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Foundations Law: Sale of state-owned companies

The Foundations Law declares subject to sale the following state-owned companies:

1. Energía Argentina S.A.
2. Intercargo S.A.U.
3. Agua y Saneamientos Argentinos S.A.
4. Belgrano Cargas y Logística S.A.
5. Sociedad Operadora Ferroviaria S.E. (SOFSE)
6. Corredores Viales S.A.

Nucleoeléctrica Argentina Sociedad Anónima (NASA) and Complejo Carbonífero, Ferroviario, Portuario y Energético a cargo de Yacimientos Carboníferos Rio Turbio (YCRT) equity interests will be subject to sale as well, to the extent that the National Government retains a majority stake, and a private ownership (PPP) program for the employees is set up.

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For additional information, please contact Nicolás Eliaschev and/or Javier Constanzó.

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Foundations Law: Hydrocarbons and Gas

1. Amendments to Law No. 17,319 on Hydrocarbons

1.1. Scope and goals of national policies

The Foundations Law introduces several amendments to Law No. 17,319 including, activities of storage and processing to the already included activities of exploitation, transportation, industrialization, and commercialization of hydrocarbons, empowering the National or provincial Executive Powers to grant permits, concessions, or authorizations for the transportation, storage, or processing of hydrocarbons. It also adds as the main objective of the national hydrocarbon’s regulation the maximization of the income obtained from the exploitation of the resources.

With regards to processing, it extends the obligation concerning the transportation of hydrocarbons to those authorized to process hydrocarbons of third parties, up to five percent (5%) of the capacity of their facilities. It shall not compromise the safety of the process and the applicant will be responsible for the costs related to the connection to the plant. In the case of liquid fuel processing plants, the service must include the storage service. Refining services and its related storage facilities and natural gas liquefaction plants are excluded.

Regarding storage, the addition of section 44 bis determines that the authorizations for underground storage of natural gas enables the storage in natural reservoirs of depleted hydrocarbons.

Authorizations may be granted in areas subject to exploration permits and/or exploitation concessions of its own or from third parties and in areas that are no longer subject to exploration permits and/or exploitation concessions.

Any other underground storage of natural gas will not require authorization. Storage authorizations shall not have a term.

Likewise, the Foundations Law abrogates certain sections of Law No. 17,319 which originally provided for a notorious participation of the National Government as well as the preference for companies of Argentine capital in hydrocarbon activities. Thus, the Law eliminated, among others, Sections 11, 13, 91, 91, 96 and 101.

1.2. Free market

The Foundations Law ratifies the possession of permit holders and concessionaires over the hydrocarbons they extract. They may freely commercialize it according to the regulations, and the National Executive Power shall not fix the prices in the domestic market.

Concerning the export of hydrocarbons, it enables the free international trade of hydrocarbons -in line with the strategic projects export regime of the RIGI- and they may freely export hydrocarbons and/or their derivatives.

1.3. Exploration activities

The Foundations Law abrogates section 15 of Law No. 17,319 which established prior approval from the application authority to recognition works and its scope. .

On the other hand, it modifies section 21 of Law No. 17,319 regarding the payment of royalties for hydrocarbons extracted during exploration, applying the royalty “committed in the award process”.

1.4. Amendments to the award system

Bidding terms and conditions shall contain the conditions and guarantees that offers must comply and the minimum investments amounts to be made by the successful bidder. Likewise, it shall establish mechanisms to adjust royalties according to the total investments made, the income and the operating expenses incurred, among others. The evaluation of offers shall consider these items, as well as the total project value.

On the other hand, the Foundations Law introduces that existing exploitation concessions, at the end of its term, shall not be awarded without a new bidding procedure. This procedure shall be carried out at least one (1) year prior to the expiration of such concessions.

1.5. Investment regime

Investment regime has been limited to the obligation of the concession holder to carry out, within reasonable terms, the necessary investments for the execution of the works required for the development of the area.

1.6. Canons and royalties

The Foundations Law updates the amounts that the holder of an exploration permit must pay annually and a fee for each square kilometer or fraction, establishing a mechanism to facilitate future updates, according to the following scale:

1. Basic Term:
   1. 1st Period: the equivalent amount of zero point fifty (0.50) barrels of oil per square kilometer in pesos.
   2. 2nd Period: the amount equivalent of two (2) barrels of oil per square kilometer in pesos.
2. Extension: the amount equivalent to fifteen (15) barrels of oil per square kilometer in pesos.

Exploitation concessionaires must pay annually the amount equivalent in pesos to ten (10) barrels of oil per square kilometer or fraction thereof covered by the area.

