The Falklands: Oil companies fear Argentine legislation (Financial Times, June 3)
By Ken Warn in Buenos Aires
Argentine draft legislation on oil exploration in the South Atlantic has alarmed companies exploring in the region and threatens to cast a cloud over President Carlos Menem's planned trip to Britain later this year.
Although the first exploration well in Falklands waters failed to find commercial quantities of oil and gas, the international exploration effort appears to have galvanised the Argentines into action.
The proposed legislation, which may be considered by the lower house of Congress as early as today, would impose fines of up to $10m on companies which fail to pay Argentina a 3 per cent royalty on any eventual oil or gas production from waters around the disputed Falkland Islands.
Companies failing to comply with the Argentine demand could also face being barred from government contracts or even from conducting business in Argentina. The Senate must also ratify the law, but has already unanimously backed the proposed fines. Depending on its final form, the legislation could run counter to the 1995 Anglo-Argentine agreement on oil exploration in the South Atlantic. Article 6 of the accord explicitly blocks actions by either country which threaten oil companies' ability to operate in the region.
Exploration began in waters to the north of the islands in April under the terms of an exploration round called by the Falklands government. Britain and Argentina also agreed in 1995 to call a joint exploration round in a zone to the west of the islands, straddling the disputed area and Argentine waters. The two countries fought a brief war over the islands in 1982.
The proposed legislation could also complicate the joint round, which has yet to be launched. The threat of punitive measures against companies operating in the region could make them think twice before getting involved. The proposed fines would extend to the oil companies' suppliers, said Guido Di Tella, Argentina's foreign minister, and could even include Argentina-based multinational Techint, which is supplying steel tubing for the exploration effort.
Companies with no operations in Argentina would be beyond the reach of sanctions and less inclined to pay the 3 per cent, Mr Di Tella acknowledged. But they would have to carry a contingent liability on their balance sheets acknowledging Argentina had sought to levy the royalty, he said. Argentina claims it is merely putting in place legislation allowing it to recover the royalty and does not wish to prejudice Mr Menem's "long overdue" visit.
The 1995 deal is essentially an agreement to disagree. Neither side accepts the other's territorial claims, or authority to charge a royalty on oil or gas production. |
