The Privatization of Reserves in the Hydrocarbon Sector. The Case of Argentina

Abstract

Between 1989 and 1993 Argentina privatized its production and exploration of hydrocarbons. In the process several mechanisms were used. Some of the reserves were privatized through competitive auctions. We show, in an ex-post study of the profitability obtained by the winners of those auctions, that these investments yielded lower returns than alternative opportunities available to them at that time. Other reserves were privatized through discretionary mechanisms in which a committee negotiated with contractors the payment to be received by the government. We found that this implied losses for the government. The paper thus compares the mechanism of competitive auctions, main subject of this volume, with other mechanisms, illustrating with a real case some of the results of the theory of auctions.