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

  1. 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.

  1. 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.
  1. 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.

  1. 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.