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:
- Establishes a 0% rate for export duties if the international crude oil price is below US$ 45 per barrel.
- Foresees certain obligations for producing, trading and refining companies.
- Includes certain restrictions applicable for those companies in connection with the FX market.
- Limits the ability to import crude oil.
- 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:
- 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.
- 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.