OVERVIEW
On June 27, 2024, the Argentine Congress passed Argentine Law No. 27,742, translated in English as the "Bases and starting points for the liberty of the Argentine people" and commonly referred to in Spanish as the "Ley Bases." The Ley Bases includes a series of blanket reforms designed to effect deregulation and cut federal government spending, and represents the libertarian agenda of Javier Milei, who became president of Argentina in December 2023.
The Ley Bases, passed in conjunction with a separate law
introducing tax reforms that follow the same goals, authorizes the
privatization of several government-owned entities and promotes the
development of large projects by insulating investors from certain
risks related to the Argentine economy and by providing tax,
foreign exchange and regulatory incentives, including a 30-year
guarantee of stability. It also adopts measures designed to bring
greater flexibility to the labor market and to promote registered
employment, authorize the renegotiation of some public
infrastructure contracts, and modernize the energy and oil and gas
regulatory landscape.
The enactment of this law represents the first big legislative win
for the Milei administration, whose party, La Libertad Avanza, only
holds a small minority in both chambers of the Argentine Congress.
Although the law was trimmed from the original bill proposed by the
executive branch, it still contains the core of the first round of
reforms and new measures proposed by the president. We summarize
some of these measures below.
PRIVATIZATIONS
The Ley Bases authorizes the executive branch to privatize, totally or partially (depending on the entity), the following eight entities currently owned or controlled by the Argentine federal government:
- Energía Argentina S.A. (known as "ENARSA"), which engages in oil and gas exploration, exploitation and distribution, electric power generation, distribution and trade, and oversees the construction of major gas pipes and dams in the country;
- Agua y Saneamientos Argentinos S.A. (known as "AYSA"), which is in charge of the provision of water and of the sewer system in the City of Buenos Aires and parts of the Province of Buenos Aires;
- Belgrano Cargas y Logística S.A. and Sociedad Operadora Ferroviaria S.E which, respectively, operate the country's main freight and passenger rail networks;
- Corredores Viales S.A., a concessionaire of several roads and highways in the country;
- Intercargo S.A.U., which provides ramp services in Argentina's major airports;
- Yacimientos Carboníferos Rio Turbio, the coal mining company that runs the Río Turbio coal mine; and
- Nucleoeléctrica Argentina S.A., the nuclear power company that operates the three existing and operating nuclear power plants in Argentina.
Aerolíneas Argentinas S.A., the national and largest airline in the country, Correo Oficial De La República Argentina S.A., the national postal service, and Radio y Televisión Argentina S.E., the national media company that administers the public TV and radio channels, were included in the original bill, but were later excluded by the Senate. It is expected that the executive branch will try to privatize these companies, as well as other entities that were not included in the final Ley Bases passed by Congress, in the future.
INCENTIVES TO LARGE INVESTMENTS
The Ley Bases creates a new incentive regime for large investments, known as "RIGI," which establishes incentives for project sponsors, including:
- Tax incentives, including a reduced income tax (with a fixed 25% rate), as well as incentives on amortization of assets and value added tax payments, the option to carry losses forward, and reduced taxes on dividends (with a 7% rate, further reduced to 3.5% after seven years).
- For those projects considered "Long Term Strategic Investments" (see below), international payments for transport services for exports, as well as engineering, procurement and construction services, will be exempt from withholding income tax.
- Several exemptions from certain import and export taxes, as well as other regulations to allow for the free import of goods to apply to the project and the free export of its products, including the exclusion from any rules forcing the project company to use local providers other than at market terms.
- Foreign exchange rules exemptions and benefits, including the right to pay dividends and interests in foreign currency without restrictions or prior authorizations, and exceptions from the obligations to repatriate and convert the proceeds from exports into local currency for: 20% of such proceeds after two years, 40% after three years, and 100% after four years, all counting from the start of operations of the project (those benefits will be available a year in advance for projects deemed "Long Term Strategic Investments"). Those exempted amounts will be freely disposable for the project company.
- Ability to freely distribute products from a project, with no preferences for the local market.
- A 30-year-long stability period on the incentive rules applicable to the RIGI. Beneficiaries may, however, benefit from more favorable rules that may be approved from time to time.
The Argentine provinces and the City of Buenos Aires can decide
to be incorporated to the RIGI and include additional benefits
within their jurisdictions, in which case they (and their
respective municipalities) will be prevented from limiting,
obstructing, or distorting this regime.
To qualify, the projects must involve the acquisition, production,
construction, and/or development of assets in any of the following
sectors of the economy: infrastructure, mining, energy, oil and
gas, technology, tourism, and the iron, steel and forestry
industries. Public infrastructure concessionaires may apply as
well.
The project company must be an SPV owning a single project, and the
minimum investment commitment in the project needs to be between
US$200 million and US$900 million, depending on the economic sector
or subsector, or the productive phase involved. To remain in the
RIGI, the project must reach at least 40% of such minimum
investment within two years from the date of approval of its
inclusion into the RIGI, although this percentage may be reduced to
20% by the executive branch in exceptional circumstances.
