Oil & Gas | Bill on Promotion of Liquefied Natural Gas | Abeledo Gottheil

Oil & Gas | Bill on Promotion of Liquefied Natural Gas

4 August 2023 |

I.- Introduction. 

As from the eighties and with greater intensity in the nineties, Argentina started experiencing an increasing production of natural gas, and hence, it was marked as a gas country1. The wealth and abundance of the hydrocarbon in question, was enough to cover the domestic demand -practically saturating the national market -, while, in turn, allowed the country to enjoy exportable balances -and with greater visibility between years 1997 and 2000- to such an extent that it became a leading exporter and was able to place said remaining fluid in different countries of the region such as Chile, Brazil and Uruguay2

However, the rating as a gas country would not last long because after more than twenty years of productive boom, it then started a stage of productive decline and loss of reserves that turned our country into a net importer of the fluid to face the growing demand of gas, thus becoming largely dependent on the countries of the region as regards the supply of the hydrocarbon, inclusive, from countries to which in the past, it was able to supply them the well-known fluid. 

Consequently, and in order to stimulate the natural gas production so as to reduce the fluid imports, different incentive programs were created, like the well-known Plan Gas Plus (Resolution SE 24/2008); Plan Gas Plus II (Resolution SE 1031/2008); Plan Gas Plus III (Resolution 695/2008); Plan Gas I (Resolution 1/2013); Plan Gas II (Resolution 60/2013); Plan Gas III (Resolution 185/2015); Program to Encourage new projects of Natural Gas (Programa de estímulo para nuevos proyectos de Gas Natural) (Resolutions 74/2016, 46/2017 and 447/2017). 

The purpose of Plan Gas Plus and Plan Gas projects, was to allow producers to obtain a better price for the natural gas under certain circumstances consisting in the increase of investments and greater production, exceeding the levels reached up to that point.  

On the other hand, Resolution 74/2016 was aimed at new projects by producers other than the beneficiaries of previous plans, obtaining better prices for the production of gas than the established ones, while, in turn, Resolution 46/2017 was aimed at new projects in non-conventional reservoirs at the Neuquina Basin, which was afterwards modified by Resolution 447/2017, which widened its scope, by que extending the incentive to shale gas projects in the Austral Basin. 

Within said context, a boom was observed in the production of Vaca Muerta, leading to surplus production for exports. 

Consequently, on May 29 of the current year, the National Executive Branch submitted to the Congress a Bill for the Promotion of Liquefied Natural Gas (LNG) in our country (the “Bill”). 

In short, as defined in its whereas clauses, the purpose of the Bill is to set forth the specific legal regime for the promotion of LNG and associated activities, related to storage, commercialization, transportation and installation of infrastructure in our country in a large scale, mainly, for the exportation of the fluid. 

This is due to the steady growth of natural gas production in our country and the broadening of gas resources horizons, as a result of the development of new projects in the different productive basins and, mainly, of the high performances coming from non-conventional production in Vaca Muerta, positioning Argentina among the countries with more reserves worldwide and estimations of supply for more than three hundred years, allowing, not only to satisfy domestic demand, but also generating exportable balances that will lead to the consequent inflow of currency for the country. 

II.- Declaration of national public interest. 

Said Bill declares liquefaction of natural gas to be used for the exportation of LNG and associated activities, related to the storage commercialization, transportation and installation of infrastructure in the territory of the Argentine Republic as the priority objective and of national public interest.  

III.- Creation of the promotional regime. 

In order to achieve the purpose sought, the Bill sets forth a Promotion Regime for LNG Large Investments which comprises -among other issues- the realization of investments in goods and/or infrastructure works in activities related to transportation of natural gas to be used for the LNG production, its liquefaction, storage, transportation and commercialization both, within the national territory, and for its exportation subject to certain issues.  

The purposes and extents of said Regime basically consist in: 

  1. Increasing the LNG production in a large scale, promoting the competitiveness of its offer and encouraging its expansion. 
  1. Encourage the development of the whole value chain of LNG, as well as the capital goods industry associated to it, with the purpose of promoting the establishment of productive poles and the generation of employment. 
  1. Tend to the best operation of the LNG industry, guaranteeing all the stages of the activity, as well as, equal opportunities and free access to the market. 
  1. Promote the national and foreign direct investment to develop the LNG industry. 
  1. Promote the national and international capital paying up, in strategic alliances addressed to the LNG production and exportation and its associated activities. 
  1. Include new management technologies and modalities that contribute to improve the LNG production and its associated activities and the promotion of the technological development in the Argentine Republic. 

