Energy and Natural Resources

Global Affairs Newsletter No. 1

1) The effect of the G20 in the Argentinean economy and legal implications

During the G20 held in Argentina between November 30th and December1st, 2018, Argentina entered into international agreements to foster economic integration and commercial relations. The following is a summary of the main agreements:


UNITED STATES: 

1) OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)

OPIC signed six letters of intent to advance with several projects in support of Argentina’s economic growth and they represent US$813 million in U.S. 

The six letters of intent were signed with:
Tecpetrol and Transportadora de Gas del Sur for $350 million to finance the construction of a natural gas pipeline across Argentina and support the development of the country’s energy resources.
Astris Infrastructure for $250 million to finance the repair and expansion of a major highway stretching from Buenos Aires to Mendoza to improve regional connectivity and facilitate trade.
YPF Luz for a $50 million loan to install 122 MW in wind power projects in Santa Cruz and add reliable sources of energy to the national grid.
Genneia, two agreements to lend $118 million to support the construction of both a wind and a solar power plant, that will together generate 222 MW in the Ullum and Chubut regions of Argentina.
Plaza Logística to provide a loan of $45 million to expand the company’s warehouses in the greater Buenos Aires region and enhance Argentina’s logistics network.

2) AGREEMENT FOR ENERGETIC COOPERATION

In the context of the G20 summit, Argentina and the USA subscribed an agreement to strengthen investment in infrastructure and energy cooperation.
This agreement is destined to promote capital investments of the private sector in the value chain of energy, which includes generation, transmission, and distribution and both countries will cooperate on the following objectives:

Incorporate cleaner energy sources such as natural gas and renewable energies.
Develop midstream and downstream infrastructure for refined products.
Expand the generation of electricity using natural gas and adapt the existing power plants for them to work with the combined cycle technology of natural gas. 
Accelerate Argentina’s adoption of innovative technologies, including renewable energies, micro and mini grids and batteries’ storage.
Invest in infrastructure of high voltage electrical transmission and its national and international connection. 
Improve energy efficiency and the use of smart grids.
Develop deep and liquid energy commodities markets and debt securities supported by infrastructure.
Support the investment in infrastructure and development of energy industry consistently with each country’s objectives. 


JAPAN:

Bilateral Investment Protection and Promotion Agreement

On December 1st, 2018, Argentina and Japan subscribed an agreement of reciprocal Promotion and Protection of Investment (the “BIT”). The BIT is a “third generation agreement” that balance the interest of the investors and the State by reaffirming the State’s right to regulate and maintaining a high standard of protection towards the investors.
In relation to the standards of treatment, the BIT contains the following provisions and standards:

- National treatment: Article 2 of the BIT specifies that “in like circumstances” depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investments or investors on the basis of legitimate public welfare objectives.
- Most-favored-nation clause (“MFN”): Article 3 excludes from the scope of this standard the international dispute settlement procedure or mechanisms under any international agreement.
- Fair and equitable treatment (“FET”): Article 4 regulates the standard to avoid a broad interpretation. The FET shall be interpreted under the customary international law minimum standard of treatment of aliens as the standard of treatment to be afforded to investments of investors of the other Contracting Party; failure to comply with the BIT does not establish that there has been a breach of the FET; and breach of investor’s expectations does not constitute breach of the FET.
- Non conforming measures: The BIT contemplates a chapter on non conforming measures that constitutes an exception to the application of the national treatment and MFN articles.
- Expropriation: The BIT contemplates direct and indirect expropriation. In the last one, the BIT states that to determine whether indirect expropriation occurred, it requires a case-by-case analysis and the following factors, among others, shall be considered: (i) the economic impact (however, standing alone, does not establish indirect expropriation), (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) character of the government action.
- Health, Safety and Environmental Measures and Labor Standards: Article 22 states that each Contracting Party recognizes that it is inappropriate to encourage investment by investors of the other Contracting Party and of a non-Contracting Party by relaxing its health, safety or environmental measures, or by lowering its labor standards
- Denial of benefits: the BIT shall not apply in specific circumstances such as when an enterprise of the other Contracting Party and its investments is owned or controlled by an investor of a non-Contracting Party and (a)  the denying Contracting Party: (i) does not maintain diplomatic relations with the non-Contracting Party; and (ii) adopts or maintains measures with respect to the non-Contracting Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Agreement were accorded to the enterprise or to its investments; and (b) the enterprise has no substantial business activities in the Area of the other Contracting Party.
- Settlement of investment disputes: the settlement and dispute chapter is regulated in detail and it provides that in the event of an investment dispute, the parties should initially seek to resolve the dispute through consultations and negotiations, and if it cannot be settled they may submit it to arbitration. In those cases, the claimant may submit the case to arbitration by itself or on behalf of a Respondent’s enterprise that the claimant owns or controls directly or indirectly.

