On May 27, 2022, the National Executive Branch published Decree No. 277/2022 (the “Decree”) in the Official Gazette of Argentina Republic. It establishes the terms and conditions of the new Foreign Exchange Access Regime for the Incremental Production of Hydrocarbons with the purpose of promoting investments in the sector, then allowing the industrialization of natural gas, crude oil, and its derivatives, therefore promoting and increasing regional and national and regional added value in the value chain of the hydrocarbon activity.
By virtue of this, the Decree establishes therefore the creation of:
I- Foreign Exchange Access Regime for Incremental Oil Production (“RADPIP”):
Eligible entities:
The entities registered in the National State Registry of Oil Companies (“Registro de Empresas Petroleras del Estado National”) whom are holders of hydrocarbon exploitation concessions that are granted by the National State, the provinces, or the Autonomous City of Buenos Aires.
Said entities could be presented or associated with third parties that are duly registered and comply with the rest of the requirements established within the rule, and the supplementary regulation to be issued from time to time.
Requirements:
The eligible entities must:
1. Adhere to RADPIP to the terms established by the Secretary of Energy of the Ministry of the Economy.
2. Obtaining incremental production of oil in the terms defined in the Decree.
3. The total production of oil accumulated in the year 2021 will be considered as Baseline, which includes all the granted concession areasof the corresponding entity, established according to the official data of the Secretary of Energy within the conditions defined by said authority. At the same time, clarifications are provided in the event that total or partial transfer of the exploitation rights of the beneficiary’s areas occurs. It is clarified that in the case where the beneficiaries have not informed the authority any oil production in the year 2021, the Baseline will be 0 for the initial period and all the subsequent ones. Finally, it is established that the calculation of the Baseline for those beneficiary producers of oil with a density under 30 degrees according to the American Petroleum Institute (API), a factor reduction of 10% will be applied to the volume of oil that complies with said technical specifications, under the terms to be defined by the Secretary of Energy and calculated quarterly.
4. Given the Baseline, the quarterly incremental production for each entity will be established via the Secretary of Energy, as the fourth part of the annual incremental production which is defined as the difference between the effective production of the preceding twelve months and the Baseline as defined in the decree. For the purposes of said calculation, it will be considered the production of oil derived from the areas the entity is entitled only. However, the production of entities within a same business group will be considered as a consolidated basis according to the criterion as defined by the Secretary of Energy.
5. Comply with Regime for the Promotion of Employment, Work and the Development of Regional and National Suppliers of the Hydrocarbon Industry.
6. Comply with all the provided obligations from the “Plan de Promoción de la Producción del Gas Natural Argentino – Esquema de Oferta y Demanda 2020-2024” in the terms defined in the Decree N° 892/20 (“Plan Gas”) and its regulations established by the Secretary of Energy.
7. Incentives: It is defined as the Benefited Incremental Production Volume, the 20% of the Quarterly Incremental Production that the entity belonging to the RADPIP has obtained according to its Baseline. In certain cases, it is established that said percentage will be increased (for instance, for those who have been able to counteract the adjusted technical decline of their own production coming from basins, areas or regions with conventional exploitation; when beneficiaries obtain incremental oil production from low productivity wells or previously inactive or closed wells, in association with third-party reclaimers, among others).
Benefits:
The entities that comply and maintain the established requirements by the Decree, thus, being beneficiaries of RADPIP will have access to the Free Exchange Market (Mercado Libre de Cambios, “MLC”) to be addressed for the payment of principal and interests of commercial or financial liabilities abroad, including liabilities related with non-resident companies and/or profits and dividends which correspond to closed and audited balance sheets and/or the repatriation of direct investments of non-residents, for an amount equivalent to its Incremental Benefited Production Volume (Volumen de Producción Incremental Beneficiado, “VPIB”) of every entity, valued at the average price of the last twelve months of the “ICE BRENT first line”, net of export duties. Said access to the MLC may not be subject to a prior approval requirement from the Central Bank of Argentina (Banco Central de la República Argentina “BCRA”).
These benefits may be able to be transferred to direct suppliers under the established terms by the regulation, therefore obligating the BCRA to establish the corresponding mechanisms in order to facilitate the access to the MLC in these cases.
II. Foreign Exchange Access Regime for the Incremental Production of Natural Gas (“RADPIGN”):
Eligible entities:
Same ones as indicated for RADPIP, so we refer to the entities previously described.
