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BLOOMBERG: Shell Abandons Argentine Gasoline Price Increase (Update1): “The Royal Dutch Shell Group, Europe's second-largest oil company, scrapped a price increase at more than 900 gas stations in Argentina after President Nestor Kirchner's call for a boycott on the company drove down sales as much as 60 percent.” (ShellNews.net) Posted 8 April 05

 

The Royal Dutch Shell Group, Europe's second-largest oil company, scrapped a price increase at more than 900 gas stations in Argentina after President Nestor Kirchner's call for a boycott on the company drove down sales as much as 60 percent.

 

Shell said in a statement it lowered gasoline prices by 3.4 percent to 3.9 percent, reversing a price increase of between 2.6 and 4.2 percent last month that sought to offset the surge in international oil costs.

 

Kirchner, 55, called the boycott as part of an effort to slow a surge in inflation that threatens Argentina's economic expansion. Rodrigo Da Fonseca, an economist with Dresdner Kleinwort Wasserstein, said Kirchner's bullying of Shell into reversing price increases will fail to curb inflation and may even crimp investment in the economy. Argentina's benchmark stock index tumbled 10 percent in the three days following Kirchner's call to boycott Shell on March 10.

 

``If the government thinks that by forcing Shell to lower prices they are winning the inflation battle they are wrong,'' Da Fonseca said in a telephone interview from London. ``Prices have already gone up across the board. And artificially holding energy prices down is costing them to subsidize the import of other fuels.''

 

Sales Plunge

 

Inflation quickened to 9.1 percent in the 12 months through March, the fastest annual pace since June 2003, as a two-year-old expansion in South America's second-biggest economy fuels a jump in consumer demand.

 

Sales at some of Shell's stations sank as much as 60 percent in the first few days after Kirchner, who called Shell one of the ``worst'' companies in the world, urged Argentines to boycott Shell, said Carlos Garcia, a spokesman for Shell in Buenos Aires.

 

 

Garcia said sales are now down about 30 percent to 35 percent across Shell's network of 967 gas stations in Argentina. About 800 of Shell's stations in the country are run by franchisees.

 

``The price increases didn't justify the drop in sales we saw,'' Garcia said. ``The government boycott had an impact.''

 

Shell, which got about 8 percent of its revenue from Latin America in 2003, said in March that it was boosting prices for the second time in seven months in Argentina to compensate for the jump in international oil prices. Crude oil prices reached a record high on April 4 of $58.28 a barrel in futures trading in New York. The futures are up 55 percent over the past 12 months.

 

IMF's Concerns

 

International Monetary Fund Managing Director Rodrigo de Rato said after Kirchner's remarks that the lender would ask Argentina to respect rights of international and domestic investors as part of any new loan agreement. Argentina, which plans to complete a restructuring of $62 billion of bonds it defaulted on in 2001, is seeking new loans from the IMF to help it repay maturing debt.

 

Kirchner has often criticized companies operating in Argentina since he took office in May 2003. He told congress last month that the government may take over utilities that fail to provide adequate service or invest enough to meet demand.

 

Argentina faced energy shortages last winter as utilities curbed investment after the government prevented them from raising rates to customers. That freeze on rate increases, which the government implemented in January 2002, following its default and a currency devaluation, is still in place today.

 

To contact the reporter on this story:

Daniel Helft at dhelft@bloomberg.net

 

To contact the editor responsible for this story:

Laura Zelenko at lzelenko@bloomberg.net

 

http://www.bloomberg.com/apps/news?pid=10000086&sid=azoKmzDz3QII&refer=latin_america

 

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