RUSSIA:

Russia and Argentina agree co-operation on fisheries and aquaculture

On December 1, 2018, Russia and the Argentina entered into a five-year term agreement on co-operation on fisheries and aquaculture. The agreement would be automatically renewed for five years unless any Party notifies the other one its intention not to renew.

The objective of the agreement is the mutual and equitable cooperation in fisheries and aquiculture and it does not modify the fisheries permits for the extraction of biologic marine resources.

The main areas of cooperation are: (i) conservation and responsible exploitation of marine resources, (ii) combating illegal, unreported, and unregulated fishing, (iii) elaboration and development of joint projects related to the marine fisheries, commercialization and processing of fisheries products, (iv) development of technology for extraction and processing of biologic aquatic resources, (v) professional training, and (vi) scientific and technical cooperation. As part of implementing the provisions of the agreement, a Russian-Argentine Commission on Fisheries was established.

In addition, to this agreement, both countries analyzed progress in bilateral trade, particularly related to fisheries with the export certification for another 19 Argentine fish processing plants.

Russia and Argentina enter into a Framework Agreement on nuclear cooperation

On November 23, 2018, the framework agreement entered into force in the preparation to the G20. Both parties agree to cooperate in the development of nuclear energy with pacific purposes in consistency with the necessities and priorities of their respective national nuclear programs. 

The cooperation will be executed in accordance to the framework agreement and the local regulations of each State and will be implemented by means of the signature of agreements that determine the scope of the cooperation, rights and obligations of each party, financial and other cooperation terms that includes the transfer of nuclear material, equipment, components, technology; work groups; assistance in the training of scientific and technical personnel; exchange of scientific and technical information etc.

The appointed authorities are: 

Rusia: National Corporation of Atomic Energy (ROSATOM) and the Federal Sservice for the Ecologic, Technologic and Atomic inspection) 
Argentina: Comision Nacional de Energía Atómica (CNEA), Autoridad Regulatoria Nuclear (ARN) and Nucleoelectrica Argentina SA (NASA) (Argentina)

CHINA:

The Government of China and Argentina entered into the following agreements:

- Joint Action Plan 2019-2023
Both government agree on a new action plan which includes a roadmap with steps to be taken in areas such as politics, economic, commerce, investments, infrastructure, agriculture, mining, energy, finances, transport, tourism, culture, education, science and technology, health, special issues, sports, South-South cooperation, defense, etc.

- Agreement on the Extension of the Validity of the Memorandum of Understanding for the Establishment of a Strategic Dialogue Mechanism for Economic Cooperation and Coordination (DECCE)
The agreement extends the MOU for 5 years. The MOU was signed on September 13, 2013 and sets the mechanism for the strategic dialogue for economic cooperation and coordination in order to strengthen the economic bilateral relations and cooperation, foster the exchange of information and experts in relation to the development and macroeconomic policies, and foster the economic and social development.

- Convention on the Elimination of Double Taxation in respect of Income and Wealth Taxes as well as the Prevention of Tax Evasion and Avoidance.

- Memorandum of Understanding to strengthen Fiscal and Financial Cooperation between the Ministry of Finance of the People's Republic of China and the Ministry of Finance of the Argentine Republic. 
The MOU seeks to amplify the tax and financial cooperation under bilateral and multilateral frames, as well as fostering new cooperation opportunities. 

- Memorandum of Understanding between the Ministry of Production and Labor of the Argentine Republic and the Ministry of Commerce of the People's Republic of China on the Promotion of Trade and Investment Cooperation.
The MOU establishes the “Dialogue of Commerce and Investment among China-Argentina”, aimed at increasing, promoting, and developing commerce and investments in both countries.

