Moscow and Beijing Compete for Argentina Economy

Seeking Investment to Stabilize Economy

Afflicted by extremely high inflation, an ongoing economic crisis, and in the midst of a legal battle over the latest debt default, the Argentine government has defined both Chinese and Russian investments as fundamental to the survival of the economy.  As a result, Russia and China are now competing with the US for a number of tenders. Considering the current decline in relations between Argentina and the US, both China and Russia have a comparative advantage politically on investment and economic issues. The caveat lies in Russia's own economic downturn and uncertainty over its ability to maintain and extend major investment deals abroad.

 

Nuclear Energy

In the nuclear field, China and Russia are competing for access to planned nuclear energy projects. The company Chinese National Nuclear Corporation (CNNC) has already signed an agreement with the Argentinean Government for the construction of Atucha III. The plant will use natural uranium and heavy water. Chinese companies are in line to become “preferred subjects of negotiation” in future energy tenders should a bill introduced in the Argentine Senate on the 30th of December pass the second house. Still, Russian companies are not out of the game.  Sources in the government confirm that Russian companies have a competitive advantage in the Atucha IV’s project (a plant that will use light water and enriched plutonium) given their expertise on the subject.  Moreover, both China and Russia expressed intentions of directly investing in the projects, contrary to the US. This makes quite a substantial difference for a country such as Argentina, which is out of the international credit market and desperately needs fresh capital for its stumbling economy.

 

Hydrocarbon Contracts

In the oil field, the situation is more fluid and US companies are not considered to be out of the game. In fact, Chevron and Argentina reconfirmed 2013’s investment contract for the Vaca Muerta field this past April, which produced a heated debate among the Argentinean public as it gives Chevron the ability to send revenue to other countries and to establish a foreign jurisdiction for all future contracts. The terms are particularly important in Argentina because the government had expropriated the oil company, YPF, from Spain’s Repsol in 2012.

Located in Patagonia, Vaca Muerta is considered one of the biggest shale fields in the world. However, Argentina’s oil and gas technology is lacking and desperately needs both financial and technical investment. Russian companies such as OMZ, Uralmash, REP Holding, GPB Global Resources, Enex, and Eriell Group declared their interest in the investment and held meetings with both YPF representatives and Alex Kicillof, Argentinean Minister of Economy. Quite significant is the agreement between Banco de la Nación Argentina and Gazprombank, the details of which were not disclosed. It appears evident that Gazprombank has tactically chosen a time to seek a partnership with the Argentinean Government when business opportunities are flush.

 

Infrastructure Development

Up to 15 tenders for major infrastructure projects will be opened in 2015, for a total of $16.96 million. Among them are four hydroelectric plants in Neuquén, a dyke in Santiago del Estero, two hydroelectric plants in Santa Cruz, and a hydroelectric plant in San Juan. Offers have already been presented for one hydroelectric plant in Neuquén (the so-called Chihuido I).  Russian companies involved predict that they will win this tender, considering that Chinese companies have already won the tender in Santa Cruz.

 

Agriculutral Commodities

The conflict in Ukraine and resulting sanctions and counter-sanctions with the EU and US have strained Russia’s agricultural import sources.  . Given the ban on key agricultural imports from the EU, Austrialia, and US, Russia has rapidly sought to diversify its commodities suppliers. In this vein, Argentina stands to gain by shifting exports of meat and dairy products to Russia, which grew by over 300% in September 2014 over September 2013 trade volumes.

 

Moving Forward

Russia is trying to compete for the Argentinean market. China has a considerable advantage in this competition. Yet, Russia can use at its advantage the Argentinean economic situation, its agricultural commodity needs, and its relevant expertise in the energy field to obtain a considerable share of the market. However, any gains made internationally, and in Argentina particularly, by Moscow will depend heavily on Putin’s ability to mitigate the continued fall of the ruble and a deep economic contraction in the coming year.