Argentina: Regulation Of The New Hydrocarbons Sovereignty Regime

Last Updated: 7 August 2012
Article by Ricardo W. Beller and María Lorena Schiariti

By means of Decree 1277/2012, the Argentine Executive Branch regulated the Hydrocarbons Sovereignty Regime provided by Law No. 26,741 which declared of "public national interest" achieving self-sufficiency in hydrocarbons' supply and the activities of exploration, exploitation, industrialization, transport and commercialization of hydrocarbons.

1. Precedents: Law 26,741

On May 4, 2012 Law 26,741 was enacted. In addition to declaring 51% of the shares of YPF S.A. and Repsol YPF Gas S.A. subject to expropriation, it declared of public interest for the Federal Government to achieve self-sufficiency in hydrocarbons' supply, as well as the exploration, exploitation, industrialization, transport and commercialization of hydrocarbons (Section 1). The law declares that it is enacted "in order to achieve economic development with social equity, the creation of employment, the increase of the competitiveness of the different economic sectors and the fair and sustainable growth of provinces and regions."

Section 2 of Law 26,741 provides that the Executive Branch, "in its capacity as authority in charge of policy setting in this matter, will introduce measures aimed at fulfilling the goals provided hereby together with the Provincial States and public and private, national and international capital." Section 3 enumerates the principles of the hydrocarbons policy.

2. The issuance of the Decree

Decree 1277/2012 (the "Decree")1 is the first act by which the Executive Branch regulates the declaration of public interest provided by Section 1 et seq. of Law 26,741.

Even when the main aim of the Decree is the approval of the Rules of the Argentine Hydrocarbons Sovereignty Regime (the "Rules"), the Decree also abrogates certain sections of Decrees 1055/1989, 1212/1989 and 1589/1989, reaffirming the intention of the Executive Branch to significantly increase its intervention in the hydrocarbons sector. The abrogated sections include those that provided: (i) the free disposition of hydrocarbons (Decree 1055/1989, Section 5, subsection d, 13, 14 and 15); (ii) the freedom to set prices, allocate volumes and transfer values and/or incentives of the different stages of the activity (Decree 1212/1989, Sections 1 and 9); (iii) the free exportation and importation of hydrocarbons, without prior approval and free of duties (Decree 1212, Section 6 and Decree 1589/1989, Section 3); and (iv) the free disposition of foreign currency which enabled the producers not to repatriate up to 70% of foreign currency proceeds of hydrocarbon exports (Decree 1589/1989, Section 5). It is worth noting that these decrees were the pillars of the deregulation of the hydrocarbons sector and they are expressly mentioned in the recitals of several concessions granted as of the year 1990.

As provided by its recitals, the Decree was issued by the Executive Branch in exercise of its regulatory powers granted by the Argentine Constitution in its Section 99, subsections 1 and 2 (i.e., without exercising emergency powers or alleging legislative delegation). In addition, the Decree invokes the competence of the Federal Government to set the national policy with respect to the activities related to the exploitation, industrialization, transport and commercialization of hydrocarbons.2

The Rules commence by describing the principles of the National Plan of Investments in Hydrocarbons (the "Plan"). The enforcement authority of the Plan shall be the Commission for Planning and Coordination of the Strategy for the National Plan of Hydrocarbons, created within the Secretary of Economic Policy and Development Planning of the Ministry of Economy and Public Finance (the "Commission").

Repeating the guidelines listed by Law 26,741 (Section 3), the Rules provide that the strategic backbone of the Plan will be the increase and maximization of the investments and the resources employed in exploration, exploitation, refining, transport and commercialization of hydrocarbons to reach the self-sufficiency and the sustainability of the activity in the short and medium term; the integration of public and private, national and international capital, in strategic alliances aimed at the exploration and exploitation of conventional and non-conventional hydrocarbons; the promotion of the industrialization and commercialization of the hydrocarbons with high added value; and the protection of the interests of consumers in relation to price, quality and availability of the derivatives of hydrocarbons.

The Rules impose several new obligations to the players operating in the hydrocarbons industry, such as the obligation to register in a National Registry of Investments in Hydrocarbons; to provide technical, quantitative and/or economic information necessary to evaluate the performance of the sector and to design the Plan, as well as the obligation to file a Plan of Investments on an annual basis for each player (including refining companies, traders and transport companies), subject to the approval and supervision of the Commission.

Along the same lines, the Rules impose restrictions in relation to the operation of refineries (impediment to make technical shut-downs in refineries in the event they may affect the supply of its commercial chain).

The Rules enable the Commission to determine "the criteria that may govern the operations in the domestic market" (...) "for the purpose of granting reasonable commercial prices", by means of periodically publishing "reference prices of each of the components of the costs and the reference prices for the sale of hydrocarbons and fuels." For the same purposes, the Commission will "audit and supervise periodically the reasonableness of the costs informed by the producers and the respective sale prices." Furthermore, the Commission is entitled to adopt the measures that it may deem necessary to prevent and correct distorting conducts.

Lastly, the Rules set forth penalties for which the Commission is also the enforcement authority, despite the participation reserved to the provinces within the framework of their own powers.3 The penalties applicable are those provided for by Law 17,319, including the nullity of the concessions or permits. Moreover, in addition to the aforementioned penalties, the Commission "will have exclusive power for the enforcement of the provisions established by Law No. 20,680 [Supply Act], with respect to the hydrocarbons activities regulated in this regulation."4

3. Conclusion

Notwithstanding the analysis of legality and/or constitutionality that the abrogation of the decrees and the enactment of the Rules (together with the impact they may have in preexistent permits and concessions) may deserve, it appears to be clear that the legal grounds upon which the free disposition and determination of prices of hydrocarbons and fuels was based shall no longer apply.

It will be necessary to closely follow the actual enforcement and application of the Rules to assess how the Federal Government and the Provinces will articulate their respective powers and the impact that the Rules will have on the industry.

Footnotes

1. Issued by the Argentine Executive Branch on July 25, 2012 and published in the Official Gazzette on July 27, 2012.

2. On the grounds of Sections 41 and 75, subsections 12, 18 and 19 of the Argentine Constitution; Section 3 of Law 17,319; Section 2 of Law 26,197; Section 2 of Law 26,741.

3. The Regulation clearly states that the Provincial States will continue to exercise their sanctionary powers, in accordance with the provisions of article 6 of Law No. 26,197, to grant the effectiveness of the National Plan of Investments in Hydrocarbons.

4. The Supply Act (Law 20,680) provides several stringent (and highly controversial, from a constitutional standpoint) tools to the Federal Government to regulate commerce in a way that allegedly assures normal supply of goods and services in the domestic market. Under the Supply Act, the Federal Government can —among other things— impose maximum and minimum prices and impose severe penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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