PART I
Item 1. Identity of Directors, Senior Management and
Advisers
Not
applicable.
Item 2. Offer Statistics and Expected Timetable
Not
applicable.
Item 3. Key Information
A.
Selected
Financial Data
The
following selected consolidated financial data is derived from our
Financial Statements. This information should be read in
conjunction with and is qualified in its entirety by reference to
our Financial Statements, including the report of the independent
registered public accounting firm thereon and the notes related
thereto, and the discussion in “Presentation of Financial and
Other Information” and “Item 5. Operating and
Financial Review and Prospects” included elsewhere in this
Annual Report.
For
important information relating to our Financial Statements,
including information relating to the preparation and presentation
of the Financial Statements and the following selected financial
data, see “Presentation of Financial and Other
Information” above.
|
For
the year ended December 31,
|
|
|
|
|
|
|
|
(in
thousands of pesos, except per share and per ADS amounts and common
stock or as otherwise indicated)
|
Consolidated
Statement of Comprehensive Income Data:
|
|
|
|
|
|
Revenues from sales
(1)
|
7,402,172
|
4,226,569
|
4,303,971
|
2,864,986
|
2,574,968
|
Operating
profit
|
2,231,821
|
688,247
|
932,514
|
706,632
|
701,767
|
Net financial
results
|
(813,361
)
|
(974,163
)
|
(765,650
)
|
(532,729
)
|
(342,428
)
|
Net income before
income tax
|
1,419,982
|
(285,662
)
|
169,754
|
173,387
|
359,544
|
Total comprehensive
income / (loss) for the year
|
930,678
|
(172,109
)
|
104,988
|
107,506
|
232,747
|
Total comprehensive
income / (loss) for the year attributable to:
|
|
|
|
|
|
Owners of the
Company
|
930,675
|
(172,109
)
|
104,983
|
107,504
|
232,747
|
Non-controlling
interest
|
3
|
-
|
5
|
2
|
-
|
Per
Share Data:
(2)
|
|
|
|
|
|
Net income per
share
|
1.17
|
(0.22
)
|
0.13
|
0.14
|
0.29
|
Net income per
ADS
|
5.86
|
(1.08
)
|
0.66
|
0.68
|
1.46
|
(1)
Includes Ps.
2,087,191, Ps. 1,013,998, Ps. 744,089, Ps. 661,023 and Ps. 603,355
of gas transportation net revenues, Ps. 4,768,326, Ps. 2,907,770,
Ps. 3,243,299, Ps. 2,065,321 and Ps. 1,835,738 of liquids
production and commercialization net revenues, Ps. 546,655, Ps.
304,801, Ps. 316,583, Ps. 138,642 and Ps. 135,875 for the other
services and telecommunications net revenues for the years ended
December 31, 2016, 2015, 2014, 2013 and 2012,
respectively.
(2)
Net income per
share under IFRS has been calculated using the weighted average
shares outstanding. Each ADS represents five shares.
|
|
|
|
|
|
|
|
|
(in
thousands of pesos, except per share and per ADS amounts and common
stock or as otherwise indicated)
|
Balance
Sheet Data:
|
|
|
|
|
|
Total current
assets
|
3,347,071
|
2,230,219
|
1,958,963
|
1,803,063
|
1,502,544
|
Property, plant and
equipment, net
|
5,333,344
|
4,219,520
|
4,082,071
|
3,966,908
|
3,948,031
|
Total non-current
assets
|
5,584,261
|
4,416,358
|
4,215,457
|
4,269,847
|
4,050,181
|
Total
assets
|
8,931,332
|
6,646,577
|
6,174,420
|
6,072,910
|
5,552,725
|
Total current
liabilities
|
1,902,948
|
1,320,581
|
1,251,754
|
1,347,734
|
829,777
|
Total non-current
liabilities
|
4,502,006
|
3,630,562
|
3,055,123
|
2,702,094
|
2,689,081
|
Total
liabilities
|
6,404,954
|
4,951,143
|
4,306,877
|
4,049,828
|
3,518,858
|
Non-controlling
interest
|
9
|
6
|
6
|
3
|
1
|
Shareholders’
equity
|
2,526,378
|
1,695,434
|
1,867,543
|
2,023,082
|
2,033,867
|
Other
Data:
|
|
|
|
|
|
Common stock
(nominal value)
|
794,495
|
794,495
|
794,495
|
794,495
|
794,495
|
Additions to
property, plant and equipment
(1)
|
1,407,823
|
407,323
|
373,390
|
265,685
|
200,944
|
Depreciation
|
286,798
|
261,393
|
254,311
|
242,917
|
233,670
|
Number of
outstanding shares
|
794,495,283
|
794,495,283
|
794,495,283
|
794,495,283
|
794,495,283
|
(1)
Represents
additions to property, plant and equipment (including works in
progress). For information by business segment, see Note 7
(Consolidated Business Segment Information) to our Financial
Statements, included in this Annual Report.
Dividends
A
summary of the dividends declared during the last five years is set
forth below:
|
|
|
|
|
|
2013
|
-
|
-
|
-
|
-
|
-
|
2014
(3)
|
260.5
|
0.328
|
30.5
|
0.038
|
0.192
|
2015
|
-
|
-
|
-
|
-
|
-
|
2016
(4)
|
99.7
|
0.125
|
7.1
|
0.009
|
0.045
|
2017
|
-
|
-
|
-
|
-
|
-
|
(1)
Stated in Ps. as
of the payment date.
(2)
Stated in U.S.
dollars translated from pesos at the exchange rate in effect on the
payment date, except that the amount of the dividends payment
declared but unpaid as of December 31, 2014 was translated from
pesos at the selling exchange rate at such date.
(3)
The Future Dividend Payment Reserve created by the General
Annual Shareholders’ Meeting held on April 30, 2014 was fully
released by the Board of Directors’ meeting held on
November 26, 2014, which approved cash dividend
payments.
(4)
The Future
Dividend Payment Reserve created by the General Annual
Shareholders’ Meeting held on April 23, 2015 was fully
released by the Board of Directors’ meeting held on
January 13, 2016, which approved cash dividend
payments.
According to
Argentina’s Law No. 19,550 (
“General Companies Law”
),
dividends may be lawfully declared and paid only out of retained
earnings reflected in the financial statements and must be approved
at a General Annual Shareholders’ Meeting, as described
below.
To that
extent, the Board of Directors must annually submit our financial
statements for the preceding fiscal year, together with reports
thereon by our statutory committee (
“Statutory Committee”
), for
the consideration and approval of the shareholders at the General
Annual Shareholders’ Meeting which must be held annually to
approve our financial statements and determine the allocation of
net income for such year. In the case of listed companies, such as
us, this meeting must take place before the end of April. Pursuant
to the General Companies Law, companies are required to allocate a
legal reserve (
“Legal
Reserve”
) equal to at least 5% of each year’s
net income, as long as there is no unappropriated retained deficit.
If there is such a retained deficit, 5% should be calculated on any
excess of the net income over the no unappropriated retained
deficit. This allocation is only legally required until the
aggregate amount of such reserve equals 20% of the sum of (i)
“Common stock nominal value” plus (ii)
“Cumulative inflation adjustment to common stock”, as
shown on our Consolidated Statement of Changes in
Shareholders’ Equity (
“Adjusted Common Stock Nominal
Value”
). If the Legal Reserve amount is reduced, we
must restore it before making any dividend payment. The Legal
Reserve is not available for distribution as a
dividend.
Pursuant to our
articles of association (
“By-laws”
), after the
allocation to the Legal Reserve has been made, an amount will be
allocated to pay dividends on preferred stock, if any, and an
amount equal to 0.25% of the net income for the year will be
allocated to pay the participation in earnings of employee
profit-sharing certificates. The balance of the retained earnings
for the year may be distributed as dividends on common stock or
retained as a voluntary reserve, as determined at the General
Annual Shareholders’ Meeting. The dividend must be paid
within 10 business days of the decision. For information on
dividend taxation, see “Item 10. Additional
Information—E. Taxation—Argentine
Taxes.”
The
General Annual Shareholders’ Meeting held on April 20, 2016
(the
“2016
Shareholders’ Meeting”
) approved the creation of
a new voluntary reserve for capital expenditures of Ps. 2.9
million. Our financial statements for the year ended December 31,
2015 showed a comprehensive loss. As a result, under the General
Companies Law we were not required to allocate any amount to the
Legal Reserve.
The
General Annual Shareholders’ Meeting to be held on April 26,
2017 (the
“2017
Shareholders’ Meeting”
) will consider the
allocation of the net income for the fiscal year ended December 31,
2016. As our 2016 Financial Statements showed a comprehensive
income, we have to allocate a sum to the Legal Reserve. A portion
of the income for 2016, Ps. 21.5 million, must be allocated to the
Legal Reserve, thereby increasing the amount of the Legal Reserve
to Ps. 269.1 million, which represents 20.0% of the Adjusted Common
Stock Nominal Value. The balance of the 2016 comprehensive net
income may be allocated to dividends or to a voluntary reserve. The
balance of the future capital expenditures reserve created by the
2016 Shareholders’ Meeting amounted to Ps. 2.9 million as of
the date of this Annual Report. Pursuant to the Commercial
Companies Law, the purpose of any voluntary reserve, once approved
by shareholders, cannot be changed without the further approval of
the shareholders.
Our
existing debt instruments impose additional restrictions on our
ability to pay dividends on our shares. We may pay dividends as
long as (i) no default exists under our debt obligations and (ii)
immediately after giving effect to such dividend payment, (a) the
consolidated coverage ratio (i.e., the ratio of our consolidated
adjusted EBITDA to our consolidated interest expense (each as
defined in the indentures for the 2014 Notes (as defined herein))
would be greater than or equal to 2.0:1; and (b) the consolidated
debt ratio (ratio of our consolidated total indebtedness to our
consolidated adjusted EBITDA (as each of the terms is defined in
the indenture for the 2014 Notes)) would be less than or equal to
3.75:1. See “Item 10. Additional Information—C.
Material Contracts—Debt Obligations.”
The
transitional agreement signed on March 30, 2017 (the
“2017 Transitional
Agreement”
) prohibits us from distributing dividends,
without the prior authorization of ENARGAS, until the date on which
the final tariff, which will result from the Integral Tariff Review
process (
“RTI”
),
are authorized by ENARGAS and become effective. For additional
information see Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Regulatory
Framework—The Public Emergency Law and Renegotiation
Agreement.”
Under
the General Companies Law, during a given fiscal year, interim
dividends may be declared by the Board of Directors, in which case
the members of the Board of Directors and the members of our
Statutory Committee (
“Syndics”
) are jointly and
severally liable for such distribution, if such declaration is not
in accordance with the General Companies Law and the
By-laws.
Exchange
Rate Information
Fluctuations in the
exchange rate between pesos and U.S. dollars would affect the U.S.
dollar equivalent of the peso price of our Class “B”
Shares, par value Ps.1 each (the
“Class B Shares”
), on the
Buenos Aires Stock Market
(Bolsas y Mercados Argentinos
(
“BYMA”
)) and,
as a result, would likely affect the market price of our ADS on the
New York Stock Exchange (
“NYSE”
) as well. In
addition, such fluctuations will affect the U.S. dollar equivalent
of peso amounts reported in this Annual Report. Currency
fluctuations would also affect the U.S. dollar amounts received by
holders of ADSs on conversion by the Bank of New York Mellon (the
“Depositary”
),
pursuant to our deposit agreement signed between the Depositary and
us, of cash dividends paid in pesos on the underlying Class B
Shares.
On
December 17, 2015, the BCRA issued Communication “A”
5850, which introduced several changes to the existing foreign
exchange control regime. For additional information, see
“Item 10. Additional Information—D. Exchange
Controls.”
The
following table sets forth, for the periods indicated, high, low,
average and period-end exchange rates between the peso and the U.S.
dollar, as reported by Banco Nación. The Federal Reserve Bank
of New York does not publish a buying rate for the peso. The
average rate is calculated by using the average of Banco
Nación reported exchange rates on each day during the relevant
monthly period and on the last day of each month during the
relevant annual period.
|
|
|
|
|
|
|
Most recent six months:
|
|
|
|
|
November 2016
|
15.8680
|
14.9200
|
15.3463
|
15.8680
|
December 2016
|
16.0300
|
15.4970
|
15.8381
|
15.8900
|
January 2017
|
16.0800
|
15.8100
|
15.9093
|
15.8970
|
February 2017
|
15.8000
|
15.3600
|
15.5917
|
15.4800
|
March 2017
|
15.6350
|
15.3900
|
15.5176
|
15.3900
|
April 2017 (through April 21,
2017)
|
15.4900
|
15.1900
|
15.3296
|
15.4900
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2012
|
4.9180
|
4.3040
|
4.5532
|
4.9180
|
2013
|
6.5210
|
4.9250
|
5.4859
|
6.5210
|
2014
|
8.5570
|
6.5450
|
8.1195
|
8.5510
|
2015
|
13.4000
|
8.5550
|
9.2485
|
13.0400
|
2016
|
16.0300
|
13.2000
|
14.7807
|
15.8900
|
For
your convenience and except as we specify otherwise, this Annual
Report contains translations of certain peso-denominated amounts to
U.S. dollars at the reported exchange rate on December 31 of each
year or as otherwise indicated. These translations should not be
construed as representations that the amounts actually represent
such U.S. dollar amounts or could be or have been converted into
U.S. dollars at the rates indicated or at any other rates. On April
21, 2017, the reported selling exchange rate was Ps. 15.49
=
US$1.00.
Our
results of operations and financial condition are highly
susceptible to changes in the peso-U.S. dollar exchange rate
because a significant portion of our annual revenues (43.1% of our
total consolidated revenues from sales for the year ended December
31, 2016), most of our capital expenditures, substantially all of
our liabilities and the cost of purchased natural gas used in our
Liquids business are U.S. dollar denominated, but our primary
assets are based in Argentina and our functional currency is the
peso.
We will
pay any cash dividends on our shares in Pesos, and exchange rate
fluctuations could affect the U.S. Dollar amounts received by
holders of American Depositary Shares (
“ADSs”
), on conversion by us
or by the Depositary of these cash dividends. Fluctuations in the
exchange rate between the Peso and the U.S. Dollar will also affect
the U.S. Dollar equivalent of the Peso price of our shares on the
BYMA and, as a result, can also affect the market price of the
ADSs.
B.
Capitalization
and Indebtedness
Not
applicable.
C.
Reasons
for the Offer and Use of Proceeds
Not
applicable.
D.
Risk
Factors
You should carefully consider the following risks and
uncertainties, and any other information appearing elsewhere in
this Annual Report. The risks and uncertainties described below are
intended to highlight risks and uncertainties that are specific to
us. Additional risks and uncertainties, including those generally
affecting Argentina and the industry in which we operate, risks and
uncertainties that we currently consider immaterial or risks and
uncertainties generally applicable to similar companies in
Argentina may also impair our business, results of operations, the
value of our securities, and our ability to meet our financial
obligations.
The information in this Risk Factors section includes
forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of numerous
factors, including those described in “Cautionary Statement
Regarding Forward-Looking Statements” above.
Risks Relating to Argentina
Overview
We are
a stock corporation with limited liability, or
sociedad anónima
, incorporated and
organized under the laws of Argentina, and all of our operations
and all of our operating assets are located in Argentina. For the
year ended December 31, 2016, 43.1% of our consolidated revenues
were peso-denominated. Conversely, substantially all of our
indebtedness, most of our capital expenditures and the cost of the
natural gas purchased to be processed in our liquids processing
plant located at General Cerri Complex, in the Province of Buenos
Aires (
“Cerri
Complex”
) are U.S. dollar-denominated. Accordingly,
our financial condition and results of operations depend to a
significant extent on economic, regulatory and political conditions
prevailing in Argentina, the exchange rate between the peso and the
U.S. dollar and the reference international prices of
Liquids.
Economic volatility in Argentina in recent decades has adversely
affected and may continue to adversely affect our financial
condition and results of operations.
The
Argentine economy has experienced significant volatility in recent
decades, characterized by periods of low or negative growth, high
and variable levels of inflation and currency devaluation. As a
consequence, our business and operations have been, and could in
the future be, affected from time to time to varying degrees by
economic and political developments and other material events
affecting the Argentine economy, such as: inflation; price
controls; fluctuations in foreign currency exchange rates and
interest rates; currency devaluation; governmental policies
regarding tariff, spending and investment, and other regulatory
initiatives increasing government involvement with economic
activity; international conflicts; civil unrest; and local
insecurity concerns.
Beginning in 2001,
Argentina went through a period of severe political, economic and
social crisis. The crisis resulted in Argentina defaulting on its
foreign debt obligations in 2002, introducing emergency measures
and numerous changes in economic policies that affected utilities
and many other sectors of the economy, and suffering a significant
real devaluation of the peso. Many private sector companies with
foreign currency exposure, including us, defaulted on their
outstanding debts. Since that crisis, Argentina has substantially
increased its real Gross Domestic Product (
“GDP”
). However, after the
2008 global financial crisis, the Argentine economy suffered a
slowdown attributable to local and external factors, including an
extended drought affecting agricultural activities and the effects
of the global financial crisis. According to data published by the
Instituto Nacional de
Estadísticas y Censos
(the
“INDEC”
), growth in real GDP
resumed in 2011, with the Argentine GDP increasing 8.4% in 2011,
0.8% in 2012 and 2.9% in 2013. For the year 2014, Argentina
experienced a slowdown in real GDP growth showing an increase of
0.5%. During 2015, economic activity recovered slightly, as real
GDP grew 2.1% during the year. In 2016, however, GDP fell
2.3%.
In
addition, Argentina has confronted inflationary pressures,
evidenced by significantly higher fuel, salaries and food prices,
among other indicators. Inflation in Argentina has contributed to a
material increase in our costs of operation, in particular labor
costs, and negatively affected our results of operations and
financial condition. There can be no assurance that inflation rates
will not escalate in the future, and the effects of measures
adopted or that may be adopted in the future by the Government to
control inflation are uncertain. See “—Government
intervention in the Argentine economy could adversely affect our
results of operations or financial condition.”
In
addition, other factors could adversely harm economic growth and
future inflow of capitals necessary to support further economic
growth in Argentina, such as:
●
Public debt
continues to increase as a percentage of GDP,
long-term credit is
scarce and international financing remains
limited;
●
Increasing public expenditures could result in fiscal
deficits;
●
The political difficulties associated with reducing the burden on
businesses of taxes and social contributions, which make costs of
production in Argentina higher than those in the rest of the
region;
●
The lack of necessary investments to develop oil and gas reserves
and increase the production of natural gas and oil necessary to
accompany the increase in economic activity;
●
The obstacles to reducing inflation, which in the past undermined
Argentina economy and the capacity of the Argentina Government to
create conditions for economic growth;
●
The increased
distrust of business and political classes in Argentina, caused in
part by measures taken in the past.
We
cannot provide any assurance that economic, social and political
events in Argentina, which are beyond our control, will not
adversely affect our financial condition or results of operations,
including our ability to service our debts or pay
dividends.
High levels of inflation and the lack of credibility regarding
Argentina’s official inflation statistics, could negatively
affect our results of operations and our ability to reach credit
markets.
The
INDEC is statutorily the only institution in Argentina with the
power to produce official nationwide statistics. In the past,
inflation has undermined the Argentine economy and the
Government’s ability to stimulate economic growth. According
to inflation data published by the INDEC, from 2011 to 2014, the
Argentine consumer price index (
“CPI”
) increased 9.2%,
10.5%, 10.6% and 23.9%, respectively; and 11.9% in the ten-month
period ended October 31, 2015. The wholesale price index
(
“WPI”
)
increased 12.7%, 13.1%, 14.8% and 28.3%, respectively, and 10.6% in
the ten-month period ended October 31, 2015. Significantly, higher
prices for fuel and food, and higher salaries, among other
indicators, evidenced these inflationary pressures.
In
addition, there have been concerns in the past regarding the
accuracy of the INDEC statistics. In 2007, the INDEC changed the
way it calculated inflation statistics such as CPI and WPI. Several
economists, as well as the international and Argentine press, have
suggested that this change in methodology was related to the policy
of the Government intended to curb the increase of inflation. In
addition, the International Monetary Fund (“
IMF
”) requested several times that
Argentina clarify its inflation rates.
Despite
consultations between the Government and the IMF regarding the
reliability of the INDEC statistics, in February 2013, the IMF
Executive Board issued a declaration of censure against Argentina
in connection with the breach of its related obligations to the IMF
under the Articles of Agreement and called on Argentina to adopt
remedial measures to address the inaccuracy of inflation and GDP
data without further delay.
On
February 13, 2014, the INDEC released a new inflation index (the
“IPCNu”
) that
measures prices on goods across the country and replaces the
previous index that only measured inflation in the urban sprawl of
the City of Buenos Aires. In June 2015, IMF Executive Board issued
a statement affirming that Argentina was not yet in full compliance
with Article VIII, Section 5 of the IMF Articles of Agreement, with
respect to the accurate provision of CPI and GDP data to the IMF.
The IMF also stated that specified actions called for by
end-February 2015 had not yet been completely implemented. For this
reason, the IMF Executive Board decided to extend the ongoing
process by one year to give Argentina additional time to remedy the
provision of inaccurate official data and to undertake an
additional set of specified actions. Recently, the government
appointed new officials to INDEC and expressed its intention to
restore the credibility of this body. For this reason, the
Government declared the national statistics emergency, and on
November 9, 2016, the Executive Board of the IMF concluded
consultation with Argentina.
Decree
No. 55/2016 declared a state of administrative emergency in the
national statistical system and in the INDEC, until December 31,
2016. Following this declaration, the INDEC ceased publishing
statistical data until a rearrangement of its technical and
administrative structure is finalized. Instead, the INDEC has
released alternative CPI figures based on data published by the
Province of San Luis and the City of Buenos Aires. These indexes
reflected an increase in CPI of 26.9% and 31.6%, respectively, for
2015. For the first four months of 2016, these same alternative
indexes have shown an increase 19.1% and 14.1%,
respectively.
In June 2016, the INDEC
began
again to publish monthly
CPI data. The reported increase in CPI for the period from May
– December 2016 was 15.9%; as of the date of this Annual
Report, however, the increase in CPI for the first four months of
2016 has not been published and there have been no indications from
the INDEC or any other government agency as to the timeline for
their publication. The WPI for the year 2016 increased by 34.5%,
according to information published by the
INDEC.
In addition, on June 29, 2016, the INDEC published
recalculated historical GDP data dating back to 2014. According to
this data, the estimated changes in GDP were 2.3% in 2013, (2.6%)
in 2014, 2.4% in 2015 and
(2.3%) in 2016.
The
uncertainty relating to the inaccuracy of the economic indexes and
rates in question could adversely affect our results of operations
and financial conditions.
Notwithstanding measures taken by the INDEC to
address appropriate inflation statistics, some private economists
estimate significantly higher inflation rates than those published
by the INDEC for the period 2007 - 2015.
Fluctuations in the value of the peso may also adversely affect the
Argentine economy, our financial condition and results of
operations.
Since
January 2002, the peso has fluctuated significantly in value and
generally depreciated against the U.S. dollar, with adverse
consequences to our business. A substantial increase in the value
of the peso against the U.S. dollar could also present risks for
the Argentine economy since it may lead to a deterioration of the
country’s current account balance and the balance of
payments. Between 2011 and December 2015, the Government
strengthened exchange controls in response to an increase of
capital outflows as compared to inflows and to a drop in the
commercial surplus. However, these controls were not able to
prevent the decrease of international reserves of the BCRA between
2012 and 2015. In the past, the decrease in the BCRA’s
reserves resulted in Argentina being vulnerable to inflation and
external shocks, affecting the country’s capacity to overcome
the effects of an external crisis.
On
December 17, 2015, the new Government administration, which took
office in December 2015, implemented certain measures including the
lifting of most of foreign exchange controls. As a result, the
official exchange rate published by Banco Nación increased
from Ps. 9.83 per U.S. dollar on December 16, 2015 to Ps. 13.95 per
U.S. dollar on December 18, 2015. After these measures were taken,
the value of the Argentine peso could freely fluctuate against the
U.S. dollar. Therefore, we are unable to predict the future value
of the peso against the U.S. dollar and how any fluctuations may
affect the costs that we incur in conducting our operations. See
“Item 10. Additional Information—D. Exchange
Controls.”
Further
depreciation of the peso against the U.S. dollar would likely
result in a material adverse effect on our business because of our
exposure to financial debt in U.S. dollars. In addition, future
devaluations could result in high inflation, reduce
real wages, and
adversely affect the Government’s ability to honor its
foreign debt obligations. On the other hand, significant
appreciation of the peso could harm the competitiveness of
Argentina companies and lead to reduced
exports.
As of
March 31, 2017, the total amount of principal and accrued but
unpaid interest under our consolidated U.S. dollar-denominated
indebtedness was US$247.5 million.
Government intervention in the Argentine economy could adversely
affect our results of operations or financial
condition.
In
addition to the economic factors described above, our business and
operations have been, are and could in the future be, affected by
actions taken by the Government through the implementation of new
or amended laws and regulations, such as: nationalizations,
expropriations or forced divestiture of assets; restrictions on
production, imports and exports; exchange and/or transfer
restrictions, including those relating to dividend payments; direct
and indirect price controls; tax increases, changes in the
interpretation or application of tax laws and other retroactive tax
claims or challenges; cancellation of contractual rights; and
delays or denials of governmental approvals.
During
recent years, the Government has increased its direct intervention
in the economy, including through the implementation of
expropriation and nationalization measures, price controls and
exchange controls. Although the new administration has reversed
some of these measures, there is no guarantee that this trend will
continue.
In
2008, the Government absorbed and replaced the former private
pension system with a public “pay as you go” pension
system. As a result, all resources administered by the private
pension funds, including significant equity interests in a wide
range of listed companies, were transferred to a separate fund
(“
Fondo de Garantía de
Sustentabilidad
” or
“FGS”
) to be managed by the
Administración Nacional de la
Seguridad Social
(
“ANSES”
). Purchases of debt
and equity instruments which previously could be placed with
pension fund administrators are now entirely subject to the
discretion of ANSES. ANSES has been entitled to designate
government representatives to the boards of directors of these
companies. ANSES currently holds 23.1% of our outstanding capital
stock and has two representatives in our Board of Directors. On
July 25, 2012, the Executive Branch issued Decree
No. 1,278/12, which governed FGS representatives’ role
in companies in which FGS had participation.
On
October 5, 2015, the Argentine Congress passed law No. 27,181,
declaring the protection of the Government’s shareholdings,
including those forming part of the portfolio of the FGS, to be in
the public interest, and creating the Argentine Agency of
Government Investments in Companies as an enforcement authority.
This agency was later replaced by the Secretary of Economic Policy
and Development Planning of the Ministry of Finance (
“MH”
). This agency is
in charge
of implementing any policies and actions related to the exercise by
the Argentine Government of any rights arising out of the shares it
holds.
In June
2016, Argentine Congress passed Law No. 27,260, repealing or
modifying earlier laws relating to the FGS. Among other things, Law
No. 27,260 established that ANSES’ shareholding in public
companies may not be sold, in most cases, without the prior
authorization of the Argentine Congress if this sale represents a
reduction in the FGS’s aggregate shareholding in public
companies to below 7%.
Decree
No 894/2016, which regulates Law No, 27,260, created the Secretary
of Economic Policy and Development Planning. This new agency is
responsible for executing policies relating to the exercise of
rights corresponding to shareholdings of companies where the
Government holds a minority interest. Decree No. 897/2016 states
that the directors appointed by ANSES shall have the functions,
duties and powers established by General Companies
Law.
In May
2012, Argentine Congress passed Law No. 26,741, which declared
hydrocarbons self-sufficiency, production, industrialization,
transport and marketing to be activities of public interest and
primary goals of Argentina, and empowered the Government to take
the necessary measures to achieve such goals. Law No. 26,741
expropriated 51% of the shares of YPF S.A. (
“YPF”
), formerly known as
Repsol YPF S.A. (
“Repsol
YPF”
). On February 25, 2014, the board of Repsol S.A.,
controlling entity of Repsol YPF, approved a compensation package
offered by the Government of the equivalent of US$ 5 billion in
Argentine bonds for the expropriation. As of February 28, 2014 YPF
market capitalization was US$ 10.6 billion.
Our
business and operations in Argentina may also be adversely affected
by measures adopted by the Government to address inflation and
promote sustainable growth. For example, increases in the costs of
services and labor could negatively affect our results of
operations if we are not permitted to pass those costs along to
customers in the tariffs, which we charge due to the imposition of
price controls. See
“—Risks Relating to Our
Business— Our License has been subject to renegotiation
pursuant to the Public Emergency Law. Failure or delay to negotiate
further improvements to our tariff structure, and/or to have our
tariffs adjusted to reflect increases in our costs in a timely
manner or at all, has affected our financial condition and results
of operations and could also have a material adverse effect on
them.”
In
addition, in the past the Government has also adopted numerous
measures to directly or indirectly control the access by private
companies and individuals to foreign trade and foreign exchange
markets, such as restricting its free access and imposing the
obligation to repatriate and sell within the local foreign exchange
market all foreign currency revenues obtained from exports. These
regulations prevented or limited us from offsetting the risk
derived from our exposure to the U.S. dollar.
In
2012 and again in 2013, the Argentine Congress established new
regulations relating to domestic capital markets. The new
regulations generally provide for increased intervention in the
capital markets by the Government. The new administration, however,
is working on an amendment to the Capital Markets Law, which would,
among other things, limit the scope of intervention by the CNV in
public companies.
In
October 2015, presidential, congressional, municipal and state
government elections were held. Candidate Mauricio Macri won the
Argentina presidency, beginning his presidential term on December
10, 2015. Mr. Macri’s victory for Argentina’s
center-right opposition ended the 12-year rule of the Peronist
Party.
A low
growth and high inflation rates scenario is likely going forward,
as a result of the accumulation of macroeconomic imbalances over
recent years, the actions of the Government in regulatory matters
and challenging conditions in the international economy. We can
offer no assurance that policies implemented by the Government will
not adversely affect our business, results of operations and
financial position.
Argentina is an
emerging market economy that is highly sensitive to local political
developments which have had an adverse impact on the level of
investment in Argentina and the access of Argentine companies to
the international capital markets. Future developments may
adversely affect Argentina’s economy and, in turn, our
business, results of operations and financial
condition.
Even
though the new administration took several measures that had the
positive effect of lifting most exchange controls in Argentina, we
cannot provide any assurance that we will be able to access foreign
exchange markets or that these measures will not cause fluctuations
in the value of the peso. The lifting of certain exchange controls
and other future economic, social and political developments in
Argentina, over which we have no control, may adversely affect our
financial condition or results of operations, including our ability
to pay our debts at maturity or dividends. For additional
information on developments relating to exchange controls, see
“Item 10 – Additional Information—D. Exchange
Controls.”
The Argentine economy can be adversely affected by economic
developments in other markets and by more general
“contagion” effects, which could have a material
adverse effect on Argentina’s economic growth.
Argentina’s
economy is vulnerable to external shocks that could be caused by
adverse developments affecting its principal trading partners. A
significant decline in the economic growth of any of
Argentina’s major trading partners could have a material
adverse impact on Argentina’s balance of trade and adversely
affect Argentina’s economic growth. For example, recent
economic slowdowns, especially in Argentina’s major trading
partners, led to declines in Argentine exports in the last few
years. Specifically, fluctuations in the price of the commodities
sold by Argentina and a significant revaluation of the peso against
the U.S. dollar could harm Argentina’s competitiveness and
affect its exports.
The
economy in Brazil, one of the main import and export markets for
Argentina, experienced a recession in 2016 when GDP declined 3.6%
as a consequence of political uncertainty, including
the recent removal from office of the President
Dilma Rousseff following an impeachment vote in the Senate, and the
fallout from the continuing investigation into the Lava Jato
corruption scandal.
Financial and
securities markets in Argentina are also influenced by economic and
market conditions in other markets worldwide. U.S. monetary policy
has significant effects on capital inflows and asset price
movements in emerging market economies. Increases in U.S. interest
rates result in the appreciation of the U.S. dollar and decreases
in prices for raw materials, which can adversely affect
commodity-dependent emerging economies.
Additionally, a
slowing of China's GDP growth has led to a reduction in exports to
this Asian country, which in turn has caused oversupply and price
declines in certain commodities. Decreases in exports have a
material adverse effect on Argentina’s public finances due to
a loss of tax on exports, causing an imbalance in the
country’s exchange market.
Although economic
conditions vary from country to country, investors’
perceptions of events occurring in other countries have in the past
substantially affected, and may continue to substantially affect,
capital flows into and investments in securities from issuers in
other countries, including Argentina. International
investors’ reactions to events occurring in one market
sometimes demonstrate a “contagion” effect in which an
entire region or class of investment is disfavored by international
investors. Argentina could be adversely affected by negative
economic or financial developments in other countries, which in
turn may have an adverse effect on our financial condition and
results of operations.
Certain
economic policies of the former government administration in
Argentina, including the relationship with the International
Monetary Fund and the foreign exchange restrictions, led in the
past to a reduction in exports and foreign direct investments, to a
decline in national tax revenues and to the inability to access
international capital markets. There can be no assurance that the
Argentine financial system and securities markets will not be
adversely affected by policies that may be adopted by the
government in the future or by events in the economies of developed
countries or in other emerging markets. A slowdown in economic
activity in Argentina would adversely affect our business,
financial condition and results of operations.
Argentina’s past default and litigations with holdout
bondholders may limit our ability to access international
markets.
Argentina’s
history of
defaults on its
external debt and the protracted
litigation with holdout
creditors, summarized below, may reoccur in the future and prevent
Argentine companies such as us from accessing the international
capital markets readily or may result in higher costs and more
onerous terms for such financing, and may therefore negatively
affect our financial condition or cash flows.
Following the
default on its external debt in 2001, Argentina sought to
restructure its outstanding debt by offering holders of the
defaulted bonds two opportunities to exchange them for newly issued
debt securities, in 2005 and again in 2010. Holders of
approximately 93% of Argentina’s defaulted debt participated
in the exchanges. Nonetheless, a number of bondholders held out
from the exchange offers and pursued legal actions against
Argentina in the courts of the United States and several other
countries.
After almost 15 years
of litigation, and following the beginning of Mr. Macri’s
administration, in February 2016 Argentina negotiated and reached
settlement agreements with its largest holdout creditors. As
required by the settlement,
on
March 31, 2016, the Argentine Congress voted to repeal laws that
had prevented Argentina from paying the holdouts. On April 13,
2016, Argentina announced that it would proceed with a new bond
offering of up to US$ 12.5 billion to repay the holdouts. After
issuing US$ 16.5 billion of new bonds to international investors,
on April 22, 2016 Argentina notified the competent U.S. court that
it had made full payment under the settlement agreements with the
holdout creditors, and the court vacated its injunctions which had
been preventing Argentina from making payments on its restructured
external debt.
However, even though Argentina has successfully accessed the
international capital markets since the settlement, there continues
to be a risk that the country will not attract the foreign direct
investment and financing needed to restart the investment cycle and
achieve sustainable rates of economic growth. If that risk occurs,
Argentina’s fiscal condition could be adversely affected,
which could lead to more inflation and undermine the
government’s ability to implement economic policies designed
to promote growth. The difficulty of sustaining over time economic
growth with reasonable price stability could result in a renewed
episode of economic instability.
In
addition, the foreign shareholders of several Argentine companies
(including us), together with public utilities and certain
bondholders that did not participate in the exchange offers
described above, filed claims in excess of US$15 billion with the
International Centre for Settlement of Investment Disputes
(
“ICSID”
),
alleging that the emergency measures adopted by the Government in
2002 do not meet the just and equal treatment requirements of
several bilateral investment treaties to which Argentina is a
party. While certain plaintiffs have prevailed against Argentina in
their ICSID proceedings, and although Argentina has agreed to
compensate some of the plaintiffs by issuing sovereign bonds to
them, other successful plaintiffs including British Gas (a US$ 185
million award) and GDF Suez (a US$ 405 million award), have not
been paid.
Recently approved Argentine judicial, commercial and civil reforms,
as well as challenges thereto, have generated uncertainty with
respect to future administrative and judicial proceedings,
including those involving the Government.
Law No.
26,854, which regulates injunctions in cases in which the
Government is a party or has intervened, was promulgated on April
30, 2013 as part of a judicial reform bill approved by the
Argentine Congress. A significant change included in the judicial
reform bill is a time limitation on injunctions imposed in
proceedings brought against the Government. Legal challenges to the
law have resulted in rulings which for the time being have declared
the law unconstitutional. If the law is ultimately upheld our
ability in the future to pursue claims against the Government could
be adversely affected.
On
October 1, 2014, the Argentine Congress passed Law No. 26,994,
which approved the new Argentine Civil and Commercial Code,
abrogated several laws and modified others, including the General
Companies Law and the Consumer Protection Law. The new Civil
and Commercial Code, which came into effect on August 1, 2015,
introduced significant changes to the Argentine private law
system.
Although this reform substantially reflects numerous judicial
precedents and introduces certain changes, it is not possible to
predict the degree to which it might affect current or future
contracts and/or administrative and/or judicial proceedings to
which we are or will be a party.
Risks Relating to Our Business
Because we receive a significant portion of our net revenues from
public service contracts, which tariffs are no longer stated in
dollars or subject to indexing, our net revenues and liquidity have
been harmed as a result of inflation and the devaluation of the
peso.
All of
our net revenues from our gas transportation segment (which
represented 28.2% and 24.0% of total net revenues during 2016 and
2015, respectively) are attributable to public service contracts,
which are subject to Government regulation. Prior to the passage of
the Public Emergency Law, our tariffs were stated in U.S. dollars
and subject to indexing, based on semi-annual changes in the U.S.
Producer Price Index (
“PPI”
), with adjustments
every five years, based on the efficiency of, and investments in,
our gas transportation operations. The Public Emergency Law,
however, eliminated tariff indexation. Pursuant to the Public
Emergency Law public service tariffs were converted into pesos and
fixed at an exchange rate of Ps. l.00 = US$l.00 even as the peso
was allowed to devalue against the U.S. dollar.
Consistent
inflation in Argentina since 2002, without any corresponding
increase in our natural gas transportation tariffs until recently,
has adversely affected, and continued inflation would continue to
adversely affect, our natural gas transportation revenues, net
revenues and financial condition.
In
addition, since 2002, the peso has fluctuated in value and
generally depreciated against the U.S. dollar, adversely affecting
our results and financial position. In particular, because
substantially all of our debt is denominated in U.S. dollars
significant devaluations of the peso may adversely affect our
ability to make required interest or amortization payments, when
due.
Our License has been subject to renegotiation pursuant to the
Public Emergency Law. Failure or delay to negotiate further
improvements to our tariff structure, and/or to have our tariffs
adjusted to reflect increases in our costs in a timely manner or at
all, has affected our financial condition and results of operations
and could also have a material adverse effect on them.
The
Public Emergency Law granted the Executive Branch the power to
renegotiate contracts entered into with utility companies. In July
2003,
Public Services
Contracts Renegotiation and Analysis Unit (
“
UNIREN”
)
was created under the joint jurisdiction of the former Ministry of
Economy and Finance (
“MEF”
)
and the
Ministerio de Producción y de
Planificación Federal, Inversión Pública y
Servicios
(the
“MPFIPyS”
) in order to
renegotiate public service contracts, including the respective
tariffs (the
“Renegotiation
Process”
).
Little
progress had been made in our Renegotiation Process with UNIREN.
Since 2003, multiple proposals from UNIREN, with varying levels of
tariff increase, had been discussed with our management. In the
past 15 years, we have signed two transitional agreements, one in
October 2008 (the
“2008
Transitional Agreement”
) and the second one in
February 2016 (the
“2016
Transitional Agreement”
).
On
February 16, 2016, the Decree No. 367/2016, effective since March
2016, dissolved the UNIREN, assigning the Renegotiation Process to
the Ministry of Energy and the MH.
Finally, on March
30, 2017 we signed the 2017 Transitional Agreement, which was
ratified by Resolution No. 4362/2017 (the
“Resolution 4632”
) issued by
the ENARGAS. The tariff increase granted by this resolution will be
implemented in three stages.
See
“Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Regulatory
Framework” below for more information.
In October 2008, 2011, 2015 and 2017, we received
separate integral license renegotiation agreement proposals
(the
“2008, 2011, 2015 and
2017 Integral Renegotiation Agreement”
, respectively). Our Board of Directors approved
the 2017 Integral Renegotiation Agreement, which we have already
executed. Such agreement is expected to be finalized and executed
by the Ministry of Energy during 2017 after approval by the
ENARGAS, the Office of the Attorney for the National Treasury, and
the General Office of the Comptroller, and thereafter it will be
sent to the National Congress for approval within 60 calendar days.
Once so approved, it will be ready to be ratified by the Executive
Branch.
The
tariff increases granted to us by the 2016 and 2017 Transitional
Agreement, the latter ratified by Resolution 4362, are subject to
our compliance with mandatory investment plans to ensure the
availability and quality of the natural gas transportation service.
In the event that we do not comply with the investment plans as
approved by ENARGAS, we could be subject to payment of a fine to
that agency, which would be applied to the value of the scheduled
work that is not timely executed.
Our
inability to reach an agreement with
the Government on the renegotiation of our License, any failure by
the Government to comply with the terms of the renegotiated
License, when agreed, and our failure to comply with the investment
plans could materially adversely affect the profitability of our
natural gas transportation business segment. Even if we are able to
renegotiate our License, we cannot provide any assurance regarding
the terms of the renegotiated License, including, the amount or
timing of any tariff increases.
Failure or delay in the implementation of
future tariff increases or the RTI process could have a material
adverse effect in our financial and economic situation. In
addition, our inability to obtain tariff adjustments reflecting the
increase in operating cost could harm the development of our
natural gas transportation business segment.
Recently the
Resolution 4362 issued by the ENARGAS approved a staged tariff
increase which contemplates an aggregate transportation tariff
increase of 214.2% and an aggregate Access and Use Charge
(
“CAU”
) increase
of 37%. This staged increase is structured to provide the same
economic benefits to us as if the increases had been fully
effective on April 1, 2017.
Pursuant to this resolution, we must
also execute a capital expenditures program for a five-year period
(from April 1, 2017 to March 31, 2022
)
, which contemplates investments of
approximately Ps.
6,786.5 million
to improve the
operation and maintenance of the pipeline system
(the
“Five-Year
Plan”
). If
we do not execute the Five Year Plan
in
accordance with ENARGAS’s
regulations, we would be subject to fines to be calculated on the
value of the work pending execution.
See
“Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Regulatory
Framework” below for more information.
In the
past, we have suffered from our inability to adjust our tariff
increase, which implied the deterioration of our financial and
economic condition. Our inability to bill the increases granted by
Resolution 4362 in a timely manner, and to obtain future tariff
adjustments in line with the increase in our costs could affect
adversely our economic and financial condition.
Moreover, the RTI process could
result in the adoption of an entirely new regulatory framework for
our business, with additional terms and restrictions on our
operations and the imposition of mandatory investments. We also
cannot predict whether a new regulatory framework will be
implemented and what terms or restrictions could be
imposed.
We conduct our business in a unionized environment.
The
sectors in which we operate are largely unionized. Although we
consider our current relations with our workforce to be acceptable,
we have experienced organized work disruptions and stoppages in the
past and we cannot assure you that we will not experience them in
the future. Additionally, labor demands regarding salary increases
and labor conditions, are commonplace in Argentina’s energy
sector and unionized workers have blocked access to plants and
routes in the recent past.
In addition, our
collective bargaining agreements generally expire after a one-year
term.
We
are currently negotiating the collective bargaining agreements for
the current period 2017 – 2018.
We maintain insurance coverage for
business interruptions, including business interruptions caused by
labor actions.
We cannot assure
you that we will be able to negotiate new collective bargaining
agreements on the same terms as those currently in effect, or that
we will not be subject to strikes or work stoppages before or
during the negotiation process. Natural Gas Industry and
national
strikes,
picketing or other types of conflict with the unionized personnel
may adversely affect our results of operations and financial
condition.
In the
past, the Government has enacted laws and regulations forcing
private companies to maintain certain wage levels and to provide
additional benefits to their employees. We cannot assure you that
in the future the Government will not increase wage or require
additional benefits for workers or employees or that unions will
not pressure the Government to demand such measures. All wage
increases, as well as any additional benefits, could result in
increased costs and a decrease in our results of
operations.
Our regulated business is dependent on our ability to maintain our
License, which is subject to revocation under some
circumstances.
We
conduct our natural gas transportation business pursuant to the
License, which authorizes us to provide natural gas transportation
services through the exclusive use of the southern natural gas
transportation system in Argentina. Our License may be revoked in
certain circumstances based on the recommendation of ENARGAS.
Revocation of our license would require an administrative
proceeding, which would be subject to judicial review. Reasons for
which our License may be revoked include:
●
repeated failure to
comply with the obligations of our License and failure to remedy a
significant breach of an obligation in accordance with specified
procedures;
●
total or partial
interruption of service for reasons attributable to us that affects
transportation capacity during the periods stipulated in our
License;
●
sale, assignment or
transfer of our essential assets or the placing of encumbrances
thereon without ENARGAS’ prior authorization, unless such
encumbrances serve to finance extensions and improvements to the
gas pipeline system;
●
our bankruptcy,
dissolution or liquidation;
●
ceasing and
abandoning the provision of the licensed service, attempting to
assign or unilaterally transfer our License in full or in part
without the prior authorization of ENARGAS, or giving up our
License, other than in the cases permitted therein;
and
●
delegation of the
functions granted in such contract without the prior authorization
of ENARGAS, or the termination of such agreement without regulatory
approval of a new contract.
If our
License were revoked, we would be required to cease providing
natural gas transportation services. The impact of a loss of our
License on our business, financial condition and results of
operations would be material and adverse.
Our creditors may not be able to enforce their claims against us in
Argentina.
We are
a stock corporation with limited liability (“
sociedad
anónima
”) organized under the laws of Argentina.
Substantially all of our assets are located in
Argentina.
Under
Argentine law, foreign judgments may be enforced by Argentine
courts, provided that the requirements of Articles 517 through 519
of the Federal Code of Civil and Commercial Procedure are met.
Foreign judgments cannot violate principles of public policy
(
orden público
) of
Argentine law, as determined by Argentine courts. It is possible
that an Argentine court would deem the enforcement of foreign
judgments ordering us to make a payment in a foreign currency
outside of Argentina to be contrary to Argentine public policy if
at that time there are legal restrictions prohibiting Argentine
debtors from transferring foreign currency outside of Argentina.
Although currently there are no legal restrictions prohibiting
Argentine debtors from transferring foreign currency outside of
Argentina to satisfy principal or interest payments on outstanding
debt that has been previously reported to the BCRA, we cannot
assure you that the
Government
or an Argentine court will not impose such restrictions in the
future.
In
addition, under Argentine law, attachment prior to execution and
attachment in aid of execution will not be ordered by an Argentine
court with respect to property located in Argentina and determined
by such courts to be utilized for the provision of essential public
services. A significant portion of our assets may be considered by
Argentine courts to be dedicated to the provision of an essential
public service. If an Argentine court were to make such
determination with respect to any of our assets, unless the
Government
ordered the release
of such assets, such assets would not be subject to attachment,
execution or other legal process as long as such determination
stands and the ability of any of our creditors to realize a
judgment against such assets may be adversely
affected.
In order to mitigate the energy crisis, the Government adopted new
strategies, measures and programs with respect to the natural gas
transportation industry, including the expansion of our pipeline
and the interruption of natural gas firm transportation service
(including the diversion of natural gas supply from the Cerri
Complex), which could materially adversely affect our business,
results of operations and financial condition.
Since
2002, the natural gas industry has experienced a sharp increase in
demand, while the supply of natural gas has not been sufficient to
meet this increased demand. The
Government
has adopted different
strategies, measures and programs to mitigate the resulting energy
crisis.
Specifically,
natural gas distribution companies have been prohibited from
passing through price increases to consumers since 2002. Producers
of natural gas, therefore, have had difficulty implementing
wellhead natural gas price adjustments that would increase the
costs of distribution companies, which has caused such producers to
suffer a sharp decline in their rate of return on investment
activities. As a result, natural gas production has not been high
enough to meet the increasing demand. Likewise, the lack (until
very recently) of tariff adjustments for natural gas transportation
companies has caused transportation companies to suffer a decrease
in their profitability.
In
light of these events, the
Government
implemented a number of
strategies, measures and programs aimed at mitigating the energy
crisis and supporting the recovery of the Argentine economy
generally. With respect to the natural gas industry, these
strategies, measures and programs included, among others, the
expansion of our pipeline, through the creation of financial trust
funds used as vehicles to facilitate financing of those investments
(
“Gas Trusts”
).
For more information on the pipeline expansions, please see
“Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Pipeline
Operations—Pipeline Expansion. Although the expansion
projects described above have not adversely affected our results of
operations or financial condition, we cannot assure you that
future, or even present, expansion projects will not have such
adverse effects.
