ARGENTINA: INFORMATION FOR THE U.S. ITC REPORT ON

UNCLAS BUENOS AIRES 002354 SIPDIS SIPDIS COMMERCE PLEASE PASS TO USITC, Attn: L.M. Schlitt E.O. 12958: N/A TAGS: ECON OTRA SUBJECT: ARGENTINA: INFORMATION FOR THE U.S. ITC REPORT ON INDUSTRIAL BIOTECHNOLOGY - DEVELOPMENT AND ADOPTION BY CHEMICAL AND BIOFUEL INDUSTRIES REF: (A) STATE 133131, (B) STATE 164195, (C) BUENOS AIRES 02074 Summary -------------- ¶1. In response to Ref A, Post has compiled the following information on government policies in Argentina as they relate to the biofuels industry. Additional information is available in Ref C, which provided a response to a related request for information on industrial biotechnology (Ref B). Argentina legislation mandates the use of biofuels by 2010. Current biofuel production is mainly focused on biodiesel for export. End Summary Government of Argentina's Biofuels Policy -------------- ¶2. Argentina has had a framework that regulates and promotes the production and use of biofuels since 2007. The main objectives of this framework are to diversify the supply of energy, to become more environmentally friendly, and to promote the development of rural areas (primarily nontraditional production areas),especially in benefit of small and medium producers. The law mandates the use of biofuels by 2010, with an obligatory mix of five percent of ethanol in gasoline and five percent of biodiesel in diesel. The GOA will control investment, production and marketing of biofuels for the domestic market. Companies which produce biofuels will have three alternatives: 1) to produce for the domestic market, taking advantage of various tax incentives; 2) produce for self-consumption, with similar advantages as in 1; and 3) produce for the export market, subject themselves to government controls, and not be eligible to receive the tax incentives. Although most players indicate that it is very important to have a regulatory framework, they point out that current regulations are cumbersome, unclear, and many aspects of these regulations need to be defined. They would like to see modifications in the regulations which would stimulate investment and take advantage of the current favorable world situation. Local businessmen are optimistic that this will happen, as the GOA gains a better understanding of the importance of biofuels and their value for the national economy. A summary of Argentina's biofuels law and regulation follows: In April 2006, the Argentine Congress passed Law 26,093 which regulates and promotes the production and sustainable use of biofuels. In February 2007, the Executive Branch, through Decree 109, published the regulations for implementing that law. Chapter I of the law creates incentives for production and use of biofuels in the domestic market for a period of 15 years (beginning on the date of the enactment of the law). It establishes that the Secretariat of Energy will be the controlling authority, with the SIPDIS exception of oversight of tax breaks which will be under the control of the Ministry of Economy (every year, that ministry will set the maximum overall amount of the fiscal incentives directed to biofuels, and also the percentage of this total which will accrue to individual companies). Some of the responsibilities of the controlling authority are to establish quality levels, security conditions, registration of participating companies, approval of projects which benefit from incentives, and the percentage mix of biodiesel with diesel and ethanol with gasoline for the domestic market. Every year, the controlling authority will establish the volumes of biofuels needed to comply with the law, determine and modify the percentage mixes, set prices of biofuels for the domestic market, establish volumes, terms and conditions for those producing for their own consumption, and approve exports. Chapter II provides details concerning the incentives of the biofuels promotional regime. To be eligible for incentives, companies have to operate in Argentina and be dedicated exclusively to biofuel production, with the majority of the company's equity in the hands of the government (i.e., government at either the national, provincial, or municipal levels),or agricultural producers (and producers' cooperatives). Companies have to operate under the above regulations and specifications, and will be assigned a percentage of the total tax break granted by the GOA (the law gives priority to small and medium enterprises, farmers, and entities which operate in nontraditional production areas). Biofuels governed by this promotional regime will be exempt from three specific taxes on fossil fuels. Also, biofuel producers for the domestic market will enjoy tax breaks and other advantages (e.g. exemption from the value added tax, and other taxes). Eventually, Chapter II leaves open the possibility for producers to receive direct subsidies. Government of Argentina's Biofuels R&D Funding -------------- -------------- ¶3. Funding for research and development on biofuels by the Government of Argentina is limited. The Secretariat of Science and Technology and the National Institute of Agricultural Technology are working on some research programs. Funding levels are very difficult to determine, but they are expected to increase in the future, as there are some international entities, such as the Inter-American