New Pricing Scheme for Legacy Power Generators, Co-generators and Self-generators: Amendment to Resolution 31/2020 of the Secretary of Energy

On May 21st, 2021, the Secretary of Energy issued the Resolution No. 440/2021 (“Resolution 440”), which most relevant aspects are singled out below:

  1. Resolution No. 31/2020 (“Resolution 31”) is abrogated by Resolution 440, including the remuneration adjustment mechanism set forth in said Resolution 31.
  2. A new pricing scheme applicable to the Wholesale Electricity Market Generator Agents of Tierra del Fuego’s (WEMGATDF) is contemplated.
  3. WEM Agents included in Resolution 440 are required to waive any prior or future administrative claim against the National Government, the Secretary of Energy or CAMMESA, regarding the implementation of the remuneration adjustment mechanism provided in Resolution 31.
  4. Finally, CAMMESA is instructed to re-settle any economic transaction starting on February, 2021, thereof.

The purported aim of Resolution 440 is to mitigate the effects of the economic situation as a result of the economic crisis and COVID-19 pandemic, as a way to ensure the sustainability of the WEM under economically reasonable and efficient conditions.

Below is a summary of Resolution 440 most relevant aspects:

1. Scope of Resolution 440

A new remuneration mechanism for conventional and renewable generation, cogeneration and self-generation, operating without a PPA, has been approved, effective as of February 1st, 2021.

2. Changes in the remuneration conditions of the Generating Agents

Resolution 440 provides for a new remuneration scheme for the WEMGATDF and WEM Agents, with increases in around 29% when compared to repealed Resolution 31, with effects starting on February 2021.

Unlike abrogated Resolution 31, Resolution 440 does not include a remuneration adjustment mechanism.

3. Waiver under Resolution 440

WEM Agents included in Resolution 440 which choose to benefit from Resolution 440 are required to waive any prior or future administrative claim against the National Government, the Secretary of Energy or CAMMESA, regarding the implementation of the remuneration adjustment mechanism provided in Resolution 31.

Such waiver shall be submitted no later than June 21st, 2021.

For those WEM Agents which chose not to submit such waiver, they shall continue receiving the remuneration set forth in Resolution 31 and forfeit they right to receive the retroactive amounts provided in Resolution 440.

If such waiver is submitted later than June 21st, 2021, they shall receive the new remuneration set forth in Resolution 440 but will not be entitled to receive said retroactive amounts.

 

For further information, please contact either Nicolás Eliaschev or Javier Constanzó.

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News in the Oil Upstream Sector: Argentina Fixes Local Crude Oil Reference Price

On May 19th, 2020, Decree No. 488/2020 (the “Decree”) has been issued by the National Executive, which fixes the local crude oil reference price locally produced and delivered (known as the Criollo or domestic barrel) at US$ 45 per barrel, with effects up to December 31st, 2020.

Furthermore, among other relevant matters, the Decree:

  1. Establishes a 0% rate for export duties if the international crude oil price is below US$ 45 per barrel.
  2. Foresees certain obligations for producing, trading and refining companies.
  3. Includes certain restrictions applicable for those companies in connection with the FX market.
  4. Limits the ability to import crude oil.
  5. Updates the values foreseen for penalties under the Hydrocarbon’s Law.

According to the Decree’s recitals, this measure is enacted in order to allow oil producing companies to cover operational costs and sustain the activities and/or production levels prevailing prior to the beginning of the epidemiological crisis, taking into account the current demand shrinkage caused by COVID-19. In addition, the Decree holds a special consideration to the strategic dimension of non-conventional hydrocarbons production in Vaca Muerta.

Below is a summary of the Decree’s most relevant aspects:

1. Domestic oil barrel price

The Decree is effective immediately and the domestic price set forth therein is valid until December 31st, 2020, unless as stated below.

Crude oil produced and delivered in the local market shall be invoiced by producing companies and paid by refining and trading companies considering the Medanito crude type oil price of US$ 45 per barrel (US$ 45/bbl) as reference. This price shall be adjusted concerning each crude type for quality and charging port, according to the usual practice in the local market, and shall also be applicable for payment of royalties to Provinces.

