Overview (December 2001)

Introduction

On April 30 1996 the new Hydrocarbons Law was enacted, which defines and regulates a number of oil-related activities including:

• exploration;
  
  
• exploitation;
  
  
• commercialization;
  
  
• transportation;
  
  
• refining and industrialization; and
  
  
• natural gas distribution.

According to the law, and consistent with the Constitution, hydrocarbon fields are under the state's domain and private entities may not own them. In order for a private entity (whether local or foreign) to carry out exploration, exploitation or commercialization activities in state owned hydrocarbon fields, it must enter into a joint venture agreement with YPFB (the state owned oil company).

Exploration, Exploitation and Commercialization

YPFB must conduct international public bids for the exploration and exploitation of hydrocarbons, separated into predetermined parcels. Once a tender is awarded YPFB enters into a joint venture agreement with the successful bidder for a maximum period of 40 years. YPFB must verify that the private company complies with the agreed investments for the exploration and/or exploitation in the area.

The private company pays royalties to central government, local government and YPFB. Royalties are calculated as a percentage of the production, and can vary between 18% and 31% depending on the area. In addition, a fee is payable for each parcel covered by the joint venture agreement, regardless of levels of production.

Generally, the companies that execute joint venture agreements may trade freely. However, certain limitations apply to the commercialization of hydrocarbons to ensure that the local market is duly supplied and the obligations of YPFB to export natural gas under the agreement with Petrobras (the Brazilian state controlled oil company) are met.

Hydrocarbon Transportation and Natural Gas Distribution

With respect to hydrocarbon transportation and natural gas distribution, private entities (whether local or foreign) may apply for administrative concessions which are granted by SIRESE, the regulatory authority, upon evaluation of the applicant's technical, administrative and financial capacity. Administrative concessions may not exceed 40 years.

On March 21 2001 a regulation was passed on the transportation of hydrocarbons, replacing Supreme Decree 24398 of October 31 1996.

The new regulation maintains the key principles of Supreme Decree 24398, which are:

• the free access principle, which guarantees that any third party may request transportation services only if the pipeline has available capacity;

• the public utility principle, according to which transportation is considered to be a national service; and

• the transparency principle, according to which the superintendency's actions must be performed publicly, impartially and in compliance with the law.

The new regulation establishes and regulates three types of pipeline transportation of hydrocarbons, namely gas, crude oil and poly pipeline systems.

According to the new regulation on the transportation of hydrocarbons SIRESE has authority to:

• grant concessions;

• monitor the compliance of concessionaires;

• protect the inherent rights of consumers, shippers and producers;

• insure that relevant activities meet antitrust requirements;

• guarantee new regulations;

• regulate transportation tariffs when necessary;

• approve changes in the control of a concession;

• apply penalties that are established in the regulations;

• declare or order a concession to be forfeited or revoked;

• intervene in cases of revocation, forfeiture and bankruptcy;

• determine quality, technical, economic and operational aspects of concessions; and

• approve tariffs to be charged by concessionaires. For the purposes of calculating the tariffs, SIRESE will endeavour to strike a balance between low costs for users and reasonable rates of return for concessionaires on their investments.

Refining and Industrialization

Individuals and entities are free to carry out the refining, industrialization and commercialization of hydrocarbons. However, such activities are subject to registration with SIRESE and compliance with the pertinent regulations.

Mandatory Easements

Any entity that executes a joint venture with YPFB for the exploration, exploitation and commercialization of hydrocarbons (as well as concessionaires for hydrocarbons transportation or natural gas distribution) are entitled to request mandatory easements or expropriation of lands when necessary. Because of the public utility qualification for these activities, the process of applying for these easements is quicker than that for ordinary easements and expropriation declarations. The owner of the affected land is entitled to fair compensation.

For further information on this topic please contact Ricardo Indacochea at Indacochea & Asociados, Abogados by telephone (+591 353 5356) or by fax (+591 358 1200) or by email ([email protected]).