Argentina’s Project Sector Gets Massive Boost

By Simon West

From Issue 5, 2024 of Breakbulk Magazine

(5-minute read)


Political and regulatory risks have long hindered Argentina’s project development, but new legislation aimed at luring investment to sectors such as energy and mining is poised to recharge a faltering economy and unlock serious cargo-carrying opportunities for breakbulk and project cargo.

The so-called Incentive Regime for Large-Scale Investments, or RIGI, is part of a sweeping reform package known as the Law of Bases (Ley de Bases, in Spanish), spearheaded by President Javier Milei to deregulate the economy, rein in public spending and end a severe financial crisis that has seen annual inflation this year approaching 300%.

The Law of Bases, whose final congressional approval in July was described by the right-wing libertarian Milei as an “historic and monumental milestone,” contains a flurry of provisions to overhaul taxes, relax labor laws and privatize certain state-run entities including energy developer Enarsa.

But for big-spending businesses – those investing more than US$200 million in a single project – it is RIGI generating the most buzz. Eligible companies are set to enjoy a cut in the corporate tax rate from 35% to 25% for the next 30 years, exemptions from new taxes introduced over the same period, a waiver of import duties, reduced dividends and the right to international arbitration in the event of disputes arising from the promotion regime.

Gonzalo Santamaría, partner at Buenos Aires law firm Marval, O’Farrell and Mairal, said that while multiple sectors including forestry, tourism, technology, steel and energy stood to benefit from the new mechanism, most of the legal queries his company had received were linked to export-oriented oil and gas, mining and large-scale infrastructure projects.

“RIGI was designed as a carve out, of sorts, of Argentine legal risks,” Santamaría told Breakbulk. “The legislation has certain similarities and points in common with previous promotion regimes passed during the Alberto Fernández and Mauricio Macri administrations, but it includes benefits and incentives for large investments that supersede all of the previous investment promotion programs combined together.”


New Spending Promises

RIGI has already ignited intent from some major enterprises.

Horacio Marín, CEO of Argentina’s state-controlled energy company YPF, said the first project to be built under the mechanism would be an oil pipeline called “Vaca Muerta Sur,” designed to carry crude from the vast Vaca Muerta shale formation to an export terminal in the province of Rio Negro on the Atlantic coast. The project, whose first phase of construction began in May, could begin operations as early as 2026.

According to Bloomberg, YPF is in advanced talks with U.S. pipeline company Energy Transfer to help finance the US$2.5 billion project, which calls for the construction of the main segment of the pipeline, the export terminal near Punta Colorada, storage tanks and offshore floating monobuoys.

Vaca Muerta, a 30,000 square-kilometer reserve thought to hold one of the world’s largest deposits of unconventional oil and gas, has been a key source of heavy-lift project work over the last decade. Alongside YPF, other heavyweights to commit resources to the formation in Argentina's northern Patagonia region include Shell, ConocoPhillips, Wintershall and Mexico-based Vista Oil & Gas.

But rapid development has flagged logistical issues that successive governments have tried to remedy to ensure Vaca Muerta reaches its full potential and matches the success of the shale revolution in the U.S. In particular, a shortage of pipelines and processing plants has thwarted efforts to export liquefied natural gas, or LNG.

“Vaca Muerta Sur will be the country’s first RIGI energy project,” Marín told local broadcaster Radio La Red shortly after the legislation had been approved, adding that the pipeline would “end the current bottleneck in the transportation of oil from Vaca Muerta."

Adriana Lara, principal energy analyst at consultancy Wood Mackenzie, pointed to other worldscale infrastructure projects seeking to monetize rising output from Vaca Muerta, such as an LNG liquefaction plant being developed by YPF and Malaysia’s state energy firm Petronas. The facility in the province of Rio Negro would have a yearly capacity of 25 to 35 million tons from 2032 onwards, according to YPF’s second-quarter earnings webcast.

“This LNG project also requires a dedicated pipeline, and the overall project cost could be well above US$20 billion. (YPF’s) Horacio Marín has announced that RIGI was definitely necessary for this project to start,” Lara said.