Should at any time the “ICE BRENT PRIMERA LÍNEA” price exceed US$ 45 per barrel for ten days in a row, the domestic price established by the Decree shall cease to be in effect.

2. Obligations of the producing companies

While the domestic price is in force, producing companies are compelled to:

  1. Sustain the activity and/or production levels registered during 2019, taking into consideration current local and international demand shrinkage, and always within the adequate and economic operation parameters established in article 31 of Law No. 17,319.
  2. Comply with the regional services contracts and maintain the employee payroll which was in place in December 31st, 2019.

3. FX restrictions

During the validity term of the domestic oil barrel price, the producing companies which benefit from such price, shall not be able to access the FX market for the structuring of foreign assets nor have the ability to operate in the blue chip swap market.

4. Refining and trading companies’ obligations

The refining and trading companies shall purchase the total crude oil demand to local producing companies, considering the crude quality required by the refining processes and in accordance with the price established in the Decree. For integrated companies, the purchase shall be held with 2019-standards if the crude acquisition exceeds their own production and the subsidiary ones.

Companies shall not be able to import products available in the local market.

5. Export duties for oil and derivatives

For the calculation of the rate applicable for export duties, the Executive Power sets the following “ICE Brent primera línea” values: a) Base Value (“VB” in Spanish): US$ 45 per barrel; b) Reference Value (“VR” in Spanish): US$ 60 per barrel; and c) International Price (“PI” in Spanish): the one published the last business day of every month by the Secretary of Energy, based on the last (5) “ICE Brent primer línea” prices” taken from the “Platts Crude Marketwire” with the “Future Settlements” heading.

For those purposes, the last business day of every week, the Secretary of Energy shall assess the monthly average prices and, if the difference between that price and the actual valid price were to exceed 15%, it shall establish a new price, which shall enter into force the following business day.

Accordingly, the Decree stipulates a 0% rate for duty exports when the International Price is equal or lower than the Base Value.

On the contrary, if the price is equal or higher compared to the Reference Value, the duty rate shall be set forth in 8%. Otherwise, if the International Price were to be higher than the Base Value and lower than the Reference one, the rate shall be determined through the following formula: Duty rate = {PI-VB/VR-VB} x 8%.

6. Taxes.

The increase on Liquid Fuel and Carbon Dioxide Taxes pursuant the updates corresponding to the first and second trimester of 2020 shall enter into force for unleaded and virgin oil, and gas oil as of October 1st, 2020.

7. Updates on fines values

Fines that may be imposed by the concession grantor under Law No. 17,319 have been updated, whereby the new fine values established are the following: minimum amount equivalent to the value of 22 m3 of the national crude oil in the local market and a maximum amount equivalent to 2.200 m3 of the same hydrocarbon for every breach.

8. Delegation of powers to the Secretary of Energy

The Executive Power has awarded the Secretary of Energy the authority to modify the crude oil prices foreseen in the Decree on a quarterly basis, as well as to periodically revise the extent of this measure pursuant the production volume and levels of activity and investment.

Likewise, the Secretary of Energy shall verify the non-realization of monopolistic conducts by every subject of the oil chain of production. To exercise this supervision authority, this public body shall consider objective standards of production and shall consider the consequences provoked by COVID-19 pandemic.

An interview made by the Law Journal of Universidad San Andres (Revista Jurídica de la Universidad de San Andrés) to our partner Nicolás Eliaschev including further analysis and opinion about the Decree can be accessed by clicking or tapping here (in Spanish).

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

In the following link, you can access the Firm’s statement on COVID-19.

For information concerning COVID-19 legal implications, please refer here.

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COVID-19: Standards for Electricity Distribution

On May 16th, 2020, Resolution No. 35/2020 (the “Resolution”) was published in the Official Gazzette, in which the Electricity Regulatory Authority–in Spanish Ente Nacional Regulador de la Electricidad–(“ENRE”) authorizes certain EDENOR and EDESUR users reached by the mandatory isolation measures established by Decree No. 297/2020 (as amended) to either suspend payments or make partial payments on account of the contracted capacity through supply agreements; or otherwise, to terminate the contract or require an amendment.

