ARGENTINA: THE GAS-TO-POWER OPTION
| Jurisdiction | Derecho Internacional |
(Mar 1999)
ARGENTINA: THE GAS-TO-POWER OPTION
Cárdenas, Cassagne & Asociados
Buenos Aires, Argentina
INTRODUCTION
Only ten years ago, a sleeping giant -the Argentine energy system- was waiting to be awakened in Argentina. Such system was extremely regulated and very inefficient, characterized by winters without sufficient provision of gas and summers of brownouts and blackouts. Utilities were state owned and administrations misused them as tools of erratic economic policies. There was no serious energy policy designed to cover the country needs.
The giant was awakened. In the early nineties the state owned natural gas transportation and distribution company and the electricity utility company serving the Buenos Aires area were both privatized. An ambitious deregulation program accompanied these major changes.
This paper will attempt to highlight the decisive influence of privatization and deregulation policies in changing the energy sector, as well as the importance of the legal framework in achieving an efficient system, where natural gas and power are key sources in the construction of an energy policy.
1. Special Gas Aspects of Upstream Operations
(a) Natural Gas exploration and production
Under Argentine law permits/concessions for the exploration and/or exploitation of natural gas may be obtained, the holder thereof being entitled to free disposal of hydrocarbons extracted.
(b) Possible Extensions For Development
Exploration permits, which are allowed for an optional basic period of up to three terms, may be extended. So may Exploitation concessions, which are normally granted for 25 years. Extensions for exploration may be granted, inter alia, where the operator has made a substantial gas discovery and where there is the lack of a market for the gas. Such an
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extension per se cannot exceed 5 years, but a further extension may be granted at the option of the Enforcement Authority in instances of a continuing lack of a market. Extensions for exploitation are normally granted for 10 years, subject to the decision of the Enforcement Authority, where the Concessionaire has generally complied with the obligations arising out of the concession.2
It should be noted that in one particular case certain producing companies requested, long before the expiration of the relevant concession, an extension of an Exploitation Concession containing a large gas field. In that case, the consortium holding the concession planned the development of an electrical generation program which required the supply of large quantities of gas to operate the generators. In this case, they were able to obtain the authorization of the Executive Branch for the extension.3
(c) The Regulation of Prices
In the case of the Argentine privatization of Gas del Estado -the formerly state owned gas company- (and unlike the U.K. British Gas privatization), "Gas del Estado" was split up in eight distribution companies and two transportation companies4 . In both cases the creation of a competitive natural gas market was stressed as one of the main objectives.
Gas prices at well head were initially regulated by the Federal Government.5 As of January 1st 1994, prices were deregulated with the enactment of Decree 2731/93. Since the Executive Branch deemed that the natural gas market was already developed, the era of regulation was ended. This abrupt switch to a market oriented system greatly impacted the formation of gas prices.
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2. Pipeline Operations
(a) Ownership / Operation Issues
Only five years ago, YPF and Gas del Estado enjoyed monopoly rights in the transportation of hydrocarbons. Decree 44/92, the kickoff to deregulation, established that transportation services should be considered as a public utility under a "common carrier" system.6
Today, pipelines obtain revenue through transportation tolls for gas shipping. However, transportation companies may not take ownership of the gas itself, unless they are also producing companies, (see further discussion below).
Gas del Estado was the only company involved in the natural gas transportation until its privatization in late 1992.
In this context, a new Regulatory Framework was created and the natural gas pipeline system was awarded two major transportation companies. The Natural Gas Regulatory Framework specifies that the transportation of gas must be carried out exclusively by private legal entities that have been duly awarded a concession from the Federal Government, except in those cases falling under Article 28 of Law 17,319.7 This latter section provides that every concessionaire of a hydrocarbon production area is entitled to obtain a transportation concession for the transportation of its own hydrocarbons.8 By means of a specific exception in the Gas Act of 1992, entities owned by either the Federal or Provincial Government may provide transportation services in those cases where private entities are not interested in providing such services.9 Transportation concessions are awarded on an exclusive basis over particular pipelines systems.10
The Regulatory Framework contains restrictions to prevent the formation of trusts or monopolies. The principal limitations in this respect are:
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(a) Transporters are not allowed to purchase or sell gas except where they would use the gas for their own consumption or for the maintenance of their transportation system (except where they transport gas which they also produce);
(b) No producer, operator of storage facilities, distributor, or any consumer that contracts directly with the relevant producer, may hold a controlling interest in a transportation company;11
(c) No company holding a transportation concession may hold a controlling interest in a distribution company;
(d) No broker or group of brokers is allowed to hold a controlling interest in companies holding a transportation concession.
(e) Minority (or non-controlling) holdings of the type described above must be approved by ENARGAS, the gas regulatory authority.12
The producers that obtain a transportation concession in respect of their own hydrocarbons, are exempted from these restrictions, except that no such producer may hold a controlling interest in a distribution company.13
(b) Regime for Pipelines
The Regulatory Framework sets forth specific rules that address the operation of pipelines. No transportation or distribution company may commence the construction of new facilities or the extension of previously existing facilities without obtaining the approval of the Regulatory Board. Neither can any transportation or distribution company abandon facilities dedicated to the transportation or distribution of natural gas.14 Decree 2255/92 provides for a Model of Permission for Transportation Services and Service Regulation. The Model, which is the contract between the transportation companies and the Federal Government, establishes certain basic and specific obligations for transportation
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companies. The same Decree also provides a Model for distributors. Carriers are to provide a public service ensuring open access to the countrywide system of pipelines. As public utilities, pipelines have to operate on a continual and regular basis. Companies transporting or distributing natural gas may not discriminate between clients.15
Upon privatization, the fixed assets of Gas del Estado were transferred to the new transportation companies (licensees of transportation services). Thus, these companies received what the Model defined as "Essential Assets" (those indispensable to provide the service) with the obligation of improving, establishing and maintaining those assets. Such companies may not dispose of those original Essential Assets. However, the companies may dispose of subsequent improvements on those Essential Assets.16
(c) Common Carrier System — Restrictions
Since the system operates under an open access ethos, transportation companies are obligated to allow producers access to their facilities and services, on a non-discriminatory basis. Every producer, operator of storage facilities, distributor or large user that has facilities capable for connection to the transportation grid, may request such connection. The transportation company is obligated to provide such a connection. However, this does not mean to say that such companies can request transportation companies to expand their facilities as an absolute right, neither may transportation companies be obliged to transport gas if the pipeline capacity will not allow it.17 The transportation company can only be forced to expand or extend the facilities if it can be shown that such expansion and extension will be useful for the public service, provided, however, that the transportation company must clearly be able to recover, by means of tariffs, the amount of its investment at the rate of return established by Article 39 of Law 24,076.18 Transportation companies should operate under rules of maximum efficiency. Thus, these companies are required to discourage the excessive transportation requirements of producers or other gas suppliers through the application of fines where there existed "quantities requested but not used". In such a case, it must be evidenced that these unused quantities inhibited the transportation company's ability to render services to other producers or gas suppliers.19
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3. Gas Distribution
(a) Contracting Terms for Gas Supply
The Regulatory Framework establishes that a distributor of gas is a company or entity that receives gas from the transportation grid and supplies the final users through a distribution net, within a limited geographic area.20
Distribution service rules are regulated by Decree 2255/92, Exhibit "B", — Exhibit II (Regulation of Service). Contracts are...
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