THE MARKET-ORIENTED REGIMES: THE CURRENT ARGENTINE HYDROCARBONS REGIME ENGLISH AND SPANISH VERSIONS
| Jurisdiction | Derecho Internacional |
(Mar 1999)
THE MARKET-ORIENTED REGIMES: THE CURRENT ARGENTINE HYDROCARBONS REGIME ENGLISH AND SPANISH VERSIONS
Estudio Bruzzon & Asociados
Buenos Aires, Argentina
FOR THE ROCKY MOUNTAIN MINERAL LAW FOUNDATION
SPECIAL INSTITUTE ON OIL AND GAS DEVELOPMENT IN LATIN AMERICA
MARCH 17-19, 1999
Introduction
Radical changes and globalization have been a distinctive characteristic of the last decade of this millennium. The privatization programs and the opening of the Latin American economies, the North American Free Trade Agreement (NAFTA), the European Union and the Mercado Común del Cono Sur (MERCOSUR), etc., are proving the world that there are new rules of trade that increased the cross-border investments. This new scenario has touched Argentina, as well as most of the Latin American countries. It is now undisputed that the old protectionism implemented by our countries brings only painful experiences to the community.
The opening and restructuring of Argentina's economy goes back now to 1989, when, among other important regulations, the government amended Law N° 21,3821 of Foreign Investments to waive registration and approval from the authorities to those foreign investors coming to Argentina, making clear that they were on equal footing with locals, and then with the enactment of Law N° 23,6962 of State Reform and Law N° 23,6973 of Economic Emergency, related to the monetary policy and reduction of the fiscal deficit. The aim of these laws was to
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achieve an overall economic growth in a climate where inflation disappears, fiscal surplus is obtained and foreign debt is reduced. To achieve these goals foreign investment was encouraged, an aggressive privatization plan was developed and competitiveness was increased.
The hydrocarbons sector was not an exception to this. Thus, it dramatically went through a process of changes to become a market oriented regime, abandoning the famous slogan that was adopted by Latin American countries for many years: "The Oil is Ours" ("El Petroleo es Nuestro"4 . Brasil, Mexico, Venezuela, Argentina, etc., were all supporters of the state monopoly of the upstream investment.
In Argentina, since the discovery of oil5 until 1990, basically all activity in the oil industry was performed by oil state-owned company, YPF SE (Yacimientos Petroliferos Fiscales Sociedad del Estado) or on its behalf. The State Reform Law called for the privatization of YPF SE and permitted the de-monopolization and deregulation of the oil and gas industry. The deregulating Executive Decrees, described below in Section 6.A.1., made great changes, as follows:
(i) Subject to the Undersecretary of Energy control the oil can be imported or exported freely;
(ii) The oil price and the price of its related products are no longer regulated;
(iii) Open access shall be provided to the deposit, dispatch and processing systems, at tariffs in line with the international ones;
(iv) Exploration Permit and Exploitation Concession Holders own the hydrocarbons they extract and can dispose them freely;
(v) The former risk exploration and production agreements between YPF SE and the private companies are converted into exploration permits and exploitation concessions.
(vi) Introduced the calls for public bids for association with YPF in its central areas (fields with high production) and for exploration and exploitation rights under the so-called marginal fields (secondary recovery fields).
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The most ambitious privatization in Argentina, which completed the oil reform process, was the national oil company, YPF SE (Yacimientos Petroliferos Fiscales Sociedad del Estado). Which included (i) the sale of assets (like the San Lorenzo Refinery); (ii) concession of assets (like the right to operate central oil areas in association with YPF); (iii) the sale of shares to a strategic buyer (like the Campo Duran Refinery, the Allen-Puerto Rosales Pipeline, etc.)6 and (iv) the sale of shares in the capital market (about 60% of YPF S.A.7 shares). What the government sought with this structure was to avoid a transfer of a public monopoly to a private one. The consequences were very important for Argentina. Argentina is now home of one major oil and gas player such as YPF S.A.8 , which is competing locally and on international markets.