1. Benefited users and periods comprised

EDENOR and EDESUR users belonging to categories T2, T3 and Toll (i.e. medium to large users) whose power demand was reduced in 50% or more as a result of isolation measures, may resort to the alternatives provided in the Resolution for payments accrued since March 20th, 2020 and pending subsequent periods.

2. Benefit’s extension and payment facilities

For users which have opted to whether suspend or make partial down payments, this benefit will terminate when the demand recovery reaches 70% of its contracted capacity. In addition, users who resort to this option shall pay debt accrued pursuant to criteria to be determined by ENRE.

3. Distribution companies’ obligations

Distribution companies shall communicate to users the extent of the different options authorized and refer a weekly report to ENRE with the contractual suspensions, modifications and/or terminations based on the Resolution.

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

In the following link, you can access the Firm’s statement on COVID-19.

For information concerning COVID-19 legal implications, please refer here.

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Renewables and Distributed Generation: Between Promises and Reality During COVID-19 Times

As the worldwide oil prices volatility show, the energy industry has not been left unaffected by the global crisis caused by COVID-19 pandemic.

During these hard times, it is worthwhile to wonder about the present and the future of the Argentinian electricity sector and the potential to turn the crisis into an opportunity.

In the attached report, we argue that price volatility of energy commodities and the current and future presence of health and environmental disruptive threats, advice to keep betting for diversification of the electricity mix as the best path to ensure security and continuity for long-term power supply.

Under this context, the report summarizes the main aspects of laws and regulations targeting renewable distributed generation which have shown strong consensus in the country as we further claim that fostering renewable distributed generation such as our current policy does, seems convenient under existing circumstances.

The report also includes preliminary remarks regarding the following issues:

1. Short-term relevant needs of the electricity sector

  1. Preservation of payment cash flow and short and mid-term economic and financial sustainability of all industry players.
  2. Termination of emergency under Law 27,741 during the legal period provided thereof and operation of the electricity sector under the rules of Law 24,065.
  1. Short-term focus for renewables
  1. Possibility of extending commercial operation dates and intermediate milestones in power purchase agreements corresponding to projects under structuring and/or advanced construction affected by the health crisis and measures adopted consequently either in Argentina or abroad.
  2. Assessing on a-case-to-case basis opt-outs and/or voluntary renegotiation of power purchase agreements for projects with no activity prior to March 12, 2020 (date under which the health crisis was declared), using uniform and non-discriminatory approaches.
  1. Long-term decisions
  1. Definition of transmission infrastructure expansion structure and planning for deployment for additional capacity of renewables for complying with the goal of 20% of consumption for 2025.
  2. Technical and financial evaluation of expanding such consumption target beyond 2025.
  3. Continuity of the electricity mix diversification, evaluating the role of efficient thermal, nuclear and hydropower technologies.
  4. Assessment of new technologies to strengthen the system and supplement the development of Distributed Generation, including power storage, smart metering, demand management and electric mobility.
  5. Assessment of opportunities to boost regional integration and cooperation for spot and long-term exchanges of natural gas destined to power generation and, power itself, with nearby countries.

Download Report

In the following link, you can access the Firm’s statement on COVID-19.

For information concerning COVID-19 legal implications, please refer here.

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COVID-19: Complementary Rules to Public Utilities’ Ability to Interrupt their Services and LPG Price Caps

On April 18th, 2020, Resolution No. 173/2020 (the “Resolution”), enacted by the Ministry of Productive Development (“MDP”), was published in the Official Gazette. The Resolution has regulated the terms of Decree No. 311/2020 (the “Decree”) related to restrictions over public utility operators’ ability to interrupt the supply of services such as electricity supply, gas, running water and sewage, fixed or mobile telephone and internet, and cable television, linked by satellite or radio-electricity, to certain users in case of delay or lack of payments up to (3) consecutive or alternated invoices with due dates since March 1st, 2020, and enforced price caps liquefied petroleum gas (LPG) by fixing prices for 180-days.

Below you may find a summary of the Resolution’s most relevant aspects:

1. Creation of a coordination unit

A coordination unit is incorporated, entrusted to elaborate a report which shall indicate the number of users comprised by the Decree. This unit will be staffed by members of the MPD and representatives of ministerial bodies with powers on these matters, as well as authorities from the regulatory entities of each public utility.