Government-mandated interruption of contracted firm transportation
services
In
2004, the Executive Branch issued Presidential Decree No. 181/04
directing the Federal Energy Bureau to establish a system of
priority pursuant to priority demand customers could receive
natural gas in priority to other users, even those with firm
transportation and firm natural gas supply contracts. Pursuant to
ENARGAS Resolution No. 1,410/2010, due to the lack of sufficient
natural gas provision, natural gas transportation service
(including those with firm transportation contracts) may be
interrupted and / or relocated in order to service priority demand
customers.
On June
1, 2016, the Ministry of Energy issued Resolution No. 89/2016,
which requires ENARGAS to develop a procedure to amend and
supplement ENARGAS Resolution No. 1,410/2010 and establish daily
operating conditions of the transportation and distribution
systems. It has also established a methodology to satisfy the
demand of natural gas of those customers classified as
“high-priority.”
On
June 5, 2016, ENARGAS issued Resolution No. I/3833/2016
creating the “Supplementary Procedure for Gas Requests,
Confirmations and Control.” According to this resolution, if
any gas transportation and distribution company finds that the
transportation capacity is not sufficient to supply priority demand
customers; such company shall summon an emergency committee
composed of company and ENARGAS representatives. This emergency
committee shall determine adjustments to be made to the daily
natural gas deliveries to address such shortage, considering the
availability of natural gas and the demand of residential consumers
and power plants.
Although neither
our results of operations nor our financial condition have been
materially adversely affected by transportation service
interruptions in recent years, we cannot assure you that similar
interruptions will not materially adversely affect our results of
operations or financial condition in the future. As of the date of
this Annual Report there are some unresolved disputes with one of
our clients (Profertil S.A.), in respect of service interruptions
between 2007 and 2013. In that action ENARGAS ruled in our favor
finding that there was a shortage in the supply of natural gas.
However, we cannot assure you that future interruptions of supply
to our firm natural gas transportation clients will not lead to
further legal action, which could have a significant adverse
economic and financial effect on us.
Despite having increased in recent years, natural gas arriving from
the Neuquina basin has declined in volume between 2009 and 2013.
Our Liquids production depends on the natural gas that arrives at
the Cerri Complex through three main pipelines from the Neuquina
and Austral natural gas basins. The flow and caloric power of this
natural gas are subject to risks that could materially adversely
affect our Liquids and midstream business segment.
Argentina relies
heavily on natural gas. However, its natural gas reserves are
declining. There is some risk that natural gas production will
continue to decrease in the future and that new exploration will
not compensate for such decline, which would adversely affect our
Liquids business segment by reducing the amount of natural gas
flowing to the Cerri Complex and, therefore, the amount of Liquids
we produce. In addition, the reduction in the production of natural
gas could affect the flow of natural gas provided for our midstream
clients for its compression and treatment.
In
2016, 44.6% of the natural gas transported by our system originated
in the Neuquina basin with the remainder coming primarily from the
Austral basin. Since 2009, the quality and the volume of natural
gas injected from the Neuquina basin has been lower (as a
consequence of the reduction of natural gas production in this
basin) and not appropriate for processing in the Cerri Complex,
negatively impacting our level of output from this facility. As a
consequence of this lower output of natural gas from the Neuquina
basin, we have had to buy natural gas at higher prices causing an
increase in the cost of Liquids production and commercialization
activities for our own account that reduces our profit from these
activities.
Since
the construction of a natural gas processing plant upstream of the
Cerri Complex by Compañía MEGA S.A. (“
MEGA
”), a
sociedad anónima
owned by YPF,
Petrobras International Braspetro B.V. and Dow Investment Argentina
S.A the volumes and quality of natural gas arriving at the Cerri
Complex have been reduced. There can be no assurance that there
will not be further reductions in the future. Any reduction of
natural gas volumes arriving at the Cerri Complex for Liquids could
adversely affect our revenues from Liquids production and
commercialization services and consequently, our net
revenues.
In
2009, non-conventional natural gas was discovered in the Neuquina
basin by YPF, which at that time was a subsidiary of Repsol S.A.
Exploration and exploitation of this natural gas reserve will
require several years and involve high extraction costs. Since the
expropriation of YPF in 2012, the
Government
has played an important role
signing agreements with foreign and local oil companies in order to
develop an investment plan, which allows for the increase of the
reserves of this basin. Because of the measures taken by the
Government to ensure production levels, during 2016, natural gas
production has increased approximately 4.9% from the 2015
production level.
We
cannot assure you, however, that this new natural gas resource at
the Neuquina basin, or any other measures taken by the
Government
to increase natural gas
production and supplies, will be successful in increasing Argentine
proved natural gas reserves or production our midstream or Liquids
production and commercialization businesses could be adversely
affected by a sustained decrease in the production of natural
gas.
Measures taken by the Government may have an adverse effect on the
supply of natural gas to the Cerri Complex, and the margins we are
able to obtain from our Liquids business, which may adversely
affect the results in our Liquids production and commercialization
segment and, as a result, our overall business and results of
operations.
As
described above, actions taken by the
Government
during the winter periods of
recent years resulted in natural gas being redirected away from
certain users, including the Cerri Complex, towards priority users,
including residential customers. See “—
In order to mitigate the energy crisis,
the
Government
has initiated new strategies, measures and
programs with respect to the natural gas transportation industry,
including the expansion of our pipeline and the interruption of
natural gas firm transportation service, which could materially
adversely affect our business, results of operations and financial
condition
” above
.
During the winter of 2016, processing
at the Cerri Complex was interrupted because of continued
governmental actions to ensure natural gas supply to the domestic
market. Any diversion of the supply of natural gas from the Cerri
Complex may require us to purchase natural gas from third parties
to supply our Liquids business, which may result in increased
costs. If we are unable to purchase natural gas from other sources,
the volume of our Liquids productions may decrease.
The new
administration has taken several measures to guarantee the
production of natural gas. The Ministry of Energy increased the
natural gas price paid by industrial users and increased the price
at which we purchase natural gas to be processed in the Cerri
Complex. For further information see, “Item 4 – Our
Information – Business Overview – Liquids Production
and Commercialization.” Any additional increase in the costs
of our Liquids production and commercialization segment, or
decrease in the volume of Liquids processed may adversely affect
our revenues, business and results of operations.
Although our
Liquids production and commercialization activities are not subject
to regulation by ENARGAS, the
Government
has taken certain regulatory
actions in recent years that have affected our Liquids business.
For example, in April 2005, the
Government
enacted Law No. 26,020, which
set the framework by which the Secretary of Hydrocarbon Resources
(
“SHR”
)
(formerly the Federal Energy Bureau) may establish regulations to
cause LPG suppliers guarantee sufficient supply of LPG in the
domestic market at low prices. Law No. 26,020 creates a price
regime pursuant to which the SRH periodically publish reference
prices for LPG sold in the local market. It also sets forth LPG
volumes to be sold in the local market.
We
participate in two programs created by the Government under this
framework, which provide for the payment of compensation based on
the difference between the price set by the Government and the
export parity price. Over recent years, this compensation has been
paid to us with significant delays. For further information, see
“Item 4. Our Information—Business
Overview—Liquids Production and
Commercialization.”
We
cannot assure you that we will be able to maintain or increase the
domestic prices of our products, and limitations on our ability to
do so would adversely affect our financial condition and results of
operations. Similarly, we cannot assure you that LPG prices in
Argentina will track increases or decreases in the international or
regional markets.
After
the issuance of Resolution No. 1,982/11 and 1,991/11 (the
“Gas Charge
Resolutions”
), The natural gas processing charge
created by Decree No. 2,067/08 (the
“Natural Gas Processing
Charge”
) increased from Ps. 0.049 to Ps. 0.405 per
cubic meter of natural gas effective from December 1, 2011,
representing a significant increase in our variable costs of
natural gas processing.
In
order to avoid an adverse effect on our Liquids business, we
initiated legal proceedings against Decree No. 2,067/08 and the Gas
Charge Resolutions, including the
Government
, ENARGAS and MPFIPyS as
defendants. For additional information, see “Item 8.
Financial Information—A. Consolidated Statements and Other
Financial Information—Legal and Regulatory
Proceedings—Tax Claims.”
On
March 28, 2016, the Ministry of Energy issued Resolution No.
28/2016, which instructs the ENARGAS to take all the necessary
measures to reduce to zero the Natural Gas Processing Charge since
April 1, 2016. Since that date, we have not been required to pay
for the Natural Gas Processing Charge.
We
cannot provide any assurance that our Liquids production and
commercialization business will not be subject to any further
actions from the
Government to
increase the value of the Natural Gas Processing Charge or any
other tax affecting the cost of the natural gas we process in the
Cerri Complex
, which may have a material adverse impact on
our business and results of operations.
Fluctuations in market prices and the enactment of new taxes or
regulations limiting the sales price of LPG and natural gasoline
may affect our Liquids business.
We
extract LPG and natural gasoline from natural gas delivered to the
Cerri Complex and sell LPG and natural gasoline for our own
account. As a result of the deterioration of our natural gas
transportation segment, operations relating to our Liquids
production and commercialization have represented more than 50% of
our total net revenues since 2003. Since 2009, the international
market for Liquids generally has been favorable, driven by strong
international prices for LPG and natural gasoline. However, since
the fourth quarter of 2014, as a consequences of weaker demand of
emerging markets as wells as higher production levels and export
capacity due to the development of shale gas fields in the United
States of America, our average liquids sales prices were lower than
the ones recorded previously. High volatility and a downward trend
in oil and liquids prices continued during 2016.
In
recent years, the Government issued a series of measures, which
significantly affected our Liquids production and commercialization
segment. Since 2002, LPG and natural gasoline exports have been
subject to a withholding tax on exports. After several
modifications, in March 2008, the Government introduced a
“sliding-scale” regime for LPG and natural gasoline,
where the withholding rate (as a percentage) would increase to the
same extent as the international reference prices.
At the
end of 2014, to reduce the impact of the sharp decrease in the
international reference prices for LPG and Natural Gasoline, the
Government reduced to 1% the applicable rate of withholding tax for
exports, maintaining the “sliding-scale” regime in case
international prices were higher than a certain level set by the
Federal Energy Bureau. This regime was in effect through the end of
2016. The withholding tax was suspended on January 7,
2017.
For
further information, see: “Item 4. Our Information—B.
Business Overview—Liquids Production and
Commercialization.”
Any new
regulations regarding the cost and availability of the natural gas
used in the production of Liquids and the effect of the continuing
decline or volatility in international prices of LPG or natural
gasoline could cause our operating margins to drop significantly
and materially adversely affect our results of operations and
financial condition. In addition, the Government could modify the
current export tax scheme and export regulations in a manner that
could adversely affect our financial condition and results of
operations.
Our ethane sales depend on the capacity of PBB Polisur S.A.
(“PBB”), as the sole purchaser of our ethane
production.
Between
2005 and 2015, we sold all our ethane to PBB under a long-term
agreement that expired on December 31, 2015. Following the
expiration of this agreement, we negotiated a renewal of the
agreement for the period from May 1, 2016 to May 1,
2017.
Pursuant to this
agreement, the ethane price was calculated in U.S. dollars and was
subject to adjustments, including for changes in the U.S. PPI, the
natural gas price, the quality of the ethane shipped by us and
transportation tariffs and charges, among others. This agreement
also includes take or pay (
“TOP”
) and deliver or pay
(
“DOP”
)
commitments for minimum annual quantities. Under these terms, if
one party does not comply with the applicable TOP or DOP condition,
that party will be required to compensate the other
party.
In
addition, in recent years, PBB has suffered several adverse
operational conditions that affected its capacity to purchase our
ethane production.
We
cannot assure you that these adverse conditions affecting PBB will
not recur in the future. We also cannot assure you that PBB will
not decide to reduce its purchases of ethane from us. These
considerations, or our inability to negotiate a new long-term
purchase agreement with PBB on similar terms to the agreement that
will expire on May 1, 2017, may adversely affect our results of
operations and financial condition.
Defaults on or deferrals of payments by our customers, or our
inability to renew natural gas firm transportation contracts
maturing in the short-term, may adversely affect our natural gas
transportation segment revenues.
The
lack of progress by our main natural gas transportation customer,
MetroGAS S.A. (
“Metrogas”
), in
renegotiating its licenses with the
Government
according to the terms of the
Public Emergency Law may in the future cause Metrogas not to
fulfill its payment obligations under the natural gas firm
transportation contracts with us. We may in the future be subject
to extensions in collection terms and payment obligations. We
cannot assure you that our natural gas distribution customers in
Argentina will not default in the future, and therefore negatively
impact our financial position.
We
cannot assure you that our natural gas firm transportation
contracts will be renewed in whole or in part in the existing
routes or by the current customers. We may not to renew some
natural gas transportation contracts in light of the diminishing
supply of natural gas from the Neuquina basin. If we are unable to
renew the majority of our natural gas firm transportation contracts
as they mature, our revenues, business and results of operation
could be adversely affected.
The affirmative and restrictive covenants in our currently
outstanding indebtedness could adversely restrict our financial and
operating flexibility and subject us to other risks.
The
terms of our currently outstanding indebtedness provide for
numerous affirmative and restrictive covenants that limit our
ability to, among other things, create liens, incur additional
debt, pay dividends, acquire shares of stock and make payments on
subordinated debt, enter into transactions with affiliates, sell
assets, or consolidate, merge or sell substantially all of our
assets.
These
restrictions may limit our ability to operate our businesses and
may prohibit or limit our ability to enhance our operations or take
advantage of potential business opportunities as they arise. The
breach of any of these covenants by us or the failure by us to meet
any of these conditions could result in a default under any or all
of such indebtedness. Our ability to comply with these covenants
may be affected by events beyond our control, including prevailing
economic, financial and industry conditions and the renegotiation
of public works and licenses process. In addition, if we are unable
to generate sufficient cash flow from operations, we may be
required to refinance outstanding debt or to obtain additional
financing. We cannot assure you that a refinancing would be
possible or that any additional financing would be available or
obtained on acceptable terms.
Our insurance policies may not fully cover damage or we may not be
able to obtain insurance against certain risks.
As of
December 31, 2016, our physical assets are insured for up to US$
2,023 million subject to certain deductibles. We maintain insurance
policies intended to mitigate our losses due to customary risks.
These policies cover our assets against loss for physical damage,
loss of revenue and also third party liability. However, we cannot
assure you that the scope of damages suffered in the event of a
natural disaster or catastrophic event would not exceed the policy
limits of our insurance coverage. We maintain all-risk physical
damage coverage for losses resulting from, but not limited to,
earthquakes, fire, explosions, floods, windstorms, strikes, riots,
mechanical breakdowns and business interruption. Our level of
insurance may not be sufficient to fully cover all losses that may
arise in the course of our business or insurance covering our
various risks may not continue to be available in the future. In
addition, we may not be able to obtain insurance on comparable
terms in the future. We may be materially and adversely affected if
we incur losses that are not fully covered by our insurance
policies or if we are required to disburse significant amounts from
our own funds to cover such losses.
Changes in the
interpretation by the courts of labor laws that tend to favor
employees could adversely affect our results of
operations.
In
addition to our employees, we rely on a number of third party
service providers to outsource certain services. We follow very
strict policies to control the compliance by such third party
service providers with their labor and social security obligations.
However, due to changes in the interpretation by the courts of
labor laws that tend to favor employees in Argentina,
companies’ labor and social security obligations towards
their own employees and employees of third party service providers
have significantly increased. As a result of the foregoing,
potential severance payment liabilities have significantly
increased and, in the event any third party service provider fails
to duly comply with its labor and social security obligations
towards its employees, we may be faced with litigation by employees
of such third party service provider to hold us liable for the
payment of any labor and social security obligations defaulted by
any such third party services provider. Therefore, our labor costs
may increase as our indemnification responsibilities and costs
expand, adversely affecting the result of our
operations.
We may be exposed to risks related to litigation and administrative
proceedings that could materially and adversely affect our business
and financial performance in the event of an unfavorable
ruling.
Our
business may expose us to litigation relating to labor,
environmental, health and safety matters, regulatory, tax and
administrative proceedings, governmental investigations, tort
claims and contract disputes and criminal prosecution, among other
matters. In the context of these proceedings, we may not only be
required to pay fines or money damages but also may be subject to
complementary sanctions or injunctions affecting our ability to
continue our operations. While we may contest these matters
vigorously and make insurance claims when appropriate, litigation
and other proceedings are inherently costly and unpredictable,
making it difficult to estimate accurately the outcome of actual or
potential litigation or proceedings. Although we may establish
provisions, as we deem necessary, the amounts that we reserve could
vary significantly from any amounts we actually pay due to the
inherent uncertainties in the estimation process.
Risks Relating to Our Shares and ADSs
Shareholders outside Argentina may face additional investment risk
from currency exchange rate fluctuations in connection with their
holding of our shares or American Depositary Receipts
(“ADRs”). Exchange controls imposed by the Government
may limit our ability to make payments to the Depositary in U.S.
dollars, and thereby limit ADR holders’ ability to receive
cash dividends in U.S. dollars.
We are
an Argentine company and any future payments of dividends on our
shares will be denominated in pesos. The peso has historically
fluctuated significantly against many major world currencies,
including the U.S. dollar. A depreciation of the peso would likely
adversely affect the U.S. dollar or other currency equivalent of
any dividends paid on our shares and could result in a decline in
the value of our shares and ADRs as measured in U.S.
dollars.
From
2011 to December 2015, Argentine companies were required to obtain
prior approval from BCRA and Argentine tax authorities in order to
engage in certain foreign exchange transactions. Thus, our
shareholders’ ability to receive cash dividends in U.S.
dollars was limited by the ability of the Depositary for our ADR
program to convert cash dividends paid in Pesos into U.S. dollars.
Under the terms of our deposit agreement for the ADRs, to the
extent that the Depositary can in its judgment, and in accordance
with local exchange regulations, convert Pesos (or any other
foreign currency) into U.S. dollars on a reasonable basis and
transfer the resulting U.S. dollars abroad, the Depositary will as
promptly as practicable convert or cause to be converted all cash
dividends received by it in Pesos on the deposited securities into
U.S. dollars. If in the judgment of the Depositary this conversion
is not possible on a reasonable basis (or is not permitted by
applicable Argentine laws, regulations and approval requirements),
the Depositary may distribute the pesos received or in its
discretion hold, such currency un-invested without liability for
interest thereon for the respective accounts of the owners entitled
to receive the same. As a result, if the exchange rate fluctuates
significantly during a time when the depositary cannot convert the
foreign currency, you may lose some of the value of the dividend
distribution.
Our principal shareholders exercise significant control over
matters affecting us, and may have interests that differ from those
of our other shareholders.
As of
the date of issuance of this Annual Report, our controlling
shareholder is Compañía de Inversiones de Energía
S.A. (
“CIESA”
),
which holds 51% of the common stock. FGS holds 23.1% of our common
stock. Local and foreign investors hold the remaining ownership of
TGS’s common stock. CIESA is under co-control of: (i)
Petrobras Argentina S.A. (in the process of merging with Pampa
Energía S.A. (
“Pampa
Energía”
), which holds 10% of CIESA’s
common stock, (ii) CIESA Trust (whose trustee is TMF Trust Company
(Argentina) S.A. and whose beneficiary is Petrobras Hispano
Argentina SA, a wholly owned subsidiary of by Pampa Energía)
(the
“CIESA
Trust”
), who has a trust shareholding of 40% of the
share capital of CIESA) and (iii) Grupo Inversor Petroquímica
S.L. (member of GIP Group, headed by the Sielecki family;
“GIP”
), and PCT
L.L.C. (
“PCT”
),
which directly and together with WST S.A. (member of Werthein
Group,
“WST”
)
indirectly through PEPCA S.A. (
“PEPCA”
), hold a 50% of the
shareholding in CIESA.
We
cannot assure you that the interests of our principal shareholders
will not diverge from interests of our other investors. See
“Item 7. Major Shareholders and related party
transactions.”
Sales of a substantial number of shares could decrease the market
prices of our shares and the ADRs
CIESA
holds 51% of our Class A shares. Pursuant to the
Pliego de Bases y Condiciones para la
Privatización de Gas del Estado S.E.
(the
“Pliego”
) and the terms of
the 2014 Notes, CIESA may not reduce its shareholding below 51% of
our share capital without the competent authorities’
approval. The market prices of our common shares and ADR could
decline as a result of sales by our existing shareholders, such as
the ANSES, or of any other significant shareholder of common shares
or ADRs in the market, or the perception that these sales could
occur.
Under Argentine law, shareholder rights may be fewer or less well
defined than in other jurisdictions
Our
corporate affairs are governed by our By-laws, the General
Companies Law and Law No. 26,831 (the
“Capital Market Law”
), which
differ from the legal principles that would apply if we were
incorporated in a jurisdiction in the United States or in other
jurisdictions outside Argentina. In addition, rules governing the
Argentine securities markets are different and may be subject to
different enforcement in Argentina than in other
jurisdictions.
Changes in Argentine tax laws may adversely affect the tax
treatment of our Class B Shares or ADSs.
On
September 23, 2013, the Argentine income tax law was amended by Law
No. 26,893. Pursuant to the amended law, the sale, exchange or
other transfer of shares and other securities is subject to capital
gain tax at a rate of 15% when the purchaser and the seller are not
Argentine residents. When both the purchaser and the seller of our
Class B Shares or ADRs are non-residents, the purchaser is required
to pay the capital gains tax in addition to the purchase price of
the Class B Shares or ADSs. In addition, if the purchaser is
legally liable for capital gain taxes in Argentina, then the
purchaser will likely not be entitled to receive any tax credit in
the United States in respect of the payment of any such taxes. As
of the date hereof, certain aspects of the amended Argentine tax
law remain unclear, including the criteria to determine the
residence of the purchaser of shares or other securities. Further
rulemaking or interpretation of the amended income tax law by the
Argentine tax authority may adversely affect the tax treatment of
our Class B Shares or ADSs.
Holders of ADRs may be unable to exercise voting rights with
respect to our Class B shares underlying the ADRs at our
shareholders’ meetings
We
will treat the Depositary for all purposes as the shareholder with
respect to the shares underlying your ADRs. As a holder of ADRs
representing the ADRs being held by the Depositary in your name,
you will not have direct shareholder rights and may exercise voting
rights with respect to our Class B Shares represented by the ADRs
only in accordance with the deposit agreement relating to the ADRs.
There are no provisions under Argentine law or under our By-laws
that limit the exercise by ADR holders of their voting rights
through the Depositary with respect to the underlying Class B
Shares. However, there are practical limitations on the ability of
ADR holders to exercise their voting rights due to the additional
procedural steps involved in communicating with these holders. ADR
holders may be unable to exercise voting rights with respect to our
Class B Shares underlying the ADRs as a result of these practical
limitations.
Item 4. Our Information
A.
Our
History and Development
General
Operations
We
commenced commercial operations on December 29, 1992, as the
largest company created in connection with the privatization of Gas
del Estado S.E. (
“GdE”
), the Argentine
state-owned natural gas company, whose integrated operations
included natural gas transportation and distribution. GdE was
divided into 10 companies: two transportation companies and eight
distribution companies.
Our
legal name is Transportadora de Gas del Sur S.A. We are a
sociedad anónima
,
incorporated with limited liability under Argentine law on December
1, 1992. Our registered offices are located at Don Bosco 3672, 5th
Floor, Buenos Aires (C1206ABF), Argentina, our telephone number is
(54 11) 4865-9050 and our web address is
www.tgs.com.ar
. Our contact
agent in New York is Grayling, and its telephone number is (646)
284-9416.
We are
currently the largest transporter of natural gas in Argentina,
delivering, as of December 31, 2016, 57.8% of the total natural gas
transported in Argentina, through 5,706 miles of pipeline, of which
we own 4,745 miles. We operate the remaining 961 miles, which are
owned by the Gas Trusts, for a regulated tariff. Substantially all
of our transportation capacity, approximately 2.8 Bcf/d as of
December 31, 2016, is subscribed for under firm long-term natural
gas transportation contracts. Natural gas transportation customers
with firm contracts pay for the contracted pipeline capacity
regardless of actual usage. Our natural gas transportation business
is regulated by ENARGAS, and revenues from this business
represented 28.2% and 24.0% of our total net revenues for the years
ended December 31, 2016 and 2015, respectively.
We
conduct our natural gas transportation business pursuant to the
License, which is currently scheduled to expire in 2027, extendable
for an additional 10-year period at our option if certain technical
conditions described in the License are met. ENARGAS is required at
that time to evaluate our performance and make a recommendation to
the Executive Branch. If ENARGAS determines that we are in
substantial compliance with all our obligations arising under the
Natural Gas Law, related regulations and our License, the renewal
should be granted by the Executive Branch. ENARGAS would bear the
burden of proving that we had not met the technical conditions
referred to above and, therefore, should not be granted a renewal.
To the extent that we were found not to have complied with the
obligations described above or chose not to seek renewal of our
License, we would be entitled to certain specified compensation.
See “—Certain Restrictions with Respect to Essential
Assets” below.
The
License gives us the exclusive right to operate the existing
southern Argentine natural gas transportation pipeline system. Our
natural gas transportation system connects major natural gas fields
in southern and western Argentina with both distributors and large
consumers of natural gas in those regions as well as in the greater
Buenos Aires area, the principal population center of
Argentina.
The map
below illustrates our natural gas pipeline system and the location
of our compressor plants as of December 31, 2016:
For
additional information regarding our property, plant and equipment,
see “—D. Property, Plant and Equipment”
below.
We are
also one of the largest processors of natural gas and one of the
largest marketers of Liquids in Argentina. We operate the Cerri
Complex and the associated Galván loading and storage facility
in Bahía Blanca in the Province of Buenos Aires where Liquids
are separated from natural gas transported through our pipeline
system and stored for delivery. Revenues from our Liquids
production and commercialization business represented 64.4% and
68.8% of our total net revenues during the years ended
December 31, 2016 and 2015, respectively.
We also
provide midstream integral solutions related to natural gas
production, from the wellhead up to the transportation systems. In
addition, through our subsidiary Telcosur S.A. (
“Telcosur”
), we provide
telecommunication services. Aggregate net revenues from our
midstream and telecommunications business segment represented 7.4%
and 7.2% of our total net revenues during the years ended
December 31, 2016 and 2015, respectively.
Controlling shareholders
Our
controlling shareholder is CIESA, which holds 51% of our common
stock. Other local and foreign investors hold the remaining shares
of our common stock, including FGS, which holds 23.1% of our common
stock. CIESA is under co-control of: (i) Pampa Energía, which
holds 10% of CIESA’s common stock, (ii) CIESA Trust, which
has a trust shareholding of 40% of the share capital of CIESA) and
(iii) GIP and PCT, which directly and together with WST indirectly
through PEPCA, hold a 50% of the shareholding in
CIESA.
For
additional information regarding CIESA’s current
organizational structure, see “Item 7. Major Shareholders and
Related Party Transactions. A. Major
Shareholders.”
Capital expenditures
From
January 1, 2014 through December 31, 2016, our aggregate capital
expenditures amounted to approximately Ps. 2,188.6 million. Such
capital expenditures include Ps. 35.2 million related to our
natural gas transportation system expansions, which were mostly
carried out under prepayment schemes, Ps. 871.2 million related to
improvements to our gas transportation system, Ps. 255.3 million
related to liquids production and commercialization activities and
Ps. 1,026.9 million related to other services activities.
Information relating to the size and financing of future
investments is included in “Item 5. Operating and Financial
Review and Prospects.”
For the
year 2016, other services capital expenditures by Ps. 750.4 million
were financed through a financial leasing agreement entered into
with Pampa Energía in August 2016. The objective of this
agreement was to finance the acquisition of property, plant and
equipment located in the Río Neuquén field, which will
allow us to expand our midstream services in such
area.
B.
Business
Overview
NATURAL GAS TRANSPORTATION
As a
transporter of natural gas, we receive natural gas owned by a
shipper, usually a natural gas distributor, at one or more intake
points on our pipeline system for transportation and delivery to
the shipper at specified delivery points along the pipeline system.
Under applicable law and our License, we are not permitted to buy
or sell natural gas except for our own consumption and to operate
the pipeline system. See “—Regulatory Framework”
below for more information.
Our
pipeline system connects major natural gas fields in southern and
western Argentina with distributors and other users of gas in those
areas and the greater Buenos Aires area. Transportadora de Gas del
Norte S.A. (
“TGN”
), the only other
natural gas transportation operating company that supplies the
Argentine market, holds a similar license with respect to the
northern pipeline system, which also provides natural gas
transportation services to the greater Buenos Aires
area.
Natural
gas transportation services accounted for 28.2% and 24.0% of our
total net revenues in the years ended December 31, 2016 and 2015,
respectively.
In 2016,
80.2% of our average daily natural gas deliveries were made under
long-term firm transportation contracts. See
“—Customers and Marketing” below. Natural gas
firm transportation contracts are those under which capacity is
reserved and paid for regardless of actual usage by the customer.
Almost all of our natural gas firm contracted capacity is currently
subscribed for at the maximum tariffs allowed by ENARGAS. During
2016, the amount of net revenues derived from natural gas firm
transportation contracts was approximately Ps. 1,485.1 million,
representing 71.1% of the total net revenues for the natural gas
transportation segment. Substantially all of our remaining natural
gas deliveries were made under natural gas interruptible
transportation contracts entered into predominantly with four
natural gas distribution companies, power plants and industrial
customers. Interruptible contracts provide for the transportation
of natural gas subject to available pipeline capacity. The
Government has at times directed us to interrupt supply to certain
customers and make deliveries to others without regard to whether
they have natural gas firm or interruptible contracts. See
“Regulatory Framework—Industry Structure” below
for more information.
Customers and Marketing
Our
principal service area is the greater Buenos Aires region in
central-eastern Argentina. We also serve the more rural provinces
of western and southern Argentina. As of December 31, 2016, our
service area contains 6.0 million end-users, including 4.0 million
customers in greater Buenos Aires area. Direct service to
residential, commercial, industrial and electric power generation
end-users is mostly provided by four gas distribution companies in
the area, all of which are connected to our pipeline system:
MetroGAS, BAN, Camuzzi Pampeana and Camuzzi Sur. These natural gas
distribution companies serve in the aggregate 63.1%
of the natural gas distribution
market in Argentina. The other five Argentine distribution
companies are located in and serve northern Argentina and are not
connected directly to our pipeline system.
The
table below contains certain information for 2016, as it relates to
the distribution companies that are connected to our pipeline
system:
|
|
|
No.
of End-Users
(in
millions)
|
% of
deliveries received from us
|
MetroGAS
(1)
|
224.3
|
20.5
%
|
2.4
|
77
%
|
Camuzzi Pampeana
(1)
|
169.8
|
15.5
%
|
1.3
|
98
%
|
Camuzzi
Sur
|
165.4
|
15.1
%
|
0.7
|
100
%
|
BAN
(1)
|
132.6
|
12.1
%
|
1.6
|
66
%
|
|
|
63.1
%
|
6.0
|
|
(1)
Also connected to
the TGN system.
Source
:
ENARGAS
The
firm average contracted capacity for our four largest distribution
customers, Pampa Energía and for all other customers, as a
group, as at December 31, 2016, 2015 and 2014, together with the
corresponding net revenues derived from natural gas firm
transportation services during such years and the net revenues
derived from interruptible services during such years are set forth
below:
|
For
the years ended December 31,
|
|
|
|
|
Firm:
|
Average
firm contracted capacity (MMcf/d)
|
Net
revenues (millions of pesos)
|
Average
firm contracted capacity (MMcf/d)
|
Net
revenues (millions of pesos)
|
Average
firm contracted capacity (MMcf/d)
|
Net
revenues (millions of pesos)
|
MetroGAS
|
639
|
450.6
|
752
|
268.6
|
766
|
194.9
|
Camuzzi
Pampeana
|
516
|
285.8
|
470
|
154.2
|
470
|
108.7
|
BAN
|
357
|
226.6
|
346
|
110.3
|
346
|
78.9
|
Camuzzi
Sur
|
388
|
51.9
|
381
|
36.6
|
381
|
26.3
|
Pampa
Energía
(1)
|
39
|
27.4
|
78
|
27.7
|
127
|
30.2
|
Others
|
837
|
442.8
|
805
|
213.5
|
752
|
156.1
|
Total
firm
|
2,776
|
1,485.1
|
2,832
|
810.9
|
2,842
|
595.1
|
|
|
|
|
|
|
|
Interruptible and others
:
|
|
602.1
|
|
203.1
|
|
149.0
|
Total
|
|
2,087.2
|
2,832
|
1,014
|
2,842
|
744.1
|
(1)
Until July 27,
2016, includes average firm contracted capacity and net revenues to
Petrobras Argentina. From that date, as a consequence of the merger
between Pampa Energía and Petrobras Argentina, includes the
average firm contracted capacity and net revenues corresponding to
Pampa Energía.
Upon
the expiration of firm natural gas contracts for a total amount of
169.5 MMcf/d. in 2016, we managed to enter into new contracts for
an aggregate capacity of 116,5 MMcf/d, so that firm contracted
capacity at the end of 2016 had only decreased by 53,0 MMcf/d
compared to 2015.
During
2017, contracts for firm transportation capacity for an aggregate
of 727.5 MMcf/d were automatically renewed for a term of one year.
Therefore, during 2018 and 2019, contracts for firm transportation
capacity of 1,341.9 MMcf/d and 257.8 MMcf/d, respectively will
expire. Renewing these contracts or otherwise contracting the
available capacity, especially on routes from Neuquén, where
production has declined in recent years, will be a significant
challenge for us.
Pipeline
Operations
Pipeline
Deliveries.
The
following table sets forth our average daily natural gas firm and
interruptible transportation deliveries for 2016, 2015 and
2014:
|
For the year ended December 31,
|
|
|
|
|
Firm:
|
Average daily deliveries (MMcf/d)
|
Average daily deliveries (MMcf/d)
|
Average daily deliveries (MMcf/d)
|
MetroGAS
|
544
|
615
|
590
|
Camuzzi
Pampeana
|
371
|
378
|
374
|
Camuzzi
Sur
|
240
|
247
|
254
|
BAN
|
229
|
226
|
237
|
Others
|
505
|
431
|
431
|
Subtotal firm
|
1,889
|
1,897
|
1,886
|
Subtotal interruptible
|
466
|
434
|
424
|
Total
|
2,355
|
2,331
|
2,310
|
Average annual
load factor
(1)
|
76
%
|
82
%
|
81
%
|
Average winter
heating season load factor
(1)
|
93
%
|
87
%
|
88
%
|
(1)
Average daily
deliveries for the period divided by average daily firm contracted
capacity for the period, expressed as a percentage
|
The
average temperature of the April-June 2016 quarter was the lowest
recorded over the last 50 years, and consequently residential
consumption increased significantly. Our efficient administration
of natural gas dispatch, combined with the cooperative interaction
among the different industry actors and the Government, coupled
with a more intensive maintenance plan, allowed us to operate the
pipeline in a manner that met the higher demand. ENARGAS continued
to restrict the supply of natural gas to the industrial and
generation customers in order to re -direct and target the fluid to
the users considered to be priority, mainly residential, commercial
and compressed natural gas stations. However, these restrictions
were lower as a result of the higher average injections to the
system.
We were
able to achieve this level of service due in part to several
maintenance, prevention and inspection measures. Among them, we
have conducted in-line inspections throughout 676 miles of
pipeline, using several technologies to identify, assess and
control threats to the integrity of pipelines- such as external
corrosion, material and geometrical defects, among others. In
addition, we performed direct evaluation using Close Interval
Survey (CIS) and Direct Current Voltage Gradient Survey (DCVG)
techniques throughout 583 miles of pipeline. These tasks have been
carried out to identify, assess and control threats to the
integrity of pipelines- such as external and internal corrosion,
material and geometrical defects, manufacture anomalies, among
others.
For
additional information see “—Natural Gas Transportation
System Improvements” below.
Natural Gas Transportation
System Improvements.
In 2016, 2015 and 2014, we made capital
expenditures enhancement of the natural gas transportation
system’s safety and reliability in the aggregate amount of
approximately Ps. 176.0 million. We operate our pipeline system and
the pipeline constructed pursuant to the Gas Trust in accordance
with Argentine natural gas transmission safety regulations, which
are substantially similar to U.S. federal regulations. We believe
that, based on the pipeline inspection reports we have received to
date and the pipeline repairs and/or replacements being made to the
General San Martín and Neuba I and II pipelines, the current
operation of the pipeline system poses no significant safety risks.
However, in order to identify changes in the safety regulations
that our system pipeline has to comply with, we conduct inspections
for the purpose of detecting increases in the population density in
the areas through which our pipeline system extends. Changes in
population densities may require us to increase safety measures in
certain sections of the system.
The
“greater” Buenos Aires is the surrounding area of the
City of Buenos Aires, including the City of Buenos Aires. The last
part of our natural gas transportation system (the
“
Buenos Aires
ring
”) is located in the greater Buenos Aires, where
we transfer natural gas to deliver natural gas to major natural gas
distribution companies. At the Buenos Aires ring, in the section
ranging from General Rodríguez to General Pacheco, we
conducted a thorough quantitative risk assessments and implementing
measures designed to minimize the risk in this segment, which runs
through the most densely populated part of Argentina.
During
2016, we experienced one rupture in the General San Martín
pipeline. The rupture caused a brief disruption of services to
certain customers. No casualties or significant damages to third
parties were experienced as a result of the rupture. For this
reason, we have implemented measures to ensure that the service
would not be interrupted for any
consumption center
. Except
for the rupture described above there has not been any other major
safety related incident in our system.
In
January 2016, we successfully finished recoating works on 2.5 miles
of the Neuba I pipeline near Fernandez Oro in the Province of
Río Negro. We also completed a six-kilometer recoating work
along the Southern San Martin Pipeline, San Antonio Oeste, and we
have started another 3.9 miles work north of Conesa, which is
estimated to be concluded in early 2017.
Within
the “Stress Corrosion Cracking” or “SCC”
assessment and mitigation plan, we conducted a constant strain test
along the San Martín and Neuba I pipelines (in their sections
located in the Province of Buenos Aires), which will feed our
susceptibility model and is used by us to determine whether there
is any corrosion in the pipeline. We have also performed 6 SCC
assessment pits in recoating areas, finding cracks in 3 of them.
Finally, we started the pipeline fit out processes in order to
conduct an inline inspection with “EMAT” (to detect
cracks) over 74.6 miles along the Neuba I Pipeline, a process which
was concluded in February 2017.
Additionally, based
on the analysis and planning carried out by the pipeline integrity
team, we conducted a campaign for the survey and repair of 24
external corrosion and/or geometrical failures.
Regarding Cathodic
Protection, to hinder the advance of corrosion we continued
strengthening the system with the installation of six new units and
eight anode reinforcements. We have also updated 37
remotely-operated cathodic protection units and linked them to the
SCADA system (
“Supervisory
Control and Data Acquisition”
). This optimizes the
monitoring process, saving time and resources allocated to this
critical task in our operations. In addition, regarding integrity
inspections we conducted a diagnosis plan to verify the state of
insulation coating in 280.2 miles of pipeline, and have not
detected critical failures.
With
the purpose of minimizing risks on the Buenos Aires ring section
extending from General Rodríguez to General Pacheco, the area
with greatest demographic concentration along the system, we
conducted quantitative risk assessments to assess and define the
implementation of adequate mitigation measures. We also implemented
several preventive measures, such as:
●
Filling of 6 casing
pipes in special crossings along the pipeline system to mitigate
the corrosion phenomenon;
●
Installation of 632
linear meters of pre-stressed material tiles in a sensitive
pipeline section, to strengthen protection for the facilities and
its surroundings.
●
Finalization of the
civil works for the assembling and startup of the odoriferous
unit.
Finally, we
installed earth connections in 50 cathodic protection units, to
avoid electric discharge risks for the staff.
Pipeline Expansions.
In light of the lack of expansion of the natural gas transportation
system in 2002 and 2003 and of growing natural gas demand in all
segments of the Argentine economy, the Government established in
April 2004, through Decree No. 180/04 and Resolution No. 185/04
issued by MPFIPyS, the framework for the creation of various Gas
Trusts aimed at financing the expansion of the natural gas
transportation system in a different manner from that established
in the License.
In
2005, the first Gas Trust was constituted to carry out the First
Expansion. The First Expansion, completed in August 2005, was
achieved through the construction of approximately 316 miles of
pipeline and a compression capacity increase of 30,000 HP through
the construction of a new compressor plant and the revamping of
some existing units. The Gas Trust invested approximately US$311
million, which was repaid by applying 20% of the revenues generated
by the additional firm contracted capacity plus a surcharge, which
is ultimately paid by industries, power plants and compressed
natural gas (
“CNG”
) suppliers for whom
gas transportation supply is made under firm contracts. We invested
approximately US$40 million in the First Expansion (including Value
Added Tax (
“VAT”
) in the amount of US$7
million), which was recovered through our right to collect 80% of
the revenues obtained from the additional transportation capacity
based on our
current
tariff rate (but not to the extent of certain increased rate that
may apply in the future).
In
addition, in April 2006, the MPFIPyS, the Federal Energy Bureau and
natural gas transporters, among others, signed a letter of intent
to carry out the Second Expansion (the
“Second Expansion”
) which is
significantly larger than the First Expansion. The Second Expansion
would increase the aggregate transportation capacity of our system
by 378 MMcf/d. It involves the installation of over 708 miles of
pipeline loops and 196,800 HP of additional power and the
construction of a new pipeline in the Magellan Strait (the
“New Magellan Strait
Pipeline”
), which permits the transportation of
additional natural gas from the Austral basin. As of December 31,
2016, the aggregate transportation capacity has increased by 307
MMcf/d and is operational. The New Magellan Strait Pipeline was
completed in March 2010 and is 24 miles long.
Ownership of the
works of the Second Expansion is vested in a second Gas Trust and
the investment is financed by other gas trust funds whose trustors
are the natural gas producers and the shippers that have or will
subscribe to the additional capacity. The works will be repaid with
a new tariff charge that will ultimately be paid by the business
and industrial users with firm transportation contracts, and not by
the residential users. In addition, as the assets related to the
Second Expansion become operational, we are in charge of their
operation, maintenance (together with the assets related to the
First Expansion) through an operation and maintenance agreement
(
“O&M
Agreement”
)
and the rendering of natural gas
firm transportation services. In order to compensate us for the
operation and maintenance services provided with respect to the
incremental transportation capacity associated with the expansions
carried out by the Gas Trusts and us since 2006, we are paid a
monthly CAU, which currently is lower than the transportation
tariff. The CAU has resulted in increased fees and revenues in our
natural gas transportation segment as the expansion works have
become operational.
In May
2011, we received
Valores
Representativos de Deuda
(
“debt securities”
) from the
Gas Trust, issued February 2010, which cancelled the account
receivable of Ps. 48.1 million related to services rendered for the
247 MMcf/d expansion works of the Second Expansion. These debt
securities were issued in an aggregate principal amount of Ps. 48.1
million, amortize principal in 85 consecutive and equal monthly
installments, and bear interest at the
Coeficiente de Estabilización de
Referencia
(
“CER”
), or Reference
Stabilization Ratio as published by the BCRA, plus a fixed spread
of 8% from their date of issue.
In
October 2011, we, the Federal Energy Bureau and the trustee of the
second Gas Trust agreed on the terms and conditions under which we
manage the operation of the assets associated with the Second
Expansion. As compensation for these additional services, we will
receive a total of Ps. 37 million for the 131 MMcf/d expansion
works remaining to complete the Second Expansion, in addition to
the debt securities received in May 2011. The amendment agreement
provided for an advance payment equal to the 20% of the total
remuneration, which was paid, 10% in cash and 90% in the form of
additional debt securities from the Gas Trust. The principal of
said debt securities amounted to Ps. 36.5 million (including
accrued interest) as of December 31, 2016. The securities are being
amortized in 96 monthly, consecutive and equal installments and
bear interest at CER plus a fixed spread of 8% from their date of
issue.
On July
20, 2016, Nación Fideicomisos S.A. (
“NAFISA”
) notified us of
Ministry of Energy’s decision to suspend works for the Second
Expansion. We have taken the necessary measures for the collection
of the amounts owed by NAFISA to us. Subsequently NAFISA resumed
repayment of the debt securities it issued to us for our work on
the Second Expansion. In March 2017, we received payments of Ps.
6.9 million (including principal plus interest) corresponding to
the installments for the period October 2016 to February
2017.
In
February 2017, the Ministry of Energy called for a national public
tender for the purchase of pipes, with the aim of extending the
natural gas network in certain areas of the province of Santa Fe,
the Patagonian Andes and the country’s sea coast. These four
projects will require investments totaling Ps. 4,078 million and
will reach 140,500 homes. One of this projects consists of the
construction of the
Cordillerano
natural gas pipeline,
which will be connected to our pipeline system. The expansion of
the capacity will be done from the two points that feed our system
from the field called The Zorro. We will act as managers of the
Cordillerano
project. This
project also includes the installation of the Río Senguerr
Compressor Plant, in Neuquén. As of the date of issuance of
this Annual Report, the final schedule for the construction of this
pipeline has not yet been set.
Technical Assistance
Service Agreement.
As part of its bid to purchase a 70%
interest in us from the Government, CIESA was required to have an
investor-company with experience in natural gas transmission that
would serve as our technical operator.
In late 1992, we entered into a Technical
Assistance Agreement with P
EPCA (the “
Technical Assistance Agreement
”),
an indirect, majority-owned subsidiary of Enron.
The term of the Technical Assistance Agreement was
for eight years from December 28, 1992, renewable automatically
upon expiration for an additional eight-year term and was assigned
to Petrobras Argentina S.A. as part of the Master Settlement
Agreement. Since July 2004, Petrobras Argentina S.A. has been our
technical operator and is in charge of providing assistance related
to, among others, the operation and maintenance of the natural gas
transportation system and related facilities and equipment in order
to ensure that the performance of the system is in conformity with
international natural gas transportation industry standards and in
compliance with certain Argentine environmental standards. With the
prior approval of ENARGAS and our Board of Directors, i
n
October 2014, we and Petrobras Argentina Group agreed to a
technical assistance service agreement (the
“Technical Assistance Service
Agreement”
) for a three-year term, expiring on
December 28, 2017, which substantially contains the same terms as
the Technical Assistance Agreement, as amended. Any amendment,
renewal or even termination of the Technical Assistance Service
Agreement has to be authorized by ENARGAS. Pursuant to the
Technical Assistance Service Agreement, the currency for the
technical assistance fee paid to Petrobras Argentina Group was
changed from U.S. dollars to Argentine pesos. Our Audit Committee
analyzed the Technical Assistance Service Agreement and concluded
that its price is on market terms.
On July
27, 2016, Petrobras Argentina S.A. was acquired by Pampa
Energía. For further information see, “Item 7. Major
Shareholders and Related Party Transactions. A. Major
Shareholders.”
The
Technical Assistance Service Agreement sets out the services to be
provided by Petrobras Argentina S.A. (now Pampa Energía) to
us, at the request of our Chief Executive Officer (
“CEO”
), in return for
payment of a technical assistance fee paid on a monthly basis equal
to the greater of (i) a fixed annual sum of Ps. 3 million or (ii)
7% of the amount obtained after subtracting Ps. 3 million from net
income before interests and income taxes of the year. For the year
ended December 31, 2016, we paid Pampa Energía Ps. 168.0
million for services rendered pursuant to the Technical Assistance
Service Agreement. The services to be provided by Pampa
Energía to us under the Technical Assistance Service Agreement
include assisting us in the following matters to the extent that
they arise in the ordinary course of business: (i) replacement,
repair and renovation of facilities and equipment to ensure that
the performance of the system is in accordance with international
gas transportation industry standards; (ii) preparation of
performance evaluations, operating cost analyses, construction
assessments and advice related to budget control; (iii) advice
regarding safety, reliability and efficiency of system operation
and gas industry services; (iv) advice regarding compliance with
applicable laws and regulations relating to safety and health,
pollution and environmental protection of the system; (v) routine
and preventive maintenance of the system; (vi) staff training;
(vii) design and implementation of the procedures necessary to
accomplish the aforesaid services; and (viii) design and
implementation of a management information and inspection system
for all major aspects of natural gas transportation and liquids
production.
The Argentine Natural Gas Industry
Historical
Background
.
Prior to
the privatization of GdE, the Argentine natural gas industry was
effectively controlled by the Government.
In
1992, Natural Gas Law (the “
Natural Gas Law
”) was passed
providing for the privatization of GdE. The Natural Gas Law and the
related decrees provided for, among other things, the transfer of
substantially all of the assets of GdE to two natural gas
transportation companies and eight distribution companies. The
transportation assets were divided into two systems on a broadly
geographical basis, the northern and southern trunk pipeline
systems, designed to give both systems access to natural gas
sources and to main centers of demand, including the greater Buenos
Aires area. As a result of the division, our natural gas
transportation system is connected to the two natural gas
distribution systems serving the greater Buenos Aires area, one
serving Buenos Aires Province (excluding the greater Buenos Aires
area and the northeast of this province) and one serving southern
Argentina. TGN is connected to five distribution systems serving
northern Argentina. TGN is also connected to the natural gas
distribution systems serving the greater Buenos Aires area and, to
a limited extent, the natural gas distribution system serving
Buenos Aires Province (excluding the greater Buenos Aires area). In
the two instances where we are directly connected to a natural gas
distribution system with TGN, we are the principal supplier of
natural gas transportation services.
