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• AGRIBUSINESS: Foot & Mouth hits Paraguay

  LatinNews 04 October 2011 Hits: 2784

  A sudden outbreak of Foot & Mouth (FMD) in mid-September in the centre of the country has halted the country’s booming beef exports. Chile, Argentina, Brazil and Uruguay have taken emergency measures to prevent the spread of Paraguay’s FMD outbreak to domestic cattle herds.

  Paraguayan experts admit that the losses to Paraguay could easily reach US$300m with thousands of animals likely to be slaughtered. The Paraguayan army has been deployed to San Pedro, where the outbreak was first detected, to shoot the diseased stock and any other animals which may have come into contact with them.

  What is not clear is when the outbreak began. The official notification came on 19 September, but Latin News’s local sources say that almost certainly the managers of the estate where the outbreak began first saw sick cattle a week earlier. The managers panicked and tried to sell the ill stock, almost certainly making the outbreak worse.

  Unlike the last two FMD outbreaks, which occurred in heavily monitored border areas, this outbreak was in San Pedro in the middle of the country. How the cattle caught the disease is unclear. One alarming conclusion may be that the disease was never eradicated. The non border areas, such as San Pedro, account for 40% of the country’s beef exports.

  Chile is the main regional market for Paraguayan beef, which has a 38% share of the Chilean market. Globally, Chile is only second as a market to Russia, Paraguay’s main beef export destination. Russia has also closed its market to Paraguayan beef.

  It is not clear what will happen to beef which was slaughtered and packed before outbreak was reported. At least 4,500t of meat, which Paraguayan meat packers argue were processed at least two weeks before the outbreak, were held up t the Chilean border by phytosanitary inspectors. The Paraguayan government is lobbying its Santiago counterpart to accept this meat.  A report by TV Chile calculates that meat prices in Chile could increase by up to 4%, until alterative supplies are found.

  Brazil has also halted the purchase and transport of live cattle and processed beef from Paraguay. In the first seven months of 2011, Brazil imported 5,500t of Paraguayan beef, worth US$29.1m. In 2010, Brazil imported 6,700t of Paraguayan beef, valued at US$36.4m.

  Brazil has also offered assistance against the outbreak, as a spill-over would thwart its plans to achieve certification as an “FMD-free country with a vaccination regime” by 2013. In the first six months of 2011, Brazil exported 543,800 t of meat, worth some US$2.59bn.

  Argentina and Uruguay have also stopped Paraguayan beef and cattle imports. Argentina also announced that it would bring forward the vaccination regime in all provinces that border Paraguay.

  Coffee : In the first 11 months of the 2010/11 coffee year Nicaragua increased exports by 39% in cash terms, year-on-year to US$431m. The volume of exports was down by 8% at 1.91m quintales (100lb or 45.45kg bags). The coffee year runs from 1 October to 30 September. So far this year the average international price for arabica has been US$225 a quintal, up from US$148 in the previous coffee year.

  The International Coffee Organisation met at the end of September to elect a new general manager. The four contenders are: Robéiro Oliveira Silva from Brazil; a, Krishna Rau from India; Rodolfo Trampe from Mexico, and Christian Ruffin Ngoua from Gabon.

  • Paraguay was declared free of Foot & Mouth in 2005. Since then it has become the world’s fourth largest beef exporter, and indeed beef is now the country’s second biggest export earner, after soya.

• ENERGY: A new South American oilfield

  LatinNews 04 October 2011 Hits: 3262

  At the beginning of September an Irish oil company, Tullow Oil announced a major discovery in the deepwater Zaedyus exploration well, 150km off French Guyana. The company is arguing, from the geology, that a new hydrocarbons basin around French Guyana, Suriname and Guyana, will mirror the huge African offshore oilfields which stretch from Ghana to Cabinda.

  It is far from clear how much oil the Zaedyus field holds. Tulow is in partnership with  Shell and Total in exploring the field. Even oil prices fall back a bit, exploration is likely to continue in this area (known, technically, as east of the Demerara high on the Guyane Maritime licence).