2. Obligations of the public utilities’ providers

Public utilities’ providers must provide a list of all the users that may be subject to service interruption, in order to allow the coordination unit to prepare the report referred above and determine whether such cuts should be left without effect.

In turn, electricity distribution companies must inform to national and provincial regulatory entities, the federal Secretary of Energy and the coordination unit, the number of users with electricity pre-paid service, whose recharge corresponding to March, 2020 period and/or subsequent ones were not carried out in time, and will have to be provided of a normal service during a (180) day-term. The same obligation goes for companies providing telecommunications, Internet, and cable television service, whilst in this case, the report must be referred only to the Coordination Unit on a (15) running days term, counting since the Resolution’s publication.

Should there be any reasonable doubt regarding a user’s capacity to become a beneficiary of the Decree’s terms, the Resolution establishes that the providing company must faithfully compel the user to prove such condition before the corresponding regulatory body on a (5) day term. Within the subsequent (5) days, the authority will notify the company if that user is a beneficiary of the Decree and Resolution’s dispositions.

Moreover, article 6 of the Resolution bounds the public utilities to report before the relevant enforcement authorities the conditions of the payment facilities provided to users. In the case of telecommunications, Internet and television service providers, the payment facilities will have to be paid in at least (3) monthly consecutive and equal installments. No interest of any type will be charged.

Lastly, the Resolution imposes the obligation for public utilities to identify in the invoices and web pages the following aspects: the entire Decree’s operative section and the communication channel provided by the regulatory bodies in order for the users to make enquiries and/or require to be a beneficiary of the regime.

3. Flexible communication channels

Service users are enabled communicate by e-mail, Whatsapp and/or other communication channels enabled to that extent, in the context of the current mandatory social isolation.

4. LPG price cap

Finally, the Resolution allows LGP prices to fluctuate below the levels established by article 6 of the Decree, as long as LGP prices fixation mechanisms enable it.

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

In the following link, you can access The Firm’s statement on COVID-19.

For information concerning COVID-19 legal implications, please refer here.

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COVID-19: Private Energy Infrastructure Projects

On April 7th, 2020 Administrative Decision No. 468/2020 (the “Decision”) was published in the Official Gazette, which excludes workers from private energy infrastructure projects of complying with mandatory confinement measures in force. This Decision has been issued by the Chief of Staff as the public authority entrusted to expand or reduce the list of activities and services declared essential in the context of the emergency declared because of COVID-19.

The Decision also establishes that the movement of workers subjected to these rules shall be limited to the strict compliance of this activity and, in all cases, the employers must guarantee health and security conditions instituted by the Ministry of Health.

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

In the following link, you can access The Firm’s statement on Coronavirus.

For additional information regarding legal consequences on the COVID-19 crisis please refer here.

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Interventions in the Electricity and Gas Agencies

On March 17th, 2020 Decrees No. 277/2020 and 278/2020 (the “Decrees”) were published in the Official Gazette, which have ordered the intervention of the Electricity Regulatory Authority—in spanish Ente Nacional Regulador de la Electricidad—(“ENRE”) and the Gas Regulatory Authority—in spanish Ente Nacional Regulador del Gas—(“ENARGAS”) and designated Lic. Federico José Basualdo Richards and Lic. Federico Bernal as intervenors.

The Decrees have been enacted in the context of Law No. 27,541 of Social Solidarity and Productive Reactivation, passed by the National Congress, which declared a public emergency in economic, financial, fiscal, administrative, pension market, rates, energy, health care and social matters for a 1-year term, and entrusted the National Executive to intervene the energy and gas agencies.

Such bill also authorized the National Executive to freeze natural gas and electricity rates under federal jurisdiction and to carry out an extraordinary review of the current rate structure of those activities regarded as public utilities, in the terms of Laws No. 24,065 and 24,076 -which foresee the regulatory frameworks applicable to electricity and natural gas-, tending to a reduction in rates during the current 2020 year.

  1. Term of the interventions

The interventions of the ENRE and ENARGAS will remain in force until December 31, 2020.

