Integral Tariff Review (RTI)

Public Emergency and Exchange Rate Regime Reform Law No. 25,561, enacted in January 2002 and extended on several occasions until January 2018, provided for the turning into pesos of utility service tariffs; consequently, the transportation tariff remained unchanged in AR$ as from 1999, despite the sharp increase in price indexes and operating costs. This mismatch directly affected the operating costs of this business segment, deteriorating its economic and financial situation. From 2002 to 2015, TGS (Transportadora de Gas del Sur S.A.) only had two tariff increases: 20% as from April 2014, as a result of the implementation of the transitory agreement entered in 2008; and, in May 2015, a 44.3% increase in the natural gas transportation tariff and a 73.2% increase in the Access and Use Position (CAU or Cargo de Acceso y Uso).

With the purpose of normalizing the segment, on February 24, 2016 TGS entered into a transitory agreement with the Federal Government and, consequently, on March 29, 2016, the former Ministry of Energy and Mining (MEyM) issued Resolution (Res.) No. 31/16 which, among other measures, instructed ENARGAS (National Gas Regulatory Entity or Ente Nacional Regulador del Gas) to conduct the RTI process and grant a transitory tariff increase to be charged against the RTI. Within this framework, on March 31, 2016 ENARGAS passed Res. No. 3724/16 approving a 200.1% increase in tariff schemes effective as from April 1, 2016, applicable to the natural gas transportation utility service and the CAU. However, on August 18, 2016, the Supreme Court of Justice of the Republic of Argentina (CSJN) established the obligation to perform a public hearing for setting tariffs and prices without market intervention, and declared the nullity of MEyM Res. No. 28/16 and 31/16 regarding residential users; therefore, tariff schemes were taken back to the values effective as of March 31, 2016. The public hearing took place on October 6, 2016, and, consequently, ENARGAS approved a 200.1% transitory tariff increase effective as from October 7, 2016, the execution of the investment plan and restrictions on the distribution of dividends (Res. No. 4054/16).

In December 2016, the public hearing required for the RTI process took place. On March 30, 2017, pursuant to ENARGAS Res. No. I-4362/17, a transitory tariff scheme was approved, with a 214.2% and 37% increase in the natural gas transportation utility service and the CAU, respectively, applicable as from April 1, 2017. The RTI contemplates a semiannual non-automatic tariff adjustment mechanism subject to the Wholesale Domestic Price Index (IPIM) published by the INDEC (National Institute of Statistics and Censuses or Instituto Nacional de Estadística y Censos de Argentina). As a result, TGS executed the 2017 Comprehensive Memorandum of Understanding and the 2017 Transitory Agreement with the purpose of implementing the tariff update; to such effect, ENARGAS Res. No. 4362/17 was issued, which applied the tariff increase resulting from the RTI in three stages, 58% in April 2017, and the remaining in December 2017 and April 2018.

The RTI considered the income necessary to execute a Five-Year Investments Plan between April 2017 and March 2022 for AR$6,787 million, expressed as of December 2016 values, which are essential to face the operation and maintenance of the main gas pipelines under TGS’s concession, as well as to guarantee the safety and continuity of the gas transportation utility service to meet the system’s expected higher demand resulting from the development of reserves.

The public hearing to present costs variations took place on November 14, 2017, and pursuant to ENARGAS Res. No. 120/17, an average 78% increase in tariff schemes was established, effective as from December 1, 2017, including a 15% increase on account of the non-automatic adjustment established in the RTI for the January – October 2017 period. This increase was deemed charged against the amounts resulting from the Comprehensive Renegotiation Memorandum of Understanding for the License executed by TGS on March 30, 2017.

The Comprehensive Renegotiation Memorandum of Understanding was ratified by the Federal Government on March 28, 2018 (Executive Order No. 250/18 of the National Executive Branch (PEN or Poder Ejecutivo Nacional)), thus concluding the RTI process initiated in the month of April 2016, and, as a result, on June 26, 2018, TGS voluntarily dismissed the Arbitration Proceeding it had brought before the ICSID (International Centre for Settlement of Investment Disputes). Moreover, ENARGAS issued Res. No. 310/18 approving, effective as from April 1, 2018, the last installment of the tariff increase established by Res. No. 4362/17, equivalent to a 50% increase in tariff schemes, including a 13% recognition on account of IPIM variations for the November 2017 – February 2018 period, and a compensation for the programmed deferral of the increase payable in installments.

For the calculation of costs variations for the February – August 2018 period applicable as from October 2018, TGS requested an approximate 30% tariff increase based on the IPIM variation; however, on September 27, 2018 ENARGAS issued Res. No. 265/2018 setting a 19.7% increase based on the simple average of the IPIM, the Construction Cost Index and the Salary Variation Index (provisional as of June 2018). The regulatory entity alleged that, according to the RTI, under certain macroeconomic conditions and circumstances, such as the significant devaluation which took place in April 2018, and taking into consideration that the semiannual update is a non-automatic adjustment mechanism, it may use other indexes different from the IPIM to determine tariff increase.

ENARGAS Res. No. 192/19 determined a 26.0% increase on account of costs variations effective as from April 2019. This increase was calculated based on the IPIM semiannual variation for the August 2018 – February 2019 period. Later, 22% of the amount of bills issued during the July – October 2019 period was deferred, to be recoverable in five installments as from December 2019, pursuant to Res. No. 336/19 of the former Government Secretariat of Energy.

The semiannual update which, according to the RTI, should have been applied since October 1, 2019, was deferred pursuant to several regulations. Finally, the tariff increase was suspended for a maximum term of up to 180 days since the entry into force of the Solidarity Law (Law No. 27,541) on December 23, 2019. Moreover, this Law contemplates the possibility of performing an RTI review for a term of up to 180 days.


Public Tender for the Litoral Main Gas Pipeline

SGE Res. No. 437/19 issued on July 30, 2019 launched a national and international public tender for the award of a gas transportation license to connect the town of Tratayén, in the Province of Neuquén, with the town of Salliqueló, in the Province of Buenos Aires (phase 1), and Salliqueló with the City of San Nicolás de los Arroyos, in the Province of Buenos Aires (phase 2).

The new license provides for a Temporary Special Regime (RET) for the first 17 years of the total 35-year concession term for the repayment of the construction and, for the rest of the concession period, Gas Law No. 24,076 will be in effect. Moreover, the license agreement provides for an irrevocable transportation offer of 10 million cubic meters (m3) per day to CAMMESA (Argentine Wholesale Electricity Market Clearing Company or Compañía Administradora del Mercado Mayorista Eléctrico S.A.) for a 15-year period.

The date for the opening of tenders was successively postponed until March 31, 2020. As of the issuance of Pampa’s 2019 Annual Report, although the new Government has not expressed itself on this matter, TGS (Transportadora de Gas del Sur S.A.) is analyzing the bid terms and its participation.