The
Natural Gas Law and the related decrees granted each privatized
natural gas transportation company a license to operate the
transferred assets, established a regulatory framework for the
privatized industry based on open, non-discriminatory access, and
created ENARGAS to regulate the transportation, distribution,
marketing and storage of natural gas. The Natural Gas Law also
provided for the regulation of wellhead gas prices in Argentina for
an interim period. Prior to deregulation, the regulated price was
set at US$0.97 per million British thermal units (
“MMBtu”
) at the wellhead,
which had been the regulated price since 1991. Pursuant to
Presidential Decree No. 2,731/93, gas prices at the wellhead were
deregulated as of January 1, 1994 and, from that date until the
year 2002, the average price of gas increased.
In
spite of the devaluation of the peso in 2002, increases in wellhead
natural gas prices were limited until 2004. From May 2004 until
August 2005, wellhead gas prices increased in a range from 105% to
180% (depending on the gas basins) for power plants, industries and
large businesses. These adjustments were complemented by lower
increases in the price of natural gas for CNG
vehicles.
In
October 2008, the Federal Energy Bureau through Resolution No.
1,070/2008 increased natural gas at the wellhead for residential,
CNG and power station users. According to this resolution, natural
gas producers agreed to transfer all of the increase in prices
actually received less certain deductible amounts to a trust fund
established by Law No. 26,020, to allow low-income consumers with
no access to natural gas to buy LPG at a subsidized price (the
“Stabilization
Agreement”
). With Resolution No. 73/2015, the Federal
Energy Bureau, under Decree No. 470/2015, ordered the termination
of the trust approved by Resolution No. 1080/2008 with effect from
April 1, 2015. Through the Stabilization Agreement, we agreed to
supply LPG fractionation companies at a reference price, which is
substantially below market prices, certain volumes of LPG, which
are determined by the
SRH
. As compensation, we
received a fixed fee determined by the SRH.
Currently, the
natural gas wellhead prices remain regulated in most cases for
residential, power plants and CNG users.
In
recent years, the Argentine natural gas industry has experienced
rising demand, decreased supply, and lower investment in
exploration, production, transportation and distribution of natural
gas as a result of economic factors, including the economic
recovery of many industries and GDP growth since 2003, and
government restrictions on increases in the wellhead price of
natural gas and in the transportation and distribution
tariffs.
In
order to address these factors, the Government played a decisive
role in the natural gas industry through a set of measures designed
to address the combination of rising demand and lower investment in
exploration, production, transportation and distribution of natural
gas, including, among others:
●
creation of ENARSA
in 2004 for the purposes of restoring levels of reserves,
production and supply of natural gas and meeting the infrastructure
needs of the natural gas transportation and electricity
industries;
●
creation of the Gas
Plus Program (the “
Gas Plus
Program
”) in 2008, which aims to encourage producers
to make further investments in natural gas infrastructure by
allowing them to sell the resulting production of natural gas from
new fields and fields that require more expensive extraction
techniques at higher prices than the current authorized prices. In
2010, the Government increased the price paid to natural gas
producers who invest in new fields, shale and tight natural gas
under the Gas Plus Program;
●
hiring of two
re-gasifying LNG tankers through ENARSA, in Bahía Blanca
(2008) and Escobar (2011), to inject natural gas into the pipeline.
The tanker located at Bahía Blanca is connected to our
pipeline, and the tanker at Escobar is connected to TGN’s
pipeline;
●
establishment of a
framework for the constitution of Gas Trusts to finance natural gas
pipeline expansions;
●
the passage of Law
No. 26,741, which declares that hydrocarbons self-sufficiency,
as well as their production, industrialization, transport and
marketing, are activities of public interest and primary goals of
Argentina, empowering the Government to take the necessary measures
to achieve such goals;
●
importation of
natural gas from Bolivia and Chile, which has increased
significantly over the past two years; and
●
creation of tariff
charges to be paid by all consumers other than residential
consumers in order to finance natural gas and electricity
expansions and the import of natural gas.
In
January 2013, in order to encourage the production of natural gas,
the Commission of Planning and Strategic Coordination of the
National Hydrocarbon Investments Plan (the
“Commission”
) created by
Decree No. 1277/12, issued Resolution No. 1/2013.
This resolution creates
the
N
atural Gas Surplus
Injection Promotion Program, which aims to evaluate and approve
projects contributing to the national self-supply of hydrocarbons
through a natural gas production increase and its infusion into the
domestic market, as well as to generate higher levels of activity,
investment and employment in this sector.
Projects included
in the N
atural Gas Surplus
Injection Promotion Program will receive
preferential
payment terms, allowing a price on additional injection of US$7.5
per million of British Term Unit (
“MMBtu”
). The new price for
the additional natural gas injected into the pipelines will be
funded with funds from the Argentine National Treasury on a monthly
basis. The Commission must approve the proposed production
increase.
On
March 31, 2014, the Federal Energy Bureau issued Resolution No.
226/2014
to
implement a Program for the Rational Use of Natural Gas
.
This Resolution provides a new tariff scheme according to cubic
meter consumption and the basin or region of the country.
The program
encourages a reduction in consumption by
providing different
prices for those commercial and residential users that effectively
reduce consumption.
By
Decree No. 272/2015 of the Executive Branch dated December 29,
2015, the Commission was dissolved and the functions and powers of
federal jurisdiction were transferred to the Ministry of Energy.
Meanwhile the provincial authorities preserve the powers that
correspond to their jurisdictions.
On
March 16, 2016, the Ministry of Energy enacted Resolution No.
24/2016 which delegates to the SRH the following functions, among
others:
●
Resolving appeals
filed against ENARGAS resolutions;
●
Acting as the
enforcement authority of Laws No. 17,319 and 26,020;
●
Managing the
investment projects included in the framework of the programs
created under Decree No. 1,277/2012, modified by Decree No.
272/2015; and
●
Acting as the
enforcement authority regarding import and export of
fuels.
During
2016, the Ministry of Energy issued Resolutions No. 28/2016
(
“Resolution
28”
) and No. 31/2016 (
“Resolution 31”
). These
resolutions: (i) increased the price of natural gas at the supply
point (
“PIST”
)
and the tariffs for the transportation and distribution of natural
gas, and (ii) instructed ENARGAS to carry out the RTI process. The
new prices have been in force since April 1, 2016.
Resolution 28 also
established a social tariff regime to subsidize tariffs for the
poverty-stricken sectors of the community. The beneficiaries under
this regime must register with the Argentine government and meet
certain criteria established by the
Ministry of
Energy
.
In addition, on March
30, 2017 the
Ministry of Energy
enacted
Resolution No. 74/2017 (
“Resolution 74”
)
, which increased the
price of the natural gas consumed by power plants starting on April
1, 2017.
These
resolutions were subject to several legal actions questioning their
validity and on August 18, 2016, the National Supreme Court of
Justice (hereinafter, the
“Supreme Court”
) issued a
decision: (i) requiring compulsory public hearings prior to the
establishment of new natural gas transportation and distribution
tariffs, (ii) requiring compulsory public hearings prior to the
establishment of a new point-of-injection gas price, and (iii)
invalidating Resolutions 28 and 31 with respect to residential
users, for whom the tariffs effective as of March 31, 2016 were
required to be restored.
On
August 19, 2016 ENARGAS issued Resolution No. 3953/2016, mandating
the holding of the required public hearing, which was held from
September 16 to 18 of 2016 (
“September 2016 Public
Hearing”
) to consider the following: (i) determination
of the new PIST price (ii) establishment of the transitory tariffs
for transportation and distribution of natural gas, to be effective
until new tariffs are set by the RTI process, (iii) establishment
of new prices for the distribution of undiluted propane gas through
networks (
“Propane for
Networks Agreement”
) and (iv) rate adjustments are to
be implemented in April and October of each year, until the total
elimination of subsidies in 2019, at which time it is expected that
prices are expected to reach market prices.
After
the September 2016 Public Hearing, the Ministry of Energy issued
Resolution N° 212 – E/2016 (
“Resolution 212”
) through
which among
other things:
●
Fixes the natural gas prices in PIST;
●
establishes that the total amount of natural gas prices in PIST
shall not exceed certain limits according to the type of
customer;
●
maintains the social tariff for the protection of the
socio-economically most vulnerable sectors;
●
establishes the new propane prices for the distribution under the
Propane Networks Agreement, settling at Ps. 800/Tn for Residential
Users and General Service P1 and P2, and Ps. 2,100/Tn for General
Service P3 users.
●
Provides that adjustments will be implemented in the months of
April and October of each year, until the total elimination of the
subsidies in 2019, at which point PIST is expected to reach market
prices.
In
January 2017, the Government announced that certain new benefits
will be implemented in order to increase oil and natural gas
production. This announcement is aimed at attracting local and
foreign investments with an emphasis in the
Vaca Muerta
formation of the
Neuquén basin. The announcements included:
●
An agreement with unions to amend current existing collective
bargaining agreements for the sector.
●
The elimination of the obligation of repatriation of funds due to
oil and gas exports currently regulated by Decree No.
1,722/11.
●
The creation of a program, the Investment in Natural Gas Production
from Non-Conventional Reservoirs Stimulus Program, which
establishes a support price for the volume
of non-conventional natural gas production from
concessions located in the Neuquina basin included in the program.
This program will be effective until December 31, 2021 and includes
a sliding-scale schedule for the minimum price to be paid per
MMBtu: US$7.50 for 2018, US$7.00 for 2019, US$6.50 for 2020 and
US$6.00 for 2021; and
●
The elimination of export duties applicable to oil and gas exports,
which became effective as from January 7, 2017.
Natural Gas Demand.
Natural gas consumption in Argentina has played a significant role
in the energy industry in recent years, reaching more than 50% of
total national energy consumption, which is greater than the
comparable percentage for worldwide energy consumption. The
graphics below illustrate the increase and breakdown of natural gas
consumption in Argentina in 2003 and 2016 by type of
consumer:
Source
:
ENARGAS
Beginning in 2003,
a sharp increase in natural gas demand occurred as a consequence
of: (i) the recovery of certain industries in the Argentine economy
since 2003, (ii) the 2002 devaluation of the peso and pesification
of transportation and distribution tariffs and the elimination of
both tariff and wellhead gas price adjustments, making this fuel
relatively inexpensive for consumers as compared to other types of
fuel the prices of which are affected by inflation, and (iii) the
growth of GDP between 2003 and 2013. As a result, natural gas
became, by far, the cheapest fuel in Argentina and high rates of
substitution of natural gas for other fuels in industry, power
plants and vehicles have been observed. Likewise, the rising demand
for gas has also been based on the recovery of many industrial
segments of the Argentine economy, and the lack of availability of
natural gas to meet current demand represents a challenge for
continued industrial growth at the rates achieved in recent
years.
The
following table sets forth local natural gas consumption by type of
consumer since 2003
:
References
:
(1)
Includes:
distribution users, commercial by-pass, by-pass physical and off
system users.
(2)
Includes
subdistributors.
(3)
Includes shrinkage
natural gas (
“TRP”
) from the Cerri
Complex, which is included in Others.
(4)
Includes
governmental bodies.
Source
: ENARGAS, based on data
from the Licensees and off system users.
The
demand for natural gas in Argentina is highly seasonal, with
natural gas consumption peaks in winter. The source of seasonal
changes in demand is primarily residential consumers. In order to
bridge the gap between supply and demand, especially with respect
to peak-day winter demand, the Government has entered into several
natural gas import agreements. The most important agreement was
signed with the Bolivian government in June 2006 and amended in May
2010 and July 2012. The agreement provides for the import of
natural gas from Bolivia to Argentina to be managed by ENARSA. To
deal with the drop in domestic natural gas production and in an
effort to maintain supplies at similar levels to the previous
years. The Government slightly decreased imports from Bolivia from
579.2 MMcf/d in 2015 to 554.4 MMcf/d in 2016, with a maximum volume
of around 765.3 MMcf/d in 2016.
In
addition, between May and September 2016, re-gasified LNG was
imported from Chilean terminals, which contributed an annual
average of 120.1 MMcf/d to TGN’s transportation
system.
In
addition, in recent years, injections of natural gas from LNG
tankers have played an important role in satisfying the growing
natural gas demand during the coldest months of the year. Natural
gas injection from the LNG re-gasification tankers located in
Bahía Blanca and Escobar. During 2016, the natural gas
injected decreased to 466.1 MMcf/d from an average of 533.2 MMcf/d
in 2015. ENARGAS has assigned to us the responsibility of
controlling the operation and maintenance of certain new facilities
constructed to connect the regasification ship at Bahía Blanca
to our existing transportation pipeline.
Gas Supply.
For the
most part, Argentina’s natural gas reserves were discovered
as a result of exploration for oil reserves. There are 19 known
sedimentary basins in the country, 10 of which are located entirely
onshore, six of which are combined onshore/offshore and three of
which are entirely offshore. Production is concentrated in five
basins: Noroeste in northern Argentina, Neuquén and Cuyo in
central Argentina, and Golfo San Jorge and Austral in southern
Argentina. In 2016, 44.6% of the natural gas transported by our
system originated in the Neuquina basin with the remainder coming
primarily from the Austral basin and the re-gasifying LNG tanker
located in Bahía Blanca. Our pipeline system is connected to
the Neuquina, Austral and Golfo San Jorge basins. We are not
connected to the Cuyo or Noroeste basins. Set forth in the table
below is the location of the principal natural gas producing basins
by province, their proved natural gas reserves estimated as of
December 31, 2015 and 2014 (the most recent years for which
information is available), production in 2015 and 2014 and the
calculated reserve life for each basin:
Basin
|
|
Location by province
|
Proved Gas
Reserves(Bcf)
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
Neuquén
|
|
Neuquén,
Río Negro, La Pampa, Mendoza (south)
|
5,526.2
|
5,221.0
|
869.8
|
820.0
|
6
|
6
|
Austral
|
|
Tierra del Fuego,
Santa Cruz (south), and offshore
|
4,270.1
|
1,695.0
|
340.9
|
187.0
|
13
|
9
|
Golfo San
Jorge
|
|
Chubut, Santa Cruz
(north)
|
1,716.0
|
3,867.0
|
201.8
|
354.0
|
9
|
11
|
Cuyo
|
|
Mendoza
(north)
|
25.7
|
27.0
|
1.9
|
2.0
|
13
|
14
|
Noroeste
|
|
Salta, Jujuy,
Formosa
|
839.2
|
920.0
|
100.7
|
115.0
|
8
|
8
|
Total
|
|
|
12,377.2
|
11,730.0
|
1,515.2
|
1,478.0
|
8
|
8
|
(1)
Estimated as of December 31, 2015 and 2014,
respectively. There are numerous uncertainties inherent in
estimating quantities of proved natural gas reserves. The accuracy
of any reserve estimate is a function of the quality of available
data, and engineering and geological interpretation and judgment.
Results of drilling, testing and production after the date of the
estimate may require substantial upward or downward revisions.
Accordingly, the reserve estimates could be materially different
from the quantity of natural gas that ultimately will be
recovered.
(2)
Reserve figures do
not include significant reserves located in certain Bolivian basins
to which TGN is connected.
(3)
Weighted average
reserve life for all basins, at the 2015 or 2014 production levels,
respectively.
Source
: Ministry of Energy.
In
2015, total natural gas production went up to 42,904 million cubic
meters, representing a 3.3% increase with respect to the volumes
produced in 2014. This inter annual increase has been the first
since 2006, when it had increased by 0.7%. Between 2007 and 2013,
the decrease rate was around 3% and this decline was restrained in
2014 when it fell only by 0.5%. On the other hand, in 2016, natural
gas production increased by 4.9% compared to 2015.
In
order to increase the existing natural gas reserves from the
Neuquina basin, in July 2013, YPF announced the execution of an
agreement with Chevron to develop oil and gas shale deposits in
this province. During 2014, YPF continued negotiating with oil
companies to reach new partnership agreements that will provide
technology and capital resources for the exploitation of new
reserves. In December 2014, YPF signed agreements with Petronas to
invest US$ 550 million and in January 2015, YPF and SINOPEC signed
a memorandum of understanding aimed at eventually collaborating to
develop oil-and-gas projects.
In
December 2015, YPF and Dow Argentina S.A., a subsidiary of Dow
Chemical Co., announced an investment of US$ 500 million in 2016
for shale gas exploration in Argentina. Both companies, which have
already invested $350 million in a joint shale gas venture, said in
a statement that total investment could reach US$ 2.5 billion in
coming years. The joint venture is the leading shale gas project of
its kind in Argentina, with daily production of about 2 million
cubic meters.
Neuquina Basin.
The largest natural gas
basin and the major source of natural gas supply for our system is
the Neuquina basin, located in west central Argentina. However, in
recent years, its proved natural gas reserves have been decreasing
sharply as a result of exploration and exploitation, and new gas
reserves have not been found in order to replace the natural gas
produced. In December 2010, new non-conventional natural gas was
discovered in the Neuquina basin by YPF. This new natural gas
reserve is at the early stages of its exploitation, which will
require approximately three to four years, and involve high
investments and extraction costs. In recent years, as mentioned
above, in order to increase the existing natural gas reserves from
the Neuquina basin, YPF announced the signing of certain agreements
to develop oil and natural gas shale deposits in the province of
Neuquén. In addition, YPF continues negotiating with oil
companies to reach new partnership agreements that will provide
technology and capital resources for the exploitation of new
reserves.
If
brought on-line, this newly discovered reserve could potentially
help offset the continued decline of the existing production of the
Neuquina basin. The TGN system also accesses the Neuquina basin. Of
the transported natural gas coming from the Neuquina basin,
approximately 55.3% was transported by us and approximately 44.7%
by TGN for the year ended December 31, 2016.
Austral and Golfo San Jorge Basins
.
Natural gas provided by these basins, located in the southern
region of Argentina, was transported mainly by us (Camuzzi Sur also
transports natural gas through regional pipelines). In the Austral
basin, exploration has centered in and around the basin’s
existing natural gas fields and on other fields located offshore.
The Golfo San Jorge basin is primarily an oil-producing
basin.
Under
the framework enacted by the Government to promote investments
after the issuance of Decree No. 929/2013, in 2014, a joint
operation was formed by Wintershall, Total and PAE for the
investment of approximately US$ 1,000 million in off-shore gas
fields (Vega Pleyade) located in the Tierra del Fuego region. In
August 2016, the companies started up production at this field
which will have a production capacity of 353.1 MMcf/d.
In
addition, ENAP Sipetrol, YPF and ENARSA signed an agreement to
explore and develop offshore fields in the continental shelf of
Argentina.
The map
below illustrates the distribution of the gas basins in
Argentina:
Regulatory Framework
Industry
Structure
.
The legal
framework for the transportation and distribution of natural gas in
Argentina comprised of the Natural Gas Law, Decree No. 1,738/92,
other regulatory decrees, the
Pliego, the transfer agreements
and the licenses of the newly privatized companies. The
Hydrocarbons Law regulates the midstream natural gas industry,
under a competitive and partially deregulated system. The Public
Emergency Law and related laws and regulations have had the
practical effect of significantly altering the regulatory regime
under which we have operated since 2002. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to Our
Business.”
Natural
gas transportation and distribution companies operate in an
“open access,” non-discriminatory environment under
which producers and certain third parties, including distributors,
are entitled to equal and open access to the transportation
pipelines and distribution system in accordance with the Natural
Gas Law, applicable regulations and the licenses of the privatized
companies. In addition, a regime of concessions under the
Hydrocarbons Law is available to holders of exploitation
concessions to transport their own natural gas
production.
The
Natural Gas Law prohibits natural gas transportation companies from
also being merchants in natural gas. Also, (i) natural gas
producers, storage companies, distributors, and consumers who
contract directly with producers may not own a controlling interest
(as defined in the Natural Gas Law) in a transportation company;
(ii) natural gas producers, storage companies and transporters may
not own a controlling interest in a distribution company, and (iii)
merchants in natural gas may not own a controlling interest in a
transportation or distribution company.
Contracts between
affiliated companies engaged in different stages in the natural gas
industry must be approved by ENARGAS, which may reject these
contracts if it determines that they were not entered into on an
arm’s-length basis.
ENARGAS, which was
established by the Natural Gas Law, is an autonomous entity
responsible for enforcing the provisions of the Natural Gas Law,
the applicable regulations and the licenses of the privatized
companies. Under the provisions of the Natural Gas Law, ENARGAS is
required to be governed by a board of directors composed of five
full-time directors appointed by the Executive Branch subject to
confirmation by the National Congress. However, from 2004 to 2007,
ENARGAS was governed by three directors who were not confirmed by
the National Congress, and, since 2007, ENARGAS has been
administered by an intervention inspector appointed by the
Executive Branch for consecutive 180-day terms. After several
renewals, the Executive Branch extended its intervention of ENARGAS
and appointed a sub-inspector who continues to function in this
position, the last of which was ruled through Decree No. 844/2016
on July 17, 2016.
ENARGAS
has broad authority to regulate the operations of the
transportation and distribution companies, including the ability to
set rates pursuant to the Public Emergency Law. ENARGAS has its own
budget which must be included in the Argentine national budget and
submitted to the Federal Congress for approval. ENARGAS is funded
principally by annual control and inspection fees that are levied
on regulated entities in an amount equal to the approved budget,
net of collected penalties, allocated proportionately to each
regulated entity based on its respective gross regulated revenues,
excluding natural gas purchase and transportation costs in the case
of distribution companies. ENARGAS also collects the fines imposed
for violations of the Natural Gas Law.
Since
2004, the Government adopted a series of measures to redistribute
the effects of the crisis in the energy sector caused by the
natural gas shortage. Most of the electrical power stations do not
have firm gas supply agreements and have increasingly used imported
natural gas or alternative fuels that are more expensive than
natural gas produced in Argentina. For this reason, ENARGAS and the
Federal Energy Bureau have issued a series of regulations aimed at
averting a crisis in the internal system of natural gas
supply.
The
Executive Branch issued Decree No. 181/04, directing the Federal
Energy Bureau to establish a system of priority pursuant to which
power stations and natural gas distribution companies (for their
residential clients) could receive natural gas in priority to other
users, even those with firm transportation and firm gas supply
contracts. On April 21, 2004, MPFIPyS issued Resolution No. 208/04
that ratified an agreement between the Federal Energy Bureau and
natural gas producers to give effect to this new
system.
Under
certain circumstances and pursuant to the terms of our License,
when ENARGAS asks us to restrict the provision of natural gas to
clients who hold firm transportation contracts, we are exposed to
potential claims from, among others, our customers. Therefore, we
have requested that in connection with these new procedures,
ENARGAS submit to us written instructions for any such natural gas
firm transportation service interruption request. However, if
ENARGAS does not accept our petition and we do not comply with
ENARGAS’s instructions, if any, in order to avoid future
claims from our customers, Resolution No. 208/04 will require us to
pay the price difference between natural gas and the alternative
fuel used by power stations in order to offset the loss resulting
from our failure to comply with the instructions.
At the
end of May 2007, due to the rising demand for natural gas resulting
from unusually low temperatures throughout the country, ENARGAS and
the Federal Energy Bureau utilized their authority under Resolution
208/04 for the first time. ENARGAS honored our petition, and
submitted written instructions to us. We complied with these
instructions and do not believe that our compliance will result in
legal action by any of our firm transportation clients, which legal
action, if brought, could have a significant adverse economic and
financial effect on us. As of the date of this Annual Report, only
one client (Profertil S.A.) has brought legal actions against us,
in respect of service interruptions that occurred in 2009, 2010 and
2011. In this action, ENARGAS ruled in our favor alleging that the
interruptions were due to the shortage of natural gas.
In
October 2010, ENARGAS issued Resolution No. 1,410/2010, which set
new rules for natural gas dispatch applicable to all participants
in the natural gas industry and imposed new and more severe
priority demand gas restrictions on producers. Through this
resolution, ENARGAS has the ability to redirect natural gas
transportation in order to give priority to residential
consumption.
Although the
natural gas supply shortage did not create a bottleneck in the
transportation capacity that prevented the system from meeting
increasing demand since 2008, the Government continues to impose
restrictions from time to time on the consumption of natural gas by
certain customers that hold firm transportation contracts with us,
in an effort to redirect and target the supply to the demand
regarded as top priority, mainly residential users, CNG stations
and industries connected to the distribution network. Such
restrictions have affected direct shippers who have firm
transportation contracts with us, as well as industries in
different distribution areas of the country.
We do
not believe that our compliance will result in legal action by any
of our natural gas firm transportation clients. However, any legal
action, if brought, could have a significant adverse economic and
financial effect on us. See “Item 3 Key Information—D.
Risk Factors.”
Our License.
Our
License authorizes us to provide the public service of natural gas
transportation through the exclusive utilization of the southern
natural gas transportation system. Our License does not grant us an
exclusive right to transport natural gas in a specified
geographical area and licenses may be granted to others for the
provision of gas transportation services in the same geographical
area. TGN’s natural gas transportation system is comprised of
two transmission pipes, the North pipeline and Central western
pipeline, and is operated under a license containing substantially
similar terms to those described below and elsewhere
herein.
Our
License also places certain other rights and obligations on us
relating to the services we provide. These include:
●
operating and
safety standards;
●
terms of service,
including general service conditions such as specifications
regarding the quality of gas transported, major equipment
requirements, invoicing and payment procedures, imbalances and
penalties, and guidelines for dispatch management;
●
contract
requirements, including the basis for the provision of service,
e.g., “firm” or
“interruptible”;
●
mandatory capital
investments to be made over the first five years of the license
term; and
●
applicable rates
based on the type of transportation service and the area
serviced.
Our
License establishes a system of penalties in the event of a breach
of our obligations thereunder, including warnings, fines and
revocation of our License. These penalties may be assessed by
ENARGAS based, among other considerations, upon the severity of the
breach or its effect on the public interest. Fines of up to Ps.
500,000 may be levied for any breaches. Revocation of our License
may only be declared by the Executive Branch upon the
recommendation of ENARGAS. Our License specifies several grounds
for revocation, including the following:
●
repeated failure to
comply with the obligations of our License and failure to remedy a
significant breach of an obligation in accordance with specified
procedures;
●
total or partial
interruption of the service for reasons attributable to us,
affecting completely or partially transportation capacity during
the periods stipulated in our License;
●
sale, assignment or
transfer of our essential assets or otherwise encumbering such
assets without ENARGAS’s prior authorization, unless such
encumbrances serve to finance expansions and improvements to the
gas pipeline system;
●
bankruptcy,
dissolution or liquidation; and
●
ceasing and
abandoning the provision of the licensed service, attempting to
assign or unilaterally transfer our License in full or in part
without the prior authorization of ENARGAS, or giving up our
License, other than in the cases permitted therein.
Our
License also prohibits us from assuming debt of, or granting credit
to, CIESA, and creating security interests in favor of, or granting
any other benefit to, creditors of CIESA.
Generally, our
License may not be amended without our consent. As part of the
renegotiation of our license under the Public Emergency Law,
however, the terms of our License may be changed or our License may
be revoked. In addition, ENARGAS may alter the terms of service
annexed to our License. If any such alteration were to have an
economic effect on us, ENARGAS should modify our rates to
compensate for such effect or we could request a change in the
applicable rates.
Regulation of
Transportation Rates—Actual Rates.
The natural gas transportation
rates established for each transportation company must be
calculated in U.S. dollars and converted into pesos at the time of
billing. However, the Public Emergency Law eliminated
tariff indexing covenants based on U.S. dollar
exchange rate fluctuations and established a conversion rate of one
peso equal to one U.S. dollar for tariffs.
The
rate for natural gas firm transportation services consists of a
capacity reservation charge and is expressed as a maximum monthly
charge based on the cubic meters per day of reserved transportation
capacity. The rate for natural gas interruptible transportation
service, which is expressed as a minimum (from which no discounts
are permitted) and a maximum rate per 1,000 m
3
of natural gas
transported, is equivalent to the unit rate of the reservation
charge for the firm service based on a load factor of 100%. For
both firm and interruptible transportation services, customers are
obligated to provide a natural gas in-kind allowance, expressed as
a maximum percentage of gas received, equivalent to the natural gas
consumed or lost in rendering the transportation service. The rates
for all services reflect the rate zone(s) traversed from the point
of receipt to the point of delivery.
The
tables below shows our local natural gas firm and interruptible
rates by pipeline and zones, in effect between May 1, 2015 and
March 31, 2016 after the issuance of Resolution No. 3347/15 and
since April 1, 2016 (applicable for all kind users except for
residential) and October 7, 2016 (applicable for all of our
customers) after the issuance of Resolution 3724 and No. 4054/2016
(
“Resolution
4054”
):
From May 1, 2015 to March 31, 2016
|
|
Firm
|
Interruptible
|
|
Rate
Zones
|
Reservation Charge
(1)
(Ps.m
3
/d)
|
Minimum
Charge
(2)
(Ps.1,000
m
3
)
|
Compression
Fuel and Losses
(3)
(%)
|
Receipt
|
Delivery
|
|
|
|
|
|
|
|
|
From
Tierra del Fuego to:
|
Tierra
del Fuego
|
0.131975
|
4.399134
|
0.49
|
|
Santa
Cruz Sur
|
0.266133
|
8.871204
|
0.98
|
|
Chubut
Sur
|
0.678868
|
22.628940
|
3.38
|
|
Buenos
Aires Sur
|
0.799800
|
26.659990
|
5.60
|
|
Bahía
Blanca
|
1.225104
|
40.836798
|
8.40
|
|
La
Pampa Norte
|
1.220760
|
40.691977
|
8.60
|
|
Buenos
Aires
|
1.433385
|
47.779485
|
10.35
|
|
Greater
Buenos Aires
|
1.608257
|
53.608587
|
11.27
|
From
Santa Cruz Sur to:
|
Santa
Cruz Sur
|
0.133755
|
4.458469
|
0.49
|
|
Chubut
Sur
|
0.545894
|
18.196467
|
2.89
|
|
Buenos
Aires Sur
|
0.667085
|
22.236149
|
5.11
|
|
Bahía
Blanca
|
1.094595
|
36.486487
|
7.91
|
|
La
Pampa Norte
|
1.094399
|
36.479918
|
8.11
|
|
Buenos
Aires
|
1.303557
|
43.451887
|
9.86
|
|
Greater
Buenos Aires
|
1.478968
|
49.298969
|
10.78
|
From
Chubut to:
|
Chubut
Sur
|
0.132655
|
4.421810
|
0.49
|
|
Buenos
Aires Sur
|
0.248731
|
8.290891
|
2.71
|
|
Bahía
Blanca
|
0.663275
|
22.109043
|
5.51
|
|
La
Pampa Norte
|
0.696439
|
23.214493
|
5.71
|
|
Buenos
Aires
|
0.862256
|
28.741753
|
7.46
|
|
Greater
Buenos Aires
|
1.028073
|
34.269013
|
8.38
|
From
Neuquén to:
|
Neuquén
|
0.117873
|
4.041345
|
0.49
|
|
Bahía
Blanca
|
0.572524
|
19.078504
|
2.80
|
|
La
Pampa Norte
|
0.616671
|
20.550184
|
3.15
|
|
Buenos
Aires
|
0.775363
|
25.839833
|
3.91
|
|
Greater
Buenos Aires
|
0.949709
|
31.713533
|
4.86
|
From
Bahía Blanca to:
|
Bahía
Blanca
|
0.132654
|
4.421810
|
0.49
|
|
La
Pampa Norte
|
0.033164
|
1.105450
|
0.20
|
|
Buenos
Aires
|
0.198980
|
6.632710
|
1.95
|
|
Greater
Buenos Aires
|
0.364798
|
12.159971
|
2.87
|
(1) Monthly
charge for every cubic meter per day of reserved transportation
capacity.
(2) Minimum
charge equal to the unit rate of the firm reservation charge at a
100% load factor.
(3)
Maximum percentage
of total transported gas which customers are required to replace
in-kind to make up for gas used by us for compressor fuel or losses
in rendering transportation services.
Note: The gross receipts tax is not included in such transportation
rates
Source
: ENARGAS
Resolution No. 3347
Since April 1, 2016
|
|
Firm
|
Interruptible
|
|
Rate
Zones
|
Reservation Charge
(1)
(Ps.m
3
/d)
|
Minimum
Charge
(2)
(Ps.1,000
m
3
)
|
Compression
Fuel and Losses
(3)
(%)
|
Receipt
|
Delivery
|
|
|
|
|
|
|
|
|
From
Tierra del Fuego to:
|
Tierra
del Fuego
|
0.396058
|
13.201800
|
0.49
|
|
Santa
Cruz Sur
|
0.798666
|
26.622484
|
0.98
|
|
Chubut
Sur
|
2.037282
|
67.909449
|
3.38
|
|
Buenos
Aires Sur
|
2.400200
|
80.006630
|
5.60
|
|
Bahía
Blanca
|
3.676537
|
122.551231
|
8.40
|
|
La
Pampa Norte
|
3.663501
|
122.116622
|
8.60
|
|
Buenos
Aires
|
4.301588
|
143.386234
|
10.35
|
|
Greater
Buenos Aires
|
4.826380
|
160.879368
|
11.27
|
From
Santa Cruz Sur to:
|
Santa
Cruz Sur
|
0.401399
|
13.379866
|
0.49
|
|
Chubut
Sur
|
1.638228
|
54.607597
|
2.89
|
|
Buenos
Aires Sur
|
2.001922
|
66.730682
|
5.11
|
|
Bahía
Blanca
|
3.284880
|
109.495948
|
7.91
|
|
La
Pampa Norte
|
3.284290
|
109.476235
|
8.11
|
|
Buenos
Aires
|
3.911976
|
130.399113
|
9.86
|
|
Greater
Buenos Aires
|
4.438382
|
147.946205
|
10.78
|
From
Chubut to:
|
Chubut
Sur
|
0.398098
|
13.269851
|
0.49
|
|
Buenos
Aires Sur
|
0.746441
|
24.880963
|
2.71
|
|
Bahía
Blanca
|
1.990488
|
66.349237
|
5.51
|
|
La
Pampa Norte
|
2.090013
|
69.666693
|
5.71
|
|
Buenos
Aires
|
2.587629
|
86.254000
|
7.46
|
|
Greater
Buenos Aires
|
3.085246
|
102.841307
|
8.38
|
From
Neuquén to:
|
Neuquén
|
0.353737
|
12.128076
|
0.49
|
|
Bahía
Blanca
|
1.718143
|
57.254592
|
2.80
|
|
La
Pampa Norte
|
1.850629
|
61.671103
|
3.15
|
|
Buenos
Aires
|
2.326864
|
77.545340
|
3.91
|
|
Greater
Buenos Aires
|
2.850076
|
95.172312
|
4.86
|
From
Bahía Blanca to:
|
Bahía
Blanca
|
0.398096
|
13.269853
|
0.49
|
|
La
Pampa Norte
|
0.099524
|
3.317455
|
0.20
|
|
Buenos
Aires
|
0.597139
|
19.904763
|
1.95
|
|
Greater
Buenos Aires
|
1.094759
|
36.492072
|
2.87
|
(1) Monthly
charge for every cubic meter per day of reserved transportation
capacity.
(2) Minimum
charge equal to the unit rate of the firm reservation charge at a
100% load factor.
(3)
Maximum percentage
of total transported gas which customers are required to replace
in-kind to make up for gas used by us for compressor fuel or losses
in rendering transportation services.
Note: The gross receipts tax is not included in such transportation
rates
Source
: ENARGAS
Resolution. 3724
The
table below shows our local natural gas firm and interruptible
rates by pipeline and zones, in effect since April 1, 2017
following the issuance of Resolution 4362:
Since April 1, 2017
|
|
Firm
|
Interruptible
|
|
Rate
Zones
|
Reservation Charge
(1)
(Ps.m
3
/d)
|
Minimum
Charge
(2)
(Ps.1,000
m
3
)
|
Compression
Fuel and Losses
(3)
(%)
|
Receipt
|
Delivery
|
|
|
|
|
|
|
|
|
From
Tierra del Fuego to:
|
Tierra
del Fuego
|
0.650525
|
21.683927
|
0.49
|
|
Santa
Cruz Sur
|
1.311808
|
43.727372
|
0.98
|
|
Chubut
Sur
|
3.346231
|
111.541121
|
3.38
|
|
Buenos
Aires Sur
|
3.942323
|
131.410716
|
5.60
|
|
Bahía
Blanca
|
6.038705
|
201.290128
|
8.40
|
|
La
Pampa Norte
|
6.017293
|
200.576284
|
8.60
|
|
Buenos
Aires
|
7.065348
|
235.511576
|
10.35
|
|
Greater
Buenos Aires
|
7.927318
|
264.244011
|
11.27
|
From
Santa Cruz Sur to:
|
Santa
Cruz Sur
|
0.659297
|
21.976401
|
0.49
|
|
Chubut
Sur
|
2.690787
|
89.692859
|
2.89
|
|
Buenos
Aires Sur
|
3.288153
|
109.605000
|
5.11
|
|
Bahía
Blanca
|
5.395408
|
179,846855
|
7.91
|
|
La
Pampa Norte
|
5.394439
|
179.814476
|
8.11
|
|
Buenos
Aires
|
6.425412
|
214.180259
|
9.86
|
|
Greater
Buenos Aires
|
7.290033
|
243.001319
|
10.78
|
From
Chubut to:
|
Chubut
Sur
|
0.653875
|
21.795701
|
0.49
|
|
Buenos
Aires Sur
|
1.226027
|
40.866927
|
2.71
|
|
Bahía
Blanca
|
3.269373
|
108.978477
|
5.51
|
|
La
Pampa Norte
|
3.432841
|
114.427392
|
5.71
|
|
Buenos
Aires
|
4.250176
|
141.672007
|
7.46
|
|
Greater
Buenos Aires
|
5.067510
|
168.916622
|
8.38
|
From
Neuquén to:
|
Neuquén
|
0.581012
|
19.920338
|
0.49
|
|
Bahía
Blanca
|
2.822047
|
94.040542
|
2.80
|
|
La
Pampa Norte
|
3.039654
|
101.294653
|
3.15
|
|
Buenos
Aires
|
3.821870
|
127.368051
|
3.91
|
|
Greater
Buenos Aires
|
4.681244
|
156.320314
|
4.86
|
From
Bahía Blanca to:
|
Bahía
Blanca
|
0.653875
|
21.795701
|
0.49
|
|
La
Pampa Norte
|
0.163469
|
5.448915
|
0.20
|
|
Buenos
Aires
|
0.980803
|
32.693530
|
1.95
|
|
Greater
Buenos Aires
|
1.798138
|
59.938145
|
2.87
|
(1) Monthly
charge for every cubic meter per day of reserved transportation
capacity.
(2) Minimum
charge equal to the unit rate of the firm reservation charge at a
100% load factor.
(3)
Maximum percentage
of total transported gas which customers are required to replace
in-kind to make up for gas used by us for compressor fuel or losses
in rendering transportation services.
Note: The gross receipts tax is not included in such transportation
rates
Source
: ENARGAS
Resolution. 4362
In
addition to the tariffs above, we are entitled to a CAU. Since its
inception in 2005, the CAU was increased, by 73.2% as from May 1,
2015, and by 200.1% as from April 1, 2016 by ENARGAS. The CAU
represented approximately 58%
of the tariff in force until March
31, 2017 and will represent 25% of the tariff in force since
December 1, 2017, is paid by clients that required the additional
transportation capacity or who financed their expansions by means
of advance payments, and is set by ENARGAS. In 2016, we recognized
revenues of Ps. 215.8 as a result of the CAU. The first installment
of the tariff increase granted by Resolution 4362 did not include
any adjustment of the CAU. Given the permanent increase of
operational and maintenance costs throughout the years, which now
exceed the amount of the CAU, we filed a claim against the National
Government to obtain the adjustment of the values and ensure a fair
compensation for the service it renders
.
We expect to receive two increases in
the CAU, in December 2017 and April 2018, for an aggregate increase
equivalent to an increase of 37% effective in full as from April 1,
2017. See Item 4. “Our Information—B. Business
Overview—Natural Gas Transportation—Pipeline
Operations—Pipeline Expansions.”
We
expect that once the renegotiation of our License is concluded, we,
CIESA and its former and current shareholders, will be required to
withdraw all the legal claims filed against the Argentine
Government in order to obtain the adjustment of the
CAU.
The Public Emergency Law
and Renegotiation Agreement.
The Public Emergency Law
granted the Executive Branch power to renegotiate contracts entered
into with private utility companies, pursuant to the framework
included in the Public Emergency Law. The Public Emergency Law has
been extended until December 31, 2017.
In July
2003, UNIREN was created under the joint jurisdiction of the MEF
and MPFIPyS. This unit was empowered to reach total or partial
agreements with the licensees and submit proposals regulating the
transitory adjustment of tariffs and prices, among other things. No
progress was made in our renegotiation process until December
2003.
Since
2003, multiple proposals from UNIREN, with varying levels of tariff
increase, have been discussed. On October 9, 2008, we signed the
2008 Transitional Agreement with UNIREN that contemplated a tariff
increase of 20%, which would be retroactively applicable to
September 1, 2008. For additional information regarding the tariff
Renegotiation Process, see
“Item 3. Key Information—D. Risk
Factors—Risks Relating to Our Business— Our License has
been subject to renegotiation pursuant to the Public Emergency Law.
Failure or delay to negotiate further improvements to our tariff
structure, and/or to have our tariffs adjusted to reflect increases
in our costs in a timely manner or at all, has affected our
financial condition and results of operations and could also have a
material adverse effect on them.”
On
December 19, 2014 due to the delay in implementing the provisions
of Decree No. 1918/09, we filed administrative claims under the
terms of Article 30 of the National Administrative Procedures Act
to the Government, claiming damages for the failure to implement
the retroactive increase provisions of the 2008 Transitional
Agreement for the period between September 1, 2008 and March 31,
2014 and the lack of adjustment of the CAU. This process is still
ongoing.
Under
the framework of the Public Emergency Law and 2008 Transitional
Agreement, ENARGAS issued Resolutions No. I-2852 and No. 3347
containing new tariff schedules that increase the tariff applicable
to natural gas firm and interruptible transportation. This
transitional tariff increase represents the first increase that we
have received since 1999. Resolutions No. I-2852 and 3347 include
the following increases, respectively:
●
A
stepped increase of 8% as from April 1, 2014, 14% accumulated since
June 1, 2014 and 20% accumulated since August 1, 2014.
●
As
from May 1, 2015, a transitional increase of 44.3% in the price of
the natural gas transportation service and 73.2% in the
CAU.
In
October 2011, we received from UNIREN a proposal for the 2011
Integral Renegotiation Agreement, which we accepted and signed
after approval by our Board of Directors. However, because we did
not receive response from UNIREN, on December 29, 2014 we filed a
preliminary administrative appeal to the Government under the terms
of section 30 of the National Administrative Procedures Act seeking
damages for the failure to implement the Integral Renegotiation
Agreement. This procedure is still ongoing
.
In
October 2015,
we signed the 2015
Integral Renegotiation Agreement with UNIREN to incorporate
Resolution No. 3347.
On
February 16, 2016, the Executive Branch issued Decree No. 367/2016,
establishing the dissolution of UNIREN and transferring to each
ministry the responsibility to renegotiate public service
agreements. In addition, it sets the guidelines to complete the
process of renegotiating those contracts for which no integral
renegotiation agreements have been reached. In our case, the
assumption of UNIREN duties will be by the Ministry of Energy
together with the MH.
For
this purpose, relevant ministries are empowered jointly with the MH
to conclude integral renegotiation agreements to rebuild the
financial economic equation of the contracts, ending the process of
contract renegotiation initiated in 2002.
Decree
No. 367/2016 also states that the new tariff scheme provided in the
respective Integral Renegotiation Agreement approved by the
Executive Branch will only be finalized once the RTI is completed,
and provides that transitional adjustment of prices and tariffs are
necessary to ensure the continuity of the normal provision of
services. These transitional adjustments have been made in advance
of future increases allowed by the integral renegotiation
agreements.
Under
the framework of the 2016 Transitional Agreement on March 31, 2016
ENARGAS issued Resolution 3724, which approved revised tariffs as
of April 1, 2016, including the CAU, for the Natural Gas
Transportation business segment, providing for a 200.1 % increase.
The increase was granted
to cover costs and
investments associated with the regular provision of the public
service of natural gas transportation until the Integral
Renegotiation Agreements are finalized,
and must be
considered on account of the tariffs that will be in effect once
the RTI is concluded.
As
several legal proceedings were initiated against Resolution 31, we
were not able to bill the 200.1% increase in full (for more
information, see Item 3. “C. Risk Factors—Risks
Relating to Argentina—
Our
License has been subject to renegotiation pursuant to the Public
Emergency Law. Failure or delay to negotiate further improvements
to our tariff structure, and/or to have our tariffs adjusted to
reflect increases in our costs in a timely manner or at all, has
affected our financial condition and results of operations and
could also have a material adverse effect on them
.”)
In 2016, the negative effect of this delay in adjustments was
estimated at Ps. 423 million.
Moreover, the
Increase was also associated with the implementation of the
Investment Plan, which is overseen by the ENARGAS. The Investment
Plan was being carried out with certain delays due to the
impossibility on our part to timely invoice the entire Increase in
accordance with the provisions of Resolution 3724.
Several
legal proceedings were initiated to obtain the annulment of the
increase of the PIST and the tariff increases for the natural gas
transportation and distribution licensees decided by the ENARGAS.
On August 18, 2016, the Supreme Court order issued its final
decision mandating the Government to: (i) compulsory implement
public hearings prior to the establishment of natural gas
transportation and distribution tariffs, (ii) compulsory implement
public hearings prior to the establishment of the
point-of-injection gas price, and (iii) the invalidity of
Resolutions 28 and 31 with respect to residential users, for whom
tariffs had to be taken back to values effective as of March 31,
2016.
On the
other hand, on August 19, 2016 ENARGAS issued Resolution No.
3953/2016, which implemented the decisions arising out of the
Public Hearing with the Supreme Court. For additional information
regarding the Public Hearing’s agenda, see
“Item 4. Our
Company
—
B. Business
Overview
—
Natural Gas
Transportation
—
The
Argentine Natural Gas Industry.”
As a
result of this hearing, since October 7, 2016, we were able to
collect the revised tariffs at the levels provided for in
Resolution 3724.
On
March 30, 2017, we entered into the 2017 Transitional Agreement. On
the same day and consistent with the 2017 Transitional Agreement,
ENARGAS issued Resolution 4362 by which:
●
The RTI process ,
which will culminate in the signing of the integral agreement, was
approved. As a result of this RTI, a new tariff schedule was also
approved. However, according to the provisions of Resolution 74,
the Ministry of Energy has limited the tariff increase arising from
the RTI process. Accordingly, a new transitional tariff schedule in
force as of April 1, 2017, which contemplates a rate increase of
64.2%, has been approved, but no increases for the CAU have been
approved at this stage.
Resolution 74
provides that the remaining tariff increases resulting from the RTI
will be granted as from December 1, 2017 (40% of the total
increase) and April 1, 2018 (30% of the total increase). According
to said resolution, the ENARGAS should consider the corresponding
financial impact of the delay in the implementation of the tariff
increase.
●
A staged tariff
increase of 214.2% and 37% in the transportation tariffs and CAU
(which will be structured to provide the same economic benefits to
us as if the increases had been fully effective April 1, 2017),
respectively, was approved.
●
We are bound to
comply with the Five-Year Plan.
●
Prior to the
approval of the 2017 Integral Renegotiation Agreement signed by us
on March 30, 2017, expenditures to be made pursuant to the
Five-Years Plan shall reach 10% of the Five-Years Plan total
amount.
●
A non-automatic
six-month adjustment mechanism for the natural gas transportation
tariff was approved. This adjustment must be approved by ENARGAS
and for its calculation, the evolution of the WPI published by
INDEC will be considered.
As a
consequence of the delay in the implementation of the Increase, as
mentioned above, we were unable to comply with the Investment Plan
in accordance with Resolution 3724. A portion of the investments
corresponding to the Investment Plan will be made simultaneously
with investments required to be made pursuant to the Five-Year
Plan. At the date of this Annual Report, we are in the process of
obtaining ENARGAS’s approval of the works already executed
pursuant to the Investment Plan.
In
addition to the conclusion of the 2017 Transitional Agreement, we
have signed the 2017 Integral Renegotiation Agreement pursuant to
which the RTI process will conclude. The 2017 Integral
Renegotiation Agreement is pending approval by the Ministry of
Energy, MH, T
he Office of the Attorney
for the National Treasury, The General Office of the Comptroller
and
the Argentine Congress
.
Once these governmental approvals are
obtained, the Executive Branch must issue a decree to make the
agreement effective.
