Dangerous divisions

Repsol is mired in conflict, with no end in sight before December, when the 5 billion euro loan taken out by Sacyr to increase its stake in the energy company to 20 percent must be repaid.

The National Energy Commission (CNE) has decided, against the wishes of Repsol's board, that it does not need to approve the deal between Sacyr and state-owned Mexican state-controlled oil company Pemex that would see the two companies control 29.8 percent of the firm.

The CNE's decision reflects the majority view within Repsol that it is not a regulated firm, and that the state has no role to play in arbitrating over shareholdings agreements. Doubtless its decision will have been influenced by its bitter experience in 2006 and 2007, when the government used it to prevent Germany's E.on from taking over Spanish energy firm Endesa.

On Wednesday, Repsol's board told Sacyr and Pemex to break off their planned deal, suspecting that it was an attempt to replace its current management with one more in line with the interests of the Mexican company, which in turn was taking advantage of Sacyr's financial problems.

The outcome will be a lengthy and destructive fight between Repsol, Sacyr and Pemex. The latter two companies have said that they will be taking legal action immediately in response to changes Repsol has tried to make to its board rules to remove Pemex and Sacyr representatives.

The roots of this crisis lie in Repsol's fractured shareholding structure, a situation that has been worsened by the fact that Sacyr's capital is financed through a bank loan that the construction firm will have difficulty in paying back.

It is not possible to maintain a stable shareholder structure in an oil company ? which needs long periods for investments to mature ? when there are investors who require an immediate return on their investment.

There are also a number of political questions that need to be addressed. It has yet to be explained why the Spanish government was not consulted by Mexico's government over the deal between Pemex and Sacyr.

If it was, then it would be interesting to know who gave the go-ahead. It is unlikely that the Mexican authorities would have made such a move without making their intentions completely clear beforehand. The management of Repsol should remain in Spanish hands; the role of Pemex should be limited to its present stake.

The correct approach to achieve that would be by increasing the amount of Spanish capital in the company. Resolving the issue through the courts will be long and dangerous.