Argentina to Expropriate Repsol's Shares in YPF Oil Company: New Return of Resource Nationalism in Latin America

On 16 April 2012, Argentina's President, Cristina Fernàndez de Kirchner, announced the decision taken by the government to expropriate and nationalise by legislative means the major stake (51%) of the oil company YPF, in which the Spanish company Repsol holds a 57,43% share. YPF was privatised in 1999. The measure was widely supported at domestic level, in a country experiencing both an economic and social crisis. However, the measure was heavily criticised in Europe. Other sources also confirm that the Chinese state-owned company Sinopec had proposed to buy YPF. Argentina's Congress will have now to examine the controversial bill. 

(Complete speech of the announcement of the nationalisation/expropriation. Click on the picture. In Spanish)

As summarised by BBC News, the "official" objective of the measure is to answer national concerns as to YPF management of petroleum resources: lack of investments, poor marketing/export policy, failure to get concessions in major oil fields. Officials argue that this has resulted in an efficient management of the national petroleum resources. Although the regulatory framework for investments in the petroleum sector in Argentina is not viewed as particularly attractive, the reserves are huge and include recent discoveries of shale gas and oil shale (see analysis by U.S. Energy Information Administration).

HR/VP Catherine Ashton rapidly commented the announcement on the behalf of the European Union (EU) in the following terms:

"This announcement is cause for grave concern. YPF is an important European Union investment in Argentina ... The measure creates legal insecurity for all European Union and foreign firms in the country. I am also alarmed to note that the President referred, in her speech, to investments in other sectors such as telecoms and banking. ... The Government of Argentina must ensure compliance with its international commitments on the treatment and protection of investments originating from the European Union. As a result of this announcement, we have decided to postpone the EU-Argentina Joint Cooperation Committee which had been scheduled to take place on Friday this week. ... The Spanish government has our full backing in this matter." (MEMO/12/254)

The European Parliament holds a debate today, 18 April 2012, and will adopt a resolution on Friday 20 April. Indeed, the decision of the Argentinian government may have direct consequences for the EU, in particular in relation to security of energy supply and revenues earned by the European company. The Parliament is set to discuss mainly the legal security of European investments outside the EU.

In addition to political and diplomatic measures, the core element of the dispute will be of legal nature. The legality of the expropriation measure, and in particular compliance with rules on protection of foreign investments and sovereignty over natural resources, will be central arguments for both sides. They can build on recent legal practice on that. Several governments have taken expropriation measures in the energy sector during the last decades. Such moves can to a certain extent find justification in the principle of sovereignty over national resources defined in public international law. Several cases can be mentioned: Libya, Venezuela, Bolivia (among others). In accordance with UNGA Resolution 1803 (XVII), expropriated companies can get an appropriate financial compensation in case of expropriation, and Repsol has already mentioned claims of more than $10 billion.

The efforts reiterated by President Fernàndez de Kirchner at the Summit of the Americas held in Colombia last week to get support as to the jurisdiction dispute with the United Kingdom concerning the Falkland Islands is among other things related to energy interests, after petroleum discoveries were made in the area.

References: Las frases de Critina Fernàndez, 17 April 2012, El País (in Spanish)