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Legal Framework: Hydrocarbons and Mining

Hydrocarbons

Hydrocarbon Law No. 17319, enacted in 1967, establishes the regulatory framework for crude oil and natural gas exploration and exploitation in Argentina. Natural gas transportation and distribution are governed by Law No. 24076, enacted in 1992.

Liquid and gaseous hydrocarbon fields belong to the Provinces where they are located, including off-shore fields located within 12 sea miles. In turn, the Federal Government owns the fields located beyond the 12-sea-mile limit. In 2006, by means of Law No. 26197, the provinces assumed the power to grant under concessions and administer their hydrocarbon fields, without prejudice to the fact that the Federal Government kept the power to pass general policies regarding energy.

Hydrocarbon exploration, exploitation, industrialization and marketing activities may be carried out by state, private or partially state-owned companies.

For exploration and exploitation activities of hydrocarbon fields, the provinces are empowered to award exploration permits and exploitation concessions. The holders of exploration permits and exploitation concessions must have financial solvency and an appropriate technical capacity to perform the activities inherent in such rights.

The effective term of exploration permits may be up to 14 years (three periods of 4, 3 and 2 years, respectively, plus an extension up to 5 years) and 17 years for off-shore exploration, as determined in the relevant calls for bids.

Should the holder of an exploration permit find commercially exploitable quantities of oil or gas, such holder may request an exploitation concession, under which it shall have the exclusive right to extract hydrocarbons from the area covered by such concession. The term shall be 25 years (the terms not used of the exploration permit at the time of the award of the concession on each lot must be added), which term may be extended for an additional 10-year term. The holder of an exploitation concession must request the award of a transportation concession if the pipeline transporting its production exceeds the limits of the lots included in the exploitation concession.

Exploitation concessionaires must pay to the provinces where their concessions are located a 12% royalty on the production of liquid hydrocarbons extracted at wellhead, that may be reduced down to 5% taking into account the location and productivity of wells. Gas production pays a 12% royalty on the value of volumes extracted and actually used, which value may be reduced down to 5% taking into account the location and productivity of wells.

Hydrocarbon activity in Argentina has been characterized until the beginning of the 1990s by a rigid control of the State through the action of Yacimientos Petrolíferos Fiscales and Gas del Estado. The role of the private sector in the business –mainly in field exploration and exploitation activities– was very limited. In 1989, the Argentine Executive Branch passed Decrees No. 1055/89, 1212/89 and 1515/89, which were the foundations of the oil deregulation policy implemented in the 1990s (Free Disposal Regime). Such provisions established –among other matters– the freedom to set prices and to dispose of the hydrocarbons produced.

As from 2002, several provisions have been passed which limited such freedom to set prices and dispose of hydrocarbons which were based on the Economic Emergency Law No. 25561.

In 2012, Law No. 26741 on Hydrocarbon Sovereignty and its Regulatory Decree No. 1277/12 were intended to limit the Free Disposal Regime, establishing greater state intervention in oil and gas exploration, production, refining and marketing stages. 

Mining

In Argentina, minerals belong to the provinces and, although the activity is governed by a Federal Mining Code applicable throughout Argentine territory, provinces award the mining rights to individuals and companies.

Any mineral in Argentina may be explored and exploited. Nuclear minerals, such as uranium and thorium, are subject to a right of first refusal, at market prices, to be exercised by the Federal State.

The most frequent form of mining right acquisition in the Republic of Argentina is the purchase of Exploration Permits (“prospection” or “discovery statements”) or of Mining Concessions through agreements with private individuals or companies. Some provinces have state-owned mining companies from whom mining rights may be acquired in bids, or through association agreements.

The granting of Exploration Permits entails exploration rights for any company or individual over up to 10,000 hectares (around 24,710 acres), for a 1100-day term (with partial reversals after 330 and 730 days), subject to the payment of a canon, around USD 100 every 500 hectares/1235 acres, in a minimum investment plan. It is worth stating that it is not possible to obtain more than 20 Exploration Permits per province and, upon expiration of the original term of a Permit on a certain area, no extensions or new Exploration Permits may be obtained over the same area.

With respect to exploitation rights, the discovery of minerals grants the right to obtain a Mining Concession in perpetuity subject to continuing mine production. Also, Mining Concessions are subject to the payment of an annual canon which varies according to the mineral, but which amounts approximately to USD 200 every 100 hectares (247 acres) of surface, and a royalty regulated by the corresponding province which may be of about 3% of the mine-head value. In addition, Mining Concessions may be sold and mortgaged as a security for financial transactions.

