The four Argentine provinces not covered by the agreement are likely to try and resolve the stand-off through bilateral negotiations, according to Laurence Allan, Head of Latin America Analysis at IHS Country Risk.
“All four are key oil and gas producers, whose provincial governments are opposed to the federal government’s proposed changes to Argentina’s hydrocarbons law.
“The isolation of the four provinces looks like a federal government attempt to increase its leverage over these regions, pushing them towards compliance with the new hydrocarbons law.
Under National Resolution 445/2014 – agreed on 1 August, one day after Argentina entered into technical default – the federal government unilaterally granted a 60-day grace period for capital and interest debt obligations undertaken by Buenos Aires, Catamarca, Chaco, Corrientes, Entre Ríos, Jujuy, La Rioja, Misiones, Salta, Santa Cruz, San Juan, Tierra del Fuego, and Tucumán provinces.
“The main objective of the resolution was to lower the likelihood of imminent defaults by the provinces, notably Buenos Aires, Argentina’s most populous and economically important province. Four Argentine provinces – Chubut, Mendoza, Neuquén, and Río Negro – were excluded from the deal.
“The four provinces not covered by the agreement are likely to try and resolve the stand-off through bilateral negotiations.
“All four are key oil and gas producers, whose provincial governments are opposed to the federal government’s proposed changes to Argentina’s hydrocarbons law. The changes aim to facilitate private investment in the hydrocarbons sector, and have the explicit support of President Cristina Fernández de Kirchner and Miguel Galuccio, President of state-owned oil company YPF. The changes will diminish provincial authorities’ influence, but will not repeal the Short Law that granted the provinces control over subsoil resources in their territories.
“The isolation of the four provinces looks like a federal government attempt to increase its leverage over these regions, pushing them towards compliance with the new hydrocarbons law.
Jorge Sapag, governor of Neuquén, assessed that the costs to his province of not reaching agreement over re-financing the debt would amount to ARS18 million ($1.6 million) per month. As a major oil and gas producer, Neuquén is unlikely to see its non-payment risks rise significantly due to incremental costs of this level.
“However, local media sources assess that Mendoza could see additional costs of around ARS160 million in the coming quarter, and Río Negro ARS93 million in the same period. Non-payment risks for those provinces look likely to rise through the final quarter of 2014 unless they reach an agreement with the federal government.”