Private finance of infraestructure works

I. The Regime

The Argentine Government has recently enacted a legal framework to promote the participation of private investors in the development of infrastructure projects in Argentina. The new regime intends to benefit from the initiative, expertise and resources available in the private sector more efficiently and at a lower cost.

II. Trust Fund

The new regime has created a trust fund that will be managed by an administrative board (the “Fund”). The trustee of the Fund shall be the Banco de la Nación Argentina (Argentina National Bank).

The purpose of the Fund is to guarantee the payments owed by the relevant contracting governmental entities in order to give legal and economic certainty of payment and to reduce the costs associated with failure to comply with the relevant agreements.

The Fund shall obtain its resources from: (i) the proceeds of the sale of certain real estate assets of the National Government that may be assigned to the National Executive Power to the Fund, (ii) the income produced by the Fund’s assets, and (c) contributions to a minimum liquid reserve of the Fund that shall be made and maintained by the relevant governmental entities in connection to each of the projects to which the Fund is affected.

III. Contracts- Conditions Precedent

All projects developed under the new regime must have been included in the budget for the relevant fiscal years, according to the rules governing budget allocations for works which last more than one year. Governmental entities should also carry out studies regarding the project.

Construction, operation and maintenance of the project shall be audited by a governmental agency or by impartial consultants. The auditor’s approval shall trigger the beginning of the government entity’s payment obligation.

The National Executive Power or the relevant provincial authorities must approve any contract where the relevant governmental entity is not entitled to terminate the agreement or to amend the contract unilaterally for public interests reasons.

IV. National and International Bids

The National Executive Power may organize local or international public bids to allocate a project. In the cases where there is a national and international bid, the bidding terms shall provide that foreign companies must present their offers associated with a local company. In such case, the foreign company must hold an interest of not more than 51% of the relevant company.

Local companies shall have the option to equal the best offer in the event that their offer is within a 10% range of such best offer. This right may not be exercised when the foreign company belongs to a country with which the Republic of Argentina has signed a treaty to protect investments.

V. Assignment of the project

Under the regime the project manager shall be authorized to execute loan agreements that provide that in case of default the project would be assigned in favor of the relevant creditor. However, the regulations shall provide that the assignment shall be subject to the approval of the relevant governmental entity, which must grant it provided that the conditions required to fulfil the obligations are met and provided the assignee assumes the obligations of the assignor up to the amount established in the relevant contract. The assignment may occur even if bankruptcy has been declared.

The credit against the relevant governmental entity may also be assigned.

VI. Consideration

Consideration may be determined in local or foreign currency. However, the value of the canon may not be adjusted automatically through the application of local or foreign values, indices or coefficients. The cost of financing of the consideration may vary according to the fluctuation of the rate of interests applicable in the financial markets.

VII. Guarantees

Payment owed in connection to each project may be made and/or guaranteed (a) through direct payment by the Fund, provided the relevant governmental entity has advanced sufficient funds in due time, (b) as a subsidiary obligation of the Fund to pay in the event the governmental entity delays payment for more than thirty days, (c) as a direct guarantee in favor of the project manager given by the Fund or the National Government or provincial entities with or without recourse against the Fund.

To comply with the payment obligations of each project, the Fund shall obtain funds from the following sources, in order of preference: (1) assets of the Fund allocated to the corresponding project, (2) credit lines granted to the Fund allocated to such project and other credit lines and guarantees granted in favor of the Fund, (3) debits from the National Treasury’s bank account, as described below.

If the liquid assets of the Fund were not sufficient to make payments owed under the relevant agreements of contracting governmental entities, the Fund has direct access to collect the required amount of funds from the account that the Tesorería General de la Nación (National Treasury) has opened in the Banco de la Nación Argentina, up to a specified limit determined by the amount collected of certain taxes (Tax on Liquid Hidrocarbons and Natural Gas).

VIII. Arbitration

The National Executive Power and/or the relevant local governments may provide in the terms of the bid that disputes shall be submitted to an impartial arbitration tribunal.

VIII. Works subject to the Decree

The legal framework provides a list of the works that are subject to the regime. A large majority of these projects are road construction projects and different hydraulic works in rivers and lakes.

The following projects would not fall within the scope of the new regime (a) projects with income exceeding 60% of the total cost of the construction during the period of the relevant contract, (b) projects that entail the operation and maintenance of routes, and (c) other projects, services and /or works affected to concession or privatization.