  The discovery (and the recent weakness of the oil price) is probably bad news for the companies looking for oil around the Falklands/las Malvinas. The remoteness of this area, despite the Santos Basin discoveries off Brazil, mean that work here is only likely to occur when easier to areas have dried up.

  Besides Total and Shell, two small companies, Northern Petroleum and Wessex Exploration have a 2.5% stake in the Guyane Maritime licence which covers Zaedyus.

  Other offshore areas under exploration are the Cuban zone of the deepwater Florida Straits between Cuba and Key West, where Repsol expects to have an exploration rig in place by the end of the year. And on 20 September the Falkland/Las Malvinas Islands’ company Argos Resources said that it would begin off-shore oil exploratory drilling in the North Falklands/Las Malvinas basin in late 2011 to early 2012. This announcement comes on the heels of plans by the British firm Rockhopper to invest a whopping US$2bn in the Falkland/Las Malvinas Islands with a view to bringing on stream the Sea Lion field (discovered in 2010), by 2016.

  Argentina and the US are watching this separate activity with a mix of caution and envy. Both the US and Argentina have legal embargoes in place preventing domestic and locally-based foreign firms from doing business with their island neighbours. In the case of Cuba in particular, the US private sector is increasingly critical of this politically-driven stance.

  Most oil majors have given up the quest, on the basis of feasibility, to produce oil from the Falklands/Las Malvinas Islands, despite recent innovations in deepwater oil extraction technology.  Rockhopper said on 14 September that it aimed to pump about 120,000 barrels of oil per day (b/d) from the Sea Lion field by 2018, although local officials in the Falklands caution that the company first needs to secure financing for its ambitious plans. Rockhopper claims there are reserves of 350m barrels of recoverable oil (half what oil analysts say Zaedyus holds).

  In 2012 it will be 30 years since the Falklands/Las Malvinas war, which began in April 1982 with an Argentine military invasion and ended in June of the same year after a British Task Force ousted the Argentines. Relations between the UK and Argentina have dipped under the Argentine governments led by President Nestór Kirchner (2003-2007) and his wife and successor Cristina Fernández (2007- ).  Ironically, the former Argentine president Carlos Menem (1989-1999) had managed to reach an oil revenue sharing deal with the UK, but that deal was later scuppered by Nestór Kirchner, purely for domestic political reasons.

  Cuba believes it could have up to 20bn barrels in offshore oil reserves. It currently produces about 60,000 barrels of oil per day from onshore wells and imports about 115,000 b/d from Venezuela, on favourable terms. The state oil company Cubapetróleo has gone into partnership with Repsol, along with the likes of Italy’s Eni, Norway’s Statoil, and state companies from Russia and China, with seven deepwater exploration wells planned by 2012’s end. Repsol circumvented the 10% limit on US technology set down under the US-Cuba embargo by purchasing an Italian made semi-submersible rig, which was built in China. The rig is en route to Cuba from Singapore and should be in place by mid December. The prospect of a Cuban offshore oil industry springing up 50 miles off the Florida coast has prompted an unusual alliance between US oil and infrastructure companies and US environmentalists, who argue that the US government should licence local firms to do business and transfer know-how and technology to their Cuban counterparts. The Cubans have already expressed an interest in US clean-up expertise in the wake of the US Gulf Coast oil spill in 2010.

  Ecuador: On 19 September a New York federal appeals court removed a preliminary injunction on Ecuadorean plaintiffs pursuing the assets of the US oil firm Chevron outside of Ecuador. The ruling does not mark an end to this complex litigation battle, but it is a setback for Chevron in its efforts to prevent Ecuadorean plaintiffs, who are suing the company for environmental damages in Ecuador, from attacking its assets outside of Ecuador. Chevron no longer has assets in Ecuador. On 9 February 2011 an Ecuadorean judge ordered Chevron to pay US$18.2bn in clean up costs for environmental damages in the Amazon region, where Texaco, purchased in 2001 by Chevron, used to operate. Chevron is in the process of appealing against this ruling in Ecuador. Chevron has long argued that the judgement in Ecuador has been based on fraudulent evidence and the manipulation of the local judiciary.

