Bill for the Bases and Starting Points for the Freedom of the Argentines: Energy

On December 27, 2023, the National Executive Branch sent a bill to the National Congress stating the “Bases and Starting Points for the Freedom of the Argentines”.

The bill contains a series of amendments in the energy field, as follows:

Amendments to Hydrocarbons Law No. 17,319 (“HL”):

• Incorporates the activity of hydrocarbon processing within the activities covered by the HL.
• Establishes, as the main objectives of the hydrocarbons national policy, the maximization of profits obtained from the exploitation of resources and the satisfaction of the country’s hydrocarbon needs. This contrasts with the current regulations that only establish, as the main objective, the satisfaction of the country’s hydrocarbon needs, while maintaining reserves to ensure such a purpose.
• Establishes a free trade principle, expressly stating that the National Executive Branch may not intervene or set domestic prices and that state-owned companies must sell at a price which reflects the competitive equilibrium of the industry (i.e., export or import parity, as applicable).
•  Provides for international free trade of hydrocarbons. Within this framework, it establishes the free export of hydrocarbons and/or derivatives, in accordance with regulations to be issued by the National Executive Branch.
• Royalties will be aligned with the commitments made in such respect within the process of awarding new concessions. In this sense, bidders will compete in the award process based on the value of the royalty. It is determined that the royalty to be offered will be 15% plus (or minus) an adjustment factor. This adjustment factor will be a percentage at the exclusive discretion of the bidder, which may even be negative. The value of the royalty will fluctuate, according to the formula provided in the project, during periods in which the reference value of hydrocarbons varies by more than 50%. For concessions in force as of the project date, the royalty agreed in the past with the regulatory authority will apply.
• Allows the concessionaire to request the subdivision of the concession area and to convert it from conventional to unconventional, adapting such concession to the new regime while maintaining the start date of the original concession.
• Establishes the possibility of obtaining an authorization (instead of a concession) for the transportation and/or processing of hydrocarbons. The incorporation of processing authorization is a new figure introduced into the regulatory framework and would include, among other things, conditioning plants, separation plants, and natural gas liquefaction plants, which will be subject to an “open access” regime (other than in respect of the needs of the authorized party). For this purpose, a registry of authorized entities to transport and/or process hydrocarbons will be created.
• Removes the obligation of the concessionaire to periodically submit development programs and investment commitments for approval by the regulatory authority.
• Eliminates the power to request extensions of 10 years upon the expiration of the concession term, adding that, for new concessions, the regulatory authority can only determine other concession terms based on reasoned and motivated grounds.
• Specifies that existing exploitation concessions, upon their expiration, cannot be awarded without a new bidding process, which may be conducted at least one (1) year before expiration. In line with the above, it establishes the absolute nullity of any concession awards at the expiration of the original terms, regardless of the agreed conditions, without a public and open bidding process.
• Repeals the prohibition on the registration of foreign legal entities into the registry authorized to submit bids and eliminates regulations on state-owned enterprises and area reservations.

Amendments to Law No. 24,076, Regulatory Framework for Natural Gas:

• Indicates that natural gas imports are authorized without the need for prior approval. Likewise, it eliminates the requirement for approval by the National Executive Branch for natural gas exports and the obligation to submit copies of the respective contracts to the National Electricity Regulatory Authority (“ENRE”, for its Spanish acronym), establishing that natural gas exports will be regulated by the PEN.
• The renewal of the authorization may be granted for a period of 20 years (instead of 10).
• Includes the possibility for transporters and distributors, either by themselves or through third parties, to acquire, construct, operate, maintain, and manage natural gas storage facilities to ensure the supply of uninterrupted services.
• Establishes that acts and penalties issued by the highest authority of the regulatory body can be directly challenged before the National Chamber of Appeals in Federal Administrative Contentious Matters, within a period of 30 business days counted from the notification day.

Amendment to Law No. 26,741, “Yacimientos Petrolíferos Fiscales”:

• Article 1, which declared the achievement of hydrocarbon self-sufficiency as a national public interest and a priority objective, is repealed.

Regarding Laws No. 15,336, Electric Power, and No. 24,065, Regulatory Framework for Electric Power:

Empowers the National Executive Branch, until December 31, 2025, to adjust the Regulatory Framework for Electricity, in accordance with the following principles:

• Free international trade of electricity, delegating to the agent or entity responsible for exports the necessary mechanisms to prevent the lack of supply in the domestic market, under conditions of system security and reliability. The State may object on technically or economically founded reasons related to “security of supply”.
• Free trade, competition, and expansion of electric energy markets, especially the free choice of electricity supplier for end-users.
• Economic dispatch for energy transactions based on remuneration at the hourly economic cost of the system, considering the hourly marginal cost of the system and the cost that the unsupplied energy represents to the community.
• Specification of different charges to be paid by the final user, with the distributor expressly obligated to act as an agent for the collection or retention of amounts related to energy, transportation, and taxes corresponding to the Wholesale Electric Market (Mercado Eléctrico Mayorista) and the Treasury, as applicable.
• Development of electricity transportation infrastructure through open, transparent, efficient, and competitive mechanisms.
• Review of administrative structures —centralized and decentralized— in the electricity sector, modernizing and professionalizing them for better fulfilment of assigned functions. For the Federal Council of Electric Energy (Consejo Federal de la Energía Eléctrica), created by Law No. 15,336, its reorganization shall consider functioning exclusively as a non-binding advisory body to the Enforcement Authority, for purposes of the development of electricity infrastructure.

Consolidation of Regulatory Bodies:

• Creates the National Regulatory Authority for Gas and Electricity (Ente Nacional Regulador del Gas y la Electricidad), which will replace ENRE and the National Gas Regulatory Authority (“ENARGAS”, for its Spanish acronym).

Regarding Energy Sector Fiduciary Funds:

• Empowers the PEN, until December 31, 2025, to create, modify, transform, and/or eliminate energy sector fiduciary funds to achieve greater efficiency in resource allocation and control.

Regarding Energy Transition:

• Empowers the National Executive Branch to allocate Greenhouse Gas Emissions (“GHG”) rights to each sector and subsector of the economy to achieve GHG emission targets by 2030.
• Empowers the National Executive Branch to establish GHG emission rights limits for the public and private sectors, ensuring responsibility in proportion to their contamination.
• Empowers the National Executive Branch to establish a GHG emission rights market, allowing those who exceed their targets to sell services to those in need to avoid penalties.

For further information, please contact:

Javier Rodríguez Galli: Javier.rodriguez.galli@bruchoufunes.com

Ignacio Minorini Lima: ignacio.minorini.lima@bruchoufunes.com

Juan Antonio Zocca: juan.zocca@bruchoufunes.com

Nicolás Dulce: nicolas.dulce@bruchoufunes.com

It should be noted that the above is a general commentary on the standard and in no way presupposes an advice or opinion in a particular case. In such case, please contact the persons mentioned above.