Tourists tastethe good lifeSkiing, climbingand polo are all onoffer before dinnerPage 2

Inside »

Plan for tunnelthrough AndesAmbitious railproject couldtransform regionPage 3

Oil chief seeksshale fundingMiguel Galuccio isworking to attractnew investorsPage 5

Former bankerindulges tastefor liquid assetsO. Fournier ownerhas no regretsPage 6

Wednesday November 13 2013 www.ft.com/reports | @ftreports

FT SPECIAL REPORT

Latin America’s Regions

Doing Business in Mendoza

On the world stage, Argen-tina is perhaps best knownfor three things, all begin-ning with the letter “M”:Lionel Messi, the world’s

best footballer; mismanagement –Argentina is unique in its radicalreversal from the advanced economicdevelopment it apparently achieved inthe early 20th century; and Malbec,the Bordeaux grape that is celebratedas Argentina’s most distinctive winevarietal.

This report – the first in a series onLatin America’s regions – is about afourth “M”: the region of Mendoza.Abutting the Andes, this desert stateis a microcosm of Argentina’s poten-tial, although in this case “potential”is an overused word: Mendoza hasalready realised much of its promise.

There is its wine, of course, becauseMendoza forms the centre of Argen-tina’s centuries-long wine traditionthat has been upgraded with Zen-likeattention to oenological detail to earnits vineyards, such as Bodega CatenaZapata and Mendel Wines, a globalprofile. No self-respecting Argentine –or for that matter European or Cali-fornian – millionaire with more than apassing interest in wine does not alsowant to own at least a few hectares inthe wine lands of the Uco valley.

But it is not only wine and its larg-est exporting companies, such asPeñaflor, the eighth largest wine com-pany in the world, that gives Mendozaa certain cosmopolitan air.

There is Impsa, a turbine manufac-turer that has the technology to takeon global competitors. With deeproots in the state, the family-ownedcompany, now in its fourth genera-tion, has annual sales of more than$1bn and is a genuine “multilatina” –a Latin American company with apresence across the region.

There is also Roberto Zaldívar, oneof the world’s leading ophthalmolo-gists, who practises out of his Mendo-cino clinic; Grupo Uno, Argentina’s

second biggest media company; andlarge mineral and energy deposits,from uranium, potash and copper, togas and oil.

“Mendoza produces a fifth of Argen-tina’s oil,” says Miguel Galuccio, chiefexecutive of YPF, the national oilcompany.

With the development of the vastVaca Muerta shale gas formation setto push ahead over the next fewyears, it will soon account for evenmore.

Most distinctive of all, however, isthe state’s work ethic – which CharlesDarwin missed when he visited andwrote that “the happy doom of theMendocinos is to eat, sleep and beidle”. But Darwin visited almost 180years ago, and in the summer, whentemperatures can top 40 degrees and asiesta is almost obligatory.

Mendoza’s celebrated work ethicderives partly from its proximity toChile – Santiago, the capital, is only

Continued on Page 3

A region with barrels of potentialThe resource-richArgentine province hasa bright future, writesJohnPaul Rathbone

All in good time: wine casks ageingat Mendoza’s Bodega Catena Zapata

I have been to most of theworld’s wine regions butI have never been to aplace where wine is sodeeply embedded as inMendoza.

Bordeaux and Porto runit close, but both haveother importantcommercial activities.

The neat grid of tree-lined streets of Mendoza’scapital, also calledMendoza, seems designedto spirit you as quickly aspossible to one of thenumerous vineyardsoutside the city.

Walk through thebrilliant white 19th-centurySpanish colonial façade ofthe Park Hyatt, Mendoza’smost prominent hotel,overlooking PlazaIndependencia, and you areassailed by invitations tosample a glass of wine ina bar, join a tour of thevineyards or buy a bottleor two.

There is something aboutthe quality of light –a brilliance typicallyfiltered by the leavesoverhead – that echoeswhat the local producersbelieve defines their wines.

At 750m elevation, thecity of Mendoza is alreadyrelatively high. But it isthe altitude of thevineyards and the qualityof the ultraviolet lightthere that givesdistinction to them andtheir produce.

Mendoza is on roughlythe same latitude as Tunis,which is normally tooclose to the equator forgood quality wineproduction, but altitude

counterbalances this.Mendoza’s vineyards

used to be concentrated onthe fertile plains aroundthe city, making vastquantities of slightly rusticreds and pinks and somedecidedly heavy, oftenoxidised, white wines.

Rainfall here is low –barely eight inches, or200mm, a year – but themelted snows of the Andeshave (so far) providedsupplies of irrigation water– sufficient to plump upthe grapes nicely.

So high were yieldstraditionally – often severalhundred hectolitres perhectare, when the usuallimit for France’s betterwines is about 50 hl/ha –that Argentina was at onetime the fourth mostimportant wine producer inthe world.

Americans have plantedthe vine so enthusiasticallythat the US has overtakenArgentina in terms of totalvolume produced, helpedby the fact that Argentina,not much of a wineexporter in the 1980s, hada national vine pullscheme.

But, in the past 25 yearsor so, the Argentine wineindustry has woken up,become much less insular,and started to export ingreat quantity.

The crucial ingredientin the mix was a redraftingof the Mendoza wine map.

Since the late 1980s,vineyards have beenplanted at much higheraltitudes, where coolernights slow the ripeningprocess and prolong thegrowing season, meaningthat the resultant grapeshave time to build upsubtlety as well as sugarwhile retaining refreshingacidity.

The belief is that theclarity of light here plays apart in building up thephenolics so important tofine red wines.

Many of the best newvineyards have beenplanted in the Uco valleyat altitudes of up to1,700m. In Europe, 500m isregarded as the maximumaltitude at which grapescan be persuaded to ripen.

Tupungato and Tunuyánare the most important

departments for fine wineproduction in the Ucovalley, with La Consultadistrict cool enough tohave encouraged growersto plant white wine grapesas well as the finickyPinot Noir that ripensso early it needs aparticularly cool climate.

But Malbec is by far thedominant grape variety ofMendoza province. Indeed,Mendoza Malbec hasplayed by far the biggestpart in Argentina’ssuccessful transformationinto a successful wineexporter.

It produces rich,powerful wines,typically packaged inoverweight bottlesthat satisfymarketeers if notecologists, andconform to what hasbeen the stereotype ofa successful red wine.

Mendoza Malbecwas such a hit inthe US marketthat producers inCahors insouthwestFrance, homeof the grapevariety, startedcalling theirgrape Malbecinstead ofusing theirtraditionalnames Cot andAuxerrois.