  1. Powers of the intervenors

The intervenors are entrusted to:

(i) Conduct an audit and a technical, economical and juridical review in order to further assess the current rate structure for transportation and distribution of electricity and gas within the framework of Law No. 27,541, and are in turn enabled to carry out an renegotiation of such rates and/or undertake an extraordinary review, pursuant to Law No. 24,065 and 24,076, as applicable. Should the intervenors detect anomalies in the context of such revision, they shall inform the National Executive, providing all information and corresponding documents, and suggest the actions and measures which may deem necessary.

(ii) Review the public tendering procedures carried out in order to designate the former board members of the ENRE and the ENARGAS and thereafter, initiate a new selection procedure.

  1. Current members of the ENRE and ENARGAS boards discharged

Current board members of such agencies have been discharged by means of the Decrees.

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

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In the following link, you can access to the publication made by Nicolás Eliaschev regarding certain energy matters of Law No. 27,541.

In the following link, you can access The Firm’s statement on Coronavirus.

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News in the Energy Sector: New Remuneration Structure for Legacy Power Generators, Co-generators and Self-generators

Resolution No. 31 issued by the Secretary of Energy (“Resolution 31”) and published in the Official Gazette on February 27, 2020: (i) has repealed former Resolution No. 1/2019 issued by the former Secretary of Renewable Resources and Electricity Market; and (ii) approved a new remuneration structure for legacy power generators, self-generators and co-generators of the Wholesale Electricity Market (“WEM”). The new regime applies to legacy facilities which do not sell their energy under a power purchase agreement (“PPA”).

The purported aim of Resolution 31 is to adjust the remuneration criteria for generators to ensure the sustainability of the WEM under economically reasonable and efficient conditions. To this regard, the resolution states that energy generation costs must be passed through to final users.

The rationale that Resolution 31 invokes as grounds to its issuance is the abrupt change in the exchange rates which negatively impacted the remuneration structure that was stipulated by the former Resolution No. 1/2019.

The most relevant aspects of the Resolution 31 are outlined below:

  1. Scope of Resolution 31

A new remuneration mechanism for conventional and renewable generation, cogeneration and self-generation, operating without a PPA, has been approved, effective as of February 1, 2020.

  1. Remuneration in Argentine pesos

The new remuneration structure, unlike the repealed Resolution 1, provides that the amounts paid to the WEM agents identified above will be nominated and paid in Argentine pesos.

Former Resolution 1 determined that the remuneration of such was calculated in US dollars and the payment was in Argentine pesos, using for its conversion the exchange rate published by the Central Bank of Argentina "Reference Exchange Rate Communication 'A' 3500 (Wholesale)", of the day before the due date of the economic transactions.

  1. Remuneration adjustment mechanism

Remuneration shall be adjusted on a monthly basis according to a formula based on the Index of Consumer Prices (IPC) and the Index of Internal Wholesale Prices (IPIM), both published by INDEC (the Argentine Statistic Agency).

For further information, please do not hesitate to contact either Nicolás Eliaschev and/or Javier Constanzó.

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Recent deals in renewables. Where do we go from here?

An update of recent developments and an outlook on what to watch-out for in the coming weeks and months in the Argentine energy landscape

  1. Introduction

Renewables expanded significantly in the past years. Currently total capacity for renewables is 2725 MW, with more than an additional of 1500 MW (est.) under construction or commissioning. Once projects under construction reach COD, Argentina will be on track to meet its renewable energy consumption target for 2020 set out by the law at 12% (target for 2021, stands at 16%, for 2023, at 18% and 2025, 20%).

As of December 10th, 2019, a new Administration was sworn-in and certain questions arose regarding policies to be adopted under the new Government.

In an interview, our Partner Nicolás Eliaschev stressed the bipartisan nature of renewable energy policies and recalled that Law 27,191 which sets out renewable energy policy was sponsored by the Administration in place at the moment (Cristina Fernández de Kirchner) and then implemented by the Macri Administration. Eliaschev argued that the new Government had the opportunity to continue along this path.