- Memorandum of Understanding between the Ministry of Commerce of the People's Republic of China and the Ministry of Transport of the Argentine Republic on Strengthening Cooperation in the Infrastructure Sectors
The MOU seeks to reinforce the investment and cooperation in the transport and infrastructure sectors, aiming to increase commerce and bilateral cooperation, as well as the expansion of these sectors and its level of cooperation. 

- Protocol of Phytosanitary requirements for the Export of Argentine fresh cherries to China between the General Customs Administration of the People's Republic of China and the Government’s Secretary of agro-industry of the Ministry of Production and Labor of Argentina.

- Memorandum of Understanding between the Ministry of Production and Labor of the Argentine Republic and the Ministry of Commerce of the People's Republic of China on E-Commerce.
The MOU establishes an electronic commerce cooperation mechanism in order to facilitate and foster commerce and investment, especially in regards of medium and small companies.

- Memorandum of Understanding between the Ministry of Production and Labor of the Argentine Republic and the Ministry of Commerce of the People's Republic of China on Cooperation in the Trade of Services.
The MOU sets forth the cooperation in the services sector and promoting a dialogue in regards of exchange of information policies as well as creating a favorable environment for commerce and investment in this sector. 

- Protocol for the Export of Sheepmeat and Goatmeat to China between the General Customs Administration of the People's Republic of China and the Secretary of the Government of Agroindustry of the Ministry of Production and Labor of the Argentine Republic.

- Adequacy of the Protocol for the Export of horses to China between the General Customs Administration of the People's Republic of China and Agro-Industry’s Secretary of Government of the Ministry of Production and Labor of the Argentine Republic.

- Memorandum of Understanding on Cooperation between the National Supervisory Commission of China and the Ministry of Justice and Human Rights of Argentina.

The MOU is aimed at intensifying cooperation in the prevention and fight against corruption, asset recovery and transnational bribes, in accordance with United Nation’s Convention against corruption.

- Term Sheet between the Ministry of Finance of the Argentine Republic and the Development Bank of China (CDB) for the creation of a Fund for an estimated amount up to 1,000 million dollars, in order to finance "Working Capital".
The purpose of this agreement is to promote bilateral commerce and cooperation in Argentina’s infrastructure sector.

- Framework Agreement for the Promotion of Trade in Oilseeds Products between the Agro-Industry’s Secretary of Government of the Ministry of Production and Labor of the Argentine Republic and China’s Grain Reserves Group Ltd. Company (SINOGRAIN).
By means of this agreement, SINOGRAIN expressed its interest in buying between two and three millions of tons of soybeans and between three and four hundred of soy-oil in the 2018/2019 campaign. This amounts to duplicate SINOGRAIN’s purchases of Argentine products in comparison with 2017 and it could reach an estimated of 1,100 and 1,500 millions of dollars. 

- Commercial contract between the Ministry of Transport and the Chinese company CRCC for the recovery of the “San Martín Cargas Railway Line” Stage I.
The agreement sets forth the renovation and improvement of more than one thousand kilometers of railways across Argentina with an estimated investment of 1,100 millions of dollars.

- Memorandum of Understanding between the Ministry of Environment of China and the Environment and Sustainable Development’s Secretary of Argentina on Environmental Protection and Sustainable Development.
The MOU develops and implements concrete actions to protect the environment, coordinate efforts to fight climate change, mitigate its consequences, and promote clean energy.

- Framework Cooperation Agreement between China Export & Credit Insurance Corporation (Sinosure) and Argentine’s Federal Bank.
The framework agreement’s purpose is to provide advantages and mutual benefits to facilitate the financing of investments, in order to increase economic and commercial relations between Argentine and Chinese companies.

- Addendum to the Financing Contract for the Rehabilitation of the “Belgrano Cargas” Railway.
The addendum extends the contract until June 2020.

- Financing Agreement between the Ministry of Finance of the Argentine Republic and the China Development Bank (CDB) for the Acquisition of Train Rolling Stock for the “Roca” Railway Line.
It provides for a long-term loan for up to 236 millions of dollars for the purchase of 200 trains in accordance with a previous commercial agreement entered into by the parties.

2) The CPTPP entered into force. Impact for Latam.

On December 30, 2018 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) entered into force. This multilateral free trade agreement is a revised version of the Trans-Pacific Partnership (“TPP”) and has been executed by 11 Asia Pacific Countries, after the USA withdrew from the TPP in January 2017.The CPTPP represents nearly 13.5 percent of global gross domestic product (GDP) and creates a free trade area among its signatories States: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.The CPTPP contains most of the original clauses of the TPP, however, 22 provisions contemplated in the original agreement that were prioritized by the USA were suspended or eliminated such as IP chapter.