But thewinds ofchange haverecently beenblowingthrough thevineyards ofMendoza, withmany producersdeliberatelymaking finer,more scentedreds from theirsignature grapevariety by,among otherthings, picking

grapes earlier and reducingthe number of new oakbarrels.

There has been noshortage of outsideinvestment in Mendozawine.

Prominent incomersinclude Michel Rolland, theworld’s most famousconsultant winemaker whoowns the Clos de los Sietewinery; Diane and HervéJoyaux Fabre of FabreMontmayou; California’sCuvaison; Cava giantCodorniu; and José-ManuelOrtega, a Spanish formerbanker whose wife alsoruns one of many excitingrestaurants in the winecountry outside the city ofMendoza.

Argentina, with its wavesof immigration fromFrance, Spain, Italy andGermany, has longbenefited from itsparticularly diverse rangeof cultural influences and

all of these are reflectedin the increasinglywide variety of winescoming out of Mendoza.

Rather unexpectedly,Mendoza turns out tobe the source of someparticularly fine,distinctiveChardonnay, a grapethat seems to thrive inthe relatively long

hours of Mendozasunshine.

Torrontés, theArgentinespeciality whitegrape, alsothrives there, asdoes Pinot Grisand evenFriulano, aswell as, fromthe highestvineyards,SauvignonBlanc.

Mendoza is nolonger a one-grape wonder,even if hailremains thebane of everyvine grower’sspring andsummer.

Sun-kissed state that has claspedthe joys ofwinemaking to its heart

Expert viewJANCIS ROBINSON

Light fantastic:Mendoza’s winesecho the uniquecharacteristics ofthe region

The resultantgrapes havetime to build upsubtlety aswell as sugar

2 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 13 2013

Doing Business in Mendoza

The vast mineral wealth deepunderneath the Andeanchain has attracted outsideattention ever since the daysof the Spanish empire.

Yet, unlike in neighbouring coun-tries, most of Argentina’s rich mineralresources have remained largelyundeveloped. This is in marked con-trast with the flourishing miningindustry across the border in Chile,which shares the same geology.

Nowhere has Argentina’s mineralpotential been more neglected thanMendoza, whose prospects as a min-ing centre hit a serious obstacle whena provincial law, enacted in 2007,attempted to put a brake on projectsthat locals feared would threaten thescarce water supplies of their aridprovince.

Many say that Mendoza went toofar. Concerns for the agriculturalindustry, which is irrigated withwater whose source high in the Andesis where most mining projects arelocated, resulted in a ban on the useof chemicals such as cyanide, mercuryand sulphuric acid. This made manymining projects unviable.

“What’s the most effective way ofcuring a headache? The guillotine,”says Raúl Rodríguez, a lawyer actingfor a number of mining companiesseeking concessions in the region.“Mendoza has applied the guillotine toits problems. It’s a solution, yes, butnot a very intelligent one.”

Despite the huge potential – localexperts value Mendoza’s mineraldeposits at about $350bn – big miningprojects are on hold while how best tocontrol the industry is debated.

“There is neither political nor socialconsensus. We can’t advance withoutconsensus,” says Francisco Pérez, gov-ernor of Mendoza. “There’s a lot ofhypocrisy,” he adds, pointing out thatsome farmers lend their support toanti-mining groups while at the sametime taking little care of the region’sscarce water resources themselves.

Indeed, only 4 per cent of Mendozaprovince is cultivated, yet agriculture

uses 96 per cent of its fresh watersupplies while accounting for just 8per cent of its gross domestic product,says Mario Chabert, president of Men-doza’s mining chamber.

By contrast, in the mining-friendlyprovince of San Juan to the north,where Canada’s Barrick Gold hasoperations, mining uses 1 per cent ofits water but accounts for 77 per centof exports, he says.

According to Mr Chabert, miningwould not necessarily compete withagriculture for water, as the bulk ofMendoza’s prospective miningprojects are in the south, where thereis no agriculture.

Moreover, he argues that miningand agriculture have coexisted com-fortably in Chile for years, citing theexample of the Cachapoal valley,which has a flourishing wine industryirrigated with water that comes fromthe same sources as the water used atEl Teniente, the biggest undergroundcopper mine in the world located inthe mountains above.

Local environmentalists recognisethe importance of mining. The mainproblem is that they doubt thatinstitutions in Mendoza are capable ofcontrolling and monitoring powerful

multinational mining corporationseffectively.

Eduardo Sosa, president of OikosRed Ambiental, a group that monitorsand promotes environmental issuesin Mendoza, says there is a “danger-ous proximity” between miningcompanies and the cash-starvedregional government, whose interestsare not always aligned with localcommunities.

Although Mendoza’s mining law“can certainly be improved on andadapted to the needs of the miningsector”, Mr Sosa believes it is essen-tial for there to be “trust, transpar-ency and effective public participa-tion” in mining projects.

“Almost all the problems with min-ing projects are related to poor envi-ronmental impact studies or poorcommunication with local communi-

Mining potential not yet realisedMineralsA lawmeant to protectfarmers is blockingdevelopment, saysBenedictMander

Chemical ban: a project on the scale of the El Teniente copper mine in neighbouring Chile would be impossible in Mendoza

ties,” Mr Sosa says. “That is the seedof all conflict.”

Until the people of Mendoza decideon the answer, companies such asU308 Corp, a Canadian uraniumminer, will be obliged to stay awayfrom the province. U308 owns a con-cession in Mendoza that it was forcedto abandon after the introduction ofthe 2007 law.

Hugo Bastías, vice-president at U308Corp, points out that, although Argen-tina imports about 250 tonnes of ura-nium a year, there is enough uraniumin Mendoza alone to satisfy nationaldemand for the next 100 years.

Mr Chabert says it is “criminal” notto develop Mendoza’s mineralresources, the bulk of which arecopper. He says that, within fiveyears, simply by activating sevenmines that have already been devel-oped, mining could generate annualexport revenues of $1.2bn, in additionto Mendoza’s current export revenuesof $1.7bn

“Everyone asks the government ofMendoza for money, and their answeris always that we don’t have theresources. Well, we do: they are in themountains, and they belong to every-one,” he says.

It was a sign of how bad things hadbecome. In May, Luiz Inácio Lula daSilva, Brazil’s charismatic formerpresident who is famed for his negoti-ation skills, travelled to Argentina todiscuss the future of a $6bn invest-ment that Vale, the partly state-owned Brazilian mining group, hadplanned in Mendoza.

Vale had suspended the Rio Colo-rado potash project two monthsbefore, citing Argentine exchange con-trols and rampant inflation that madethe project commercially unviable,and had almost doubled its costs to$11bn.