  On 26 September eight oil companies tendered for licences to operate five marginal oilfields in Amazonia. The companies will have to invest US$180m over the next three years to increase output by a total of 10,000 bpd. The companies will pay a royalty on each barrel produced, and the government hopes that the tender will produce US$750m revenues.

  There is only competition for two fields. Three companies (Petrobell, Consorcio Okeme and Gozhanty-Consorcio Montecz) bid for the Armadillo field, which is close to the Yasuní national park; and two, Petroriva and Consorcio Interpec bid for Ocano-Peña Blanc. Otherwise there were only single bidders for the other three fields:  Consorcio DGC Dygoil for Singue; Consorcio Río Verde  for Chanangue; and Consorcio Marañón for Eno-Ron.

  Armadillo was in production from 1995 to 1999, but was plugged when the price of oil collapsed.

  Ecuador defines marginal oilfields as those where production is less than 5,000bpd or below 1% of national output.

  • Petrobras, the Brazilian state oil company is suing Ecuador for compensation after Petrobas refused to accept the Ecuadorean government’s new terms in 2010. Petrobras wants US$300m but the Ecuadorean government is offering between US$180m and US$200m.

• PEMEX: What is Pemex up to with Repsol?

  LatinNews 04 October 2011 Hits: 6167

  Petróleos Mexicanos, the state oil monopoly, argues that its alliance with a Spanish construction company, Sacyr-Vallehermoso (Sacyr ) to vote as a bloc as shareholders in Repsol-YPF, a large Spanish-Argentine oil company, is part of its strategy to diversify and gain access to modern technology.

  Pemex has recently increased its shareholding in Repsol from 4.8% to 9.8% but more importantly it has decided to ally itself with a Spanish construction company, Sacyr, which holds 20% of Repsol. Sacyr’s apparent strategy is to force Repsol to spend less on capital investment and more on dividends to shareholders.

  Another possibility is that Sacyr, which is heavily indebted, and Pemex have announced their stake-building in order to trigger a takeover bid for Repsol. Although both Sacyr and Pemex have been long-term investors in Repsol, they would probably happily sell-out now for a quick buck. Pemex might even be prepared to take bits of Repsol if the company was carved up by an asset-stripper.

  Pemex officials believe that Repsol’s experience in seismic interpretation can help it develop the geologically complicated Chicontepec oilfield and might also be useful in deep water exploration in the Gulf of Mexico. According to a Pemex strategy document (Contexto del Aumento de Participación de Pemex en Repsol) leaked to the Mexican press, Pemex also sees Repsol as a preferred partner in the new risk-sharing subcontracting contracts known as Contratos Integrales. The first of these were awarded last month and though Repsol bid, it was unsuccessful (see MNR-11-09).

  Pemex spent US$1.6bn on increasing its stake in Repsol at the beginning of September. Such expenditure has led to questions in Mexico’s congress about Pemex’s strategy. Pemex argues that buying 10% of any other similarly sized international oil company could have cost between US$10bn and US$30bn.

  Pemex’s move in Repsol has also alarmed the Argentine government which holds a golden share in Repsol’s main Latin American operation which is based around Argentina’s former state oil company Yacimientos Petrolíferos Fiscales (YPF) which was taken over by Repsol. When the Argentine government allowed Repsol control of YPF in 2009 it expected Repsol to increase investment in Argentina. The Argentine government is now concerned that Pemex’s move will prompt Repsol to move resources from Argentina to Mexico.  The unexpected and rushed deal has also sparked controversy in Spain and Mexico.

