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Household Gas Bottles’ Program and Propane for Grids Agreement

Currently, it is in force the program for the supply of butane for gas bottles at subsidized prices, created by Executive Order No. 470/15 of the National Executive Branch (PEN or Poder Ejecutivo Nacional) and encompassed under the Household Gas Bottles’ Program (Resolution (Res.) No. 56/17 of the Subsecretariat of Hydrocarbon Resources (SRH), as amended), providing for the supply of a defined quota of LPG by producers to fractionation companies, under a maximum reference price, to benefit low-income residential users. The sales price for butane and propane traded under the Household Gas Bottles’ Program is determined by the SRH, which set a price of AR$5,416/metric ton (ton) for butane and AR$5,502/ton for propane as from April 2018 (Provision No. 5/18). Later, prices were updated to AR$9,154/ton for butane and AR$9,042/ton for propane effective as from February 1, 2019 (Res. No. 15/19 of the former Government Secretariat of Energy), to AR$9,327/ton of butane and AR$9,213/ton for propane as from May 10, 2019 (Provisions No. 34/19 of the Subsecretariat of Hydrocarbons and Fuels (SHC)), and to AR$9,895/ton for butane and AR$9,656/ton for propane as from July 1, 2019 (SHC Provisions No. 104/19). Consequently, the participation in this program forces TGS (Transportadora de Gas del Sur S.A.) and Refinor (Refinería del Norte S.A.) to produce and sell LPG at prices ostensibly lower than market prices, which entails adopting the necessary mechanisms to minimize its negative impact.

As regards the Agreement for the Supply of Propane Gas for Undiluted Propane Gas Distribution Grids (Propane for Grids Agreement), a set of resolutions regulating the price of propane. On May 30, 2018, TGS executed the 16th extension to the agreement, which set a new methodology for the determination of the price and volumes to be sold for the April 1, 2018 – December 31, 2019 period under this program. As of the date of release of Pampa’s 2019 Annual Report, this program has not been extended. However, on January 14, 2020, TGS was instructed by the former Secretariat of Energy (SE) to proceed with the propane deliveries pursuant to the conditions of the 16th extension to the Propane for Grids Agreement, indicating that this entity is performing all necessary works to extend the term of the Agreement until at least June 30, 2020.

Both the Household Gas Bottles’ Program and the Propane for Grids Agreement provide for the payment of a compensation to participants, payable by the Federal Government, which is calculated as the difference between the sale price under such agreement and the export parity published by the SRH on a monthly basis, although with significant delays in collection terms.

 

Natural Gas Import Financing Charges

As regards Res. I-1,982/11 and I-1,991/11 issued by ENARGAS (National Gas Regulatory Entity or Ente Nacional Regulador del Gas), which at the time provided for an approximate 700% increase in the natural gas import financing charge (created by PEN Executive Order No. 2,067/08), on March 26, 2019, TGS was served notice of the first-instance ruling upholding its claim for unconstitutionality and nullity of the above-mentioned provisions. The Federal Government appealed this ruling on March 29, 2019; the appeal was granted on April 3, 2019 and has not been resolved as of the date hereof.

On October 29, 2019, the judge hearing the case resolved, taking into consideration the ruling and in view of the reasons alleged by TGS, to extend the validity of the granted injunction for a term of six months in such ordinary proceeding and/or until a final and conclusive ruling is issued.

 

Export Duty

Pursuant to PEN Executive Orders No. 793 and 865/18 and effective as from September 2018, a duty applies to exports of natural gas, propane, butane and natural gasoline, among other products, equivalent to AR$4 per each exported US$, with a maximum 12% tax rate. However, as from December 23, 2019, with the implementation of the Solidarity Law (Law No. 27,541), the rate may not exceed 8% of the taxable value or the FOB (Free on Board) price (pending regulation).