Requirements:
The concerned entities must:
1. Adhere to RADPIGN in the terms established by the Secretary of Energy.
2. Become purchasers in compliance with natural gas injection volumes based on 365 days a year, in auctions or price competitions of the Gas Plan and fulfill all the liabilities assumed within or in any other supply auction to internal demand.
3. Obtain incremental injection levels regarding the injection Baseline that is defined as the injection Baseline of the annual average of the daily injection volume of natural gas for the year 2021, with fiscal measurement approved by the Secretary of Energy and the National Gas Regulatory entity (Ente Nacional Regulador del Gas, “ENARGAS”) and effectively injected at some point of entry to the Argentine Natural Gas Transportation System (Sistema de Transporte Argentino de Gas Natural) including the production incorporated outside the system (off system), coming from its own areas and defined from official data of the Secretary of Energy, in the terms established by the regulation. At the same time, clarifications are provided in the event of total or partial transfer of the exploitation rights of the beneficiary’s areas occurs. It is clear that in the case where the beneficiaries did not inform the injection authority of any gas production in the year 2021, the injection Baseline will be 0 for the initial period and all the following ones. It is established that the Application Authority will determine quarterly the progressive injection of each beneficiary as the average daily surplus, regarding the injection Baseline, the effective volume of natural gas injected for the beneficiary. This last volume will be calculated as the average daily injection of the preceding 12 months, with fiscal measurement approved by the Secretary of Energy and the ENARGAS injected at some point of entry to the Argentine Natural Gas Transportation System (Sistema de Transporte Argentino de Gas Natural) including the production incorporated outside the system (off system) in the terms defined by the regulation.
4. For calculation purposes, the Baseline and the incremental injection will be exclusively considered coming from the area over which each entity is entitled. For entities belonging to a same economic group, they will take the volumes and information in a consolidated basis, according to the aggregation and separation criterion defined by the regulation. For the calculation of the Incremental Injection, the volume injected by third parties on behalf of the purchaser will not be considered.
5. The entities must comply with the Regime for the Promotion of Employment, Work and the Development of Regional and National Suppliers of the Hydrocarbon Industry and its regulation by the Ministry of Productive Development and the Secretary of Energy.
6. Comply with all the provided obligations from the Plan Gas.
7. Incentives: The Secretary of Energy will determine quarterly the benefited volume of incremental injection (VIIB) as 30% of the incremental injection, that each beneficiary entity can acquire regarding its injection baseline according to the RADPIGN in the terms established in the Decree multiplied by the quantity of days in the quarter. In turn, it is established that in certain cases in which said percentage will increase (for instance, for those beneficiaries who, in the previous year, have been able to counteract the adjusted technical declines of their own injections from basins, areas, or regions with conventional exploitation).
Benefits:
The beneficiaries of RADPIGN, from the effective adhesion to the regime and as long as they maintain the requirements, will have access to the MLC, to be addressed for the payment of principal and interests of commercial or financial liabilities abroad, including liabilities related with non-resident companies and/or profits and dividends which correspond to closed and audited balance sheets and/or the repatriation of direct investments of non-residents, for an amount equivalent to its Incremental Benefited Injection Volume (Volumen de Inyección Incremental Beneficiado, “VIIB”) of each beneficiary entity. This would be valued at the average weighted price of exportation during the last 12 months, net of exportation duties. This price cannot be lower than the average one for base natural gas volumes for 365 days a year, defined by Rule N° 391/20 of the Secretary of Energy. In addition, amendments of the price cannot exceed two times this same value, in the terms defined by the Decree.
The access to the MLC cannot be subject to a prior approval requirement from the BCRA in the event where the foreign exchange regulation establishes it.
It is worth mentioning that the Incremental Injection may not be imputed for the calculation of the benefit intended to supply the production of by-products which benefit from special regime of free application of foreign currency within conditions that will be subsequently established.
Additionally, these benefits may be able to be transferred to direct suppliers under the established terms by the regulation, therefore obligating the BCRA to establish the corresponding mechanisms in order to facilitate the access to the MLC in these cases.
Additional requisited:
Certain established provisions are applicable to both beneficiaries of RADPIP and RADPIGN, that is:
1. They will not be able to register in said regimes:
a) Individuals or legal entities whose representatives or directors who have been judicially condemned with imprisonment or or disqualification, as long as twice the time of the sentence has not elapsed.
b) Individuals or legal entities whom at the time of their adhesion petition had due and unpaid debts of a tax or social security nature, or when a judicial or administrative ruling declares matters of non-compliance with customs, exchange, tax or social security and imposing on said people the payments of taxes, fees, fines or surcharges.
c) People whom have been subject to unjustified breach of their obligations regarding promotion scheme or industrial promotion contracts. It is worth noting that pending trial or administrative proceedings regarding crimes or infractions, above-described, will suspend the administrative process of adherence to the regime, until its ruling or definitive judgment.