So when Mr Lula da Silva was pic-tured in a traditional Andean poncho,discussing the project with FranciscoPérez, Mendoza’s governor, Vale’s pri-vate investors feared he may reversehis position and broke into a sweat.

“We were trying to make the ven-ture viable and he seemed open to theidea,” Mr Pérez said of the meeting.

The Rio Colorado venture was set tobe one of the biggest capital invest-ments in Argentina, turning Brazil’sneighbour into a top supplier of pot-ash – the potassium compound thatBrazilian farms need for fertiliser.

However, after spending $2.5bn com-pleting more than 40 per cent of theproject, which includes a port termi-nal and 790km of railway, Vale sus-pended operations in March.

For Argentina, it was a tremendousblow. As well as employing 6,000workers, the venture would have pro-vided a significant amount of exporta-ble potash, which would have helpedprotect Argentina’s trade surplus. Pro-duction was set to start in 2014 at anestimated 4.3m tonnes of potassium ayear – all of it destined for Brazil.

“The rule of law is a two-way trackwhen it comes to investment. Thestate has to do its part, but so do thecompanies,” fumed Julio de Vido,Argentine planning minister, afterVale announced it was suspendingdevelopment. “If there is a failure tofulfil the terms, as there is flagrantlyin this case . . . it violates the conces-sion the province awarded to Vale.”

But under the concession’s terms,the Brazilian group had to pay asmall fee every year and make a mini-mum capital investment within thefirst five years, all of which it did.

“Vale over-complied,” says RaúlRodríguez, a mining specialist at Bar-raza, Rodriguez, Diaz & Gregorio, aMendoza law firm. “With the annualfee paid, the concession is fixed andsafe.”

Vale then put the project up forsale in April after agreeing to pay anextra two and a half months in wagesto laid-off workers. The Braziliangroup is now contemplating otherpotash projects elsewhere amid bigchanges in the market.

An end to output restrictions thissummer by Uralkali, a Russian pro-ducer, and Belaruskali, its Belarusstate-owned partner, has led potashprices to tumble.

This has made acquisitions orexpanded production at existing sitesmore economic for Vale than expen-sive foreign greenfield projects, suchas Rio Colorado.

None of this has made Mr Pérez’sjob easier, as he has scrambled to findnew partners for the site thatTechint, the Italo-Argentine conglom-erate, is currently caretaking forVale.

“We are in various conversations,”says Mr Pérez, who has met potentialChinese, Indian, Russian and Qatariinvestors. “The new idea is to scaleback the original project, but I amjust a facilitator.”

Although the odds on such a dealappear to be long, all is not bleak.Forecasts say that, by 2020, Brazilianconsumption of potash will have risento 13m tonnes annually, from 8mtonnes now. So a potentially hugemarket remains.

However, that rising demand is notgoing to be met from Argentina fornow – or at least not until a freshinvestor comes along that is willingto buy out the project from Vale.

Meanwhile, Rio Colorado is for saleand Argentina is a few billion dollarsand 6,000 jobs poorer than it mightotherwise have been.

Tumbling prices leavepotash mine in limboDevelopment

The loss of a big investor hasput a potentially valuableexport industry in doubt,writes John Paul Rathbone

Vale is now contemplatingprojects elsewhere amidbig changes in the market

‘There is neither politicalnor social consensus.We can’t advancewithout consensus’

John Paul RathboneLatin America editor

Jancis RobinsonFinancial Times columnistand author, with HughJohnson, of The WorldAtlas of Wine, 7th Edition(Mitchell Beazley, 2013)

Benedict ManderArgentina correspondent

Ian MountAuthor of The Vineyard atthe End of the World:Maverick Winemakers andthe Rebirth of Malbec(W.W. Norton, 2012)

Camila BretónFT contributor

Rachel SavageResearcher

Robert OrrCommissioning editor

Andy MearsPicture editor

Steven BirdDesigner

Barbara Lawson,Kate BevanSub­editors

For information regardingFT commercial platformsplease contactJohn.Moncure@FT.com oryour usual representative.

All editorial content in thisspecial report is produced bythe FT. Our advertisers haveno influence over or priorsight of the articles or onlinematerial.

Contributors »

AT L A N T I CO C E A N

BuenosAires

Santiago

Sources: Argentinian government, Mendoza provincial government, Great Wine Capitals, Mendozaeventos.com

Mendoza

Santiago La Paz

Rio Tunuyán

MENDOZA

Population(2010)

1.74mGDP growth

2012(valued in 1993 pesos)

2.2%

Share of Argentina’stotal wine output

(2012)

69%

Estimated valueof Mendoza’s

mineral deposits

$350bn

Number of visitorsto Mendoza (2012)

2.7m

Highest altitudeat which

grapes are grown

1,700m

Inflation rate

10.5%

Fact file

SanRafael

General Alvear

Main grape-growing areas

A R G E N T I N A

ARGENTINA

CHILE

Tunuyán

Cristo Redentor pass

TupungatoUco valley

FINANCIAL TIMES WEDNESDAY NOVEMBER 13 2013 ★ 3

Doing Business in Mendoza

360km away, while BuenosAires is 1,200km distant.But most of it comes fromthe area’s desert roots –Mendoza’s original name,cuyo, means “sandy land”.

The area’s first knowninhabitants, the Huarpes,cultivated corn, beans,squash and quinoa using asystem of irrigation thatcarefully rationed run-offfrom Andean snow melt.This system was built onand expanded by the Incas,and then by the Spanishconquistadores.

Although the irrigationsystem, which remainstoday, allowed farmers tocultivate more land thanthey otherwise could, itsmost important and lastingcontribution is cultural.

To function, it requires adegree of co-operation,responsibility and adher-ence to rules that Mendoci-nos boast are less presentelsewhere in the country.

It is no accident that Men-doza is the only Argentinestate never to default on itsdebt, or that local politics –a model of convivencia –lacks the malice and vitriolof Buenos Aires.

“Argentina is aboutbonanza, Chile is abouteffort. And Mendoza? It isabout the desert,” says JoséOctavio Bordón, a formerMendoza governor andArgentine presidential can-didate who was also ambas-sador to the US.

He adds: “Everythinggrown or produced in Men-doza is solely because of theeffort of man. You can’t justthrow seeds on to the soiland expect them to grow.Here, you must work.”

This attitude can be seenin Francisco Pérez, thestate governor, a member ofPresident Cristina Fernán-dez’s ruling Victory Frontparty and a man with theenergetic air of a worka-holic executive.

“Look at this,” Mr Pérezsays jumping out of hisoffice chair. He strides pastphotographs of Evita Peróninto a back room and flicksa switch; a detailed analysisof state finances, hospitalbeds and schools soonlights up a giant plasmascreen.

