BUENOS AIRES Oct 9 Argentina's Senate early on Thursday approved a bill aimed at increasing incentives to lure the foreign investors needed to develop its vast shale reserves and erase the country's costly energy deficit.
The cash-strapped South American country, which defaulted on its debt in July and cannot tap global credit markets, needs investment of as much as $200 billion over the coming 10 years to exploit its vast Vaca Muerta oil and gas formation in Patagonia.
The bill passed the Senate 38 to 28 in the early hours of Thursday morning after a marathon debate, and is expected to pass in the lower house Chamber of Deputies later this month.
Under the country's 1967 energy law, regional governments issue licenses and determine concessions and the taxes that foreign companies pay. The bill would reform that law to establish a national framework.
The central government says the bill is needed to make it easier for foreign energy companies to do business in Argentina.
"This is a law to generate a process of investment," said Miguel Angel Pichetto, the head of the government coalition in the Senate, during the debate.
"You cannot have different policies in terms of royalties. You need to fix a political framework that will generate an estimated billions of dollars."
President Cristina Fernandez has clinched the support of the governors of Argentina's 10 top oil producing provinces for the proposed law. Her allies in the lower chamber of Congress are expected to approve the law easily in that chamber.
The reform will lengthen the terms of drilling concessions by a decade to 35 years for non-conventional energy and 25 years for conventional energy. Firms would be able to win 10-year extensions if they fulfill investment promises.
With each extension, provinces would be allowed to increase royalties by 3 percent up to a limit of 18 percent.
The bill would also cut the minimum investment needed for companies to be exempt from certain import and capital controls to $250 million from $1 billion.
Argentina has sought this year to win back the confidence of investors spooked by its expropriation of Spanish energy firm Repsol's majority stake in YPF two years ago.
So far, the only energy company to invest heavily in Vaca Muerta, which means "Dead Cow", has been Chevron Corp, which agreed last year to put $1.24 billion into the formation, which is one of the largest deposits of its kind in the world.
Argentina, expected to have a $7 billion energy deficit this year, is talking with Russia's Gazprom about a possible investment deal as well. (Additional reporting by Sarah Marsh; Writing by Hugh Bronstein; Editing by Chizu Nomiyama)