These royalties will be adjusted according to the average price of an oil barrel of the 'ICE Brent First Line'.

Exploitation concessionaires shall pay monthly a royalty to the grantor for the produced and effectively exploited hydrocarbons, based on a percentage equivalent to the one determined in the awarding process.

In addition, the National or the provincial Executive Power may reduce the royalty up to five percent (5%) considering the productivity, conditions, and location of the wells.

Authorizations to storage gas underground mentioned above shall only pay royalties at the time of its first commercialization.

1.7. Exploitation by foreign entities

The Foundations Law overturns Section 51 of Law No. 17,319, which did not allow foreign public legal entities to submit bids.

1.8. Non-Conventional Exploitation and terms of concessions

It also eliminates the obligation of the exploitation concessionaire to request a new concession for non-conventional exploitation, simplifying the process. They must require the subdivision of the area and the conversion from conventional to non-conventional. The request must be based on a pilot plan that, in accordance with technical and financial criteria, is aimed at the commercial exploitation of the discovered reservoir. This request may only be submitted until December 31, 2028. The enforcement authority will decide within sixty (60) days, and once the reconversion request is approved, the term of the reconverted concession will be thirty-five (35) years computed from the date of the request.

1.9. Modifications to transport concessions regulation

The regime of transportation concessions is modified to a regime of authorizations, if the transporter (i) has technical and financial capacity, and (ii)  has an address in Argentina. The enforcement authority will keep a registry of those authorized to transport hydrocarbons.

The owners of projects and/or facilities for industrialization processes may request an authorization to transport hydrocarbons and/or their derivatives to their industrialization or commercialization facilities. These authorizations shall not have a term.

In the case of transportation authorizations awarded to explotation concessionaires, the authorized parties may request extensions for a term of ten (10) additional years.

The idle capacity of a gas pipeline must be available to third parties for its use, according to the needs of the authorized party. However, they may not act in unfair competition or abuse of their dominant position in the market.

On the other hand, holders of an underground gas storage authorization may request an authorization to transport hydrocarbons to their storage facilities and from these to the transportation system, which shall also not have a term.

2. Amendments to Law No. 24,076 on Gas Regulations

2.1. Exports and imports

While natural gas imports will continue authorized with no need for prior approval, exports must be regulated by the National Executive Power, considering the new wording of Section 6 of Law No. 17,319.

2.2. License renovation

The additional period of extension of the licenses of public services of transport and distribution of natural gas is extended from ten (10) to twenty (20) years. Considering that the original term of thirty-five (35) years expires in 2027, if the renewal is granted, such licenses would expire in 2047.

2.3. Transporters, distributors, and storage

The Foundations Law keeps the obligation to take the necessary measures to ensure the supply of non-interruptible services, and it is added that these, by themselves or by third parties, may acquire, build, operate, maintain, and manage natural gas storage facilities, according to the limitations established.

2.4. Liquefied Natural Gas (“LNG”)

Together with the provisions set forth for the RIGI (see comment to the RIGI, here), other terms applicable to LNG are included.

According to the Foundations Law, LNG exports must be authorized by the Secretary of Energy, within one hundred and twenty (120) days following the request from the relevant party.

LNG export authorizations will be granted for a term of thirty (30) years as of commissioning of the facility.

It is further clarified that it will not be necessary for the applicant to have LNG purchase and sale contracts in place or the total volume for the purposes of granting the LNG export permit. The granting of an authorization will imply the right to export all the volumes authorized in such capacity continuously and without interruptions, restrictions, or reductions, as well as the right to access without restrictions or interruptions to the supply of natural gas or to the transportation, processing, or storage capacity of any kind.

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For additional information, please contact Nicolás Eliaschev and/or Javier Constanzó.

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Foundations Law: Amendments to the Public Works Concession Law No. 17,520

Law 17,520 is subject to several amendments, which include the following:

1. Forms of concession and sole purpose vehicles

The National Executive Power may, acting as grantor, award public works, infrastructure concessions and public services for a fixed or variable term to private companies, acting as concessionaires, for the construction, maintenance or operation of public works, infrastructure or public services by charging of fees, tolls, or other payment conditions.

Special purpose vehicles incorporated solely for the purpose of holding the concession is enabled.

2. Private initiatives

Private initiatives are admissible and shall be analyzed by the enforcement authority. In all cases the financing must be private.

