Electric Energy Generation from Renewable Sources Promotion Regime

On May 20, 2009, Decree No 562/2009 was published on the Official Gazette. This decree regulates the “National Promotion Regime Power Generation from Renewable Sources”, created by Law No 26,190 (the “Promotion Regime”).

The highlights of this Promotion Regime are:

1.    General foresights

a) The aim of the Promotion Regime is to achieve a contribution from the renewable energy sources equal to 8% of the total consumed energy in the country, in the lapse of 10 years since its implementation (the historical consumption peaks are 19,126 MW and 391 GWh, thus objective would imply reaching 1,530 MW and 31.52 GWh).

b) The energy sources considered as renewable and, therefore, favored by the incentives are: eolic, solar, geotermic, tidal, hydraulic (for generators producing less than 30 MW), biomass, exhaust gases, treatment plants’ gases and biogas (except for the uses set by Law No 26,093).

c) The investments reached by this regime are those used for goods, civil works, electromechanical works, assembly works, and other related services aimed to the building of new plants or to be added to existing ones.

d) The Ministry of Federal Planning, Public Investments and Services, through its Energy Secretariat, shall be the enforcement authority, except for the issues related to the foresight of the taxes and benefits in the Annual Budget. For these two topics the Ministry of Economy and Public Finances shall be the enforcement authority.

e) The Provinces and the City of Buenos Aires are invited to join the Promotion Regime and to issue regulations to complement it, such as:

(i)   exemption or reduction of the Gross Income Tax and municipal fees,

(ii)   exemption to the Seal Tax, and

(iii)  exemption to the Real Estate Tax.

f)     This Promotion Regime does not revoke, replace or change the benefits that could have been granted under Law No 25,019.

2.    Benefits

2.1 Tax benefits

a)    An alternative between:

(i)          Anticipated refund of the VAT of the new amortizable goods used in the project. The VAT charged to the beneficiaries in concept of purchase, manufacturing or definitive import of goods, or in concept of infrastructure works, will be credited against other taxes that should be collected by the National Tax Authority (“AFIP”) after, at least, 3 fiscal years since the investments had been made. Otherwise, the VAT will be refunded within the lapse set in the project’s approval, in the terms and with the guarantees foreseen therein.

(ii)          Accelerated amortization of the goods in relation with the Income Tax. The beneficiaries will be entitled to amortize the investments made after the project’s approval and pursuant to the terms provided therein. The treatment given to this amortization varies according to the moment when the investments are made: within the first, second or third twelve months after the project’s approval. This option is subject to the condition that the goods remain in the project’s owner patrimony for at least 3 years.

b)    The goods related to the projects will not be considered for the Minimum Supposed Income Tax.

2.2 Additional payment

The projects will receive the additional payments foreseen in the Law No 25,019. This benefit consists on the payment of an amount equals to A$ 0.015 per KWh to the generators of energy from renewable sources. Solar energy projects will receive A$ 0.9 per KWh.

The Additional Payment set in that law will be paid considering: 1^st) fuel substitution, 2^nd) national industry participation and the employment created, 3^rd) the time for the project to start operating.

3.    Requirements and procedure to become beneficiary

a)    The beneficiaries must be persons domiciled in Argentina or companies registered under the laws of Argentina. Additionally, these subjects must:

(i)   be the owner of one investment project pursuant to the terms of Section 8 of Law No 26,190,

(ii)  be authorized to generate energy according to the Law No 24,065, and

(iii)  the electricity to be generated must be aimed to contribute to the Wholesale Electricity Market o to the electricity public service.

b)    The projects must be filed with the Electric Energy Federal Board and must contain basically:

(i)    last financial statements,

(ii)   fulfilling of the tax and social security obligations,

(iii)   legal, technical, environmental and economic information,

(iv)    reports about the technical and economic feasibility assessment, highlighting the use of goods manufactured in Argentina,

(v)      election of one fiscal benefit,

(vi)     demonstration of jobs creation, and

(vii)     waiver of any administrative and judicial action based on Decree No 1,043/2003.

c)       The enforcement authorities will set the parameters to select, approve and evaluate the projects. These parameters must consider:

(i)       jobs creation,

(ii)      reduction in environmental impact,

(iii)      use of goods manufactured in Argentina, and

(iv)       energy destined to the Wholesale Electricity Market or to the electricity utilities.

d)    According to the abovementioned parameters, the Ministry of Federal Planning, Public Investments and Services will rank the projects. The sum of the chosen projects must not exceed the annual quota for the benefits that must be set bay the Ministry of Economy and Public Finances.

4.    Future measures

The Ministry of Federal Planning, Public Investments and Services must elaborate a “Renewable Energy Development Federal Program”, along with the Provinces, and within the Electric Energy Federal Board. This program must foresee both, the benefits granted by Law No 26,190 and by Law No 25,019.