“All this is in real time,”he adds. “No other state hascomparable systems. Ithelps me formulate betterpublic policy.”

Foreign companies thathave set up here havenoticed Mendoza’s business-friendly attitude and attrac-tive macroeconomic condi-tions. Its annual economicoutput is $16bn, it has lowunemployment, a shrinkingbudget deficit and lessdependence on nationalrevenues to fund stateexpenses than many peers.

Continued from Page 1

Incomers include Danone,the French food and drinkgroup, to bottle springwater; Saint-Gobain tomake glass; Knauf, the Ger-man building company, toquarry stone and gypsum;and Globe Speciality Metalsof the US, which makes spe-ciality wire.

Companies are alsodrawn to the state’s eightuniversities and its strate-gic location, next to theswitchback Cristo Redentorroad, the busiest mountainpass between Argentinaand Chile. There is also theprospect of a 120km traintunnel being built to linkthe two countries (seeabove).

If that project gets built,rail-borne Chilean trade tothe Atlantic, and Brazilian

and Argentine cargo to thePacific, would soar andmake Mendoza a hub forthe wider region.

“Mendoza is going to beone of the geopolitical cen-tres of the world,” enthusesMr Pérez – which mightseem unlikely until youvisit the area, hear theaccents of visiting Brazilianand Chilean tourists, andimagine the nearby worldstreaming through.

Although it could prove apipe dream, Mr Pérez plansto travel to Qatar to solicitinvestment for the rail tun-nel project.

In the meantime, thestate cannot escape Argen-tina’s broader problems.That became painfully clearin March after Vale, theBrazilian mining company,cancelled a planned $6bnpotash project in the statebecause Argentine currencycontrols and high inflationhad made the project com-mercially unviable.

Sofia Pescarmona, a mem-ber of Impsa’s foundingfamily and a manager of theturbine maker, echoes thoseconcerns. She says thatImpsa is proud of its Men-doza roots but they come ata cost – especially whenallied with the near-pariahstatus that Argentina, as asovereign state, suffers ininternational markets.

Standing by a huge preci-sion-engineered propellerthat will soon be mountedon a wind turbine in Asia,she says: “Financing is oneof the main things thatmakes us less competitivethat our peers . . . Staying inMendoza is, for us, as muchan emotional decision as arational one.”

Wine exporters, similarly,bemoan the loss of competi-tiveness that has come fromthe country’s high inflation.But such disadvantagescould disappear quickly,should Argentina start tomove into recovery – a pos-sibility that may increaseas Ms Fernández heads intothe last two years of herpresidency.

The prospect of thatchange is already piquinggreater international busi-ness interest. “I’ve hadmore enquiries in the pastfew months than I have hadin years,” says a regionalconsultant and financier.“People are seeking to getin now, or at least thinkingabout it.”

Still, there is no assur-ance that change will come,or that the wait will be aneasy one, as the countrygrapples with falling for-eign reserves, currencyrestrictions, high inflationand a legal battle with hold-out creditors that keeps itall but shut out of interna-tional markets.

In the meantime, there isalways Malbec, which canease, if not cure, widerArgentine ills. Watchingthe sun set behind thesnow-capped Andes with aglass of wine in hand, thereare certainly worse ways towait and contemplate moreprosperous times that maynot be so far away.

Resource-rich region withbarrels of potential

When does a tunnel qual-ify as a pipe dream? Per-haps when it is to be120km long, privatelybuilt and financed, and

drilled through snow-capped moun-tains between two countries that nur-ture a longstanding animosity.

Not that Eduardo Eurnekian seesone of the South American continent’sbiggest engineering projects this way.Linking Argentina and Chile via atrain tunnel under the Andes may bea difficult, and perhaps even vision-ary, undertaking. But it is not impos-sible. “The engineering is not thehardest part,” says the president ofCorporación América, the Argentineholding company leading the project.“The hardest part is the financing.”

If Mr Eurnekian’s plans come tofruition, engineers will, by 2015, beblasting rock in the first phase of a$3.5bn plan that aims to remove abarrier for Atlantic economies that

are ever more dependent on Asiantrade. “Economic integration isalready happening in South America.It’s inevitable,” Mr Eurnekian says ofthe project. “The US built its firsttranscontinental railway in the 1860s.Why not South America now?”

The tunnel will join an increasingnumber of infrastructure linksplanned to cross the South Americancontinent – projects that mirror theshift in the region’s trade patternsfrom the Atlantic towards the Pacific.

The only significant Andean pass inthe southern half of the continent is ahigh spiralling road with hairpinbends so tight they are referred to asthe “snail”.

Furthermore, the Cristo Redentorpass, which links Mendoza with San-tiago in Chile, is blocked by snow for40 days a year, often leaving trucksstranded in sub-zero temperatures.

Mr Eurnekian’s consortium – whichincludes Mitsubishi of Japan, Chile’s

Grupo Empresas Navieras and Geo-data of France – aims to remove thatbottleneck.

If they pull it off, the tunnel, whichwill take ten years to build,will link train and trucking hubs oneither side of the Andes, cutting ship-ping times between Argentina andChile and saving transport costs.Brazilian goods seeking Pacific portswill benefit too. Much of the processedsoya, wine and meat that Argentinaexports to China, as well as importedAsian goods, are shipped around thetreacherous Cape Horn, adding nearly3,000 nautical miles and another weekto the trip.

According to the rail project’s feasi-bility study, a tunnel could pushdown shipping costs between Cor-doba, Argentina, and Manzanillo,Mexico, the closest big port withdirect rail links to the eastern US,from $210 to $177 per ton of cargo.

Mendoza, which has strong infra-structure links with the rest of Argen-tina and Brazil, could then become aregional hub.

“The tunnel has the potential totransform Mendoza into the geopoliti-cal centre of Mercosur,” says Fran-cisco Pérez, governor of Mendozastate, although, like many of theplan’s supporters, he tends, in hisenthusiasm, to overlook the shortcom-ings of the Mercosur trade grouping ofBrazil, Argentina, Uruguay, Paraguayand Venezuela.

Nonetheless, the consortium takesthe long view and has spent $25m onfeasibility studies. The Chilean andArgentine governments have also

declared the project to be of “nationalinterest” and created a committeethat will eventually invite bids.

Although the project has progressedin fits and starts since serious plan-ning began five years ago, its pace isexpected to pick up after Chile’supcoming presidential election, whichMichelle Bachelet, the socialist formerpresident, is expected to win.

The 57km Gotthard Base Tunnelbeneath the Swiss Alps will be theworld’s longest rail tunnel when it iscompleted in 2016. What differentiatesthis South American project, apartfrom being twice as long, is that itwill be built by the private sector –and financed by private businessestoo.

