Is Argentina allowed to seize YPF?

Argentina's expropriation of its former state oil company attracted international condemnation - but

Argentina's expropriation of 51 per cent of the shares of YPF, the formerly state-owned oil company, has generated almost universal criticism.  Indeed, Antonio Brufau, Repsol’s executive chairman, has labelled Argentina’s action as “manifestly illegal and gravely discriminatory”, and has emphasised Repsol’s intention to use international arbitration to gain proper compensation if it is not freely offered by Argentina. Such language is undoubtedly useful for Repsol as a means of generating support for its position, but an examination of precisely what international law says about expropriation is illuminating as to the potential losses that Repsol now faces.

Whether or not Argentina’s action violates international law is an important question for Repsol, as the standard of compensation differs for legal and illegal expropriations. Consequently, if Repsol can establish that Argentina has violated international law it potentially stands to gain considerably greater compensation than if the law has been observed.

It is important to note, however, that expropriations are not inherently illegal under international law. The ability to take property from private entities is simply one of the benefits of being a state. The important question, then, is whether Argentina has adhered to the applicable standards in performing the expropriation. Currently available information suggests that it has.

Firstly, an expropriation must be undertaken for a public purpose. Argentina’s expressed goal of regaining national energy self-sufficiency and ensuring the viability of an important industry clearly satisfies this requirement, and there is as yet no indication of any alternative motive.

Secondly, the expropriation must be non-discriminatory. If, for example, the Argentine government had taken Repsol’s shares in YPF and redistributed them to a private Argentine entity, Repsol may have been able to argue discrimination. Such an action would have indicated that Repsol’s foreign nationality was a motivating factor in the expropriation. However, the expropriated shares are being retained in government hands, YPF’s remaining shareholders include other foreign entities, and Argentina has offered plausible arguments as to why YPF’s performance was insufficient for the needs of the country. Absent new evidence, then, Repsol will have difficulty substantiating its allegation that the expropriation is "discriminatory".

Thirdly, the expropriation must be performed in accordance with due process of law. Argentina is undertaking the expropriation through the passage of legislation and there has been no accusation that Repsol will be deprived of any legal rights it has to challenge the expropriation in Argentine courts. Consequently, there is no current evidence that Argentina is violating this requirement.

Finally, an appropriate level of compensation must be paid for any expropriated property. This is the point on which the greatest uncertainty remains, as the Argentine government has not yet stated how much compensation it intends to pay to Repsol. Moreover, there are clear political pressures within Argentina to minimise the amount of compensation that Repsol receives. If Argentina bows to these pressures, and offers Repsol an amount indefensible as an estimate of the market value of the company, it will likely be found to have acted illegally. However, the efforts that have so far been made by Argentina’s representatives to link lowered compensation payments to such things as potential hidden debts and environmental liabilities indicates that Argentina is well aware of this issue, and is unlikely to propose an amount of compensation that is not at least facially plausible as a market valuation of the expropriated shares.

Of course, while it is important for Argentina that its actions be found to be legal, simple legality will not protect it from all the potential negative consequences of such a prominent expropriation. Perceptions matter in attracting foreign investment, and Argentina will need significant foreign investment if it is to achieve its goal of a return to energy self-sufficiency. For this reason, as attractive as it may be to the Argentine government to minimise the compensation it offers to Repsol, this is unlikely to be in Argentina’s long-term best interest. A single act of expropriation is unlikely to deter foreign investors, even when it is as large as Argentina’s expropriation of YPF. However, a perception that the Argentine government will not treat foreign investors fairly will deter them, and any indication that the government is more interested in minimizing the compensation it pays to Repsol than in fixing a fair price for Repsol’s shares in YPF will have precisely that effect. In the long term, such a valuation may well cost Argentina more money than it saves.

The second part of this post can now be found here.