3. Requirements of the bidding process and terms of the concession agreement

Material terms of the concession agreement (e.g., term, payment, allocation of responsibilities) shall be clearly defined in the relevant bidding process, which shall also include:

1. The terms applicable to each party’s obligations, and the consequences which may arise upon either party falling out of compliance with its obligations.
2. The terms of payment, as well as the procedures for revising the contract price to preserve its financial balance.
3. The features to adapt the execution forms to technological advances, financing needs and requirements that may arise during its term.
4. The power of the national public administration to unilaterally establish variations to the contract only with respect to the execution of the project up to a maximum limit of twenty percent (20%) of the total value of the contract, preserving its financial balance.
5. The grounds for termination of the contract due to fulfillment of the object, term-expiration, mutual agreement, default of either party, reasons of public interest or other causes, indicating the applicable procedure, the compensation corresponding to cases of early termination, its scope, method of determination and payment.
6. The right to transfer the contract to a third party if such party meets similar requirements as the transferor and that, at least twenty percent (20%) of the original term of the contract or of the committed investment has passed, whichever occurs earlier. The authority of control must issue a legal opinion prior to authorization by the contracting authority.

Prior to any assignment, the consent of the financiers and guarantors must be obtained, as well as the authorization of the concession grantor.

4. Works financing

The Foundations Law includes certain provisions regarding financing of works to enhance the likelihood of third-party financing, including the following:

In case of economic imbalance in the contract due to causes not attributable to its parties, both parties shall be entitled to renegotiate the contract to re-balance it, or otherwise agree on its termination by mutual consent.

At the time of making its offers, bidders shall indicate the economic-financial equation, explaining the Current Net Value and/or the Internal Rate of Return (IRR).

In the event of force majeure or acts by the Government that cause an alteration of such equation, the term of the concession may be extended. Likewise, in the event of force majeure, the grantor must guarantee the minimum income that may be agreed in the contract.

5. Termination

In the event of termination of the concession contract by the grantor for convenience, limitation of liability laws (e.g., State liability law) shall not be applicable.

The grantor’s decision to terminate the contract by convenience must be duly founded, indicating:

1. 1. the impartial technical reports that justify the termination of the contract;
   2. the causes and the reasons that support a different evaluation of the public interest;
   3. the submission of the determination of the scope of the concessionaire's compensation to the consideration of the technical panel and/or the arbitration tribunal acting within the framework of the contract, in those cases in which the concession contract does not contemplate formulas or other mechanisms for its determination; and
   4. the term of payment of the compensation.

6. Dispute settlement mechanisms

All concession contracts must consider as dispute prevention and settlement mechanisms resolution, conciliation, and arbitration mechanisms to resolve technical or economic disputes between the parties. If matters are not settled through these mechanisms, they may also submit them to a Technical Panel or solve them through Arbitration.

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For additional information, please contact Nicolás Eliaschev and/or Javier Constanzó.

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Foundations Law: Emergency and Government reorganization

1. Delegated powers to the National Executive Power

The Foundations Law awards to the National Executive Power certain powers related to government and emergency matters, according to Section 76 of the National Constitution, for a one (1) year term.

Pursuant to such award, the National Executive Branch has the power to reorganize state-owned companies and the State structure generally.

The National Executive is also empowered to provide, with respect to the State corporations foreseen in section 8 (b) of Law No. 24,156:

1. 1. the modification or transformation of its legal structure; and
   2. its merger, demerger, reorganization, or transfer to the provinces, according to a prior agreement guaranteeing the adequate allocation of resources.

On the other hand, the National Executive Power is authorized to modify, transform, unify, dissolve, or liquidate public trust funds, and discontinue the program for which it was created, except for the Trust Fund for Subsidies for Residential Gas Consumption, created by Law No. 25,565.

2. Renegotiation of contracts

The National Executive, with the prior intervention of the AG office and the Auditing Office, to renegotiate public works agreements and public works services agreements, with grounds of emergency. Such right shall be limited to agreements entered before the approval of the Foundations Law and that are currently suspended, with the objective of facilitating private investment and the restart and finalization of the works subject to such agreement.

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For additional information, please contact Nicolás Eliaschev and/or Javier Constanzó.

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Foundations Law: Large Investments Incentive Regime (RIGI)

The Foundations Law declares large investments as a matter of national interest, thereby creating a stimulus regime applicable to large investments (RIGI, for its Spanish initials, Régimen de Incentivo para Grandes Inversiones), applicable to sole purpose investment vehicles (“SPVs”) that involve long-term investments equal to or greater than US$ 200,000,000 (or US$1Bn for strategic exports), and the criteria set forth in the Foundations Law.

1. Scope, deadline to apply and requirements

The RIGI is applicable to large-investments in the following sectors: forestry, tourism, infrastructure, mining, iron and steel industry, technology, energy, and oil & gas.

