Vaca Muerta: Implementation of Decree 929/2013
The recent measure announced in Houston to reactivate Decree 929/2013 is highly significant for the industry and for Argentina.
Decree 929 allowed the first investments in Vaca Muerta to become viable, considering that unconventional hydrocarbons require different deadlines and technologies than conventional exploitation.
As opposed to the recent Decrees 277 and 484, which only grant access to the foreign exchange market in specific cases, Decree 929 effectively encourages investments by enabling exports and promising zero withholding taxes and access to a percentage of the net income of the resulting hard currency free of exchange controls. Free disposition means the ability to use those sales proceeds not only to pay dividends but also to repay foreign loans and to pay for imports essential for development. It also means that if exports are curtailed to satisfy local demand, the export parity price for those local sales must be recognized for producers, who may convert the proceeds to dollars available on the foreign exchange market.
Most people are not aware that in 2014 Decree 929 was enacted into Law 27,007, which amended the federal hydrocarbons law to add all matters related to unconventional exploitation. Thus the decree, originally designed to address the launching of Vaca Muerta, became law.
But Decree 929 was never implemented. It requires customs, central bank and energy secretary second-tier regulations. Despite the passing of time (almost a decade), it was never enforced.
We have always submitted that it is better to comply with the existing regulatory framework than to enact new extensive and complicated incentive laws.
In Argentina, we do not need more laws, only build trust. And trust comes from compliance with rules and contracts (pacta sunt servanda) as part of a broader concept of institutional quality. This is what investors mean when they ask for "legal certainty," a level playing-field or "rules of the game."
Therefore, the decision for implementing this decree, published almost 10 years ago, should be welcome. If implemented, it will be a much more important decision than the most recent decrees and major announcements of promotion laws because it transcends the regulatory and exchange rate issue to go to the heart of the matter: credibility.
Other encouraging measures: Transportation infrastructure, gas plan, LNG and hydrogen production and exports
Additional measures that have been announced or are being executed are also encouraging, both in terms of their impact on local demand and the prospects for exports and foreign exchange generation.
The Néstor Kirchner gas pipeline must be built to provide an outlet for the gas produced in Vaca Muerta and to save on foreign currency imports. Likewise, the extension of the Gas Plan until 2028 and the consequent "contracting" of natural gas extends the horizon of predictability and financing ability of the projects and constitutes a firm basis for exports. Adequate participation of all the basins and a balanced and transparent distribution of export shares among producers should be included in the regulation.
Recently the extension of the transportation concession of the trunk pipelines of access to Allen and the Allen-Puerto Rosales pipeline owned by Oldelval will enable further investments required for the development of the evacuation infrastructure of the Neuquina basin to guarantee the transportation of crude oil for the supply of the local market which will also facilitate greater exports.
Furthermore, new regulations to facilitate the production and selling of liquefied natural gas and hydrogen through an adequate regulatory framework will allow financing projects and ensure the free exchange of foreign currency. As in other cases, it is not a matter of subsidies but of ensuring stability and generating confidence.
Article published in BNamericas