Raising that finance is no easy task,especially as Argentina is all but shutout of international markets –although Chile can raise funds atmuch the same cost as France. Theconsortium says it has proposed the

project be built and operated usingthe kinds of government guaranteesthat are common for road concessionsin Chile and Peru, thus potentiallyincreasing its appeal to investors.

Nonetheless, critics say the project,which has only come this far afteractive lobbying in Santiago and Bue-nos Aires and has not conducted envi-ronmental impact studies either, maybe more bother than it is worth.

“Instead of spending all that money,why not just widen the road and coverits most vulnerable parts with snowroofs,” asks Leonardo Andreu, head ofthe state’s chamber of commerce. “Itwould be quicker and cheaper.”

The octogenarian Mr Eurnekianacknowledges that the project willtake a long time to complete, even if itdoes manage to secured the neces-sary finance.

“Will I see it completed before I die?Perhaps not. But that doesn’t mean itwon’t happen.”

Consortiumpursues grandplan of tunnelthrough Andes

InfrastructureAn ambitious project couldtransform the region, says John Paul Rathbone Truck stop: snowfall often halts traffic on the Cristo Redentor pass through the Andes, adding to the expense of moving goods between Argentina and Chile

‘Argentina is aboutbonanza, Chile isabout effort. AndMendoza? It isabout the desert’

‘The engineering is not thehardest part. The hardestpart is the financing’

Wine lands: Mendoza grapes are grown at altitude Dreamstime

4 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 13 2013

Doing Business in Mendoza

Jess Jackson, a San Fran-cisco lawyer, changed theface of US winemakingwhen he founded the Kend-all-Jackson company in Cal-ifornia in 1982. By the timehe died in 2011, the manbehind the slightly sweetKendall-Jackson Vintner’sReserve Chardonnay was abillionaire producing morethan 5m cases a year.

Yet, in spite of considera-ble investment, Jacksonwas never able to repeat hissuccess in Argentina.

In 1996, he bought 1,100acres in Mendoza’s Uco val-ley, later adding 1,750 acresand a winery, led by RandyUllom, who ran his Chileoperations.

But, in 2003, after a seriesof business missteps andArgentina’s debt default,which caused the peso tolose almost three-quartersof its value, Jackson soldhis Argentine business to aBuenos Aires couple for$2.5m – a $5.5m loss on hisinvestment, according toWine Spectator magazine.

Jackson was not the onlyforeigner to enter theArgentine wine businessonly to discover that itcould be a minefield ofhandshake deals, erraticgovernment policy and eco-nomic collapse.

“The growth and excite-ment that Argentina hasproduced continues toattract people. But Argen-tina is not an easy-to-deal-with country,” says JoséManuel Ortega, the Span-iard who runs Mendoza’sO. Fournier winery.

About $1.5bn wasinvested in the Argentinewine industry in the 1990s,about two-thirds of whichcame from foreign wine-makers. This led to a surgein exports from $128m in2002 to $920m in 2012,according to the InstitutoNacional de Vitivinicultura,the Argentine wine agency.

But high inflation and

import restrictions in thepast two years illustratethat doing business inArgentina can be difficult.For foreign investors, it is areminder that successrequires creativity and awillingness to do things theArgentine way.

It was a shortage of thatwillingness that hurt Kend-all-Jackson.

From the start, Kendall-Jackson had problems get-ting enough water to itsland, which was outsideMendoza’s traditional vine-yard zone, as well as diffi-culties importing the USplants it wanted.

“There was a way wewanted things done: how tomake wine, how to growgrapes, how to do the finan-cial records,” Mr Ullomsays. “We’re very strict andhave some very focusedplans. It’s our way or thehighway.” In the end, therigid Kendall-Jackson chosethe latter path.

Foreigners in Mendozahave since learned from Ken-dall-Jackson’s experience.But overseas investors areagain facing tough times.Inflation has been about 25per cent a year since 2010and the national governmenthas instituted import con-trols to stem the outflow ofcentral bank reserves.

For Mendoza winemakers,this means higher costs,scarce supplies andsqueezed margins. The costof making wine has doubledin the past four years, saysValeria Mutis, an analyst atRabobank.

“The biggest problem theindustry is facing is a lossof competitiveness,” MsMutis says.

According to CaucasiaWine Thinking, a marketanalysis company, in thefirst nine months of 2013,Argentina exported 220.3mlitres of wine for $640.6m,down 19.8 per cent and5.5 per cent respectively onthe same period of 2012. Theentry level has been espe-cially hard hit: exports ofbottled wine under $18/casehave fallen by 37 per cent.

In response, vintnershave become more creative.

Argentina’s government

encourages exports byrefunding various taxes toexporters, but it does soslowly. To cut the wait,Pato Reich, the Chileanchief executive of Renacer,his family’s Mendoza win-ery, sells wine to local com-panies that need to exportin order to get permissionto import other goods (agovernment requirement).

They export for Mr Reichand handle the refunddelay. “There are a lot ofrules that change day today, so you have to be flexi-ble,” he says.

Mr Reich has also learnedto plan. After he was unableto import label paper, mak-ing it impossible to shipexports worth about$400,000 a month, Mr Reichbegan to stock 10 months’supply of corks, paper andbottles, up from a threemonths’ supply before. Theproblem, he says, is that itties up $200,000 of workingcapital.

Foreign owners also haveto learn that business inArgentina runs on friend-ship. After applications toimport oak barrels wererepeatedly rejected, MrOrtega from the O. Fournierwinery explained his prob-lems to Marcelo Barg, agro-industry minister for Men-doza, at a winery dinner.

The barrels werepromptly approved, just intime for the 2013 harvest.“You have to go and plead,”Mr Ortega says.

There have been someencouraging signs of late.Carlos Clément, a Mendozashipping agent, says all butone of his barrel importrequests have beenapproved.

And Argentina is allow-ing the official pesoexchange rate to devalue,thus easing inflation’s biteon exporters.

In the end, foreign wineinvestors have to learn thelesson of Kendall-Jackson,and understand that Argen-tina is cheaper because lifeis more difficult there.

As they say: you can’thave your cake and eat ittoo.

Kendall-Jackson experienceoffers vital lesson for investorsBusiness environment

Success requires awillingness to dothings the Argentineway, says Ian Mount

‘There are a lotof rules thatchange dayto day, so youhave to be flexible’

Missteps: in Argentina, Jess Jackson was unable to replicate the success of his US business

Love brought Torey Novak toMendoza. The US nationalmet his girlfriend at univer-sity four years ago anddecided to move to Argen-

tina. Now he speaks fluent Spanishwith a Mendocino accent, and runs atourist attraction that capitalises on asideline to Mendoza’s better-knownculinary and oenological attractions:olive oil.