SPVs have two (2) years following the approval of the Foundations Law to adhere, term that may be extended by the National Executive Power for an additional one (1) year.

SPVs owning a single project but involving multiple phases will be considered eligible. Admissible SPVs are the following:

1. corporations (sociedades anónimas), sole proprietorships (sociedades anónimas unipersonales) and limited liability companies (sociedades de responsabilidad limitada);
2. branches of companies incorporated outside of Argentina;
3. sole purpose branches; and
4. joint ventures and other form of associative agreements.

Additionally, concession holders of infrastructure works and/or services, which are subject to competition with other concessionaires in their industry, may adhere to the RIGI if an investment plan is submitted pursuant to the general terms of the RIGI, and the remainder requirements set by the RIGI are complied with as well. For additional comments in connection with the amended public works concession law, please access here.

Additionally, suppliers of goods or services may register in the RIGI to be exempted from import duties with respect to the imported merchandise destined to a VPU adhered to the RIGI.

2. Minimum amount of investment

The project investment shall be equal to or greater than US$ 200,000,000, which shall be made on or before the deadline provided in the relevant investment plan, with a minimum investment amount to be made in the initial stages of the project and to be determined by the National Executive (no less than 40% of the total CAPEX).

Investments must have a long tenure, i.e., with a ratio equal or less than thirty percent (30%) between (a) the present value of the expected net cash flow (excluding investments, during the first three years from the first capital disbursement) and (b) the net present value of the capital investments planned during the same period. Such percentage may be amended by the enforcement authority subject to certain requirements provided by in the Foundations Law.

The National Executive Branch may establish a minimum investment amount for certain industries comprised by the Foundations Law, in an amount greater than US$ 200,000,000, but in any case, such amount shall be no greater than US$ 900,000,000.

3. Strategic Long-term Export Projects

A specific regime is set forth for strategic projects with a project investment equal or greater than US$ 1Bn, that contribute to Argentina’s economic reach and strategic positioning on a regional, continental or international scale. Additional terms and conditions applicable to any such project will be defined in the complementary regulations.

4. Tax incentives, customs, and FX regime

4.1. Income tax

1. The Foundations Law foresees a specific Income Tax rate to SPVs of twenty-five percent (25%) applicable over their net taxable income. Thus, the general scale provided by Section 73 of the Income Tax Law will not apply to SPVs.
2. SPVs could choose to apply an accelerated amortization mechanism specifically foreseen by The Foundations Law.
3. SPV’s tax losses that cannot be absorbed by taxable profits from the same tax period may be carried forward and deducted from taxable profits obtained in the following years, not subject to a time limit. After five years, any remaining losses could be transferred to third parties. Losses could be adjusted for inflation, according to the Wholesale Domestic Price Index (“IPIM”, as per its acronym in Spanish) supplied by the National Institute of Statistics and Censuses (“INDEC” as per its acronym in Spanish).
4. Additionally, other adjustments established in the Income Tax Law shall be made considering the percentage variations of Consumer Price Index (“CPI”).
5. Dividends from the SPVs distributed to individuals and undivided states (whether residents in Argentina or not), will be taxed at the rate of seven percent (7%). After seven (7) years from the date of adherence to the RIGI, the rate will be reduced to three-point five percent (3.5%). Payments made by the SPVs that own strategic projects to foreign beneficiaries included in Title V of the Income Tax Law, for maritime leases or charters, for international transportation services, exports, and services included in engineering and construction management contracts, will be exempt from Income Tax.
6. When SPVs make payments not included in the preceding paragraph to foreign beneficiaries, it will be presumed that net income is thirty percent (30%) of the amounts paid (effective rate of 10.5%), unless there is a provision that contemplates a more favorable treatment. Grossing up mechanism will not be applicable to withholding tax made to foreign beneficiaries.
7. Thin capitalization rules (which includes a limitation on the deduction of interests and FX differences for debts with related subjects) will not be applicable during the first five (5) years since the RIGI adherence date.

Finally, the SPVs may compute one hundred percent (100%) of the Tax on Debits and Credits in Argentine bank accounts paid as a tax credit against Income Tax.

4.2. Value-added tax (“VAT”)

SPVs may pay VAT applicable to the purchase, construction, manufacturing, elaboration or import of fixed assets -to their suppliers or to the Tax Authorities (“AFIP” as per its acronym in Spanish) in case of imports of goods- through the delivery of Tax Credit Certificates. SPVs will not be able to compute VAT credits derived from Tax Credit Certificates.

