BIOFUELS IN ARGENTINA Ing' Hctor A' Huergo AABH Argentine Association of Biofuels

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BIOFUELS IN ARGENTINA Ing. Héctor A.
HuergoAABHArgentine Association of Biofuels
HydrogenLondon, December 11 2007
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The driver is the oil price

• During the las five years, from 20 to 99 dollars
  per barrel

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The world by night
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Southamerica, the promise
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Clima ideal para la agricultura (Según
clasificación de Koppen)
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Biofuels opportunities

• Biodiesel
• Ethanol
• Biogas
• Others

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COMPARATIVE ADVANTAGES FOR THE DEVELOPMENT OF
BIOFUELS IN ARGENTINA

• Plenty of raw materials and strong suppliers.
• Argentina is an Export Oriented Country. Domestic
  consumption is 5 of total Oilseed production.
  So, 95 of total oilseed production goes to the
  export market. In 2007 it will produce 6,5 mill
  ton of soybean oil, 6,2 mill ton exports and the
  remainder 0,3 mill tons for domestic market.
• The same factory that crush soybean and export
  the SBO, now produce biodiesel, and export it.

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COMPARATIVE ADVANTAGES FOR THE DEVELOPMENT OF
BIODIESEL IN ARGENTINA

• Large soybean supply, with a 3 million-ton-growth
  per year since 1996. 47 million tons in 2007 with
  18 of oil, its potential 8,5 million tons of
  soybean oil.
• Large sunflower supply 4 million tons with 50
  of oil.
• Highly competitive agroindustrial complex. The
  main international parties of the business have
  new, large scale plants installed in the ports of
  the soybean region. Potential idle capacity.
• Possibility to import soybean from Paraguay,
  Brazil, Bolivia, and Uruguay.
• Export Oriented Country as a Strong Culture.
• The possibility of extending the agricultural
  border and developing alternative energetic crops
  that can grow in different climates.

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Crop area and crushing industry

• Soybeans in Argentina

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Crushing capacityOilseeds
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To Understand Soybean Oil Market of Argentina
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Argentina has the lowest production cost of
soybean of the world
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Why Argentina is the most competitive country in
the soybean crushing industry.
Because It has the highest crushing daily
capacity of the world.
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Chicago Board of Trade
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Evolutión of the soybean price

• Cents per bushel, CBOT

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OPPORTUNITIES

• The big opportunity is the international market
  of biodiesel.
• 1.3 billion of m3 of diesel are consumed
  annually.(world)
• The total production of vegetable oils amounts to
  130 million tons, only 10.
• Argentina is the world's largest exporter of
  vegetable oil (from oilseeds) and has idle
  capacity.

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GOOD SUPPLY OF GRAINS AND VEGETABLE OILS IN
ARGENTINA

• Existence of the world's most efficient oil seed
  industrial complex with important exportable
  balances. 5 of the current gas oil market
  (mandatory blend by 2010) could be supply with
  less than 9 of the national production of oils.
• Very low industrialization rate of corn and
  sorghum with important exportable balances of raw
  grains. 5 of the current gasoline market could
  be supply by industrializing 2,5 of the corn
  production (23 million tons in 2007), or 14 of
  the sorghum production (3,5 million tons in
  2007).

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CURRENT VIEW

• Strong export potential, with 10 million tons of
  soybean-oil by 2017.
• Actual Biodiesel policy in favor to export.
• Due to actual export tax favorable to biodiesel
  exports

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OPPORTUNITIES

• Many of the most important oilseeds companies
  are in the Crushing business in Argentina and
  have projects of Biodisel at a large scale.
• Vicentin-Glencore
• AGD-T6 (Bunge)
• Louis Dreyfus
• Glencore
• Molinos Rio