“We’ve planted an Italian variety ofolive tree that grows better here thananywhere else in the world,” he saysof the premium oil served as part of abroader tourist offering at BodegasZuccardi, a winery which, like somany in Mendoza, offers its visitors amix of drink sampling, food and, ofcourse, olive oil.

Diversification into the kind ofattractions that visitors might moreoften associate with, say, Italy, ischaracteristic of Mendoza’s end-of-the-world cosmopolitanism. It alsoshows how local businesses are seek-ing to broaden the state’s appealbeyond its world-famous wines.

“Most people come here because ofthe wine, especially Malbec. But thenthey arrive and are struck by theAndes and its rugged scenery,” saysPedro Rosell, founder of Discover theAndes, a tour company that offersvisitors private excursions into thesnow-capped mountains that line thestate’s western border.

As one saying goes, Punta del Estefor its beaches in the summer, Men-doza for its polo and wine in the win-ter. To those core attractions shouldalso be added skiing, rock climbingand white water rafting.

“Over the past 10 years, the numberof tourists coming here has doubled,”says Cecilia Gatta, head of planningand innovation at Mendoza’s tourismministry. “Last year, we had 2.7m vis-itors; in 2003, we had 1.2m. To meetthat increase requires better infra-structure.”

To some extent, Mendoza is alreadyfairly well-endowed with tourist infra-structure. A province with 1m inhab-itants, which in some ways still hasthe air of a small village where asummer siesta remains almost obliga-tory, Mendoza has 130 wineries thatare open to the public, a plethora ofrestaurants and budget hotels, andsix five-star establishments.

Indeed, the bigger challenge for

potential investors is less a want ofphysical infrastructure than a desper-ate need for better institutional infra-structure, especially when it comes tonational economic policy.

“Today the biggest investment risksare the country’s broader economicpolicies,” says David English, anotherNorth American who came toMendoza out of love – this time forthe state’s climate, people and the

business opportunity of helping otherforeigners who felt the same wayas he did to set up small vineyardsand hotels. “Inflation and the con-stant changing of the tax rules . . . canmake buying properties a difficultand confusing process,” he adds.

Rodrigo López, managing partner atNB Travel, a Mendoza-based travelagency, points to the same problem,which makes “us less competitive

Tourists get taste of the good lifeOutdoor pursuits Skiing, climbing and polo are all on offer before dinner, saysCamila Bretón

Hit with the tourists: polo lessons are one of the attractions of the region

against Chile, which has many of thesame attractions and is only fourhours away”.

High inflation and lack ofcompetitiveness are a commonbugbear cited by all Argentinebusinesses, which frequently bemoanthe erratic state of national economicpolicymaking.

Indeed, such factors might helpexplain why the majority of Men-doza’s visitors are Argentines forwhom there can still be good value intravelling within the country, espe-cially as low interest rates and highinflation mean there are few opportu-nities to save their pesos – so betterto spend them instead.

About 75 per cent of Mendoza’s visi-tors are Argentine nationals, whilethe largest other groups are Chileans,at 12 per cent, and Brazilians, at 3 percent. All told, in 2012, the sectorbrought in 6.8bn pesos, about $680mat black market exchange rates or$1.15bn at the official rate.

But it could bring in more still ifthere were direct flights from SãoPaulo that would bring in additionalBrazilian tourists, who still enjoy thespending power of the highly valuedreal. Aerolíneas Argentinas, the state-owned airline, did have plans for adirect flight to Mendoza’s small air-port, which caters for 140 flights aweek. In the end, a compromise wasreached, with a cheaper onward flightfrom Buenos Aires organised for Bra-zilians flying from São Paulo.

“It’s not quite what we hoped for,but it was better than nothing,” saysFrancisco Pérez, the state governor,who lobbied hard for the route.

Despite such drawbacks, and thebigger macroeconomic obstacles, thetourists keep coming – to drink, eatwell, bask in desert sunshine, watchone of the eight polo tournamentsthat take place each year, or evenlearn to play themselves.

“First we take visitors to the Clubde Campo, where a professionalteaches them polo. Then we takethem for a premium wine tasting atthe Bodegas Escorihuela Gascón,followed by lunch,” says GabrielCasals, a director of tour organiserWines & Polo.

With that kind of mix, it is nowonder that some visitors end upbuying a few hectares of vines forthemselves.

Carlos Kawal has a broad grin on hisface as he poses for a photographwith his family in front of the smallvineyard he has just acquired. Themagnificent peaks of the Andesmountains rising steeply behind pro-vide the perfect backdrop for thecommemorative shot.

Then everybody sets about plantingthe first vines under the scorchingmidday sun of the Uco valley and,although the work is hardly strenu-ous, after little more than 10 minutesof toil, everyone decides it is time forlunch.

Fortunately, someone else willplant the rest of the vines. That isexactly why Mr Kawal, an economistand former treasury secretary ofBrazil, has signed up to Vines ofMendoza, an innovative projectthrough which enthusiasts can buy afew acres of land, plant the vines oftheir choice and make their ownwine.

The hard work – the maintenanceof the vineyard, the harvest, the fer-mentation process, bottling and label-ling, and the tedious logistics ofexporting the final product to a cho-sen location – will all be done byVines of Mendoza staff.

The fun parts – choosing what kindof grape you want to grow, devisingyour own name and label for thewine, and of course drinking it – youcan do yourself.

Mr Kawal, who spent most of theprevious afternoon assiduously tast-ing various blends of wine, is oneof more than 120 investors fromcountries that also include the US,Canada, Australia and the UK whohave bought lots of between 3-10acres at the 1,500-acre estate run byVines of Mendoza.

After its first private vineyardswere planted in 2007, the debut har-vest came in 2010. Last year, no fewerthan 230 wines using 18 varieties ofgrape were made.

“As far as I know, it’s the firstproject of its kind in the world,” saysMichael Evans, a former internetentrepreneur who co-founded theproject.

A US citizen, Mr Evans first cameto Mendoza in 2004, fresh from work-ing on John Kerry’s presidential cam-paign. Glimpsing something of Cali-fornia’s Napa Valley of the 1970s, MrEvans devised the plan that allowswinelovers to make their own winewithout any of the hassles that man-aging a vineyard entails – not tomention the huge upfront costs ofbuilding a winery.

Indeed, there’s an old joke in thewine business: “How do you make asmall fortune from a vineyard? Startwith a large fortune.”

Mr Evans’ idea has caught on. Thenearby O. Fournier winery, whichproduces some of Argentina’s mostcelebrated wines, embarked on asimilar project last year, with morethan a third of its 84 plots sold orreserved.