The
Government has conditioned its approval of the 2017 Integral
Renegotiation Agreement, to the abandonment by us and by our
present and former shareholders of any claims resulting from the
Public Emergency Law against the Government related to our
business, including the ICSID Claim (as such term is defined
below).
In
2003, Enron Corp. (“
Enron
”), a former indirect
shareholder of
Compañía
de Inversiones de Energía S.A
. (“
CIESA
”), which is our controlling
shareholder, and Ponderosa Assets L.P. (
“Ponderosa”
and, together
with Enron, the
“Claimants”
) filed a claim
with the ICSID against the Government under the Bilateral
Investment Treaty between the United States and Argentina (the
“
ICSID Claim
”).
The ICSID Claim argues that the pesification of tariffs and other
unilateral changes to our regulatory structure affected by the
Public Emergency Law and related laws and decrees violate the
requirement of fair and equitable treatment under the treaty. On
May 22, 2007, ICSID decided in favor of Enron and ordered the
Government to pay US$ 106.2 million to the Claimants. In July 2010,
a
n ICSID committee annulled the award
rendered in 2007 and ordered the Claimants to reimburse the
Government the total amount of the annulment award costs. This
annulment does not prevent the plaintiff from filing a new claim
before the ICSID. On October 18, 2010, Enron Creditors Recovery
Corp. (Enron’s new corporate name) and Ponderosa filed a new
claim against the Government before the ICSID. In June 2011, a
tribunal to hear the case was constituted.
The continued
pursuit of the ICSID Claim, among other things, can adversely
affect the timing and/or terms of any renegotiated tariff structure
applicable to our natural gas transportation activities. By
agreement of the disputing parties, the ICSID Claim has been
suspended until July 15, 2017.
In
January 2011,
Pampa Energía
S.A.
acquired, among other assets: (i) PEPCA S.A., (formerly
EPCA S.A.) (
“PEPCA
”) along with
Enron’s and Ponderosa’s economic rights to monitor,
suspend and withdraw the ICSID Claim and (ii) from Ashmore Energy
International Limited (“
AEI
”), the CIESA Notes and the two
derivative transactions originally executed between CIESA and J.
Aron & Company on August 3, 2000 and between CIESA and Morgan
Guaranty Trust Company of New York on August 4, 2000.
On
March 11, 2011, Pampa entered into a call option agreement with the
Claimants in order to acquire the rights to monitor, suspend and
withdraw the ICSID Claim. On October 6, 2011, we granted a loan for
US$26 million to Pampa to enable it to purchase the rights to
monitor, suspend and withdraw the ICSID Claim. In 2015, we acquired
Pampa’s rights over the ICSID Claim (the “
Rights of the Arbitration
Proceeding”
) from Pampa after certain conditions set
forth in the loan agreement were met.
We
acquired rights over the ICSID Claim pursuant to a provision in our
loan agreement with Pampa, which entitled us to receive the rights
as prepayment of the loan if we verified that the 2008 Transitional
Agreement had been adequately put into effect. This condition was
met with the enactment of Resolutions No. I-2852 and No. 3347. Our
rights over the ICSID Claim include the powers to suspend, monitor
and withdraw from arbitration proceedings.
The
acquisition of the Rights of the Arbitration Proceeding was
implemented through the transfer to a trust established abroad, of
which we are the beneficiary.
At the
date of issuance of this Annual Report, as agreed with the
Government, the Arbitration Proceeding is suspended until July 15,
2017.
For
more information, see
“Item
3.D. Risk Factors – Our License has been subject to
renegotiation pursuant to the Public Emergency Law. Failure or
delay to negotiate further improvements to our tariff structure,
and/or to have our tariffs adjusted to reflect increases in our
costs in a timely manner or at all, has affected our financial
condition and results of operations and could also have a material
adverse effect on them.”
Adjustment of
Tariffs
.
Under our
License, we may be permitted to adjust tariffs semi-annually to
reflect changes in PPI and every five years in accordance with
efficiency and investment factors to be determined by ENARGAS and,
subject to ENARGAS’ approval, from time to time to reflect
cost variations resulting from changes in the tax regulations
(other than income tax) applicable to us, and for objective,
justifiable and non-recurring circumstances.
The
Natural Gas Law requires that in formulating the rules that apply
to the setting of future tariffs, ENARGAS must provide the
transportation companies with (i) an opportunity to collect
revenues sufficient to recover all future proper operating costs
reasonably applicable to service, as well as future taxes and
depreciation, and (ii) a reasonable rate of return, determined in
relation to the rate of return of businesses having comparable risk
and taking into account the degree of efficiency achieved and the
performance of the company in providing the service. No assurances
can be given that the rules to be promulgated by ENARGAS will
result in rates that will enable us to achieve specific earnings
levels in the future.
However, since
January 1, 2000, adjustments to tariffs to reflect PPI variations
were suspended, first through an agreement with the Executive
Branch and later by a court decision arising from a lawsuit to
determine the legality of tariff adjustments through
indexes.
Resolution 4362
provides for a semiannual adjustment mechanism based on changes in
the WPI. The increase is not automatic, however, as it requires the
prior approval of the ENARGAS.
Certain Restrictions with
Respect to Essential Assets.
A substantial portion of the
assets transferred by GdE were defined in our License as essential
to the performance of the licensed natural gas transportation
service. Pursuant to our License, we are required to segregate and
maintain the essential assets, together with any future
improvements thereon, in accordance with certain standards defined
in our License.
We may
not for any reason dispose of, encumber, lease, sublease or lend
essential assets for purposes other than the provision of the
licensed service without ENARGAS’s prior authorization. Any
extensions or improvements that we make to the natural gas pipeline
system may only be encumbered to secure loans that have a term of
more than one year to finance such extensions or
improvements.
Upon
expiration of our License, we will be required to transfer to the
Government or its designee the essential assets specified in our
License as of the expiration date, free of any debt, encumbrance or
attachment, receiving compensation equal to the lower of the
following two amounts:
●
the net book value
of the essential assets determined on the basis of the price paid
by CIESA for shares of our common stock plus the original cost of
subsequent investments carried in U.S. dollars in each case
adjusted by the PPI, net of accumulated depreciation in accordance
with the calculation rules to be determined by ENARGAS (since the
enactment of the Public Emergency Law, this provision may no longer
be valid); or
●
the net proceeds of
a new competitive bidding (the
“New Bidding”
).
Once
the period of the extension of the License expires, we will be
entitled to participate in the New Bidding, and thus, we shall be
entitled to:
●
submit a bid
computed at an equal and not lower price than the appraisal value
determined by an investment bank selected by ENARGAS, which
represents the value of the business providing the licensed service
at the valuation date, as a going concern and without regard to the
debts;
●
obtain a new
license, without payment, in the event that any bid submitted in
the New Bidding exceeds the appraisal value;
●
match the best bid
submitted by third parties in the New Bidding, if it would be
higher than our bid mentioned above, paying the difference between
both values to obtain a new license;
●
if we have
participated in the New Bidding but are unwilling to match the best
bid made by a third party, receive the appraisal value as
compensation for the transfer of the essential assets to the new
licensee, with any excess paid by the third party remaining for the
grantor.
Under
Argentine law, an Argentine court will not permit the enforcement
of a judgment on any of our property located in Argentina which is
determined by the courts to provide essential public services. This
may adversely affect the ability of a creditor to realize a
judgment against our assets.
Under a
transfer agreement we entered into in connection with the
privatization of GdE in the 1990s (the
“Transfer Agreement”
),
liabilities for damages caused by or arising from the GdE assets
are allocated to either GdE or us depending on whether any such
damage arose or arises from the operation of the assets prior to or
following the commencement of our operations. Also, pursuant to the
Transfer Agreement, we are responsible for any defects in title to
such assets, although any such defects are not expected to be
material. The Transfer Agreement further provided that GdE was
responsible for five years until December 1997 for the registration
of easements related to the system, which were not properly
recorded, and for the payment to property owners of any royalties
or fees in respect thereof. Since 1998, we have been responsible
for properly recording any remaining easement agreements and for
making payments of royalties or fees related to such easements. See
“Item 8. Financial Information.”
Competition
Our
natural gas transportation business faces only limited direct
competition. Although there are no regulatory limitations on entry
into the business of providing natural gas transportation services
in Argentina, the construction of a competing pipeline system would
require substantial capital investment and the approval of ENARGAS.
Moreover, as a practical matter, a direct competitor would have to
enter into agreements with natural gas distribution companies or
end-users to transport a sufficient quantity of gas to justify the
capital investment. In view of our current firm transportation
contracts with our distribution company customers, and the other
characteristics of the markets in which we operate, management
believes that it would be very difficult for a new entrant to the
natural gas transportation market to pose a significant competitive
threat to us, at least in the short to intermediate term. In the
longer term, the ability of new entrants to successfully penetrate
our market would depend on a favorable regulatory environment, an
increasing and unsatisfied demand for gas by end-users, sufficient
investment in downstream facilities to accommodate increased
delivery capacity from the natural gas transportation systems and
the finding of significant natural gas reserves.
To a
limited extent, we compete with TGN on a day-to-day basis for
natural gas interruptible transportation services and from
time-to-time for new natural gas firm transportation services made
available as a result of expansion projects to the natural gas
distribution companies to whom both we and TGN are either directly
or indirectly connected (Camuzzi Pampeana, MetroGAS and BAN). We
compete directly with TGN for the transportation of natural gas
from the Neuquén basin to the greater Buenos Aires
area.
The
cost of natural gas relative to competing fuels may also affect the
demand for transportation services in the long term. The delivered
cost of gas to end-users in Argentina, based on energy content, is
currently significantly lower than other alternative fuels, except
for hydroelectric power.
In
addition, the Government has implemented a number of projects to
encourage the exploration and development of new natural gas
reserves, or secure alternative supplies of natural gas, in recent
years. See “Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—the Argentine
Natural Gas Industry.” For example, the Northeast pipeline is
a project, led by the Government, which will connect the Bolivian
natural gas basins with the northeastern region of Argentina and
the greater Buenos Aires region. In recent years, the Government
has carried out, albeit with some delays, the development of the
expansion works.
In 2008
and 2010, the Government, through ENARSA, finalized the
construction of liquefied natural gas regasification ports in
Bahía Blanca and Escobar, respectively, which are intended to
supplement the natural gas supply deficit.
In
March 2010,
the
governments of Argentina and Bolivia signed an addendum to the
agreement entered into by both countries in 2006, with the purpose
of achieving a 706 MMcf/d increase in natural gas imports, which
has been implemented in stages since 2010. This agreement is
expected to expire in 2026.
LIQUIDS PRODUCTION AND COMMERCIALIZATION
Our
Liquids production and commercialization activities are conducted
at our Cerri Complex, which is located near the city of Bahía
Blanca in the Province of Buenos Aires. In the Cerri Complex,
ethane, LPG and natural gasoline are extracted from natural gas,
which arrives through our three main pipelines from the Neuquina
and Austral natural gas basins. The owners of the extracted Liquids
are required to make in-kind deliveries of additional natural gas
to replace their attributable share of natural gas shrinkage, fuel
and losses associated with the extraction of liquids from natural
gas. The results of our Liquids production and commercialization
segment are subject to risks associated with commodity price
changes. We do not currently hedge against commodity price
risk.
Historically, we
have operated our Liquids business under two different types of
contractual arrangements:
●
Liquids production and
commercialization for our own account:
Under this type of
arrangement, we own the Liquids products obtained at our Cerri
Complex. We purchase natural gas in order to replace thermal units
consumed in the liquids production process. These natural gas
purchases are negotiated with certain natural gas distributors,
traders and producers. This category of our liquids business is
most important in terms of revenue, percentage of transactions and
profit.
●
Liquids production and
commercialization on behalf of third parties
: We also
process natural gas and market the Liquids products in exchange for
a commission based on a percentage of the sale price. In some
cases, we process the natural gas and deliver the Liquids products
to the natural gas producers who pay us a percentage of the average
monthly sale price obtained from our sales in the domestic and/or
international markets (depending on the contract).
During
2016 we sold approximately 96.4% of the total volume of Liquids for
our own account.
Our
sales of liquids in the domestic market are regulated until April
1, 2015 by the Stabilization Agreement and the export parity prices
set monthly by the Ministry of Energy pursuant to Law No. 26,020
and related regulations. The Stabilization Agreement was replaced
by a new framework for selling LPG bottles (the “
New Program
”). As was the case
under the Stabilization Agreement, under the New Program the
Federal Energy Bureau regulates the price and the quantity of LPG
sold in the domestic market by each LPG producer. For more
information, see “Regulation—Domestic Market”
below.
We sell
our LPG exports to Geogas Trading (
“Geogas”
), under an export
agreement entered into on October 1, 2016, following a private
bidding process. The contract provides for monthly sales of
approximately 25,353 short tons of propane and 11,023 short tons of
butane at the price quoted in Mont Belvieu, Texas, plus a fixed
charge per metric ton. The contract expires on April 30, 2017. For
the period October 2017 through April 2018, we will submit a new
bid with customers for a new agreement to replace the existing one.
For the period from May through September of each year, our sales
will take place mainly in the domestic market, due to restrictions
on natural gas processing and to governmental requirements to
supply the domestic market.
In
January 2016, we reached a one-year agreement with Petróleo
Brasileiro S.A. for the delivery of 110,230 short tons at
international prices minus a discount per sold ton. Selling prices
are set taking into consideration the NWE ARA price, less a fixed
discount per metric ton.
As of
the date of this Annual Report, we are negotiating with Shell
Trading US Company to reach an agreement, expected to be in effect
until January 2018, for sale of natural gasoline. For the period
January – April 2017, we have made spot sales to this client,
also at a price based on an international reference price less a
fixed discount per metric ton.
Truck
exports to neighboring countries have also grown. The countries
with which we operate under this scheme are Chile, Paraguay and
Brazil. Although volumes exported using this modality are lower
than exports by sea, they allow us to obtain a larger profit
margin.
Regarding ethane
sales, in spite of unfavorable international prices and higher
competition to sell the product, in 2016 we managed to close an
agreement with PBB for a one-year term from May 1, 2016 to May 1,
2017, after having operated under short- term agreements from
January to April at the beginning of the year. The new agreement
creates a certainty scenario during its term of effectiveness, as
PBB is the only ethane client. The current agreement includes,
among other conditions, TOP and DOP commitments for minimum annual
quantities of 308,644 short tons per year, which is a lower than
the TOP quantities included in the 2015 ethane agreement with PBB.
If either of the parties does not comply with the TOP or DOP
conditions, as applicable, that party is required to compensate the
other party for the breach of the minimum annual quantities
commitment. During 2016 and 2015, PBB did not comply with its TOP
commitments and compensated us for such breach.
Our
Liquids production and commercialization segment also comprises
storage and dispatch by truck and subsequent shipment of the
liquids extracted at the Cerri Complex to facilities located in
Puerto Galván. LPG and natural gasoline are transported via
two eight-inch pipelines to the loading terminal at Puerto
Galván. Ethane is piped via an eight-inch pipeline to the PBB
olefins plant, which is the sole outlet for ethane from the Cerri
Complex. Any ethane extracted at the Cerri Complex that cannot be
sold to PBB is reinjected into the pipeline.
Our
Liquids production and commercialization segment has increased as a
percentage of our total revenues from 19.0% in 2001 to 64.7% in
2016, as a consequence of the adverse change in the regulated
natural gas transportation segment, and the increases in the
international prices of LPG and natural gasoline, which generated
higher revenues principally from exports. Since the last quarter of
2014, international prices of LPG have declined significantly, in
tandem with the decline in oil prices. However, as mentioned below,
in December 2014 and February 2015, the export tax regime was
modified to mitigate such decline in international prices. Since
January 7, 2017, due to the fact that the Argentine government did
not extend the validity of the retentions tax regime, the exports
we make are not subject to any retention.
On the
other hand, average propane and butane international prices
recorded an inter-annual increase of 6.6% and 7.4%, respectively,
whereas natural gas prices recorded a 16.5% drop, showing progress
throughout the year. The above is a result of the regularization of
inventories and the improvement in oil prices by the end of the
year (as a result of the decisions adopted by the OPEC countries
and other producing countries to decrease production to recover
prices). Thus, average international prices variations between
December 2016 and December 2015 were of 65.7%, 72.4% and 19.6% for
propane, butane and natural gas, respectively.
In
2016, our export revenues from the Liquids production and
commercialization segment were Ps. 1,437.9 million and represented
19.4% (22.2% for 2015) of our total net revenues and 30.1% (32.3%
for 2015) of our liquids production and commercialization revenues.
Additionally, the total volume of sales from Liquids was 1,004,993
short tons, and the volume of sales from Liquids exports was
348,842 short tons, representing 34.7% of our total liquids sales
volumes. These export volume also include sales made on behalf of
third parties. Export revenues from our liquids production and
commercialization segment command a price premium, which has
declined after the decrease in international prices, as compared to
our domestic market sales, primarily as a result of government
regulation of domestic prices and high prices and demand for
Liquids on the international markets.
The
annual sales of the Cerri Complex for 2016, 2015 and 2014 in short
tons were as follows:
|
|
|
|
Ethane
|
305,861
|
306,097
|
330,960
|
Propane
|
345,577
|
346,910
|
355,524
|
Butane
|
244,814
|
261,872
|
254,307
|
Natural
Gasoline
|
108,741
|
118,229
|
97,196
|
Total
|
1,004,992
|
1,033,109
|
1,037,987
|
Our
management anticipates that new oil and natural gas developments in
Argentina will provide new opportunities in the liquids production
and commercialization business and lead to related increases in
revenues from our natural gas transportation and Liquids production
and commercialization businesses.
Regulation
Liquids
production and commercialization activities are not subject to
regulation by ENARGAS. However, in recent years, the Government has
enacted regulations that significantly affect our Liquids
production activities.
Domestic market
We are
not able to freely select the markets to which we will allocate LPG
production. As we are effectively required to meet the minimum
domestic demand before exporting significant amounts of LPG, we
forego sales to foreign markets, where the prices for some products
are higher than those established for local consumers in
Argentina.
As
noted above, our sales of LPG in the domestic market were regulated
until April 1, 2015 by the Stabilization Agreement and related
regulations. Under this framework, the Ministry of Energy caused
LPG suppliers to guarantee sufficient supply of LPG in the domestic
market. Law No. 26,020 creates a price regime pursuant to which the
Ministry of Energy periodically publishes reference prices for LPG
sold in the domestic market. It also sets forth LPG volumes to be
sold in the domestic market.
The
Stabilization Agreement was initially intended to expire on
December 1, 2009. However, since that date, there have been several
annual amendments to the agreement. T
he last amendment signed on April
29, 2014 and ratified through Resolution No. 532/2014 of the
Federal Energy Bureau,
provided that the Stabilization
Agreement remained in force until March 31, 2015.
Under
the Stabilization Agreement, butane bottles were sold at a fixed
price below the market price, with a quota assigned to each
producer. The lower price was partially offset by a subsidy paid to
producers by a trust fund created for this purpose by Law No.
26,020. The trust fund was funded by: (i) penalties established by
Law No. 26,020; (ii) assignments from the General State Budget; and
(iii) funds that may be assessed by the Federal Energy
Bureau.
On April 7, 2015,
Resolution No. 73 of the Federal Energy Bureau terminated the
trust fund. As a result,
on March 30, 2015, the Executive
Branch issued Decree No. 470/2015, regulated by Resolution No.
49/2015 issued by the Federal Energy Bureau. Both replaced
Stabilization Agreement, creating the New Program. As was the case
under the Stabilization Agreement, under the New Program the
Ministry of Energy regulates the price and the quantity of LPG sold
in the domestic market by each LPG producer. On April 3, 2017, the
SRH issued Resolution No. 56-E/2017, which sets the new reference
prices and the compensation received by us to sell LPG under the
New Program. Under the New Program, we are required to supply
certain volumes of butane to LPG bottlers, designated by the
Ministry of Energy, at a price lower than the market price, and we
are later compensated by the Government. For the period between
2011 and April 2015, the specified price was Ps. 570 per ton; for
the period between April 2015 and March 2017, Ps. 650 per ton; and
since April 2017, Ps. 2,568 per ton. The compensation received from
the Ministry of Energy is currently set at Ps. 550 per ton, which
has been the compensation amount since April 2015.
Participation in
the New Program requires us to produce and market the LPG volumes
required by the Ministry of Energy at prices significantly below
the market. This requirement prevents us from covering production
costs, even after giving effect to the subsidy payments that we
receive under the agreement, creating a negative operating margin.
We have initiated several actions with the Government in order to
prevent the current situation of selling products with negative
operating margins from continuing for an extended period.
O
n June 3, 2015, we
filed a motion for reconsideration against the provisions of the
Federal Energy Bureau regarding volumes of LPG that must be
provided in 2015 under the New Program
. In addition, on
August 18, 2015 we filed a lawsuit to overturn resolutions No.
49/15 and 70/15. In March 2016, we filed a petition to request that
the Government decide on its jurisdiction on this
issue.
Since
the Propane Networks Agreement was signed between the Government
and producers of LPG, including us, in 2003, we have complied with
our commitments under this agreement. Pursuant to the Propane
Networks Agreement, which has undergone several extensions, the
Ministry of Energy fixed prices and procedures by which it
compensates participating companies. The compensation received is
calculated as the difference between the sales price established
for the domestic market and the GLP-export parity price published
monthly by the Ministry of Energy. The compensation is calculated
on a monthly basis.
On
March 16, 2015, the Federal Energy Bureau replaced the method for
calculating the propane and butane export parity price applicable
to propane and butane sales not included in the New Program and the
Propane for Networks Agreement, through Resolution No. 36/2015. The
previous method had been in place since June 28, 2005 pursuant to
Resolution No. 792/05. The new calculation method came into effect
on April 1, 2015.
On
October 6, 2016, the Ministry of Energy enacted resolution 212
which establishes the new propane prices for the distribution under
the Propane for Networks Agreement, settling at Ps. 800/Tn for
Residential Users and General Service P1 and P2, and Ps. 2,100/Tn
for General Service P3 users. On March 30, 2017, Resolution 74 set
propane prices as follows: Ps. 1,267/Tn for Residential Users and
General Service P1 and P2 users, and Ps. 2,832/Tn for General
Service P3 users.
As
payment of certain outstanding receivables related to the Propane
for Networks Agreement as of December 31, 2015, on October 5, 2016
we received Argentine National Bonds denominated in U.S. dollars at
an 8% annual interest rate, with maturity in 2020 (
“BONAR 2020”
). As of the
date of the issuance of this Annual Report, we are conducting the
necessary proceedings to collect the Propane for Networks Agreement
compensations that have not been paid by the Argentine government,
yet.
On
March 14, 2017, the Ministry of Energy issued Resolution No.
34/2017 authorizing the payment of Ps. 91.6 million for our
participation in the Propane for Networks Agreement, corresponding
to the compensation owed from January to March and May to October
2016. At the date of issuance of this Annual Report, we have not
received such payment. The unpaid amount of compensation related to
the Propane Networks Agreement and the New Program totaled Ps.
178.5 million as of March 31, 2017.
On
December 3, 2008, through Decree No. 2,067/08, the Executive Branch
created a trust to finance natural gas imports to be injected into
the natural gas pipeline system. The trust is funded, among other
means, through the creation of a charge to be paid by (i) the users
of the transportation and/or distribution regulated services; (ii)
natural gas consumers receiving gas directly from producers without
using natural gas transportation or distribution systems; and (iii)
the natural gas processing companies. Certain entities, including
us, were selected to receive a subsidy for the payment of the
charge starting in December 2008. However, in November 2011,
ENARGAS issued the Gas Charge Resolutions that modified the list of
the subsidy beneficiaries, and thus, involved a charge increase for
many of our clients, and specifically for our consumption for our
own account. The charge increased from Ps. 0.049 to Ps. 0.405 per
cubic meter of natural gas effective from December 1, 2011,
representing a significant rise of the variable costs of natural
gas processing. See “Item 5. Operating and Financial Review
and Prospects—A. Operating Results—Discussion of
Results of Operations for the Two Years Ended December 31, 2015 and
2014.”
In
order to avoid the damage that would result from the implementation
of this effective 727% increase in the cost for natural gas
consumption for liquids producers, including us, we initiated legal
actions challenging the application of the Executive Branch decree
and the Gas Charge Resolutions against the Government, ENARGAS and
MPFIPyS as defendants, and have obtained a preliminary injunction
stopping the implementation of the charge against us pending a
determination on the merits of the case. See “Item 8.
Financial Information—A. Consolidated Statements and Other
Financial Information—Legal and Regulatory
Proceedings.”
On
March 28, 2016, the Ministry of Energy issued Resolution 28, which
instructs ENARGAS to take all the necessary measures to reduce to
zero the tariff charge created by Decree No. 2,067/08.
International market
Disposition 168/05 of the former Undersecretary of Fuels requires
companies intending to export LPG to first obtain an authorization
from the Ministry of Energy. Companies seeking to export LPG must
first demonstrate that the local demand is satisfied or that an
offer to sell LPG to local demand has been made and
rejected.
Since
2002, LPG and natural gasoline exports have been subject to a
withholding tax on exports. In May 2004, the effective tax rate for
LPG exports was increased from 4.76% to 16.67%. On May 24, 2007, it
was increased to 20%.
Since
the issuance of Resolution No. 127/08 by the MEF, in March 2008, a
variable export tax regime has been in force for natural gasoline,
propane and butane, respectively. During 2014, until the enactment
of Resolutions No. 1,077/2014 and 60/2015, the minimum effective
tax rate was 31.03% when international prices were lower than
US$1,028, US$663 and US$678 per metric ton (or US$932, US$601 and
US$615 per short ton, respectively). If international prices exceed
these amounts, the marginal tax rate applicable to the excess is
100%. Because of this export tax regime, we were unable to obtain
post-tax prices of more than US$709, US$457 and US$468 per metric
ton (or US$643, US$415 and US$424 per short ton, respectively) of
natural gasoline, propane and butane, respectively. Due to
international prices, the average effective tax rate for 2014 was
33.7%, 32.8% and 31.5% for natural gasoline, propane and butane,
respectively.
On
December 30, 2014, the MEF issued Resolution No. 1,077/2014, which
modified the nominal rates applicable for the export of oil and oil
by-products, including natural gasoline. The withholding tax on
exports regime is based on the price of Brent crude oil less 8
US$/bbl (
“IP”
)
as a reference price that is used to determine the applicable rate.
When the IP is less than 71 US$/bbl the nominal rate of the
withholding tax on export of natural gasoline will be 1%. When the
IP is greater than 71 US$/bbl, the rate will be (IP- 70) / 70 x
100. IP was below US$ 71/bbl throughout 2015 and 2016, and
continues to be below that level as of the date of this Annual
Report, so the applicable nominal rate for the exports of natural
gasoline has been 1%.
In
addition, on February 25, 2015, the MEF issued Resolution No.
60/2015, which entered into force on the same date. This resolution
modified the variable export tax regime established under
Resolution No. 127/08. According to the new methodology, the
minimum tax rate is 1% if the international prices for propane and
butane are lower than US$ 464 and US$ 478 (the
“reference value”
) per
metric ton, respectively. If the propane and butane international
prices are higher than the reference value, the tax rate applicable
to the selling price is calculated on a sliding scale according to
the amount by which the selling price exceeds the cut-off value of
US$ 460 and US$ 473 per metric ton, respectively. As the
international prices remained below the reference value, the
applicable nominal rate for the exports of propane and butane has
been 1%.
Beginning on
January 7, 2017, natural gasoline, propane and butane exports will
not be subject to hydrocarbons withholding. This is because the
hydrocarbon export rights scheme created by Law 25,561 and its
amendments was not renewed upon its expiration date. For the year
ended December 31, 2016, when the average applicable withholding
rates were of 1%, the total accrued exports withholding amounted to
Ps. 11.1 million.
Competition
At the
end of 2000, MEGA finished building and began operation of a gas
processing plant with a capacity of approximately 1.3 Bcf/d,
located in the Province of Neuquén. Although the construction
of this gas processing plant initially resulted in lower volumes of
gas arriving at the Cerri Complex, we have been able to undertake
measures to substantially mitigate any negative impact of MEGA.
However, there is a risk that additional gas processing at the MEGA
plant could result in lower volumes or lesser quality gas (i.e.,
gas with lower liquids content) arriving at the Cerri Complex in
the future, or that other projects that may be developed upstream
of the Cerri Complex could adversely affect our revenues from
Liquids production and commercialization services.
Since
summer 2014, our sole purchaser of ethane, PBB, decided, for
commercial reasons, to give priority to the product provided by
MEGA. If PBB continues with its policy to take increased volumes of
ethane from our competitors, this situation could adversely affect
our revenues from Liquids production and commercialization
services, if we are unable to sell the ethane and must reinject it
into the gas stream.
In
order to guarantee access to natural gas to be processed in the
Cerri Complex, in the past, we obtained the commitment of natural
gas producers to not build natural gas processing plants upstream
of the Cerri Complex during the term of such long-term agreements.
From time to time, and as these contracts expire, we renew and sign
new agreements with them to replace expiring contracts. The
agreements reached in more recent years, have had shorter
durations. All of these recent agreements contain commitments of
such natural gas producers not to reduce the quality of the natural
gas that they sell to us. Nevertheless, any decision by such
natural gas producers to make modifications to the methodology for
injecting natural gas into the pipeline system could result in the
receipt of lower quality natural gas, thereby reducing the amount
of the Liquids available for extraction and processing in the Cerri
Complex.
OTHER SERVICES
Other
services activities are not subject to regulation by
ENARGAS.
Midstream Services
Through
midstream services, we provide integral solutions related to
natural gas from the wellhead up to the transportation systems. The
services are comprised of gas gathering, compression and treatment,
as well as construction, operation and maintenance of pipelines,
which are generally rendered to natural gas and oil producers at
the wellhead. Our portfolio of midstream customers also includes
distribution companies, big industrial users, power plants and
refineries. Our midstream activities include the separation and
removal of impurities such as water, carbon dioxide and sulfur from
the natural gas stream. Small diameter pipes from the wellheads
form a network, or gathering system, carrying the gas stream to
larger pipelines where field compression is sometimes needed to
inject the gas into our large diameter gas pipelines. The services
are tailored to fit the particular needs of each customer in
technical, economic and financial matters.
In
addition, we provide operation and maintenance of pipelines
services to our affiliates Gas Link S.A. (
“Link”
).
In
October 2012, ENARGAS issued Resolution No. 3,952/12 which
authorized our affiliate Emprendimientos de Gas del Sur S.A.
(“
EGS
”) to
transfer its connection pipeline and service offerings in operation
to us. The transfer was executed on December 17, 2013
.
In
recent years, we provided advisory services for the construction of
natural gas and, more specifically, LNG infrastructure. We rendered
these services in connection with an extension of inflow facilities
for regasified LNG from ships at Puerto de Ingeniero White near
city of the Bahía Blanca. In 2016, in addition to treatment
and compression services rendered to several producers, such as
Pluspetrol Energy S.A., YPF, and Pampa Energía, we provided a
range of technical services related to connection to the natural
gas transportation system, engineering inspection, project
management, works inspection audits, dispatch management,
professional technical counseling and instrument gauging tasks. Our
customers for these services include, among others, Aluar Aluminio
Argentino S.A.C.I., ENARSA and YPF. Moreover, in 2016, we continued
our steam production in the co-generation energy unit located at
the Cerri Complex.
In
August 2016, we agreed on the terms for a twenty-year agreement for
the renewal, expansion and extension of the natural gas compression
and conditioning service we provide in the Rio Neuquen hydrocarbon
field, which is operated by YPF jointly with Petrobras Operaciones
S.A. and Pampa Energía. Besides, on September 27, 2016, we
entered into a new agreement with the field operator (at that
moment Pampa Energía, formerly Petrobras Argentina) for the
expansion of the plant compressor capacity, which will generate
additional revenues beginning in the second quarter of
2017.
Telcosur (Telecommunications System)
We own
99.98% of Telcosur, a telecommunications company created in
September 1998 to provide value-added and data transportation
services using our modern digital land radio telecommunications
system with Synchronous Digital Hierarchy (
“SDH”
) technology (which was
installed for purposes relating to our gas transportation
system).
In
2016, agreements were made that allowed to increase the capacity
sold and strengthen the operations of the Company. It is important
to note that during 2016 negotiations were concluded for the
refinancing of unpaid debts that Sílica Networks Argentina
S.A. and Silica Networks Chile S.A. maintained with Telcosur,
improving in this way the management of collections of this
important client.
Telcosur reached
agreements with new clients (Camuzzi Sur and Cerro Vanguardia S.A.)
and managed to expand or renew agreements in force (British
Telecom, Level 3 Argentina SA, Silica Networks Argentina SA, Silica
Networks Chile SA, Pan American Energy, Transener and Total Austral
S.A.).
C.
Organizational
Structure
The
following is a summary diagram of our subsidiaries and affiliates
as of the date of this Annual Report, including information about
ownership and location:
(1)
Incorporated in
Argentina.
(2)
Incorporated in
Uruguay.
As of
the date of issuance of this Annual Report, we are performing the
formal steps to liquidate EGS.
D.
Property,
Plant and Equipment
Gas Transportation
The
principal components of the pipeline system we operate are as
follows:
Pipelines.
We render natural gas
transportation service through a pipeline system that is 5,706
miles long, of which 4,745 miles are our property. We manage the
transportation of natural gas over the remainder of the system
under management agreements with the Gas Trust, which owns the
remaining portions of the pipeline. The system consists primarily
of large diameter, high pressure pipelines intended for the
transportation of large volumes of gas at a pressure of
approximately 853-996 pound/inch
2
. Line valves are
installed on the pipeline at regular intervals, permitting sections
of the pipeline to be isolated for maintenance and repair work. Gas
flow regulating and measurement facilities are also located at
various points on the system to regulate gas pressures and volumes.
In addition, a cathodic protection system has been installed to
protect the pipeline from corrosion and significantly reduce metal
loss. All of the pipelines are located underground or
underwater.
Maintenance bases.
Maintenance bases
are located adjacent to the natural gas pipeline system in order to
maintain the pipeline and related surface facilities and to handle
any emergency situations which may arise. Personnel at these bases
periodically examine the pipelines to verify their condition and
inspect and lubricate pipeline valves. Personnel at the bases also
carry out a cathodic protection system to ensure that adequate
anti-corrosion systems are in place and functioning properly. They
also maintain and verify the accuracy of measurement instruments to
ensure that these are functioning within appropriate industry
standards and in accordance with the specifications contained in
our service regulations.
Compressor plants.
Compressor plants
along the pipelines recompress the natural gas volumes transported
in order to restore pressure to optimal operational levels, thereby
ensuring maximum use of capacity as well as efficient and safe
delivery. Compressor plants are spaced along the pipelines at
various points (between 62 and 124 miles) depending upon certain
technical characteristics of the pipelines and the required
pressure for transport. Compressor plants include mainly
turbine-driven compressors and, to a lesser extent, motor-driven
compressors which use natural gas as fuel, together with electric
power generators to supply the complementary electrical equipment
(control and measurement devices, pumping, lighting, communications
equipment, etc.).
We
transport natural gas through four major pipeline segments: General
San Martín, Neuba I, Neuba II and Loop Sur, as well as several
smaller natural gas pipelines. Information with respect to certain
aspects of our main natural gas pipelines as of December 31, 2016,
is set out in the table below:
Major Pipeline
|
|
|
Maximum Pressure
(pound/inch)
|
|
Operative Compressor Plants
|
|
General San
Martín
|
2,939
|
30
(2)
|
853/995
|
62
|
17
|
515,800
|
Neuba I/Loop
Sur
|
732
|
24/30
|
853
|
15
|
5
|
61,300
|
Neuba
II
|
1,307
|
30/36
|
975/995
|
21
|
7
|
194,000
|
Other
(1)
|
728
|
|
|
6
|
3
|
7,500
|
Total
|
5,706
|
|
|
104
|
32
|
778,600
|
(1)
Includes 247 miles
of transfer pipelines throughout the pipeline system, as well as
the Cordillerano pipeline, with a length of 239 miles, and the
Chelforó-Conesa pipeline and other minor
pipelines.
(2)
Includes two
tranches of 24 inches, which correspond to the “Estrecho de
Magallanes” natural gas pipeline.
General San Martín
. This pipeline
was built in three stages, completed in 1965, 1973 and 1978, and
transports natural gas from the extreme southern portion of
Argentina to the greater Buenos Aires area in east-central
Argentina. It originates in San Sebastián (Tierra del Fuego),
passes through the Straits of Magellan and the Provinces of Santa
Cruz, Chubut, Río Negro and Buenos Aires (including the Cerri
Complex located near the city of Bahía Blanca in central
Argentina), and terminates at the high pressure transmission ring
around the city of Buenos Aires. The pipeline receives natural gas
from the Austral basin at the extreme south in the province of
Tierra del Fuego, from the same basin further north at El
Cóndor and Cerro Redondo, in the Province of Santa Cruz and
from the San Jorge basin in northern Santa Cruz and southern Chubut
provinces. The natural gas pipeline principally serves the
districts and cities of Buenos Aires, La Plata, Mar del Plata,
Bahía Blanca, Puerto Madryn and Comodoro Rivadavia. This
pipeline was expanded in 2005 by the Gas Trust in order to satisfy
the growing natural gas demand in the Argentine economy. This
expansion resulted in the construction of 458 miles of pipeline and
the installation of new compressor units. See “Item 4. Our
Information—B. Business Overview—Natural Gas
Transportation—Pipeline Operations—Pipeline
Expansions.”
Neuba I
(Sierra Barrosa-Bahía
Blanca). Neuba I was built in 1970 and was expanded by us in 1996.
It is one of our two main pipelines serving our principal source of
gas supply, the Neuquina basin. The pipeline originates in
west-central Argentina at Sierra Barrosa (Province of
Neuquén), passes through the provinces of Río Negro, La
Pampa and Buenos Aires, and terminates at the Cerri Complex. This
pipeline transports the natural gas received from the Neuquina
basin, particularly from the Sierra Barrosa, Charco Bayo, El
Medanito, Fernández Oro, Lindero Atravesado, Centenario,
Río Neuquén and Loma de la Lata natural gas fields. The
gas delivered from Neuba I is subsequently compressed and injected
into the Loop Sur and the General San Martín pipelines for
transportation north to the greater Buenos Aires area.
Loop Sur.
This gas pipeline was built
in 1972 as an extension of Neuba I and runs parallel to a portion
of the General San Martín gas pipeline. Located in the
province of Buenos Aires, it transports natural gas from the Neuba
I at the Cerri Complex in Bahía Blanca and terminates at the
high pressure transmission ring around Buenos Aires, which we also
operate. The natural gas delivered by this gas pipeline constitutes
a portion of the natural gas supply for the greater Buenos Aires
area. Loop Sur is also connected to the TGN system and allows us to
deliver natural gas to or receive natural gas from TGN. Such
transfers occur occasionally during periods of high demand for
natural gas.
Neuba II.
Our newest natural gas
pipeline, Neuba II, was built in 1988 and is our second pipeline
serving the Neuquina basin. Neuba II was expanded four times
between 1996 and 2000, and again in 2008. Neuba II begins at Repsol
YPF’s Loma de la Lata gas treatment plant in the western
portion of the basin and runs through the provinces of
Neuquén, Río Negro, La Pampa and Buenos Aires (through
the Cerri Complex), up to its terminal station located at Ezeiza
just outside of Buenos Aires. Neuba II is a principal source of
natural gas for the Federal District and the greater Buenos Aires
area. In 2008, this pipeline was expanded as a part of the Second
Expansion, resulting in the construction of 153 miles of natural
gas pipeline.
Other Pipelines
. We also operate the
Cordillerano natural gas pipeline, built in 1984, which receives
gas from the Neuquina basin and supplies it mainly to three tourist
centers in southern Argentina. In addition, we operate other minor
pipelines, the high pressure transmission ring around Buenos Aires,
the Chelforó-Conesa natural gas pipeline and other natural gas
pipelines known as natural gas transfer pipelines.
Additional
information regarding the expansion of our gas transportation
system is included in “Item 4. Our Information—B.
Business Overview
—Natural
Gas Transportatio
n—
Pipeline Operations—Pipeline
Expansions.”
Ancillary Facilities
Cathodic Protection System
Currently, we
operate more than 280 cathodic protection devices, which are
located along our main pipelines. The objective of this system is
to prevent the corrosion process. The corrosion process causes
metal loss, which, depending on the severity of the damage, may
cause pipeline ruptures. Cathodic protection equipment includes DC
rectifiers, and generators powered by thermic, turbine natural gas
engines in locations where no electric lines are available. The
system also includes an impressed current anode, which facilitates
circulation of electricity through the circuit formed by the
generator, the anode itself, the pipe and the land.
Natural Gas Control System
Located
at our Buenos Aires headquarters, the gas control system controls
scheduled gas injections and deliveries and allows us to follow gas
flows in real time. Data is received from compressor stations by
phone and automatically from remote terminal units (
“RTUs”
) installed in the
receipt and delivery points equipped with the electronic flow
management (EFM) system. The information is normally collected by
the Supervisory Control and Data Acquisition system (which has an
ad-hoc database that is updated every 30 seconds on average) and is
then consolidated into other databases. In order to control gas
injection and deliveries, we have developed a software system
called
Solicitud,
Programación, Asignación y Control
, which, among
other things, allows us to control actual volumes and projected
future injections to determine producer deviations. As part of this
system, we operate meteorological equipment and receive daily
weather information from various sources, which is used for the
purpose of forecasting natural gas demand.
Natural Gas Measurement
Shipped
and delivered natural gas is measured through primary field
facilities that are connected with RTUs. Such RTUs transmit the
data to the Buenos Aires headquarters. This data is utilized to
prepare reports for clients, shippers, producers and ENARGAS.
Energy balances are also prepared in order to control our system
efficiency.
Liquids
Production and
Commercialization
Our
Liquids production and commercialization activities are conducted
at our Cerri Complex. It is located near the city of Bahía
Blanca and is connected to each of our main pipelines. The Cerri
Complex consists of an ethane extraction cryogenic plant to recover
ethane, LPG and natural gasoline, together with a lean oil
absorption plant to recover LPG and natural gasoline. The facility
also includes compression, power generation and storage facilities.
The Cerri Complex processing capacity is approximately 1.6
Bcf/d.
As part
of the Cerri Complex, we also maintain at Puerto Galván a
storage and loading facility for the natural gas liquids extracted
at the Cerri Complex. The Cerri Complex, including the Puerto
Galván facility, is currently capable of storing 60,450 short
tons of liquids. See “—Item 4. Our information.
—B. Business Overview—Liquids Production and
Commercialization” above.
Other Services
Midstream
As part
of this business segment, we provide services related to natural
gas including treatment, gathering and gas compression, which are
rendered at two treatment plants and four gas compression plants
with a total treatment capacity of 113 MMcf/d and a total
compression capacity of 29,960 HP, respectively. The following
chart shows summary information regarding the treatment and
compression plants’ capacities as of December 31,
2016:
|
Treatment
capacity
(in
MMcf/d)
|
Compression
capacity (in HP)
|
Río
Neuquén
|
105
|
25850
|
Plaza
Huincul
|
28
|
2,950
|
Total
|
113
|
23,950
|
Telecommunication
We own
two interconnected networks beginning in the Buenos Aires Province,
which consist of (i) a flexible and modern microwave digital
network with SDH technology over more than 2,859 miles, which
covers the routes: Buenos Aires – Bahía Blanca –
Neuquén to the West, Buenos Aires – Bahía Blanca
– Comodoro Rivadavia – Río Grande to the South,
and (ii) a dark fiber optic network of approximately 1,056 miles,
which covers the route La Plata – Buenos Aires –
Rosario – Córdoba – San Luis – Mendoza.
There is also a network in the Patagonia region, which consists of
a “lit” fiber optic network of approximately 374 miles,
which covers the route Puerto Madryn – Pico
Truncado.
In
addition, the following networks were installed in 2010, 2011 or
2012: (i) a high capacity fiber optic network of approximately 745
miles, which links Buenos Aires – Bahía Blanca –
Neuquén; (ii) a fiber optic network of approximately 497
miles, which covers the route Bahía Blanca – Puerto
Madryn; and (iii) a high capacity fiber optic network of
approximately 497 miles, which links Pico Truncado – Río
Gallegos. In 2013, we installed 81 miles of fiber optics to connect
the city of Río Gallegos and the radio station “El
Cóndor” which is the southernmost continental radio
station in South America.
Environment and Quality
Federal
and provincial laws and regulations relating to environmental
quality in Argentina affect our operations. These laws and
regulations set standards for certain aspects of environmental
quality, provide for penalties and other liabilities for the
violation of such standards, and establish remedial obligations in
certain circumstances.
In
general, we are subject to the requirements of the following
environmental regulations:
●
the National
Constitution;
●
Law No. 25,675 on
National Environmental Policy;
●
Law No. 24,051 on
Hazardous Waste;
●
Law No. 25,688 on
Environmental Management of Waters;
●
the Civil and
Commercial Code; and
●
provincial
legislation on the hazardous waste management, control of water
resources, emission of gases and environmental
compliance.
The
principal environmental issues arising from our operations are
related to the release of natural and combustion gases into the
atmosphere, emergencies and damages by third parties, environmental
noise, generation of waste, and impact on the soil and
watercourses. We monitor all of these issues through a measurement
and follow-up program. We also have an annual program of emergency
drills to test our response capacity in the event of security or
environmental emergencies.
The
above description of the material Argentine environmental
regulations is only a summary and should not be taken as a
comprehensive description of the Argentine environmental regulatory
framework.
Our
management is responsible for compliance with environmental issues.
Management works with the Sustainability Committee in order to
ensure compliance with existing legislation and ensure compliance
with our policy and strategy.
All
issues related to Safety, Occupational Health, Environment and
Quality are documented and monitored as part of our Integrated
Management System. This system has been certified in accordance
with ISO standards 14,001 and 9001 and OHSAS 18001.
We have
established an environmental and industrial safety investment plan
for the period of 2017-2021 with a budget of approximately US$43.0
million.
Safety
In
2016, we completed the practical and educational training to the
new staff on Road Safety as part of our Preventive Management
Program. We engaged a consultant to start a new cycle of this
program in 2017, with adjustments and improvements to be
implemented based on our experience over the last five
years.
Through
the implementation of Safe and Healthy Work workshops, we aim to
reinforce the value of Human and Organizational factors in the
prevention of incidents. During 2017 and 2018, we will continue
with such implementation i by developing an activity program
targeted at the whole company, with focus on the high and middle
management and employees.
Within
the framework of Assets Management, we developed Policies of
Maintenance and Spare Parts and we surveyed critical assets and
processes, among them the “Change Management”
process.
We are
also conducting a review of the Response to Emergencies and Crises
Plans to adjust them to international best practices standards,
focusing on safety emergencies and the mitigation of the likely
scenarios that might impact on the environment and the community.
During 2016, we continued training our brigade volunteers through
activities in an external training center using model
scenarios.
Insurance
We
maintain insurance, subject to deductibles, against third-party
liability, damage to our pipeline assets that pass under rivers or
other bodies of water and the Straits of Magellan and business
interruption. We believe this coverage is consistent with standards
for international natural gas transportation companies. The terms
of the policies related to the regulated assets have been approved
by ENARGAS. In addition, we have obtained insurance coverage for
our directors and officers pursuant a standard D&O insurance.
For additional information, see “Item 3. Key
Information.—D. Risk Factors.—Risks Relating to Our
Business—
Our insurance
policies may not fully cover damage or we may not be able to obtain
insurance against certain risks.
”
Item 4A. Unresolved Staff Comments
We do
not have any unresolved staff comments.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
The
following Operating and Financial Review and Prospects should be
read in conjunction with “Item 3. Key Information—A.
Selected Financial Data” and our Financial Statements
included elsewhere herein.
This
Operating and Financial Review and
Prospects
discussion contains
forward-looking statements that involve certain risks,
uncertainties and assumptions. These forward-looking statements can
be identified by the use of forward-looking terminology such as
“may,” “will,” “will likely
result,” “intend,” “projection,”
“should,” “believe,” “expect,”
“anticipate,” “estimate,”
“continue,” “plan” or other similar words.
Our actual results may differ materially from those identified in
these forward-looking statements. For more information on
forward-looking statements, see “
Cautionary Statement
Regarding Forward-Looking Statements.”
In addition, for a discussion of important
factors, including, but not limited to, the pesification of our
tariffs and other factors that could cause actual results to differ
materially from the results referred to in the forward-looking
statements, see “Item 3. Key Information—D. Risk
Factors.”
For
purposes of the following discussion and analysis, unless otherwise
specified, references to fiscal years 2016, 2015 and 2014 relate to
the fiscal years ended December 31, 2016, 2015 and 2014,
respectively.
We
maintain our accounting books and records in Pesos. Our Financial
Statements as of December 31, 2016, 2015 and 2014 have been
prepared in accordance with the accounting policies based on the
IFRS issued by the IASB and the interpretations issued by the IFRIC
applicable as of such date.
For
information relating to the presentation of financial information,
see “Presentation of Financial and Other
Information.”
