Argentina fining oil firms for fuel shortages

http://www.reuters.com/article/compa...pageNumber=1&virtualBrandChannel=0

This has got to be one of the finer examples of populist idiocy out there. If Argentina doesn't collapse like a souffle in the next year it'll be a small miracle.

Quoting MaverickM11 (Thread starter): This has got to be one of the finer examples of populist idiocy out there. If Argentina doesn't collapse like a souffle in the next year it'll be a small miracle.

Considering that fuel is produced here except for Diesel, how could there be shortage? There is not, it's better to export those barrels. There's the law, and needs to be followed - or else, take the heat  

Gaston - The MD11junkie

Quoting MD11junkie (Reply 1): There's the law, and needs to be followed - or else, take the heat

Right, but what happens when you keep prices artificially low? You have shortages (see Venezuela, Zimbabwe, Cuba, etc). This is Economics 101.

Certainly the K government is living in la-la-landia. They are simply morons. I'm am not opposed to occasional intervention by government, but this micromanagement gives away the small IQ of those in the current administration.

I don't think there will be any economic collapse. There are very strong backwinds including high commodity prices, more diversified industry, auto sales strong, and value added products like wine, clothing, leather, software, and specialty services booming (simply look at the amount of tv ads, scripts, and other non-traditional industries booming). Tourism is very strong because of the Euro and the increased popularity of the country. Retail sales are fine.

But on the energy side we are short term toast and will hurt GDP.

Quoting MaverickM11 (Reply 2): Right, but what happens when you keep prices artificially low? You have shortages (see Venezuela, Zimbabwe, Cuba, etc). This is Economics 101.

Why should there be a shortage? There's enough fuel to produce this country's requirements. They are artificially low, because the companies agreed to do it. They are getting tax concessions AND permission to export. So, this is a kind of a problem that is CAUSED by the companies to pressure the government. What they'll get? Export bans.

Both sides are idiotic. The Government for not lowering taxes (for those who not know, 85% of Argentine gas prices are tax) and the companies for trying to get every damned penny out of the consumers (and there's PLENTY of examples).
Mainly, when in the late 90s the barrel went from 12 bucks back into the 10s - the price here didn't drop. They go up, but don't come down. It's just Argentine corporate thinking.

Quoting MD11junkie (Reply 3): Mainly, when in the late 90s the barrel went from 12 bucks back into the 10s - the price here didn't drop. They go up, but don't come down. It's just Argentine corporate thinking.

I agree that for some reason market forces never work on the downside here, even with foreign oil firms. When prices go up, they do go up, but never go down. It is not just a local cultural problem, why didn't the foreigners also do that?

But the answer is not this nano-management of things. El que abarca mucho aprieta poco.

Ah, its refreshing to see Argentine government maintaisn the same basic total ignorance about basic Economics as of old.

Quoting MD11junkie (Reply 3): They are artificially low, because the companies agreed to do it.

Their choice is to pony up or walk away from their assets. It's the same "choice" that Chavez offers to companies.

Quoting MD11junkie (Reply 3): (for those who not know, 85% of Argentine gas prices are tax)

How is that possible when they're not even paying the full price of the fuel?

Quoting MaverickM11 (Reply 7): Their choice is to pony up or walk away from their assets. It's the same "choice" that Chavez offers to companies.

Well, not really - the Government doesn't really push the company into not doing it as there will be no other operator taking over. Shell was the only one not to agree at first, and they lost almost 60% of their sales because of that (price difference of 40%+), without even counting their losses for not being able to export.

Also, remember that the gas and oil fields in Argentina (most of them) are "operated", NOT owned by fuel companies.

Quoting MaverickM11 (Reply 7): How is that possible when they're not even paying the full price of the fuel?

It's easy. There's a basic price per liter. Argentine domestic market trades the barrel at 45 dollars. That's the full price. The barrels are sold at international market prices when exporting. Every liters has calculated its cost of production + VAT (or Sales Tax: 21%). You then have to add taxes to fuel transportation (2%), taxes for infraestructure maintenance (60%), and others (which I don't remember their amounts).

Quoting MaverickM11 (Reply 2): Right, but what happens when you keep prices artificially low? You have shortages (see Venezuela, Zimbabwe, Cuba, etc). This is Economics 101.

God didn't anybody learn anything from the Nixon administration.