  1. Recent positive developments and transactions

Although it may be too early to jump into definitive conclusions, the first signs are encouraging, and the current Administration seems to be committed to continuity in this policy area. Among the positive news for the sector, we point out the closing or signing of relevant project finance transactions where we had the honor to represent the lenders:

  • On December 19th, 2019, KfW Ipex Bank disbursed the first instalment of a facility granted for the development and construction of the wind power projects Chubut Norte III and Chubut Norte IV (respectively owned by SPVs controlled by GENNEIA and PAE), totaling 140.88 MW of combined generation capacity. The deal was signed in July 2019. Our Firm acted as Argentine counsel for KfW Ipex, with a team led by partners Marcelo R. Tavarone and Nicolás Eliaschev.
  • On January 14th, 2020, Luz del León (an SPV controlled by YPF Luz) signed a US$150 million project finance facility with BNP Paribas Fortis SA/NV and United States International Development Finance Corporation (DFC) to finance the development and construction of the Cañadón León wind power project for a total 120 MW of generation capacity, located in the Province of Santa Cruz, Argentina. The transaction is the first non-recourse project financing to build a windfarm that will supply electricity under two types of PPAs: a 20-year PPA with CAMMESA under the RenovAr regime, and a 15-year corporate PPA under the MATER regime, both under Argentina’s renewable energy legal framework. The transaction is also the first non-recourse project financing to be signed after the new Administration led by President Alberto Fernández was sworn in. Our Firm acted as Argentine counsel for BNPP and DFC, with a team led by partners Nicolás Eliaschev and Julieta De Ruggiero.

Another positive development is the continuity of Round 3 of the RenovAr Program. On August 2nd, 2019, the prior Administration awarded PPA for projects totaling 260 MW of capacity and the deadline for PPA execution was set for January 24th, 2020.

  • On December 4th, 2019, our Firm, with a team led by partners Nicolás Eliaschev and Juan Pablo Bove, assisted a successful bidder in the execution of nine PPA totaling 112.5 MW, corresponding to nine wind power projects.
  • On January 24th, 2020, our Firm, with a team led by partners Nicolás Eliaschev and Julián Razumny, assisted a successful bidder in the execution of three PPA totaling 30 MW, corresponding to three solar PV power projects. These PPA where among the first executed under the new Administration.
  1. Challenges
  • Delayed projects

Due to various reasons ranging from financial turbulence experienced by the country to more project-specific issues, certain projects, particularly some of those awarded under the RenovAr 2 round, have either fallen behind schedule or have never started construction. The new Administration has committed to review the existing situation on a project-by-project basis and although it has yet to announce a decision, a variety of possibilities may be considered ranging from term extensions, waivers regarding delays or PPA termination.

The outcome of this review will help to assess the real nature of the existing project pipeline. Some projects facing distress may be revived and others that never started might be terminated.

  • Transmission

Once the pipeline is settled as per the above, the picture of transmission availability will become clearer. As of today, should the whole project pipeline be built, transmission would be scarce. If some projects are cancelled, transmission capacity would be freed-up and new projects targeting the corporate PPA market might be developed.

From a long-term perspective, new transmission infrastructure is required, and the new Administration has publicly announced it as a priority. The question on how such goal will be achieved remains open, with a menu that includes PPP models, a BOT contract approach and public works.

  • Sovereign risk

Currently, the country has initiated the first stages of its foreign debt restructuring, involving both the IMF and private bondholders.

If the issue is overcome in an acceptable way for all the interested parties and Argentina achieves a successful, amicable and fiscally sound arrangement, country risk will be bound to lower, opening opportunities to finance energy infrastructure.

Should that not be the case, infrastructure financing will be probably more challenging and done piecemeal.

  1. And what about Vaca Muerta?

The Government has repeatedly and strongly stated that fully tapping into Vaca Muerta’s potential is a top political priority and has committed to foster and protect hydrocarbon investments. However, currently some uncertainty is being faced due to intervention in fuel prices and the sovereign matters described above.

The Administration has announced that it will send a bill to Congress specifically designed to ring-fence Vaca Muerta from political risk and provide strong guarantees for long-term investments. Although initial drafts that have been made available show positive signs, an official bill is yet to be released and we will thus revisit the matter as soon as such information is officially known.

Another issue to watch-out for is the status of the public tender summoned by the prior Administration for the construction of a natural gas pipeline designed to allow Vaca Muerta to pump further volumes of natural gas and ramp up production. Under the current schedule set out by the prior Government, bids were due on March 31st, 2020. Next steps on this process are yet to be announced.