Critical Accounting Policies and Estimates
In
connection with the preparation of our Financial Statements
included in this Annual Report, we have relied on assumptions
derived from historical experience and various other factors that
we deemed reasonable and relevant. Although we review these
assumptions in the ordinary course of our business, the
presentation of our financial condition and results of operations
often requires management to make judgments regarding the effects
of matters that are inherently uncertain. Actual results may differ
from those estimated as a result of these different assumptions. We
have described each of the following critical accounting policies
and estimates in order to provide an understanding about how our
management forms judgments and views with respect to such policies
and estimates, as well as the sensitivity of such policies and
estimates:
●
impairment of
property, plant and equipment;
●
allowances for
doubtful accounts and provisions for legal claims and others;
and
●
income tax –
deferred tax and tax credits.
Impairment of property, plant and equipment
We
consider each of our business segments to be a single cash
generating unit. Accordingly, we evaluate the carrying value of our
property, plant and equipment on a segment-by-segment basis at the
end of each fiscal year. In addition, we periodically evaluate the
carrying value of our property, plant and equipment for impairment
on a segment-by-segment basis when events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable.
We base
our evaluations of property, plant and equipment on the
assets’ value in use. The value in use is calculated on the
basis of discounted future cash flows. The projected cash flows are
prepared taking into account: (i) for assets associated with the
Liquids and Commercialization segment, projections of the prices of
liquids and purchase cost of natural gas used as raw material (ii)
for assets associated with the Natural Gas Transportation segment,
estimates of future tariff adjustments and the recognition of cost
adjustments (iii) projections of the future costs to be incurred,
(iv) expected macroeconomic variables such as interest rates,
inflation, foreign exchange rates. The discount rate is our
weighted average cost of capital (“WACC”).
We
recorded no impairment losses of components of property, plant and
equipment at December 31, 2016 and 2015.
During
2016, we received a limited transitional increase of 200.1% in our
tariffs and the RTI was initiated. Due to the uncertainties
surrounding the tariff renegotiation process, estimates of future
tariff adjustments are highly uncertain and there is a substantial
risk that these estimates could prove to be materially different
from actual future tariffs.
In
performing the impairment analysis for assets associated with our
Natural Gas Transportation segment, we considered: (i) the status
of the negotiations with the Argentine government and the impact of
the tariff increases received, (ii) the current regulatory
framework, (iii) recent experiences and renegotiation agreements
signed by other natural gas and electricity utility peers, (iv)
management’s expectations regarding other measures that
management believes are likely to be taken by the Argentine
government to deal with the present economic situation of gas and
electricity utilities, and (v) our expectations regarding the
conculsion of the RTI process, including our expectations regarding
tariff increases beginning in 2017 and the impact of a cost
monitoring scheme that would provide for the semiannual adjustments
of tariffs.
We have
prepared three different estimates of expected cash flows as of
December 31, 2016, to which the following percentages of
probability of occurrence have been assigned: optimistic: 20%,
base: 70% and pessimistic: 10%. Each of the projected cash flows
contains assumptions regarding the implementation of an Integral
Renegotiation Agreement, and different scenarios of future tariff
adjustments for the Natural Gas Transportation
segment.
Based
on those estimations, the estimated discounted cash flows were
higher than the carrying amount of such assets as of December 31,
2016.
The
three different estimates of cash flows assumed that we will obtain
a new tariff scheme that will enable us to recover the value of
property, plant and equipment used for the provision of the natural
gas transportation public service, even an increase to 100% (from
10%) in the weighted probability of the pessimistic case and a
reduction from 20% to 0% in the probability of occurrence of the
optimistic case, and a reduction from 70% to 0% in the base case
would not generate an adjustment for impairment. As of December 31,
2016, there are no impairment balances subject to
reversal.
As
mentioned in “Item 4. Our Information—B. Business
Overview. Regulatory Framework. —Adjustment of Rates”,
on March 30, 2017 we entered into the 2017 Transitional Agreement,
ratified by Resolution 4362, by which the ENARGAS established
increases of 214.2% and 37% in the transportation tariffs and CAU,
respectively. However, Resolution 74 established that such
increases will be granted in three stages effective from April 1,
2017, December 1, 2017 and April 1, 2018, but will be structured to
provide the same economic benefits to us as if the increases had
been fully effective on April 1, 2017. On March 30, 2017, we also
signed the 2017 Integral Renegotiation Agreement, which is still
pending approval by the different governmental authorities. All
these steps are necessary for the conclusion of the renegotiation
of our License.
Considering the
terms contained in Resolution 4362, and following the execution of
the 2017 Integral Renegotiation Agreement, we re-estimated the
different cash flows used to evaluate the impairment of the
property, plant and equipment associated with our Natural Gas
Transportation business segment. Management considers that it is
not necessary to estimate three different cash flows applicable for
this business segment. In this case, a single cash flow was
prepared which considers: (i) the amount of the first installment
of the tariff increase, (ii) the timing of the remaining rate
increases obtained, (iii) an estimation of the amount of the
remaining tariff increases, (iv) the six-month adjustment mechanism
provided by Resolution 4362, (v) the Five-Year Plan, and (vi) the
macroeconomic variables that will impact our business.
Thus,
considering the above mentioned assumptions as of December 31, 2016
no impairment losses should be recognized.
Allowances for doubtful accounts and provisions for legal claims
and others
We
provide for doubtful accounts relating to accounts receivables. The
allowance for doubtful accounts is based on the evaluation of
various factors, including the credit risk of customers, historical
trends and other information. While we use the information
available to make evaluations, future adjustments to the allowance
may be necessary if future economic conditions differ substantially
from the assumptions used in making the evaluations. We have
considered all events and/or transactions that are subject to
reasonable and normal methods of estimation, and our Financial
Statements reflect that consideration.
We have
certain contingent liabilities with respect to legal and regulatory
proceedings. We accrue liabilities when it is probable that future
costs will be incurred and such costs can be reasonably estimated.
Such accruals are based on developments as of the time the accruals
are made, estimates of the outcomes of these matters and our
lawyers’ experience in contesting, litigating and settling
other matters. As the scope of the liabilities becomes better
defined, there may be changes in estimates of future costs, which
could have a material effect on our future results of operations
and financial condition or liquidity.
We
believe that our accounting policies relating to the allowances for
doubtful accounts and provision for legal and other claims are
“critical accounting policies” because:
●
It requires our
management to make estimates and assumptions that are highly
susceptible to change from period to period.
●
The impact that
recognizing or reversing allowances for doubtful accounts and
provisions for legal claims and others would have on our
consolidated balance sheet as well as on the results of our
operations could be material.
Income tax – deferred tax assets and tax credits
Deferred income tax
assets are recognized only to the extent that it is probable that
future taxable profit will be available against which the temporary
differences can be utilized. Determining the amount of deferred tax
assets that can be registered requires the exercise of considerable
judgment on the part of management, based on the probable term and
level of future taxable profits together with future tax planning
strategies and variables macroeconomic affecting the
business.
Entities in
Argentina are subject to the Asset Tax. Pursuant to this tax
regime, an entity is required to pay the greater of the income tax
or the Asset Tax. The Asset provision is calculated on an
individual entity basis at the statutory asset tax rate of 1% and
is based upon our taxable assets as of the end of the year. Any
excess of the Assets Tax over the income tax may be carried forward
and recognized as a tax credit against future income taxes payable
over a 10-year period. When we assess that it is probable that we
will use the Asset Tax payment against future taxable income tax
charges, we recognize the Asset Tax as a current or non-current
receivable, as applicable, within “Trade and other
receivables” in the Consolidated Statement of Financial
Position.
As of
December 31, 2016 and 2015, we maintain a deferred tax asset tax
amounting to nil and Ps. 58.9 million, respectively.
Factors Affecting Our Consolidated Results of
Operations
As we
are an Argentine
sociedad
anónima
and all of our operations and operating assets
are located in Argentina, we are affected by general economic
conditions in the country, such as demand for natural gas,
inflation and fluctuations in currency exchange rates. In
particular, these factors affect our operating costs and
revenues.
Since
the onset of the severe economic crisis in Argentina in late 2001,
our revenue composition has changed significantly, mainly as a
consequence of (i) the substantial devaluation of the peso as
compared to the U.S. dollar; (ii) high inflation since 2002,
and (iii) the suspension, pursuant to the Public Emergency
Law, of adjustments of the tariff for the transportation and
distribution of natural gas. Regarding our Liquids Production and
Commercialization business segment, in the past the Government has
intervened in the market to implement measures to limit exports and
limit selling prices. In addition, LPG and natural gasoline prices
are set by reference to international prices, which suffered sharp
decreases in 2014 and 2015, but recovered somewhat at the end of
2016.
For the
year ended December 31, 2016, approximately, 64.4% and 28.2% of our
net revenues were attributable to our Liquids production and
commercialization segment and to our natural gas transportation
business, respectively.
The
following table sets forth, for the years indicated, the variation
of key economic indicators in Argentina during the years indicated,
as reported by official sources.
Source:
INDEC, Banco
Nación Argentina, Stattiscal Agencies for the Province of San
Luis and CABA.
The
lack of adjustments to our natural gas transportation tariffs and
sustained cost increases over the years have resulted in a
substantial deterioration in the operating results of the natural
gas transportation segment.
Year to
year fluctuations in our net income are a result of a combination
of factors, including principally:
●
The volume of
liquids products we produce and sell;
●
Changes in
international prices of LPG and natural gasoline;
●
Regulation
affecting our liquids business, including Law No. 26,020 (which
requires us to meet domestic demand before exporting
LPG);
●
Changes in the
input costs related to the liquids production and commercialization
segment, including the Gas Charge Resolutions;
●
The availability of
natural gas and its richness;
●
Fluctuation in the
Argentine peso / U.S. dollar exchange rate;
●
The tariffs we are
permitted to charge in our Natural Gas Transportation business
segment;
●
Local inflation and
its impact on costs expressed in Argentine pesos; and
●
Other changes in
laws or regulations affecting our operations, including tax
matters.
Consideration of the effects of inflation
IAS 29
“Financial reporting in hyperinflationary economies”
requires that the financial statements of an entity whose
functional currency is that of a hyperinflationary economy,
regardless of whether they are based on the historical cost method
or the current cost method, be expressed in terms of the current
unit of measure at the reporting date of the reporting period. IAS
standard lists a series of factors that should be considered in
determining whether an economy is hyperinflationary, including
whether the cumulative rate of inflation over in three years
approaches or exceeds 100%.
In
January 2007, the INDEC modified its methodology for calculating
the CPI in order to reflect the CPI for the Great Buenos Aires Area
(CPI-GBA). Some private analysts have suggested that the change was
driven by Argentina’s policy to control inflation and reduce
payments on its inflation-linked bonds and have materially
disagreed, and continue to disagree, with INDEC’s official
inflation data (as well as other economic data affected by
inflation data. In January 2014, the Government established the
IPCNu, which more broadly reflects consumer prices by considering
price information from the 23 provinces of the country and the City
of Buenos Aires. The methodological and geographic differences in
the calculation of the CPI-GBA and the IPCNu caused the Argentine
government to decide to discontinue its publication.
On
January 7, 2016, the new leadership of the INDEC declared a
“national statistical emergency” and implemented
several reforms in order to reorganize the INDEC. As a result, the
INDEC did not publish CPI data until June 2016, with information
from April 2016. During the implementation of these reforms, the
INDEC used the figures for CPI and other official statistics
published by the Province of San Luis and the Autonomous City of
Buenos Aires. As of the date of issuance of this Annual Report the
CPI for the first four months of 2016 and November and December
2015 has not been published. Further, there are no communications
from the INDEC expressing their intention to re-calculate CPI for
those months.
Moreover, as a
result of the slowdown in inflation in the second half of 2016 and
the expectations of the Argentine Government to continue programs
designed to reduce inflation(for the months of January, February
and March 2017, the increase in the CPI as reported by the INDEC
was 1.3%, 2.5% and 2.4%, respectively), the Argentine peso does not
meet the characteristics to qualify as the currency of a
hyperinflationary economy according to the guidelines established
in IAS 29. Even so, many of our operating costs such as wage costs
and prices for inputs and services, have increased materially in
recent years.
Argentine Macroeconomic Outlook for 2017
Since
the current administration took office on December 10, 2015, the
new authorities have been taking different measures to enable
Argentina to begin a path of sustainable growth, lower inflation
and correct imbalances in the relative prices of certain goods and
services in the economy. These measures have included: (i) the
issuance of Decree No. 55/2016, which declared an national
statistic emergency and granted INDEC the necessary tools to
restore international credibility regarding the indexes that it
publishes; (ii) relaxation of foreign exchange controls, (iii) the
settlement of claims by holdout bondholders; (iv) the elimination
or reduction of taxes on exports in order to improve the situation
of regional economies; and (v) the process of adjustment of public
services rates, including those collected by the Natural Gas
Transportation business segment.
At the
date of issuance of this annual report there is uncertainty
regarding the impact that these and other measures that the
Government can take will have on key macroeconomic variables and
particularly on the energy sector.
Discussion of Results of Operations for the Two Years Ended
December 31, 2016 and 2015
The
following table presents a summary of our consolidated results of
operations for the years ended December 31, 2016 and 2015, stated
in millions of pesos, and the increase or decrease and percentage
of change between the periods presented:
|
|
Year
ended December 31, 2016 compared to
year
ended December 31, 2015
|
|
|
|
|
|
Revenues
from sales
|
7,402.2
|
4,226.6
|
3,175.6
|
75.1
%
|
Operating
costs
|
(4,198.0
)
|
(2,508.9
)
|
(1,689.0
)
|
67.3
%
|
Depreciation
|
(238.0
)
|
(251.0
)
|
(13.0
)
|
(5.2
%)
|
Costs
of sales
|
(4,435.9
)
|
(2,759.9
)
|
(1,676.0
)
|
60.7
%
|
Gross
profit
|
2,966.2
|
1,466.7
|
1,499.6
|
102.2
%
|
Administrative and
selling expenses
|
(668.9
)
|
(443.0
)
|
(225.9
)
|
51.0
|
Other operating
(loss) / income
|
(65.5
)
|
(335.4
)
|
269.9
|
(80.5
%)
|
Operating
profit
|
2,231.8
|
688.2
|
1,543.6
|
224.3
%
|
Net financial
results
|
(813.4
)
|
(974.2
)
|
160.8
|
(16.5
%)
|
Share of profit
from associates
|
1.5
|
0.2
|
1.3
|
499.2
%
|
Income tax income /
(expense)
|
(489.3
)
|
113.5
|
(602.9
)
|
(530.9
%)
|
Total
comprehensive income / (loss)
|
930.7
|
(172.1
)
|
1,102.8
|
640.7
%
|
Year 2016 Compared to Year 2015
Total comprehensive income
For the
year ended December 31, 2016, we reported total comprehensive
income of Ps. 930.7 million, in comparison to the total
comprehensive loss of Ps. 172.1 million reported 2015.
The
positive variation in the comprehensive net results for fiscal year
ended December 31, 2016, was mainly attributed to the increase of
the operating profit of Ps. 1.543,6 million and a decrease of Ps.
160.8 million in net financial expense.
The
material factors affecting consolidated operating were as
follows:
●
Liquids Production
and Commercialization net revenues increased by Ps. 1.860,6 million
principally because of the effect that the increase in the exchange
rate (Ps. 1,539.7 million) had on sales denominated in US
dollars.
●
Other operating
income improved from a loss position in 2015, when we recognized a
loss of Ps. 324.4 million on the acquisition from Pampa of the
Rights of the Arbitration Proceeding, which we received as
repayment of a loan granted to Pampa in October 2011. The exercise
of the Rights of the Arbitration Proceedings will enable us to
conclude the final steps of the 2017 Integral Renegotiation
Agreement.
●
The implementation
of the tariff increase approved by Resolutions 3724 and 4054, which
resulted in an increase of Ps. 1,033.4 million in net revenues from
the Natural Gas Transportation business segment.
●
These positive
effects were partially offset by the increase in variable
production costs in the Liquids Production and Commercialization
segment, as well as increases in other operating
costs.
Since
the onset of the economic crisis in Argentina in ate 2001, the
Natural Gas Transportation segment has suffered a significant
deterioration in its operating environment due to the lack of
tariff increases and steady increases in operating costs resulting
from inflation and the depreciation of the Peso against the U.S.
dollar. Although the transitional rate increase we have received
represent a partial recognition of the difficult economic
conditions in which we continued providing the public natural gas
transportation service, the start of the RTI process in April 2016
was of vital importance. The beginning of the RTI will enable the
Company to move toward the normalization of the tariff regime which
we hope will permit us to obtain a tariff scheme that will permit a
sustainable recovery of this business segment.
Cost of sales, administrative and selling expenses
Cost of
sales for the years ended on December 31, 2016 and 2015 represented
59.9% and 65.3%, respectively, of net revenues reported in these
years. This decrease in the cost of sales as a percentage of
revenues is due to an increase
in net revenues (75%)
higher than the increase in costs of sales (61%).
Administrative and
selling expenses for the years ended on December 31, 2016 and 2015
represented 9.0% and 10.5%, respectively, of net revenues reported
in both of these years.
See.
“—Analysis of Operating Profit by Business Segment for
the years ended December 31, 2016 and 2015.”
Share of profit from associates
For the
year ended December 31, 2016, we recorded a profit from our
investment in associates of Ps. 1.5 million, compared to the profit
of Ps. 0.2 million recorded for 2015.
Net Financial Results
Net
financial results for the years ended December 31, 2016 and 2015
are as follows:
|
|
|
|
|
Financial
income
|
|
|
Derivative
financial instruments results
|
-
|
128.5
|
Interest
income
|
100.4
|
79.4
|
Fair value gains on
financial instruments through profit and loss
|
169.9
|
55.9
|
Foreign exchange
gain
|
135.0
|
288.8
|
Subtotal
|
405.3
|
552.6
|
Financial
expenses
|
|
|
Interest
expense
|
(470.7
)
|
(343.1
)
|
Foreign exchange
loss
|
(712.5
)
|
(1,165.8
)
|
Derivative
financial instruments results
|
(8.9
)
|
-
|
Other financial
charges
|
(66.4
)
|
(41.7
)
|
Less:
Amounts capitalized on qualifying
assets
|
39.7
|
23.9
|
Subtotal
|
(1,218.7
)
|
(1,526.7
)
|
Total
|
(813.4
)
|
(974.2
)
|
Negative financial
expenses for the year ended December 31, 2016, amounted to Ps.
813.4 million, compared to Ps. 974.2 million reported during the
year 2015. This decrease of Ps. 160.8 million is mainly due to
lower losses generated by the impact in the variation of the
Argentine peso exchange rate against the U.S. dollar during 2015 of
Ps. 298.9 million. In addition, the net negative financial results
suffered a slight positive variation as a consequence of the higher
return from the financial investments. This effect was partially
offset by the higher interest charge on financial liabilities due
to the exchange rate effect.
Finally, these
effects were partially offset by the decrease of Ps. 137.4 million
(loss of Ps. 8.9 million for the year 2016 vs. profit of Ps. 128.5
million for the year 2015) in the income generated by derivative
financial instruments.
Analysis of Operating Profit by Business Segment for the Two Years
Ended December 31, 2016 and 2015
The
following table sets forth revenues and operating income for each
of our business segments for the years ended December 31, 2016 and
2015:
|
|
Year
ended December 31, 2016 compared to
year
ended December 31, 2015
|
|
|
|
|
|
Natural
Gas Transportation
|
|
|
|
|
Revenues from
sales
|
2,087.2
|
1,014.0
|
1,073.2
|
105.8
%
|
Cost of
sales
|
(997.6
)
|
(758.5
)
|
(239.1
)
|
(31.5
%)
|
Gross
profit
|
1,089.6
|
255.5
|
834.0
|
326.4
%
|
Administrative and
selling expenses
|
(386.0
)
|
(220.7
)
|
(165.3
)
|
(74.9
%)
|
Other operating
expense
|
(44.7
)
|
(333.0
)
|
288.3
|
86.6
%
|
Operating
profit / (loss)
|
658.9
|
(298.2
)
|
957.1
|
320.9
%
|
|
|
|
|
|
Liquids
Production and Commercialization
|
|
|
|
|
Revenues from
sales
|
4,768.3
|
2,907.8
|
1,860.6
|
64.0
%
|
Cost of
sales
|
(3,218.9
)
|
(1,869.4
)
|
(1,349.5
)
|
(72.2
%)
|
Gross
profit
|
1,549.4
|
1,038.4
|
511.0
|
49.2
%
|
Administrative and
selling expenses
|
(213.0
)
|
(172.3
)
|
(40.8
)
|
(23.7
%)
|
Other operating
expense
|
(19.1
)
|
(2.7
)
|
(16.5
)
|
(619.0
%)
|
Operating
profit
|
1,317.2
|
863.4
|
453.8
|
43.4
%
|
|
|
|
|
|
Other
services
|
|
|
|
|
Revenues from
sales
|
485.8
|
260.6
|
225.2
|
86.4
%
|
Cost of
sales
|
(187.8
)
|
(108.6
)
|
(79.2
)
|
(72.9
%)
|
Gross
profit
|
298.0
|
152.0
|
146.1
|
96.1
%
|
Administrative and
selling expenses
|
(59.0
)
|
(42.9
)
|
(16.1
)
|
(37.7
%)
|
Other operating
(expense) / income
|
(1.3
)
|
0.2
|
(1.4
)
|
(760.2
%)
|
Operating
profit
|
237.8
|
109.3
|
128.5
|
117.6
%
|
|
|
|
|
|
Telecommunications
|
|
|
|
|
Revenues from
sales
|
60.8
|
44.2
|
16.6
|
37.5
%
|
Cost of
sales
|
(31.5
)
|
(23.4
)
|
(8.1
)
|
(34.6
%)
|
Gross
profit
|
29.3
|
20.8
|
8.5
|
40.7
%
|
Administrative and
selling expenses
|
(10.8
)
|
(7.1
)
|
(3.7
)
|
(52.9
%)
|
Other operating
expense
|
(0.5
)
|
-
|
(0.5
)
|
(100.0
%)
|
Operating
profit
|
18.0
|
13.7
|
4.2
|
31.0
%
|
Regulated Natural Gas Transportation Segment
The
Natural Gas Transportation business segment represented 28.2% and
24.0% of our total revenues during the years 2016 and 2015,
respectively. Natural Gas Transportation revenues are derived
mainly from firm contracts, under which pipeline capacity is
reserved and paid for regardless of actual usage by the shipper. We
also provide interruptible natural gas transportation services
subject to availability of the pipeline capacity. In addition, we
render operation and maintenance services for the Natural Gas
Transportation facilities, which belong to certain gas trusts
created by the Government to expand the capacity of the Argentine
natural gas transportation pipeline system. This business segment
is subject to ENARGAS regulation. As discussed above, since 2002,
significant inflation and depreciation of the Peso, combined with a
lack of compensating tariff increases, has resulted in a
deterioration of the results of operations in this
segment.
For
additional information regarding the history of our discussions
with various Argentine governmental authorities in relation to the
adjustment of our gas transportation tariffs see “Item 4. Our
Information—B. Business Overview—Natural Gas
Transportation—Regulatory Framework
During 2016, the
Natural Gas Transportation
business segment recorded an
operating
income of Ps. 658.9 million, compared to the operating loss of Ps.
298.2 million in 2015. The main factors that affected the results
of operations of this segment during 2015 are the
following:
●
Revenues from the
Natural Gas Transportation business segment increased by Ps.
1,073.2 million for the year 2016 compared to 2015. The increase
was mainly due to: (i) the impact of the new rate schedules of
natural gas transportation tariffs approved by Resolutions 3724 and
4122, necessary to achieve the temporary stabilization of the net
revenues for this business segment until the Integral Renegotiation
Agreement is signed, and (ii) the full effect of the implementation
in May 2015 of the tariff increase approved by Resolution No.
3347.
●
Revenues related to
natural gas firm transportation contracts for the years ended
December 31, 2016 and 2015, respectively, amounted to Ps. 1,485.1
million and Ps. 801.2 million, and revenues related to
interruptible natural gas transportation service amounted to Ps.
313.7 million and Ps. 103.5 million, respectively. The increase
resulted from the tariff increase discussed above.
●
Revenues relating
to the CAU amounted to Ps. 215.8 million and Ps. 72.4 million for
the years ended December 31, 2016 and 2015, respectively. We have
faced increasing operation and maintenance costs throughout the
years. The CAU was increased by 73.2% in May 2015 and by 200.1% in
April 2016; however, these increases were insufficient to offset
the increased operating costs during that period. The value of the
CAU is much less than the transportation tariff we are permitted to
charge for our natural gas transportation services, because we were
not required to make any investment in the construction and
expansion of the assets to which the CAU relates. See “Item
4. Our Information—B. Business Overview—Natural Gas
Transportation—Pipeline Operations—Pipeline
Expansions” for additional information regarding the
CAU.
●
Costs of sales and
administrative and selling expenses for the year ended December 31,
2016 increased by Ps. 404.4 million, from Ps. 979.2 million to Ps.
1,383.6 million
,
as compared
to the year ended December 31, 2015. This increase was mainly
attributable to: (i) higher labor costs relating to the joint
negotiations with trade unions during 2016, amounting to Ps. 181.7
million, (ii) an increase of Ps. 62.1 million in the turnover tax,
(iii) higher management fee accrued of Ps. 51.1 million, and (iv)
an increase of Ps. 78.7 million in maintenance expenses for the
pipeline and other fixed assets.
●
The positive
variation in other operating expenses was mainly due to the charge
of Ps. 324.4 million recorded in 2015 for the acquisition of the
Rights of the Arbitration Proceedings from Pampa, as mentioned
above. This effect was partially offset by higher provision for
contingencies in 2016 of Ps. 61.7 million.
As
mentioned in “Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Adjustment of
Tariffs”, from April 1, 2017 we received a tariff increase of
64.2%. This tariff increase was granted under the RTI process,
which will culminate when the Argentine government approves the
terms of the 2017 Integral Renegotiation Agreement signed by us on
March 30, 2017. According to the regulations issued by ENARGAS and
Resolution 74, the tariff increase arising from the RTI process is
granted in three stages (April 1 and December 1 2017 and April 1,
2018), that are designed to provide the same economic benefit to us
as an increase of 214.2% for the natural gas transportation service
and 37.0% for the CAU, if such increases had been fully effective
as from April 1, 2017.
Based
on the volume of natural gas transported during the year 2016, the
positive effect in net revenues for fiscal year 2017 of the first
tranche of the tariff increase would be approximately Ps. 1,300.3
million.
Liquids Production and Commercialization Segment.
Unlike
the natural gas transportation segment, revenues of the Liquids
production and commercialization segment are not subject to full
regulation by ENARGAS and the Federal Energy Bureau. However, in
recent years, the Government has enacted a number of laws and
regulations that have limited our ability to receive the full
international market prices for all of the liquids that the Cerri
Complex produces. In addition, ENARGAS has the ability to redirect
the volumes of natural gas in the system to cover certain uses and
that may result in lower volumes of natural gas to be processed in
the Cerri Complex. See “Item 4. Our Information.
B—Business Overview—Liquids Production and
Commercialization—Regulation” for more
information.
The
Liquids production and commercialization segment represented 64.4%
and 68.8% of our total net revenues during the years ended December
31, 2016 and 2015, respectively. Production and Commercialization
of Liquids activities are conducted at the Cerri Complex, which is
located near Bahía Blanca and connected to each of our main
pipelines. At the Cerri Complex, we recover ethane, LPG and natural
gasoline for our own account, on behalf of our customers and on a
fee basis, collecting a commission for the extracted Liquids
delivered to our customers.
During
2016 we processed on behalf of our customers only 3.7% of the
volume sold, compared with approximately 20.2% of the volume sold
in 2015.
All
ethane produced by our Liquids segment in the year ended December
31, 2016 was sold locally to PBB. Our long-term contract with PBB
expired on December 31, 2015. Sales to PBB from January to April
2016 were made on a month-to-month basis for January-April 2016,
and we reached a new agreement for the period May 1, 2016 - May 1,
2017. This agreement provides for the delivery of all of our ethane
to PBB and also allows us to obtain profit margins in line with
those obtained in recent years. However, this contract provides for
delivery of lower annual volumes than the expired contract
did.
Our
ethane sales for the years 2016 and 2015 represented 38.7% and
42.7% of our Liquids Production and Commercialization net revenues.
For this reason, any decrease in the volumes of ethane sold to PBB
may have a negative impact on our net revenues.
In
2016, we sold 59.3% of our production of LPG in the local market to
LPG marketers (58.0% in 2015), with the remainder exported to LPG
traders. In addition, all natural gasoline produced during 2016 was
exported to Petroleo Brasileiro. For more information about these
contracts, see “Item 4. Our Information. B—Business
Overview—Liquids Production and
Commercialization.”
The
total annual sales for the Cerri Complex for 2016 and 2015 in short
tons, which include liquids sales made on behalf of third parties,
from which we withhold fees for production and commercialization,
were as follows:
|
|
Year
ended December 31, 2016 compared to
year
ended December 31, 2015
|
|
|
|
|
|
|
|
|
Local Market
|
|
|
|
|
Ethane
|
305,861
|
306,097
|
(236
)
|
(0.1
)
|
Propane
|
194,447
|
190,530
|
3,918
|
2.1
|
Butane
|
155,842
|
162,316
|
(6,474
)
|
(4.0
)
|
Subtotal
|
656,151
|
658,943
|
(2,792
)
|
(0.4
)
|
|
|
|
|
|
Exports
|
|
|
|
|
Propane
|
151,129
|
156,380
|
(5,251
)
|
(3.4
)
|
Butane
|
88,972
|
99,556
|
(10,584
)
|
(10.6
)
|
Natural
Gasoline
|
108,741
|
118,229
|
(9,489
)
|
(8.0
)
|
Subtotal
|
348,841
|
374,166
|
(25,324
)
|
(6.8
)
|
Total
Liquids
|
1,004,992
|
1,033,109
|
(28,116
)
|
(2.7
)
|
Export
revenues from our Liquids production and commercialization segment
command a price premium, as compared to our domestic market sales,
primarily as a result of government regulation of domestic prices
See “Item 8. Financial Information— A. Consolidated
Statements and Other Financial
Information—Exports.”
For
several years, until the end of 2016, a variable export tax regime
has been in force for natural gasoline, propane and butane,
respectively. During 2015, to address declining international
prices, the Government introduced several changes to the mechanism
used to calculate the export taxes. These changes partially offset
the impact of lower prices of propane, butane and natural gasoline
during 2015 and 2016, compared with previous years. As of January
1, 2015 the nominal rate applicable to natural gasoline exports was
reduced to 1% when the price of the Brent crude oil is less than 71
US$/bbl. In addition, as from February 25, 2015, the nominal export
tax rate is 1% for propane and butane if the international prices
are lower than US$ 464 and US$ 478 per metric ton, respectively.
When the prices are higher, the applicable tax rate is calculated
on a sliding scale according to the amount by which the actual
price exceeds those prices.
The
export tax regime expired at the end of 2016. During the year ended
December 31, 2016, when the applicable average rates were 1%, the
total withholdings on exports accrued was Ps. 11.1
million.
We
cannot offer any assurance regarding the absence of withholding
export taxes or the rate of any such taxes that may be
reimposed.
In the
domestic market, the Ministry of Energy has recently issued a
series of measures that are expected to reduce the negative impact
that the decrease in the international reference prices and the
cost of natural gas have on our operating income. These measures
include an increase in the sale price and the compensation from
selling propane and butane bottles under the New Program, as well
as the Ministry of Energy’s modification of the methodology
for calculating the export parity price of the propane and butane
sold in the domestic market.
In
April 2017, the SRH issued Resolution 56 which increased the price
of the butane sold under the New Program from Ps. 650/tn to Ps.
2,568/tn. However, the compensation to be collected was not
changed. In addition, Resolution 74 increased the price of the
propane sold under the Propane for Networks Agreement from Ps.
800/tn and Ps. 2,100/tn to Ps. 1,267/tn and Ps. 2,832/tn, depending
on the customer class. Under this agreement, we still collect the
compensation from the Government, which is calculated taking into
consideration the export parity price published monthly by the
Ministry of Energy.
See
“Item 4. Our Information—B. Business
Overview—Liquids Production and
Commercialization—Regulation—International
Market.” for additional information.
During 2016, the
Liquids Production and
Commercialization business segment recorded
operating income of Ps. 1,238.7 million, compared
to Ps. 863.5 million in 2015. The main factors that affected the
results of operations for this segment during 2016 were the
following:
●
Segment revenue
increased by Ps. 1,860.5 million in 2016, compared with the
previous year. This increase is mainly due to: (i) the increase of
Ps. 1,539.5 million as a result of depreciation of the Argentine
peso against the U.S. dollar, (ii) an increase of Ps. 354.2 million
resulting from higher volumes sold for our own account, (iii)
higher storage and dispatch fees of Ps. 134.8 million and (iv)
higher subsidies received under the New Program of Ps. 56.9
million. All these effects were partially offset by the impact of
the 2015 annual adjustment of the ethane price and lower
international reference prices (a decrease of Ps. 381.2
million).
●
Average propane and
butane international prices recorded an inter-annual increase of
6.6% and 7.4%, respectively, whereas natural gas prices decreased
by 16.5%, although the pace of the decrease slowed as the year
progress. Such decrease, which was smaller than in previous years,
is a result of the regularization of inventories and the increase
in oil prices by the end of 2016 (as a result of the decisions
adopted by the OPEC countries and other producing countries to
decrease production to recover prices). Average international
prices as of December 2016 and as of December 2015 increased 65.7%,
72.4% and 19.6% for propane, butane and natural gas,
respectively.
Notwithstanding the
changes made to the the New Program to
supply butane to the domestic market described above, our
obligations under this program continues to have an adverse impact
on this segment, resulting in a negative operating margin on
domestic sales of LPG.
●
Costs of sales,
administrative and selling expenses for the year ended December 31,
2016 increased by Ps. 1,390.3 million, from Ps. 2,041.7 million to
Ps. 3,432.0 million
,
as
compared to the year ended December 31, 2015. This increase was
mainly due to: (i) the rise in the price of natural gas that we are
required to purchase in replacement of the energy content we
extract from the gas stream or (Replenishment Thermal Plant, or
“RTP”
) as part
of the Liquids processing business of Ps. 1,164.1 million, (ii)
higher management fee of Ps. 56.5 million, (iii) labor costs of Ps.
40.7 million, (iv) higher turnover tax of Ps. 32.4 million, (iv)
the increase in the bad debts account of Ps. 20.4 million. These
effects were partially offset by the decrease in the withholding
tax on exports of Ps. 50.0 million.
In
recent years, given the increase in the export capacity of the
United States, we obtained lower fixed charges over Mont Belvieu
prices per ton of volume sold. However, the sharp decline in
international prices that began in 2014 and continued through 2015
began to reverse slightly in 2016 as a result of the normalization
of inventory levels of NGL in the United States, and the impact of
the recovery in the oil price toward the end of the year. Although
prices at December 31, 2016 are well below the levels observed two
years ago, in 2016, the international market began to show some
signs of recovery.
In
October 2016, we entered into a term agreement with Geogas Trading
that will expire on April 30, 2017 for the sale of 25,353 short
tons of propane and 11,023 short tons of butane per month. This
agreement improves the charges obtained in spot sales and will
provide some certainty for the trading of these products in the
short term.
Regarding natural
gasoline export agreements, in January 2016 we entered into a
one-year agreement with Petróleo Brasileiro S.A. This
agreement contemplates the delivery of 110,023 short tons at
international prices minus a discount per sold ton. During 2017, we
sold natural gasoline to Shell at spot prices minus a discount per
sold ton. We are currently negotiating with Shell the terms of an
agreement to for sales of natural gasoline until January
2018.
The
decline in international reference prices could adversely affect
the operating margins of our Liquids Production and
Commercialization business segment. We cannot predict the level or
the timing of fluctuations in prices for LPG and natural gasoline
prices.
As
described in “Item 4. Our Information— B. Business
Overview—Liquids Production and
Commercialization—Regulation,” in 2008, the Executive
Branch created the gas charge through Decree No. 2,067/08. The gas
processing charge increased from Ps. 0.049 to Ps. 0.405 per cubic
meter of natural gas on December 1, 2011. This modification in the
charge meant an increase of approximately 726.5% of the charge
created by Decree No. 2,067/08 for the financing of natural gas
imports. We are currently challenging the increased gas charge
before the Court of Appeals in administrative federal matters based
in the Autonomous City of Buenos Aires. In July 2012, this court
issued a preliminary injunction, ordering the Executive Branch (the
Federal Energy Bureau), ENARGAS and NAFISA, as collection agents,
not to bill or attempt to collect from us the gas processing
charge, and permitting us to continue the billing and collection of
the amounts stated prior to the issuance of the Gas Charge
Resolutions, pending resolution of the dispute. In October 2016, we
obtained a new six-month extension of this injunction that suspends
the effect of Gas Charge Resolutions issued by ENARGAS. Although,
as of April 1, 2016, we are no longer required to pay the Gas
Charge due to the enactment of Ministry of Energy Resolution 28, we
are still requesting the extension of the precautionary measure
since the aforementioned resolution leaves without effect the
administrative acts that established the value of the Gas Charge as
of was sanction, but nothing disposes with respect to the amounts
accrued in the past that we did not pay as a consequence of having
the precautionary measure. See “Item 8.—Financial
Information—A. Consolidated Statements and Other Financial
Information—Tax Claims.”
We have
not recorded the increase of the charge for gas consumption since
July 2012, when we obtained the injunction. If the injunction had
not been obtained, the impact of the Gas Charge Resolutions,
assuming that we were able to recover the charge in the sale price
of our Liquids, would have had a significantly negative impact on
our future results of operations. We estimate that the impact of
the Gas Charge Resolutions for the year ended December 31, 2016,
(from January 2016 until April 1, 2016, the effective date of
Resolution 28), assuming that we were able to recover the charge to
the sales price of the product, would have resulted in a pro forma
net loss of Ps. 52.1 million and an operating loss for the segment
for the year ended December 31, 2016.
The
cumulative impact on retained earnings from 2012 to 2016 had we not
obtained the injunctions would have been a reduction of Ps. 601.6
million.
The
factors mentioned above have contributed to decreasing the
operating margins that we are able to achieve in this segment. This
situation was mitigated by internal factors such as the
implementation of measures to improve performance in the recovery
of natural gas liquids at Cerri Complex and the execution of
natural gas supply agreements that ensured its provision at
reasonable prices, and external factors such as the favorable
weather conditions. These internal and external mitigating factors
resulted in lower restrictions to the reception of natural gas for
RTP.
Other Services
This
segment includes midstream services. Midstream services include
natural gas treatment, separation and removal of impurities from
the natural gas stream and compression services, which are
generally rendered to the natural gas producers at the wellhead, as
well as activities related to construction, operation and
maintenance of pipelines and compressor plants.
During 2016, the
Other services business
segment recorded an
operating profit
of Ps. 237.8 million, compared to Ps. 109.3 million in 2015. The
main factors that affected the results of operations of this
segment during 2016 are the following:
●
Net revenues
increased by Ps. 225.2 million primarily due to the increase in the
foreign exchange rate of the Argentine peso compared to the U.S.
dollar (Ps. 150.9 million) and higher volume of natural gas
compression services (Ps. 61.8 million).
●
Costs of sales,
administrative and selling expenses increased by Ps. 95.3 million,
mainly due to increases in: (i) labor costs (Ps. 35.4 million),
(ii) costs of services rendered to third parties (Ps. 14.1
million), (iii) depreciations (Ps. 14.2 million), (iv) other
operating costs (Ps. 12.5 million), (v) management fee (Ps. 7.9
million), and (vi) turnover tax (Ps. 6.9 million).
Telecommunications
Telecommunication
services are rendered by our subsidiary, Telcosur.
During 2016, the
Telecommunications
business segment recorded an
operating
profit of Ps. 18.0 million, compared to Ps. 13.7 million in 2015.
The main factors that affected the results of operations of this
segment during 2016 are the following:
●
Net revenues
increased by Ps. 16.6 million in the year ended December 31, 2016
when compared to 2015. The positive variation was mainly due to the
increase in the foreign exchange rate of the Argentine peso
compared to the U.S. dollar (Ps. 15.7 million).
●
Costs of sales,
administrative and selling expenses increased by Ps. 11.8 million,
due mainly to higher labor cost of Ps. 7.6 million and turnover tax
of Ps. 1.9 million.
Discussion of Results of Operations for the Two Years Ended
December 31, 2015 and 2014
The
following table presents a summary of our consolidated results of
operations for the years ended December 31, 2015 and 2014, stated
in millions of pesos, and the increase or decrease and percentage
of change between the periods presented:
|
|
Year
ended December 31, 2015 compared to
year
ended December 31, 2014
|
|
|
|
|
|
Revenues
from sales
|
4.226,7
|
4,304.0
|
(77.4
)
|
(1.8
%)
|
Operating
costs
|
(2.508,9
)
|
(2,325.3
)
|
(183.6
)
|
7.9
%
|
Depreciation
|
(251.0
)
|
(240.2
)
|
(10.8
)
|
4.5
%
|
Costs
of sales
|
(2.759,9
)
|
(2,565.5
)
|
(194.4
)
|
7.6
%
|
Gross
profit
|
1.466,7
|
1,738.4
|
(271.8
)
|
(15.6
%)
|
Administrative and
selling expenses
|
(443.0
)
|
(810.8
)
|
367.9
|
(45.4
%)
|
Other operating
(loss) / income
|
(335.4
)
|
4.9
|
(340.4
)
|
-
|
Operating
profit
|
688.2
|
932.5
|
(244.3
)
|
(26.2
%)
|
Net financial
results
|
(974.2
)
|
(765.7
)
|
(208.5
)
|
27.2
%
|
Share of profit
from associates
|
0.2
|
2.9
|
(2.6
)
|
(89.7
%)
|
Income tax income/
(expense)
|
113.5
|
(64.8
)
|
178.3
|
(275.3
%)
|
Total
comprehensive (loss) / income
|
(172.1
)
|
105.0
|
(277.1
)
|
(263.9
%)
|
Year 2015 Compared to Year 2014
Total comprehensive income
For the
year ended December 31, 2015, we reported a total comprehensive
loss of Ps. 172.1 million, in comparison to the total comprehensive
income of Ps. 105.0 million reported in the year 2014.
The
negative variation in the comprehensive net results for fiscal year
ended December 31, 2015, was mainly attributed to the decrease of
the operating (loss) / profit amounting to Ps. 244.3 million (26.2%
below that of 2014) and the net financial results to Ps. 208.5
million (27.2% below that of 2014). To that extent, it is worth
highlighting:
●
The acquisition
from Pampa of the Rights of the Arbitration Proceedings received as
payment of the loan granted to Pampa in October 2011 represented a
loss of Ps. 324.4 million for the year ended December 31, 2015. The
exercise of the Rights of the Arbitration Proceedings will enable
us to fulfill the conditions set in the 2017 Integral Renegotiation
Agreement.
●
Liquids Production
and Commercialization net revenues decreased by Ps. 335.5 million
(10.3% with respect to 2014) from 3,243.3 million to 2.907,8
million during the year 2015. This decrease was principally due to
the significant drop by more than 50% in international reference
prices.
●
These effects were
partially offset by lower export taxes after changes to the
calculation of export taxes that came into effect in the first
quarter of 2015.
Net
financial expenses rose to Ps. 974.2 million at the close of fiscal
year ended December 31, 2015, compared to Ps. 765.7 million
reported for previous year, representing a negative variation of
Ps. 208.5 million, or 27.2%.
Cost of sales, administrative and selling expenses
Cost of
sales for the years ended on December 31, 2015 and 2014 represented
65.3% and 59.6%, respectively, of net revenues reported in these
years.
Administrative and
selling expenses for the years ended on December 31, 2015 and 2014
represented 10.5% and 18.8%, respectively, of net revenues reported
in both of these years. The reduction in administrative and selling
expenses was mainly due to the decrease in the withholding tax on
exports after the issuance of Resolutions No. 1,077/2014 and
60/2015, which reduced the applicable tax rate to 1%.
See.
“—Analysis of Operating Profit by Business Segment for
the years ended December 31, 2015 and 2014.”
Share of profit / (loss) from associates
In the
year ended December 31, 2015, we recorded a share profit from
associates of Ps. 0.2 million, compared to the loss of Ps. 2.9
million recorded in the year ended December 31, 2014.
Net Financial Results
Net
financial results for the years ended December 31, 2015 and 2014
are as follows:
|
|
|
|
|
Financial
income
|
|
|
Derivative
financial instruments results
|
128.5
|
-
|
Interest
income
|
79.4
|
219.4
|
Fair value gains on
financial instruments through profit and loss
|
55.9
|
24.8
|
Foreign exchange
gain
|
288.8
|
218.9
|
Subtotal
|
552.6
|
463.1
|
Financial
expenses
|
|
|
Interest
expense
|
(343.1
)
|
(310.5
)
|
Foreign exchange
loss
|
(1,165.8
)
|
(777.8
)
|
Derivative
financial instruments results
|
-
|
(103.5
)
|
Other financial
charges
|
(41.7
)
|
(47.4
)
|
Less:
Amounts capitalized on qualifying
assets
|
23.9
|
10.4
|
Subtotal
|
(1,526.7
)
|
(1,228.8
)
|
Total
|
(974.1
)
|
(765.7
)
|
Negative financial
expenses for the year ended December 31, 2015, amounted to Ps.
974.2 million, compared to Ps. 765.7 million reported during the
year 2014. This increase of Ps. 208.5 million is mainly due to
higher losses generated by the impact in the variation of the
Argentine peso exchange rate against the U.S. dollar during 2015 of
Ps. 318.2 million and the lower interests on financial assets of
Ps. 140.0 million. These negative effects were partially offset by
the positive variation on the result of derivative
instruments.
To
partially offset the negative impact of the Argentine peso exchange
rate variation against the U.S. dollar on our net monetary
liability position, in 2015 we continued the mitigation actions we
started in 2014, including currency forward agreements and
investments in financial instruments that reflect the variation in
the exchange rate. Currency forward agreements had a positive
impact during 2015 of Ps. 128.5 million, against the loss recorded
during 2014 of Ps. 103.5 million.
Analysis of Operating Profit by Business Segment for the Two Years
Ended December 31, 2015 and 2014
The
following table sets forth revenues and operating income for each
of our business segments for the years ended December 31, 2015 and
2014:
|
|
Year
ended December 31, 2015 compared to
year
ended December 31, 2014
|
|
|
|
|
|
Natural
Gas Transportation
|
|
|
|
|
Revenues from
sales
|
1,014.0
|
744.1
|
269.9
|
36.3
%
|
Cost of
sales
|
(758.5
)
|
(626.7
)
|
(131.8
)
|
(21.0
%)
|
Gross
profit
|
255.5
|
117.4
|
138.1
|
117.6
%
|
Administrative and
selling expenses
|
(220.7
)
|
(157.3
)
|
(63.4
)
|
(40.3
%)
|
Other operating
expense
|
(333.0
)
|
(2.5
)
|
(330.5
)
|
(13.172,1
%)
|
Operating
loss
|
(298.2
)
|
(42.4
)
|
(255.8
)
|
(603.2
%)
|
|
|
|
|
|
Liquids
Production and Commercialization
|
|
|
|
|
Revenues from
sales
|
2,907.8
|
3,243.3
|
(335.5
)
|
(10.3
)%
|
Cost of
sales
|
(1,869.4
)
|
(1,828.3
)
|
(41.1
)
|
(2.2
%)
|
Gross
profit
|
1,038.4
|
1,415.0
|
(376.6
)
|
(26.6
%)
|
Administrative and
selling expenses
|
(172.3
)
|
(605.3
)
|
433.1
|
71.5
%
|
Other operating
(expense) / income
|
(2.7
)
|
7.2
|
(9.9
)
|
(137.0
%)
|
Operating
profit
|
863.5
|
816.9
|
46.6
|
5.7
%
|
|
|
|
|
|
Other
services
|
|
|
|
|
Revenues from
sales
|
260.6
|
256.7
|
3.9
|
1.5
%
|
Cost of
sales
|
(108.6
)
|
(90.4
)
|
(18.2
)
|
(20.1
%)
|
Gross
profit
|
152.0
|
166.3
|
(14.3
)
|
(8.6
%)
|
Administrative and
selling expenses
|
(42.9
)
|
(40.7
)
|
(2.2
)
|
(5.4
%)
|
Other operating
income
|
0.2
|
0.2
|
-
|
(17,7
%)
|
Operating
profit
|
109.3
|
125.8
|
(16.5
)
|
(13.1
%)
|
|
|
|
|
|
Telecommunications
|
|
|
|
|
Revenues from
sales
|
44.2
|
59.9
|
(15.7
)
|
(26.2
%)
|
Cost of
sales
|
(23.4
)
|
(20.1
)
|
(3.3
)
|
(16.3
%)
|
Gross
profit
|
20.8
|
39.7
|
(18.9
)
|
(47.7
%)
|
Administrative and
selling expenses
|
(7.1
)
|
(7.5
)
|
0.4
|
5.7
%
|
Operating
profit
|
13.7
|
32.2
|
(18.5
)
|
(57.4
%)
|
Regulated Natural Gas Transportation Segment
The
Natural Gas Transportation business segment represented 24.0% and
17.3% of our total revenues during the years 2015 and 2014,
respectively.