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Projects

• Repsol YPF, en San Lorenzo 100.000 toneladas
  anuales para exportar. La tecnología será de
  Lurgi. El proyecto está demorado.
• Vicentín - Glencore, en San Lorenzo 200.000
  toneladas anuales para exportar. La tecnología
  será de Lurgi. El proyecto está en marcha.
• Grupo Eurnekián (todavía no está acordada la
  radicación) 300.000 toneladas (son tres plantas,
  de 100.000 toneladas anuales cada una). Unas
  200.000 se destinará al mercado externo, y las
  100.000 restantes, al mercado interno. La
  tecnología será de Lurgi, podría instalarse en
  Santiago del Estero.
• Cremer Asociados, en Dock Sud 50.000 toneladas
  anuales, tecnología propia, para exportar.
  Avanzado. Posible acuerdo con la firma Coco-Oil.
  - Terminal Puerto de Rosario.
• Oil MS, a través de Combustibles del Rosario, en
  Rosario 200.000 toneladas anuales para exportar.
  La tecnología no está resuelta (pugnan Lurgi y De
  Smet-Ballestra).
• Grupo San José, San Luis o Salta 100.000
  toneladas anuales para el mercado interno. En
  etapa de estudio.
• Molinos Río de la Plata, en Rosario o San
  Lorenzo 100.000 toneladas anuales para exportar.
  En etapa de estudio.
• Bunge 100.000 toneladas anuales para exportar.
  En etapa muy preliminar.
• Dreyfus 100.000 toneladas anuales para exportar.
  En etapa muy preliminar.
• Entaban - Nmás1 (alianza española) 60.000
  toneladas anuales para exportar. En etapa muy
  preliminar.
• Cil Global Corporation, en Goya, Corrientes
  100.000 toneladass anuales para exportar. En
  etapa de estudio.
• FT Holding (desprendimiento del Grupo Soros) más
  Estudio Cazenave más ICI, con el respaldo de
  Deutsche Bank, en San Lorenzo 100.000 toneladas
  anuales para exportar. En etapa de estudio.
• Capital Group Comunications, Zona Franca Cnel.
  Rosales (área Bahía Blanca) 100.000 toneladas
  anuales para exportar. En etapa de estudio.
• Villuco (Grupo Citrusvil), Pinto, en Santiago del
  Estero 60.000 toneladas anuales para mercado
  interno. En etapa de estudio.
• Goldaracena, en Gualeguaychú, Entre Ríos 40.000
  toneladas anuales para el mercado interno. En
  etapa de estudio.
• Agricultores Federados Argentinos, en Los Cardos,
  Santa Fe 40.000 toneladas anuales para el
  mercado interno. En etapa de estudio.
• Ceon Group, Sancti Spiritu, en Santa Fe 24.000
  toneladas anuales para el mercado interno. En
  construcción.
• Proyecto no identificado a la fecha en Parque
  Industrial Pilar.De concretarse todos estos
  proyectos, la capacidad ascenderá a más de 2,65
  millones de toneladas de capacidad anual. Y a
  éstos se le suman otros 23 establecimientos
  pequeños, que elaboran aproximadamente 400 litros
  por día de biodiesel. Hasta ahora se computan
  464.000 toneladas de capacidad para el mercado
  interno.

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Oportunities in biotech

• Special soybean varieties with vegetable oils
  carrying more energy output. Linked with high
  quality protein in the other fraction. This is to
  introduce the idea than using biodiesel you can
  improve food and human nutrition.

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Ethanol

• Two sources sugarcane and cereals.
• Argentina produces 25 millon MT of coarse grains.
• The domestic consumptios is less than 7 millon
  MT.
• Exports are more than 17 MT.
• Corn in Argentina is the cheapest at the world.

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Biogas

• Thge cattle industry in Argentina is going to be
  more intensive. We need to manage the manure,
  taking advantage of the production of energy.
• Maybe there is a place for integrated systems,
  like feedlot E3 Genesis from Nebraska

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Food or feed?

• Who eats the grains? People or pigs, chickens,
  poultries, steers, breweries, licours factories,
  etc.
• For each MT extra of soybean oil, we shall bring
  to the market 4 MT of soybean meal usede as food
  or feed.
• The oil, must to be considered as food? It is
  simply a way to cook. If we need it to produce
  energy, we can use less oil to cook. Its better
  for the health.

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Adding value

• We sill have less powerty adding value, no
  destroying value added industries.
• Biofuels is an opportunity to introduce new ways
  to add value to the raw materials.

