Argentina: The Supreme Court Pronounces On Natural Gas Prices And Tariffs

Last Updated: 8 September 2016
Article by Francisco A. Macias and María Lorena Schiariti

The Supreme Court of Justice ruled that the Ministry of Energy and Mining's resolutions which increased natural gas prices and transportation and distribution tariffs were invalid. 

On August 18, 2016, the Argentine Supreme Court ("CSJN" after its Spanish acronym) ruled in the "Centro de Estudios para la Promoción de la Igualdad y la Solidaridad y otros c/ Ministerio de Energía y Minería s/ amparo colectivo" case that Resolutions N° 28/2016 and N° 31/2016 issued by the Argentine Ministry of Energy and Mining ("MINEM" after its Spanish acronym), are invalid.

1. The MINEM's Resolutions

Through Resolution No. 28/2016, the MINEM set new prices for natural gas delivered at the entry point to the transport system and for propane gas to be distributed through the undiluted propane gas distribution system.  

Resolution No. 28/2016 also revoked certain rate charges that had been established to finance transport infrastructure and gas imports.

Through Resolution No. 31/2016, the MINEM instructed ENARGAS to carry forward the integral review process for natural gas transportation and distribution tariffs provided by the licenses' renegotiation agreements reached between the utilities and the government, to restore the economic equilibrium of their licenses affected by the emergency measures taken within the framework of the Emergency Law 25,561 of 2002. This review process needs to be implemented by a public hearing process.

ENARGAS was further instructed to temporarily adjust current tariffs for natural gas transport and distribution public services, to enable the licensees to comply with their investment programs for this year, afford their operation, maintenance, management and marketing costs and maintain the payment chain, to ensure the regular provision of public services until the definitive rate charts are approved. The MINEM also instructed ENARGAS to set a social tariff for vulnerable consumers.

Following these instructions, ENARGAS approved new temporary tariffs for natural gas transportation and distribution services. Distribution tariffs for residential customers also include the new prices for natural gas approved by the MINEM.        

2. Suits brought against the new tariffs

Several court proceedings against the new tariffs approved by the ENARGAS were brought before federal courts across the country. A consumers' association (CEPIS) brought a class action suit against the Federal Government before a federal court of the city of La Plata. The association challenged the new tariffs on the grounds that they had been approved without holding a public hearing as required by Article 42 of the Argentine Constitution and the regulatory framework for the natural gas industry (Law No. 24,076, and implementing regulations). Claimant requested an injunction that suspends the new tariffs.

The lower court in the CEPIS case denied the injunction but ordered the MINEM to call for a public hearing to ensure the participation of all consumers and their associations. This decision was appealed by all parties. The Federal Court of Appeals of La Plata declared the new natural gas prices and tariffs invalid because of the public hearing's omission. The Federal Government filed an extraordinary appeal to the Supreme Court against this judgment.

3. The CSJN's Ruling

The Supreme Court partially upheld the decision of the Court of Appeals and confirmed that the new prices of the natural gas and the new transportation and distribution tariffs were invalid to the extent that they were applicable to residential customers. The social tariffs approved by ENARGAS were left in effect since they are more favorable to the users than previous tariffs.

The main grounds for this ruling were the following: 

(i) Holding a public hearing was mandatory

According to the CSJN's ruling, holding a public hearing is a mandatory requirement to be fulfilled as part of the tariffs' review process, prior to their approval. By relying on Article 42 of the Argentine Constitution, the CSJN defined public hearings as one means for citizen participation on policy-making.   

According to the CSJN, prior citizen participation in tariff determination constitutes a predictability factor which integrates the constitutional right to the access to "accurate and truthful information" (Article 42 of Argentine Constitution), guarantees the soundness of State's decision and diminishes litigation.

The CSJN pointed out that public hearings must be a space for deliberation which allows a responsible exchange of ideas on an equal basis and that the opinions expressed at said hearings must be taken into account by the authorities when making a decision.  

(ii) Holding a public hearing is also mandatory for the approval of new gas prices

The CSJN considered that, according to the Hydrocarbons' Law No. 17,319, as amended, and Natural Gas Law No. 24,076, natural gas production and marketing do not constitute a public service and that the price of natural gas at its delivery point to the pipeline systems was not regulated as it was established under market conditions. But this changed in 2004 when Decree 181 was issued. 

Since then, natural gas prices have been fixed by the Government through agreements with gas producers and therefore their approval must follow a process similar to that applicable to public service tariffs. Thus, until gas prices are freely agreed under market conditions again public hearings must be held for their approval. 

The CSJN stated that the criteria of this ruling are not contradictory towards its decision in the "Soldano" case (Fallos, 377:877) when it ruled that a public hearing was not required for the approval of a rate charge included in gas utilities' bills to finance improvements to the gas transportation system. According to the CSJN, the public hearing was not required in the case of said rate charge because it did not increase the licensees' revenues. However, gas prices do not increase the licensees' income, as the price for the gas is collected by licenses and passed on to gas producers.  Moreover, like natural gas prices the values of the rate charges in the Soldano case were fixed by the Government and were included in the same bills to the consumers along with public service tariffs.     

The CSJN also pointed out that the transitory nature of the new rates and tariff charts does not justify the omission of a public hearing. The new tariffs represent a considerable increase in the end users' bills and in cases where users cannot afford them they might be deprived from access to a public service.   

(iii) Guidelines for the new rates and tariff charts

The CSJN took notice of the precarious condition of the natural gas supply that, as reported by the current Government, is a consequence of the former Government's policies adopted for this sector since 2002. These measures resulted in the loss of the country's self-sufficiency in terms of natural gas, the rise of public expenditures and high import costs for the Argentine Treasury. However, given the relevance of the changes resulting from the decisions adopted by this administration, the CSJN urged the Federal Executive and the MINEM to be especially prudent when determining the new tariffs to guarantee their transparency, certainty, predictability, gradualness and soundness.   

According to the CSJN, the source of tariffs' adjustment gradualness can be found in Article 42 of the Argentine Constitution and its application may allow, on the one hand, the recovery of the gas supply and, on the other hand, more predictability for end users for purposes of their individual and family economic planning.  

Final remarks

Immediately after the CSJN's decision became public, the Government announced that it would comply with the judgment and called for a public hearing to take place on September 16, 2016.

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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