Energy Overview

Relevant political, legal and business-related events took place in the energy sector in Argentina during 2004.

Introduction

2004 will not be an ordinary year for Argentina from an energy standpoint due to certain political matters that resulted in major surgeries within the oil & gas sector. The final resolution of the long-discussed Stamp Tax issue over offer letters, the new regime for assessment and payment of royalties or the creation of the state-owned EnergÌa Argentina Sociedad AnÛnima -Enarsa-, along with the current energy crisis, and the different consequences of all these factors modified the energy map and applicable legal frameworks.

POLITICAL ISSUES

Stamp Tax, Final Defeat Of The Uncertainty

From a political standpoint, maybe the most relevant fact was the final resolution of the issue dealing with the gravability with Stamp Tax of the agreements for consideration entered into through offer letters accepted by performance. Although considered a remarkable defeat for the provincial governments, it was somehow compensated with the new regime for the assessment and payment of oil & gas royalties, another debatable matter between the oil & gas producers, the oil & gas provinces and the Federal State, enhanced after the devaluation of the Argentine Peso vis-‡-vis the US Dollar.

In April 15, 2004, the Federal Supreme Court of Justice put an end to the intention of the oil & gas producing provinces' tax bureaus to collect Stamp Tax over the aforementioned kind of agreements, by setting forth the requirement of an "instrument", under the terms of Law 23,548 of Tax Federal Co-Participation, as a sine qua non condition in order to allow the application of Stamp Tax. These tax claims represented huge contingencies for the oil & gas companies, which in most cases included previsions in their balance sheets covering these liabilities. The judicial decisions issued by the Federal Supreme Court of Justice in this regard entailed, for the provincial tax bureaus, the impossibility to actually collect the amounts claimed in this concept, hence benefiting the oil & gas companies by eliminating the resulting tax contingencies and clarifying the applicable rules.

New Regime For Assessment Of Royalties

On May 2004 the Federal Secretariat of Energy issued Resolution 435/2004, which established a new regime of information, assessment and payment of royalties for oil & gas companies awardees of exploitation concessions and exploration permits. In a nutshell, Resolution 435/2004 granted full powers to the provincial governments and the Federal Energy Secretariat to determine the wellhead prices they deem correct for purposes of assessment and payment of royalties. Although the oil & gas companies may challenge the wellhead prices established by the provinces and the Federal Energy Secretariat, pursuant to Resolution 435/2004 such challenge must be made before the latter (which has sent out clear signs of being on the same side as the provinces) and does not prevent the collection of royalties by the oil & gas producer provinces, even through judicial collection measures.

The Creation Of A State-Owned Energy Company: Enarsa

Another political highlight of 2004, closely related to the current natural gas-focused energy crisis, was the announcement, by the Federal Government, of the creation of Enarsa, the new state-owned energy company that, as informed, shall actively participate in all steps of both oil & gas upstream and downstream, as well as in the generation, transportation and distribution of electric energy and all other types of energy, such as coal, nuclear energy and hydrogen. As reported, Enarsa's equity would be owned 53% by the Federal State, 12% by the oil & gas producing provinces, and the balance 35% would quote in a stock market.

Reportedly, one of the goals of Enarsa would be to become a balancing player to equilibrate the supply and demand of energy-related goods and services across the country, for the double purpose of providing the Federal Government with a price-control tool that would also battle potential antitrust situations. Moreover, Enarsa would also boost the offshore exploration and exploitation in Argentina, mainly in the Austral basin, to which effect it was announced that the Brazilian oil & gas heavy-weight Petrobras would contribute with technical assistance and share its offshore experience with Enarsa to the enterprise. In fact, as stems from the bill of law of creation of Enarsa, all oil & gas offshore areas not subject to exploration permits and/or exploitation concessions at the time of entry into force of said law would be automatically awarded to Enarsa.

The creation of Enarsa was highly criticized by diverse sectors both from politics and the...