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Many thanks hhuergo_at_clarin.com
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NATIONAL BIOFUELS PROGRAMME OF ARGENTINA
BIOFUELS Business Opportunities in Argentina
Bloomberg Auditorium - London
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ARGENTINA FACTS AND FIGURES

• Official name Argentine Republic
• Capital Buenos Aires
• Area 2.8 million sq km
• Population 40 million inhabitants
• GDP (purchasing power parity) US 600 billion
• GDP (official exchange rate) US 210 billion
• GDP - per capita (PPP) US 15,000

Source CIA-The World Factbook and INDEC
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ARGENTINE ENERGY CONSUMPTION BY SOURCE
Source Department of Energy, Argentina
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LIQUID FUELS - CONSUMPTION
Fuente Secretaría de Energía
Argentina imports 3 to 4 of total diesel oil
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REASONS FOR THE CREATION OF THE BIOFUELS
NATIONAL PROGRAM

• Comparative advantages of Argentina in the
  production of oil crops large and fertile
  extensions of land available for oilseed
  production.
• Flexibility for the implementation of oilseed
  crops from natural and artificial irrigation.
• Great number of ecosystems that allow for the
  growth of a diversity of crops.

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REASONS FOR THE CREATION OF THE BIOFUELS
NATIONAL PROGRAM

• One of the main exporters of vegetable oil in the
  world.
• The oil industry in Argentina is export-
  oriented, sending 90 of its production to the
  foreign market.
• (2006 crushing capacity 160,000 tons/day).
• Favorable environmental impact.
• The use of biofuels reduces the emission of
  carbon dioxide (CO2) into the atmosphere, one of
  the main reasons for the greenhouse effect and
  global warming. These reasons make biofuel
  projects eligible to obtain carbon credits
  according to the Kyoto Protocol.

Source SAGPyA
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Plants by crushing capacity

Crushing capacity tons/day
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REASONS FOR THE CREATION OF THE BIOFUELS
NATIONAL PROGRAM
ARGENTINA IS THE No 1 EXPORTER AND No 3 WORLD
PRODUCER OF SOY OIL
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REASONS FOR THE CREATION OF THE BIOFUELS
NATIONAL PROGRAM
THE No 1 EXPORTER AND No 2 PRODUCER OF SUNFLOWER
OIL IN THE WORLD
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MAIN OBJECTIVES OF THE PROGRAM

• To promote the use and production of biofuels as
  a renewable source of energy.
• To develop regional economies in order to create
  new and genuine employment.
• To support scientific and technical research in
  this field.
• To improve the quality of the environment.
• To attract foreign investment for the production
  of biofuels in Argentina

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MAIN TOOL FOR THE DEVELOPMENT OF BIOFUELS IN
ARGENTINA

• The creation of a legal framework for the
  development of this new industry.
• The Argentine Congress approved on April 19th,
  2006 a law aimed to promote the use and
  production of biofuels in the country. The
  biofuels involved are biodiesel, bioethanol and
  biogas.

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MAIN ASPECTS OF THE LAW

• 5 mandatory use of biodiesel and ethanol in all
  diesel oil and gasoline consumption, beginning
  January 1, 2010.
• Fiscal incentives for 15 years.
• Tax exemption on Impuesto a los Combustibles
  liquidos y gaseosos (Hydrocarbon tax, 20).
• Tax exemption on Tasa de Gasoil (Diesel tax,
  20)
• Tax exemption on Tasa hidrica ( Gasoline tax,
  19)

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MAIN ASPECTS OF THE LAW

• Creation of a National Authority (N.A.) for the
  evaluation and support of projects for the
  production of biofuels.
• The functions of the N.A are, among others
• To establish biofuels quality standards.
• To establish the criteria for the approval of
  projects in order to obtain the benefits
  established in the law.
• To manage the subsidies that eventually the
  National Congress will approve.
• The law prioritizes projects that accomplish the
  following criteria
• Sponsored by small and medium companies
• Belong to farming producers
• Located in regional and rural economies.