Development Bank, which are encouraging research programs. In addition to the two entities above, there are other institutions in Argentina that have started research on biofuels within the past few years. The most active of those research institutions include: INTA (Argentina's Agricultural Research Institute) of the Secretariat of Agriculture; the Universidad Nacional del Litoral in Santa Fe Province; the Universidad of Buenos Aires; the Univeridad Nacional del Sur in Bahia Blanca; and the Universidad Tecnologica Nacional in Villa Maria. Most of these institutions carry out technical research in advanced laboratories, as well as some market research for the biofuels sector. Although most of these research institutions focus primarily on biodiesel, ethanol and biogas are also being studied to a lesser extent. Biofuels Industry Investment Incentives -------------- ¶4. The biofuels law provides details concerning the incentives of the biofuels promotional regime. Companies will be assigned a percentage of the total tax break granted by the GOA (the law gives priority to small and medium enterprises, farmers, and entities which operate in nontraditional production areas). Biofuels governed by the promotional regime will be exempt from three specific taxes on fossil fuels. Also, biofuels producers for the domestic market will enjoy tax breaks and other advantages (e.g. exemption from the value added tax, or accelerated depreciation in the first three months). There are obstacles to attracting U.S. investment in the Argentine biofuels sector. Export taxes on petroleum-based diesel designed to increase domestic supply and cap local end-consumer costs have pushed prices down to around US$38 per barrel. With biodiesel significantly more expensive than regular diesel, a very limited domestic market, and a dependence on exports which are highly dependent on government policies on export taxes, investors are somewhat apprehensive. With regard to potential for U.S. biodiesel processing technology adoption, Argentine plants are typically opting for European technology due to its stronger presence in the Argentine marketplace. Tax and Trade Policies -------------- ¶5. The differential between the export tax of 32 percent for soybean oil and 5 percent on biodiesel creates a very large and inexpensive supply of feedstock available for conversion into biodiesel. The main market is for export, since export taxes on petroleum and petroleum products ensure petroleum-based diesel is much cheaper than biodiesel in the domestic market. However, the GoA has a history of modifying export tariffs on short notice to raise revenues and influence domestic price levels, and so the current disincentive to produce biodiesel for domestic consumption could change on short notice. There are other minor tax incentives that focus exclusively on the domestic market program and do not create significant industry development. List of Leading Firms and Contacts -------------- ¶6. Please see below lists of leading contacts. To direct dial a cellular phone in Argentina, the following sequence must be keyed: 011-54-9-11-followed by cell number without the preceeding -15. However, if you have difficulty contacting one of the listed numbers below, feel free to request assistance from Post. Post will also email additional background materials on biofuels. Firms: * Soy Energy: Jos Luis Martinez Justo, President (cell) 15-4992-6735, joseluismartinezjusto@yahoo.com.ar * Advance Materials Organics (AOM): Diego Mejuto, (land line) 011-54-11-4735-5000, dmejuto@glencore.com.ar * Vicentn, Sergio Nardelli, 011-54-3482-48-1149, sergio.nardelli@vicentin.com.ar * Bio Madero, Ricardo Olaviaga, olaviaga8@yahoo.com.ar * Derivados San Luis, Enrique Lasgoity, (cell) 54-3476-15-53-1645, lasgoity@arnet.com.ar * Renova, Diego Mejuto, Director, (land line) 011-54-11-4735-5000, dmejuto@glencore.com.ar * Biodiesel SA, lperez@powervt.com.ar * Unitec Bio, Fernando Pelaez, CEO, (land line) 011-54-11-4852-6450, rwinholz@unitecagro.com.ar * Patagonia Bioenergia, Gabriel Obrador, Director, (land line) 011-54-11-4763-5500 Entities: * Miguel Almada, National Biofuels Program, Secretariat of Agriculture, (land line) 011-54-11-4349-2226, malmad@mecon.gov.ar * Claudio Molina, Executive Director, Asociaicion Argentina de Biocombustibles e Hidrogeno, (cell) 15-4479-9781, direccion@aabh.com.ar * Carlos St. James, President, Argentine Biofuels Chamber, (cell) 15-6862-9902, cstjames@aregentinebiofuels.org Individuals: * Hector Huergo, President AABH, (cell) 15-4422-2495, hhuergo@clarin.com * Dr. Gaston Fernandez Palma, Board of Directos, AAPRESID, (land line) 011-341-4260745/46, gastonfernandezpalma@speedy.com.ar * Miguel Calvo, VP ACSOJA, (cell) 54-341-15-5083130, acsoja@bcr.com.ar * Martin Fraguio, Executive Director MAIZAR, (land line) 011-54-11-5238-1177, mfraguio@maizar.org.ar * Gustavo Vergagni, Director, Desarrollos Empresarios, (land line) 011-54-11-4334-0033, gv@dempresarios.com.ar ¶7. Embassy points of contact for future inquiries are EST science officer Alfred Schandlbauer. (Email: SchandlbauerAX@state.gov Telephone: 011-54-11 5777-4747) or Dwight Wilder, Agricultural Attache, Dwight.wilder@usda.gov, 011-54-11-5777-4627. Additional information is also available in the USDA biofuels report for Argentina, http://www.fas.usda.gov/gainfiles/200706/1462 91490.pdf WAYNE