Milei’s chainsaw decree: The measures that directly impact Argentina's energy sector

Argentina’s hydrocarbons and electric power sectors are impacted by President Javier Milei’s sweeping decree, published Thursday and branded "Foundations for the reconstruction of the Argentine economy."

In the energy sector, where moves are already underway to close the gap between local and international crude oil prices, Milei introduced multiple changes, chiefly striking out articles from existing legislation and even entire laws and decrees.

A key change for the hydrocarbons and other sectors is a measure that states “the national executive branch cannot prohibit or restrict imports or exports for economic motives. This can only be done by law.”

Currently, oil producers need permits from the federal energy department to make exports. The existing process involves ensuring local refiner demand is met. 

“What they are saying is ‘I’m going to bind my hands as the executive power and I’m not going to restrict exports for economic motives’,” former hydrocarbons undersecretary Juan José Carbajales was quoted as saying by local media outlet Más Energía. Rules could be eased for other reasons, such as sovereignty or defense. 

Argentina’s oil producers are eyeing higher production, spurred by export prices and midstream projects both underway and planned.

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Under another move, impacting both sectors and designed to minimize disruption from labor disputes, the production, transport, distribution and sale of gas and other fuels, along with electric power and water, are deemed “essential services” and minimum coverage levels are mandated.

A plan to pave the way for the privatization of state firms raises questions over the future of Energía Argentina, currently leading the country’s midstream gas infrastructure buildout. Milei has already said state-controlled oil firm YPF would eventually go on the block. 

The libertarian leader, meanwhile, also changed the way electricity and gas subsidies are calculated. End-user subsidies – which the previous administration started to trim to help balance the books – constitute a major chunk of outlay for the cash-strapped country. 

In a related development, gas regulator Enargas recently announced a public consultation on rate changes, planned for January 8. The meeting, among other areas, will also encompass rates and capacity assignments corresponding to the Gasoducto Norte flow-reversal project, currently out to tender.

Earlier this month economy minister Luis Caputo outlined the pillars of a planned State reform bill, covering areas such as tax, social security and duties.

Milei has inherited a sputtering economy and is expected to continue implementing measures to liberalize it. He is already on a collision course with trade unions and social movements, with friction intensified by a measure in the decree that erodes worker rights. 

Over the coming months, foreign investors will likely watch from the sidelines for signals of long-term economic, regulatory and social stability.  A key demand of the overall energy sector is an easing of State intervention in the market and lifting of capital controls, along with a steadying of the macroeconomic ship.    

OIL AND GAS

One change scraps time limits on exclusive supply contracts between oil firms and/or fuel suppliers and gas station companies. 

It also strikes out rules concerning the maximum stakes in the gas station market that oil firms and/or fuel suppliers can own. 

ELECTRIC POWER 

A modification concerns capacity and energy prices for firm electricity-export contracts.

Another deals with the redetermination of prices or canon payments made for outstanding transmission or trunk distribution expansion work.

Milei, meanwhile, took the chainsaw to Argentina’s federal electricity transport plan law of 2003. Expansion work outlay is currently shouldered by the State. Generators have called for a buildout of transmission infrastructure to support the addition of new renewables capacity.

Rules authorizing treasury loans linked to price-stabilization mechanisms in the wholesale power market are also scrapped.

RENEWABLES

Milei also took aim at the renewable energy segment.

The economist scrapped several articles on distributed generation in the 2017 milestone renewable energy law, No. 27,424. Among those axed are articles establishing a trust fund for the development of distributed generation, associated benefits and measures to spur supply chain development.