Quoting MaverickM11 (Thread starter): If Argentina doesn't collapse like a souffle in the next year it'll be a small miracle.

That's the story of Argentina for you. Booms and Collapse. Lately however, the booms have become less impressive and the collapses pretty spectacular.

Quoting MD11junkie (Reply 1): Considering that fuel is produced here except for Diesel, how could there be shortage?

How about refining capacity diminishing because there is not enough incentive for companies for maintenance? More exports? Whichever way you look at it, price caps always bring scarcity and introduce high volatility in the price system.

Quoting Derico (Reply 4): I don't think there will be any economic collapse.

There will be. The Argentine economy is overheated. Inflation is at 30% and the Ks have introduced too many economic rigidities in the past 4 years. How soon? I don't know, but if Her Highness doesn't start some changes now, I see another collapse looming.

Quoting AR385 (Reply 10): There will be. The Argentine economy is overheated. Inflation is at 30% and the Ks have introduced too many economic rigidities in the past 4 years. How soon? I don't know, but if Her Highness doesn't start some changes now, I see another collapse looming.

So basically, Argentina will collapse all on it's own... and the rest of Latin America even Paraguay and Uruguay will just keep going.

I don't think so. And again it has nothing to do with the government's policies preventing such, it's just that the currency now is free floating, for one, it is not the same situation as 2001.

I mentioned some of the reasons why. Please do not ignore my entire post.

Quoting Derico (Reply 11): Please do not ignore my entire post.

I did not ignore your post. I disagreed with it and I posted the reasons why. What you describe in your post is an overheated economy. Tourism, while significant, depends on the global economy. As the slow down continues, it will too be affected. Most commodity prices are set globally. When their price bubble bursts, the Argentine economy will be affected.

Quoting Derico (Reply 11): So basically, Argentina will collapse all on it's own... and the rest of Latin America even Paraguay and Uruguay will just keep going.

I have no idea about what's going on in Uruguay or Paraguay. If you do, I'd love to be enlightened.

[Edited 2008-03-13 22:23:05]

[Edited 2008-03-13 22:29:05]

Quoting AR385 (Reply 12): have no idea about what's going on in Uruguay or Paraguay. If you do, I'd love to be enlightened.

What I mean is that the 'global' economic conditions you describe would adversely affect Argentina, would also affect those countries, and Brazil, Mexico, etc. It is impossible to think that they wouldn't.

The economy is overheated, and it might eventually have a real hard landing, I just don't see the type of situation as eight years ago. It is just a different scenario. Back then unemployment was 18%, debt was spiraling, the currency was a a hard pegged with a US$ that was overvalued, etc. The economy now has more elasticity macroeconomically. That has nothing to do with the 'rigidity' you rightly ascribe that the K's have placed on some sectors of industry, particularly agriculture.

Quoting Derico (Reply 13): What I mean is that the 'global' economic conditions you describe would adversely affect Argentina, would also affect those countries, and Brazil, Mexico

Yes. They would. The Mexican Economy has been stagnant for the past 20 years. No real growth. You can see that in the numbers of immigrants we keep sending to the US year after year. For the past two years, we've gotten by thanks to the crazy oil prices. When they come down, we'll be in trouble.

Quoting Derico (Reply 13): The economy is overheated, and it might eventually have a real hard landing, I just don't see the type of situation as eight years ago. It is just a different scenario. Back then unemployment was 18%, debt was spiraling, the currency was a a hard pegged with a US$ that was overvalued, etc. The economy now has more elasticity macroeconomically.

The situation is very different from 8 years ago. True. Still, I believe the rigidities are more pervasive and global. Her Highness needs to re-reform the economy, get rid of all the government intervention her husband introduced. Of course, I'm not implying she should repeat Mendez's indiscriminate and socially irresponsible macroeconomic leg-spreading. We might have to agree to disagree. If she does something now, it would be a hard landing, not a collapse. If she doesn't, we'll see another collapse and more Argentine hardship.

I should know about it. My mother is from Mendoza, and all my maternal family lives there. I've seen their progress/suffering through every boom/collapse of the Argentine economy since I was born.

[Edited 2008-03-13 23:15:42]

[Edited 2008-03-13 23:18:15]

Quoting AR385 (Reply 14): I should know about it. My mother is from Mendoza, and all my maternal family lives there. I've seen there progress/suffer through ever boom-collapse of the Argentine economy since I was born.