In the mining sector, Australia-headquartered BHP announced in late-July it had formed a joint venture (JV) with Canada-listed Lundin Mining to acquire 100% of Filo, the owner of the Filo del Sol copper project in the resource-rich Vicuña district on the Argentine-Chile border. BHP also took a 50% stake in Lundin’s nearby Josemaría copper project.

In a statement, Filo said the project would benefit from “recently passed legislation” in Argentina aimed at supporting mining activity, though a spokesperson in BHP’s Chile office declined to comment on whether the new rules would prompt the company to pursue any new projects or expand existing ones.

Anglo-Australian mining company Rio Tinto had already announced a US$350 million capital injection into its Rincón lithium project before the legislation had been approved. Rio Tinto bought Rincón – a large, undeveloped lithium brine project located in the heart of the “lithium triangle” in Argentina’s northern Salta Province – for US$825 million in 2022.

A 3,000-ton-per-year lithium carbonate starter plant is slated to come online by the end of 2024, while a feasibility study for full-scale operations is expected to be finished by the third quarter, the company said.

Speaking to Breakbulk, Guillermo Caló, managing director of Rincón, said Argentina’s longstanding investment rules had helped kickstart numerous mining projects, but more recent measures had raised risks for largescale investment. RIGI sought to counter these challenges by offering investors stability and legal certainty.

“RIGI has the potential to facilitate, de-risk and accelerate investment decisions, particularly for projects like Rincón,” Caló said.


A Buzz Around Breakbulk

Breakbulk movers active in Argentina are buzzing with excitement at the prospect of a wave of new project announcements.

Lucas Bianchi, founder and CEO at Interborders, a Buenos Aires-based logistics firm specializing in the transport of heavy machinery, industrial equipment and other project cargoes, described RIGI as a “significant opportunity” for project logistics to tackle bigger and more ambitious ventures, while Pablo Hanacek, country manager for Argentina at DHL Global Forwarding, highlighted the “considerable prospective investments” the mechanism could spur.

“The joint venture between BHP and Lundin Mining confirmed a trend of fresh announcements following on from the reform which should continue into the near and middle term and possibly beyond,” Hanacek said.

Despite this, RIGI has faced sharp criticism from Milei’s opponents who argue the government is giving away too much to multinationals while paying scant attention to the development of domestic supply chains. Quoted by the Buenos Aires Herald, Matías Kulfas, an economist and former production minister under former President Alberto Fernández, said the tax breaks and foreign currency benefits included in RIGI were “totally excessive and unnecessary.”

Detractors also warn that expanding large-scale fossil fuel and mining projects could derail Argentina’s goal of reaching net-zero by 2050, although Milei’s climate change skepticism suggests those particular concerns may fall on deaf ears.

Investors in Argentina, meanwhile, are still grappling with a volatile economy characterized by high inflation, currency devaluation, sovereign debt crises and fluctuating growth. A lack of confidence in the Argentine peso has led to capital flight and financial instability, increasing the country’s vulnerability to external shocks.

Furthermore, foreign direct investment inflows could remain sluggish as long as strict currency and capital controls persist. Those restrictions limit the ability to purchase foreign currencies such as the U.S. dollar, choking capital flows in and out of the country and spooking foreign businesses wary of devaluation and unpredictable policy shifts.

According to Hanacek, these economic concerns should not be dismissed. “Big investments are good for the country, but can they really stave off currency limitations and indeed save the economic environment? Should exchange controls continue to be tight for the next 6 to 12 months, RIGI could suffer from losing its shine,” the executive said.

“In the end, while the reform offers a great chance for economic growth and diversification, the true success of these projects will rely heavily on tackling the current economic challenges and maintaining a stable and clear policy environment. The recent increase in unemployment to 7.7%, which now affects 1.7 million people, underlines the urgent need for productive investments that can create real jobs and bring tangible benefits for everyone in the country.”


Shell, ConocoPhillips, BHP and Rio Tinto are members of the Breakbulk Global Shipper Network.

TOP PHOTO: DHL Global Forwarding carrying out heavy-lift operations in Argentina. CREDIT: DHL
SECOND: Shale operations at Vaca Muerta. CREDIT: YPF