View at sunset of the port next to the gas plant of YPF in Buenos Aires. Photograph: Getty Images

Tony Cole is a senior lecturer at Brunel Law School

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This week, a top tip to save on washing powder (just don’t stand too near the window)

I write this, at 3.04pm on a sticky Thursday afternoon, in the state in which Adam, before his shame, strolled in the Garden of Eden.

Well, in the end I didn’t have to go to Ikea (see last week’s column). I got out of it on the grounds that I was obviously on the verge of a tantrum, always distressing to witness in a man in his early-to-mid-fifties, and because I am going to Switzerland.

“Why Switzerland?” I hear you ask. For the usual reason: because someone is paying for me. I don’t think I’m going to be earning any money there, but at least I’ll be getting a flight to Zurich and a scenic train ride to Bellinzona, which I learn is virtually in Italy, and has three castles that, according to one website, are considered to be “amongst the finest examples of medieval fortification in Switzerland”.

I’m not sure what I’m meant to be doing there. It’s all about a literary festival generally devoted to literature in translation, and specifically this year to London-based writers. The organiser, who rejoices in the first name of Nausikaa, says that all I have to do is “attend a short meeting . . . and be part of the festival”. Does this mean I can go off on a stroll around an Alp and when someone asks me what I’m doing, I can say “Oh, I’m part of the festival”? Or do I have to stay within the fortifications, wearing a lanyard or something?

It’s all rather worrying, if I think about it too hard, but then I can plausibly claim to be from London and, moreover, it’ll give me a couple of days in which to shake off my creditors, who are making the city a bit hot for me at the moment.

And gosh, as I write, the city is hot. When I worked at British Telecom in the late Eighties, there was a rudimentary interoffice communication system on which people could relay one-line messages from their own computer terminal to another’s, or everyone else’s at once. (This was cutting-edge tech at the time.) The snag with this – or the opportunity, if you will – was that if you were not at your desk and someone mischievous, such as Gideon from Accounts (he didn’t work in Accounts; I’m protecting his true identity), walked past he would pause briefly to type in the message “I’m naked” on your machine and fire it off to everyone in the building.

For some reason, the news that either Geoff, the senior team leader, or Helen, the unloved HR manager, was working in the nude – even if we knew, deep down, that they weren’t, and that this was another one of Gideon’s jeux d’esprit – never failed to break the monotony.

It always amused us, though we were once treated to a terrifying mise en abîme moment when a message, again pertaining to personal nudity, came from Gideon’s very own terminal, and, for one awful moment, for it was a very warm day, about 200 white-collar employees of BT’s Ebury Bridge Road direct marketing division suddenly entertained the appalling possibility, and the vision it summoned, that Gideon had indeed removed every stitch of his clothing, and fired off his status quo update while genuinely in the nip. He was, after all, entirely capable of it. (We still meet up from time to time, we BT stalwarts, and Gideon is largely unchanged, except that he’s now a history lecturer.)

I digress in this fashion in order to build up to the declaration – whose veracity you can judge for yourselves – that as I write this, at 3.04pm on a sticky Thursday afternoon, I, too, am in the state in which Adam, before his shame, strolled in the Garden of Eden.

There are practical reasons for this. For one thing, it is punishingly hot, and I am beginning, even after a morning shower, to smell like a tin of oxtail soup (to borrow an unforgettable phrase first coined by Julie Burchill). I am also anxious not to transfer any of this odour to any of my clothes, for I will be needing them in Switzerland, and I am running low on washing powder, as well as money to buy more washing powder.

For another thing, I am fairly sure that I am alone in the Hovel. I am not certain. To be certain, I would have to call out my housemate’s name, and that would only be the beginning of our problems. “Yes, I’m here,” she would reply from her room. “Why?” “Um . . .” You see?

So here I lie on my bed, laptop in lap, every window as wide open as can be, and looking for all the world like a hog roast with glasses.

If I step too near the window I could get arrested. At least they don’t mind that kind of thing in Switzerland: they strip off at the drop of a hat. Oh no, wait, that’s Germany.

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times