Resource Nationalism Strikes Again

Resource nationalism is alive and well, as two developments on opposite sides of the world this week have shown. In one, Argentina’s increasingly maverick president, Cristina Fernández, announced on TV that Argentina is to renationalize YPF, its biggest oil company, ousting the Spanish group Repsol as majority shareholder.

Seize Him!

The seizure of YPF would be the biggest renationalization in the natural resources industry since the Russian government took control of Yukos in the early 2000s. The 51 percent share of YPF has a market value of around $5 billion, according to an article in the Financial Times.

Argentina rationalized the move by saying YPF had been failing to invest in the oil sector, forcing the government to pay more than $9 billion to import fuel last year, but the article quoted industry sources that said the real culprit for Argentina’s loss of energy self-sufficiency and ballooning imports bill was the government’s failed energy policy, which set domestic prices at well below international levels.

This is a problem faced in many developing countries where populist governments lack the power or political will to allow fuel bills to rise to globally sustainable levels and yet are incapable of financing the subsidy that is required if the oil industry is to continue to operate.

A Wrench in the Indonesian Mining Landscape

On the other side of the world, Indonesia, in a move said to be intended to boost revenues from mining and resource extraction, has announced a range of regulations and proposals taking the industry by surprise.

According to an article in Reuters, the most recent is a plan to impose a 25-percent export tax on coal and base metals this year, which would double in 2013. Potentially more worrying to miners is a regulation, signed by President Susilo Bambang Yudhoyono in February, which would limit foreign ownership of mines and require them to sell stakes to Indonesian firms or the government within the first decade of output.

Miners say they need between 10 and 20 years of revenues from mines to justify the initial investment, so the president’s move could undermine the whole economic investment across the Indonesian mining landscape. “It is the same as what we have already seen in Brazil, Canada and South Africa,” Syahrir Abubakar, executive director of the Indonesian Mining Association (IMA) is quoted as saying to Reuters.

The proposals are said to include a plan to ban exports of some unprocessed metals from 2014, despite a move that cannot realistically be implemented without a sharp drop in export revenues as the domestic industry lacks the necessary smelter and processing capacity.

Questions remain over which of these proposals and pieces of legislation will actually be implemented; many are seen to be contradictory and all will cause foreign investors to have second thoughts about investing in the Indonesian resources sector, a source of massive inward investment in recent years.

But as we wrote just a few months ago, resource nationalism will increasingly be a significant challenge both for Western miners and for the wider supply market, as some countries become less attractive destinations for inward investment.