Argentina: new energy law seeks foreign capital

Argentina's Chamber of Deputies voted 130-116, with one abstention, on Oct. 30 to pass a new version of a 1967 federal law governing the exploitation of oil and gas resources. The controversial new version had already been approved by the Senate; it will become law once it is signed and published in the Official Gazette by President Cristina Fernández de Kirchner. Under the revised law—which was pushed through the National Congress by the Front for Victory (FPV), President Fernández's center-left faction of the Peronist Justicialist Party (PJ)—concessions will be granted to private companies for 25 years for conventional oil drilling, for 30 years for offshore drilling and for 35 years for unconventional techniques like hydrofracking. The royalties the companies pay on oil and gas sales will be limited to 12% for the federal government and to just 3% for the oil-producing provinces, which technically control the resources. Private companies can also benefit from a provision letting them sell 20% of their production in international markets without paying export taxes if they invest $250 million over a three-year period.

According to the Fernández government, the law's goal is to encourage foreign investment and develop Argentina's petroleum industry rapidly so that the country can achieve "energy sovereignty" instead of using its hard currency to buy imported oil. The general policy isn't new: the state oil company, Yacimientos Petrolíferos Fiscales (YPF), signed a $1 billion agreement with the California-based Chevron Corporation in July 2013 for exploitation of the vast shale deposits in the Vaca Muerta region in the southwestern province of Neuquén. Local Mapuche communities, backed by environmentalist groups, occupied wells to protest the agreement. Dow Chemical Co., Royal Dutch Shell Plc, Exxon Mobil Corp. and Madalena Energy Inc. are some of the other foreign companies now involved in the Vaca Muerta drilling. Their involvement is likely to expand under the new law.

Critics say the rush to bring in foreign-owned multinationals—just two years after the Fernández government in effect re-nationalized YPF by taking control of 51% of the company's shares—is actually an effort to prop up the economy by bringing in hard currency. Mario Negri, a deputy from the centrist Radical Civic Union (UCR), said he feared the new law "could turn Vaca Muerta into a junk business to rescue the [US] dollars that they didn't know how to administer and which Argentina has lost in the last few years." (Bloomberg News, Oct. 30; La Nación, Paraguay, Oct. 30, from AFP; Jurist, Oct. 31)

From Weekly News Update on the Americas, November 2.

  1. Mapuche community contaminated by fracking

    A harrowing Sept. 5 BBC News story from the too-aptly named Vaca Muerta quotes Mapuche complaining of their animals falling ill and giving birth to mutants after drinking contaminated water. Many of the residents have also been sickened by the water. "Poor people can't afford to buy water," one said.