We share the article on «The New Hydrocarbons Law and Investments» published by Hugo Martelli at the 2020 Annual Issue of the «Energía y Negocios» Magazine
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Public officers and national and provincial legislators announce the enactment of the “new hydrocarbons law” which shall provide a solution to the lack of investment and production of the sector, and which may replace Law 17319 which has been in full force and effect for 53 years.
Law 17319 was enacted by a de facto government, but those who wrote it knew what they were doing: Clear, concise and versatile, suitable to enable the state-owned, partially state-owned, or private development of the oil industry, providing the possibility to intervene the export market by paying the producers of international prices, it has happily survived until today.
As opposed to what is usually believed, the person who, based on the provisions of Law 17319, changed the face of the Argentine industry was not President Menem but President Alfonsín. Overwhelmed by the lack of supply and the drain of currency, Alfonsín launched in August 1985 the so-called “Houston Plan” granting payment in currency or in crude oil of free availability to the companies which would participate in the exploration plan (Decree 623/87, 8 h), and further including in the agreements a collateral by the Central Bank.
When President Menem launched the privatization and deregulation plan of the oil industry (Decrees 1055/89, 1212/89 and 1589/89), almost one hundred national and foreign companies explored and/or produced oil and gas in the Argentine territory and sea.
In 1989, Decree 1589/89 strengthened the collateral granted by the Houston Plan by turning such agreements and the Crude Production Contracts, upon the agreement between the parties, into the “Free Availability Regime”, thus incorporating a 70% of free availability of the production or currencies, free access to the domestic transportation through pipes and up to the export ports, and rated indemnifications in case of export restrictions, within a regional energy integration framework and international investment guarantees.
Exhausted in 2012 the investments of the Free Availability Regime with which the self-supply and the sustained oil and gas export had been reached, President Fernández de Kirchner, after expropriating YPF SA based on the “Hydrocarbon Sovereign Act”, Law 26741, promoted again the oil investment by renewing the promise of free availability of production or currency to those who would develop projects for the sum of USD 1,000 million (Decree 929/13, Article 6 and 7), which threshold was decreased to USD 250 million by the Act on Non-conventional and Off-shore Hydrocarbons, Law 27007 (Article 19). Subject to the discretion of the State, such benefits were granted, until today, to only one producer.
President Macri, on the other hand, included the free availability of currencies and production to “Off-shore International Public Bid No. 1” (Resolution SGE 65/18, Annex 3), to be incorporated under the title of the corresponding Exploration Permit, without any visible outcome, due to the early stages of the exploration process.
Finally, the recently approved “Argentine Natural Gas Production Promotion Plan” (Decree 892/20) of President Fernández grants access to the exchange market in a discretional manner, to draw currency abroad as utilities and dividends (BCRA, Com “A” 7168), to such producers developing gas projects as provided by the decree, but without granting the producer an irrevocable right.
What can be expected from the “new hydrocarbons act”? Perhaps a new promise of free availability?
A “new hydrocarbons act” will not solve the problem concerning the lack of investments in the sector, and a substantial amendment to, or even worse, the replacement of Law 17319 would only generate greater uncertainty and distrust, especially in a scenario where the National State and the Provinces are not always willing to coordinate their regulatory policies even less their tax policies.
Only the continuous and responsible exercise by the Federal Government and the Provinces of a reasonable authority under the law and the republican institutions will provide the evidence that the investors need to carry out the projects and to make the investments.
Hugo Martelli