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AVAILABILITY OF RAW MATERIAL FOR BIODIESEL
PRODUCTION IN ARGENTINA
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ARGENTINE GRAIN PRODUCTION
Argentine total grain production for the
2006/2007 reached 95,0 million tons. SOY, CORN
and WHEAT account for almost 88 of total grain
production.
Total Grain Production 2006/2007 season
Source Secretariat of Agriculture, Livestock,
Fisheries and Food - Argentina
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MAIN IMPACTS EXPECTED FROM THE LAW
BIODIESEL

• Projected diesel oil consumption for 2010
• 12.5 billion liters per year
• With the implementation of the 5 mandatory use
  of biofuels, the needed production is
• biodiesel 650,000 tons

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RAW MATERIAL FOR THE PRODUCTION OF BIODIESEL

• 1st year of implementation of the Law
• Vegetable Oil needed to cover the 5 mandatory
  use of biodiesel 650.000 tons. (8 of total
  current production).
• Argentina's domestic consumption is only 6 of
  total vegetable oil production.
• Area needed for soy 1.300.000 hectares. (7 of
  total current planted area)
• Quantity of soy 3.500.000 tons. (7 of total
  current production)

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MAIN IMPACTS EXPECTED FROM THE LAW
BIOETANOL

• Projected gasoline consumption for 2010
• Four (4) billion liters per year
• With the implementation of the 5 mandatory use
  of biofuels, the needed production is
• Ethanol 200,000,000 liters or 160,000 tons

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RAW MATERIAL FOR THE PRODUCTION OF ETHANOL

• 1st year of implementation of the Law
• Ethanol needed to cover the 5 of mandatory use
  160.000 tons.
• Area needed for corn 80.000 hectares. (2 of
  total current planted area)
• Quantity of corn needed 550.000 tons (2 of
  total current production)

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MAIN IMPACTS EXPECTED FROM THE LAW
Numbers based on plants with a capacity of
production of 40,000 tons/year for biodiesel and
30,000 for ethanol.
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BIODIESEL ENERGY CROPS
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RECENT DEVELOPMENTS
Biodiesel Plants
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RECENT DEVELOPMENTS

• BIODIESEL
• Plants under construction
• One 100.000 tons.
• One 200.000 tons.
• One 300.000 tons.
• Announcements
• Two 200.000 tons.
• One 100.000 tons.
• Total potential production capacity 1.5 million
  tons.

Source National Association of Biofuels and
Hydrogen of Argentina
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CONCLUSIONS
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CONCLUSIONS

• Argentina has ideal growing conditions for the
  sustained development of the raw materials needed
  for the production of biofuels.
• Argentina has immediate availability of the raw
  material needed to cover the 5 of mandatory use
  in all gasoline and diesel consumption.
• Argentina would become on of the major producers
  of biofuels worldwide

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CONCLUSIONS

• From the economic and social point of view, the
  development of the Argentine biofuels industry
  will
• Create a new industry in our country.
• Add value to grain and vegetable oil production
  since Argentina exports 70 percent of the corn
  and 90 percent of the vegetable oils that it
  produces.
• Allow the development of energy crops in marginal
  areas, contributing to improve the quality of
  life of the population.
• Have a favorable impact on the environment

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MAIN CHALLENGES AHEAD
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MAIN CHALLENGES AHEAD

• To monitor, on a permanent basis, issues related
  to quality, safety and environment.
• To promote research and development in order to
  reduce the production cost of biofuels and to
  make more efficient use of the biomass produced.
• To develop efficient logistics of distribution
  and trade in order to improve the competitiveness
  of biofuels compared with fossil fuels.

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MAIN CHALLENGES AHEAD

• To encourage the use of biotechnology for the
  development of new varieties of feedstocks for
  the production of biofuels.
• To take steps to identify financial funds, within
  multilateral credit organizations, the capital
  market and the financial system, for the
  construction of biofuels plants.
• To encourage cooperation between countries in the
  region, in order to access new foreign markets.

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MAIN CHALLENGES AHEAD

• To promote projects that are work labour
  intensive and have a high impact for regional
  economic and agricultural development.
• To support the interaction between private and
  public companies, scientific and technological
  organizations and public organizations.
• To become one of the main producers and exporters
  of biofuels worldwide, adding value to current
  agricultural exports.

