Application of a Surcharge on Imported Gas Ruled Unconstitutional by the Supreme Court of Justice

On October 27, 2015, the Supreme Court of Justice (the “Supreme Court”), in re:“Compañía Mega S.A. c/ C/ EN-Dto. 2067/08 -M° PRODUCCIÓN RESOL. 1451/08 y OTRO S/ AMPARO LEY 16.986” (the “Mega case”) upheld the lawsuit filed by Compañía Mega S.A. (“Mega”) against the Federal Executive Branch and the Federal Natural Gas Regulatory Agency (“ENARGAS”, for its Spanish acronym) challenging Decree No. 2067/2008, as implemented.

1. Background

By means of Decree No. 2067/2008 the Executive Power established a Trust Fund to finance the import of natural gas to guarantee local supply. The Trust fund would be integrated by -among other resources- surcharges paid by the users of regulated natural gas transport and distribution services, natural gas consumers that receive natural gas directly from the producers without using the natural gas transport or distribution public service systems and companies that process natural gas.

Until ENARGAS Resolutions 1982/11 and 1991/11 were issued, natural gas consumers that receive gas directly from producers without using the natural gas transport or distribution systems and companies that process natural gas were not subject to the surcharges. Under those resolutions, Mega and other companies included in certain specific categories were subject to the obligation to pay a surcharge of AR $0.405 per cubic meter of natural gas acquired as from December 1,, 2011 on a monthly basis, while other parties subject to the surcharge were obligated to pay a surcharge of AR$0.0405.

The District Court upheld the claim and ruled on the annulment of Decree No. 2067/2008, as well as ENARGAS Resolutions 1982/11 and 1991/11 with respect to Mega, on the understanding that the challenged surcharge violates the rule of law (principio de legalidad) applicable in tax matters.

The Federal Court of Appeals confirmed the District Court’s ruling.

2. Supreme Court Precedents

In its ruling in the Mega case, the Supreme Court took into consideration the arguments put forth by Mega that highlighted several factual and legal differences existing among the Mega case and previous Supreme Court precedents that upheld the validity of the surcharges established to finance natural gas transport capacity expansions and, even, gas imports.      

In the “Establecimiento Liniers S.A. c/ EN – ley 26.095 – Ministerio de Planificación – resol. 2008/06 y otros s/ amparo ley 16.986” case, dated June 11, 2013, the Supreme Court ruled that “the specific surcharges under scrutiny in the case established by the law and regulations are a component of the transport and gas distribution public service tariff that […]  do not only pay for operating and maintenance costs but also those arising from the investments required in order to render a proper service”.

In turn, on December 11, 2014, in re: “Alliance One Tobacco Argentina S.A. c/ Estado Nacional – Poder Ejecutivo Nacional s/ ordinario” the Supreme Court  upheld the validity of the surcharge established to finance natural gas imports on the basis that “the charge established by section 2°, Decree 2067/08 does not constitute a tax but a component of a tariff, which represents the portion of the imported gas price which must be faced by the user and is proportionally related to the cubic meters of gas received.”

This case law had been applied by the Supreme Court to other cases before the Mega case ruling.

3. Grounds of the Supreme Court Ruling

In the Mega Precedent, the Supreme Court took into consideration that the petitioning party proved that the natural gas it processes as raw material is delivered to a separation plant of Mega’s property connected by a pipeline to another fractioning plant, also of its property, both for the production of ethanol, propane, butane and gasoline, which are not part of the distribution and transport public service system. It also took into consideration that the gas received is produced exclusively by YPF S.A. (“YPF”) in Argentine territory without using the natural gas distribution and transport public service system.  

Pursuant to the manner in which Mega acquires the natural gas, the Supreme Court noted that the natural gas delivered by YPF cannot be confused with the imported natural gas and, thus, the petitioning party does not receive the natural gas that Decree No. 2067/2008 is designed to pay for.

In that context, it was highlighted in the ruling that the lack of a connection between the natural gas that Mega buys from YPF and the challenged surcharge determines the unreasonableness, and as a consequence, the unconstitutionality of the law.

As for the claim put forth by defendants that the surcharge under scrutiny has the characteristics of a public service tariff, the Supreme Court highlighted the comprehensive nature of the natural gas tariff, that includes the gas price at the point of entry into the transportation system, the transportation tariff and distribution tariff, as well as the necessary relationship which must exist between the service provided and the amounts due for a tariff to be fair and reasonable

4. Conclusions

The ruling in the Mega case suggests that the Supreme Court as well as District Courts and Courts of Appeals will address the constitutionality of the surcharge on imported gas on a case by case basis.

Thus it will be crucial to address and prove the particularities of each situation facing the surcharge, its economic impact and the dynamics of the economic activity of companies and individuals subject to pay it.