NCPA - National Center for Policy Analysis

Under The Ground In Argentina

October 4, 1996

Free-market reformers say that Argentina discourages oil development because the government owns all subsurface resources. Although its Congress is now debating legislation to deregulate the oil industry, the bill only reaffirms state ownership of the subsurface -- not a promising situation for aggressive exploration and development of its oil resources.

While Argentine politicians are frantically searching for ways to balance the government's budget and boost the country's sluggish economy -- particularly in the poorer provinces -- the answer, critics say, lies locked up under their feet.

  • The subsurface restrictions were inherited from Spain where, in the 12th Century, the King of Castile claimed all mineral riches in his territories.
  • The dilemma dates from 1865, when Leonardo Villa -- a pioneer oil explorationist -- made the first attempt at commercial exploration and production, but he was rebuffed in his efforts to have the law changed.
  • More than forty years after Villa's find, the Argentine Ministry of Agriculture struck oil by accident in 1907, while looking for drinking water.
  • With private participation in the oil industry restricted since then, there were few incentives for private risk-taking and only meager oil industry performance.

Notwithstanding a host of restrictions, the private sector was producing 62.5 percent of the country's crude output by 1935, when the state created its own oil corporation and severely restricted private participation. In 1949 it nationalized all energy resources.

Consequently, 80 percent of Argentina's subsurface remains unexplored today.

Reformers say that privatizing the subsurface would allow regions now considered nonviable to grow with an oil industry which has been artificially repressed for more than a century.

Source: Guillermo M. Yeatts (Phoebus Energy, Ltd.), "Why Argentina Has Lagged as an Oil Nation," Wall Street Journal, October 4, 1996.


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