Camila Fontana: Hello and welcome to another episode of Market Talks, the Argus podcast that follows key developments in the energy and commodities sectors across Latin America. I am Camila Fontana, deputy bureau chief of the Argus office in Brazil, and I am here with Flavia Alemi, an expert on diesel and gasoline, who contributes to the Argus US Products and Argus Latin Energy Markets reports.
Flavia, today we are going to talk about a topic that is stirring diplomatic and logistical discussions between Argentina and Paraguay, which is the transshipment zone at kilometer 171 of the Paraná-Guazú River.
Flavia Alemi: Hi Camila, thank you so much for having me. Yes, this topic has caused quite a bit of concern among Paraguayan importers in recent weeks. Kilometer 171 is a strategic area for the transshipment of liquid fuels bound to Paraguay, and it has operated in the same way for decades.
Basically, what happens is that medium-range vessels – the MRs – arrive at kilometer 171, are moored alongside barges, and transfer their cargo directly to them. The barges are then pushed upriver by tugboats. Although this zone has been widely used for many years, in June, the Argentine Customs Authority announced its intention to suspend operations at the site, which obviously raised concerns in Asunción.
CF: But why? What did customs officials state as a reason?
FA: Well, it is tricky. The document stated that Argentinian Customs had consulted the naval prefecture to determine whether kilometer 171 was authorized to operate as a port. The naval prefecture responded that it was not, so Customs decided to suspend operations at kilometer 171 within 30 days.
CF: Well, an abrupt suspension could seriously disrupt Paraguay's fuel supply and especially during a period of high demand and limited logistical alternatives.
FA: Exactly. Well, for those who are unfamiliar with operations in the Southern Cone, it is important to note that Paraguay does not produce oil and has no refineries, so it must import absolutely all the fossil fuels it consumes.
Additionally, Paraguay has no direct access to the sea, so kilometer 171 ends up being a crucial logistical hub for fuel supply. The issue is that kilometer 171 is located in Argentinian territory.
CF: Flavia, Paraguay's fuel supply ends up depending completely on its neighbor.
FA: That is right. Since the decision was communicated only to river shipping companies via a notice from Argentinian Customs without a broader public disclosure, there was a lot of speculation in the early days, including doubts about whether the decision was even real. Some people even suggested it might have been a mistake made by Customs officials.
But in the end, what I heard is that even President Javier Milei, of Argentina, and Santiago Peña, of Paraguay, discussed the issue at the Mercosur Summit held in early July in Buenos Aires.
CF: And if it reached the level of a presidential discussion, it must truly be a major issue. What happened in the end, Flavia?
FA: Well, on July 8th, the director of Paraguayan Customs announced on social media that an agreement had been reached with Argentina to extend operations at kilometer 171 as they are for another 10 months.
And a week later, the information was formalized by Argentinian Customs, which also stated that a binational working group would be created with representatives from both governments and the private sector to discuss the future of this zone.
CF: And what is the expectation for this working group?
FA: The meetings are supposed to start to take place in August and Paraguayan importers have said they hope the agreement will simply formalize what is already happening.
In other words, if the issue with kilometer 171 is the lack of authorization to operate as a port, what Paraguay wants is for Argentina to grant this authorization. However, on the Argentina side, there are voices advocating for the complete elimination of transshipment activities at kilometer 171 and the relocation of those operations to already authorized ports.
CF: Clearly, both options have logistical and regulatory implications. Authorizing kilometer 171 would require legal adjustments, technical adjustments. On the other hand, migrating to authorized ports could increase costs and it could require infrastructure adaptations, right?
FA: Exactly. We will have to wait and see what happens. Depending on how things unfold, we at Argus may need to make methodological adjustments to the FOB kilometer 171 prices we launched this year.
Since January, Argus has been publishing differentials on diesel and virgin NAFTA futures contracts at kilometer 171, as well as for products delivered in Asunción, adding just the cost of barge freight. We developed a methodology in collaboration with the market including adjustments for payment terms, since credit conditions significantly affect the final price for each company.
CF: And how does that adjustment work?
FA: It is a normalization. We use standard payment term of 30 days after the cargo is transferred to barges at kilometer 171. But we know that this term can vary a lot.
Some companies calculate the payment term after the products are unloaded in Asunción and it can be up to 60 days. It is very important to know the terms of the agreements so we can apply a specific interest rate to bring the price in line with our standard.
CF: And all of this could change depending on the agreement Argentina and Paraguay reach regarding kilometer 171?
FA: Absolutely. If kilometer 171 is eliminated as a transshipment point, we will need to understand how the market will operate going forward and, without a doubt, revise our methodology. At Argus, we have a commitment to reflect what is actually happening in the markets, so we have no problem whatsoever in adjusting our methodologies when necessary.
CF: Well, that is it for this week's Market Talks. Thank you, Flavia, so much for joining us. Thank you to our listeners. And if you enjoyed this episode, share it and follow Argus on LinkedIn for more insight on energy and logistics in Latin America.
See you next time!
