The government of Argentina has proposed a bill that would provide incentives for the local gas and oil sector to increase investment in domestic production. This would also allow for easy access to foreign exchange markets, said sources familiar with the proposed bill.
The goal of the bill is to help Argentina deal with the global energy crisis, which has drastically increased import costs.
Government officials, in contact with lawmakers and companies, sent out a draft hydrocarbons law earlier this week. The government has laid a plan that will ease the existing tight controls over foreign exchange, provided that local investments are made, and local energy supplies are met.
The draft law allows qualifying companies to freely export up to 20 percent of their local gas and oil output with zero percent export duty, provided domestic energy supply was assured by the companies. Sources said that the draft law was being circulated among companies and legislators, to check the response to the bill.
According to the proposed law, firms will be allowed to use 100 percent of foreign currency generated from exports to pay domestic bills, service financial debts, cover operating costs and redemption of capital. The draft bill may still face amendment, or not even reach Congress.
In periods when companies cannot export oil and gas, they would be allowed access to the Free and Single Foreign Exchange market to avail foreign currency that corresponds with 20 percent of income from sales and services in the domestic market.
An industry source with direct access and knowledge to the pans, said that the new bill would provide the sector flexibility to invest, and that the ruling coalition agreed with the need to catalyze energy investment.
The source also added that both sides of the ruling coalition government agree on the Bill, since it is vital for the sector to have incentives to invest.
Argentina to ramp up production
Argentina wants to step up domestic energy production, especially from its huge Vaca Muerta shale fields. The country remains a big gas importer, and spiraling prices of liquefied natural gas (LNG) costs are badly affecting its energy trade balance.
While prices of oil and gas have increased sharply on a global level, supply has further been tightened after the Russian invasion of Ukraine. As Europe faces the fallout of the invasion, it is worried about the continued supply of gas. Meanwhile, in a move aimed at gaining local confidence, the US has decided to release millions of barrels of oil from the US Strategic Petroleum Reserve.
Argentina, which had an energy deficit of over $1.6 billion last year, faces obstacles ramping up domestic energy capacity quickly, although it is proceeding with plans to build a major new gas pipeline that could become operational in 2023 or 2024.
A government source said there was a push to ease access to the foreign exchange market for oil and gas firms. The market has been tightly controlled since late 2019 to stem capital flight and shore up the country’s dwindling supply of dollars.
The source said that Economy Minister for Argentina Martin Guzman was focusing his efforts on the energy sector to raise investments.
Guzman had said earlier in March that he hoped to be able to adapt some regulations of the capital account in a way that suits the characteristics of the energy sector.
An Economy Ministry spokesperson declined to comment.
A spokesman for the Argentina central bank (BCRA), which sets currency controls, declined to comment on specific plans, but said the organization regularly works with the private sector to improve regulations to favor the development of projects.
A third company source said the sector anticipated changes to the foreign exchange rules.