That is in spite of some moreskittish investors being turned off byArgentina’s notoriously unstablebusiness climate. José ManuelOrtega, owner of O. Fournier,says two prospective buyers changed

their minds after the expropriationof the stake in YPF, the Argentine oiland gas group, owned by Spain’sRepsol. Another was discouragedby a negative experience withAerolíneas Argentinas, the local air-line.

At O. Fournier, those that take theplunge are charged about $150,000per hectare, the harvest from whichcan produce about 3,000 bottles ofmedium-quality wine a year –although the precise amount dependsentirely on the quality of wine thateach separate owner prefers.

Buyers include one of the richestfamilies in Brazil, oil executives andwealthy bankers, including a numberof senior executives at JPMorgan, theUS bank.

“But no footballers or pop stars.We’re not aiming for the Messis orMadonnas of this world. We don’twant any paparazzi here,” says MrOrtega. “It’s a place where people canrecharge their batteries and havepeace of mind. That’s priceless forrich people.”

Winemaking madeeasy for DIY vintnersViticulture

Choose your grape variety,come up with a name andleave the rest to the experts,advises Benedict Mander

‘We’re not aiming for theMessis or Madonnas ofthis world. We don’t wantany paparazzi here’

FINANCIAL TIMES WEDNESDAY NOVEMBER 13 2013 ★ 5

Doing Business in Mendoza

Miguel Galuccio is show-ing the strain. He tookover as chief executive ofYPF a year ago, justafter the Argentine gov-

ernment had nationalised the 51 percent stake in the Argentine nationaloil company owned by Repsol ofSpain. It was an unenviable task,even for such a respected engineer.

Argentina is, in many ways, a hos-tile environment for business, givenits exchange controls, high inflationand cumbersome bureaucracy.

Yet since Mr Galuccio took over atYPF 18 months ago, the company’sshare price has doubled, investmenthas risen from $2bn in 2012 to $5bnthis year and exploration activity hasincreased threefold.

Mr Galuccio has also managed toturn round falling production in bothoil and gas – YPF has suffered a dropin hydrocarbon output of 7 per centon average over the past decade.

In addition, he led a $150m bondissue in New York in September,despite Argentina’s ongoing battlewith creditors, who have often soughtto impound sovereign Argentineassets abroad.

No wonder, then, that the 45-year-old is looking wan – it probably doesnot help that he is just off an over-night flight from Europe, where hewas courting investors to developArgentina’s vast shale reserves.

“I’m very pleased with YPF’sresults,” he says, adding – about thecompany, although he could just aswell be talking about himself – “wehave to be careful not to overdo it.

“The key is to grow profitably with-out destroying value,” he says, play-ing the role of shareholder value-conscious chief executive rather thangovernment placeman.

Central to Mr Galuccio’s strategy isthe plan to tap the immense VacaMuerta shale reserves, much of whichlie in Mendoza, alongside the state’ssizeable conventional oil resources.

Mendoza’s conventional reservesaccount for about a fifth of YPF’s oilproduction, and it is home to one ofthe country’s most important refiner-ies. “It is the only province in Argen-tina that is completely [energy] inte-grated,” says Mr Galuccio.

Although he concedes that it couldtake several years before develop-ment starts in Mendoza’s portion ofVaca Muerta, as opposed to the sharein the neighbouring state of Neuquén,the province remains a vital cog inthe workings of YPF.

One of the biggest challenges, how-ever, is securing funding. Hence theimportance of September’s bondissue. “It was something small to testthe waters,” says Mr Galuccio of the$150m sum.

YPF was able to raise the money atless than 8 per cent, compared with

double-digit rates on the country’ssovereign debt.

YPF has also been raising debtlocally at even lower interest rates.About half of YPF’s debt is in localcurrency, compared with as much as90 per cent in foreign currency beforethe nationalisation.

However, perhaps Mr Galuccio’smost significant achievement hasbeen to secure a $1.2bn deal withChevron to explore and develop aconcession in Vaca Muerta.

It was trumpeted as proof that alarge international company withshale gas experience trusts Argen-tina. YPF hopes the deal will encour-age other companies to follow suit.Dow, the US chemicals company, hassince signed a smaller deal.

Oil chief winsplaudits as YPFseeks fundingfor shale project

Resources Miguel Galuccio is working hardto attract investors, reports Benedict Mander

Respected: Miguel Galuccio, YPFchief executive, is seekingforeign investors to finance theVaca Muerta shale project AP

The arid semi­desert scrub thatcovers most of Mendoza conceals oneof the great unexploited riches notjust in the province, or even thecountry – but in the world.

The gigantic shale formation atVaca Muerta, which in Spanish meansDead Cow, is one of the most talked­about prospects of the global oil andgas industry, with the potential toattract investors to the region foryears to come.

According to the US EnergyInformation Administration, VacaMuerta is home to the fourth­largestshale oil reserves and second­largestshale gas reserves in the world.

While preliminary wells are beingdrilled in the neighbouring province ofNeuquén, after Chevron, the US oiland gas group, signed a deal to investan initial $1.2bn, Mendoza’s portion ofthe formation – which accounts for asmuch as a third of the total – hashardly been touched.

This is expected to change overthe coming decade if a range ofgeological, technical and financialchallenges can be overcome –principally the need to secure thebillions of dollars that are needed.

But with Argentina shut out fromcapital markets since its 2001 default,YPF, the state energy company, hasto rely on attracting foreign investorsinto joint ventures.

Aside from the Chevron deal, andsmaller investments from Dow of theUS and Germany’s Wintershall –interest has been limited. Hopes of asizeable investment from Bridas, theSino­Argentine company half­ownedby China National Offshore OilCorporation, has yet to materialise.

Other commonly raised issuesinclude high inflation, export tax,limitations on importing goods andservices, restrictions on the right toremit profits abroad in dollars, highlabour costs and insufficient skilledlabour, according to Jose Valera,co­head of oil and gas at MayerBrown, a Houston law firm.

Alejandro Bulgheroni, the investorwhose family owns the other half ofBridas, says cutting operational costsis central to allowing Vaca Muerta tocompete with similar projects aroundthe world. For example, the cost of ashale well in the US is about $3m,compared with $7m­$8m in Argentina.

“Large investments and severalyears of work are needed for thecurrent good expectations to becomereality,” Mr Bulgheroni recently told anenergy conference in Buenos Aires.

Benedict Mander

Exploration begins at‘Dead Cow’ formation

“Things are working out,” says MrGaluccio. “Everything we said wouldhappen is happening.”

