On August 12, 2024, the Argentine federal government published Executive Decree 718/2024, establishing the structure for the private sector’s continued operation of hydroelectric plants in the Comahue area (Neuquén and Rio Negro Provinces) and ordering a call for a national and international bid for investors interested in acquiring concessions over those plants.
In the first instance, the decree conditionally extended the current concessions of the plants for a maximum of one year, but simultaneously ordered that, no later than February 12, 2025, the Energy Secretariat (SE) initiate a national and international public tender for the sale of the state-controlled shareholding of the companies that will hold concession rights over the hydroelectric plants.
The public tender will include the sale of 100-percent equity interest in Alicurá Hidroeléctrica Argentina SA, Chocón Hidroeléctrica Argentina SA, Cerros Colorados Hidroeléctrica Argentina SA, and Piedra del Águila Hidroeléctrica Argentina SA.
These companies are newly created entities that will have minimal to no activity until their shares are transferred to the selected bidder and they receive the concession over the power plants as part of the bidding process.
The structuring of the bid so that its object is the acquisition of shares in new companies and the creation of the companies, to which power plant concessions will be granted and concession-related assets will be transferred to, was devised as a way to make due diligence over existing entities unnecessary and limit exposure of new investors to liabilities generated before their tenure.
This goal, however, may need to be further considered when the terms of the bid are published to ensure that the asset transfer from the existing operators to the new ones is completed in a manner that does not allow any pre- and post-transfer liability, such as the going concern transfer process regulated by law 11,687. The process would exclude the acquiror’s several liability for pre-transfer liabilities of the transferred business and would involve publications of the transfer and a post-publication period during which the business’ creditor could oppose the transfer.
With regard to the terms of the concession, the decree authorized the SE to set the terms for the tender process, which must include the applicable remuneration scheme for the concessions during their term.
Furthermore, the tender must contain essential documents such as the concession contract, description and perimeter, inventory, safety measures for dams and reservoirs, water management regulations, protocols for permanent guards, environmental protection measures, insurance policies, and mandatory works and projects.
The SE is also responsible for preparing and executing the documents for the transfer of the controlling share package of the companies, as well as for carrying out any required actions for the transfer of assets under concession, including the transfer of personnel and contracts essential for the proper functioning of each concession.
In the event that the tender is declared unsuccessful or void, the ownership of the controlling share package of the respective company will be maintained by its current public shareholders and the concession granted to those state-owned enterprises.
Once the controlling share package is transferred or the tender is declared void, the companies will take possession of their hydroelectric complexes and carry out all necessary actions for the effective reversion and transfer of the concessioned assets, in accordance with the terms of each concession contract.
Public officers calculate that, on average, investment commitments of about USD100 million for each hydroelectric plant will be required for reconditioning and life extension purposes.
Bidders acquiring these hydroelectric plants may be eligible for the benefits under the Large Investment Incentive Regime (Régimen de Incentivo para Grandes Inversiones, or RIGI).
The RIGI is a set of fiscal and regulatory incentives offered by the Argentine government to companies making substantial investments in the country. Its primary goals are to promote economic development, create jobs, and attract both foreign and domestic investment.
To qualify for RIGI benefits, companies must meet specific criteria, including a minimum investment threshold of USD200 million, the creation a certain number of jobs, the use of a percentage of locally sourced inputs, and the adoption of advanced technologies.
In return, eligible companies can access tax exemptions, legal stability, expedited administrative processes, and preferential financing. This framework is designed to make large-scale investments in Argentina more attractive and financially viable. It is expected that the government shall regulate this regime shortly, and the requirements for each industry will then be clarified.
Although the details of the public tender and the associated bidding documents are yet to be disclosed, one probable challenge will be determining how the future generation of energy will be compensated or remunerated, ie, the plants’ revenue projections.
This may be crucial to attract investors and increase competitiveness because, at present, the price of hydroelectric energy is set in pesos by the SE using criteria that has only inconsistently tracked what would have been market practice.
Over the last years, the energy price in Argentina has often lagged behind inflation, eroding the real value of the energy generated and affecting the profitability of the concessionaires.
Additionally, there have been instances where payments from CAMMESA – the company responsible for managing the wholesale electricity market – to generators were delayed, further complicating the financial stability of energy generators.
Ensuring a fair, timely, and stable compensation mechanism may be vital for the financial viability of these projects, as well as for attracting potential investors and allowing them to leverage that cash flow to procure third-party financing.
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