Provincial mining authorities intervene in every aspect related to the validity of Permits and Concessions, the control of mining investment commitments, the granting of easements on surface properties, the registration of assignment of Permits and Concessions, etc. In general, municipalities lack any mining authority, but they apply taxes called “rates” to compensate the rendering of certain municipal services or security controls. Occasionally, other entities of the federal government are also involved in mining-related operations, for instance in relation to regulations on federal transportation, energy supply, transjurisdictional environmental matters, ports, among other matters.

As regards environmental protection rules concerning the mining activity, the Federal Mining Code includes a chapter related to mining environmental protection rules and provincial mining authorities are in charge of the enforcement thereof. For instance, all mineral exploration and exploitation activities are subject to a prior Environmental Impact Assessment, and to a public hearing. In particular, the provinces of Chubut, Río Negro, Tucumán, Mendoza, La Pampa, Córdoba and San Luis have forbidden the use of cyanide in mining, while the province of La Rioja, which in the past had also forbidden such use, has authorized it again.

Regarding environmental matters, the Law on Glacier Minimum Standards (Ley de Presupuestos Mínimos de Glaciares) prohibits mining exploration and exploitation of glaciers and periglacial areas. Most of the provinces with glaciers and periglacial areas have objected to such law and they have passed their own laws regarding glaciers, and they demand a prior environmental impact assessment.

The ownership of waters corresponds to each province. Each province has its own “Law” or “Code” regarding waters which regulates their use and conservation. The use of water is subject to a “rate” (or “canon”) which must be paid to the province depending on the use to be made of water and the hydraulic infrastructure available in the area. The rate varies significantly from province to province.

All Mining Exploration Permits and Concessions carry the right to establish easements on surface properties. In any case, lack of agreement between the concession holder and the landowner, such holder is entitled to obtain rights of way. The holder of a Mining Concession may request the forced sale of the landowner’s property.

Regarding aboriginal communities’ rights, the Argentine Constitution sets forth that the Federal Congress is in charge of passing a federal legislation guaranteeing their participation in the exploitation of natural resources existing in their lands. However, so far, such laws have neither been enacted nor have aboriginal communities filed any claims which might affect property rights acquired under the Mining Code. In fact, claims made so far have been equivalent, in their nature and legal consequences, to those made by surface landowners.

The labor aspects of mining activity are specially regulated by Collective Bargaining Agreements. The mining union, AOMA, is a federal organization with delegations throughout the Republic of Argentina.

The mining industry enjoys tax benefits and incentives which are granted by the Argentine Secretary of Mining. 

Mining Promotion Regime

A. General Benefits

1. Income Tax Benefits

  • Double deduction for costs related to prospecting, exploration, special studies and other ancillary activities.
  • Accelerated amortization: 33% during 3 years for machinery, equipment, vehicles and facilities, and of 60%, 20% and 20% during the same term, for equipment and works infrastructure.
  • Special environmental allowance: Up to a 5% deduction of operative costs.
  • Exemption on income (capital gains) for contribution of mining rights.

2. VAT Benefits - Anticipated reimbursement of VAT tax credit on imports or purchases of goods and services for mining prospecting and exploration.

3. Import Benefits - Full exemption from import duties for the entering of capital goods, spare parts accessories and certain supplies.

4. Tax on Minimum Presumed Income  - Full exemption thereof.

5. Gross Income Tax - Mining activities are usually taxed at the lower rate of 1%.

6. Royalties - In adhering to the regime created by the Mining Investment Law, all provinces with substantial mining activities have accepted a 3% cap to mine-head value of the mineral extracted.

7. Stamp Tax: Various provinces have created exemptions from the payment of stamp tax for mining related agreements. 

B. Fiscal Stability

Provinces with substantial mining activity have adhered to a regime which involves the possibility for registered companies and individuals to access a 30 year period Fiscal Stability by filing a feasibility study, bringing about all benefits entailed in the maintenance of new projects’ (and expansions of existing projects’) current, total, national, provincial and local tax burden, including a very extensive scope of issues, including the creation of new taxes, rate increases, abrogation of exemptions or deductions, etc. Fiscal Stability shall apply not only to the general Argentine tax regime but also to the incentives and benefits for the mining industry granted by the Mining Investment Law. VAT and Social Security Contributions are excluded from Fiscal Stability.

Fiscal Stability cannot be regarded as a vested right until the Argentine Secretary of Mining approves in writing the feasibility study and grants the relevant certificate, which shall include all applicable taxes and their rates valid as of the date of filing of the feasibility study, which shall be sent to the relevant tax authorities.


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