What the framework law can – and can't – do for Argentina's provinces

Argentina's senate recently approved a sweeping framework law that is aimed at overhauling the economy and includes investment incentive regime Rigi to boost mining, as well as key sectors such as energy, oil and gas.

The vote represented a victory for President Javier Milei, but lower house approval is still needed before he can enact the law.

Rigi involves a 3% mining royalty for current projects and allows provinces to increase it to 5% for new developments.

This measure is particularly crucial for Mendoza province, traditionally the country's largest wine producer and exporter, although officials are increasingly promoting mining.

Despite strong opposition to mining, Mendoza's governor, Alfredo Cornejo, created a copper roundtable with authorities from San Juan, Catamarca and Salta provinces to support Rigi and unlock projects.

In this interview, economists Dante Moreno and Martín Kalos from consultancy EPyCA talk to BNamericas about the advantages and disadvantages of the framework law, what it would do for mining and how Mendoza could develop its potential.

BNamericas: What successes and risks does the proposed framework law entail?

Kalos: The great success is proposing an investment regime, although that could change since it doesn't include a regime for local suppliers. Rigi could cover more sectors and prevent investors from coming to buy companies in Argentina using the benefits, but without that implying increased productive capacity.

Another problem is that it doesn't provide solutions for investments below US$200 million. This even applies to big Argentine industries such as the automotive sector, which is mature and doesn't need to make large investments. Its facilities are in production, so they don't need to invest US$200mn in factories from scratch, but rather renew or expand capacities.

Rigi should level the rules of the game for all companies.

BNamericas: So Rigi should be reformulated?

Kalos: Rigi is designed for those who invest more than US$200mn in industries such as mining and hydrocarbons. It is great news for those sectors with various pending projects, but SMEs are excluded, while we see a drop in consumption and a large number of SMEs closing down.

BNamericas: What specific changes should be incorporated into the framework law or Rigi?

Kalos: First, it can't be allowed to register the purchase of a company without verifying that an investment in a greenfield or brownfield project will actually be made. The same is true of administrative silence, which is another chapter in the framework law. This approach gives rise to a series of abuses.

BNamericas: Will the Rigi measures, such as reducing taxes and eliminating export and import duty payments, stimulate the Argentine economy?

Moreno: Rigi isn't a gradual process but instead turns the page completely. It generates conflicts, and opposing positions may continue to be taken up by unions, chambers, SMEs and other organizations. It remains to be seen whether the right alliances will be forged.

BNamericas: How is Mendoza's mining sector doing?

Moreno: Mendoza doesn't have large-scale mining due to law 7722, which requires projects to be approved by the provincial legislature, both at a technical and environmental level. Furthermore, part of the province rejects mining in defense of water, ignoring technological advances that reduce pollution during extraction.

San Juan province, on the other hand, which is adjacent, has large scale mining and is improving its economy by virtue of mining projects.

BNamericas: How could mining be developed in Mendoza?  

Moreno: I think that mining in Mendoza will focus more on the southern area, on Malargüe, especially after multinational [Solway Investment's San Jorge project] got stuck in permitting because part of society doesn't accept mining.

Today, there's a frank dialogue between parties so that mining can be carried out in Mendoza and the provincial government is interested in incorporating it into the local productive matrix, especially due to the hiring of local labor.

BNamericas: Some geological studies indicate potential to extract lithium in Mendoza, especially in Malargüe and San Rafael.

Moreno: The darling of Mendoza's mining sector is copper and now, with the copper roundtable, it will be promoted even more. There's a lot of political negotiation around mining, something that didn't happen before.

But there's the obstacle of law 7722 that arose from a position that prevents mining mainly due to the wine sector, which defends water usage.

In Mendoza, we also have important uranium deposits such as [Sierra Pintada] in the San Rafael area, which was originally under the supervision of the national atomic energy commission when we had significant development of nuclear energy.

BNamericas: What should Mendoza do to facilitate the development of copper projects?

Moreno: Mendoza has several copper deposits in the mountain range it shares with Chile. Although the legal umbrella is provided by the State, mining decisions are made in the provinces. Therefore, it's important to have expert or specialized human resources with skills acquired in Canada, Chile or Australia in the provincial governments.

San Juan did something practical with mining royalties. It set up a trust to deposit them and with that money it's financing energy generation and promoting solar parks that will serve the mining industry. Something like this could be done in Mendoza.

BNamericas: Is there any news on the Potasio Río Colorado potassium project and Pan American Silver's Don Sixto gold mine?

Moreno: Minera Aguilar and [Brazil's ARG] plan to reactivate Potasio Río Colorado with the notable participation of a provincial company. It's just in the first stages, so there are no concrete figures on projections yet.

Don Sixto is one of the largest gold deposits in the country, but as long as bias against mining exists, we will continue to see these projects paralyzed, just like San Jorge.

BNamericas: How do you judge the performance of federal mining chief Luis Lucero?

Moreno: I have my doubts regarding that team and Milei officials. Some have no experience in the areas in which they work.

The mining chief isn't in the same party as the representatives of the [previous] Fernández or Macri governments, who were linked to the mining industry.

Lucero hasn't yet put a deep and technical discussion of the mining issue on the table, like the provinces are doing. In other words, San Jorge is a large project and is paralyzed, while Canadian companies are working with uranium in southern Argentina.

BNamericas: What does Mendoza offer foreign investors?

Moreno: We have trained human resources. There are companies that are based in Mendoza and extract at [shale formation] Vaca Muerta or in Catamarca. Many companies are looking at Argentina and Mendoza, especially since the conflict between Russia and Ukraine started that put the security of gas supply at risk.

Several solar energy companies also want to invest here, which would be essential to develop our mining industry.