Argentina working on new hydrocarbon tax

Argentine flags on Plaza de Mayo
Source: DollarPhotoClub

According to the U.S. Energy Information Administration, Argentina has the second largest recoverable reserves of shale gas in the world and fourth largest in terms of shale oil reserves. The government in Buenos Aires has now decided to use the growing interest in energy resources to change the tax system governing the extraction of hydrocarbons. According to many companies existing laws create onerous trade barriers hindering investment and exploration.

Argentina’s President, Cristina Kirchner, will meet early next week with the governors of provinces where exploration work is carried out to begin consultations regarding the new hydrocarbon tax law.

The new tax proposals will introduce a system of incentives and tax breaks to foster investment in the mining sector. The new tax law would introduce a general flat rate of taxes and levies collected by local governments on exploratory and excavation work. The level of investment which would entitle companies to transfer dividends abroad will also be lowered. To obtain the expected tax benefits the companies will have to invest at least 250 million dollars, which is considerably less than the currently required 1 billion dollars.

The proposal introduces a tax-free export allowance equalling 20 per cent of extracted hydrocarbons, as well as abolishing the limits on imports of machinery and other exploration equipment.

The rules governing exploration will also be revised. Currently, foreign companies are obliged to set up joint ventures with local corporations to start exploration work. According to Carlos Pierro, energy market analyst and former president of the state-owned YPF, such partnerships unnecessarily increase costs.

Meanwhile, Bloomberg reported yesterday that the French oil giant Total is holding talks to sell its indirect stake in Transportadora del Gas del Norte, Argentina’s second-largest gas pipeline operator. Proceeds from the sale will be used to boost oil and natural gas exploration in Argentina. On April 7, Total Americas Director Ladislas Paszkiewicz said the company was seeking lower costs to boost shale investment in Argentina’s Vaca Muerta formation, the world’s second-largest shale gas reservoir.

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