On 16 April 2012, Argentina’s President, Cristina Fernandez de Kirchner, presented a draft Bill to Congress setting out the Government’s intention to nationalise Repsol’s stake in Argentinian oil major YPF.  Spanish oil major Repsol formerly held a 57.4% stake in privatised YPF and will be left with 6.4% as Argentina acquires a controlling interest of 51%.  Since Kirchner’s party controls Congress the Bill looks set to be approved imminently.  And, in the meantime, the Government has passed a decree to take over immediate management of YPF.

This nationalisation would be the largest in the natural resources industry since Yukos was taken over in Russia.  YPF produces a third of Argentina’s oil and almost a quarter of its natural gas and  Repsol has stated that it will seek damages of up to US$10bn.

This note looks at foreign investment protection in Argentina and the avenues of recourse that may be available to Repsol. It considers the bilateral investment treaty (BIT) in place between Spain and Argentina and some of the hurdles that Repsol (or a company in the position of Repsol) would need to overcome.  It also considers possible remedies under WTO law.  Finally, we consider the changing landscape in Argentina and the implications for investors in the region.


Fernandez’s stated intention is to protect and recover sovereignty over Argentina’s “vital resource”.  However, the Government’s actions have led Repsol to allege that their investment has been expropriated (a word used in the text of the Bill itself). 

Moreover, in its initial statements Repsol has alleged that the Government’s protectionist policies over the last two years have effectively amounted to a campaign of harassment to push down the value of Repsol’s shares.  Argentina’s policies have included fixing energy prices, which many consider to have led to poor fuel production and resulted in a fall of gas reserves.  Possible nationalisation of YPF was reported in January this year, allegedly for failure to invest enough in exploration and production of oil and gas. In the following months, the government maintained pressure on YPF citing, amongst other things, an increasing fuel import bill due to insufficient domestic production (whereas Argentina had reached self-sufficiency in the 1990’s). Revocation of production incentives as well as concessions in several provinces followed.  

What legal recourse might Repsol have?

The crucial innovation brought about by BITs, is the direct recourse that investors have against host States for infringements of their rights.  The Spain/Argentina BIT of 3 October 1999 provides Repsol with the option of formulating a claim against Argentina. Indeed, it appears that Repsol has confirmed its intention to bring such a claim.  It will be subject to jurisdictional hurdles, for example, that Repsol will need to be classed as an investor, with a valid investment. Repsol is a company incorporated in Spain, the contracting State party to the BIT.  As for the definition of “investment”, the treaty includes “rights under law or contract to realise economic and commercial activities, particularly in relation to the exploration, cultivation, extraction or exploitation of natural resources”.

As for Repsol’s potential claims under the treaty, it will undoubtedly wish to bring a claim for expropriation based on Monday’s announcement.  The BIT’s expropriation provision is not unusual: in essence it stipulates that expropriation must be (1) for a public purpose; (2) according to law; (3) non-discriminatory and (4) accompanied by adequate and timely compensation.   According to press reports, Argentina’s deputy economy Minister Axel Kicillof, who has taken charge of YPF, told senators that the government would not be meeting Repsol’s full demand for compensation.  If compensation is provided, any tribunal constituted will need to rule on whether it is adequate for the purposes of the treaty, taking into account the loss in value of Repsol’s shares. 

Repsol may also consider a claim of indirect expropriation and breach of the fair and equitable treatment standard for the measures leading up to the announcement itself. 

Bringing a treaty claim

Under the BIT there are several avenues available to bring a dispute.  Disputes between a State and an investor of another contracting State (under Article 10 of the BIT) can be resolved by arbitration either under the Rules of ICSID (the International Centre for the Settlement of Investment Disputes) or ad hoc under the UNCITRAL rules.

However, the procedure contemplates a 6 month ‘cooling off’ period for the parties to negotiate.  Failing settlement during this timeframe, the dispute must be submitted to the Argentine courts for a period of 18 months.  Only at the end of this period can Repsol bring arbitral proceedings.  It will remain to be seen whether Repsol will be held to these time periods.  In many cases investors have found ways to circumvent them, either by arguing that they were not intended to be complied with strictly (eg. in BG v Argentina in which BG argued (albeit unsuccessfully) that it would not obtain a fair hearing in the local courts) or by using a ‘Most Favoured Nation’ (MFN) provision in a treaty to import more favourable provisions regarding dispute resolution from treaties that Argentina has entered into with third States.  Argentina has such an MFN provision and has numerous BITS with third parties that do not incorporate the 18 month local remedies prerequisite.

In the wake of Argentina’s announcement, the Spanish Government has been quick to indicate its support for Repsol.  In the words of the Secretary General of the Partido Popular (the governing Spanish party): “The government has to decide on its response, but I don’t have the slightest doubt that it will be the most appropriate response to defend national interests and Spanish interests and a sufficient and complete response to defend the interest of Spanish companies in Argentina”.  It is possible that this support could incorporate legal means.  In theory, although perhaps unlikely, Spain could bring a claim against Argentina under the BIT (Article 9) in relation to the interpretation or application of the treaty.  Alternatively, it could bring a claim against Argentina on Repsol’s behalf pursuant to traditional diplomatic protection principles (which preceded the existence of bilateral treaty protection).  One would assume at this stage that it might leave Repsol to pursue its Article 10 claim.

Possible claims under EU law

It seems that the EU is also considering options to support Repsol. The EU (rather than individual Member States) has exclusive competence to handle matters of international trade. The EU will likely explore whether Argentina’s actions result in a violation of WTO law (which certainly seems possible). Furthermore, the EU is likely to put pressure on Argentina in the context of the EU’s negotiations with Mercosur (the trade block of which Argentina is a member) on a free trade agreement that would go beyond the WTO and would also provide investment protection.

Where next for Repsol?

An additional form of protection that Repsol will no doubt wish to consider is insuring the risk it took when entering into its investment.  If it did not take out political risk insurance to cover the risk that the investment would be adversely effected by hostile government action (normally a specific trigger event such as nationalisation/expropriation), it may still be able to access ATE (After the Event) insurance, although clearly at a higher price. 

However Repsol chooses to proceed in the coming weeks and months, it will no doubt be considering its endgame.  Argentina has consistently refused to satisfy the many awards made against it in recent years.  These claims were brought in the wake of its financial crisis in the 1990’s when contracts were converted into pesos, hugely devaluing many investments.  Whilst Argentina has argued that the claimants have not pursued the proper recourse before the Argentine courts, this defence against payment has been widely discredited.  Its intransigence in this regard has even led President Obama to complain directly to President Fernandez on behalf of US investors to whom money remain outstanding and, on 26 March 2012, to suspend Argentina from the Generalised System of Preferences (a US trade incentive program) thereby placing Argentina in the company of Syria, Belarus and Sudan.

Repercussions for investors in Argentina

Monday’s announcement will no doubt prove decisive for investors in Argentina from around the world.  Despite Argentina’s poor record of payment under its awards, it has, unlike several other Latin American countries, remained part of the international regime.   Bolivia, Ecuador and Venezuela have all denounced the ICSID Convention after having pursued nationalist policies – although recurring legislative steps to reconsider its membership of ICSID have resurfaced recently. Since Cristina Fernandez is showing signs of similar radical behaviour, foreign investors would be wise to protect themselves going forward.