Likewise, it appoints the Secretariat of Energy of the Ministry of Economy as Enforcement Authority, along with delimiting the subjects authorized to submit investment projects subject to evaluation, and, if applicable, the consequent approval by the Enforcement Authority, setting a term of five years as from the publication of the regulation, extendable for one year, for the presentation of the projects by the interested parties. 

IV.- Investment projects. 

According to the purpose sought, the primary goal of the projects shall consist -in essence – in the liquefaction of natural gas and its exportation as LNG through the building, contracting or acquisition of LNG plants, either land-based or floating, and they may include, in addition, investments for the commercialization of LNG within the national territory.  

The Bill sets forth that, the projects in question, shall contemplate aggregate investments of at least USD 1,000,000,000 and must have an installed minimum production capacity of one million tons of LNG per year, a minimum investment commitment that must be reached within the maximum time period of six years -that may be extended for one year -as from the approval of the project by the Enforcement Authority. 

The projects may be developed in successive stages, provided that the first stage contemplates the minimum investment commitment specified above, within the stated period. Hence, each successive stage shall contemplate an aggregated investment commitment of at least USD 1,000,000,000 or, an installed minimum production capacity of one million tons of LNG per year to be reached within the maximum term of ten years as from the start-up of the liquefaction plant undertaken in the previous stage. 

V.- Tax benefits. 

In order to encourage investments, the Bill provides for a regime of tax benefits in favor of those who obtained the relevant approval from the Enforcement Authority, which benefits consist in: 

  1. Accelerated amortization of the Income Tax on investments; 
  1. Crediting and/or restitution of VAT; 
  1. Maximum rate of the Income Tax of thirty percent (30 %); 
  1. Offset of losses for the term of ten years: 
  1. Deduction from the earnings the interest and exchange rate differences originated by the project financing; 
  1. Exemption from import duties and other taxes when national production does not exist or if it exists, the whole demand cannot be satisfied or does not have the required minimum characteristics; 
  1. Fiscal stability for thirty years on the approved investment Project and reaching the holders of exploration permits and exploitation concessions exclusively devoted to the project.  

Fiscal stability would imply that the subjects comprised within the regime will be unable to see the total tax burden increased, determined at the time of submitting the investment project, as a consequence of increases in taxes and rates, whatever their denomination is within the national, provincial and municipal areas, that join the regulation, or the creation of other new ones that reach them as holders of rights thereof, reaching all the taxes, understanding as such direct taxes, rates and tax contributions, having the registered companies as passive subjects, as well as the duties, rates or other encumbrances to imports or exports. 

The Benefit does not reach Value Added Tax, that will conform to the general tax treatment.  

The benefits in question, will be extended as from the date of the notice of the act approving each Project and up to thirty years following the start-up, enlargement of the liquefaction plant, or of successive stages. 

VI.- Exchange incentive. 

Likewise, the holders of approved projects will enjoy for a term of thirty years as from the first exportation made within the framework of the approved project, a freely available amount of up to fifty percent of the currency obtained in the exports related to the project.  

Likewise, for the same term they will have stability of the exchange regulation in force as at the date of publication of the Act, for the payment of financial debts abroad. 

VII.- Regulatory Stability. 

On the other hand, the Bill provides also for regulatory stability in favor of the project beneficiaries, which consists in the transportation and supply guarantee and the authorizations of LNG final exportation.  

In such sense, the beneficiaries will be guaranteed that no modification, if any, will be applied to the Bill and/or regulatory rules on an approved project, while, in turn, the natural gas transportation and supply contracts associated to the Project will not be affected by any type of measures setting forth preferences in the assignment of the hydrocarbons production, the interruption of their supply and/or transportation, redirection, or intervention measures  in their commercialization conditions, either directly or indirectly. 

VIII.- Regulatory regime. Special provisions. 

As regards final export permits, the Bill provides for three different authorizations: 

  1. Final export authorization for three hundred and sixty-five days for a term of up to thirty years, whereby the beneficiary shall prove the use of a dedicated oil pipeline isolated from the transportation system to supply natural gas to the liquefaction plant; 
  1. Non-winter authorizations during the periods of January to May and, September to December of every year, for a period of up to thirty years, whereby, the beneficiaries must prove that the natural gas transportation up to the liquefaction plant does not affect the transportation capacity intended for the supply of priority demand; y 
  1. Individual export authorizations produced for the project for cargo, previous offer to the domestic market pursuant to the procedure to be set forth by the respective regulations. 