3) The Congress of Argentina and Chile ratified the Free Trade Agreement 

On November 2, 2017, the Presidents of Argentina and Chile entered into a Free Trade Agreement. The Argentine Congress ratified the agreement in December 2018 and the Chilean Congress in January 2019. The agreement complements the Economic Complementation Agreement No. 35 (Mercosur-Chile).
The agreement contemplates major facility and agility in the exchange of products, the desburocratization of the custom office and the increase of the commercial relations. Due to the terms, it is expected there will be more willingness to foster the bioceanic corridor that joins Brazil, Argentina, and Chile to potentiate the commercial traffic to Asia.

4) Paris Agreement? where are we now?

Argentina, as well as many Latin American countries, has international commitments to reduce greenhouse gas emissions. As a party of the UNFCC and the Paris Agreement, the outcome of COP 24 impacts in Argentina’s commitments. To make a brief recap, on March 21, 1994, the United Nations Framework Convention on Climate Change (“UNFCCC”) Convention entered into force. This international environmental agreement establishes the objective to  stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, however, it does not set binding obligations for the signatories States and they agreed to specify the further actions to be take through the execution of specific treaties and protocols.

In 2015, the Paris Agreement was adopted within the framework of the UNFCCC, and its long-term objective is to keep the increase in global average temperature to well below 2 °C above pre-industrial levels; and to limit the increase to 1.5 °C. 
Each country must make effort and take action to reduce national emissions and adapt to the impacts of climate changes (“nationally determined contributions”).  Article 3 of the Agreement states that all parties are to undertake and communicate ambitious efforts to achieve the purpose of the Agreement and the efforts of all Parties will represent a progression over time, while recognizing the need to support developing country Parties for the effective implementation of this Agreement.  Article 4 states that each party shall communicate and maintain successive nationally determined contributions that it intends to achieve. 
On December 15, 2018, in the COP24 held in Poland, the parties agreed on universal, transparent rules that will govern efforts to cut emissions and curb global warming and this will enable the countries to put into action the principles of the Paris Agreement. The rules related to the voluntary carbon market were postponed to COP25 which will be held in Chile.

5) Venezuelan elections:  Impact in the region

On January 10th, Nicolas Maduro claimed to be the President of Venezuela, however, he did not have the support of most Latin American countries. The Lima Group, composed by Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Guyana, Honduras, Panamá, Paraguay, Peru and Santa Lucía, stated that they will not recognize Venezuelan President Nicolás Maduro as the legitimate leader of his nation when he takes office on January10th, 2019 for a new six-year term.


The Group also ratified their support to the National Assembly, urged Nicolas Maduro not to assume the presidency and that he respects the attributions of the National Assembly and transfer their power until new democratic presidential elections are made, highlighted the importance of the respect to the integrity, autonomy, and independency of the Supreme Court. 
Among others things, the Group agreed to: (i) reevaluate their diplomatic relations with Venezuela; (ii) to the extent their domestic regulation allows them, to bar Venezuelan officials from traveling to the nations of the Lima Group, elaborate a list of entities and natural persons that will not be able to operate with banks or financial institutions, evaluate with a restrictive criteria the granting of loans to Nicolas Maduro regimen in international and regional financial organism that they belong to; and  (iii) suspend military cooperation with Venezuela.
The same path was followed by the Permanent Council of the Organization of American States (“OAS”). The Council agreed "to not recognize the legitimacy of Nicolas Maduro’s new term as of the 10th of January of 2019" as well as to call for new Presidential elections with all necessary guarantees of a free, fair, transparent and legitimate process to be held at an early date attended by international observers. The resolution was approved with 19 votes in favor, 6 against, 8 abstentions and 1 absent.
Up to the moment of this report, the following countries had recognized the President of the National Assembly, Juan Guaido, as the President of Venezuela: Argentina, USA, Brazil, Colombia, Paraguay, Ecuador, Chile, Peru, Guatemala, Canada, Costa Rica, Panama, Honduras, Puerto Rico, European Union, France, UK, Italy, Denmark, Albany, Japan, and Georgia.
 


For further information on this topic please contact Juan Martín Allende