Nevertheless, YPF faces big chal-lenges, most obviously in the form ofthe government’s continuing disputewith Repsol, which is demanding$10.5bn in compensation for its expro-priated assets.

Antonio Brufau, the Spanish com-pany’s executive chairman, rejectedArgentina’s proposal this year that,as compensation, Repsol would begranted a 47 per cent stake – esti-mated to be worth $3.5bn – in a jointventure to develop Vaca Muerta. TheArgentine government would alsoprovide Repsol with a bond worth$1.5bn, but this would have to be rein-vested in Argentina, along with acommitment to invest more todevelop the asset.

Mr Galuccio has found himselfcaught in the crossfire. “Not everyoneunderstands that this is a conflictbetween two shareholders – the stateof Argentina and Repsol. I am thechief executive,” he says, underliningthat his duty is to defend the value ofthe company for its shareholders.

“It cannot be that one shareholder,Repsol, should try to take YPF hos-tage,” he adds.

There seem to be two options: anegotiated solution, or a court settle-ment. “It would be better to reach anagreement,” says Mr Galuccio, whogoes on to discuss a possible role forPemex, Mexico’s state oil company, innegotiating a concord.

“We have very close relations withPemex,” he says.

Mr Galuccio knows Emilio Lozoya,Pemex chief executive, from his timein Mexico with Schlumberger, the oilservices company. Analysts have alsopointed out that Repsol needs thesupport of Pemex if it is to expand itsbusiness in Mexico.

Pemex, which owns 9.37 per cent ofRepsol’s shares, has already tried tobroker the deal that Repsol refused.However, Mr Galuccio holds out hopethat it could yet play a role in resolv-ing the conflict.

In addition to the difficulties causedby the Repsol saga, problems in thebroader economy, from basic macro-economic imbalances to governmentstrictures on repatriating profits, willalso make it hard for YPF to continueto attract the investment it needs todevelop the shale reserves.

That may go some way to explain-ing why a much-touted deal withBridas, the Sino-Argentine energycompany, has so far failed to materi-alise. It is hoped that a potentialdeal with Bridas could be of thesame magnitude as the Chevronagreement.

Says Mr Galuccio: “The Chinesecould be very important for us. Ithink it can happen”.

‘Things are working out.Everything we said wouldhappen is happening’

6 ★ FINANCIAL TIMES WEDNESDAY NOVEMBER 13 2013

Doing Business in Mendoza

Fourteen years ago, JoséManuel Ortega received atelephone call that wouldchange his life forever.

“It was the typical call thatcould so easily have gone unan-swered,” recalls the former GoldmanSachs banker, who at the time wasmanaging a $200m private equity fundin Latin America for Spain’s BancoSantander.

The caller alerted Mr Ortega toa bankrupt tomato farm in the Ucovalley, about a 90 minutes drive southof the provincial capital of Mendoza,suspecting that he “might find itinteresting”.

And indeed he did. When the Span-iard arrived at the 263-hectare prop-erty in the shadow of the soaringAndes mountains, he thought it wasparadise.

“It didn’t make sense not to buy it.We got it for the price of the trans-former and a few wells – the landitself was basically thrown in fornothing. Today, it’s worth about 20times what we paid for it,” says MrOrtega, his eyes widening.

So began the story of the O.Fournier winery, one of the pioneersof the Uco valley, along with otherleading bodegas such as the 2,000-hec-tare Salentein estate and Clos de losSiete, the winery of Michel Rolland,the French oenologist.

As well as its wines, O. Fournier isalso famous for the futuristic designof its winery, which has been likenedto the landing pad for an alien shipor the perfect lair for a James Bondvillain.

“It would have been cheaper to hireBrazilian models to hold umbrellas forthe workers,” quips the dry-witted MrOrtega of the distinctive overhangingroof under which farm labourersunload grapes by hand into vats, pro-tected from Mendoza’s scorchingdesert sun.

Despite getting the land relativelycheap, setting up the winery was anexpensive project. Mr Ortega took outfive loans and mortgaged his house tofund the €22m project – of whichabout €4m came from his own pocket.

“When you start making a winery,it’s a money pit. You just put moreand more in,” he says.

“I began with 5 per cent liquidityand I’ve ended up with 14 per centalcohol,” he jokes.

Although Mr Ortega bought theland in 2000, and set about planting itright away, construction of theambitious project – designed by localarchitects Eliana Bórmida and MarioYanzón – did not begin until 2002.

At the time, Argentina was in themiddle of a financial crisis, andO. Fournier was the biggest construc-tion project – perhaps the only majorone – in Mendoza that year.

No expense was spared or detailignored. “Either you do it correctlyor not at all,” says Mr Ortega,stressing the numerous details that

Former banker indulges his taste for liquid assetsVintnerO. Fournierowner has no regretsover his career choice –even if hewill neverget to taste his bestvintages, writesBenedictMander

‘Former colleagues atGoldman may be richerthan me but they are alljealous of what I have here’

Nose for success: José Manuel Ortega’s attention to detail is such that his is one of the few wineries in the world that uses three different fermentation techniques

go into making his wine special.“Each one in itself may not be

such a big deal, but if you do themall, it will make a difference,” heexplains. For example, O. Fournier isone of the few wineries in the worldto use three different fermentationtechniques.

It has not been easy. The businessclimate in Argentina has becomeincreasingly challenging under thegovernment of Cristina Fernández,the populist president.

Price and currency controls havemade life especially complicated – MrOrtega complains that he was not ableto import French oak for his barrelsfor more than six months.

With costs rising and profitssqueezed in his wine business, MrOrtega has diversified the project intotourism, with a top-end restaurant onthe property, and plans to start build-ing a luxury hotel.

He is also selling off small plots ofland to investors, who will be giventhe opportunity to make their ownblends of wine at his winery.

And although he has sacrificed thelifestyle of a high-flying banker – heno longer gets his suits tailor-made inLondon’s exclusive Savile Row butbuys them in Shanghai when on tripsto promote his wine – Mr Ortega hasno regrets.

“When I meet up with my formercolleagues at Goldman, they may allbe richer than me but they are alljealous of what I have here,” he says.“I didn’t get into the wine business tomake money. I got into it to do some-thing unique. I’m more interested inlegacy.”

He admits he will never get to tastehis vineyard’s finest wines – it willtake decades for the still-young vinesto mature.

“That,” he adds, “is a pleasure I willleave for my children.”

More at FT.comFrom university to winery●Q&A Nicolás Catena’s former lifeas a professor of economics giveshim a unique advantage in continuinghis family’s prestigious winery. Thehead of Bodega Catena Zapatareveals the secret to making a greatvintage and explains how his previouscareer has influenced his approach.

www.ft.com/mendoza