2. They must comply with Regime for the Promotion of Employment, Work and the Development of Regional and National Suppliers of the Hydrocarbon Industry (Régimen de Promoción del Empleo, del Trabajo y del Desarrollo de Proveedores Regionales y Nacionales de la Industria Hidrocarburífera, “RPEPNIH”), regulated in the Decree, which the Minister of Productive Development and the Secretary of Energy will be in charge; for which they must develop regional and national supplier development plans, that have to be approved by said authorities. The limitation or suspension of benefits due to non-compliance may be recommended.
Regional and national supplier development plans must at least include : (i) The global vision of the whole development of the chain value, through a set of initiatives that are focused on achieving levels of cost, quality and articulation that maximize the participation of the regional and national industry, (ii) Equitable, open, transparent procedure for the incorporation of national suppliers, with quantifiable requirements and precise deadlines for the registration of the new national suppliers (iii) Supply plan for the contracting goods and services required to carry out their operations, containing certain and quantifiable goals and objectives, (iv) System of standards and certifications applied by companies resulting in them accessing regional and national suppliers and therefore being eligible for recruitment, (v) Open and transparent recruitment mechanisms among the qualified offerors in the productive ecosystem, (vi) Preferential financing mechanisms for suppliers or regional and national origin, (vii) Express and measurable goals and objectives regarding the participation and development of regional and national suppliers, (viii) Proposal to facilitate Access to the national productive ecosystem regarding the provision of goods and services with high added value and technological innovation.The creation of the Commission for the Evaluation and follow-up of the execution of RPEPNIH is established.
3. To access and maintain the benefits issued from RADPIP and RADPIGN, entities must comply simultaneously with the specific requirements of each regime they adhere as well as their conditions called “Regional and National Integration Requirements and Application of Preferences” (“Requisitos de Integración Regional y Nacional” and “Aplicación de Preferencias”) and with the principle of full and successive use, regional and national, of the facilities in terms of employment and recruitment of workers as well as direct provision of services by small and medium companies and regional companies.
4. For the purposes of acquiring and maintaining the benefits of the different regimes defined by the Decree, the entities must comply with a contracting scheme in which they are granted the possibility of re-signing or matching with the best offer. However, they must give the priority to the offers supplying goods and/or services of regional and national origin, whenever the price of the offers of the goods and/or services of national origin is equal to or is less than the price of goods and/or services which are not from national origin offered. Noting that the price has to be increased by 10% when the offers of national goods and services are from a regional provider, and by 5% when they are from an extra-regional national provider.For such purposes, the Decree considers regional suppliers as those whose main seat of activities is in the provinces and localities of neighboring provinces related to the production basins, that is based on a economical criterion. On the other hand, extra-regional national suppliers are understood as those whose main seat of activities are located in the rest of the country.
5. The Secretary of Energy may suspend the benefits granted in the Decree, according to the seriousness of the breach, the damage caused, and/or the existence of repeated breaches, in the event of any of the following breaches:
a) False information submitted under an affidavit to the authorities regarding any of the schemes.
b) Failure to file information, documentation and/or periodic or special affidavits that are arranged by the corresponding Enforcement Authority, within the term established for it.
c) Obstruction of auditing process.
d) Noncompliance with the injection of the awarded volumes in the different auctions or price contests of the Argentine Natural Gas Production Promotion Plan – SUPPLY AND DEMAND SCHEME 2020-2024 (Plan de Promoción de la Producción del Gas Natural Argentino – ESQUEMA DE OFERTA Y DEMANDA 2020-2024), in the terms defined in the Decree No. 892/20, in its supplementary regulations or in the successive auctions and price contests for the supply of the demand of natural gas.
e) Breach of RPEPNIH.
f) Material breach of any of the other provisions and requirements established by the Decree and/or its subsequent regulations.
Finally, it is expected from the Ministry of Energy to establish the multi-annual contracting modality through auctions or public tenders, within the framework of the Gas Plan, through which a natural gas production contracting horizon should be promoted to supply the priority demand and the demand for power plants, of at least three mobile years.
Access to the full text of the Decree here.
This publication does not constitute a legal opinion on specific matters. If necessary, specialized legal advice should be sought.
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