INVESTMENT OPPORTUNITIES.

Index

I. Natural gas

II. The automobile industry

III. Mining

IV. Forestry

V. Petroleum

VI. Electric Power

VII. Construction and real State

VIII. Tourism

IX. Environment



I. Natural gas

A new legal framework that restructured this sector of the economy and regulated gas transport and distribution was created in 1992. The privatization of Gas del Estado (stateowned gas company) created two trunk pipeline gas transport companies and eight distribution companies, representing 40% of the Argentine energy system (approximately 65 million cubic meters transported through a pipeline system). These companies were subsequently privatized.

The basic purpose of the privatization was to improve efficiency, foster investment, separate the delivery of services from their regulation and complete the deregulation of the hydrocarbon sector lunched in 1991. Two basic premises were considered: to increase competition and regulate only those areas that require regulation, which was specifically enacted for transport and distribution activities, under the National Gas Regulatory Authority (Enargas). All aspects connected with gas production are under the scope of the Secretariat of Energy pursuant to the provisions of the Hydrocarbons Law (No. 17,319) which provided the legal framework to these activities.

a) Production: Most of Argentina's proven gas reserves were found as a result of oil exploration. Out of 1-9 sedimentary basins, ten are located in the ground, three are under the sea, and six are partly under the sea and partly on land. Although YPF is the largest gas producer in Argentina, several foreign companies are actively participating in this market, among others: Total, Norcen, Chauvco, Ampolex, Deminex and Santa Fe Energy Company. Other firms including Shell, Occidental Petroleum and Amoco are active players in the hydrocarbon production sector.

b) Transport: The transport companies operate under an "open access" system under which producers and third parties, including distributors, have unlimited access to the pipeline system. Transport rates are regulated by Enargas. The criteria of "maximum rate with periodic review" is applied; this is an incentive structure that enables transport companies to retain a portion of the profits they earn by improving efficiency.

c) Distribution : Under the 1992 law, large users may purchase gas directly from producers or sellers under conditions freely agreed by them. This division of the distribution system may be physical or commercial. The physical division means that users may build a gas pipeline at their own cost and connect it to the transport system, thus avoiding distribution costs. Commercial division allows the user to negotiate the gas price with the producer and a separate payment of transport and distribution rates.


II. The automobile industry

In December 1991 an agreement was signed in order to reorganize the industry and regulate certain aspects of its operations and vehicle imports until December 31, 1999. The program includes the participation of final producers, manufacturers of autoparts, workers, and dealers. The program caused a restructuring of the sector based on a reduction in the number of models and specialization on those incorporating more recent technologies. Projects for establishing new auto companies in the local market must comply with the limitation of a maximum 40% of imported components for light weight vehicles and 42% for heavy vehicles.


III. Mining

The existence of vast mineral reserves has been verified in Argentina but only 20 percent of the country has been surveyed. Strong growth is expected for the rest of this decade.
Policies intended to enhance and facilitate investment in the mining sector have been combined with a set of new laws to facilitate operations :
- Increase in the size of the areas allocated for geological surveying.
- Mining royalties limited to a maximum of three percent.

Argentine Mining Code stipulates that in the case of most minerals the owner of the surface does not own the underlying mineral deposits, but the government is legally bound to grant a mining license to discoverers of new deposits, which is subject only to a license fee and compliance with three conditions:
- the payment of an annual royalty.
- the investment of a minimum amount of capital by the license holder, and
-reasonable exploitation. Contracts covering the exploration and exploitation of large mining areas are limited to a maximum of 36 years: five years for exploration, one to opt for exploitation, and thirty for exploiting the area. There are no restrictions on the involvement of foreign companies in mining or in ownership of mining properties, nor is there any discrimination against them in obtaining local financing. There are neither duties nor restrictions on export of mining products.

Law No. 24,196 (May 1993) instituted a new framework for investment in the mining sector. To be eligible for these benefits, individuals and corporations must be domiciled in Argentina and register with the National Mining Bureau. The main benefits available to investors are: • Guaranteed tax stability (in taxes and tax rates) for 30 years. • Stable foreign exchange and customs treatment (with the exception of exchange rates and tax reimbursements, drawbacks and refunds linked to exports). • The income tax deductibility of the full amount of prospecting and exploration outlays, as well as costs related to other work undertaken to determine the technical and economic feasibility of mining operations (notwithstanding the ability to deduct the expenses themselves as such or treat them as depreciable investments). • The income tax deductibility of an environmental conservation allowance of up to a maximum of 5% of the operating costs for extraction and smelting, provided that the allowance is used before the completion of the productive cycle.

A law approved in 1995 (Law No. 24,402) instituted a mechanism to finance the value added tax on capital goods imports and investment in infrastructure of all economic sectors, including mining. Eligible investments must be related to the production of goods for export. Mining activities are also eligible for anticipated refunds (in 60 days or less) of the value added tax.


V. Forestry

Argentina has 35 million hectares of native forest (13% of the land area). Only 18 to 20 million hectares are considered to be available for exploitation.

