Milei’s bill calls to free oil exports and end regulated gas prices

If approved, the new law would eliminate benefits for the local market and impact domestic fuel prices  

Javier Milei’s “Omnibus” bill requests  the termination of the so-called barril criollo (“domestic barrel”) and oil exporting permits. The modifications, which still need to be approved by Congress, were expected by oil-exporting companies. In the short term, this would result in a new increase in gas prices, which have already risen more than 100% since November. 

The end of the domestic barrel

When looking at the price of a liter of gas, it should be noted that refiners buy the oil barrel from oil companies at a cheaper price than the international value. This is known as a “domestic barrel.” Currently, if an oil company exports crude oil, it does so at around US$75–80 per barrel. But if it sells it in the domestic market, the price is about US$60, according to private sector sources. While the new government lifted price controls, the domestic barrel was still used in the market. If the law is approved, this elimination will lead to an increase in gas prices for final customers. It is still unclear what will happen with the fuel tax, which the state has been postponing for a year.

The elimination of the domestic barrel is stated in Article 258, which replaces Article 6 of the hydrocarbon law. “Permit holders and concessionaires will have control over the hydrocarbons they extract and, consequently, will be able to transport them, market them, industrialize them, and commercialize their derivatives freely, in accordance with the regulations issued by the Enforcement Authority,” reads the newly proposed legislation.

Furthermore, it adds that “the Executive Branch may not intervene or set marketing prices in the domestic market at any of the stages of production.”

On the other hand, the bill has a section that seems to be aimed at YPF, a majority state-owned oil company: “In the case of state companies, they may only sell at prices that reflect the competitive balance of the industry, that is, at the corresponding export or import parities accordingly.” During the previous administration, YPF was used to contain fuel prices and prevent its competitors from increasing theirs, as the company controls more than half the market and its pricing policy therefore impacts competition.

Freedom to export

On the other hand, the same article includes a key decision regarding exports: “Permission holders, concessionaires, refiners, and/or marketers may export hydrocarbons and/or their derivatives freely, in accordance with the regulations issued by the Executive Branch, who will establish the conditions for its effective entry into force.”

This was the article the oil sector was waiting for. The truth is that Milei’s mega-decree, entitled “Bases for Argentine Reconstruction” and published last Thursday, opened the door to free exports. In section V of the Foreign Trade chapter, article 142 of the DNU modified article 609 of the Customs Code and stated the following: “The Executive Branch may not establish prohibitions or restrictions on exports or imports for economic reasons.” Although no specific economic sector was mentioned, the oil companies read it carefully.

However, deregulation is only complete with the “Omnibus” bill, since that article of the DNU was going to coexist with the hydrocarbon law, which prioritized supply of the internal market. “To cancel this rule that dates back to 1967, it doesn’t seem enough to modify the customs code. Article 6 of the hydrocarbon law should also be changed,” an expert lawyer told Ámbito last week during the DNU analysis. And that is precisely the article that is modified in this package of laws. If the law is approved, the amended Article 6 will state the following: “Permission holders, concessionaires, refiners, and/or people in charge of commercialization may export hydrocarbons and/or their derivatives freely, in accordance with the regulations to be dictated by the Executive Branch, who will establish the conditions for their effective entry into force.”

It should be noted that on May 19, 2020, Decree 488/2020, issued by the National Executive Branch, was published in the Official Bulletin, which set the base price for the commercialization of a barrel of crude oil in the local market at US$45,  —what the industry calls “domestic barrel”.

The decree also mentioned that the Executive Branch had the power to regulate sale conditions of hydrocarbons while prioritzing the internal market, as well as the power to design energy policy at the national level.

Furthermore, it emphasizes the principles enshrined in Law #26,741, which declared the achievement of hydrocarbon self-sufficiency to be of national public interest and a priority objective of the Argentine Republic.

Originally published in / Translated by Agustín Mango


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