  On 29 August Pemex, which held a 4.81% stake in Repsol, announced an agreement with Repsol’s majority stakeholder, the Spanish construction company Sacyr, whereby Pemex would purchase an additional 5% stake in Repsol. Sacyr owns 20.01% of Repsol. The deal makes Sacyr-Pemex the largest stakeholder in Repsol, with 29.8%, giving it increased influence over the company board.

  The pact was designed to fall just below the share ownership cap of 30%. Any stake above that would have forced Sacyr-Pemex to make a public share purchase offer under Spanish law. Pemex bought the Repsol shares on 2 September.

  Repsol owns 57.43% of YPF. The second largest stakeholder is the Petersen Group (owned by the Eskenazi family,) with 25.4%. The Argentine government, which has a representative on YPF’s board (Roberto Baretta) and retains a veto right, reacted to pemex’s move by issuing a formal letter asking the parties involved to notify it whether “the change in share ownership is to have an impact or produce changes in YPF’s investment and exploration plans, or any other changes”.

  Sacyr and Pemex say that Repsol, the 15th largest oil company in the world, is currently undervalued in financial markets, partly due to its organizational structure and development strategy. Antonio Brufau, Repsol’s CEO since 2004, has a reputation for investing heavily.

  Chile rationalises: On 23 August Sigdo Koppers (SK), a Chilean company, announced that following the previous day’s sale of its white goods operation, Compañía Tecno Industrial (CTI) to Electrolux, it had purchased Magotteaux, a Belgian heavy industrial machinery manufacturer.  SK’s move to sharpen its strategic focus comes at a fascinating time, and is big bet on the commodity boom continuing. Magotteaux’s business is selling mining machinery; CTI’s was selling white goods to consumers in Chile.

  SK’s decision to sell its profitable home appliances manufacturing business (which also has a presence in neighbouring Argentina) to the Swedish outfit AB Electrolux for US$625m, to purchase Magotteaux (which specializes in the production of grinding and casting materials) for US$680m, is a bold move.

  SK has explained that the purchase answers to its strategy of focusing on its “successful mining and industrial business by increasing its international presence and becoming a global leader in the provision of products and services for the mining and industrial businesses”.

  Magotteaux has 12 production plants in 10 different countries and commercial operations in 24 states. Instead of looking to consolidate itself in its domestic and regional market, where it held a strong position, SK has opted for internationalization in a high-end niche market.

• DEBT: IDB calm about Mexico’s state debts

  LatinNews 04 October 2011 Hits: 2406

  DEBT: IDB calm about Mexico’s state debts

  The furore triggered by the revelation the state government of Coahuila had been concealing its borrowings from the state congress should start to die down. The InterAmerican Development Bank (IDB), recently published a study that concluded that although state debts in Mexico have increased in the past decade, they do not represent a systemic risk.

  Coahuila has been punished by having its credit rating chopped down to a just investment-grade BBB-, from A+.

  The IDB study found that state and municipal debt in Mexico was equivalent to just 2.4% of GDP compared with 13% in Brazil and 19% in the US. The IDB did note that states like Coahuila, which had resorted to short-term borrowing, needed to reinforce their finances. Coahuila increased its net debt almost 3,000% between 2006 and 2010. The neighbouring state of Tamaulipas (like Coahuila, controlled by the Partido Revolucionario Institucional which expects to regain the presidency in 2012) increased its debt by 2,000% in the same period. The other big borrowers are Chiapas, a poor southern state, Quintana Roo (whose only real asset is the resort of Cancún); Nuevo León, a major industrial state in the north, and Veracruz, the country’s third most populous state.

  In the 2012 budget, the federal government has inserted a requirement that sate governments report on their rate of borrowing and debt to the state congress every quarter. The federal government is also unhappy about state governments using pledges of federal money as security for borrowings.  It wants to limit the use of federal money to debts taken out with local lenders and to exclude credit from international lenders.

  Mexican states’ borrowings

  % increase between 2006 and 2010

  Coahuila          1,868

  Tamaulipas      1,186

  Chiapas           834

  Nayarit            465

  Quintana Roo 434

  Source : Reforma