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HOW TO CONTACT US

• NATIONAL BIOFUELS PROGRAMME
• Secretariat of Agriculture, livestock, Fisheries
  and Food.
• Ministry of Economy and Production of Argentina
• Paseo Colón 982 2nd. Floor - Office 220
  Buenos Aires
• Miguel Almada
• Phone [phone] / 2222
• E-mail malmad_at_mecon.gov.ar
• biocombu_at_mecon.gov.ar
• Website www.sagpya.mecon.gov.ar
• www.biodiesel.gov.ar

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The Argentine Embassy In the United Kingdom
BIOFUELS Business Opportunities in Argentina
Legal Framework
FOREIGN INVESTMENTS General Aspects
BY FLORENCIA HEREDIA ESTUDIO BECCAR
VARELA ARGENTINA
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BIOFUELS
CURRENT CONTEXT

• Reduction of oil and gas reserves
• Increase of oil and gas prices
• Environmental concerns
• Middle East political instability
• Geopolitical considerations

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BIOFUELS

• What are they and are they new?
• Raw material biomass (renewable)
• Environmental friendly
• Types Ethanol, Biodiesel

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DEVELOPMENT OF BIOFUELS

• United States
• Incentives in the Energy Policy Act
• Funding for biorefineries
• Local mandatory blending
• Biofuels Iniciative non food-based biomass
• European Union
• Target 5.75 of biofuels by 2010
• European Biodiesel Board
• Brazil
• Argentina

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LEGAL FRAMEWORK

• Regulatory environment
• Soil and crop as private property
• Production and commercialization
• National interest
• Approval for refineries
• Incentives-Production allocation
• Plan Alconafta

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BIOFUELS LAW 26.093

• Federal
• Enforcement authority
• Target 5 by 2010
• Production plants duly approved
• Tax incentives - Beneficiaries
• Environmental aspects
• Referential prices

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BIOFUELS LAW 26.093

• BIOFUELS (section 5) ....bioethanol, biodiesel
  and biogas, that are produced from raw materials
  originated in farming, agroindustrial or organic
  waste that comply with the quality standards set
  forth by the enforcement authority

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PROMOTIONAL REGIME FEATURES

• Duration 15 years to be extended by the
  Executive Power
• Enforcement authority to be appointed by the
  Executive Power
• Ministry of Federal Planning (Secretary of
  Energy)
• Ministry of Economy (in relation with tax
  benefits)
• Kyoto Protocol
• Plants approval

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ENFORCEMENT AUTHORITY FACULTIES (related to
biofuels and plants)

• To promote and control the production and use of
  biofuels establishing the relevant quality
  standards
• To establish the requirements for the approval of
  plants, perform inspections and audits, handle
  the registry for approved plants
• To determine and modify the percentages of
  participation of biofuels in connection with
  other fuels
• To determine the quotas of distribution in the
  biofuels offer
• To publish prices of reference in a periodic
  manner

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ENFORCEMENT AUTHORITY FACULTIES (related to
companies)

• To determine the conditions to be complied with
  by the beneficiaries of the regime, to impose
  fines and penalties
• To request estimations for the demand of biofuels
  to oil companies and distributors
• To manage the subsidies granted by Congress
• To publish in Internet the registry of companies
  with benefits

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ADVISORY NATIONAL COMMITTEE FOR THE PROMOTION AND
SUSTAINABLE USE OF BIOFUELS (Section 3)

• Function to assist and advise the Enforcement
  Authority
• Members
• 1 representative of each of the Secretaries of
  Energy, Agriculture, Environment, Economy,
  Commerce and Industry, Science and Technology
• 1 representative of the National Tax Agency
• Other entities (private or public)

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SPECIFICATIONS OF BIOFUELS

• Any liquid fuel will have to be blended as of the
  first day of the fourth year of enactment of the
  law with a 5 of
• Bioethanol
• Biodiesel (gasoil Diesel)
• The enforcement authority shall be entitled to
  increase such percentage
• The enforcement authority shall be entitled to
  set the requirements for biodiesel and/or
  bioethanol (B100 and E100)

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PROMOTIONAL REGIME TAX BENEFITS

• Accelerated reimbursement of VAT
• Accelerated depreciation (Income Tax)
• Exempted from
• Minimum presumed income tax
• Hydro Infrastructure fee
• Tax on liquid fuels and natural gas
• Tax on transfer or import of gasolines

