Background
New bill
Impact on foreign resources companies
Comment
In April 2011 President Cristina Fernández introduced the Bill on the Protection of the National Ownership, Possession and Holdings of Rural Land to Congress,(1) aimed at restricting foreign ownership of rural land. This update details the possible unintended impact this bill, as currently drafted, may have on foreign resources companies.
Since 2008, 14 bills with similar objectives have been introduced to Congress, but the president's bill is the only one to have been debated so far. Currently, the only restriction placed by Argentine law on foreign ownership of land relates to specific security zones.(2) However, foreign ownership of rural lands has recently become a political issue in Argentina, as a result of a number of high-profile foreign landowners in Patagonia.
Based on its foreword, the bill does not appear to be directed at restricting the operations of foreign resources companies in Argentina. However, the broad wording of the current draft suggests that resources companies would, at a minimum, have to change their current practices if the bill becomes law.
'Rural land' is defined as all land outside of urban areas, regardless of the location or use.(3) The restrictions set out in the bill would apply at a national level, but would be enforced by all levels of government.(4) The bill applies to foreign nationals, irrespective of whether they reside in Argentina, and companies of which foreign nationals hold a participation interest of 51% or higher, or otherwise control the company.
The bill is currently drafted very broadly. For the purposes of the bill, ownership is taken to include the acquisition, transfer or assignment of rights, in any form and for any length of time(5) - it is not restricted to ownership rights or even limited property rights. Under the bill, 'ownership' refers to any rights in relation to land whether temporary or permanent. In relation to the resources sector, this will cover usufruct and leasehold interests, as well as easements and mining tenements. The bill contains the following restrictions on foreign ownership:
- Foreigners can own no more than 1,000 hectares of rural land each.(6)
- Foreigners cannot cumulatively own more than 20% of the rural land in Argentina.(7)
- Foreigners of the same nationality cannot cumulatively own more than 30% of the abovementioned 20%.(8)
Transfers made in violation of these restrictions will be void.(9) However, the bill is set to apply prospectively, so it should not impact on foreigners that currently own land.
There are certain constitutional issues that must be dealt with before the bill can be passed. Article 20 of the Argentine Federal Constitution provides that foreigners may own, buy and sell real property. The bill also appears to have attempted to exclude the impact of Argentina's bilateral investment treaties from the application of the bill, through Article 10, which provides that rural land should not be treated as an investment for the purpose of such treaties.
Impact on foreign resources companies
Based on the broad definition of 'ownership', which includes any interest in rural land, the bill would theoretically prohibit foreigners from obtaining mining or oil and gas tenements if the area which they cover is greater than 1,000 hectares. This may have been a drafting oversight, as it would create substantial barriers for foreign resources companies operating in Argentina. It is expected that the terminology will be refined before the bill is passed. Alternatively, it must be addressed directly through regulations in order to reduce the apparently unintended consequences for foreign resources companies.
There are at least two other implications for current or potential investors in the resources sector:
- Such investors would be unable to engage in the current practice of purchasing the land on which a mine is located, which is done to avoid, among other things, the difficulties of reaching agreements with landowners about access, works and reparation.
- Companies that have entered into options to purchase land after the bill is passed may be unable to exercise such options.
Under the Mining Code, the concessionaire of a mine is entitled to the grant of easements over the surface needed for the operation of a mine, subject to the payment of compensation to landowners (as determined by mining authorities). If resources companies are unable to purchase land, either through an option or directly, they should still be able to operate. However, a fundamental shift in how such businesses are operated in Argentina will be required.
Before the Argentine general and presidential elections held in October, which President Fernández's party won in a landslide, the president did not have sufficient support within the legislature to pass the bill. However, following the election, the president's party will control both houses of the legislature and will therefore be able to pass the bill.
The bill could potentially have a significant impact on the resources industry in Argentina, if not by effectively prohibiting large-scale interests in mining properties, then certainly by changing the current practice of directly purchasing the land surrounding mines. It seems improbable that the bill will be passed before the changes in the composition of the legislature take effect in early 2012. If the bill is passed, and assuming the definition of ownership is limited from its current broad scope, foreign resources companies will need to reevaluate their current land management practices.
For further information on this topic please contact Federico Godoy at Beretta Godoy by telephone (+54 11 4326 7386), fax (+54 11 4326 7396) or email ([email protected]).
Endnotes
(2) Decree 15,585/1994 provides restrictions on foreigners owning land close to borders and other internal security areas.