However, the Enforcement Authority may require, one hundred and eighty days in advance to the beginning of each year, that during June, July and August the beneficiaries may offer to the domestic market i) ten percent of the LNG to be produced in said period per Project having a dedicated duct isolated from the natural gas transportation system; or ii) ten percent of  the natural gas volume required as supply of the installed productive capacity of the liquefaction plant, plus the transportation capacity of said volume, in the case of a project not having a dedicated duct isolated from the natural gas transportation system. 

On said LNG or natural gas volumes, ENARSA and CAMMESA will have first and second preference, respectively, to acquire them. Said acquisition will be formalized by means of contracts freely negotiated by the parties, and the contracting conditions and the price may not be more disadvantageous than those obtained by the beneficiary in case of exportation. 

IX.- Non-performance and penalties. 

In order to guarantee the observance of the regulatory framework and the due performance of the obligations in charge of the beneficiaries, a penalties regime is set forth, and the Enforcement Authority is the agency empowered to such end, all of which, does not preclude the exercise of the supervisory and control powers of the Federal Administration of Public Income (Administración Federal de Ingresos Públicos) and the Central Bank of the Argentine Republic (Banco Central de la República Argentina), within the framework of their specific powers. 

In such sense, the punishment of the following conducts is provided for, namely: 

a. Falsehood or inaccuracy in affidavits and other information filed before the Enforcement Authority or other competent agencies within the legal framework; 

b. Omission or delay in the presentation of information required by the Enforcement Authority or other competent agencies within the legal framework;  

c. Release capital goods, parts, accessories and supplies introduced under the protection of benefits set forth by the Promotion Regime regulated in the law, to used them in activities other than the production for LNG exports and associated activities, without having complied with the release requirements that may apply; 

d. Material breach of any of the provisions of the Promotion Regime regulated in this Act and regulations thereof; 

e. Nonperformance of the commitments undertaken in the approved project or its eventual modifications approved by the Enforcement Authority; and 

f. To fall in any of the events set forth in subsections a), b) and c) of section 4th of the Act. 

In view of the beneficiary/ies nonperformance, the Enforcement Authority will warn them through authentic means, to cure said nonperformance within the term and procedures, to be provided for by the regulations to such end.  

After verifying the failure to cure by the beneficiary/ies that may give rise to the expiration in whole or in part of the benefits granted within the framework of the Promotion Regime regulated by the Act, shall suffice for the formalization of the respective summary proceeding and the imposition of the penalties that may apply. 

In such sense, the Enforcement Authority shall impose one or more penalties either jointly or alternatively, considering the amount of the benefit, the seriousness of the breach and the beneficiary/ies’ background information regarding the performance of the regime, notwithstanding those that may correspond as per application of the criminal and/or tax legislation in force, consisting in the following:  

a. Warning. Fine. In case of nonperformance of the Promotional Regime, the fine Will be of up to one hundred percent of the benefit on which an unfair advantage was taken; 

b. Suspension of the enjoyment of the benefits derived from the Promotion Regime for a maximum term of five years; 

c. Expiration in whole or in part of the benefits granted within the framework of the Promotion Regime;  

d. Disqualification to apply for the approval of a new project within the framework of the; and 

e. Payment of the unpaid taxes, plus their interest and accessories.  

X.- Temporary provisions. 

In the first place, it sets forth that the implementation of the regulations shall be produced within a term of ninety days as from its publication in the Official Gazette. In the second place, it invites the provinces, the City of Buenos Aires and the municipalities to join the law and guarantee fiscal stability in terms equivalent to the provisions of the project. 

On the other hand, it is set forth that the approval of the relevant environmental permits will be in charge of the national, provincial, of the City of Buenos Aires and/or municipal relevant enforcement authorities, as an essential condition to have access to the promotional benefits of this Act.  

Finally, it grants the possibility that the National Executive Branch may agree that any dispute or controversy resulting from the application and/or interpretation of the promotion Regime and its supplementary and regulatory rules, as well as its rights and obligations derived therefrom, will be subject to arbitration at law, seated within or without the Argentine Republic. 

XI.- Effectiveness. 

It is provided for that the Act will be effective after its approval, as from its publication in the Official Gazette. 


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