SEAWEED TURBULENCE IN THE SOUTH? PROVINCIAL AND MUNICIPAL INVOLVEMENTS IN OIL & GAS DEVELOPMENT THE ARGENTINE EXPERIENCE
| Jurisdiction | Derecho Internacional |
(Mar 1999)
SEAWEED TURBULENCE IN THE SOUTH? PROVINCIAL AND MUNICIPAL INVOLVEMENTS IN OIL & GAS DEVELOPMENT THE ARGENTINE EXPERIENCE
Pérez Alati, Grondona, Benites, Arntsen & Martinez de Hoz
Buenos Aires, Argentina
FOR THE ROCKY MOUNTAIN MINERAL LAW FOUNDATION
SPECIAL INSTITUTE
MARCH 17 TO 19, 1999
INTRODUCTION
Argentina was organized as a federal state in 1853 following in general lines the Constitution of the United States of America. This form of organization implies the existence of a Federal Government and a number of autonomous Provinces which by virtue of the Constitution have delegated certain powers and authority to the Federal Government, retaining all powers and authority not expressly delegated1 . A natural consequence of this system of organization is a permanent tension between the Federal Government and the Provinces over the exercise of their authority in different areas and the interpretation of the extent of the powers delegated through the Constitution to the Federal Government.
Buenos Aires, which is the Federal District and Capital City of Argentina, concentrated a very significant portion of the population of the country and became since early colonial times, through
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its port, the main trade center and point of communication of Argentina with the rest of the world. These circumstances, coupled with its proximity to the fertile "pampa", amongst other factors, derived, in a faster and larger growth of Buenos Aires. This situation, enhanced by the existence of a strong Presidential system, derived in a clear predominance of Buenos Aires and the Federal Government. However, this situation has began to change gradually and some of the issues discussed herein evidence the shift in the trend that is moving towards a different balance between the Federal Government and the Provinces. The Constitutional reform in 1994, as we shall see, has also contributed to this change.
There are three areas in which the relationship between the Federal authority and the Provincial authority is undergoing a significant change and is having a significant impact on business, and thus should be considered at the time of evaluating investments and projects. These areas are:
. The Oil and Gas Legal Framework
. Taxation
. Environmental Regulations.
OIL AND GAS LEGAL FRAMEWORK
The tension between the Federal Government and the Provinces, which in some instances derived into litigation and difficult political situations, evolved around three main issues:
. The authority to legislate on the subject matter
. The eminent domain over hydrocarbons
. The ownership and payment of royalties.
The Authority to Legislate.
In the Constitution of 1853, the Federal Government through Congress was vested with the authority to legislate in a number of areas, including the approval of the Civil, Commercial, Criminal and Mining Codes, Labour and Social Security Law, bankruptcy, etc.2 . In other words, most of substantive legislation was delegated to the Federal Government, whereas the authority to legislate on procedural matters (except for the federal court system) was maintained with the Provinces. This delegation of authority was interpreted as the basis for Congress' authority to issue legislation on hydrocarbons which were initially governed by the Mining Code since hydrocarbons fields were
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treated as a special type of mines3 .
Subsequent legislation ceased to consider hydrocarbons fields as mines, and specific legislation was issued on the matter respecting however the rights of the holders of the mining concessions obtained under the Mining Code4 . Although several Provinces challenged vigorously the authority of the Federal Government, the issue was finally settled by two rulings of the Federal Supreme Court in 1979 and 1988 that confirmed the authority of Congress to legislate on the matter5 . However, as we shall see below, the debate between the Federal Government and the Provinces continues as to whether the authority of the Federal Government and Federal Agencies to issue regulations on different aspects of oil and gas operations excludes or not the authority of the Provinces to exercise a concurrent jurisdiction on certain matters such as taxation and environmental questions.
The Eminent Domain over Hydrocarbons.
(a) As explained, hydrocarbons were initially treated as a special type of mine and governed by the Mining Code6 and the first legislation on the subject was included as a chapter of such code7 . Under such legislation the eminent domain over hydrocarbons deposits belonged to the Federal Government or the Provinces depending on the territory in which they were located. The Federal Government basically retained the eminent domain over hydrocarbons underlying certain federal territories and those located off-shore.