Revenues relating
to the CAU amounted to Ps. 72.4 million and Ps. 49.9 million for
the years ended December 31, 2015 and 2014, respectively. See
“Item 4. Our Information—B. Business
Overview—Natural Gas Transportation—Pipeline
Operations—Pipeline Expansions” for additional
information regarding the CAU.
During 2015, the
Natural Gas Transportation
business segment recorded an
operating
loss of Ps. 298.2 million, compared to the operating loss of Ps.
42.4 million in 2014. The main factors that affected the results of
operations of this segment during 2015 are the
following:
●
Revenues from the
Natural Gas Transportation business segment increased by Ps. 269.9
million for the year 2015 compared to 2014. The increase was mainly
due to: (i) the impact of the new rate schedules of natural gas
transportation tariffs approved by Resolutions I-2852 and I-3347,
necessary to achieve the temporary stabilization of the net
revenues for this business segment until the Integral Renegotiation
Agreement is signed, and (ii) higher natural gas transportation
services to export customers.
●
Revenues related to
natural gas firm transportation contracts for the years ended
December 31, 2015 and 2014, respectively, amounted to Ps. 801.5
million and Ps. 581.6 million, and revenues related to
interruptible natural gas transportation service amounted to Ps.
103.5 million and Ps. 82.7 million, respectively.
●
Costs of sales and
administrative and selling expenses for the year ended December 31,
2015 increased by Ps. 195.2 million, from Ps. 784.0 million to Ps.
979.2 million
,
as compared
to the year ended December 31, 2014. This increase was mainly
attributable to higher labor costs relating to the joint
negotiations during 2015, amounting to Ps. 117.4 million and an
increase of Ps. 25.1 million in maintenance expenses for the
pipeline and other fixed assets.
●
The negative
variation in other operating expense was mainly due to the charge
of Ps. 324.4 million recorded by the acquisition of the Rights of
the Arbitration Proceedings from Pampa, as mentioned
above.
Liquids Production and Commercialization Segment.
The
Liquids production and commercialization segment represented 68.8%
and 75.4% of our total net revenues during the years ended December
31, 2015 and 2014, respectively.
All
ethane produced by our Liquids segment in the year ended December
31, 2015 was sold locally under a long-term contract with PBB.
During 2014, for commercial reasons, PBB decided to purchase a
smaller volume of ethane from us, giving priority to the product
provided by MEGA. Our ethane sales for the years 2015 and 2014
represented 42.7% and 29.7% of our Liquids Production and
Commercialization net revenues. For this reason, any decrease in
the volumes of ethane sold to PBB may have a negative impact on our
net revenues.
In
2015, we sold 58.0% of our production of LPG in the local market to
LPG marketers (59.3% in 2014), with the remainder exported to LPG
traders such as Petredec and Geogas, among others. In addition, all
natural gasoline produced during 2015 was exported to Petroleo
Brasileiro, a related party, Braskem and Trafigura. For more
information about these contracts, see “Item 4. Our
Information. B—Business Overview—Liquids Production and
Commercialization.”
The
total annual sales for the Cerri Complex for 2015 and 2014 in short
tons, which include liquids sales made on behalf of third parties,
from which we withhold fees for production and commercialization,
were as follows:
|
|
Year
ended December 31, 2015 compared to
year
ended December 31, 2014
|
|
|
|
|
|
|
|
|
Local Market
|
|
|
|
|
Ethane
|
306,097
|
330,960
|
(24,863
)
|
(7.5
%)
|
LPG
|
352,846
|
361,711
|
(8,865
)
|
(2.5
%)
|
Subtotal
|
658,943
|
692,671
|
33,728
|
(10.0
%)
|
|
|
|
|
|
Exports
|
|
|
|
|
LPG
|
255,936
|
248,120
|
7,816
|
3.2
%
|
Natural
Gasoline
|
118,229
|
97,196
|
21,033
|
21.6
%
|
Subtotal
|
374,166
|
345,316
|
28,849
|
24.8
%
|
Total
Liquids
|
1,033,109
|
1,037,987
|
(4,879
)
|
(14.8
%)
|
Export
revenues from our Liquids production and commercialization segment
command a price premium, as compared to our domestic market sales,
primarily as a result of government regulation of domestic prices
and high prices and demand for liquids on the international
markets. See “Item 8. Financial Information— A.
Consolidated Statements and Other Financial
Information—Exports.” For several years now, a variable
export tax regime has been in force for natural gasoline, propane
and butane, respectively. During 2014, until the enactment of
Resolutions No. 1,077/2014 and 60/2015, the minimum effective tax
rate was 31.03% when international prices were lower than US$1,028,
US$663 and US$678 per metric ton (or US$932, US$601 and US$615 per
short ton). If international prices exceed these amounts, the
marginal tax rate applicable to the excess is 100%. As a result of
this export tax regime, we were unable to obtain post-tax prices of
more than US$709, US$457 and US$468 per metric ton (or US$643,
US$415 and US$424 per short ton, respectively) of natural gasoline,
propane and butane, respectively. Due to international prices, the
average effective tax rate for 2014 was 32.8%, 31.5% and 33.7% for
propane, butane and natural gasoline, respectively.
To
address declining international prices as from January 1, 2015, the
Government reduced the withholding export taxes, so that we could
partially compensate for the decrease in the price of propane,
butane and natural gasoline. On December 29, 2014, the MEF issued
Resolution No. 1,077/2014, which modified the rates applicable to
the export of oil and oil by-products, including the natural
gasoline sold by us. This resolution is effective as from January
1, 2015 and reduces the nominal rate applicable to natural gasoline
exports to 1% when the price of the Brent crude oil is less than 71
US$/bbl. In addition, on February 25, 2015, the MEF issued
Resolution No. 60/2015, which modified the variable export tax
regime established under Resolution No. 127/08. According to the
new methodology, the minimum nominal tax rate is 1% if the
international prices for propane and butane are lower than US$ 464
and US$ 478 per metric ton, respectively. When the prices are
higher, the applicable tax rate is calculated on a sliding scale
according to the amount by which the actual price exceeds the
cut-off prices.
During 2015, the
Liquids Production and
Commercialization business segment recorded an
operating income of Ps. 863.5 million, compared to
Ps. 816.9 million in 2014. The main factors that affected the
results of operations for this segment during 2015 were the
following:
●
The Liquids
Production and Commercialization segment revenue decreased by Ps.
335.5 million in 2015, compared with the previous year. This
decrease is mainly due to the reduction in sale prices for propane,
butane and natural gasoline as a result of the decrease in the
international reference prices since the second half of 2014, as
well as lower fixed charges per metric ton obtained in export
agreements during the year ended December 31, 2015 (a decrease of
Ps. 979.5 million). This negative effect was partially offset by
the increase: (i) in the foreign exchange rate of the Argentine
peso compared to the U.S. dollar and the increase in the volumes
sold by our own account (an increase of Ps. 389.5 million), (ii)
the favorable weather conditions which increased the volume sold
for our own account (an increase of Ps. 60.4 million, and (iii) the
impact of the annual adjustment of the ethane price of Ps. 194.3
million, corresponding to the TOP clause included in the agreement
with PBB.
Our average export sales prices in 2015 for LPG
and natural gasoline were 53.2% and 55.6% lower than in 2014.
International reference prices for propane, butane and natural
gasoline decreased 56.5%, 50.1% and 42.2%, respectively, over the
course of 2015, hitting their lowest levels in the last 12 years.
The factors underlying this decrease
are the weaker demand of emerging
markets as wells as higher production levels and export capacity
due to the development of shale gas fields in the United States of
America.
Low prices have
continued thus far in 2016; for example, our average export sales
prices for propane, butane and natural gasoline during the first
quarter of 2016 decreased by 13.9%, 12.8% and 37.6% respectively,
from the levels in the average selling price in 2015. If prices do
not increase, the operating results for this segment in 2016 will
be continue being adversely affected.
●
Costs of sales,
administrative and selling expenses for the year ended December 31,
2015 decreased by Ps. 392.0 million, from Ps. 2,433.6 million to
Ps. 2,041.7 million
,
as
compared to the year ended December 31, 2014. This decrease was
mainly due to reduction in the withholding export tax of Ps. 450.5
million as a consequence of the modifications introduced by the
Government mentioned in Item 4 —B. Business
description—Liquids Production and Commercialization.”
This effect was partially offset by the increase in labor costs of
Ps. 23.0 million and the variable production costs of liquids
resulting from the rise in the price of natural gas that we are
required to purchase in replacement of the energy content we
extract from the gas stream or RTP as part of the Liquids
processing business of Ps. 26.1 million.
In
October 2015, we entered into a term agreement with Geogas Trading
that will expire on April 30, 2016 for the sale of 25,353 short
tons of propane and 11,023 short tons of butane per month. This
agreement improves the charges obtained in spot sales and will
provide some certainty for the trading of these products in the
short term.
Regarding natural
gasoline export agreements, in January 2016 we entered into a term
agreement, for the term of one year, with Petróleo Brasileiro
S.A. This agreement contemplates the delivery of 110,023 short tons
at international prices minus a discount per sold ton.
As
described in “Item 4. Our Information— B. Business
Overview—Liquids Production and
Commercialization—Regulation,” in 2008, the Executive
Branch created the gas charge through Decree No. 2,067/08. The gas
processing charge increased from Ps. 0.049 to Ps. 0.405 per cubic
meter of natural gas effective from December 1, 2011. We are
currently challenging the increased gas charge, before the Court of
Appeals in administrative federal matters based in the Autonomous
City of Buenos Aires. In July 2012, this court issued a preliminary
injunction, ordering the Executive Branch (the Federal Energy
Bureau), ENARGAS and NAFISA, as collection agents, not to bill or
attempt to collect from us the gas processing charge, and
permitting us to continue the billing and collection of the amounts
stated prior to the issuance of the Gas Charge Resolutions, pending
resolution of the dispute. See “Item 8.—Financial
Information—A. Consolidated Statements and Other Financial
Information—Tax Claims.”
We have
not recorded the increase of the charge for gas consumption since
July 2012, when we obtained the injunction. If the injunction had
not been obtained, the impact of the Gas Charge Resolutions,
assuming that we were able to recover the charge in the sale price
of our Liquids, would have had a significantly negative impact on
our future results of operations. We estimate that the impact of
the Gas Charge Resolutions for the year ended December 31, 2015,
assuming that we were able to recover the charge to the sales price
of the product, would have resulted in an additional net expense of
Ps. 177.3 million and an operating loss for the segment for the
year ended December 31, 2015.
The
cumulative impact on retained earnings from 2012 to 2015 had we not
obtained the injunctions would have been a reduction of Ps. 549.5
million.
Other Services
During 2015, the
Other services business
segment recorded an
operating profit
of Ps. 109.3 million, compared to Ps. 125.8 million in 2014. The
main factors that affected the results of operations of this
segment during 2015 are the following:
●
Net revenues
increased by Ps. 3.9 million in the year ended December 31, 2015,
when compared to 2014 primarily due to: (i) higher revenues from
steam generation services for electricity generation (an increase
of Ps. 6.6 million), (ii) higher revenues from management services
rendered to the Gas Trust for the realization of the expansions in
the pipeline system (an increase of Ps. 5.6 million) and (iii)
higher compression of natural gas services by Ps. 1.1 million.
These increases were partially offset by new operation and
maintenance contracts (an increase of Ps. 13.7
million)
●
Costs of sales,
administrative and selling expenses for the year ended December 31,
2015 increased by Ps. 20.4 million, from Ps. 131.1 million to Ps.
151.5 million
,
as compared
to the year ended December 31, 2014.
Telecommunications
During 2015, the
Telecommunications
business segment recorded an
operating
profit of Ps. 13.7 million, compared to Ps. 32.2 million in 2014.
The main factors that affected the results of operations of this
segment during 2015 are the following:
●
Net revenues
decreased by Ps. 15.7 million in the year ended December 31, 2015
when compared to 2014. The negative variation was mainly due to
lower telecommunication services amounting to a decrease of Ps.
18.2 million, principally as a consequence of the reduction in the
services provided to Silica Networks in 2015. This effect was
partially offset by the increase in the Argentina peso / U.S.
dollar exchange rate (an increase of Ps. 2.4 million).
●
Costs of sales,
administrative and selling expenses for the year ended December 31,
2015 increased by Ps. 2.8 million, from Ps. 27.6 million to Ps.
30.5 million
,
as compared to
the year ended December 31, 2014. The increase was principally
attributable to higher labor cost of Ps. 5.4 million, partially
offset by the decrease in turnover tax of Ps. 2.5
million.
B. Liquidity and Capital Resources
In
response to the limited availability of financing for Argentine
companies, we closely monitor our liquidity levels in order to
ensure compliance with our financial obligations and to achieve our
objectives. Our cash flows from operations have been affected in
recent years due to the lack of adjustment to our natural gas
transportation tariffs to cover increases in our operating costs
and capital expenditures. Along these lines, and as a guiding
principle, financial solvency is our main objective.
To
preserve cash surpluses, we invest in low risk and highly liquid
financial assets offered by high quality financial institutions
that are located in Argentina and the United States of America. Our
policy is designed to diversify credit risk. We also prioritize
investing our cash surpluses in U.S. dollar denominated financial
assets as our debt is almost 100% U.S. dollar
denominated.
In the
short term, the most significant factors generally affecting our
cash flow from operating activities are: (i) fluctuations in
international prices for LPG products, (ii) fluctuations in
production levels and demand for our products and services,
(iii) changes in regulations, such as taxes, taxes on exports,
tariff for our regulated business segment and price controls, (iv)
fluctuations in the natural gas price used as RTP, and
(iv) fluctuations in exchange rates.
The
Investment Plan, which at Ps. 794.3 million represents capital
expenditures of around 4 times our capital expenditures for 2015,
is expected to be concluded in 2017. We to use cash generated by
our operations to fund the capital expenditures under the
Investment Plan.
Starting in the
fourth quarter of 2014, the Liquids Production and
Commercialization business segment, as it is mentioned in
“Item 5—A. Operating results —Liquids Production
and Commercialization”, began to be affected by the sharp
decline in the reference international prices of the Liquids, which
continued during 2015 and 2016. In 2016, we also continued
participating in the Stabilization Agreement Program, through which
butane is commercialized at subsidized sales prices, despite
significantly higher production costs. For further information see
“Item 4—A. Our Information—Liquids Production and
Commercialization.”
The
factors described above have changed our operating cash flow,
especially the operating cash flow corresponding to the Liquids
business segment that in prior years had mitigated the impact of
continued low tariffs in the natural gas transportation business
segment. Nonetheless, during 2016, our operating cash generation
has been sufficient to meet our operating costs and capital
expenditures.
On
December 17, 2015, the new administration of the Executive Branch
issued certain measures that involved the relaxation of foreign
exchange controls in force over the last four years. As a result,
the official exchange rate published by Banco de la Nación
Argentina increased from Ps. 9.83 per U.S. dollar on December 16,
2015 to Ps. 13.95 per U.S. dollar on December 18, 2015. The new
regulation modifies the existing regimes related to, among others,
(i) the purchase of external assets by Argentine residents for
investment purposes; (ii) arbitration and foreign currency swap;
(iii) financial indebtedness (i.e., repatriation obligation,
mandatory deposit, minimum waiting period; prepayment); and (iv)
imports of goods and services. For additional information, see
“Item 10 – Additional information—D. Exchange
controls.”
A
further devaluation of the peso or lower liquids prices could harm
our cash-generating ability and materially adversely affect our
liquidity, our ability to carry out mandatory capital investments
and our ability to service our debt.
Our
primary sources and uses of cash during the years ended December
31, 2016, 2015 and 2014 are shown in the table below:
|
|
|
|
|
|
|
|
Cash and cash
equivalents at the beginning of the year
|
872.5
|
789.4
|
893.8
|
Cash flows provided
by operating activities
|
2,137.5
|
467.0
|
993.1
|
Cash flows used in
investing activities
|
(534.7
)
|
(228.3
)
|
(168.6
)
|
Cash flows used in
financing activities
|
(1,016.2
)
|
(294.6
)
|
(982.4
)
|
Net increase /
(decrease) in cash and cash equivalents
|
586.6
|
(55.8
)
|
(157.9
)
|
Foreign exchange
gains on cash and cash equivalents
|
95.9
|
138.9
|
53.5
|
Cash
and cash equivalents at the end of the year
|
1,555.1
|
872.5
|
789.4
|
Cash Flows Provided by Operating Activities
Cash
flows provided by operating activities were Ps. 2,137.5
million and Ps. 467.0 million in 2016 and 2015, respectively. The
increase of Ps. 1,670.5 million in 2016 against 2015 was mainly as
a result of: the improvement in operating income and the higher
income received (Ps. 162.5 million) from the liquidation of
derivative financial instruments contracted in order to mitigate
the risk of exchange rate variation on our financial
debt.
Cash flows provided by operating
activities
were Ps. 467.0
million and Ps. 1,019.0 million in 2015 and 2014, respectively. The
decrease of Ps. 552.0 million in 2015 against 2014 was mainly due
to an increase in the payments for accounts payable for the
acquisition of goods and services and the decrease in the
collection of trade receivables, which were collected in January
2016.
Cash Flows Used in Investing Activities
Cash
flows used for investing activities increased by Ps. 306.4 million
in 2016 compared with 2015. This increase is mainly due to higher
capital expenditures of Ps. 194.1 million due to higher costs
incurred for carrying out repair and maintenance of the pipeline
system operated by us. In addition, cash flow provided by sales of
financial assets not considered cash equivalents fell by Ps. 112.3
million (Ps. 61.4 million for fiscal year 2016 vs Ps. 173.7 million
for fiscal year 2015).
Cash
flows used for investing activities increased by Ps. 33.9 million
in 2015 compared with 2014. This increase is mainly due to higher
capital expenditures of Ps. 51.4 million due to higher costs
incurred for carrying out repair and maintenance of the pipeline
system operated by us.
Cash Flows used in Financing Activities
Cash
flows used in financing activities increased by Ps. 721.6 million
in 2016 compared with 2015, mainly as a result of the following:
(i) the prepayment in November 2016 of the remaining outstanding
negotiable obligations issued under the 2007 global program, (ii)
the higher cancellation of financial debt
due to the impact of the higher
exchange rate, and (iii ) the payment of dividends in January 13,
2016 in accordance with the delegations granted by the respective
Shareholders' Meetings that approved our financial statements for
the year ended December 31, 2014 and allocated income for the
payment of dividends when determined by the Board.
Cash
flows used in financing activities decreased by Ps. 687.8 million
in 2015 compared with 2014 mainly due to the payment of U.S. dollar
94.7 million of scheduled principal amortization of our financial
debt in May 2014. In May 2015 we paid U.S. dollar 30.4 million in
scheduled principal amortization of our financial
debt.
Description of Indebtedness
In
December 2004, we restructured for the first time substantially all
of our debt obligations by means of an exchange offer for new notes
(the “
Restructured
Notes
”), which was accepted by creditors holding
99.76% of the principal amount of the debt that we sought to
restructure. Taking into account the governing law of the
unrestructured amount, in July 2012 our Board of Directors has
deemed claims of creditors barred pursuant to the statute of
limitations.
Beginning in April
2007, we began a series of steps to refinance the Restructured
Notes and the amended and restated loan agreements with
Inter-American Development Bank (the
“Amended Loans”
). These
steps included a tender offer and proxy solicitation with respect
to all of the Restructured Notes (the
“Tender Offer”
), which was
completed in May 2007 and accepted by 78.4% of the note holders; a
new notes offering (described below); an optional prepayment of
amounts outstanding under the Amended Loans; and the redemption of
all of the Restructured Notes remaining after the completion of the
Tender Offer. Concurrent with the Tender Offer, we commenced an
offering of new notes in an aggregate principal amount of US$ 500
million (the
“2007
Notes”
) pursuant to our Medium Term Note Program (the
“2007 Program”
),
which provides for the issuance of up to a maximum principal amount
of US$ 650 million in notes. The interest rate for the 2007 Notes
was fixed at 7.875%, and the maturity date was May 14,
2017.
Between
August 2008 and August 2010, we cancelled the 2007 Notes with a
nominal value of US$ 125,976,000, which were purchased by us on
market, at prices lower than their nominal value. These purchases
and cancellations helped us to reduce our finance
costs.
In
addition, and in order to optimize the use of our cash, the Board
of Directors approved on October 14, 2016 the redemption of all
outstanding 2007 Notes for a remaining amount of US$ 30.8 million.
The redemption was carried out on November 14, 2016 in accordance
with the terms of the Notes and the related indenture.
In
order to improve the maturity profile of our financial debt, in
January 2014 we launched an offer for a voluntary exchange of the
2007 Notes (the
“Exchange
Offer”
). The Exchange Offer settled on February 11,
2014. Bondholders who had US$ 250,741,000 aggregate principal
amount of the 2007 Notes accepted the exchange, and we delivered to
them US$ 255,451,506 of new notes (the
“2014 Notes”
) pursuant to
our Medium Term Note Program approved by the CNV on January 3, 2014
(the
“2014
Program”
). The 2014 Notes bear interest at a
fixed rate of 9.625% per annum, and the principal will be amortized
in four equal payments, the first one amortized in May 2014 while
the remaining payments will mature on May 14, 2018, 2019 and
2020.
As of
the date of this Annual Report, our total indebtedness under the
2014 Notes amounted to US$ 191,588,630. The scheduled amortization
payments amount to US$ 63,862,876 payable in each of 2018, 2019 and
2020. See “Item 10. Additional Information – C.
Material Contracts –Debt Obligations.”
Our
Board of Directors has proposed that the 2017 Shareholders Meeting
authorize an increase of up to US$700,000,000 (or its equivalent in
other currencies) of the 2014 Program for the issue of short and
medium term notes non-convertible into our Shares.
We are
subject to several restrictive covenants under our 2014 Notes that
limit our ability to obtain additional financing, including
limitations on our ability to incur additional indebtedness to
create liens on our property, assets or revenues. In addition to
the required principal amortization payment obligations, we are
also subject to other restrictive covenants that affect our use of
cash on hand, such as limitations on our ability to pay dividends
to our shareholders and limitations on our ability to sell our
assets. See “Item 10. Additional Information—C.
Material Contracts—Debt Obligations” for a detailed
discussion of the terms of our financial debt, including the
interest rates and material covenants applicable to such
indebtedness.
We
regularly implement actions aimed at minimizing the impact of the
exchange rate variation on our financial indebtedness, including
entering into currency forward agreements with major financial
institutions for the purchase of U.S. dollars to cover exposure to
the exchange rate risk derived from our financial indebtedness. In
addition, we are able to invest in financial instruments, which
reflect the variation of the exchange rate.
During
the years 2016, 2015 and 2014 a financial (expense) / income of
(Ps. 8.9 million), Ps. 128.5 million and Ps. 38.0 million was
recognized as a result of currency forward agreements.
Future Capital Requirements
Details
of our currently projected capital expenditures for the 2017-2019
periods, in millions of U.S. dollars, are set forth in the
following table:
|
|
|
|
|
Natural Gas transportation
|
|
|
|
|
Reliability and
others
|
76.6
|
106.8
|
89.1
|
272.5
|
Expansions
|
-
|
-
|
-
|
-
|
Operational
efficiencies
|
-
|
-
|
-
|
-
|
Total
|
76.6
|
106.8
|
89.1
|
272.5
|
Liquids production and commercialization
|
|
|
|
|
Reliability and
others
|
13.9
|
9.6
|
9.0
|
32.5
|
Expansions
|
1.3
|
-
|
-
|
1.3
|
Operational
efficiencies
|
0.9
|
-
|
-
|
0.9
|
Total
|
16.1
|
9.6
|
9.0
|
34.7
|
Other services
|
4.1
|
1.1
|
0.8
|
6.0
|
Total
Capital Expenditures
|
96.8
|
117.5
|
98.9
|
313.3
|
The
table above includes the capital works necessary to comply with the
mandatory Five-Year Plan.
We
currently expect continue to rely on cash flow from operations and
short-term and long-term borrowings
and other additional financing
activities
to finance capital expenditures in the near
term.
Currency and Exchange Rates
Our
primary market risk exposure is associated with changes in the
foreign currency exchange rates because our debt obligations are
denominated in U.S. dollars and more than Ps. 3,172.4
million
(or
43.1%)
of our annual
revenues were peso-denominated in the fiscal year ended December
31, 2016. Contributing to this exposure are the measures taken by
the Government since the repeal of the Convertibility Law and the
pesification of our regulated tariffs described elsewhere in this
Annual Report. This exposure is mitigated in part by our revenues
from our Liquids Production and Commercialization business segment,
78.9% which are denominated in U.S. dollars for the year ended
December 31, 2016. See “Item 3. Key
Information—Exchange Rates Information.”
We
place our cash and current investments in high quality financial
institutions in Argentina and the United States of America. Our
policy is to limit exposure with any financial institution. Our
temporary investments primarily consist of money market mutual
funds and fixed-term deposits. Also during 2016, we changed the
fund investment policy in order to target cash investments in
higher performance financial instruments, minimizing the credit
risk and keeping a high liquidity level.
Our
strategy will remain focused on mitigating both the exchange rate
risk arising from our liabilities in dollars and the effect of
inflation on our liquidity. Also given the anticipated finalization
of the RTI process, we will analyze the financing sources for the
implementation of the Five-Year Plan.
In
addition, since 2014, we have entered into forward purchase
transactions. For further information see “—Derivative
Financial Instruments” below.
Our
financial debt obligations denominated in foreign currency as of
December 31, 2016, amounted to US$ 246.4 million (Ps. 3,915.5
million). As of December 31, 2016, we also had the equivalent of
US$ 42.2 million (Ps. 671.0 million) of trade and other
payables denominated in U.S. dollars. Finally, US$ 96.1 million
(Ps. 1,516.9 million) of our assets are denominated in U.S.
dollars. Therefore, our net liability position in U.S. dollars
amounted to US$ 232.7 million as of December 31, 2016.
We
estimate, based on the net liability financial position of our
balance sheet as of December 31, 2016 that, other factors being
constant, a 10% appreciation of the U.S. dollar against the
Argentine Peso for the year ended December 31, 2016, would have
decreased our income before tax for the year in approximately Ps.
307.0 million. A 10% depreciation of the U.S. dollar against the
Argentine Peso would have an equal and opposite effect on the
income statement. This sensitivity analysis provides only a limited
view of the market risk sensitivity of certain of our financial
instruments. The actual impact of market foreign exchange rate
changes on our financial instruments may differ significantly from
the impact shown in the sensitivity analysis.
Derivative Financial Instruments
Our
Board of Directors has approved the terms for acquiring derivative
financial instruments in order to hedge risks associated with the
fluctuation of interest and exchange rates of our
debt.
To
mitigate foreign exchange risk, during 2015 and 2014 we entered
into forward purchase transactions of U.S. dollars to cover the
risk exposure associated with exchange rates derived from our U.S.
dollar denominated financial position.
As of
December 31, 2015, the net position was buying U.S. dollars
amounting to US$ 52.5 million, at a weighted average exchange rate
of Ps. 11.37 per $1, for settlement on May 2016. The fair value of
outstanding derivative financial instruments as of December 31,
2015 amounted to a net asset position of Ps. 128.1 million. Such
contracts were guaranteed by Ps. 29.9 million, which were disclosed
under “Other Receivables.” During 2015 and 2016, we
recognized a gain / (loss) of Ps. 128.5 million and (Ps. 8.9
million), respectively, because of our currency forward purchase
transactions.
We
do not enter into derivative financial instrument agreements for
speculative purposes.
We do
not believe that we are exposed to significant interest rate risk
because the interest rates on our all of debt obligations are
fixed.
C. Research and Development, Patents and Licenses,
etc.
Not
applicable.
D. Trend Information
See
“A. Operating Results—Discussion of Results of
Operations for the Two Years ended December 31, 2016 and
2015” and “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Legal
and Regulatory Proceedings.”
E. Off-Balance Sheet Arrangements
We
currently do not have any off-balance sheet arrangements or
significant transactions with unconsolidated entities not reflected
in our Financial Statements. All of our interests in and/or
relationships with our subsidiaries are recorded in our Financial
Statements. See “B. Liquidity and Capital
Resources—Derivative Financial
Instruments.”
F.
Tabular Disclosure of Contractual Obligations
The
following table represents a summary of our contractual obligations
as of December 31, 2016:
|
Payment
due by period (in millions of argentine pesos)
|
|
|
|
|
|
|
Long-Term Debt
Obligations
(1)(2)
|
3,485.4
|
294.5
|
3,190.9
|
-
|
-
|
Purchase
Obligations
(3)
|
264.8
|
264.8
|
-
|
-
|
-
|
Leasing
(5)
|
1,187.0
|
164.9
|
237.8
|
237.8
|
546.5
|
Other Long-Term
Liabilities
(4)
|
467.2
|
467.2
|
-
|
-
|
-
|
Total
|
5,404.4
|
1,191.4
|
3,428.7
|
237.8
|
546.5
|
(1)
Refers to
amortization and interest payments on the 2014 Notes as described
in “Item 5. Operating and Financial Review of
Prospects—Description of indebtedness” and “Item
10. Additional Information—C. Material Contracts”,
respectively.
(2)
The total amount of
interest payments includes Ps. 402.9 million of estimated interest
payments not accrued according to the 2014 Notes as of December 31,
2016.
(3)
Refers to
agreements for the purchase of natural gas used in our liquids
production and commercialization activities.
(4)
Refers to the
estimated technical assistance service agreement to be paid to
Petrobras Argentina Group pursuant to Section 2.5 of the Technical
Assistance Service Agreement. For more information see, “Item
4. Our Information—B. Business Overview— Gas
Transportation—Pipeline Operations—Technical Assistance
Service Agreement.”
(5)
Corresponds to the
financial leasing arrangement entered with Pampa Energía. The
total amount includes estimated interest payment not accrued as of
December 31, 2016 for approximately Ps. 338.8 million. For
additional information see “Item 5. Operating and Financial
Review of Prospects – Description of
indebtedness.”
Approximately
99.6
% of the debt obligation
amounts set forth in the table above are U.S. dollar-denominated
and, therefore, principal and accrued interest included in the
amounts presented have been converted to peso amounts using the
selling exchange rate of US$1.00 = Ps. 15.89 as of December 31,
2016. Actual foreign currency debt payments may significantly
differ from these estimates due to exchange rate
fluctuations.
Item
6.
Directors,
Senior Management and Employees
A.
Directors
and Senior Management
General
.
Management
of our business is vested in the Board of Directors. Our By-laws
provide for a board of directors consisting of a minimum of nine
directors and a maximum of 11 directors and 11 alternate directors.
In the absence of one or more directors, alternate directors will
attend meetings of the Board of Directors. Directors and alternate
directors are elected at an ordinary meeting of shareholders and
serve one- to three-year renewable terms, as decided by the
shareholders.
Under
our By-laws and Argentine law, the Board of Directors is required
to meet at least once every three months. A majority of the members
of the Board of Directors constitutes a quorum, and resolutions
must be adopted by a majority of the directors present. In the case
of a tie, the Chairman or the person replacing him at a particular
meeting is entitled to cast the deciding vote. Upon motion by the
Chairman our Board of Directors’ meetings may be held by
video or telephone conference.
The
2017 Shareholders Meeting will consider the creation of an
Executive Committee formed by the Chairman, the Vice-Chairman and
two other members of our Board of Directors.
On July
27, 2016, GIP, WST and PCT collectively acquired shares and rights
representing indirect control of fifty percent (50%) of the
outstanding capital stock of CIESA. In addition, on that date,
Pampa Energía acquired from Petrobras Internacional Braspetro
B.V. all of the stock and voting rights of Petrobras
Participaciones S.L., the holder of the 67.1933% of the capital
stock and voting rights of Petrobras Argentina and, consequently,
the indirect control of Petrobras Hispano Argentina S.A. We refer
to these transactions as the “CIESA Acquisition”. For a
detailed description of the CIESA Acquisition, see “Item 7.
Major Shareholders and Related Party Transactions – A. Major
Shareholders.”
in
accordance with the General Companies Law and in view of the
vacancies occurred in our Board of Directors, on July 27, 2016, the
Supervisory Committee appointed the replacement Directors. Their
terms of office lasted until the General Ordinary Meeting of
Shareholders held on August 29, 2016, which appointed new directors
and Syndics to fill the vacancies. The term of office of such
directors and Syndics will end on the date of the Ordinary General
Shareholders’ Meeting that considers the financial statements
for the year ending December 31, 2016.
The
Shareholders’ Agreement (as defined in “Item 7. Major
Shareholders and Related Party Transactions—A. Major
Shareholders—Shareholders’ Agreement”) contains
provisions governing the voting of our shares held by CIESA, the
election of the members of our Board of Directors and certain other
matters.
As
mentioned above, in December 2008, as a consequence of the
enactment of Law No. 26,425, the AFJPs transferred their share
participation of our outstanding capital stock (which as of the
date of this Annual Report represents 23.1% of our common stock) to
the FGS managed by the ANSES. At our General Annual
Shareholders’ Meeting held on April 20, 2016, the ANSES
appointed Mauricio Edgardo Szmulewiez and Sergio Benito Patrón
Costas as independent directors, Ignacio Gustavo Alvarez Pizzo, and
Lourdes Armada as independent alternate directors. Pursuant to
Decree No. 1,278/12, issued by the Executive Branch on
July 25, 2012, these representatives are to report directly to
the MEF and are subject to a mandatory information-sharing regime,
under which, among other obligations, they must immediately inform
the MEF of the agenda for each board of directors meeting and
provide related documentation.
On
February 2015, the Executive Branch enacted Decree No. 196/2015,
which complements the provisions of Decree 1278/2012, mainly
extending indemnity and legal assistance coverage to directors and
statutory committee members appointed by the Government in
companies in which it has stock participation.
Decree
No. 894/2016, which created the Secretary of Economic Policy and
Planning Development, established that directors appointed by the
FGS shall have the functions, duties and powers established by the
General Companies Law, the Capital Market Law and all the rules
applicable to the company in which they act as directors, its
bylaws and other internal regulations.
The
General Companies Law governs the way directors are appointed.
Directors are appointed by the General Annual Shareholders’
Meeting or by the Statutory Committee as the case may be, when
authorized by the “By-Laws”. It is not mandatory to be
a shareholder of the company to be eligible as director. Section
263 of the General Corporations Act mandates that up to one third
of the members of the board can be appointed by the
“cumulative vote system.” The vote of each shareholder
who chooses to use the “cumulative vote system” shall
be multiplied by the number of members to be appointed; the result
may be partially or fully allocated to any of the candidates. All
of the shareholders are entitled to choose the “cumulative
vote system” in other words, not only ANSES has the right to
appoint members to the Board of Directors through that
system.
Duties and Liabilities of
Directors.
Under Argentine law, directors have the
obligation to perform their duties with the loyalty and diligence
of a prudent business person. Directors are jointly and severally
liable to us, shareholders and third parties for the improper
performance of their duties, for violating the law, our By-laws or
regulations, if any, and for any damage caused by fraud, abuse of
authority or gross negligence. Under Argentine law, specific duties
may be assigned to a director by our By-laws or regulations or by a
resolution of a shareholders’ meeting. In such cases, a
director’s liability will be determined with reference to the
performance of such duties, provided that certain recording
requirements are met. Moreover, under Argentine law, directors are
prohibited from engaging in activities in competition with us
without express shareholder authorization. Certain transactions
between us and directors are subject to ratification procedures
established by Argentine law.
A
director who participates in the adoption of a resolution or who
advises on or recognizes such resolution, will be exempted from
liability if he leaves written evidence of his objection and
notifies the Statutory Committee before his liability is reported
to the board of directors, Statutory Committee, a
shareholders’ meeting, or competent authority or before
judicial action is exercised. Shareholder approval of a
director’s performance terminates any liability of a director
vis-à-vis us, provided that shareholders representing at least
5% of our capital stock do not object and that such liability does
not result from a violation of the law or our By-laws or
regulations.
Causes
of action against directors may be initiated by us upon a majority
vote of shareholders. If a cause of action has not been initiated
within three months of a shareholders’ resolution approving
its initiation, any shareholder may initiate the action on behalf
of and for our account.
At the
General Annual Shareholders’ Meeting held on March 6, 1996,
our shareholders approved the acquisition of civil liability
insurance coverage for directors, Syndics and officers. Such
coverage is common practice among public companies who seek
protection for such persons against shareholders’ and other
parties’ claims.
Four of
the members of our Board of Directors qualify as independent as
defined in Section 301 of the Sarbanes Oxley Act and the CNV rules.
Three of them are also members of our Audit Committee. The
remaining members of the Board of Directors are not independent.
Under the independence requirements, a director is not independent
if any of the following apply:
●
is also a member of
the administrative body or dependent on shareholders who hold
“significant shareholding” of the issuer, or any
corporation in which those shareholders hold directly or indirectly
“significant shareholding,”
●
is engaged or was
engaged during the last three years to the issuer under a contract
of employment,
●
provides, or
belongs to a professional corporation or association, which renders
professional services to or receives any form of remuneration or
fees (other than the corresponding remuneration for its position in
the administration body) from the issuer, or those shareholders
that have any direct or indirect “significant
shareholding” in TGS or from corporations in which
shareholders also have any direct or indirect “significant
shareholding,”
●
directly or
indirectly holds “significant shareholding” in the
issuer or any corporation, which holds “significant
shareholding” in the latter,
●
directly or
indirectly sells or provides goods or services to the issuer or its
shareholders, who hold direct or indirect “significant
shareholding,” for an amount substantially higher than the
compensation received for their position as members of the
administration body, or
●
is a husband or
wife, close relative up to fourth degree of kinship or second
degree of relationship that, in case of being a member of the
administration body, would not be independent as set forth in the
CNV regulations.
In all
cases, “significant shareholding” refers to those
shareholders holding at least fifteen per cent (15%) of our common
stock, or less in cases when they are entitled to appoint one or
more directors per class of share, or have agreements with other
shareholders relating to management and administration of any such
companies, or its controlling entity.
The
following table reflects the current members of our Board of
Directors, their respective positions on the Board of Directors and
the year they were appointed to such position.
Name
|
Year of Appointment
|
Term Expires
|
Position
|
Position
in Other Company
|
Gustavo
Mariani
|
2011
|
2017
|
Chairman
|
Vice
Chairman and Co-Chief Executive Officer, Chief Generation Manager
and Chief of New Business at Pampa
|
Luis A.
Fallo
|
2016
|
2017
|
Vice
Chairman
|
Public
Accountant
|
Mariano
Batistella
|
2014
|
2017
|
Director
|
New
Business, Strategy and Planning Executive Director at
Pampa
|
Gregorio
Werthein
|
2016
|
2017
|
Director
|
Executive Director
at Werthein Group
|
Sonia
Fabiana Salvatierra
|
2009
|
2017
|
Director
|
Member
of the law firm Salvatierra & Asociados Abogados
|
Diego
Alberto Güerri
|
2006
|
2017
|
Independent
Director
|
Member
of the law firm Güerri & Asociados
|
Carlos
Alberto Olivieri
|
2010
|
2017
|
Independent
Director
|
Independent
Consultant
|
Mauricio Edgardo
Szmulewiez
|
2016
|
2017
|
Independent
Director
|
Legal
and accounting advisor
|
Sergio
Benito Patrón Costas
|
2016
|
2017
|
Independent
Director
|
Head in
Labor Relations at Macro Bank
|
Diego
Salaverri
|
2016
|
2017
|
Alternate
Director
|
Legal
Director at Pampa
|
Nicolás
Mindlin
|
2016
|
2017
|
Alternate
Director
|
New
Business, Strategy and Planning Director at Pampa
|
Hugo N.
Galluzo
|
2016
|
2017
|
Alternate
Director
|
Lawyer
|
Mariano
Osvaldo Ferrero
|
2011
|
2017
|
Alternate
Director
|
Legal
Counsel
|
Jorge
Sampietro
|
2016
|
2017
|
Alternate
Director
|
General
Manager at Petroquímica Cuyo S.A.I.C.
|
Alejandro
Candioti
|
2011
|
2017
|
Independent
Alternate Director
|
Partner
of Candioti Gatto Bicain & Ocantos S.C.
|
Diego
Petrecolla
|
2007
|
2017
|
Independent
Alternate Director
|
Chairman of GPR
Economía S.A.
|
Ignacio
Gustavo Álvarez Pizzo
|
2016
|
2017
|
Independent
Alternate Director
|
Lawyer
at the Directors and Corporate Affairs department in the
FGS
|
Lourdes
Armada
|
2016
|
2017
|
Independent
Alternate Director
|
Risk
analist at FGS
|
Additional
information regarding the occupation and employment background of
each of our regular directors is set forth below:
Gustavo Mariani
holds a degree in
Economics from the Universidad de Belgrano and a Master’s
degree in Business Administration from the Universidad del CEMA
(Center of Macroeconomic Studies) and also is a Chartered Financial
Analyst (CFA) since 1998. He has been a member of board of
directors of Pampa since November 2005 and serves as Vice-Chairman
and co-CEO. Mr. Mariani joined Grupo Dolphin in 1993 as an
analyst and served as an investment portfolio manager. He
currently serves as Director of Bodega Loma la Lata S.A., CPB, CTG,
Loma de La Lata, GMA Warrants S.A., Transener, CIESA,
Citelec, Comunicaciones y Consumo S.A., Consultores Fund
Management S.A., Dolphin Créditos S.A., Dolphin Créditos
Holding S.A., Dolphin Finance S.A, Grupo Mtres S.A., Emes Inversora
S.A., IEASA, EASA, Transba, Edenor, Grupo Emes S.A., Grupo Dolphin
Holding S.A., HIDISA, HINISA, Nihuiles, Diamante, IPB,
Orígenes Seguros de Vida S.A., Orígenes Seguros de Retiro
S.A., Pampa Comercializadora S.A., Pampa Participaciones II, Pampa
Participaciones, Transelec, Petrolera Pampa, Sitios Argentinos S.A,
Greenwind S.A., Parques Eólicos del Fin del Mundo S.A.,
Parques Eólicos Argentinos S.A., Dolphin Fund Management S.A.,
and PELSA and as alternate liquidator of CAM Gerenciadora S.A.
(company in liquidation). In addition, Mr. Mariani is the
executive secretary of the management board of
“Fundación Pampa Energía
Comprometidos con la Educación.”
He was born on
September 9, 1970.
Luis A. Fallo
holds a degree in
Accounting from the Universidad de La Plata and a Master’s
degree in Business Administration from the Universidad del CEMA. He
currently serves as director of Simali S.A. Sagua Argentina S.A.,
Beau Lieu S.A., Petroquímica Cuyo S.A.I.C., Aguas de Santiago
S.A., Petroken Petroquímica Ensenada S.A., PEPCA S.A. and
CIESA. Since 1999 he has also acted as executive manager of
Argentine Real Estate Investment Company S.A. He was born on
January 29, 1960.
Mariano
Batistella
currently works as New Business, Strategy
and Planning Director of Pampa Energía. Mr. Batistella
previously worked in investment banking at Goldman Sachs. Mr.
Batistella holds a degree in business administration from the
Universidad de San Andres and a postgraduate degree in finance from
the same institution. He currently serves as director of CIESA,
IEASA S.A., Petrobras Bolivia Internacional S.A., Petrolera Entre
Lomas S.A.. Oleoductos del Valle S.A., Hidroeléctrica Los
Nihuiles S.A., Petrobras Hispano Argentina S.A., Refinería del
Norte S.A., Pampa Participaciones S.A., Inversora Nihuiles S.A. and
Inversora Diamante S.A. He also acts as alternate director of
Bodega Loma la Lata S.A., Central Térmica Loma la Lata S.A.,
Electricidad Argentina S.A., EG3 Red S.A., ENECOR S.A., Pampa
Comercializadora S.A., Pampa Energía, Parques Eolicos del Fin
del Mundo S.A., Petrolera Pampa S.A., Petrobras Argentina S.A.,
Pampa Participaciones II S.A., Transelec Argentina S.A., World
Energy Business S.A., Central Térmica Güemes S.A.,
Empresa Distribuidora y Comercializadora Norte S.A. and
Hidroeléctrica Diamante S.A. He was born on July 31,
1982.
Gregorio
Werthein
has a
degree in Economics from Universidad de Buenos
Aires
and
a Master’s degree in Business Administration from Columbia
Business School and participated in the Leadership Development
Program of Harvard Business School. Since June 2011, he has served
as Executive Director of Werthein Group. He also is the co-founder
and Chairman of Shipeala. He was born on September 15,
1983.
Sonia Fabiana Salvatierra
received a
degree in Law from the Universidad de Buenos Aires. Between 1987
and 1996 she worked for the Caja de Valores S.A. Between 1996 and
2008 she acted as associate for Marval O’Farrell &
Mairal. Currently, she is partner in the Salvatierra &
Asociados law firm. In 2015 she co-founded V&S SRL, an integral
foreign trade services company. She is member of many advisory
boards in ONGs. She is also a member of the board of directors of
CIESA and alternate syndic of Quirón Asset Management S.A.
She was born on March 20, 1966.
Diego Alberto Güerri
received a
Law degree from the
Universidad de
Buenos Aires
. He also obtained a Master’s Degree in
Business Administration from IAE Business School,
Universidad Austral
. Between October
2002 and 2005, he acted as liquidator of Quilseg S.A., Quilburs
S.A., Capi S.A., Cirqui S.A., Dispel S.A. and Faique S.A. He was
partner of the Zarantonello & Güerri law firm between 1999
and 2007. Since 2007, he has been a partner of the law firm
Güerri. He was born on January 8, 1969.
Carlos Alberto Olivieri
holds a Public Accountant degree from
the
Universidad Nacional de
Rosario
and a postgraduate
degree in Corporate Financial Management from the University of
Michigan (USA) and Stanford. At present, Mr. Olivieri is professor
of Finance of Di Tella University. Between 2008 and March
2010, Mr. Olivieri acted as a financial advisor at Raymond James
and between 2002 and 2007 he worked for Repsol YPF S.A. as Chief
Financial Officer (
“CFO”
)
for Argentina, Brazil and Bolivia. Previously he acted as CFO of
YPF S.A., Quilmes Industrial S.A. and Eaton S.A. and president of
YPF GAS S.A. and Maxus Corporation (USA). He also had executive
responsibilities in other industries, such as Aerolíneas
Argentinas and Arthur Andersen & Co. and taught at the
Universidad de
Buenos Aires
and Michigan
Universities. Currently, Mr. Olivieri is also member of the board
of directors of Provida AFP (Chile) and act as financial
advisor.
He was
born on May 14, 1950.
Mauricio Edgardo
Szmulewiez
received Law and
Accounting degrees, both from the
Universidad de Buenos
Aires.
Between April 1982 and
October 1989, he worked for Lisdero Law Firm as tax and foreign
investments manager. Since 1989, he is the owner of Dr. Mauricio
Edgardo Szmulewiez law and accounting firm.
He was born on
January 19, 1960.
Sergio Benito Patrón
Costas
received a law degree
from Universidad de Buenos Aires.
From 1994 to 2002, he held several positions in
the Federal Criminal and Correctional Court of the City of Buenos
Aires. Between 2002 and 2006, he acted as lawyer in Urtubey &
Asociados Law firm and Group M Collection.
He is currently
the Head of Labor Relations in Macro Bank. He was born on December
31, 1975.
Executive Officers.
The following is a list of our executive officers as of the date of
this Annual Report, their respective positions with us and the year
they were appointed to such position:
Name
|
Year of Appointment
|
Position
|
Javier
Gremes Cordero
|
2012
|
CEO
|
Alejandro
Basso
|
2007
|
CFO and
Services Vice President
|
Rubén De
Muria
|
2016
|
Institutional and
Regulatory Affairs Executive Manager
|
Nicolás M.
Mordeglia
|
2010
|
Legal
Affairs Vice President
|
Carlos
H. Sidero
|
2013
|
Human
Resources Vice President
|
Oscar
Sardi
|
2005
|
Operations Vice
President
|
Néstor Hugo
Martín
|
2013
|
Business Vice
President
|
There
is no expiration term defined for the executive
officers.
Below
is a description of the main activities currently carried out by
each of our executive officers, together with the biographical
information thereof:
Javier Gremes Cordero
received a Public
Accounting degree from the
Universidad Católica Argentina
, a
Master’s in Science from the Université de Management,
Switzerland and a MBA from the Universidad Francisco de Vitoria,
Spain. He worked for Perez Companc from January 1993 to September
2002. Between October 2002 and February 2006, he worked for
Petrobras Argentina in the Financial Department of the E&P
business unit. Between March 2006 and February 2009, he served as
CFO and from March 2009 to November 2012 as CEO of Petrobras
Ecuador. He became our CEO in November 2012. He was born on January
11, 1962.