For further information, please do not hesitate to contact either Nicolás Eliaschev, Marcelo R. Tavarone, Juan Pablo Bove, Julieta De Ruggiero and/or Julián Razumny.

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News in the Midstream Sector: Rules for Natural Gas Storage

On November 7th, 2019, Resolution No. 722/2019 issued by the National Gas Regulation Entity (in Spanish, Ente Nacional Regulador del Gas and hereinafter, the “Resolution” and “ENARGAS”, as applicable), has been published in the Official Gazette, which approved the rules for natural gas storage (the “Rules”).

The Resolution has been issued within the framework of: (i) Law No. 24,076 (which contains the main rules for natural gas midstream and downstream), and (ii) its regulatory Decree No. 1,738/1998 (the “Regulatory Decree”), which foresee natural gas storage companies as agents of the natural gas industry.

The key takeaways of the Rules are singled out below:

  1. Scope

The Rules establish the conditions, procedures and requirements that must be complied with by companies willing to own and operate natural gas storage facilities, as well as the requirements that must be met in order to register such facilities under the natural gas storage registry.

Natural gas storage is defined by the Rules in the following terms: “the activity intended to store natural gas in underground or ground level facilities, during a certain period of time, including delivery, storage and further withdrawn, and when applicable, its liquefaction and regasification” and further states that all ancillary activities are comprised therein.

Storage facilities comprised by the Rules are: (i) LNG storage tanks, (ii) CNG and/or in bulk CNG loading and unloading facilities, (iii) LNG regasification and/or liquefaction terminals, (iv) LNG storage “peak shaving” facilities, (v) regasification or liquefaction mobile equipment, (vi) LNG transportation tanks, (vii) underground natural gas storage facilities, and (viii) CNG tanks.

Further, facilities outlined above are also subject to safety regulations and controls that ENARGAS may issue from time to time and must also be operated pursuant to NAG Codes (i.e. applicable local technical codes) and regulations passed by the ENARGAS regarding natural gas storage.

The following facilities are expressly left out from the Rules: (a) facilities aiming to use gas as a fuel for automobile transportation; (b) fuel stations with CNG and/or LNG storage; (c) methane tankers focused on water transportation used to import and export LNG from and towards a storage, regasification or liquefaction facility; (d) hydrocarbon production equipment which run with LNG as fuel, as well as other upstream activities.

The Rules indicate that such facilities must be operated pursuant to the rules, codes and best industry practices, until the ENARGAS issues specific regulation addressing those facilities.

  1. Authorized entities

Companies may carry out natural gas activities insofar a prior authorization issued by the ENARGAS is in place. Such authorization must be issued by the ENARGAS no later than forty-five (45) business days as of the date on which the application is submitted, thereof.

Companies that currently operate natural gas storage facilities are granted with a sixty (60) business day-term in order to begin the registration procedure.

The Rules allow gas transportation and distribution companies to act as natural gas storage agents, whether by their own or throughout a third party or by an affiliate. A separate balance sheet and accounting procedure is required for that end.

Finally, the Rules allow applicants to comply with the requirements set forth therein by way of a Technical Operator (legal entity with experience on administration, management operation and maintenance of natural gas storage facilities, of no less than 5 years).

A Technical Operation Agreement must be entered by and between the applicant and the Technical Operation.

  1. Types of facilities under the Rules

In order to determine the relevant technical requirements for each specific registration, the following categories are established in the Rules:

(i) Large LNG storage: facilities equaling or exceeding 15.000 m3.

(ii) Micro/small LNG storage: facilities of less than 15.000 m3.

(iii) CNG in bulk: facilities which load or unload CNG in bulk or mobile equipment.

(iv) Underground reservoirs: (a) depleted gas reservoirs; (b) salt caverns; (c) water aquifers, and (c) coal bed methane.

  1. Penalty regime

The Regime foresees a penalty regime raging penalties to revocation of the authorization, prior notice and defense by the natural gas storage agent.

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At TRSyM we are available to provide clarifications or further information of any matter addressed above. For further information, please do not hesitate to contact either Nicolás Eliaschev or Javier Constanzó.

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