The investments must be long-term, meaning that they will need to
have a 30% maximum ratio of net cash flow to net present value of
capital investments in the project over the first three years from
the first capital disbursement.
Some projects that have the potential for positioning Argentina as
a new long-term supplier in markets in which the country does not
currently have a relevant participation, and that involve a minimum
aggregate investment of US$1 billion, may qualify as "Long
Term Strategic Investments," with additional incentives and
benefits as described above.
Applicants to the RIGI will need to submit an investment plan
describing the project and detailing the investment phases, its
financing and its expected impact, as well as a commitment to use
local providers for an amount at least equal to 20% of the
investment amount during the construction and operation phases
(provided that such local providers are available and can provide
the goods or services involved at market terms).
To ensure the provision of goods and services required by these
projects, providers may also apply to be included in the RIGI with
respect to imported goods or services provided to project companies
included in the RIGI.
The term to apply to be included in the RIGI will be two years
since the entry into effect of this regime, which may be extended
for an additional year by the executive branch. Investments made
under the RIGI will be considered to be of "public
interest," and disputes under the RIGI will be resolved
through arbitration, following, at the option of the project
company, (i) the CPA Arbitration Rules 2012, (ii) the International
Chamber of Commerce Arbitration Rules (with the exception of the
Expedited Procedure Rules), or (iii) the Convention on the
Settlement of Investment Disputes between States and Nationals of
Other States of March 18, 1965 or, as applicable, the Arbitration
Rules (Additional Facility) of the International Centre for
Settlement of Investment Disputes (ICSID).
The executive branch will have 30 days after the publication of
this law to issue the appropriate regulations to implement the
RIGI.
PUBLIC INFRASTRUCTURE
The Ley Bases authorizes the executive branch to renegotiate public infrastructure and related service agreements, and introduces amendments to the public infrastructure regime, including that: (i) concessions will only be granted through national or international public tender processes (and not by direct awards to state-owned companies, which was permitted under the previous regime), and the executive branch may call for submissions of private initiatives for the development of public infrastructure with private funding; (ii) the government will have to ensure the maintenance of the economic-financial equation originally considered by the concessionaires under the agreements; and (iii) if the federal government agreed to pay in US dollars, the law prevents the government from (and judges authorizing it) paying in any other currency or method.
The Ley Bases also provides that the federal government may approve the resumption of public infrastructure and service contracts that have been suspended or are not operative in order to enable the contribution of private funding and the finalization of the works committed.
ENERGY
The Ley Bases makes a series of changes in the Argentine energy regulatory landscape, subject to further regulations to be enacted by the executive branch. These changes aim to:
- Promote and facilitate the international trade of LNG, hydrocarbons and electricity;
- Modernize the existing electric power infrastructure;
- Prevent the executive branch from intervening (or fixing prices) in the hydrocarbons internal market;
- Harmonize the environmental regulations among the federal government and the provinces;
- Eliminate or restrict certain preferences for government-owned companies for the exploration of hydrocarbons in certain areas, and for the purchase of natural gas in certain situations; and
- Loosen some rules applicable to companies holding hydrocarbon exploration permits and exploitation concessions.
Among other things, the Ley Bases specifically provides that:
(i) permit holders and concessionaires may, with respect to the
hydrocarbons they extract, transport them, commercialize them,
industrialize them and sell their derivatives freely, subject to
the regulations to be issued by the executive branch; (ii) permit
holders, concessionaires, refiners and/or traders may freely export
hydrocarbons and/or their derivatives, subject to receiving no
objections from the Secretary of Energy; (iii) the international
trade of hydrocarbons will be free, subject to the import and
export regimes established by the executive branch; (iv) natural
gas imports are authorized without the need for prior approval; (v)
LNG export authorizations, for the volumes of LNG so authorized,
will be firm and binding for a period of up to 30 years; and (vi)
the granting of a firm and binding LNG export authorization shall
imply for its holders the right to export all the volumes
authorized in that capacity on a continuous basis and without
interruptions or restrictions, reductions, or redirections for any
reason, during each day of the term of the respective export
authorization, as well as the right to access, without restrictions
or interruptions of any nature, the supply of natural gas or to the
transportation, processing, or storage capacity of which they are
holders, or which they have contracted with third parties.
In addition, the Ley Bases amends the current hydrocarbons
transport concessions regime to create processing permits and
transport and storage authorizations and to permit owners of
processing projects or plants to obtain authorizations to transport
hydrocarbons to their plants, and then to the next phases of
industrialization or commercialization. These authorizations will
not be subject to a term.
PUBLIC EMERGENCY
The Ley Bases declares a public emergency in administrative, economic, financial, and energy matters for a period of one year, and delegates to the executive branch broad administrative and emergency powers designed to reorganize the federal administration and improve its functioning and internal control, cut back the size of the government, make spending transparent, and balance the budget.
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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