Species annual growth / Cycle / Output (cubic meters/ha/year)
Pines / 20 to 25 / 20 to 35 400 to 600 Eucapyptus /35 to 40 / 10 to 12 350 to 500
Salicaceae /20 to 25 / 8 to 12 200 to 300 (poplars & willows)

The provinces of Misiones, Entre Ríos, Buenos Aires and Corrientes account for 90% of the supply of raw wood. The Argentine forest sector offers favorable conditions for the development of cultivated areas, extraction and industrialization due to the great variety of high production areas that have not yet been developed. Potential local uses combined with export opportunities are the main reasons for growth in this industry where foreign investment has a key role to play.
The national and provincial governments encourage forestry development through several promotional programs, including those to expand the cultivation of certain species and in various regions by offering accessible lines of credit and subsidies in accordance with current norms.


V. Petroleum

On the basis of the state reform legislation that was approved in August 1989, the executive branch issued a series of orders to demonopolize and deregulate the oil and gas industry in Argentina.
These oil deregulation decrees:
• Eliminate the restrictions on imports and exports of crude oil (exports are subject to the control of the Energy Secretariat).
• Deregulate the local oil industry as of the end of 1990, including the price of oil and its by-products.
• Remove all restrictions on the establishment of sales outlets (gas stations).
• Provide for public tenders of exploration and development rights for certain production fields.
• Establish the exploration permits and concessions, with the free disposal of oil and natural gas production.
Under current regulations, the holder of an exploration permit has the exclusive right to perform such operations as may be necessary or adequate for oil and natural gas exploration within the area covered by the permit. Each exploration permit may cover only untried areas on land of less than 10,000 square kilometers or 15,000 square kilometers on the continental shelf for periods of 14 and 17 years, respectively. If the holder of an exploration permit discovers commercially viable quantities of oil or natural gas he may request, and shall have the right to receive, an exclusive concession for the development of the oil and gas for a period of 25 years with an option for a further ten years. The concession shall also confer on the holder the right to perform all activities necessary or adequate for development, as well as to obtain a concession for the transport of production.
Holders of development contracts must pay royalties to the government of the province where production takes place. The royalties are 12% of the well-head price of crude and 12% of the value of the usable volume of natural gas production. Exploration permits and development concessions may be transferred to third parties with the government's approval.


VI. Electric Power

A law passed in January 1992 (No. 24,065) provided a new legal framework for the electric power sector.
The new framework acknowledges four different market agents:
• Generating companies: any holder of an electric power plant purchased or installed or concessionaires of exploitation services dispatching their output, either totally or partially, in the transport and/or distribution system. They constitute a competitive market where prices are not regulated and access is free.
• Transmission companies: electric power transmission and transformation from the point of delivery by the generator to the point of reception by the distributor or large user. Since they are natural monopolies, services are granted under a concession with regulated rates. They should allow free access to third parties.
• Distribution companies: they should supply, within their concession areas, end users not entitled to independently purchase electric power. Since they are natural monopolies, services are granted under a concession with regulated rates. They should allow free access to third parties.
• Large users: those that may choose between being supplied by the distribution company of their relevant area or purchase electric power directly from a generating company. They should be connected to a network with a voltage of not less than 1 kV. There are two distinct categories among them: Major Large Users (GUMA) for which minimum demand at each point of physical exchange should reach 1 MW, annual consumption should not be lower than 4380 Mwh, and who purchase at least 50% of their demand; and Minor Large Users (GUME) for which minimum demand at each physical point of exchange should reach 0.1 MW and maximum demand should reach 2 MW. They should purchase all of their demand.


VII. Construction and real State

The new homes to families ratio has improved it is necessary to build approximately 252,000 new homes every year, given that about 112,000 housing units become obsolescent annually. The shortfall had been increasing at a rate of approximately 60,000 units annually.
In Argentina mortgage market is estimated at five billion dollars. The market is new and is developing in line with the growth of the economy. Investors may invest their capital in the construction industry in two ways: First, by purchasing mortgage securities, obtaining yields on them in the financial market; and second, by financing their projects through the issue of such securities.


VIII. Tourism

Tourism in Argentina has grown by an average of 8% annually over the last years, with peaks that greatly exceed the average. The market is ready for improved tourist infrastructure to help satisfy the ever-growing international demand. The country's tourist attractions and the increasing volume of visitors from abroad guarantee the success of such efforts.


IX. Environment

Since 1903, Argentina has a National System for Protected Natural Areas and since 1934 there is institutional development of the system, through the Administration of National Parks (APN). The six biosphere reserves of the country have been established since 1980. The Reserva Natural Isla de los Estados (Natural Reserve Island of the States) was created in 1990, constituting the first insular bioma to be protected in Argentina
The national government has expressed its political will to protect and improve the environment setting up new standards and rules.
Several important laws were passed recently, such as Law 24051 (dangerous waste), Law 24084 (substances exhausting the Ozone layer), 24585 (for environmental protection in the mining sector) as well as the new Article 41 of National Constitution (1994).
Main environmental impairment in Argentina :
• The pollution of underground waters is the most important contamination problem in Argentina.
• Garbage dumps of uncontrolled solid waste are next in importance among the priorities.
• The contamination of surface waters stemming from industrial residual waters and black waters without treatment as well as air pollution and noise are also a problem in big cities.
• Floods are another environmental problem that affects population as well as large productive areas.


Source: Ministerio de Economía y Obras y Servicios Públicos.


Home