Recent deals in renewables. Where do we go from here?
An update of recent developments and an outlook on what to watch-out for in the coming weeks and months in the Argentine energy landscape
- Introduction
Renewables expanded significantly in the past years. Currently total capacity for renewables is 2725 MW, with more than an additional of 1500 MW (est.) under construction or commissioning. Once projects under construction reach COD, Argentina will be on track to meet its renewable energy consumption target for 2020 set out by the law at 12% (target for 2021, stands at 16%, for 2023, at 18% and 2025, 20%).
As of December 10th, 2019, a new Administration was sworn-in and certain questions arose regarding policies to be adopted under the new Government.
In an interview, our Partner Nicolás Eliaschev stressed the bipartisan nature of renewable energy policies and recalled that Law 27,191 which sets out renewable energy policy was sponsored by the Administration in place at the moment (Cristina Fernández de Kirchner) and then implemented by the Macri Administration. Eliaschev argued that the new Government had the opportunity to continue along this path.
- Recent positive developments and transactions
Although it may be too early to jump into definitive conclusions, the first signs are encouraging, and the current Administration seems to be committed to continuity in this policy area. Among the positive news for the sector, we point out the closing or signing of relevant project finance transactions where we had the honor to represent the lenders:
- On December 19th, 2019, KfW Ipex Bank disbursed the first instalment of a facility granted for the development and construction of the wind power projects Chubut Norte III and Chubut Norte IV (respectively owned by SPVs controlled by GENNEIA and PAE), totaling 140.88 MW of combined generation capacity. The deal was signed in July 2019. Our Firm acted as Argentine counsel for KfW Ipex, with a team led by partners Marcelo R. Tavarone and Nicolás Eliaschev.
- On January 14th, 2020, Luz del León (an SPV controlled by YPF Luz) signed a US$150 million project finance facility with BNP Paribas Fortis SA/NV and United States International Development Finance Corporation (DFC) to finance the development and construction of the Cañadón León wind power project for a total 120 MW of generation capacity, located in the Province of Santa Cruz, Argentina. The transaction is the first non-recourse project financing to build a windfarm that will supply electricity under two types of PPAs: a 20-year PPA with CAMMESA under the RenovAr regime, and a 15-year corporate PPA under the MATER regime, both under Argentina’s renewable energy legal framework. The transaction is also the first non-recourse project financing to be signed after the new Administration led by President Alberto Fernández was sworn in. Our Firm acted as Argentine counsel for BNPP and DFC, with a team led by partners Nicolás Eliaschev and Julieta De Ruggiero.
Another positive development is the continuity of Round 3 of the RenovAr Program. On August 2nd, 2019, the prior Administration awarded PPA for projects totaling 260 MW of capacity and the deadline for PPA execution was set for January 24th, 2020.
- On December 4th, 2019, our Firm, with a team led by partners Nicolás Eliaschev and Juan Pablo Bove, assisted a successful bidder in the execution of nine PPA totaling 112.5 MW, corresponding to nine wind power projects.
- On January 24th, 2020, our Firm, with a team led by partners Nicolás Eliaschev and Julián Razumny, assisted a successful bidder in the execution of three PPA totaling 30 MW, corresponding to three solar PV power projects. These PPA where among the first executed under the new Administration.
- Challenges
- Delayed projects
Due to various reasons ranging from financial turbulence experienced by the country to more project-specific issues, certain projects, particularly some of those awarded under the RenovAr 2 round, have either fallen behind schedule or have never started construction. The new Administration has committed to review the existing situation on a project-by-project basis and although it has yet to announce a decision, a variety of possibilities may be considered ranging from term extensions, waivers regarding delays or PPA termination.
The outcome of this review will help to assess the real nature of the existing project pipeline. Some projects facing distress may be revived and others that never started might be terminated.
- Transmission
Once the pipeline is settled as per the above, the picture of transmission availability will become clearer. As of today, should the whole project pipeline be built, transmission would be scarce. If some projects are cancelled, transmission capacity would be freed-up and new projects targeting the corporate PPA market might be developed.
From a long-term perspective, new transmission infrastructure is required, and the new Administration has publicly announced it as a priority. The question on how such goal will be achieved remains open, with a menu that includes PPP models, a BOT contract approach and public works.
- Sovereign risk
Currently, the country has initiated the first stages of its foreign debt restructuring, involving both the IMF and private bondholders.
If the issue is overcome in an acceptable way for all the interested parties and Argentina achieves a successful, amicable and fiscally sound arrangement, country risk will be bound to lower, opening opportunities to finance energy infrastructure.
Should that not be the case, infrastructure financing will be probably more challenging and done piecemeal.
- And what about Vaca Muerta?