Alejandro Basso
received a Public
Accounting degree from the
Universidad de Buenos Aires
. He worked
for Petrobras Argentina from 1987 to 1992 and for Quitral-Co S.A.
from 1992 to 1994. From 1994 to 1998 he acted as our Planning and
Corporate Control Manager and between September 1998 and March 2008
he was our Planning and Control Vice President. Between March 2008
and October 2016, he acted as our Management Control and Corporate
Governance Vice President. In October 2016, he was designated as
our CFO and Services Vice President. He also acts as alternate
director of TGU, EGS and Telcosur. He was born on October 13,
1961.
Rubén De Muria
received a Public
Accountant degree from Universidad de Buenos Aires. He obtained a
Master in Regulations of Gas and Electricity Industries from
CEARE
. He worked for Chase
Manhattan Bank Argentina and Perez Companc SA between 1985 and
December 1992. In December 1992, he joined us as member of the
Regulatory Matters and Rates Department. In August 2006, he was
promoted to Regulatory Matters and Rates Manager. Finally, in
December 2015 he was appointed as Institutional and Regulatory
Affairs Executive Manager. He was born on January 31,
1964.
Nicolás M. Mordeglia
received a
Law degree from Universidad de Buenos Aires in 1988 and a
Master’s degree in Business Law and an Executive Business
Program from Universidad Austral in 1994. During 2002, he attended
an Executive Management Business Program at IAE. He worked for the
Legal Affairs Department of SADE Ingeniería y Construcciones
S.A. (f/k/a Sade S.A.C.C.I.F.I.M.) from 1990 to 1992, and for the
Legal Affairs Department of Compañia Naviera Perez Companc
S.A.C.F.I.M.F.A. from 1993 to 1995. He worked for the Legal Affairs
Department of Cerro Vanguardia S.A. (f/k/a Minera Mincorp S.A.)
from 1995 to 1999. From 1999 to 2010, he worked for the Legal
Affairs Department of Petrobras Argentina S.A. (f/k/a Pecom Energia
S.A.) and has been appointed to several boards of directors and
Statutory Committees in corporations in Argentina and abroad where
Petrobras Argentina has interests including TGS and CIESA. Since
August 2010, he has served as our Legal Affairs Vice President. He
was born on August 17, 1965.
Carlos H. Sidero
graduated from
Universidad de Buenos Aires as a Certified Public Accountant in
Argentina. He worked with Isaura S.A. from 1981 through 1994. From
1994 he managed different areas within the Human Resources
department at Eg3 SA and Petrobras Argentina S.A. He joined TGS in
March 2013 as Vice President Human Resources. He was born on
February 16, 1956.
Oscar Sardi
received a Mechanical
Engineering degree from the
Universidad Nacional de Rosario
and
holds a major in Natural Gas from the
Universidad de Buenos Aires.
He also
participated in a General Administration Program at the
Universidad Austral
. He
worked for GdE between 1983 and 1992 and from that year he has held
different positions in our operations area. In April 2005, he was
designated as our Service Vice President, until October 2016 when
he was named as our Operations Vice President. He also acts as
alternate director of Link and Telcosur. He was born on September
1, 1955.
Néstor Hugo Martín
obtained a
degree in Chemical Engineering from the
Universidad Nacional del Sur,
Bahía Blanca. Mr. Martín has wide experience in the oil
and gas industry. Between 1976 and 2002, he held different
positions in companies such as ESSO S.A.P.A., YPF, Isaura S.A. and
EG3. In 2002, he joined Petrobras Argentina where he served in many
managerial positions especially related to planning, business,
supply and trading. In 2013, he was designated as our Business Vice
President. He was born on April 17, 1953.
For
additional information regarding the provisions include in the
Shareholders’ Agreement for the election of our CEO, see
“Item 7. Major Shareholders and Related Party
Transactions—A. Major Shareholders—Shareholders’
Agreement.”
Indemnification of Officers
and Directors
.
Under
the Shareholders’ Agreement, the shareholders of CIESA
require us to: (i) limit the liability of each of our officers,
syndics and directors for all consequences of their acts or
omissions, excluding acts or omissions where there is evidence of
fraud or gross negligence and (ii) enter into agreements
obligating us to defend, indemnify and hold harmless each of our
officers, syndics and directors from and against all liabilities,
losses, and other expenses incurred by each such officer, syndic or
director in connection with a pending, threatened or completed
civil, criminal, administrative or other proceeding, or any
investigation that could lead to such a proceeding, by reason of
the fact that such officer, syndic or director is or was one of our
officers, syndics or directors, including claims alleged to be due
to the negligence of such person, but excluding acts or omissions
that involve fraud or gross negligence towards us.
The
remuneration paid by us during the year 2016 to the members of our
Board of Directors and executive officers amounted to Ps. 6.0
million and Ps. 33.0 million, respectively. We do not grant pension
or retirement plans or other benefits to members of our Board of
Directors or to our executive officers.
Executive
officers are subject to a goal-directed management system with a
variable remuneration program. Consensual objectives are in line
with our global objectives, as the variable remuneration program
links a portion of its compensation to the performance thereof and
our performance. Total compensation of executive officers consists
of a fixed portion (normal and usual remuneration) and a variable
portion. The variable portion depends on the level of achievement
of the “Outcome” objectives, which consist of economic
and financial targets, and “Performance Results,”
including business objectives that do not have an associated
economic result. We measure achievement of these objectives
annually, based on performance during the fiscal
period.
For
information on the term of office of our directors and executive
officers, see
“A.
Directors and Senior Management” above.
The
information in that section is incorporated herein by
reference
.
None of
the members of our Board of Directors are party to any service
contract with us or any of our subsidiaries providing for benefits
upon termination of employment.
Audit Committee
According to the
Capital Market Law, publicly listed companies must have an Audit
Committee “that will function on a collegiate basis with
three or more members of the Board of Directors, the majority of
whom must be independent under CNV regulations.” The Audit
Committee operates under its Rules of Procedure, which was approved
in its meeting held in 2013 in accordance with the requirements of
the Capital Market Law. The Rules of Procedure require that the
majority of the members that form the Audit Committee must be
independent according to the CNV’s standards. Committee
members are designated by a simple majority of the Board of
Directors, at the first meeting following designation of the
members of the Board of Directors, and they hold office until their
successors are designated. The Audit Committee adopts its own
regulations and must prepare a working plan for each fiscal year.
At the General Annual Shareholders’ Meeting held on April 20,
2016, Diego Alberto Güerri, Carlos Alberto Olivieri and
Mauricio Mauricio Edgardo Szmulewiez were designated as independent
members of the Board of Directors and Alejandro Candioti, Diego
Petrecolla and Sergio Benito Patrón Costas were appointed as
their alternates.
The Board of Directors
meeting held on April 20, 2016 appointed the current members of the
Audit Committee, who as of the date of this filing are
Diego
Alberto Güerri, Carlos Alberto Olivieri and Mauricio Edgardo
Szmulewiez. All of the current members of our Audit Committee are
independent under CNV and SEC regulations.
The
Audit Committee’s mandatory periodic duties are
to:
●
supervise the
internal control and accounting systems as well as the reliability
of the latter and all the financial information and other
significant issues that are to be submitted to the SEC, CNV and
BASE in compliance with the applicable disclosure
policies;
●
supervise the
application of information policies regarding our risk
management;
●
ensure that the
market is informed about those operations where there may be a
conflict of interest with one or more members of the Board of
Directors, controlling shareholders or other parties as defined by
the applicable regulations;
●
express its view on
the reasonableness of fees and stock option plans for directors
submitted by the Board of Directors;
●
express its view as
to compliance with laws and regulations and the reasonableness of
the conditions of an issuance of shares (or convertible
securities), in the case of a capital increase excluding or
limiting preferential rights;
●
verify compliance
with the Code of Ethics (see Item 16.B. “Code of
Ethics”);
●
issue a
well-founded opinion on whether the terms and conditions of
relevant transactions with related parties are according to market
practice, within five calendar days from the receipt of a petition
issued by the Board of Directors, and at any other time at which a
conflict of interest exists or might exist;
●
prepare an annual
working plan for the fiscal year and notify the Board of Directors
and the Statutory Committee within 60 days from the beginning of
the period;
●
fulfill all the
obligations stated in our By-laws and applicable laws and
regulations;
●
express its view on
the Board of Directors’ proposals appointing (or rejecting)
the external auditors to be hired and monitor the auditors’
independence; and
●
establish
procedures for: (i) the receipt, treatment, investigation and
administration of the complaints received by us regarding
accounting, internal accounting controls or internal auditing
matters; and (ii) the confidential, anonymous submission by our
employees of concerns regarding questionable accounting or internal
auditing matters.
Also,
regarding the internal and external auditors, the Audit Committee
must:
●
review their plans;
and
●
evaluate their
performance, and give an opinion on their performance when issuing
the annual Financial Statements.
In
evaluating the external auditors’ performance, the Audit
Committee must:
●
analyze the
different services rendered by the external auditors as well as
their independence, according to Technical Resolution
(“
TR
”) No. 34 of
the FACPCE, any other related regulations issued by professional
councils and those regulations set by Title II, Chapter III,
Article 21 of the rules of the CNV;
●
report separately
the fees billed as follows: (i) fees for external audit and other
related services meant to provide reliability to third parties
(e.g., special reports about internal controls, shareholding
prospectuses, certifications and special reports requested by
regulators, etc.); and (ii) fees related to other special services
different from those mentioned above, such as those associated with
design and implementation of systems, laws and regulations,
financial issues, etc.; and
●
verify the
independence of the external auditors in accordance with internal
policies.
Additionally, the
Audit Committee must perform the following mandatory duties
contained in the regulatory framework:
●
give a prior
assessment, within five days of notification, that shall be used by
the CNV to require us to designate an external auditor as requested
by minority shareholders, as long as such shareholders represent at
least 5% of our common stock (in those cases in which the minority
shareholders’ rights might be affected), in order to carry
out one or more specific revisions. The charges of such revisions
shall be paid by the petitioning shareholders (Law No. 26,381,
article 108.e);
●
provide a
well-founded assessment about an acquiring tender offer if by
withdrawing the public offering we would cease to be a public
company or our stock cease to be traded (Law No. 26,381, article
98); and
●
issue a report
supporting a Board of Directors’ resolution to buy back our
shares (Law No. 26,381, article 64).
Once a
year, the Audit Committee is required to prepare a plan for the
fiscal year to be presented to the Board of Directors and to the
Statutory Committee. The directors, members of the Statutory
Committee, managers and external auditors must, when requested by
the Audit Committee, attend its meetings, provide the Audit
Committee with information and otherwise assist the Audit Committee
in the performance of its functions. In order to better perform its
functions, the Audit Committee may seek the advice of legal counsel
and other independent professionals at our expense, pursuant to a
budget approved by the shareholders, and we must provide the Audit
Committee with access to the information and documents it may deem
necessary to perform its duties.
According to CNV
rules, at least once a year and upon the filing of the annual
Financial Statements, the Audit Committee shall issue a report to
the shareholders, addressing how the Committee performed its duties
and the results of its work.
The
aggregate remuneration paid by us during the year 2016 to the
members of the Audit Committee was approximately Ps. 1.9 million.
We do not provide pension, retirement or similar benefits to any
member of the Audit Committee.
Statutory Committee
The
Statutory Committee is our monitoring body as stipulated in Section
No. 284 of the General Companies Law. Our By-laws provide for a
Statutory Committee consisting of three syndics and three alternate
members (
“alternate
syndics”
). In accordance with our By-laws, two syndics
and the corresponding alternate syndics are elected by a majority
vote of the holders of our Class A Shares. The remaining syndic and
corresponding alternate syndic are elected by the majority vote of
the remaining holders of our common stock. Each member of the
Statutory Committee is elected at the General Annual
Shareholders’ Meeting and serves for a one-year renewable
term. Members of the Statutory Committee must be lawyers or
accountants qualified under Argentine law and, for the accountants,
TR No. 15. Our directors, officers and employees may not be members
of the Statutory Committee, all members must be independent. Our
By-laws require the Statutory Committee to hold meetings at least
once per month.
The
primary responsibilities of the Statutory Committee consist of
monitoring our management’s compliance with the General
Companies Law, our By-laws and the shareholders’ resolutions,
and without prejudice to the role of external auditors, reporting
to the shareholders at the General Annual Shareholders’
Meeting regarding the reasonableness of our financial information.
Furthermore, the members of the Statutory Committee are entitled
to: (i) attend Board of Directors and shareholders’ meetings,
(ii) call Extraordinary Shareholders’ Meetings when deemed
necessary and General Annual Shareholders’ Meetings when the
Board of Directors fails to do so, and (iii) investigate written
inquires initiated by the shareholders. The Statutory Committee
does not control our operations or evaluate management’s
decisions, which are the exclusive responsibility of the Board of
Directors.
The
aggregate remuneration paid by us during 2016 to the members of the
Statutory Committee was approximately Ps. 1.1 million. We do not
provide pension, retirement or similar benefits for syndics and
alternate syndics.
The
following table sets out the current membership of our Statutory
Committee, each of whom was appointed at the Ordinary General
Shareholders’ Meeting held on August 29, 2016, the year when
each member was initially appointed and the year when their term
expires:
Name
|
Member
since
|
Term
Expires
|
Position
|
Carlos
Alberto Di Brico
|
2016
|
2017
|
Syndic
|
José
María Zuliani
|
2015
|
2017
|
Syndic
|
Hugo
Alejandro Carcavallo
|
2016
|
2017
|
Syndic
|
Gerardo
Prieto
|
2016
|
2017
|
Alternate
Syndic
|
Alejandro Mario
Roisentul Wuillams
|
2014
|
2017
|
Alternate
Syndic
|
The
present principal occupations and employment history of our syndics
are set forth below:
Carlos Alberto Di Brico
received
Business and Public Accounting degrees, both from the
Universidad de Buenos Aires
. He
currently is member of the board of directors of Pampeana,
Aristocrat Argentina PTY Limited and Plant Impact Argentina S.A. He
held several management positions in Eveready Argentina S.A.
between 1975 and 1995. From 1995 and 1998 he served as CFO of
Stafford Miller Argentina S.A.. Between 2001 and 2013 he served as
Emerson Argentina CFO. He was born on August 8, 1952.
José María Zuliani
received a
Law degree and a Master’s Degree in International Private Law
from the Universidad Nacional de Rosario. In January 1996, he
joined Refinería San Lorenzo S.A. where he served as head of
the Legal Department. In November 2000, he joined Petrobras
Argentina, where he held several managing positions. He left
Petrobras Argentina in February 2009 after serving as its Gas and
Energy Legal Affairs Manager. Between 2009 and 2010, he was
appointed as our Legal Affairs Vice President. Between December
2012 and December 2015, he acted as consulting partner in the law
firm Salaverri, Dellatorre, Burgio & Wetzler Malbrán. At
present, he works as Legal Vice President in Energía Argentina
S.A.. He was born on December 13, 1961.
Hugo Alejandro Carcavallo
received a
Law degree from the Universidad de Buenos Aires. Between 1988 and
2016, he worked as syndic of the General Office of the Comptroller.
He also serves as syndic of Servicio de Radio y Televisión de
la Universidad de Córdoba SA; Sistema Nacional de Medios
Públicos SA (en liquidación) and represents to the
Goverment in Monitoring Body of the Limay, Neuquén y Negro
rivers. Previously, he acted as syndic of Administración
General de Puertos SE; Lotería Nacional SE; Interbaires SA;
Radio y Televisión Argentina SE; Educ.ar SE. He was born on
October 6, 1958.
Remuneration Committee
We do
not have a remuneration committee. Compensation decisions are made
by our senior management.
Corporate Governance Practices; NYSE Requirements
See
Item 16.G. “Corporate Governance.”
The
following table sets out the number of employees per department as
of December 31, 2016, 2015 and 2014:
|
Number
of Employees as of December 31,
|
Department
|
|
|
|
General
|
2
|
2
|
2
|
Administration,
Finance and Services
|
98
|
47
|
47
|
Human
Resources
|
21
|
18
|
20
|
Control and
Corporate Governance
(1)
|
-
|
10
|
10
|
Legal
Affairs
|
10
|
11
|
12
|
Public and
Regulatory Affairs
|
6
|
8
|
7
|
Services
(2)
|
-
|
139
|
136
|
Safety and
Environmental
|
26
|
12
|
12
|
Business
|
40
|
40
|
40
|
Internal
Audit
|
4
|
3
|
3
|
Operations
|
719
|
640
|
627
|
Total
|
926
|
930
|
916
|
(1)
Since October 2016,
these employees are part of the Administration, Finance and
Services Department.
(2)
Since October 2016,
its staff has been allocated to the Administration, Finance and
Services Department.
The
following table sets out the number of employees according to
geographical location as of December 31, 2016, 2015 and
2014:
|
Number
of Employees as of December 31,
|
Location
|
|
|
|
City of Buenos
Aires
|
239
|
247
|
244
|
Province of Buenos
Aires
|
392
|
390
|
390
|
Province of
Chubut
|
59
|
58
|
58
|
Province of La
Pampa
|
13
|
13
|
13
|
Province of
Neuquén
|
90
|
83
|
73
|
Province of
Río Negro
|
49
|
56
|
54
|
Province of Santa
Cruz
|
82
|
81
|
82
|
Province of Tierra
del Fuego
|
2
|
2
|
2
|
Total
|
926
|
930
|
916
|
As of
December 31, 2016, 2015 and 2014 the number of temporary employees
working for us was 25,
16 and 20,
respectively.
Under
Argentine law, in the event of an unjustified dismissal of an
employee, the employer is required to pay the terminated employee
severance, the amount of which is regulated by the Argentine Labor
Law (Section 245). The severance consists of payment of one
month’s wages for each year of employment. The Argentine
Labor Law stipulates limits to the severance payment; these limits
affect only employees who earn high wages. However, the Supreme
Court has ruled this severance payment limitation unconstitutional
when it results in a loss of more than 33% for a terminated
employee as compared to the unlimited amount.
The
Supreme Court held the Law of Occupational Hazard Prevention
unconstitutional as applied to contractors whose employees are
injured in the course of employment, extending liability to the
company that contracted with the contractor for the
services.
Some
courts have held that a company that contracts with a
contractor for services is jointly liable for a contractor’s
obligations to provide its workers and third-party service
providers with social security benefits, wages, insurance, etc.,
even if the service for which the company contracts is not
part of the company’s usual business.
The
year 2016 presented an inflationary scenario that required numerous
meetings with union representatives. We maintain a positive
relationship with each of the employee unions with representation
before our company. The fruits of this work were the agreements
reached with each such union, which have been submitted to the
national labor authority for approval and inclusion in existing
collective bargaining agreements. Those agreements effectively
prevented trade union conflicts and work stoppages.
We have
begun contract negotiations with our labor unions to avoid
conflicts in 2017, but the status of these negotiations is
uncertain.
Currently, 29.0% of
our workforce is affiliated with one of three national unions, each
of which has representation in each of the provinces in which we
operate.
The
total amount of our Class B Shares held by our directors, Syndics
and executive officers as of the date of issuance of this Annual
Report is 348,673 shares.
Our
directors, Syndics and executive officers, individually and
together, beneficially hold less than 1% of our Class B
Shares.
Item 7. Major Shareholders and Related Party
Transactions
The
following table sets forth certain information with respect to each
shareholder known to us to own more than five percent of our common
stock as of March 31, 2017:
Name of Beneficial Owner
|
Number of Shares
|
Percent of Total
Common
Shares
|
Class
|
CIESA
|
405,192,594
|
51.0000%
|
A
|
FGS
|
183,618,632
|
23.1113%
|
B
|
Our
controlling shareholder is CIESA, which holds 51% of our common
stock and all of our Class A shares. Local and foreign investors
hold the remaining shares of our common stock. CIESA is under
co-control of: (i) Pampa Energía, which holds 10% of
CIESA’s common stock, (ii) the CIESA Trust, which has a trust
shareholding of 40%, and (iii) GIP, WST and PCT, who in the
aggregate hold a
combined 50% indirect
ownership interest in the outstanding capital stock of CIESA, as
follows: GIP holds 27.1%, WST holds 4.58% and PCT holds
18.32%.
The
current ownership of CIESA is the result of the CIESA Acquisition
which encompassed the following steps:
●
On July 27, 2016,
Pampa Energía S.A. acquired from Petrobras Internacional
Braspetro B.V. all the stock and voting rights of Petrobras
Participaciones S.L., the holder of the 67.1933% of the capital
stock and voting rights of Petrobras Argentina and, consequently,
the indirect control of Petrobras Hispano Argentina
S.A.
●
On the same day,
(i) Pampa Energía and its subsidiary Pampa Participaciones
S.A. sold all of the capital stock and voting rights of PEPCA to
GIP by 51%, WST by 45.8% and PCT L.L.C. by 3.2% and (ii) Pampa
Inversiones S.A. transferred its status as beneficiary of the Trust
to GIP and PCT, in a proportion of 55% and 45%,
respectively.
●
On
January 17, 2017, CIESA was informed of the exercise of the swap
option agreed among Pampa Energía, GIP, WST and PCT. Pursuant
to such option, (i) GIP and PCT transferred to Petrobras Hispano
Argentina S.A. their position as beneficiary of the CIESA Trust
owning of 40% of the stock and voting rights of CIESA; and (ii)
Pampa Energía and Petrobras Hispano Argentina S.A. transferred
to GIP and PCT shares representative of 40% of the capital and
voting rights of CIESA, while Pampa Energía kept a direct
participation in CIESA of 10% of its capital and voting
rights.
Pursuant to the
Pliego and the terms of the 2014 Notes, CIESA may not reduce its
shareholding below 51% of our share capital.
FGS
owns 23.1% of our common stock. According to applicable
regulations, any transfer or other action that limits, alters,
cancels or modifies the destination, ownership, possession or
nature of the shares held by the FGS which results in a decrease
the FGS’s holdings in a manner inconsistent with applicable
law, shall not be conducted without prior express authorization of
the Argentine Congress, with the following exceptions:
●
Public takeover
bids addressed to all holders of such shares at a fair price
authorized by the CNV, under the terms of Chapters II, III and IV
of Title III of Law 26,831.
●
Exchange of shares
for other shares of the same or another company in the context of a
merger, split or corporate reorganization processes.
As of
March 31, 2017 a total of 31,631,857 ADRs, representing 158,159,285
Class B Shares
(40.63%
of the total Class B Shares)
were held by approximately 30
registered holders. Because certain of these ADRs are held by
nominees, the number of record holders may not be representative of
the number of beneficial owners.
Shareholders’ Agreement
As a
result of changes in the shareholding of our controlling company,
CIESA, a shareholders’ agreement was signed on August 29,
2005 (the
“Shareholders’
Agreement”
). This agreement governs certain matters
relating to shareholder participation in CIESA and in us. This
agreement divides the CIESA shares into five classes that grant the
shareholders different rights and obligations with respect to us
and CIESA, mainly regarding the designation of the members of our
Board of Directors and our Statutory Committee.
Transfers of CIESA and Our
Shares
.
The
Shareholders’ Agreement provides certain rights of first
refusal and “tag-along” or co-sale rights in favor of
PEPCA, in the event of a proposed transfer of CIESA shares. In
particular, before any sale of shares to outside parties, the
selling shareholder must offer to sell such shares to PEPCA at the
price agreed upon in a written purchase proposal from the outside
party seeking to purchase such shares. In the event that PEPCA does
not choose to purchase the shares, it can opt to have a portion of
its own shares (the allotted portion is dependent on the number of
shares being sold) additionally included in the shares to be sold
by the selling shareholder to the third party.
Under
the Shareholders’ Agreement, the sale or transfer of any of
our shares held by CIESA requires an affirmative vote of at least
60% of CIESA’s issued and outstanding common voting
shares.
Election of Our Directors and Officers;
Voting.
The Shareholders’ Agreement also contains
provisions governing the voting of shares held by CIESA, the
election of the members of the Board of Directors and our Statutory
Committee, the appointment of certain officers and certain other
matters.
Our
current Board of Directors consists of nine directors (see
“Item 6. Directors, Senior Management and Employees—A.
Directors and Senior Management”). Under the Shareholders
Agreement, the CIESA directors designated by each of the Class A1,
Class A2, Class B1 and Class B3 shareholders shall cause CIESA to
nominate directors, alternate directors and syndics pursuant to the
instructions given by each of such class of shareholders. Thus,
indirectly, the Class A1 shareholders nominate two regular
directors, two alternate directors, one regular syndic and one
alternate syndic, the Class A2 shareholders nominate two regular
directors and two alternate directors, the Class B1 shareholders
nominate one regular director, one alternate director, one regular
syndic and one alternate syndic and the Class B3 shareholders
nominate one regular director, one alternate director, one regular
syndic and one alternate syndic. The three remaining independent
directors must be unanimously approved by all shareholders of
CIESA.
Under
the terms of the Shareholders’ Agreement, but subject to the
shareholders’ overriding duty to protect our corporate
interest and the common interest of all our shareholders, the
CIESA- nominated directors
shall
vote unanimously in favor of the
candidates nominated by the Class A1 shareholders for Chairman of
the Board of Directors and CEO. The Vice-Chairman of our Board of
Directors is nominated by the Class B3 shareholders.
Regarding the
designation of our Statutory Committee members, Petrobras Argentina
Group appoints two syndics and the same number of alternate
syndics. The position of Chairman of our Supervisory Committee is
held by one of the two syndics appointed by the Class A1
shareholders. The remaining syndic and alternate syndic are
appointed by the Class B3 shareholders.
Mandatory tender
In
accordance with the provisions of the Capital Markets Law and the
rules of the CNV on mandatory tender offers for change of control
and acquisition of significant indirect interest, on July 27, 2016,
we were notified by GIP, WST and PCT of their intention to launch a
tender offer to purchase up to a total of 194,651,345 outstanding
Class B Shares of common stock, including Class B Shares
represented by American Depositary Shares, representing up to 24.5%
of our common stock, in cash at a price of Ps. 18.39 per Class B
Share (payable in U.S. dollars) and Ps. 91.95 per ADS (payable in
U.S. dollars) (the “
Offer
”).
The
Offer was authorized in Argentina by the CNV on December 22, 2016.
Subsequently, on December 30, 2016, GIP, PCT and WST launched the
Offer in the US. The Offer was made concurrently in both the Buenos
Aires and US stock markets. Following a number of extensions, the
Offer expired on March 15, 2017. On that date, GIP, PCT and WST
informed us that a total of 4,003 Class B Shares had been validly
tendered in Argentina (representing approximately 0.0005% of our
capital stock). With respect to the US Offer, a total of (i)
42,117.542762 Class B Shares underlying ADSs were validly tendered
and (ii) no Class B Shares were validly tendered, representing
approximately 0.0053% of our share capital. All conditions to the
Offer in the U.S. having been satisfied, including the completion
of the Offer in Argentina, GIP, PCT and WST accepted for purchase
all ADSs and Class B Shares validly tendered and not withdrawn
pursuant to the Offer.
B.
Related
Party Transactions
Transactions with
related parties are carried out in the ordinary course of business
according to common practices. The terms of these transactions are
comparable to those offered by or obtained from unaffiliated
parties.
Technical Assistance Service Agreement
Pampa
Energía is our technical operator, according to the approval
of ENARGAS in June 2004, and subject to the terms and conditions of
the Technical Assistance Agreement which provides that Petrobras
Argentina is in charge of providing services related to the
operation and maintenance of the natural gas transportation system
and related facilities and equipment, to ensure that the
performance of the system is in conformity with international
standards and in compliance with certain environmental standards.
For these services, we pay a monthly fee based on a percentage of
our operating income.
With the prior
approval of ENARGAS and our Board of Directors,
in October
2014, we and Pampa Energía approved the renewal of the
Technical Assistance Agreement for a three-year term, beginning on
December 28, 2014. For additional information see “Item 4.
Our Information—B. Business Overview—Gas
Transportation—Pipeline Operations—Technical Assistance
Service Agreement.”
Commercial transactions
In the
normal course of business, we enter into agreements with Petrolera
Pampa SA and Pampa Energía, to transfer natural gas and
richness. The price, which is denominated in U.S. dollars, is
determined according to common practices.
Moreover, we, under
certain agreements, process the natural gas in Cerri Complex and
commercialize the liquids, render natural gas transportation
services and other services to our related companies.
On
November 1, 2016, Pampa Energía assigned the operation of the
Río Neuquén area and its related contracts to YPF. Until
that date, our transactions under those contracts were reported as
transactions with related parties of our Other Services business
segment.
Financial transactions. Loan agreement with Pampa.
On
October 5, 2011, we granted a US$26 million loan to Pampa
Energía S.A. Proceeds from the loan were used by Pampa to
exercise the option contained in the Call Option Agreement.
Additionally, to guarantee compliance with its obligations, Pampa
Energía S.A. created a pledge on the rights that correspond to
the arbitration actions of Ponderosa Assets LP and Enron Creditors
Recovery Corp. against the Government acquired upon exercise of the
option mentioned above. For more information, see “Item
10—Additional Information.—C. Material
Contracts.”
After
several extensions of the maturity of the loan agreement, on May 7,
2013, the Board of Directors approved the amendments of certain
terms and conditions of the loan granted to Pampa Energía
S.A., including:
i.
Extension of the
expiration date until October 6, 2014, with the option to
automatically renew for one additional period of one year. Due to
this term, the expiration date was extended to October 6,
2015.
ii.
Prior to the
expiration date, the loan must be paid or prepaid compulsorily by
the assignment of rights and obligations to us of the claim
assigned to Pampa Energía, mentioned in Note 16.a, from
Ponderosa Assets LP and Enron Creditors Recovery Corp against
Argentina in the event that, on or before the due date: (a) the 20%
effective increase on the tariff schedule has been granted to TGS,
under the provisions of the Transitional Agreement approved by
Presidential Decree No. 1918/09 or (b) we have received: (x) the
tariff adjustment as provided by the Adjustment Agreement initialed
by us approved by the Board of Directors Meeting held on October 5,
2011, or (y) any other compensatory arrangements implemented by any
mechanism or system of tariff revision in the future to replace
those currently in force under the Public Emergency Law with an
equivalent economic effect on our Company.
iii.
An applicable
annual interest rate of 6.8% plus VAT.
After
verifying compliance with clause ii) mentioned above, on September
30, 2015, our Board of Directors approved the acquisition of the
Rights of the arbitration proceedings. For further information, see
Note 16.a to our Financial Statements “Regulatory Framework -
General framework of the regulated segment. - Acquisition of the
Rights of Arbitration Proceedings.” According to IFRS, the
Rights of the arbitration proceeding do not qualify to be
recognized as an asset in our financial statements. Consequently,
they were recognized and classified under “Other Operating
(loss) / Income” in the Statement of Comprehensive Income for
the year ended December 31, 2015. The net loss recognized amounted
to Ps. 324.4 million.
As of
December 31, 2016, the loan to Pampa Energía S.A. had been
fully repaid by Pampa Energía assigning to TGS Pampa’s
rights over the ICSID Claim as described under Item 4. “Our
information—B. Business Overview—The Argentine Natural
Gas Industry—Regulatory Framework—
The Public Emergency Law and Renegotiation
Agreement
.”
The
details of significant outstanding balances (stated in thousands of
pesos) for transactions with related parties as of December 31,
2016, are as follows:
For
additional information regarding revenues, costs, and outstanding
balances relating to transactions with related parties as of and
for the year ended December 31, 2016, see Note 19 to our Financial
Statements included in this Annual Report on Form
20-F.
C.
Interests
of Experts and Counsel
Not
applicable.
Item 8. Financial Information
A.
Consolidated
Statements and Other Financial Information
Report of Independent Registered Public Accounting
Firm
To the
Board of Directors and Shareholders of
Transportadora de Gas del Sur S.A.
In our opinion, the accompanying consolidated statements of
financial position and the related consolidated statements of
comprehensive income, of changes in equity and of cash flow present
fairly, in all material respects, the financial position of
Transportadora de Gas del Sur S.A. and its
subsidiary
(“the Company”) at
December
31, 2016 and December 31, 2015, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2016 in conformity with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2016, based on criteria
established in
Internal Control
Integrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The Company's management is
responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting
, included in
Management’s Annual Report on Internal
Control Over Financial Reporting appearing under Item 15 to the
Form 20-F. Our responsibility is to express opinions on these
financial statements and on the Company's internal control over
financial reporting based on our integrated audits. We conducted
our
audits i
n accordance with
the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained
in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PRICE
WATERHOUSE & Co. S.R.L.
|
|
|
by
|
/s/
Alejandro P. Frechou (Partner)
|
|
|
Alejandro P.
Frechou
|
|
|
Buenos Aires, Argentina
April 25, 2017
TRANSPORTADORA DE GAS DEL SUR S.A.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Stated in thousands of pesos as described in Note 3
except for weighted average of outstanding shares
and
basic and diluted earnings per share)
|
|
|
|
|
Revenue from
sales
|
7
|
7,402,172
|
4,226,569
|
4,303,971
|
Cost of
sales
|
8.h.
|
(4,435,915
)
|
(2,759,905
)
|
(2,565,535
)
|
Gross
profit
|
|
2,966,257
|
1,466,664
|
1,738,436
|
|
|
|
|
|
Administrative
expenses
|
8.i.
|
(315,379
)
|
(201,636
)
|
(163,484
)
|
Selling
expenses
|
8.i.
|
(353,514
)
|
(241,330
)
|
(647,359
)
|
Other operating
(expenses) / income
(1)
|
8.k.
|
(65,543
)
|
(335,451
)
|
4,921
|
Operating
profit
|
|
2,231,821
|
688,247
|
932,514
|
|
|
|
|
|
Net
financial results
|
|
|
|
|
Financial
income
|
8.j.
|
405,347
|
552,568
|
463,151
|
Financial
expenses
|
8.j.
|
(1,218,708
)
|
(1,526,731
)
|
(1,228,801
)
|
Total
|
|
(813,361
)
|
(974,163
)
|
(765,650
)
|
Share of profit
from associates
|
10
|
1,522
|
254
|
2,890
|
Net
income / (loss) before income tax
|
|
1,419,982
|
(285,662
)
|
169,754
|
|
|
|
|
|
Income tax
(expense) / gain
|
13
|
(489,304
)
|
113,553
|
(64,766
)
|
|
|
|
|
|
Total
comprehensive income / (loss) for the year
|
|
930,678
|
(172,109
)
|
104,988
|
|
|
|
|
|
Total
comprehensive income / (loss) attributable to:
|
|
|
|
|
Owners of the
Company
|
|
930,675
|
(172,109
)
|
104,983
|
Non-controlling
interests
|
|
3
|
-
|
5
|
|
|
930,678
|
(172,109
)
|
104,988
|
|
|
|
|
|
Weighted average of
outstanding ordinary shares
|
|
794,495,283
|
794,495,283
|
794,495,283
|
Basic and diluted
earnings / (losses) per share
|
|
1.17
|
(0.22
)
|
0.13
|
(1)
For the year ended
December 31, 2015 includes (Ps. 324,390) for the cost of
Acquisition of the Rights of the Arbitration Proceeding (Note
16.a)
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
TRANSPORTADORA DE GAS DEL SUR S.A.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2016 AND 2015
(Stated
in thousands of pesos as described in Note 3)
|
|
|
|
ASSETS
|
|
|
|
Non-current
assets
|
|
|
|
Property, plant and
equipment
|
11
|
5,333,344
|
4,219,520
|
Investments in
associates
|
9
|
2,874
|
3,684
|
Other financial
assets at amortized cost
|
16.c.
|
21,584
|
34,353
|
Other financial
assets at fair value through profit or loss
|
8.m.
|
142,872
|
44,063
|
Other
receivables
|
8.a.
|
75,465
|
108,268
|
Trade
receivables
|
8.b.
|
8,122
|
6,470
|
Total
non-current assets
|
|
5,584,261
|
4,416,358
|
|
|
|
|
Current
assets
|
|
|
|
Other
receivables
|
8.a.
|
378,272
|
393,780
|
Inventories
|
|
116,863
|
8,452
|
Trade
receivables
|
8.b.
|
1,226,439
|
791,835
|
Derivative
financial instruments
|
15.l.
|
-
|
128,124
|
Other financial
assets at amortized cost
|
16.c.
|
14,900
|
12,772
|
Other financial
assets at fair value through profit or loss
|
8.m.
|
55,508
|
22,719
|
Cash and cash
equivalents
|
8.c.
|
1,555,089
|
872,537
|
Total
current assets
|
|
3,347,071
|
2,230,219
|
|
|
|
|
Total
Assets
|
|
8,931,332
|
6,646,577
|
|
|
|
|
EQUITY
|
|
|
|
Common
stock
|
|
1,345,300
|
1,345,300
|
Legal
Reserve
|
|
247,503
|
247,503
|
Future dividends
reserve
|
|
-
|
99,734
|
Future Capital
Expenditures and Other Financial Expenses Reserve
|
|
-
|
175,000
|
Future capital
expenditures reserve
|
|
2,891
|
-
|
Accumulated
retained earnings
|
|
930,675
|
(172,109
)
|
Non-controlling
interests
|
|
9
|
6
|
Total
equity
|
|
2,526,378
|
1,695,434
|
|
|
|
|
LIABILITES
|
|
|
|
|
|
|
|
Non-current
liabilities
|
|
|
|
Deferred tax
liabilities
|
13
|
416,716
|
410,134
|
Advances from
customers
|
8.d.
|
313,686
|
332,308
|
Loans
|
12
|
3,771,604
|
2,888,100
|
Other
payables
|
8.e.
|
-
|
20
|
Total
non-current liabilities
|
|
4,502,006
|
3,630,562
|
|
|
|
|
Current
liabilities
|
|
|
|
Provisions
|
14
|
221,433
|
150,586
|
Advances from
customers
|
8.d.
|
37,594
|
25,779
|
Other
payables
|
8.e.
|
3,816
|
40,895
|
Taxes
payables
|
8.f.
|
59,192
|
92,560
|
Income tax
payable
|
|
305,410
|
4,213
|
Payroll and social
security taxes payable
|
|
168,859
|
116,932
|
Loans
|
12
|
145,396
|
447,092
|
Trade
payables
|
8.g.
|
961,248
|
442,524
|
Total
current liabilities
|
|
1,902,948
|
1,320,581
|
|
|
|
|
Total
liabilities
|
|
6,404,954
|
4,951,143
|
|
|
|
|
Total
equity and liabilities
|
|
8,931,332
|
6,646,577
|
|
The accompanying
notes are an integral part of these consolidated financial
statements.
|
TRANSPORTADORA DE GAS DEL SUR S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Stated
in thousands of pesos as described in Note 3)
|
Shareholders
Contributions
|
|
|
|
|
|
|
Inflation
adjustent to commn stock
|
|
|
Future Capital
Expenditures and Other Expenses Reserve
|
|
Future Capital
Expenditures Reserve
|
Accumulated
retained earnings
|
|
|
Non-
Controlling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2013
|
794,495
|
550,805
|
1,345,300
|
236,879
|
-
|
202,239
|
140,000
|
98,661
|
677,779
|
2,023,079
|
3
|
2,023,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends to non-controlling
interest
(1)
|
-
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
(2
)
|
(2
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolutions of
the Ordinary Shareholders´Meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
held on April
30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Derecognition
of the Future Dividends and
Capital Expenditures Reserve
|
-
|
-
|
-
|
-
|
-
|
(202,239
)
|
(140,000
)
|
342,239
|
-
|
-
|
-
|
-
|
Legal
Reserve
|
-
|
-
|
-
|
5,375
|
-
|
-
|
-
|
(5,375
)
|
-
|
-
|
-
|
-
|
Future
Dividends Reserve
|
-
|
-
|
-
|
-
|
-
|
260,525
|
-
|
(260,525
)
|
-
|
-
|
-
|
-
|
Future
Capital Expenditures Reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
175,000
|
(175,000
)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolution of
the Board of Directors´Meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
held on
November 26, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
-
|
-
|
-
|
-
|
-
|
(260,525
)
|
-
|
-
|
(260,525
)
|
(260,525
)
|
-
|
(260,525
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
104,983
|
104,983
|
104,983
|
5
|
104,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2014
|
794,495
|
550,805
|
1,345,300
|
242,254
|
-
|
-
|
175,000
|
104,983
|
522,237
|
1,867,537
|
6
|
1,867,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolutions of
the Ordinary Shareholders´Meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
held on April
23, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Derecognition
of Reserves
|
-
|
-
|
-
|
-
|
-
|
-
|
(175,000
)
|
175,000
|
-
|
-
|
-
|
-
|
Legal
Reserve
|
-
|
-
|
-
|
5,249
|
-
|
-
|
-
|
(5,249
)
|
-
|
-
|
-
|
-
|
Future
Dividends Reserve
|
-
|
-
|
-
|
-
|
-
|
99,734
|
-
|
(99,734
)
|
-
|
-
|
-
|
-
|
Future
Capital Expenditures and Other
Financial Expenses
|
-
|
-
|
-
|
-
|
175,000
|
-
|
-
|
(175,000
)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(172,109
)
|
(172,109
)
|
(172,109
)
|
-
|
(172,109
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015
|
794,495
|
550,805
|
1,345,300
|
247,503
|
175,000
|
99,734
|
-
|
(172,109
)
|
350,128
|
1,695,428
|
6
|
1,695,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolutions of
the Board of Directors' Meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
held on
January 13, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
-
|
-
|
-
|
-
|
-
|
(99,734
)
|
-
|
-
|
(99,734
)
|
(99,734
)
|
-
|
(99,734
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolutions of
the Extraordinary and Ordinary
Shareholders'
|
|
|
|
|
|
|
|
|
|
|
|
|
Meeting held
on April 20, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
Capital Expenditures Reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
2,891
|
(2,891
)
|
-
|
-
|
-
|
-
|
Derecognition
of reserves
|
-
|
-
|
-
|
-
|
(175,000
)
|
-
|
-
|
175,000
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
930,675
|
930,675
|
930,675
|
3
|
930,678
|
Balances at December 31, 2016
|
794,495
|
550,805
|
1,345,300
|
247,503
|
-
|
-
|
2,891
|
930,675
|
1,181,069
|
2,526,369
|
9
|
2,526,378
|
The
accompanying notes are an integral part of these consolidated
financial statements.
´(1)
Dividends distributed by
Telcosur to the non-controlling interest in May
2014.
For
supplemental Changes in Equity information, see Note
4.r).
TRANSPORTADORA DE GAS DEL SUR S.A.
CONDOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014
(Stated
in thousands of pesos as described in Note 3)
_____________________________________________________________________________________________________
|
2016
|
2015
|
2014
|
Cash flows provided by operating activities
|
|
|
|
|
|
|
|
Total
comprehensive income / (loss) for the year
|
930,678
|
(172,109)
|
104,988
|
|
|
|
|
Reconciliation of total comprehensive income /
(loss) to cash flows provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
286,798
|
261,393
|
254,311
|
Consumption
of materials
|
7,201
|
8,481
|
3,916
|
Share
of profit from associates
|
(1,522)
|
(254)
|
(2,890)
|
Increase
in allowances and provisions
|
98,833
|
46,202
|
19,966
|
Interest
expense accrual
|
392,372
|
287,290
|
285,307
|
Interest
income on Other financial assets other than Cash and cash
equivalents
|
(37,616)
|
(47,174)
|
(58,753)
|
Income
tax
|
489,305
|
(113,553)
|
64,766
|
Acquisition
of the Rights of the Arbitration Proceeding (Note
16.a)
|
-
|
324,390
|
-
|
Derivative
financial instrument results
|
8,933
|
(128,525)
|
103,497
|
Foreign
exchange loss
|
623,756
|
948,456
|
539,425
|
Doubtful
accounts
|
20,546
|
-
|
-
|
Changes in assets and liabilities:
|
|
|
|
Other
financial assets at fair value through profit or loss
|
-
|
(19,856)
|
-
|
Trade
receivables
|
(524,014)
|
(474,352)
|
(50,551)
|
Other
receivables
|
(227,569)
|
(120,299)
|
(118,926)
|
Inventories
|
(108,411)
|
20,679
|
(21,775)
|
Trade
payables
|
487,238
|
(86,502)
|
141,771
|
Payroll
and social security taxes
|
51,927
|
35,249
|
20,302
|
Taxes
payables
|
(33,368)
|
48,391
|
(15,586)
|
Income
tax
|
(39,189)
|
321
|
(64,804)
|
Other
payables
|
(37,131)
|
(195)
|
1,693
|
Provisions
|
(27,986)
|
(45,963)
|
(13,238)
|
Interest
paid
|
(324,869)
|
(230,031)
|
(205,413)
|
Income
tax paid
|
(10,529)
|
(10,517)
|
(17,469)
|
Derivative
financial instruments
|
118,490
|
(44,009)
|
(48,187)
|
Advances
from customers
|
(6,359)
|
(20,478)
|
70,750
|
Cash
flows provided by operating activities
|
2,137,514
|
467,035
|
993,099
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
Additions
to property, plant and equipment
|
(596,109)
|
(401,980)
|
(350,559)
|
Other
financial assets other than Cash and cash equivalents
|
61,436
|
173,698
|
181,995
|
Cash
flows used in investing activities
|
(534,673)
|
(228,282)
|
(168,564)
|
|
|
|
|
Cash flows used in financing activities
|
|
|
|
Payment
of loans
|
(916,490)
|
(294,556)
|
(769,932)
|
Dividends
paid to the Company's shareholders
|
(99,734)
|
-
|
(212,459)
|
Dividends
paid to non-controlling interest
|
-
|
-
|
(2)
|
Cash
flows used in financing activities
|
(1,016,224)
|
(294,556)
|
(982,393)
|
|
|
|
|
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS
|
586,617
|
(55,803)
|
(157,858)
|
Cash
and cash equivalents at the beginning of the year
|
872,537
|
789,420
|
893,812
|
|
|
|
|
Foreign exchange gains on Cash and cash equivalents
|
95,935
|
138,920
|
53,466
|
|
|
|
|
Cash
and cash equivalents at the end of the year
|
1,555,089
|
872,537
|
789,420
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
For
supplemental cash flow information see Note 6.
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
Business Overview
Transportadora de
Gas del Sur S.A. (“TGS”) is one of the companies
created as a result of the privatization of Gas del Estado S.E.
(“GdE”). TGS commenced operations on December 29, 1992
and it is engaged in the Transportation of Natural Gas, and
Production and Commercialization of natural gas Liquids
(“Liquids”). TGS’s pipeline system connects major
natural gas fields in southern and western Argentina with natural
gas distributors and industries in those areas and in the greater
Buenos Aires area. The natural gas transportation license to
operate this system was exclusively granted to TGS for a period of
thirty-five years (“the License”). TGS is entitled to a
one-time extension of ten years provided that it has essentially
met the obligations imposed by the License and by the
Ente Nacional Regulador del Gas
(National Gas Regulatory Body or “ENARGAS”). The
General Cerri Gas Processing Complex (the “Cerri
Complex”), where TGS processes natural gas by extracting
liquids, was transferred from GdE along with the gas transmission
assets. TGS also provides midstream services, which mainly consist
of gas treatment, removal of impurities from the natural gas
stream, gas compression, wellhead gas gathering and pipeline
construction, operation and maintenance services. Also,
telecommunications services are provided through the subsidiary
Telcosur S.A. (“Telcosur”). These services consist of
data transmission services through a network of terrestrial and
digital radio relay.
Major Shareholders
TGS’s
controlling shareholder is Compañía de Inversiones de
Energía S.A. (“CIESA”), which holds 51% of the
common stock. Local and foreign investors hold the remaining
ownership of TGS’s common stock. CIESA is under co-control
of: (i) Petrobras Argentina S.A. (in the process of merging with
Pampa Energía S.A. “Pampa Energía”), which
holds 10% of CIESA’s common stock, (ii) CIESA Trust (whose
trustee is TMF Trust Company (Argentina) S.A. and whose beneficiary
is Petrobras Hispano Argentina SA, a wholly owned subsidiary of by
Pampa Energía) (the "Trust"), who has a trust shareholding of
40% of the share capital of CIESA) and (iii) Grupo Inversor
Petroquímica S.L. (member of GIP Group, headed by
Sielecki´s family; “GIP”), and PCT L.L.C. ("PCT"),
which directly and together with WST S.A. (Member of Werthein
Group, "WST") indirectly through PEPCA S.A. ("PEPCA"), hold a 50%
of the shareholding in CIESA.
The
current shareholding structure of CIESA is the result of the
transaction carried out on July 27, 2016, by which: (i) Pampa
Energía S.A. and its subsidiary Pampa Participaciones SA sold
all of the capital stock and votes of its ownership in PEPCA in
favor of GIP (by 51%), WST (by 45.8%) and PCT (by 3.2%), and (ii)
Pampa Inversiones S.A. transferred its status as beneficiary of the
Trust to GIP and PCT, with a holding of 55% and 45%, respectively
(the "Transaction").
On July
27, 2016, Pampa Energía SA acquired from an affiliate of
Petroleo Brasileiro SA the total shareholding and votes of
Petrobras Participaciones S.L., the controlling company of
Petrobras Argentina S.A., and consequently the indirect control of
Petrobras Hispano Argentina S.A.
