After budget rejection, Argentina gas pipeline price tag forecast to swell

A natural gas pipeline megaproject planned in Argentina might cost more than originally forecast after the rejection of the government’s 2022 budget bill, a lawyer told BNamericas.

Congress voted down the draft legislation this month.

As well as earmarking US$482mn to help cover the cost of the project – the first phase of a two-phase scheme to ease a Vaca Muerta transport bottleneck and substitute imports – the bill contained associated VAT, income tax and duty relief measures.

After failing to get the bill approved, President Alberto Fernández is expected to amend and extend the 2021 budget via decree, a move that would nevertheless have implications for the public works project.

First-phase pipeline work would require outlay of US$1.57bn. Wealth tax revenue held by state energy company Ieasa and direct treasury financing would also be used.

“A consequence of the rejection of the bill might be an eventual increase in costs given that technically the president may not, via [a decree] DNU, grant tax benefits that were included in the rejected 2022 budget bill,” said Ezequiel Artola, a partner at the Buenos Aires office of global law firm Baker McKenzie.

"We shall wait for the final language of the purported DNU to determine the actual consequences."

VAT in the cash-strapped country stands at 21% although some items are subject to higher or lower rates. In terms of corporate income tax, this year congress approved a progressive regime, establishing rates, based on revenue, ranging from 25% to 35%.

Energy department chief Darío Martínez has previously said he wanted to begin, via Ieasa, the tendering process for first-phase work by year-end and bring the infrastructure into service by winter 2023. Midstream Infrastructure that transports gas from the Vaca Muerta shale play – where output has been growing – to demand hubs near the coast is expected to hit capacity next year.

Fernández, whose left of center coalition performed poorly in November’s midterm congressional elections, losing seats in congress, will reportedly issue a decree to accelerate first-phase pipeline work.

At its core, the first phase involves pipeline construction work between Tratayén in Neuquén province and Salliqueló in the province of Buenos Aires (558km). Ancillary projects are included, among them construction of duct Mercedes-Cardales (73km), in Buenos Aires province. This would link Argentina’s northern and southern gas systems. 

Also planned is flow-reversal work on the Gasoducto Norte pipeline and expansion work on other ducts. Flow reversal would permit the transport of gas from the south to the north.