The Government has repeatedly and strongly stated that fully tapping into Vaca Muerta’s potential is a top political priority and has committed to foster and protect hydrocarbon investments. However, currently some uncertainty is being faced due to intervention in fuel prices and the sovereign matters described above.
The Administration has announced that it will send a bill to Congress specifically designed to ring-fence Vaca Muerta from political risk and provide strong guarantees for long-term investments. Although initial drafts that have been made available show positive signs, an official bill is yet to be released and we will thus revisit the matter as soon as such information is officially known.
Another issue to watch-out for is the status of the public tender summoned by the prior Administration for the construction of a natural gas pipeline designed to allow Vaca Muerta to pump further volumes of natural gas and ramp up production. Under the current schedule set out by the prior Government, bids were due on March 31st, 2020. Next steps on this process are yet to be announced.
For further information, please do not hesitate to contact either Nicolás Eliaschev, Marcelo R. Tavarone, Juan Pablo Bove, Julieta De Ruggiero and/or Julián Razumny.
YPF Energía Eléctrica obtains US$ 150,000,000 in a project finance facility from BNPP and DFC for the development of a greenfield wind power project
Legal counsel to BNP Paribas Fortis SA/NV and United States International Development Finance Corporation (DFC) in a facility worth US$ 150,000,000 under a non-recourse project finance structure to Luz del León S.A., a special purpose vehicle controlled by YPF Energía Eléctrica S.A, to finance the development and construction of the Cañadón León wind power project for a total 120 MW of generation capacity, located in the Department of Puerto Deseado, Province of Santa Cruz, Argentina.
The transaction is the first non-recourse project financing that will supply electricity under two PPAs: a 20-year PPA with CAMMESA under the RenovAr regime, and a 15-year corporate PPA under the MATER regime, both regimes under Argentina’s renewable energy legal framework. The BNPP part of the facility is guaranteed by Euler Hermes Aktiengesellschaft (German export credit agency).
The security package for the loan includes (i) a first-priority share pledge over 100% of Luz del León shares; (ii) a first-priority pledge over certain windfarm equipment; and (iii) a security trust for the assignment of all borrower’s receivables under certain project documents.
Amendments to the Regime for the Promotion of Knowledge Economy in Argentina
On January 20th, 2020, the Argentine Ministry of Productive Development issued Resolution N° 30/2020 ( “Resolution 30”), that amended the Regime for the Promotion of Knowledge Economy created by Federal Law N° 27,506 (the “Law for the Promotion of Knowledge Economy”). Said regime, effective for a period of ten years starting on January 1st, 2020, substituted the pre-existing Software Industry Promotion Regime, effective until December 31st, 2019.
Resolution 30 appointed the Secretary of Industry, Knowledge Economy and External Commercial Management (under the authority of the Ministry of Productive Development), as enforcement authority of the Law for the Promotion of Knowledge Economy.
Additionally, Resolution 30 suspended the existing deadlines for the analysis and processing of requests to be accepted under the Regime for the Promotion of Knowledge Economy, under which the beneficiaries of the pre-existing Software Industry Promotion Regime could be provisionally accepted on the Registry of Knowledge Economy until full and final compliance no later than June 30th, 2020, with the requisites set forth in the new regulation.
The date of issuance of the regulation reestablishing the suspended process, as well as its content, is yet to be defined.
For more information, do not hesitate to contact Gastón A. Miani, Juan Pablo Bove, Federico Otero, Julián Razumny, Agustín Griffi, or Pablo Tarantino.
The Argentine Central Bank lifts certain restrictions for the distribution of profits and dividends to Shareholders
On January 16, 2020 the Argentine Central Bank issued Communication “A” 6869 (the “Communication”). The Communication relaxed the rules for the purchase and transfer of foreign currency for the distribution of profits and dividends in foreign currency to non-Argentine shareholders.
Pursuant to the Communication, non-Argentine shareholders may access the local foreign exchange market (the “FX Market”) for the distribution of dividends and profits without prior approval of the Argentine Central Bank, provided that:
- Profits and dividends shall be evidenced in audited financial statements;
- The aggregate amount paid to non—Argentine shareholders shall not exceed the equivalent in Pesos approved by the relevant shareholders´ meeting;
- The aggregate amount of distributions paid through the FX Market as of January 17, 2020 shall not exceed 30% of the value of the new foreign direct investment contributions made as of such date in the Argentine company that have been repatriated and converted to Pesos through the FX Market.
- The payment may not be made before 30 calendar days from the repatriation and conversion to Pesos of the last capital contribution made to the company, as requested in section 3 above.
- The client shall provide evidence that the equity contribution has been capitalized. Alternatively, the client shall provide evidence of the filing of the request for capitalization with Public Registry of Commerce (which shall be obtained within 365 calendar days from the filing).
