. The object is to expand the use of gas to lessen demand for petroleum products.

MONOPOLIES ATTACKED

Estenssoro said the government is making a three pronged attack on monopolies in the exploration and production segments of the petroleum industry.

YPF returned to the state secondary areas where there is limited production and potential for further exploration,

Those areas account for about 2% of Argentina's production of about 490,000 b/d.

The first batch of 38 blocks went mainly to Argentinian companies.

An allocation of 40 blocks is to be offered this month, and there likely will be a third call in May.

The remaining 98% of production is controlled by YPF. About 300,000 b/d is under the direct control of the state company.

Another 180,000 b/d is operated by private sector companies, with major roles played by units of Total CFP, Amoco Inc., Occidental Petroleum, and three local based companies: Perez Companc, Bridas, and Astra.

The government proposes to allow the operators under these contracts to convert their acreage to concessions after buying the remaining reserves and existing production facilities. Companies are not sure how the value of probable and possible reserves will be calculated.

YPF also will invite tenders from the private sector for joint ventures in enhanced recovery in mature parts of the central production area, which has been reserved for the state company.

YPF has received proposals from several international and local companies. Estenssoro hopes deals can be struck by March. Any deal will run for no more than 25 years. YPF's partners will be paid in oil.

NEW STRUCTURE

Estenssoro said YPF needs a fully integrated structure to incorporate exploration, production, refining, products marketing, and transportation.

Since he took over last August, Estenssoro said, there has been full political support for deregulation and privatization. There has been no political interference in business decisions.

An important step forward is an agreement in principle with labor unions that will enable YPF management to manage the company.

Foreign companies can take heart from appearance of the classic exploration and production concession for the first time since 1935, Estenssoro said.

Downstream, the movement of crude oil and product prices into approximate parity with international levels is designed to lessen the immediate effect of deregulation.

YPF, which supplies about 60% of the domestic products market, is preparing a strategic business plan that aims to lead to rationalization of the company's downstream role.