Tax Credit Certificates may be assigned, and the assignee shall not be subject to any claims for AFIP in connection with the use of the assigned credit

4.3. Fees

Imports of capital goods, spare parts, components, among others, carried out by SPVs will be exempt from import duties, certain fees, and any regime of collection, payments in advance or withholding of national and/or local taxes. The ownership, possession or use of the merchandise benefited from this special treatment–except for supplies– cannot be transferred, unless said transfer is made to another SPV.

Regarding exports of goods obtained from the project carried out by the SPVs, they will be exempt from export duties after three (3) years from the date of adherence to the RIGI. In the case of projects declared as strategic exports, such term is reduced to two (2) years.

4.4. Currency regime

SPVs shall be exempted from repatriating hard currency proceeds from exports in the local exchange market, pursuant to the below:

1. twenty percent (20%), after two (2) years of the commercial operation date;
2. forty percent (40%), after three (3) years of the commercial operation date;
3. one hundred percent (100%), after four (4) years of the commercial operation date.

As to projects eligible as strategic-exports, the above periods shall be reduced, and will be as follows:

1. twenty percent (20%), after one (1) years of the commercial operation date;
2. forty percent (40%), after two (2) years of the commercial operation date;
3. one hundred percent (100%), after three (3) years of the commercial operation date.

Additionally, proceeds disbursed under local or cross-border after the approval of the RIGI, shall be bound to no restrictions in terms of its use, i.e., SPVs will not be required to enter and/or settle hard currency in the local exchange market.

Additionally, SPVs are guaranteed, among other aspects, with the full availability of the products resulting from the project, with no obligation to trade them in the local market; full availability of their assets and investments, which will not be subject to confiscatory or expropriatory acts; the right to continue operating without interruption, except by court order; and unrestricted access to justice and other legal remedies available.

5. Exports

SPVs may freely import and export goods for the construction, operation, and development of its Project, without being subject of prohibitions or restrictions, either quantitative or qualitative restrictions of an economic nature. In this sense, they will not be affected by regulations that (i) force them to acquire goods from domestic suppliers under less favorable conditions; (ii) prevent them from constructing and operating new infrastructure for the transportation and processing of project materials, and (iii) affect the stability of long-term export authorizations previously granted.

6. Stability term

A 30-year stability term is foreseen for RIGI projects, including tax, custom, foreign exchange and regulatory stability.

In the case of strategic-export projects that are planned to be executed in subsequent stages, the enforcement authority may extend it up to thirty (30) years after the estimated start date of each stage of the project, provided that the first stage complies with the minimum investment amounts. However, in no case such period may be extended beyond thirty (30) years from the tenth year after the beginning of the first stage of the Project.

Taxes to be applied to SPVs will be those in force at the adhesion date. New taxes created as from the adhesion date and/or increases in existing taxes will not be applicable to SPVs. However, SPVs may benefit from the elimination of taxes or reduction of tax rates that may be established in the future.

7. Transfer of rights, assignments and collateral

Shares, quotas or equity interest in the SPVs may be assigned without the prior consent from the enforcement, provided a notice to such authority shall be delivered within fifteen (15) calendar days following the occurrence of the respective transaction.

Assignments, pledges, or other kinds of collateral transaction shall be informed to the enforcement authority within the same above period, and no prior consent shall be required either.

8. Termination

Regarding termination, upon the occurrence of a force majeure event or unforeseeable circumstances as defined in the Civil and Commercial Code, the SPVs may decide to suspend, close and/or restart the project temporarily or definitively, partially, or totally, without incurring in any liability. The SPVs affected to any such event must communicate such circumstance to the enforcement authority within fifteen (15) days of becoming aware of its existence, explaining whether it is a case of suspension or closure, as well as reasonably justify its decision.

9. Jurisdiction and arbitration

The Foundations Law incorporates the possibility for the SPV to choose between different arbitration tribunals to solve disputes related to the RIGI. A first stage of negotiations is foreseen, following which an international arbitration is to be held.

The arbitral tribunal must be formed by three (3) arbitrators chosen in accordance with the applicable procedural rules and none of them shall be nationals of Argentina or of the state of origin of the majority shareholder of the SPV.

Except for the arbitrations ruled by Convention on the Settlement of Investment Disputes between States and Nationals of Other States, the arbitral tribunal will determine the venue of the arbitral procedure, that must be outside Argentina, in a country party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

10. Other regimes

These benefits may not be accumulated with other incentives of the same nature in pre-existing promotional regimes. However, benefiting from the RIGI will not be incompatible with other present or future programs with incentives of a different nature, if its benefits do not overlap, accumulate, or reiterate.

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For additional information, please contact Gastón Miani, Leonel Zanotto, Nicolás Eliaschev, and/or Javier Constanzó.

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