Import restrictions cause equipment backlog

Wednesday, May 30, 2012

Equipment for Argentina's oil and gas industry is being delayed at the border for up to 90 days on increased import restrictions, energy and mining services company Estrella (TSX-V: EEN) CEO Warren Levy told BNamericas.

"We're seeing backlogs in the port of 60-90 days to import equipment, where before it might have been a week," Levy said. Firms must pay storage costs for equipment held during that time as well as increased import duties.

Delays are down to tightened import controls introduced by the Cristina Fernández administration with the aim of boosting local manufacture, but the infrastructure is not yet in place to meet demand.

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"There are no rigs or fracturing equipment being built in-country and while that's something that you might be able to develop as a domestic industry over 5-10 years, it doesn't exist today - and production needs to be increased today," according to the executive.

One measure, introduced on February 1 this year, is known as the advance import declaration (DJAI) and requires the preapproval of imports and a more rigorous inspection procedure on the border.

Last week the EU filed a complaint with the World Trade Organization (WTO) regarding the restrictions, according to a statement from the European Commission.

"Argentina's import restrictions violate international trade rules and must be removed. These measures are causing very real damage to EU companies - hurting jobs and our economy as a whole," EU trade commissioner Karel De Gucht was quoted as saying.

According to the statement, the new restrictions have the potential to impact all EU exports to Argentina, which valued 8.3bn euros (US$10.3bn) in 2011. The complaint allows a 60-day grace period for the two parties to reach an agreement.


For Europe, the issue must only add to the ill feeling caused by the Argentine government's takeover of a 51% stake in Spanish firm Repsol's (NYSE: REP) local branch YPF earlier this month.

While both actions have been made in an attempt to boost the local energy industry and slow fuel import costs, which reached US$9.4bn in 2011, import restrictions run counter to the country's energy needs.

"With the current import regime being what it is, I would be very surprised to see anybody bringing a serious amount of equipment into the country," the Estrella CEO said. "There's already a lot of noise from the industry that you can't increase the production of the country if you're effectively blocking everything at the border."

According to the executive, the industry may find allies in combating import policies within YPF and governments of the oil-producing provinces, particularly Neuquén, who stand to gain the most from development of the industry.

Argentina's economic reality will eventually force the government's hand, Levy believes. "The government is going to realize that if they want to get themselves out of the energy crisis, they've got to do something at the border and facilitate the entry of this equipment," he said.