After a draft of the bill was leaked in June, the Executive ended up submitting a very similar one to the Senate on September 15. The bill is mostly federal in scope and contains provisions that seek to isolate a share of exports from general trade and foreign exchange restrictions as well as provide federal tax benefits –thus leaving key provincial taxes out of the discussion. The entire regime is optional and would only affect companies that opt in.
While some of the incentives seem to fall short of what is needed to reliably attract investment – mainly related to the percentage of free use of production and foreign currency from exports–, the bill could become attractive for the industry if key amendments are introduced in Congress. The coming November 14 elections will also shape the discussion of the bill. Still, past instances where Argentina did not abide by its obligations in similar hydrocarbon promotion regimes may still lead investors to limit their expectations.
The Bill
The bill is being considered by the Mining and Energy Committee and the Budget Committee. It would create a 20-year promotion regime that aims to attract investment by providing different sets of guarantees and incentives across various regimes specific to oil, gas or the downstream sector. The most relevant ones are the following:
• General Regime to Promote Oil Exploration and Production Activities (Régimen general de promoción de actividades de exploración y producción de petróleo, the “RGPP”);
• General Regime to Promote Natural Gas Exploration and Production Activities (Régimen general de promoción de actividades de exploración y producción de gas natural, the “RGPGN”); and
• Special Regime to Promote Exploration, Production, Industrialization, Storage and/or Transportation of Hydrocarbons and their Derivatives (Régimen especial de promoción para proyectos de exploración, producción, industrialización, almacenaje y/o transporte de hidrocarburos y derivados, the “REPPH”).
In turn, all promotion regimes offer a set of benefits and guarantees mostly around these four key areas:
• Oil and gas prices
• Availability and free use of production
• Availability and free use of foreign currency
• Tax stability
To access these benefits, companies need to invest varying amounts, depending on the activity – general oil and gas regimes have no investment requirements but lack the federal tax benefits (which are included in the special regime). Besides the investment requirements, the special regime requires investment projects to be approved by a special government body. Finally, it should be noted that all regimes allow most benefits to be shared by joint ventures or other similar entities.
It should be noted that the bill builds on previous promotion regimes by providing similar incentives, such as the Regime to Promote Investment in Hydrocarbons introduced by Decree 929/13 and by Act 27,007 (which actually expanded the regime created by Decree 929/13 and gave it law status), which would in turn be repealed and replaced by this new bill. The bill offers increased incentives to opt into the new regime but requires beneficiaries of the previous ones to renounce any legal claims regarding those previous regimes. Producers that do not wish to renounce their claims and already benefit from the previous framework may opt out from the new one and conserve existing benefits as well as their legal claims.
As a final note, potential beneficiaries should be aware that the bill contains many discretionary provisions that will be decided after the law is passed by the Secretary of Energy. The various areas of the bill with ample room for discretion create uncertainty and may discourage investment.
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