Today, almost ten years later, the industry expects to have an amendment or passing of a new Hydrocarbons Law which will have to (i) consolidate the executive decrees which de-regulated the market into it, (ii) provide further legal security to protect the rights acquired by the current operators, and (iii) put in operation the federalization of the hydrocarbons which has now constitutional level. Last year a long discussed hydrocarbons bill lost congressional status, due to lack of passing it in the required two year time-frame. Nowadays, a new draft will be
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considered, with only a few articles and adopting largely the current Hydrocarbons Law.9 Of course, there are some issues that are viewed as difficulties, which shall be resolved. These include the stamp taxes that some of the oil provinces pretend to levy on the contracts accepted by the way of action10 .
The growth in the sector due to the deregulation and privatization has been very important. Since the de-regulation the production of oil increased in more than fifty percent11 (in 1990 it was twenty eight million of cubic meters), and the exports of oil reached almost forty percent of the Argentina's total production. On the natural gas side, in the 1990-1997 period the production went from 68 million to 101,6 million, which means it was increased 49,4 percent.12
The restructuring of the industry brought also new technology13 and huge investments from both national and foreign companies, which invested 7,110 million of dollars in the
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privatization of the oil sector and YPF, and 2,788 million of dollars in the natural gas state-owned company (Gas del Estado SE) privatization. Moreover, approximately other 15,000 million of Dollars have been invested from 1990 to 1998 in refurbishing and building new facilities of the privatized companies.
6.A.1. The Hydrocarbons Legislation
The current Argentine Hydrocarbons regime is based on Law 17,31914 (the "Hydrocarbons Law") and other complementary regulations. The most important complementary hydrocarbons regulations are:
(a) Law N° 21,77815 of "Risk Contracts for exploration and exploitation of Hydrocarbons", which also amended certain articles of the Hydrocarbons Law;
(b) Executive Decree 1,443/8516 also known as "Houston Plan", which is then complemented by Executive Decree 623/8717
(c) Executive Decrees N° 1,05518 , 1,21219 , and 1,58920 of 1989; Decree N° 1,055/89 established the free disposition of oil obtained by contractors and called for international bids to grant: (i) in concession to the private sector marginal areas previously held by YPF, and (ii) for association through joint operating agreements with YPF in certain main fields. Decree N° 1,212/89 provided for the re-negotiation of existing contracts, deregulated all downstream operations, allowed free operation and construction of refineries, deregulated the refined products, and Decree 1,589/89
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explained how the free disposition of oil will be implemented with regards to withholding taxes, exchange control, export regulations, removing duties and tariffs;
(d) Executive Decree N° 2,17821 , called "Argentina Plan", this is another market-oriented regulation enacted by President Menem, by which it sought to reactivate the production by means of a complete deregulation and privatization of the industry. It provided for invitations to private companies to bid for exploration permits.
(e) Executive Decree N° 44/9122 which deregulated the oil transport establishing the open accesses and common carrier system;
(f) Law N° 24.07623 , Natural Gas Regulatory Framework; This law regulates the transportation and distribution of natural gas, as well as provided for the privatization of the formerly natural gas state-owned company Gas del Estado SE, which was also a monopoly until its privatization. Gas del Estado SE was broken down into ten newly formed companies, of which then, their controlling stake was sold to private investors on public bidding processes. The legal framework provides for an open access, non discriminatory system for producers, consumers and distributors. An enforcement entity was created, ENERGAS, in order to supervise and regulate the transportation and distribution of natural gas, both activities considered a public service. There are two transportation companies and eight distribution companies. They operate under 35 years licenses which can be renewed for an additional 10 years.24 It is worth mentioning that the production of natural gas is regulated by the Hydrocarbons Law.
(g) Law N° 24,14525 of Federalization of Hydrocarbon Fields, which provided for the transfer of the public domain of the hydrocarbons fields from the national state to the provinces26 .
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In Argentina, it is the Executive Power the one to dictate the national legislation relative to oil and gas activities, as well as who issues the exploration and exploitation permits and concessions. The application authority is the Undersecretary of Energy, a governmental institution under the Ministry of Economy and Public Works.27
6.A.2. The Ownership of Hydrocarbons Fields
The ownership of the mineral rights has been for years a controversial issue that has been impacted by political, economic and social development considerations28
Article 1 of the Hydrocarbons Law stated that the liquid and gaseous hydrocarbons fields situated on the territory of the Argentine Republic and in its continental platform belong to the National State. This definition, however, has been altered by the...
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