Bottom Line: The victory of Colorado Party candidate Horacio Cartes in Paraguay’s presidential elections on 21 April sets the stage for a strengthening of the oil and gas industry and a more attractive atmosphere for foreign investors.
Analysis: Cartes is a consummate businessman. His dossier is an impressive one: He founded Banco Amambay, one of the country’s largest financial institutions, as well as tobacco and food and beverage companies including Tabacos del Paraguay, Compañía Agrotabacalera del Paraguay, Bebidas del Paraguay, Agrocitrus del Paraguay, Ganadera Sofia, Ganadera Chajha and Ganadera Las Pampas. While he says he has divested himself of any business interests that present a conflict of interest as president, he clearly has many contacts in the business world inside and outside Paraguay. Among his closest advisors are his closest business associates—namely, Juan Carlos Lopez Moreira and conservative Chilean politician Francisco Javier Cuadra.
In 2001, Cartes became President of Club Libertad, one of the premiere professional soccer teams in Paraguay. Under Cartes’ leadership the team won the national championship seven times and reached the semi-finals of South America’s Copa Libertadores in 2006. Cartes was not involved in politics until 2009, a fact the long-dominant Colorado Party chose to frame as their candidate being a “fresh start.”
During his campaign Cartes repeatedly admonished leftist “chavista” ideology, making it likely that he will govern from a pro-investment perspective.
The oil and gas industry will benefit. Cartes is likely to seek foreign investors to expand drilling especially in the Chaco. The proximity of the Chaco to oil and gas fields in Argentina and Bolivia has already sparked a lot of interest. Private estimates indicate that Paraguay may have as much as 4 billion recoverable barrels of oil equivalent, primarily in unconventional fields similar to the North American fields behind the US boom. There are already 50 exploratory wells drilled by various companies. President Energy is currently conducting a 3D seismic survey of its concessions in the Chaco, with results due later in 2013.
Law 779, which provides clear hydrocarbons regulations--including a royalty on production that ranges from 10-15% of per-barrel revenue--may be the most appealing reason to invest in Paraguay’s potential oil and gas sector. Since Paraguay is currently a net energy exporter, deriving 11% of GDP from hydroelectric exports, there is little internal pressure to supply the domestic market.
Recommendation: Watch for the oil and gas sector in Paraguay to become more attractive to foreign investors. There is a potential here for an uptick in exploration and development, and little risk of any legislative regression that would harm the industry or hit at investor profits.