New Regulation on Bio-fuels: Decree Nº 109/2007

According to the new legal framework, bio-ethanol, bio-diesel and bio-gas produced from agriculture or agro-industrial raw materials or organic waste, meeting the quality requirements established by the Enforcement Authority, will be considered included in the bio-fuel category.[1] Production, blending, commercialization, distribution, consumption and sustainable use of bio-fuels will fall within the scope of the new regulation.[2]

The Decree provides that the production, blending and/or commercialization of bio-fuels may only take place in previously authorized plants. Therefore, the registration before the Enforcement Authority becomes mandatory if the applicant has previously fulfilled all the requirements established by it concerning safety measures, environmental matters and quality standards.[3] Any activity performed in contradiction with these regulations will be considered clandestine. [4]

The Ministry of Federal Planning, Public Investment and Services, through the Secretariat of Energy, will be the primary Enforcement Authority regarding bio-fuel matters.[5] However, the Ministry of Economy and Production will act as concurrent Enforcement Authority in fiscal aspects and in the determination of maximum available amounts of promotional benefits and the actual attribution of fiscal quotas to each project.[6]

The Decree stipulates that by January 1st, 2010, the fossil-fuel producing companies and its marketers must offer gasoline and gas-oil or diesel-oil blended with at least 5 % in volume of bio-fuels. Thus, gas-oil or diesel-oil that is commercialized within the national territory will have to be blended with "bio-diesel" and gasoline, excluding “natural gasoline” and the one destined to petrochemical use, must be blended with "bio-ethanol", in both cases, reaching the percentages specified in the Decree.[7] As to the bio-gas, the Decree provides that the Enforcement Authority will determine the conditions under which it will be possible to use the fluid within the natural gas network.

At the same time, a promotional regime is created to encourage projects aimed at producing bio-fuels. Thus, companies admitted in this regime, having previously complied with the required standards, will enjoy the following promotional benefits: 1) anticipated refund of the VAT corresponding to new redeemable assets (except automobiles) or other infrastructure works (except civil works) corresponding to the project or, alternatively, the possibility of applying on the Income Tax an accelerated depreciation, not being able to enjoy both benefits for the same project; 2) the possibility of not considering the assets for the computation of the Minimum Presumed Income Tax for three fiscal years as from the approval date; 3) the bio-diesel and bio-ethanol produced by the subjects whose projects have been approved and that are blended with fossil-fuels will be exempted from the payment of the Hydro Infrastructure Tax, the Liquid Fuel and Natural Gas Tax and the Tax on the Onerous or Free Transfer or Imports of Gas-oil.[8] Additionally, every qualified and approved project will enjoy the benefits set forth in the 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change.[9]

The following requirements must be satisfied in order to obtain the benefits under the promotional regime: (i) The industry must be located in Argentina; (ii) the project must be developed by individuals or under the form of a commercial or cooperative company, either private, public or jointly public/private, incorporated in Argentina and authorized exclusively to develop this kind of activities; (iii) the majority of the equity must be contributed by National, Provincial or Municipal Governments, State-wholly owned companies,  entidades de fomento (non profit associations or NGOs), or by individuals or companies which purpose and main activity in Argentina is the agricultural production and which [individual or entities] own real estate in Argentina suitable for agricultural purposes, being, at least, 50% of their assets and income relating to agricultural activities in Argentina. Such requirements apply to both shareholders and their controlling or controlled companies. In this sense, the Decree specifically sets forth that, if a minority shareholder directly or indirectly holds operative or commercial control over the project and/or over the company used as a vehicle for the project, the benefits granted shall be revoked; (iv) the applicants must evidence their registration under a particular chapter of the Oil Companies Registry; (v) the duty to meet the requirements determined by the Enforcement Authority in order to produce bio-fuels and to sell all their bio-fuels’ production for the purpose of blending it with fossil-fuels in the local market as from the time when blending becomes mandatory; and (vi) they must previously obtain the fiscal quota set forth by the regulation.[10]

For the allocation of the tax incentives (fiscal quota) and the selection of the projects, priority will be granted to those projects filed by SMEs (PyMEs or small and medium sized enterprises), agricultural producers, or projects that have an impact on the regional economies, so as to avoid the concentration of the offer of bio-fuel in Argentina.[11]

The Enforcement Authority will annually calculate the quantity of bio-fuel required to be blended with fossil-fuels. The Decree also establishes that the plants blending the fuels must inform periodically the quantity of bio-fuel and fossil-fuel acquired by them and their suppliers. It is important to take into consideration that the prices for the acquisition of bio-fuels from the promoted companies will be determined by the Enforcement Authority.[12]

The new regulation also establishes the National Government’s obligation to use bio-fuels. Moreover, private companies (among others, holders of hydrocarborn permits, public works and utilities contractors, transport and mining companies) located along the shores of rivers, lakes, and especially within the premises of National Parks or Natural Reserves are also compelled to use bio-fuels. Non-compliance with this requirement triggers the imposition of different penalties.[13]

The Decree also regulates the so called “self-consumption of bio-fuels”. This term comprises the production by individuals and companies of bio-fuels for their own consumption or for such of their members or associates, with raw materials produced by them. In order to obtain the benefits of the regime, those individuals or companies must comply with all the requirements established to participate in the promotional regime. In addition, their members’ main activity must be the production of agricultural raw materials. [14]

It is still premature to advance any judgement regarding the validity of some of the provisions set forth in the Decree. Although it has clarified the scope of the promotional regime set forth by the Law, the Enforcement Authority —both the Ministry of Federal Planning, Public Investment and Services and the Ministry of Economy— still has to further regulate and define some of its terms.