INTERNATIONAL ARBITRATION 1/3LY
SPECIAL REPORT 11
ARGENT INA RETURNS TO THE INTERNAT IONAL FOLD Like Brazil, Argentina sits on huge, undeveloped energy reserves. The enormous Vaca Muerta shale gas fields in the south of the country have attracted great interest among international firms, but so far only a hardy few – including Chevron and Total – have dared to enter the market. The interventionist policies of former president Cristina Fernandez de Kirchner, and her predecessor and husband, Nestor Kirchner, scared many investors away with their rigid capital controls that prevented firms from repatriating profits, subsidies that distorted markets and policy interventions. Fernandez de Kirchner was unseated in late 2015 by business-friendly president Mauricio Macri, who is sweeping away decades of protectionist policies to open Argentina up for business. “Macri’s government is regaining lost credibility with global finance after years of open hostility under Kirchner,” Lewandowski says, pointing to Argentina’s record USD 16.5 billion bond sale in April. MEX I CO L IBERAL I SES I T S OIL AND GA S SECTOR In Mexico, too, the oil and gas sector is opening up as never before. Faced with a more than decade-long decline in its oil production, from3.4million barrels per day in 2004 to under 2.2million barrels per day today, President Pena Nieto has a strong mandate for reform. Energy is the mainstay of Mexico’s economy, accounting for 40 per cent of government revenue in 2014. Last year, a sweeping package of reforms dismantled the monopolies of the state-owned oil company Pemex and its counterpart in the power sector, CFE. A series of bidding rounds for oil and gas exploration and production contracts has been underway since July last year, in which foreign companies have been invited to take part. The first round of auctions will culminate in December with a sale of coveted deepwater blocks that is attracting the world’s major oil and gas firms. Along with the upstreammarket opening up, foreign companies will be able to enter Mexico’s fuel retail market, to import petrol and diesel and to open service stations.
Despite widespread fears about the state of Venezuela’s economy and the country’s possible default on its debt commitments, Beijing remains steadfast in its willingness to lend to the country. It has become one of China’s most important oil suppliers and resales of Venezuelan oil generate a healthy revenue stream. Brazil and Argentina are expected to be the biggest recipients of Chinese funding from2016. Argentina has ousted a longstanding nationalist and protectionist regime, clearing the way for an increase in foreign direct investment, and Brazil hopes to get back on track after a series of corruption scandals and the impeachment of former president Dilma Rousseff. “I believe that foreign direct investment and international lending will be unlocked in relation to both Argentina and Brazil following promises by both new regimes to implement drastic structural and policy changes,” says Ricardo Lewandowski, partner at Clyde & Co’s London and Miami offices. Rousseff’s removal may lead to an uptick of foreign direct investment in the oil and gas industry. The country is home to vast offshore oil and gas reserves located deep below the sea bed, in the so-called sub-salt layer. Until now, only the state-controlled national oil company, Petrobras, has been able to operate the sub-salt fields, with a minimum30 per cent stake in all exploration and production projects. Petrobras’ so-called ‘sole-operator provision’ is being debated in congress and could be repealed this year, opening up some of the world’s biggest and most challenging hydrocarbons reserves to foreign oil companies for the first time. Given the current state of the oil and gas industry and the small margins that are being generated by oil majors and others, it is not certain that foreign investment will flood in. China may yet again be Brazil’s saviour. Foreign investment may also be boosted as a result of a 2015 reform to Brazil’s Arbitration Act, which enables public entities to resolve disputes by way of arbitration, provided the dispute involves “disposable economic rights” and that the procedure is not confidential. “The amendment finally ended a debate in which arbitration involving public entities was not authorised unless provided for specifically by law. Investors and public entities now have the legal certainty that an arbitration agreement will be binding,” Lewandowski says.
VENEZUEL A HA S BECOME ONE OF CHINA’ S MOS T IMPORTANT OIL SUPPL IERS .
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