Argentina’s late subsidy payments hurt gas producers

| Updated: October 19, 2017 01:07:31

An aerial view of a YPF shale oil drilling rig in the Patagonian province of Neuquen, Argentina.  	— Reuters An aerial view of a YPF shale oil drilling rig in the Patagonian province of Neuquen, Argentina. — Reuters

Argentina is behind on at least $700 million in promised subsidy payments to natural gas producers, hurting oil companies at a time when the government is trying to woo more investment in the nation's energy sector, reports Reuters.

The incentives have cost cash-strapped Argentina more than $7.0 billion since they were implemented in 2013 by former leftist President Cristina Fernandez. The programme, unique in Latin America, is aimed at attracting investment to help boost the country's declining output and reduce its reliance on imported liquefied natural gas.

Payment delays have plagued the programme from its inception, but they have lengthened under President Mauricio Macri, Fernandez's business-friendly successor. He took office in December 2015 vowing to jumpstart Argentina's struggling economy and cut a primary fiscal deficit equivalent to more than 5.0 per cent of gross domestic product.

"The state does not have the money," said Daniel Gerold of G&G Energy Consultants in Buenos Aires. "The companies are being patient, but they are clearly concerned because they know perfectly well that there is a significant fiscal problem." Hardest hit is state-owned YPF SA, which produces a third of Argentina's natural gas. It was owed $551 million in unpaid subsidies at the end of the second quarter.
The government is supposed to pay the gas subsidies quarterly. But payments to YPF are now 10 months in arrears, YPF Chief Financial Officer Daniel Gonzalez said in an earnings call last month. That is up from a delay of four to five months that Gonzalez reported to investors in August 2015.

The lag forced YPF to raise debt in July, Gonzalez said. And it could upend the goal of the heavily-indebted company to become cash-flow neutral this year, according to an analyst covering the company.

Argentina's Pampa Energia is feeling the squeeze as well. In the second quarter of 2017, the firm recorded 2.4 billion pesos, or $140 million, in uncollected payments, financial statements show. That is up from 1.6 billion pesos ($100 million) at the end of last year. Pampa did not respond to a request for comment.

Two multinational oil majors are also experiencing delays of between four and eight months in receiving their subsidies, two industry sources told Reuters on the condition that the companies not be named.

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