Cry for me, Argentina

Its time to change Andrew Lloyd Webber's famous song in Evita. There's no option, but to cry for Argentina. How else can you react to the awful move by Cristina Fernandez, Argentina's President, to nationalise YPF, two weeks ago ?

YPF, Argentina's largest oil and gas company is 57% owned by Repsol, the Spanish oil giant. Ms Fernandez's grouse against Repsol is that it is not investing in increasing production in YPF. This is partly true, but the real reason why YPF is not expanding production is that her government has artificially kept petroleum product prices low . No company is going to invest for very little profit. So the good lady has decided to nationalise the company. No doubt, a pittance would be paid to Repsol, well below the market value of its shares in YPF. This is daylight robbery, of the kind Ramamritham (of Vodafone fame) would feel proud.

Is this any way to treat your largest foreign investor ? Spain and the EU are up in arms and threatening a fight. Spanish companies have significant investments in Argentina, united by a common language, of course. Argentina can kiss good bye to any foreign investor from now on. Already it is an international economic pariah having defaulted on its sovereign debt in 2001. However much you hate international finance, you need investors for any economic activity.

Does any serious country nationalise anything these days ? Is there any more proof needed that nationalisation and state control of industry does not work ?

An interesting by line is the parallel with Indian politics. Cristina Fernandez is a Rabri Devi. Her husband Nestor Kirchner was the strongman of Argentina. When the constitution limited him for a consecutive presidential term in 2007, he installed his wife as President and , well ...... The plan was that he would return back in 2011 as President. Unfortunately, God willed otherwise and he died. So, the lady continues.

The worrying thing is that what this lady is doing might be read, and emulated, by another lady who's running another Eastern state in India. Thankfully, the latter lady apparently does not read any newspapers other than those that only write about her greatness. She certainly doesn't read this blog and there is little risk that the Argentinian precedent will be known to her. But still ,.........

The real worry is that Ramamritham has learnt about this move in the opposite corner of the world. You see, the problem with Ramamritham is that he reads widely, maybe even this blog !! The real worry is that he will take a leaf out of Ms Fernandez's book.

Andrew Lloyd Webber will have to produce another musical then. "Sonia" the musical, will feature the hit song, Cry for me, India !

Eyes left : Look towards Nigeria

There is endemic corruption that beggars belief. There is a highly educated, superb English speaking elite and large masses of illiterate poor. There is insurgency and terrorism around the edges. There is organised loot of the country's finances with a few getting extremely rich and the lot remaining dirt poor. Misguided subsidies are ruining the state finances. There is a thriving film industry that churns our the second largest number of movies in the world and provides opium to the masses. No this is not India. Welcome to Nigeria.

Nigeria is an oil producing country. You would expect that to be a huge blessing, right ? Wrong. It has proved to be a curse. Nigeria is suffering from an unsustainable petroleum subsidy burden. So unsustainable that this week it announced abolition of the subsidy. Predictably there will be chaos on the streets as large scale protests have commenced.

The petroleum subsidy case in Nigeria is a textbook case of how pathetic government policies can ruin a country. Nigeria is an oil producing nation. However it has not set up refining capacity. It therefore exports crude and imports refined products. It then massively subsidises petroleum prices. A litre of petrol costs Rs 20 (US$ 0.40). The government spends some $1bn a month in subsidies. This is simply unsustainable. 

Subsidies like this distorts every economic activity. There is, of course, large scale smuggling into neighbouring countries where the prices are four times higher. The largest per capita incidence of petrol pumps in the world is in the border towns like Idiroko - organised smuggling designed to fill the coffers of the masters in Lagos.

From the perspective of the poor, the subsidy is the only thing the government does for them. It is otherwise almost a failed state. The government says the money wasted on the subsidy will be used to build infrastructure, schools, hospitals, etc - things that the government ought to be doing. The trouble is that nobody believes them. Given the highly sophisticated levels of organised corruption, few doubt where the money will land up.

Replace petroleum subsidy with colour TVs or colossal statues or free power and you'll look at a country, readers of this blog are more familiar with.

India often likes to compare itself with China. It should instead look up to Nigeria. That is the true role model - of how bad things can become if the deterioration in governance and the state continues in its present trajectory.

A letter to a certain Chief Minister in India

Dear Madam,

We are concerned about the state of your vocal chords, after your recent exertions of that organ protesting against the nth rise in the price of petrol that the Indian government announced a few days ago. While we are well aware of your superhuman powers in that sphere of activity, I am nevertheless concerned enough to give you some advice on the amelioration of  stress on your voice box. I am not one of your subjects, not living in your state at the moment, but have lived there in the past and therefore have a certain affinity.

What has aroused your ire is the increase in price of petrol by Rs 1.80 per litre a few days ago. You have accused the Central government of total insensitivity to the plight of the common man and have threatened to withdraw your support to the government. With inflation running so high in India, you are justly concerned with adding fuel to the fire, if you'll pardon the pun.I totally agree with your sentiments, but my ire is not necessarily directed only against the Central government.

I understand if I have to fill up my tank in your state, I have to pay Rs 73.15 per litre. That being a fairly substantial price, I decided to do some calculation on who gets what I am paying. Here's my amateur attempt.

I pay Rs 32.00 per litre to His Excellency King Abdullah bin Abdul-Aziz Al Saud of Saudi Arabia to keep him and his descendants  in cosseted luxury for the next 7000 years (otherwise called price of crude oil)

I pay Rs 7.00 to Mr R. S Butola , Chairman of Indian Oil Corporation, for him to stay solvent , pun intended,  (otherwise called refining charges)

I pay Rs 5.00 to Santa Singh , lorry driver  (otherwise called transport charges). I don't begrudge paying him this in return for all the Sardarji jokes that he has, very kindly, contributed.

I pay Rs 14.35 to the Hon'ble Pranab Mukherjee, Finance Minister of India (otherwise called Excise duty). To be fair to Pranabda, he has been trying to reduce this, having abolished customs duty that he used to levy before.

I then pay some Rs 15 to you ( under the name of sales tax).

You want to charge me some 26%+ rate of state sales tax. Don't you find it usurious ? Pranabda has been crying to states to remove the ad valorem rate of duty on petrol and make it a specific rate, as he has done on the Central VAT. You refuse to do this. Therefore when the central government increased the price of petrol by Rs 1.80, you gleefully contributed another 50 paise of increase. And with a straight face, you are giving significant exercise to your vocal chords.

You may now see the general direction of how you can prevent the onset of acute laryngitis.

I have only one argument in your defence. Your counterpart in the state I live in, is  worse than you (30%). But then, he has wisely chosen to give his vocal chords a rest !

Yours sincerely

Romesh (spelling in deference to your tastes)