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DRAWBACKS

• Pollution
• Influence of oil prices
• Dependence on subsidies
• Production costs
• Production limitations
• Price of food

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FOREIGN INVESTMENTS GENERAL ASPECTS
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LEGAL FRAMEWORK

• Argentina has established several regulations in
  order to promote foreign investments, providing
  investors local interests with adequate
  protection and guarantees
• Foreign investments are governed by a framework
  of Argentine laws and international treaties
• As a general rule, there are no restrictions upon
  foreign investors wishing to invest in Argentina

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LOCAL FOREIGN INVESTMENT LAW. GENERAL RULES

• In principle, Argentine legal system grants
  foreign investors
• The right to invest without any prior approval
  required
• The right to select any legal organization
  permitted by law
• The same legal and tax treatment as local
  investors
• Unrestricted acces to almost all economic sectors
• Same access to incentive programs and credit as
  local companies

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BILATERAL INTERNATIONAL TREATIES (BITs)

• All guarentees have been reinforced and improved
  by the BITs designed to encourage foreign
  investments
• They provide investors with a safe environment in
  which to develop their businesses

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BITs most relevant principles

• Fair and equitable treatment
• Full protection and legal security
• Exclusion of arbitrary or discriminatory measures
• National treatment
• Free transfer abroad of assets
• Neutral forum for investment disputes

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BITs most relevant principles
Argentina has entered into BITs with countries
such as United States, Canada, United Kingdom,
Germany, France, Italy, Switzerland, Sweden,
Spain, Israel, Denmark, Australia, Austria and
Finland, as well as many others
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INVESTMENT VEHICLES-PERMITTED STRUCTURES

• Investors can be individuals or legal entities
• Foreign investors may use any of the legal
  structures allowed in Argentina
• a) S.A. (Stock
  corporation)
• b) S.R.L. (limited
  liability company)
• c) Branch

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PERMITTED STRUCTURES SA (Corporation)

• Most commonly used structure
• Characteristics
• At least two shareholders
• Capital is represented by shares of stock
• Liability is limited to paid-in capital
• Administered by a Board of Directors

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NEW REQUIREMENTS (CONT.)

• The corporate capital must be sufficient to
  develop the corporate purpose
• Foreign companies must be able to perform in
  their country of origin the same activity that
  they are intending to perform in Argentina.
• Off-shore companies are not being registered by
  the General Inspection of Corporations

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MAIN NATIONAL TAXES

• Income Tax (IT) 35 rate on the net income
• Value Added Tax (VAT) general rate is 21
• Minimum Presumed Income Tax (MAIT) Determined on
  the companys assets at 1
• Personal Assets Tax 0.5 rate on the
  proportional asset value of the participation of
  foreign companies or individuals in local
  companies

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MAIN NATIONAL TAXES (cont.)

• Credit and debit tax Applicable on banking
  credits
• and debits. The tax rate is 0,6
• Gross Income Tax (GIT) Provincial tax applied on
  the gross turnover. Applicable tax rate varies
  from 1.5 to 5.5
• Stamp Tax Local tax imposed on written contracts

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REAL ESTATE ACQUISITIONS

• Common steps towards a sale and purchase of real
  estate
• General rule foreign ownership is unrestricted
• Exceptions
• - Security zones (all border regions) The
  purchase operation requires prior approval of the
  National Commission of Security Zones
• - Public registry of corporations regulations
  If a foreign company purchases, holds guarantees
  or security over Argentine real estate it will
  need to register with the Public Registry of
  Corporation, either a branch/rep. office or a
  local subsidiary

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CONCLUDING REMARKS

• Argentina provides an adequate legal framework
  for the promotion of investments in different
  sectors and industries
• Alternative energies, eg biofuels is an example
• International trend that shall reach Argentina

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THANK YOU
Florencia Heredia fheredia_at_beccarv.com.ar
54-11-4379-6840
ESTUDIO BECCAR VARELA Cerrito 740 Piso
16 C1010AAP, Buenos Aires Argentina  Telephone
(54-11) 4379-6800 / 4700 Fax [phone] /
4372-6941   www.beccarv.com.ar estudio_at_beccarv.com
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