Fuel Swaps Chug Ahead
Repsol-YPF, the Spanish-owned multinational oil company, plans to link up with Brazil’s national oil company Petrobras in an asset swap estimated at about $750 million. If the deal goes ahead, it would allow Repsol-YPF to meet Argentine government divestment targets previously agreed upon following its 1999 acquisition of YPF, the state’s privatized oil company. The government said Repsol-YPF must shed 11% of its refining and marketing businesses in Argentina. The deal would allow Petrobras, which wants to expand internationally, to acquire properties in Argentina’s highly competitive retail market.

Argentina, Latin America’s second largest economy, is self sufficient in oil and is also a potentially large gas exporter to Brazil.

We reported last April (Storming the Castle) on Petrobras’s foreign ventures following completion of the 3,000km Bolivia-to-Brazil (BTB) pipeline, and in July we followed up on Repsol’s YPF acquisition with a report on the aftermath of that transaction. Both stories pointed out the inevitable industry integration, especially in the Southern Cone, that these transactions represented.

Talks between YPF and Petrobras began before the Repsol acquisition, but had made little progress. Last October, with Repsol in control of YPF, the presidents of both companies signed a letter of intent to deepen their ties.

The Argentine connection may grow in importance as Brazil goes ahead with plans to increase natural gas consumption in industry, power generation and as a less-polluting fuel for autos and buses. YPF pioneered natural gas as an auto fuel in Argentina. Cross-border energy ties are growing. British Gas International, manages and controls gas distribution companies in São Paulo and Buenos Aires. It has a stake in the BTB pipeline and plans to link its gas fields in Argentina and Bolivia with the huge Brazilian market.

Slow Futures Turnover
In December, the São Paulo futures and commodities market opened its doors to foreign traders to help boost liquidity in its agricultural contracts, which lag turnover in financial instruments by a wide margin. While officials at the Bolsa de Mercadorias&Futuros (BM&F) never claimed São Paulo would rival the world’s great futures markets in Chicago and New York, they did hope that trading in tropical commodities, particularly coffee, would begin migrating to São Paulo.

They also planned to set up contracts in soybeans, cotton and orange juice that would eventually make the BM&F Latin America’s dominant commodity exchange.

In the December/January issue of BM&F, (Power Swaps) we commented that the BM&F would face considerable difficulties in attracting much liquidity away from the dominant US markets.

Although these are early days, the BM&F reports little increase in turnover in the key coffee contract. Turnover is flat with just over 1,000 contracts traded daily. Non-resident traders account for about 5% of this volume. But BM&F officials say this is because internationalization process is still in its initial phase. They add that they are having to comply with a time-consuming registration process required by the government to differentiate between investors based in offshore tax havens and those based in conventional financial centers. They still expect activity to increase rapidly once the registration process is complete.

Under previous regulations, foreign traders had to operate through local brokers in a cumbersome process that exposed them to Brazil risk as well as risk in their specific commodity markets. Under regulations approved last October, the government has allowed the BM&F to set up an offshore clearing house that enables investors to take positions in local markets without exposure to country risk.

Futures trading is not subject to a 0.38% tax on financial transactions that has crippled the equity markets.

Bolivia Unloads Oil and Tin Interests, Finally
The Bolivian government finally sold two state-owned oil refineries, Santa Cruz and Cochabamba, and the Vinto tin smelter in December after years of trying. The government ignored protests from labor unions and environmentalists who said the privatization of the Vinto tin smelter would cost jobs and worsen pollution.

London-based Allied Deals, a metals trader, placed the winning $28.7 million bid for Vinto, which includes a joint venture in the Huanani tin mine with Bolivian state mining company, Comibol. Under the contract, to be signed in February, Allied is to pay $14.75 million for the tin complex, with the balance funding a five-year mining plan for the Huanuni mine.

In the July/August issue (Shrinking Markets), we wrote about Bolivia’s lengthy efforts to sell state-owned assets under the country’s unusual privatization program, which is known as capitalization in Bolivia. The program allows buyers to acquire a 50% stake in a company and gain management control in exchange for investment commitments. The other 50% of the company’s shares are transferred to the Bolivian people through private pension funds managed by international trustees.

Allied’s bid beat the only other offer, a joint bid of $21 million by the UK’s Commonwealth Development Corp and Bolivia’s Comsur. In June, the government had said it hoped to raise $35 million from the Vinto sale, and that a total of eight companies had expressed interest in the asset. The bid due date was postponed twice last year. Bolivia has also sold two of its largest refineries in a single package for $102 million to a consortium of Brazil’s national oil company Petrobras and Perez Companc, Argentina’s leading private oil and gas company. Petrobras will operate and control 70% of the facilities.