- If applicable, the relevant direct investment shall have been registered with the Argentine Central Bank under the Foreign Assets and Liabilities Reporting Regimen (“Relevamiento de activos y pasivos externos”).
For more information, do not hesitate to contact Marcelo R. Tavarone, Federico M. Salim, Julieta De Ruggiero or Francisco Molina Portela.
Regulation of “Payment Service Providers”
On January 9, 2020, the Central Bank of the Argentine Republic issued Communication “A” 6859 (the “Communication”). The Communication establishes a partial regulation of the activities of Payment Service Providers (“PSP”), this is, of those legal persons that, without being financial entities, fulfill at least one function within a retail payment scheme, such as offering freely disposable accounts to their clients to make or receive payments, within the framework of a global payments system.
The Communication establishes the following obligations to be fulfilled by the PSP´s, which must be carried out, at most, by January 31, 2020:
- Provide for client funds to be, at all times, immediately available for an amount equivalent to, at least, the amount credited in the payment account, with the PSP systems having to identify and individualize the funds of each client;
- Deposit 100% of the funds of its clients, at all times, in peso denominated accounts located in financial institutions within Argentina;
- Upon the request of its clients, transfer the balance in the payment account to the realization of operations with “common money funds” in the country; and
- Carry out all PSP transactions (payment of suppliers, salaries, etc.) through separate accounts to those where the funds of their clients are deposited.
Likewise, the communication establishes that in the event of non-compliance with any of the aforementioned obligations, the sanctions established in articles 41 and 42 of the Financial Entities Law, and concordant provisions, will be applicable to the PSPs and the members of their administrative/control bodies.
For more information, do not hesitate to contact Juan Pablo Bove, Federico Otero, Julián Razumny, Agustín Griffi, Pablo Tarantino, or to corporate@trsym.com.
“Centenario Trust I” Financial Trust for AR$ 1.145 million
Deal counsel in the creation of the Financial Trusts Global Program “Centenario II” for an amount of up to US$ 250 million (or the equivalent in other currencies) and in the issuance and placement in Argentina of trust securities for AR$1,145,113,264 issued under the “Centenario Trust I” Financial Trust, in which Compañia Financiera Argentina S.A. (Efectivo Sí) acted as trustor, arranger, collection agent and placement agent, TMF Trust Company (Argentina) S.A. acted as financial trustee, Banco Patagonia S.A. acted as arranger and placement agent and INTL CIBSA S.A. acted as placement agent.
Celulosa Argentina S.A.'s issuance of U$S 3,117,250 Class 15 Notes
Counsel in Celulosa Argentina S.A.’s issuance of Class 15 Notes for U$S 3,117,250 under the Global Program of Notes for an amount of up to U$S 280,000,000. Puente Hnos. S.A. and Banco de Servicios y Transacciones S.A. acted as placement agents of the Class 15 Notes.
Debt refinancing of Biscayne Servicios S.A.
Legal counsel to Banco Santander Rio S.A. and Banco de la Provincia de Buenos Aires who acted as lenders in the debt refinancing of Biscayne Servicios S.A. for AR$ 491,630,864.74, equivalent to 10,595,493 UVAs.
Modifications introduced to the Personal Assets Tax
Decree No. 99/2019, published in the Official Gazette last Saturday, December 28, 2019, introduced implementing regulations to Law No. 27,541 (please refer to the following link for comments on the referred law). Therefore, the principal modifications introduced to the Personal Assets Tax (PAT) are the following:
1.- Applicable Rates
Law No. 27,541 has modified the rates to determine the PAT corresponding to the 2019 (and following) tax periods, which now range within a progressive scale between 0.50% and 1.25%, applicable over the total value of the levied assets located in Argentina.
Through Decree No. 99/2019, the Executive Power has exercised the powers delegated by Law No. 27,541 so as to establish, until December 31, 2020, differential rates to levy assets located abroad, which may exceed in up to 100% those that apply over assets located in Argentina. In such sense, the Executive Power established a progressive scale ranging between 0.70% and 2.25% over the total value of the assets located abroad. A sole tax rate applies over the total value of such assets, therefore dismissing the system -that currently applies only to assets located in Argentina- under which different portions of the taxpayer’s levied estate is taxed under increased rates as its value arises.
It is worth noting that the non-taxable minimum threshold continues in the figure of two million Argentine pesos (AR$ 2,000,000), and that such amount should be first deducted against the value of the assets located in Argentina. Under Decree No. 99/2019, the non-taxable minimum threshold amount would be irrelevant for purposes of establishing the applicable rate within those included in the differential rate scale corresponding to assets located abroad. Indeed, the non-taxable minimum threshold would only be relevant for purposes of establishing the taxable base of the differential rate.