However, in 1958 a new law was enacted8 establishing the eminent domain of the Federal Government over all hydrocarbons deposits. The current Hydrocarbons Law9 maintains the same principle10 , although as its predecessor recognizes the payment of royalties to the Provinces in
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which the hydrocarbons deposits are located11 .
Although the Provinces have also challenged this system, the Federal Supreme Court settled the issue in a 1988 ruling when it held that the authority of Congress to legislate on the subject matter of hydrocarbons included the authority to establish the eminent domain of such hydrocarbons, and that although the Constitution did not mandate any particular system of eminent domain, Congress had been delegated the authority to decide the same12 .
(b) From the 1920's to 1990, the Argentine public sector dominated the exploration, production, development, transportation, refining and distribution of hydrocarbons, while the private sector only played a secondary role, restricted to activities under contract with YPF, the former National Oil Company, and Gas del Estado, the state company which operated the gas transmission and distribution system. Although the Hydrocarbons Law, enacted in June 1967, that establishes the basic legal framework for oil and gas exploration and production in Argentina, allowed the Executive Branch of the Argentine Government (the "National Executive") to grant exploration permits and production concessions to private parties, prior to 1990 no such concessions were granted thereunder and almost all oil exploration and production in Argentina was carried out by or on behalf of YPF.
However, before 1990, an increasing volume of oil was produced by private sector companies operating under service contracts with YPF.
Under this regulated system, all the crude oil production, whether extracted by YPF or by private sector companies operating under service contracts, was delivered to YPF, and the Energy Secretariat distributed the same among the refining companies according to quotas. In addition, the National Executive set official prices for crude oil and refined petroleum products at levels which in many cases were lower than the international prices. Similarly, all natural gas produced by YPF or private companies under contract with YPF was mandatorily sold to Gas del Estado at regulated prices.
In August 1989, the Argentine Government enacted Laws Nbrs. 23,696 and 23,697 (respectively, the "State Reform Law" and the "Economic Emergency Law"), which provided for the deregulation of the economy and privatization of Argentina's government-owned companies. The State Reform Law granted the National Executive broad authority to reorganize such companies and declared certain state assets and most government-owned companies to be subject to privatization.
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Following the enactment of the State Reform Law and the Economic Emergency Law, a series of presidential decrees (the "Oil Deregulation Decrees")13 relating specifically to demonopolization and deregulation of the oil and gas industry were promulgated pursuant to the State Reform Law and the Hydrocarbons Law. The Oil Deregulation Decrees eliminated restrictions on imports and exports of crude oil, and, effective January 1, 1991, deregulated the domestic oil industry, including the prices of oil and petroleum products14 .
Additional steps were taken towards deregulation and demonopolization, including (1) the offering under open international bidding of production concessions for certain marginal areas previously operated by YPF; (2) the offering of joint ventures with YPF for the exploration and exploitation of certain major producing areas held by YPF; (3) the transformation of existing exploration service contracts with YPF into exploration permits; (4) the transformation of existing production service contracts with YPF into production concessions; and (5) the elimination of official prices for crude oil and by-products, which became effective on January 1, 1991.
The Oil Deregulation Decrees introduced a fundamental change in the industry since, without prejudice to the eminent domain of the Federal Government over oil and gas reserves, the holders of all existing and future exploration permits, production concessions and contracts were recognized title to the production of hydrocarbons extracted thereunder15 and the right to freely market the same either within the domestic market or in the international markets. All duties and withholdings on exports and imports of crude oil and natural gas were eliminated.
During 1992 and 1993 both YPF and Gas del Estado which owned and operated the transportation and distribution of natural gas were privatized16 .
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(c) In this very special context, the law that approved the privatization of YPF17 known as the "YPF Privatization Law" introduced fundamental changes in the eminent domain over hydrocarbons. Pursuant to the YPF Privatization Law, upon the enactment of a new...
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