2020-2024 Gas Plan: Round 2 and Incentive Plan Regulation

1. Round 2

 

On February 22, 2021, Resolution No. 129/2021 of the Secretariat of Energy (SE) was published in the Official Gazette, which called for Round 2 of the national public tender for the “Plan de Promoción de la Producción del Gas Natural Argentino – Esquema de Oferta y Demanda 2020-2024” (“Plan to Foster the Production of Argentine Natural Gas: 2020-2024 Offer and Supply Scheme” or “Gas Plan”). The new Gas Plan had been approved by Presidential Decree No. 892/20 with the aim of increasing natural gas production in the country. For more information on its main guidelines, please see our article on the 2020-2024 Gas Plan.

 

Round 1 had been called by the Secretariat of Energy through Resolution No. 317/2020 to award the base volume of 70 million m³ per day, 365 days a year, produced in the Neuquén, Austral and Northwest Basins and an additional volume for each of the winter periods from 2021 to 2024. The tender was conducted in December 2020. Under Resolution No. 391/2020 and its amendment (Resolution No. 447/2020), volumes were awarded and gas prices were approved at the Point of Entry to the Transportation System (the PIST, after its acronym in Spanish) corresponding to the volumes awarded, following the maximum price parameters per basin set forth in the bidding terms. Under Round 1, the volumes awarded were to be injected from the Neuquén and Austral Basins, given that the tender was declared void with respect to the Northwest Basin.

 

The goal of Round 2 was to award additional volumes to those in Round 1. As stated in the recitals of SE Resolution No. 129/21 that launched Round 2, “the volumes of cubic meters of gas offered by the producing companies” [within the framework of Round 1] “were insufficient to cover the domestic consumption projections for the winter periods of 2021, 2022, 2023 and 2024.”

 

Round 1 had awarded volumes of 50.2 million m³ per day for 365 days each year and an additional volume of 3.6 million m³ per day for the peak of winter consumption. Round 2 awarded more volumes per day for the winter periods to the volumes already awarded under Round 1.

 

Round 2 was addressed exclusively to the producers of the Neuquén and Austral Basins and was limited to the winter periods of 2021 to 2024 (from May to September of each year), in accordance with the volumes and Terms and Conditions provided in Annex I of SE Resolution No. 129/21.

 

Round 2 was different from Round 1 in several other respects:

 

(i) The counterparty of the producers in the gas purchase and sale agreements: While in Round 1 the producers had to execute direct contracts with the distribution licensees or with Compañía Administradora del Mercado Mayorista Eléctrico Sociedad Anónima (CAMMESA), in Round 2 the awarded producers are required to execute an agreement with Integración Energética Argentina S.A. (IEASA), pursuant to Annex II of SE Resolution No. 129/21.

 

(ii) Unlike the contract template from Round 1, the dispute resolution clause under the IEASA contract provides for arbitration before the Buenos Aires Stock Exchange (Bolsa de Comercio de Buenos Aires), while the previous round's contract provides for arbitration before the International Chamber of Commerce (ICC).

 

(iii) The maximum price that could be offered in the new round differed depending on whether or not the producer was awarded volumes in Round 1.

 

If the bidding producer had been awarded volumes in Round 1, it had to offer a price equal to or lower than that of natural gas at the Point of Entry to the Transportation System (PIST) corresponding to the volumes awarded in Round 1 multiplied by a coefficient of one point thirty (1.30). Round 1 had provided for a maximum admissible price for each basin; and, under no circumstances, could the price resulting from applying the Net Present Value (NPV) of the income corresponding to the offered volumes —according to the guidelines provided there—exceed 3.21 USD/MMBTU.

 

But if the bidding producer had not been awarded volumes under Round 1, the maximum price offered could not be higher than the weighted average of the prices awarded in Round 1 multiplied by a coefficient of one point thirty (1.30). The Round 2 bidding conditions specified the weighted average prices of Round 1 as follows: 3,571 USD/MMBTU for 2021 and 3,575 USD/MMBTU for 2022-2024 for the Neuquén Basin and 3,428 for 2021-2024 for the Austral Basin.

 

The offers under Round 2 were submitted on March 2, 2021 and then SE Resolution No. 169/2021 (published in the Official Gazette on March 10, 2021) awarded the additional volumes and approved the prices provided there.

 

2. Tax Credit Certificates to guarantee the government compensation to producers

In parallel to the launch of Round 2, on February 23, 2021, Resolution No. 125/2021 of the Secretariat of Energy was published in the Official Gazette, which implemented the issuance of the Guarantee Tax Credit Certificates to ensure that bidding producers under Rounds 1 and 2 collect compensation from the National Government pursuant to the Gas Plan. The Federal Administration of Public Revenues (Administración Federal de Ingresos Públicos or AFIP, after its Spanish acronym) issued General Resolution No. 4939/2021 (published in the Official Gazette on March 5, 2021) which regulates its procedure and implementation.

 

Government compensation is the main incentive for producers provided under the scheme and consists of the differential between the price billed to the Distribution Licensees and/or Sub-distributors and the price offered by the producer in Rounds 1 and 2, respectively. By means of the guarantee tax credit certificates, the payment of this differential in charge of the Government is secured pursuant to article 89 of the 2021 Budget Law (Law No. 27,591).

 

It is provided that the certificates will be issued in favor of the producing companies for the amount of the compensation they are entitled to receive under the scheme and may be used by the companies if the compensation payment term expires without payment from the Government.

 

The certificates will be issued electronically, in foreign currency, and may be applied to the payment of pending tax obligations with the AFIP as the balance of the tax filings and/or advances (anticipos), plus their compensatory and/or punitive interests, fines and other accessories. They will be converted to Argentine pesos at the foreign exchange rate published by Banco de la Nación Argentina at the close of the day prior to their effective use. Under the regime, certificates may be assigned if regulatory requirements are fulfilled. If the producer receives the compensation payment in a timely manner, the guarantee tax credit certificates linked to that payment will be canceled.