Election tilts shale-rich Argentina to right

OREANDA-NEWS. November 30, 2015. Centre-right opposition candidate Mauricio Macri has swept to power in shale-rich Argentina, leaving foreign oil companies hopeful of a new direction after a decade of government policies that undermined upstream investment.

Macri has named former Shell Argentina chief executive Juan Jose Aranguren as his energy minister, part of a new government that highlights his market-oriented approach. And he has upgraded the energy portfolio from its energy secretariat structure under the planning ministry.

The energy minister will help Macri to decide whether to retain Miguel Galuccio as chief executive of state-controlled oil company YPF. Aranguren has in the past criticised Galuccio's management of the company as tainted by politics. YPF was expropriated from Spain's Repsol in 2012.

Macri's landmark victory over Daniel Scioli of the governing FPV party in the presidential run-off election on 22 November could reinvigorate investment in the country's oil, gas and power sectors. Macri will take office on 10 December. He ran as part of the Cambiemos alliance, promising a fundamental overhaul of the country's economic policies, vowing to end restrictions on access to foreign currency, importing equipment and the repatriation of corporate profits. Several companies, including Shell and Total, hold significant stakes in Argentina's vast Vaca Muerta shale formation. But only YPF is carrying out large-scale shale production, largely in partnership with Chevron.

Macri is under pressure to deliver on his election pledges. He inherits a weak economy — an unofficial inflation rate of 30pc/yr, an overvalued currency and dwindling hard currency reserves. But he will have to deal with a divided congress, an electorate polarised by the presidential vote and a flurry of last-minute appointments made by outgoing president Cristina Fernandez de Kirchner.

On energy policy, Macri wants to reduce electricity subsidies, potentially helping power generators and distributors that have suffered from artificially low tariffs. And his advisers have criticised government policies that pay different prices for new gas output compared with existing production, and that have kept domestic wellhead crude prices artificially high.

Macri has named former central bank chief Alfonso Prat-Gay as finance minister. But before Argentina can hope to attract foreign investment it must end litigation in the US with a group of creditors that pushed the country into technical default last year. A small group of hedge funds that refused to restructure defaulted bonds, a remnant from Argentina's 2001 default on almost \\$100bn in debt, has kept the country largely locked out of international capital markets.