Sure it's a boom and bust economy. I don't think you will see reform from this government. Ironically, you have seen it in the provincial level. For example, the economies of northwestern provinces, which used to be very poor (still are relative to the middle and south), have seen good advances and now their GDP participation is up, partly because they have enacted good pro-growth and investment strategies.

The same for provinces in Patagonia. San Juan Province has opened to mining and is doing quite well. And since you spoke of Mendoza, you probably know it has always been more business friendly, and the institutions of Mendoza are well known nationally and internationally as actually quite responsible and less corrupt. Which is why generally Mendoza outpeforms the rest of the country, as it has for the last 15 years.

So it does somewhat depend by region. Greater Buenos Aires is where the biggest problems are, because that is where the bulk of the old 'union' guard (CGT, etc), has it's center of power. And they are as retrograde as ever.

Quoting Derico (Reply 15): Mendoza outpeforms the rest of the country, as it has for the last 15 years.

True. Mendoza is a progressive, forward looking economy. I love their no-nonsense, business approach to issues. They have to be one of the most business friendly regions in LatinAmerica. And I love their Malbec.

The question is: Does there exist a real market for petroleum products in Argentina or is it a cozy cartell of several companies agreeing on the prices to fleece the public while not competing with each other?
We have a similar problem here in Germany with our four big natural gas, LPG and electricity providers. Those four companies (which became big after a f*cked up privatisation in the 1990s) each control a region in Germany. No company trespasses in the region of another company, so e.g. where I live I have to accept the monopoly prices of the RWE.
These companies, result of the failed privatisation, which basically replaced a state monopoly, over which the parliament had control with a private monopoly, own both the means of production and distribution of energy (both built years ago from tax money) and are putting obstacles into the way of any possible competitor.
It goes so far that the inflated energy prices in Germany have become an obstacle to economic growth (factories relocating out of Germany due to high energy prices, esp. electricity). The energy companies also have been caught manipulating the energy bourse in Leibzig, artificially creating shortages to increase energy prices by shutting down power stations. At the same time, not enough money was put into maintenance of the existing networks, as could be seen two years ago when a whole region was cut off from electric power for two weeks in winter, when ice collapsed obsolete high volatge masts (stemming from the 1950s, made of a steel, which becomes brittle with age and cold), or the multi-country black out we had in northwest Europe affter a ship snagged a high voltage wire over the river Ems. Normally other wires should have easily taken over, they should have been dimensioned to take the additional current, but the electricity company in question was running the wires to their full capacity, without reserves.

Both the German anti-trust department and, even more, the EU anti-trust department, are pushing towards splitting the distribution networks from the generating plants into independent companies to allow more competition, which the energy companies see as "disowning".

Jan

Quoting MD11junkie (Reply 1): Considering that fuel is produced here except for Diesel, how could there be shortage?

Because prices for commodities are set at a global level. The actual price point is where global demand intersects global supply. However, when the government institutes an artificial price cap, the market will only supply at a lower level.

Quoting MD11Engineer (Reply 17): The question is: Does there exist a real market for petroleum products in Argentina or is it a cozy cartell of several companies agreeing on the prices to fleece the public while not competing with each other?

The real market is there, but it is unfortunately true (I say this because I believe in free markets), that oil companies did seem to collude in making gasoline very expensive in the 1990s. Remember back then 1 dollar = 0.98 pesos, so that in real terms companies made massive profits in the country because there was no exchange rate risk or loss. Yet prices were sky high (higher than in many parts of Europe). The government taxes of course are the other big issue.

Now prices are too low in real terms. But people don't have a lot of symphathy for big oil because of the 90s.

There is excessive gasoline usage in the country because it is somewhat too cheap. In Argentina there is more than one car per family (3.8 cars per person). Compare that with 8 to 1 in Mexico and 10 to 1 in Brazil. And some of these are older cars people hold on too to give to their kids or something, and their gas efficiency is atrocious. Plus the average argentine car is more towards the sedan and not the mini car like in neighboring countries, so the cars are a little bit bigger.

Finally, Argentina does have a winter, so we use up more oil then. Prices HAVE been inching up, but the barrel of oil has skyrocketed at the same time, so that is the issue.

The economy is doing well overall but the energy situation is certainly threat #1.