Furthermore, the rate applicable to the following assets has been risen from 0.25% to 0.50%:
- Shares or participations in the equity of Argentine companies, held by individuals or undivided estates domiciled in Argentina or abroad, and/or by foreign companies or by any other foreign entity (the applicable tax should be assessed and paid by the Argentine company whose equity is levied).
- Levied assets belonging to foreign aliens that are held, custodied, guarded, administrated, possessed, used, enjoyed, disposed of, or co-owned by Argentine individuals, entities or undivided estates.
2.- Benefits on Fund Repatriation
Law No. 27,541 also empowered the Executive Branch, until December 31, 2020, to reduce the differential rates in cases of repatriation of funds arising from the sale of financial assets located abroad.
In such context, the Decree has established that those who, as of March 31 of every year, repatriate financial assets representing at least 5% of the total value of their assets located abroad, will be exempted from the application of the differential rate.
For the purposes foreseen in the preceding paragraph, the following assets will be deemed as financial assets located abroad: The holding of foreign currency deposited in banking and/or financial and/or similar entities located abroad; company participations and/or equivalents (private securities, shares, quotas and other participations) in any type of entities, corporations or companies, with or without legal status, incorporated, domiciled, based or located abroad, including sole proprietorships (“empresas unipersonales”); rights inherent to the status of beneficiary, fideicommissary (or similar) of any kind of trusts (or similar structures) established abroad, or in foreign private interest foundations or in any other type of similar affected-estate (“patrimonio de afectación”) located, based, domiciled or established abroad; any kind of financial instrument or security, such as bonds, private securities, representative securities (“valores representativos”) and share depositary receipts, quotas in common investment funds and other similar structures, independently from their denomination; credits and any type of foreign right with economic value and any other type of asset that may be foreseen in the implementing regulations.
The benefit will be maintained to the extent the repatriated funds stay deposited under the owner’s name in entities comprised within Law No. 21,526, until December 31 (inclusive), of the calendar year in which the repatriation took place.
The Decree establishes that where reimbursement applies, it will be made up to an amount equivalent to the one that exceeds the increase in the obligation that would have to be paid in case the foreign assets were levied under the progressive scale applicable to the assets located in Argentina.
3.- Residence Criteria
Law No. 27,541 has established, with effects as of 2019 tax period, that the levied subject will be ruled by the residence criteria under the terms and conditions foreseen in sections 119 (and following) of the income tax law (text 2019), hence disregarding the previously applicable domicile criteria. In such context, Decree No. 99/2019 establishes that any reference made by legal, implementing or complementary regulations to the “domicile” connecting nexus should be understood as referred to “residence”. However, it is worth pointing out that unlike Law No. 27,541, and in what could imply a regulatory excess, Decree No. 99/2019 does not refer to sections 119 (and following) of the income tax law (text 2019) but to sections 116 (and following) of the income tax law (text 2019).
4.- Matters of Uncertain Interpretation
Due to the defective wording of the regulations commented herein, or to the omission of their treatment, there is uncertainty as to the actual scope of the following matters, which we expect be clarified by the implementing regulations to be issued by the National Tax Authority:
Validity of the benefit on funds repatriation: There is no certainty as to whether the funds repatriation benefit applies to the 2019 tax period, considering that the repatriation period elapses on March 31 and there is an obligation to maintain the repatriated funds deposited in an Argentine financial entity up to December 31.
Under a reasonable interpretation that considers the spirit of the tax reform, the differential rates will not apply to the 2019 tax period to the extent the funds are repatriated before March 31, 2020 -i.e., before the filing date of the 2019 affidavit- and held in Argentine financial entities up to December 31, 2020. The benefit would fall upon breach of this last requirement, and the related consequences would hence apply (liability on tax differences, interests and fines).
Scope of the reimbursement benefit: Neither Law No. 27,541 nor Decree No. 99/2019 clarify what is reimbursed. In principle, and under the current regulatory status of the matter, we understand that this benefit would apply if a taxpayer files the affidavit and pays the differential rate before its due date, and further repatriates the relevant funds before March 31. In such case, the amounts paid under the differential rate would be reimbursed, as well as the difference of the advanced payments corresponding to the following tax period.
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For additional information on the matters commented herein, please contact Gastón A. Miani, Ana Do Nizza, or Juan Pablo Baumann Aubone.
Reprofiling US$ 14,800,000 aggregate principal amount of the Municipality of Río Cuarto’s 7.65% Notes due 2020
Legal counsel to the Municipality of Río Cuarto, as issuer of US$ 14,800,000 aggregate principal amount of it’s 7.65% secured Notes due 2020, issued on November 17th, 2017 (the “2020 Notes”); Banco de la Provincia de Córdoba S.A. and Puente Hnos. S.A., acting in their capacity of consent agents and information agents under the process of the restructuring the 2020 Notes, through the noteholders’ meeting held on December 20th, 2019.