The week ahead in LatAm energy: All you need to know

Argentina is poised to face a major setback this week as a May 8 deadline to reach an agreement with bondholders on its debt restructuring proposal approaches.

A group of major holders with enough influence to block a deal confirmed publicly that they would reject the government’s proposal, which includes a US$38bn cut in interest payments and a US$3.6bn haircut on principal of US$65bn.

While the group, which includes investment funds such as Blackrock, Fidelity, T. Rowe Price and Ashmore, said it was open to renegotiating the terms, the Argentine government has insisted the offer is non-negotiable.

Finance minister Martín Guzmán, who is in charge of the negotiations, published a column this weekend arguing Argentina had gone as far as it could with its offer – and that the strict lockdown measures in place would hurt its ability to pay more.

“Even before the pandemic, the people of Argentina were suffering in an economy marked by recession, high unemployment, rampant inflation and dramatic poverty,” Guzmán wrote in the Financial Times. “Now, COVID-19 has devastated exports and fiscal revenues too.”

If the government is unable to strike a deal this week, eyes will turn to the US$500mn of debt maturing on May 22. If the government sticks by its narrative and decides to not pay, this could be the start of a long and messy default process mirroring the one the country faced between 2001 and 2005, which finally culminated in a restructuring deal.

A disorderly default would tighten financial conditions in the country, hurting confidence and extending a difficult situation for energy firms, which have already lost access to affordable financing given the threat of a sovereign default.

On the other hand, a successful deal would relieve some of the financial pressure and mark the first major triumph of the administration led by Alberto Fernández, who bet on Guzmán – a previously unknown politician and economics professor in the US, challenging conventional political wisdom. 

A deal would be the first step in a gradual reopening of the Argentine economy, Guzmán has said, leading to the removal of capital controls at some point over the next few years.

VENEZUELA

Elsewhere in the region, Venezuela is moving ahead with plans to increase the participation of private players in the country’s oil and gas sector.

Last week, President Nicolás Maduro named Asdrúbal Chávez, cousin of Maduro’s late predecessor Hugo Chávez, to head state oil company PDVSA in a time of crisis for the industry. PDVSA has seen a sharp decline in production in recent years, which is expected to accelerate in response to the international oil price rout.

Chávez’s plans to overcome the crisis include closing down part of the NOC’s diversified business portfolio to reduce expenses and giving up the majority holding of its joint ventures with foreign companies working in the embattled country. He aims to return to 1Mb/d (million barrels per day) of production, up from the current 600,000b/d. A new oil minister, Tareck El Aissami, has also been appointed.

The strategy of boosting foreign participation in the oil and gas industry will face many difficulties, including heavy sanctions by the US that led Russia’s Rosneft to announce it would leave Venezuela earlier this year. Whether Venezuela can buck the current trend and attract new players will depend on the conditions it can offer at a time when many traditional oil and gas developments have lost attractiveness due to low prices.

CHILE

After a spike in COVID-19 cases this week, Chile is extending lockdown measures to new neighborhoods of capital Santiago and elsewhere as a “battle for Santiago” begins to take shape, in the words of health minister Jaime Mañalich.

Daily cases accelerated from roughly 500 per day at the beginning of last week to a peak of 1,500. On Monday, 980 new cases and 10 more deaths were reported by health authorities, bringing total fatalities to 270. Chile has followed a flexible strategy to combat the virus, using testing to isolate highly contagious areas through lockdown measures and softer containment measures in the rest of the country.

At the same time, countries that enacted stricter nationwide lockdowns, such as Peru and Argentina, are eyeing exit measures as they ease restrictions and attempt to ramp up testing to be able to follow new outbreaks as movement resumes. This week, Peru will revise its strategy.

Meanwhile, countries where the coronavirus was not taken seriously early on, such as Mexico and Brazil, are seeing an acceleration in cases and deaths. According to a study by the University of São Paulo and other researchers, the number of cases in Brazil could be as high as 1.2mn. The official figure as of Monday was 105,000 confirmed cases and nearly 7,300 deaths, although Brazil’s testing capabilities are very limited, with 1,500 tests conducted for every million people.