As a
result of the transactions mentioned before and in accordance with
the regulations set forth by Law N° 19.550, section 258, and
in view of the vacancies occurred in TGS’ Board of Directors,
situation that is contemplated in section 23 of TGS´ bylaws,
on July 27, 2016, the Supervisory Committee appointed the
replacement Directors. Their terms of office will last until the
upcoming General Ordinary Meeting of Shareholders. On August 29,
2016, TGS’ Ordinary General Shareholders’ Meeting was
held in which the management of the members of the Board of
Directors was approved, and new directors and trustees were
appointed to fill the vacancies generated with a term until the
Ordinary General Shareholders’ Meeting that considers the
financial statements for the year ending December 31,
2016.
On
August 9, 2016, ENARGAS authorized the change of share control in
CIESA, approving through Resolution No. I/3939: (i) the acquisition
by Pampa Energía of the entire shareholding that Petrobras
Participaciones S.L. held in Petrobras Argentina; (ii) the
acquisition by GIP, WST and PCT of PEPCA shareholding; (iii) the
transfer of rights made by Pampa Energía to GIP and PCT and,
(iv) the replacement of The Royal Bank of Scotland N.V. Argentine
Branch as Trustee of the Trust, by TMF Trust Company (Argentina)
S.A.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
On
December 7, 2016, Pampa Energía, Petrobras Argentina S.A.,
Petrobras Hispano Argentina S.A., Pampa Participaciones S.A. and
Pampa Inversiones S.A. (jointly "Pampa Group") requested
authorization from ENARGAS to exercise the exchange option (the
"Exchange") provided for in the Transaction. The Exchange consists
of a series of transfers by which Pampa Group transfers to GIP and
PCT 40% of the capital stock of CIESA, while GIP and PCT transfer
to Petrobras Hispano Argentina S.A. their status as Beneficiaries
of the Trust. Thus, the Exchange did not modify GIP, PCT and WST
percentage ownership of CIESA, and thereby TGS. Finally, the
Exchange was approved by ENARGAS on December 29, 2016, and notified
to CIESA on January 17, 2017.
On
February 16, 2017, the Extraordinary Shareholders’ Meetings
of Pampa Energía and Petrobras Argentina S.A approved the
merger commitment mentioned above. The merger will be effective as
of November 1, 2016. At the date of issuance of these consolidated
financial statements, the administrative compliance of the merger
is still pending by the controlling bodies.
Mandatory tender offer (the“Offer”)
In
accordance with the provisions of Capital Market Law No. 26,831
(the “Capital Markets Law”) and the Rules of the
Comisión Nacional de Valores (“CNV”) (“New
Text 2013” or “NT 2013”) adopted by General
Resolution No. 622/13 on mandatory tender offers for change of
control and acquisition of significant indirect interest, on July
27, 2016, the Company was notified by GIP, WST and PCT of its
intention to launch a tender offer for the Company's Class
“B” common shares, representing up to 24.5% of the
common stock of TGS, which are listed on the Buenos Aires Stock
Exchange. The Offer is subject to the terms and conditions that
will be indicated in the prospect that will be issued opportunely,
once the CNV approves it.
GIP,
WST and PCT reported that their Boards resolved to set the price of
the Offer in Ps. 18.20 per share (the "Offered
Price").
On
August 22, 2016, the Company's Board of Directors asserted that the
Price Offered under the Offer is reasonable and fair and also
approved the report required by the Capital Markets
Law.
On
October 21, 2016, GIP, WST and PCT informed TGS that their Boards
resolved to increase the Offered Price to Ps.18.39.
The
Offer was finally authorized by the CNV on December 22, 2016.
Subsequently, on December 30, 2016, GIP, PCT and WST launched that
offer in the US. The US offer is subject to the same terms and
conditions indicated in the prospectus authorized by the CNV on
February 6, 2017. The offer was made concurrently in both the
Buenos Aires and US stock markets. The period of acceptance of the
Offer will expire on March 8, 2017, with an additional term until
March 15, 2017. On that date, GIP, PCT and WST informed us that a
total of 4,003 Class B Shares had been validly tendered in
Argentina (representing approximately 0.0005% of our capital
stock). With respect to the US Offer, a total of (i) 42,117.542762
Class B Shares underlying ADSs were validly tendered and (ii) no
Class B Shares were validly tendered, representing approximately
0.0053% of TGS’ share capital. All conditions to the Offer in
the U.S. having been satisfied, including the completion of the
Offer in Argentina, GIP, PCT and WST accepted for purchase all ADSs
and Class B Shares validly tendered and not withdrawn pursuant to
the Offer.
2.
CONSOLIDATED FINANCIAL STATEMENTS
TGS
presents its consolidated financial statements for the years ended
December 31, 2016 and 2015 in compliance with the provisions of
Title IV, Chapter I, Section I, Article b.1) of the NT 2013. In
these consolidated financial statements as of December 31, 2016,
TGS and Telcosur S.A., its consolidated subsidiary, are jointly
referred to as “the Company”.
These
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards issued by the
International Accounting Standards Board (“IASB”) and
the International Financial Interpretations Committee
(“IFRIC”), jointly the “IFRS”.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
NT 2013
mandates the application of Technical Resolution (“TR”)
N° 26 and TR N° 29 approved by the
Federación Argentina de Consejos
Profesionales de Ciencias Económicas
(“FACPCE”). Both TRs establish that certain Argentine
companies which are subject to the Argentine Public Offering Regime
(Law No. 26,831) should adopt IFRS issued by the IASB.
The
preparation of the consolidated financial statements in conformity
with IFRS requires management to make accounting estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the consolidated financial statements, as well as
the reported amounts of revenues and expenses during the reporting
fiscal year. Estimates are used when accounting for the allowance
for doubtful accounts, income taxes, provisions for legal claims
and others, impairment of property, plant and equipment, and
present value of long term receivables. Actual results could be
significantly different from such estimates.
The
presentation in the statement of financial position distinguishes
between current and non-current assets and liabilities. The assets
and liabilities are those expected to be recovered or settled
within twelve months after the end of the reporting period under
review, and those held for sale. The fiscal year begins on January
1 and ends on December 31 of each year. The economic and financial
results are presented on a fiscal year basis.
The
consolidated financial statements are stated in thousands of
Argentine pesos (“Ps.” or “pesos”), the
functional currency of the Company and its subsidiary, unless
otherwise stated. For further information, see Note
4.c.
4.
SIGNIFICANT ACCOUNTING POLICIES
a)
New accounting standards
New
standards and interpretations issued by the IASB effective for the
periods beginning on or after January 1, 2016 adopted by the
Company
Below
is a description of the standards, amendments and interpretations
to existing standards that have been issued and were mandatory for
the Company’s fiscal periods beginning on or after January 1,
2016:
Amendments to IAS 1 “Presentation of financial
statements”.
In
December 2014, the IASB issued amendments to IAS 1. The amendments
aim is to clarify the guidance included in IAS 1 for the
presentation of financial statements. Amendments to IAS 1 make the
following changes:
●
Introduced
modifications to the guidance included in IAS 1 regarding
materiality considerations.
●
The amendment added
additional examples of possible ways of ordering the notes to
clarify that understandability and comparability
●
Made clarification
on the breakdown of information and the inclusion of
subtotals.
These
amendments are applicable for annual periods beginning on or after
January 2016, with earlier application permitted.
New
standards and interpretations issued by the IASB not effective for
the periods beginning on January 1, 2016 and that have not been
earlier adopted by the Company
Below
is a description of the standards, amendments and interpretations
to existing standards that have been issued and are mandatory for
the Company’s fiscal periods beginning on or after January 1,
2016 or later and which have not been early adopted by the
Company:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
IFRS 15 Revenue from contracts with customers
In May
2014, IFRS 15 was issued which establishes a single model for
entities to use in accounting for revenue arising from contracts
with customers. IFRS 15 will supersede the current revenue
recognition guidance including IAS 18 “Revenue”, IAS 11
“Construction Contracts” and the related
interpretations when it becomes effective.
The
core principle of IFRS 15 is that an entity shall assess the goods
or services promised in a contract with a customer and shall
identify as a performance obligation. IFRS 15 introduces a 5-step
approach to revenue recognition:
Step 1:
Identify the contract with a customer.
Step 2:
Identify the performance obligations in the contract.
Step 3:
Determine the transaction price.
Step 4:
Allocate the transaction price to the performance obligations in
the contract.
Step 5:
Recognize revenue when (or as) the entity satisfies a performance
obligation.
The new
revenue recognition model established in IFRS 15 is applicable to
all contracts with customers, except lease contracts, insurance
contracts and financial instruments. The recognition of interest
and dividends are not under the scope of this
standard.
IFRS 15
will be applicable for annual periods beginning on or after January
1, 2018, with earlier application permitted.
The
Company is currently analyzing the impact of IFRS 15 requirements
and, as of the date of the issuance of these consolidated financial
statements, it is not possible to reasonably determine its
impact.
IFRS 9 Financial instruments
In July
2014 a new revised version of IFRS 9 was issued. The complete
version of IFRS 9 replaces the guidance in IAS 39 that relates to
the classification and measurement of financial instruments. There
is now a new expected credit losses model that replaces the
incurred loss impairment model used in IAS 39. Also, new
requirements to classify and measure financial assets were included
in this version.
IFRS 9
will be applicable for annual periods beginning on or after January
1, 2018, with earlier application permitted.
The
Company is analyzing the impact of IFRS 9 and, as of the date of
the issuance of these financial statements, it is not possible to
reasonably determine its impact.
Annual improvements to IFRSs 2012 – 2014 Cycle
The
annual improvement to IFRSs 2012 – 2014 Cycle include four
amendments to IFRSs issued by the IASB, among them IAS 34
“Interim financial reporting”. The standard requires
new disclosures to be included in the interim financial
statements.
These
amendments will be applicable for annual periods beginning on or
after July 1, 2016, with earlier application
permitted.
The
Company is currently analyzing the impact of the new disclosure
requirements.
IFRS 16 “Leases”
In
January 2016, IFRS 16 was issued which establishes the new model of
registration of leasing operations. This standard replaces the
current guidance on the accounting for such operations in IAS 17
"Leases" and related interpretations when it comes into
force.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
As a
result of the modifications introduced, the accounting treatment of
leases in the tenant's accounting will undergo major changes. IFRS
16 eliminates the dual accounting model for tenants distinguishing
between on-balance sheet finance leases and operating leases for
which no recognition of future lease payments is required. Instead,
a unique, in-balance model is developed that is similar to the
current leasing model. There are certain exceptions for short-term
and insignificant leases.
The
landlord's accounting will not be changed.
IFRS 16
will be effective for annual periods beginning on or after January
1, 2019, with earlier application permitted. Adoption is
retroactive.
The
Company is currently assessing the impact of IFRS 16 and as of the
date of these consolidated financial statements is not reasonably
possible to determine its impact.
Amendments to IAS 12 "Income Taxes"
In
January 2016, the IASB issued certain amendments with respect to
the recognition of deferred tax assets for unrealized
losses.
These
amendments will be effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted.
The
Company is analyzing the impact of IAS 12, and as of the date of
the issuance of these financial statements, it is not possible to
reasonably determine the impact of IAS 12.
Amendments to IAS 7 "Statements of Cash Flows"
In
February 2016, the IASB issued certain amendments regarding
disclosures of the Statement of Cash Flows.
Modifications to
the Disclosure Initiative (Amendments to IAS 7) aim entities to
disclose information that enables users of financial statements to
evaluate changes in liabilities arising from financing activities.
For this purpose, the IASB requires that an entity shall disclose
the following changes in liabilities arising from financing
activities: (i) changes from financing cash flows; (ii) changes
arising from obtaining or losing control of subsidiaries or other
businesses; (iii) the effect of changes in foreign exchange rates;
(iv) changes in fair value; and (v) other changes.
Finally, the
amendments state that changes in liabilities arising from financing
activities must be disclosed separately from changes in other
assets and liabilities.
These
amendments will be effective for annual periods beginning on or
after January 1, 2017, with early adoption permitted.
The
Company is analyzing the impact of IAS 7, and as of the date of the
issuance of these financial statements, it is not possible to
reasonably determine the impact of IAS 7.
IFRIC 22 — Foreign Currency Transactions and Advance
Consideration
This
interpretation refers to the determination of the "transaction
date" that determines the exchange rate to be used in the initial
recognition of an asset, expense or income related to an entity
that received or paid a foreign currency advance. Applies to
foreign currency transactions when an entity recognizes a
non-monetary asset or non-monetary liability arising from the
receipt or payment of advance consideration before the entity
recognizes the related asset, expense or income.
For the
purpose of determining the exchange rate to be used in the initial
recognition of an asset, expense or income, the transaction date is
the date on which the non-monetary asset or liability derived from
the receipt or payment of the advance is recognized.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
This
interpretation applies to fiscal years beginning on or after
January 1, 2018. Early adoption is permitted. The initial
application may be retroactive or prospective from: i) the
beginning of the period in which it is applied; or (ii) the
beginning of an earlier comparative period.
b)
Consolidation
Subsidiary
Subsidiaries are
all entities (including structured entities) over which the Company
has control. The Company controls an entity when the Company is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power over the entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the group. They are
deconsolidated from the date that control ceases.
Inter-company
transactions, balances and unrealized gains on transactions between
group companies are eliminated. Unrealized losses are also
eliminated. Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted by
the Company.
Furthermore,
Telcosur is the only consolidated subsidiary of the Company and its
financial statements as of December 31, 2016 have been used for
consolidation purposes. Detailed data reflecting subsidiary control
as of December 31, 2016 and 2015 is as follows:
|
% of shareholding
|
|
|
|
Company
|
and votes
|
Country
|
Closing date
|
Main activity
|
|
|
|
|
|
Telcosur
S.A.
|
99.98
|
Argentina
|
December
31
|
Telecommunication
Services
|
|
|
|
|
|
Associates
Associates are
entities over which the group has significant influence but not
control, generally accompanying a shareholding of between 20% and
50% of the voting rights. Investments in associates are accounted
for using the equity method of accounting. Under the equity method,
the investment is initially recognized at cost, and the carrying
amount is increased or decreased to recognize the investor’s
share of the profit or loss of the investee after the date of
acquisition.
If the
ownership interest in an associate is reduced but significant
influence is retained, only a proportionate share of the amounts
previously recognized in other comprehensive income is reclassified
to profit or loss where appropriate.
The
Company accounted for the investments in its associates, on the
basis on the financial statements as of September 30, 2016 of Gas
Link S.A. (“Link”), Transporte y Servicios de Gas en
Uruguay SA (“TGU”) and Emprendimientos de Gas del Sur
S.A. (“EGS”). Accounting policies of associates have
been changed where necessary to ensure consistency with the
policies adopted by the Company.
The
Company’s management is not aware of any significant
subsequent events which affected the financial statements as of
September 30, 2016 of Link and TGU, from this date to December 31,
2016.
As
mentioned in note 21, on October 13, 2016, the liquidator of EGS
ordered the payment of a dividend in kind to its shareholders,
which was made in proportion to their shareholdings. For this
reason, as of December 31, 2016, the valuation of the investment in
EGS has been adjusted in Ps. 2,289.
Profits
and losses resulting from upstream and downstream transactions
between the Company and its associate are recognized in the
Company’s financial statements only to the extent of
unrelated investor’s interests in the associates. Unrealized
losses are eliminated unless the transaction provides evidence of
an impairment of the asset transferred.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
When
the Company’s share of losses in an associate equals or
exceeds its interest in the associate, including any other
unsecured receivables, the Company does not recognize further
losses, unless it has incurred legal or constructive obligations or
made payments on behalf of the associate.
According to
Link’s accounting policies, certain items of PPE are measured
using the revaluation model, meanwhile, as it is stated in note 4.j
to the present Consolidated Financial Statements, the Company use
the cost model to measure PPE items. Furthermore, as of
December 31, 2016, investment in Link has been reduced to zero in
the extent that it recorded a shareholders’ equity below zero
according to the accounting policies used by TGS. As of the date of
issuance of these Consolidated Financial Statements, has not
incurred in any legal or constructive obligation or made payments
on behalf of the associate.
In the
table below, associates are disclosed, together with the percentage
of shareholding and voting as of December 31, 2016 and
2015:
|
% of shareholding
|
|
|
|
Company
|
|
Country
|
Main activity
|
Closing date
|
|
|
|
|
|
TGU
|
49.00
|
Uruguay
|
Pipeline
Maintenance
|
December
31
|
EGS
|
49.00
|
Argentina
|
Pipeline
exploitation and construction
|
December
31
|
Link
|
49.00
|
Argentina
|
Pipeline
exploitation and construction
|
December
31
|
c)
Foreign currency translation
Functional and presentation currency
The
consolidated financial statements are presented in Argentine Pesos,
which is the Company’s functional currency. Items included in
the financial statements of each of the Company’s entities
(TGS and Telcosur) are measured using the Argentine Pesos, which is
the currency of the primary economic environment in which these
entities operate (‘the functional
currency’).
IAS 29
"Financial reporting in hyperinflationary economies" requires that
the financial statements of an entity whose functional currency is
that of a hyperinflationary economy, regardless of whether they are
based on the historical cost method or the current cost method, are
expressed in terms of the current unit of measure at the reporting
date of the reporting period. For this purpose, in general terms,
the inflation produced from the date of acquisition or from the
date of revaluation, as appropriate, should be included in
non-monetary items. In order to conclude about the existence of a
hyperinflationary economy, the standard details a series of factors
to consider including a cumulative rate of inflation in three years
that approaches or exceeds 100%.
As of
December 31, 2016, for companies in Argentina, it is not possible
to compute the cumulative inflation rate for the three-year period
ended on that date based on official data of the
Instituto Nacional de Estadísticas y
Censos
(“INDEC”), because in October 2015, INDEC
ceased to compute the Wholesale Price Index, and started to compute
it again as from January 2016.
Although during the
first half of 2016 inflation increased mainly as a result of the
devaluation of the Argentine peso and other factors, according to
official data, inflation is currently declining.
At the
end of the reporting period, as a result of: (i) local inflation
data has not been reported consistently, (ii) the slowdown in
inflation in the second half of 2016 and (iii) mixed qualitative
indicators suggest that there are not conclusive evidence that the
Argentine peso meet the characteristics to qualify as the currency
of a hyperinflationary economy according to the guidelines
established in IAS 29 and, therefore, these consolidated financial
statements have not been restated in constant
currency.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
However
in recent years, certain macroeconomic variables affecting the
Company's operations, such as wage costs, prices of inputs and
services, have undergone significant annual variations. This
circumstance should be considered in the evaluation and
interpretation of the financial situation and results presented by
the Company in these Consolidated Financial
Statements.
Transactions and balances
Foreign
currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the
transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognized in the profit or loss for the year.
Foreign
exchange gains and losses are presented in the statement of
comprehensive income within financial income and financial
expenses, as appropriate.
Associates
The
company located abroad, TGU, has a functional currency different
from the Argentine peso. Assets and liabilities were converted into
Argentine pesos using the exchange rate prevailing at the end of
each year, their common stock and retained earnings at their
historical exchange rates and results at average exchange
rates.
d)
Financial instruments
Classification
Financial assets
are classified into the following categories:
1.
Financial assets at fair value through
profit or loss
: Includes financial assets held for trading
or selling in the near future or designated by the management upon
initial recognition. The Company includes in this category balances
in mutual funds, public and private bonds, and certain deposits in
guarantee which are valued at fair value at each closing
date.
2.
Financial assets held to
maturity
: Within this category, TGS includes non-derivative
financial assets with fixed or determinable payments and fixed
maturities that the Company has the intent and ability to hold to
maturity. The Company includes in this category fixed term
deposits.
3.
Loans and other receivables.
Within this category the Company includes financial assets with
fixed or determinable payments that are not quoted in an active
market. Current assets are included, except those whose maturity
exceeds twelve months, which are included as non-current assets.
The Company includes in this category bank accounts and cash on
hand, trade receivables, other receivables and other financial
assets valued at amortized cost.
4.
Financial assets available for
sale
. Financial assets available for sale are
non-derivatives that are either designated in this category or not
classified in any of the other categories. They are included in
non-current assets unless the investment matures or management
intends to dispose of it within 12 months of the end of the
reporting period. As of December 31, 2016 and 2015, there are no
instruments classified in this category.
Financial
liabilities are classified into the following
categories:
1.
Financial liabilities at fair value
through profit or loss
: Includes financial liabilities held
for trading. As of December 31, 2016, there are no instruments
classified in this category.
2.
Other financial liabilities
:
Within this category the Company includes financial liabilities
with fixed or determinable payments that are not quoted in an
active market. Current liabilities are included, except those whose
maturity exceeds twelve months, which are included as non-current
liabilities. The Company includes in this category trade payables,
loans, payroll payables, derivative financial instruments and other
payables except for investing in associates.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
The
classification of the financial instruments depends on the nature
and purpose of the financial assets and liabilities and is
determined at the time of initial recognition.
Recognition and measurement
Financial assets
are initially measured at fair value, net of transaction costs
except for those financial assets classified at fair value through
profit or loss. Financial assets at fair value through profit or
loss are initially recognized at their fair value recognizing the
corresponding interest charge. Financial assets available for sale
and financial assets at fair value through profit or loss are
subsequently recorded at fair value. Loans and receivables and
financial assets held to maturity are subsequently recorded at
amortized cost in accordance with the method of the effective rate
of interest, less, if applicable, impairment losses.
Gains
or losses arising from changes in the fair value of the
‘financial assets at fair value through profit or loss’
category are presented in the statement of comprehensive income
within ‘Financial Income’ in the period in which they
arise.
Financial
liabilities at fair value through profit or loss are initially and
subsequently recorded at fair value. Other financial liabilities,
including loans, are initially measured at fair value and
subsequently measured at amortized cost using the effective
interest rate, recognizing the corresponding interest
charge.
Impairment
of financial assets at amortized cost
The
Company assesses at each reporting date whether there is objective
evidence that a financial asset or group of financial assets is
impaired and if so, an impairment charge is recorded. Impairment
losses are incurred if there is objective evidence of impairment as
a result of one or more events occurring after initial recognition
of the asset and that event (or events) has a negative impact on
the estimated future projected cash flows of the financial asset or
group of financial assets that can be reliably estimated. For this,
the Company evaluates several factors, including the credit risk of
customers, historical trends and other available
information.
The
carrying amount of the asset is reduced through an allowance
account and the amount of the loss is recognized in the statement
of comprehensive income at the time it occurs. If in subsequent
periods, the amount of the impairment loss decreases, the reversal
is also recorded in the statement of comprehensive
income.
As of
December 31, 2016 and 2015, impairment of financial assets
corresponds to the allowance for doubtful accounts indicated in
Note 8.b.
Offsetting
of financial instruments
Financial assets
and liabilities are offset when there is a legally enforceable
right to offset the recognized amounts and there is an intention to
settle on a net basis, or realize the asset and settle the
liability simultaneously.
e)
Derivative financial instruments
Derivative
financial instruments are recognized at their fair value at
inception and subsequently measured at their fair value and
disclosed as assets or liabilities depending if it is gain or loss.
The results of derivative financial instruments are classified
under "Financial expenses" in the statement of comprehensive
income.
Derivative
financial instruments have been measured in accordance with IFRS
13.
The
method of recognizing the resulting gain or loss depends on whether
the derivative is designated as a hedging instrument or not and,
according to the nature of the item being hedged. As of the date of
the issuance of these financial statements, the Company has not
applied hedge accounting in any of its outstanding derivative
financial instruments.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
The
Company does not use derivative financial instruments for
speculative purposes.
As of
December 31 2015, the Company entered into currency forward
agreements with major financial institutions for the purchase of
U.S. dollars, which are disclosed under "derivative financial
instruments" in the statement of financial position. A (decrease) /
increase of financial expenses for the fiscal years 2016 and 2015
is recognized in the statement of comprehensive income within
"derivative financial instruments result".
f)
Inventories
Inventories consist
of natural gas (in excess of the “Line Pack” classified
as property, plant and equipment) in the Company’s pipeline
system, and the liquids obtained from natural gas processing at the
Cerri Complex.
Inventories are
measured at the lower of cost or net realizable value. Cost is
determined using the weighted average price method. The cost of
inventories includes expenditure incurred in purchasing and
production and other necessary costs to bring them to their
existing location and condition.
The net
realizable value is the estimated selling price in the ordinary
course of business less the estimated cost of completion and the
estimated costs to make the sale.
The
assessment of the recoverable value of these assets is made at each
reporting date, and the resulting loss is recognized in the
statement of comprehensive income when the inventories are
overstated.
g)
Trade receivables, other receivables and trade
payables
Trade
receivables and other receivables are recognized initially at fair
value and subsequently measured at amortized cost using the
effective interest method, less allowance for trade
receivables.
An
allowance for trade receivables is established when there is
objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganization, and
default or delinquency in payments, including the customers’
credit risk, historical trends and other relevant information are
considered indicators that such receivables are impaired. Such
evaluation may require future adjustments if economic conditions
substantially differ from the assumptions made.
The
amount of the provision is the difference between the asset’s
carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. The
carrying amount of the asset is reduced through the use of an
allowance account, and the amount of the loss is recognized in the
statement of comprehensive income within selling expenses. When a
trade receivable is uncollectible, it is written off against the
allowance account for trade receivables. Subsequent recoveries of
amounts previously written off are credited against selling
expenses in the statement of comprehensive income.
Tax
credits (income tax and value added tax -“VAT”)
recorded as a result of the reversion of the tariff increase (Note
16.a.) have been valued at the discounted value of the amounts
expected to be collected using a market interest rate.
Trade
payables have been initially valued at their fair values and
subsequently at their amortized cost, using the effective interest
method.
h)
Cash and cash equivalents
Cash
and cash equivalents include cash on hand, bank accounts, fixed
term deposits and other short-term highly liquid investments with
original maturities of three months or less.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
i)
Other financial assets at fair value through profit or
loss
The
Other financial assets at fair value through profit or loss consist
of public and private bonds and mutual funds not considered as cash
equivalents.
Initially they were
recognized at fair value and subsequently measured at fair value
through profit or loss.
Results
from Other financial assets at fair value through profit or loss
are recognized in the Statement of Comprehensive Income as
"Financial Income".
j)
Property, plant and equipment
Property, plant and
equipment are recorded at cost, less accumulated depreciation and
impairment losses, if any. Historical cost comprises the purchase
price and any costs directly attributable to the
acquisition.
Subsequent costs
are included in the asset’s carrying amount or recognized as
a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the
Company and the cost of the item can be measured reliably. The
carrying amount of the replaced part is derecognized. All other
repairs and maintenance are charged to the statement of
comprehensive income when they are incurred.
Property, plant and
equipment are comprised as follows:
●
Assets transferred
from the privatization of GdE: The value of these assets was
determined based on the price paid for the acquisition of 70% of
the Company’s common stock, which amounted to US$ 561.2
million. This price was the basis to determine a total value of
common stock of US$ 801.7 million, which, when added to the debt
assumed under the Company’s privatization agreement (the
“Transfer Agreement”) of US$ 395.0 million, resulted in
a total value for property, plant and equipment of US$ 1,196.7
million. Such value, converted at the exchange rate in effect as of
the date of the Transfer Agreement, has been restated for the
effects of inflation.
●
Line pack: It
represents the natural gas in the transportation system that is
necessary to keep the system at operating capacity, valued at
acquisition cost and restated for the effects of
inflation.
●
Additions: They
have been valued at acquisition cost restated for the effects of
inflation. The Company has capitalized all the investments
stipulated as mandatory in the License during the first five-year
period, in order to achieve system integrity and public safety
equal to those required by international standards. Such
investments included, among others, the costs of survey programs
related to internal and external pipeline inspection, cathodic
protection and pipeline replacement and recoating. Additionally,
Resolutions No. 1,660 and No. 1,903 issued by ENARGAS include
definitions prescribing which costs should be considered
improvements and which costs should be considered maintenance
expenses. Repair and maintenance costs have been expensed as
incurred.
●
Capitalization of
foreign exchange loss: Resolutions No. 3/2002 and No. 87/03 issued
by the
Consejo Profesional de
Ciencias Económicas
(“CPCECABA”)
established that exchange losses arising from the devaluation of
the peso from January 6, 2002 to July 28, 2003, to the extent that
they were related to foreign currency liabilities existing at the
first date, may be added to the cost basis of assets acquired or
constructed with direct financing by such foreign currency
liabilities.
After
its first application, IFRS allows to choose the accounting policy
to be used for the measurement of PPE. The alternatives allowed by
IAS No. 16 - Property, plant and equipment - ("IAS 16") are the
"cost model" or the "revaluation model". The Company chose to
continue to apply the cost model for all kinds of elements PPE,
using the "deemed cost" determined at the date of transition, as
mentioned above.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
Accumulated
depreciation related to natural gas transportation assets is
computed under the straight-line method over the estimated useful
lives of the specific assets, which are lower than the maximum
useful lives established by ENARGAS through Resolutions No. 1,660
and No. 1,903 of the year 2000.
For
depreciation of all other property, plant and equipment, the
Company uses the straight-line method of depreciation and applies
the annual depreciation rates.
Where
individual components of an item of property, plant and equipment
have different useful lives, they are accounted for as separate
items, which are depreciated separately.
The
assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each statement of financial position
date. For further information, see Note 11.
When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in the statement of
comprehensive income.
Capitalized foreign
exchange loss is depreciated over the remaining useful lives of the
assets that led to such capitalization.
In
accordance with IAS 23, the Company capitalizes financial expense
on long term construction projects. Financial expense capitalized
was Ps. 39,735, Ps. 22,676 and Ps. 10,409 for the year ended
December 31, 2016, 2015 and 2014.
Impairment
of non-financial assets
At each
statement of financial position date, the Company reviews the
carrying amounts of its property, plant and equipment to determine
whether there is any indication that those assets have suffered an
impairment loss (e.g. significant decreases in the market value of
assets, in the prices of the main products sold by the Company, as
well as changes in the regulatory framework for the Company’s
activities, significant increases in operating expenses, or
evidence of obsolescence or physical damage). If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent, if any, of the impairment loss.
Where the asset does not generate cash flows that are independent
from other assets, the Company estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
If the
recoverable amount of an asset or cash-generating unit is estimated
to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount.
An impairment loss is recognized immediately in the statement of
income.
Where
an impairment loss subsequently reverses the carrying amount of the
asset or cash-generating unit is increased to the revised estimate
of its recoverable amount, not to exceed the carrying amount that
would have been determined had no impairment loss been recognized
for the asset or cash-generating unit in prior years. A reversal of
an impairment loss is recognized immediately in the statement of
comprehensive income.
Recoverable amount
is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted. To such end, the Company
makes estimates and assumptions of the economic conditions that
will prevail throughout the useful life of the assets.
As a
result of the factors mentioned above, actual cash flows and values
could vary significantly from projected cash flows and the values
derived from the discounting techniques used.
As of
December 31, 2016 and 2015, the carrying value of PPE does not
exceed their recoverable value.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
k)
Financial Leases
TGS
classifies leases as financial when it assumes substantially all
the risks and benefits of ownership of leased assets. To that end,
an asset and a liability are initially recognized at the same
amount as the lower value that results from comparing the fair
value of the leased asset and the present value of the minimum
lease payments.
Subsequently, each
finance lease payment should be apportioned between the finance
charge and the reduction of the outstanding liability (the finance
charge to be allocated so as to produce a constant periodic rate of
interest on the remaining balance of the liability). The
corresponding lease payments, net of financial charges, are
included in "Financial leases" in the current and non-current
financial Loans of the Statement of Financial Position. Interest on
the financial cost is charged to the Statement of Comprehensive
Income in the period of the lease in order to obtain a constant
periodic interest rate on the debt pending amortization in each
period.
Assets
acquired through finance leases are depreciated over the useful
life of the assets received in accordance with current depreciation
policies.
l)
Loans
Loans
have been initially recorded at the amount received. Subsequently,
loans are valued at their amortized cost. Liabilities are disclosed
as non-current when their maturity exceeds twelve
months.
m)
Income tax and deferred income tax
Income
tax includes current tax and deferred income tax. Income Tax is
presented in the Statement of Comprehensive Income.
The
current income tax is calculated on the basis of tax regulations in
force at each year-end. Management periodically evaluates positions
taken in tax returns with respect to situations in which tax
regulations are subject to interpretation and establishes
provisions if applicable. As of December 31, 2016, TGS recognized
and income provision of Ps. 482,721. As of December 31, 2015, there
are no provisions for this concept.
The
Company has calculated their respective income tax charges using
the deferred tax method, which considers the effect of temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases.
To
estimate deferred tax assets and liabilities, the tax rate expected
to be in effect at the time of utilization was applied to identify
temporary differences based on the legal requirements effective at
the date of preparation of these consolidated financial
statements.
A
deferred tax is recognized on the temporary differences arising
from investments in subsidiaries and associates, except for
deferred tax liabilities where the Company is able to control the
timing of the reversal of the temporary difference and it is
probable that the reversal will not occur in the foreseeable
future.
Deferred tax assets
and liabilities are offset if the Company has a legally enforceable
right to offset recognized amounts and when deferred tax assets and
liabilities relate to income tax levied by the same tax authority
on the same taxable entity or different taxable entities that
intend to settle tax assets and liabilities on a net basis. Current
and deferred tax assets and liabilities have not been
discounted.
Deferred tax assets
are recognized only to the extent that it is probable that future
taxable profits will be available against which the temporary
differences can be utilized.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
n)
Asset tax
The
Company is subject to the
Impuesto
a la Ganancia Mínima Presunta
(the “Asset
Tax” Law). The asset tax is calculated on an individual
entity basis at the statutory tax rate of 1%, and is based upon the
taxable assets of each Argentine entity as of the end of the year.
This tax is complementary to income tax and the Company is required
to pay the greater of the income tax or the asset tax. Any excess
of the asset tax over the income tax may be carried forward and
recognized as a payment on account of any excess of income tax over
asset tax occurring within the subsequent ten years.
When
the Company considers it is probable that the position of asset tax
is utilized as payment on account of income tax, TGS accounts for
asset tax credit as current or non-current, as appropriate, under
"Other receivables" in the statement of financial position. As of
December 31, 2016, the Company recorded a balance of Ps. 71,405
offsetting the balance of income tax payables. As of December 31,
2015, the Company recorded under "Other non-current receivables" a
balance of Ps. 42,500.
o)
Provisions
The
Company has recorded provisions related to legal actions, judicial
court, claims and administrative proceedings, including those of
legal and regulatory nature.
Provisions for
legal claims and/or claims by third parties ("legal claims and
others") are recorded when the Company has a present obligation as
a result of a past event, it is probable that an outflow of
resources will be required to settle the obligation; and the amount
has been reliably estimated. Estimates are reviewed and adjusted,
as the Company obtains additional information.
p)
Revenue recognition
Revenue
is measured at the fair value of the consideration received or
receivable, and represents amounts receivable for goods and/or
services supplied. The Company recognizes revenue when the amount
of revenue can be reliably measured; when it is probable that
future economic benefits will flow to the entity; and when specific
criteria have been met for each of the Company’s activities,
as described below.
Tax on
exports and turnover tax are disclosed as Selling
Expenses.
Natural
Gas transportation services includes: (i) firm natural gas
transportation, whose revenues are recognized when the capacity is
reserved and paid for regardless of actual usage by the customer
and (ii) interruptible natural gas transportation whose revenues
are recognized at the inception of the rendering of the
service.
Liquids
Production and Commercialization services includes: (i) Liquids
production and commercialization for its own account and on behalf
of third parties, whose revenues are recognized at the time of the
delivery of the liquids to the customers, and (ii) Other Liquids
services, which corresponds mainly to the receipt, storage and
dispatch from facilities located in Puerto Galván, and whose
sales revenues are recognized when the service is
provided.
Services from Other
Services segment primarily consist of the treatment, removal of
impurities and natural gas compression, as well as inspection and
maintenance of pipelines and compressor plants and services of
steam generation for electricity production.
Also,
TGS provides telecommunications services provided through Telcosur.
Revenues in this segment are recognized when the service is
provided.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
q)
Advances of customers
Mainly
consist of pre-payments for services made by customers in order to
finance the works to render the service
.
Advances from customers are recognized
initially at their fair value. Subsequent to initial recognition,
advances from customers are measured at their amortized cost which
is higher than the cost of rendering the agreed services that will
cancel said advances.
r)
Equity accounts
The
activity in the Equity accounts reflects resolutions adopted by
Shareholders in their meetings, or the effects of the laws or
regulations in force.
Common stock
The
common stock consists of contributions made by shareholders
represented by shares and comprises outstanding shares at their
nominal value.
Adjustment to common stock
Common
stock accounts were restated in constant currency in accordance
with previously applicable accounting standards in Argentina to the
implementation of IFRS. Common stock account was kept at nominal
value and the adjustment arising from such restatement is shown
under “Inflation Adjustment to common
stock”.
Common
stock adjustment is not distributable in cash or in kind but may be
capitalized through issuance of shares. In addition, this balance
may be used to compensate accumulated losses in accordance with the
compensation method specified under “Accumulated Retained
earnings”.
Legal Reserve
Pursuant to the
provisions of the Argentine Business Association Law and the CNV,
the Company is required to set up a legal reserve by providing at
least 5% of the aggregate amount of net income for the year, prior
year adjustments, transfers of other comprehensive income to
retained earnings and accumulated losses of prior years, when this
aggregate amount exceeds zero until the legal reserve equals 20% of
the sum of Capital stock and Adjustment to capital stock
balances.
Future dividends reserve
Corresponds to the
remaining balance of the appropriation made by the General Annual
Shareholders’ Meeting held on April 23, 2015, for which a
specific amount was intended to constitute a special future
dividends reserve. In addition, the Shareholders delegated on the
Company’s Board of Directors the determination of the date
and amount of the dividend distribution.
TGS’ Board of
Directors’ meeting held on January 13, 2016 ordered the
payment of a cash dividend by means of the total withdrawal of said
reserve. And thus, as of December 31, 2016, the future dividends
reserve has no balance.
Future Capital Expenditures and Other Financial Expenses
Reserve
The
Company’s Shareholders’ Meeting allocates a specific
amount to establish a special reserve to Future Capital
Expenditures and Other Financial Expenses.
The
balance as of December 31, 2016 corresponds to the reserve
constituted by the Ordinary and Extraordinary Shareholders' Meeting
of TGS held on April 20, 2016.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
Distribution of dividends
The
cash dividend is recognized as a liability in the Company’s
financial statements in the year in which they are approved
by the shareholders of the
Company or the Board of Directors
according to the powers
delegated by the Shareholders’ Meeting, as
appropriate.
Retained earnings
The
outstanding balance of retained earnings includes accumulated gains
or losses which were not allocated to a specific purpose reserve
and, when positive, may be distributed pursuant to the decision of
the Shareholders provided these retained earnings are not subject
to legal restrictions, as mentioned above “Legal
reserve”.
General
Resolution No. 593/2011 issued by the CNV provided that
Shareholders in the Meetings at which they should decide upon the
approval of financial statements in which the Retained earnings
account has a positive balance, should adopt an express resolution
as to the allocation of such balance, whether to dividend
distribution, capitalization, setting up of reserves or a
combination of these.
s)
Basic and diluted (losses) / earnings per share
Basic
earnings per share as of December 31, 2016 and 2015 were calculated
by dividing the amount of income or loss attributable to
Shareholders of the Company by the weighted average number of
ordinary shares outstanding during the fiscal year (794,495,283
shares). Since the Company does not have preferred shares or debt
convertible into shares, basic and diluted earnings per share are
the same.
t)
Segment reporting
Operating segments
are reported in a manner consistent with the internal reporting
provided to the chief operating decision maker
(“CODM”). The Company’s CODM is the Board of
Directors. Business segment information is provided in note 7
below.
u)
Dividend distribution
The
cash dividend is recognized as a liability in the Company’s
financial statements in the year in which they are approved
by the shareholders of the
Company or the Board of Directors
according to the powers
delegated by the Shareholders’ Meeting, as
appropriate.
Dividends
distributed during years ended December 31, 2016, 2015 and 2014
amounted to Ps. 99,734 (Ps. 012 per share), Ps. nil and Ps. 260,525
(Ps. 0.33 per share), respectively.
v)
Comparative information
For the
purposes of the comparative presentation, necessary
reclassifications were made on the financial statements of the
previous year to be presented on a uniform basis. The modification
of the comparative information does not imply changes in the
decisions taken in due course.
5.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Critical accounting
policies are those that are most important to the portrayal of the
Company’s financial condition, results of operations and cash
flows, and require management to make difficult, subjective or
complex judgments and estimates about matters that are inherently
uncertain. Management bases its estimates on various factors,
including past trends, expectation of future events regarding the
outcome of events and results and other assumptions that it
believes are reasonable.
Actual
results could differ from estimates used in employing the critical
accounting policies and these could have a material impact on the
Company’s results of operations. The Company’s critical
accounting policies are discussed below:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
(a) Impairment of PPE
The
Company considers each of its business segments to be a single cash
generating unit. Accordingly, the Company evaluates the carrying
value of its property, plant and equipment on a segment-by-segment
basis at the end of each fiscal year. In addition, the Company
periodically evaluates the carrying value of its property, plant
and equipment for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable.
The
calculation of the value in use is based on the definition of
discounted future cash flows. The projected cash flows are prepared
taking into account: (i) projections of the price of liquids and
purchase cost of natural gas used as raw material associated with
the Liquids and Commercialization segment, (ii) estimates relating
to the amount of the tariff increase and the recognition of cost
adjustments for the Natural Gas Transportation segment, (iii)
projections of the future costs to be incurred, (iv) the use of
certain macroeconomic variables such as interest rates, inflation,
foreign exchange rates. The discount rate is the weighted average
cost of capital (“WACC”).
The
Company recorded no impairment losses of components of property,
plant and equipment at December 31, 2016 and 2015.
Due to
the uncertainties surrounding the tariff renegotiation process as
describes in Note 16.a), estimates of future tariff adjustments are
highly uncertain and there is a substantial risk that these
estimates could prove to be materially different from actual future
tariffs. Within this framework, during 2016, the Company received a
limited transitional increase of 200.1% and began the Integral
Tariff Revision (“RTI” process). For further
information, see Note 16.a to these consolidated financial
statements.
In
performing the analysis, TGS based on: (i) the status of the
negotiations with the Argentine government and the impact of the
tariff increases received, (ii) the current regulatory framework,
(iii) recent experiences and renegotiation agreements signed by
other gas and electricity utility peers, (iv) management’s
expectations regarding other measures that management believes are
likely to be taken by the Argentine government to deal with the
present economic situation of gas and electricity utilities, and
(v) expectations of the Company to conclude the RTI process, with
the application of tariff increases as from 2017 and the impact of
a cost monitoring scheme that allows the realization of semiannual
adjustments at current tariffs.
In this
sense, as of December 31, 2016the Company has prepared three
different estimates of expected cash flows to which the following
percentages of probability of occurrence have been assigned:
optimistic: 20%, base: 70% and pessimistic: 10%. Each of the cash
flows prepared contains assumptions regarding the implementation of
an Integral Renegotiation Agreement, which includes different
estimates related to the amount of tariff increases for the Natural
Gas Transportation segment.
Based
on those estimations, the estimated discounted cash flows were
higher than the carrying amount of such assets as of December 31,
2016.
Since
the preparation of the different estimates of cash flows implied
the modification of the assumptions used for their preparation and
all of them imply to obtain of a new tariff scheme that remunerates
in a fair and reasonable way the provision of the natural gas
transportation public service and the recovery of the invested
capital, even a 100% increase in the weighted probability of the
pessimistic case (from 10% to 100%) and a reduction from 20% to 0%
in the probability of occurrence of the optimistic case and a
reduction from 70% to 0% in the base case would not generate
adjustment for impairment. As of December 31, 2016, there are no
impairment balances subject to reversal.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
As
mentioned in “Note 22. Subsequent Events”, on March 30,
2017 TGS signed a new transitional agreement (the “2017
Transitional Agreement”), ratified by Resolution No.
4362/2017 (“Resolution 4362”), which the ENARGAS
established increases of 214.2% and 37% in the transportation
tariffs and CAU, respectively, in case they had been implemented in
one time shot since April 1, 2017. However, Resolution 74
established that the increases were granted in three stages
effective from April 1, 2017, December 1, 2017 and April 1, 2018.
On March 30, 2017, TGS also signed the 2017 Integral Renegotiation
Agreement, which is still pending approval by the different
governmental authorities. All these steps are neccesary for the
conclusion of the renegotiation of TGS’ License.
Considering the
terms obtained by Resolution 4362 issued by ENARGAS on March 30,
2017 and the 2017 Integral Renegotiation Agreement, TGS
re-estimated the different cash flows used to evaluate the
impairment of elements of PPE associated with the Natural Gas
Transportation business segment. In this sense, the Company’s
management believes that it is not necessary to estimate three
different cash flows applicable for this business segment. In this
case, a single cash flow was prepared which considers: (i) the
amount of the first tranche of the tariff increase, (ii) the timing
of the rate increases obtained, (iii) the estimated amounts of the
rate increases to obtain in December 2017 and April 2018, (iv) the
six-month adjustment mechanism provided by Resolution 4362, (v) the
Five-Year Investment Plan, and (vi) the macroeconomic variables
that will impact on our business.
Thus,
considering the above mentioned assumptions, as of December 31,
2016 there are no changes regarding the opinion of the Company with
respect that no impairment losses should be
recognized.
(b) Allowances for doubtful accounts
The
Company provides for doubtful accounts relating to its accounts
receivables. The allowance for doubtful accounts is based on
management’s evaluation of various factors, including the
credit risk of customers, historical trends and other information.
While management uses the information available to make
evaluations, future adjustments to the allowance may be necessary
if future economic conditions differ substantially from the
assumptions used in making the evaluations. Management has
considered all events and/or transactions that are subject to
reasonable and normal methods of estimation, and the consolidated
financial statements reflect that consideration.
(c) Provisions for legal claims and others
The
Company has certain liabilities with respect to existing court or
out-of-court claims, lawsuits and other proceedings, including
those involving legal and regulatory matters. The Company records
liabilities when it is probable that future costs will be incurred
and such costs can be reasonably estimated. Such provisions are
based on developments known at the date of the issuance of these
consolidated financial statements, estimates of the outcome of
these matters and the experience of its legal counsel in
contesting, litigating and settling other matters. As the scope of
the liabilities become better defined, there will be changes in the
estimates of future costs, which could have a material effect on
the Company's future results of operations and financial condition
or liquidity.
(d) Income Tax
Deferred tax assets
are recognized for all tax losses to the extent that it is probable
that there will be a tax benefit against which these losses can be
utilized. Determining the amount of deferred tax assets that can be
registered requires a considerable judgment by the Management,
based on the probable term and level of future taxable profits
together with future tax planning strategies and macroeconomic
variables affecting the business. As of December 31, 2015, the
Company recorded a deferred tax asset for the tax loss carryforward
in this fiscal year amounting to Ps. 58,936.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
6.
SUPPLEMENTAL CASH FLOW INFORMATION
For
purposes of the consolidated statement of cash flows, the Company
considers all highly liquid temporary investments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The cash flow statement has been prepared using the
indirect method, which requires a series of adjustments to
reconcile net income for the period to net cash flows from
operating activities.
Non-cash investing
and financing activities for the years ended December 31, 2016,
2015 and 2014 are presented below:
|
|
|
|
Acquisition of PPE
through an increase in Trade payable
|
47,198
|
25,608
|
31,738
|
Financial charges
capitalization
|
39,735
|
22,676
|
10,409
|
Increase in
financial assets through a decrease in Other
receivables
|
144,773
|
-
|
-
|
Leasing for PPE
acquisition
|
750,389
|
|
|
(1)
Corresponds to the
collection of the compensation received for the participation in
the Propane for Networks Agreement. For further information see
Note 16.b.
7.
CONSOLIDATED BUSINESS SEGMENT INFORMATION
IFRS 8
“Operating Segments” requires an entity to report
financial and descriptive information about its reportable
segments, which are operating segments or aggregations of operating
segments that meet specified criteria. Operating segments are
components of an entity about which separate financial information
is available that is evaluated regularly by the CODM in deciding
how to allocate resources and in assessing performance. The
Company’s CODM is the Board of Directors.
The
CODM evaluates the business based on the differences in the nature
of the Company’s products and services. The business segment
information is reported consistently with the information reviewed
by the Board of Directors. The amount reported for each segment
item is the measure reported to the CODM for these purposes. This
measure is the operating profit / deficit.
Operating segments
identified are disclosed as reportable segments if they meet any of
the following quantitative thresholds:
●
Reported revenues
of the operating segments are 10%t or more of the combined revenue,
internal and external, of all operating segments;
●
The absolute amount
of reported profit or loss is 10% or more of the greater, in
absolute amount, of (i) the combined reported profit of all
operating segments that did not report a loss and (ii) the combined
reported loss of all operating segments that reported a
loss.
●
Assets are
10 per cent or more of the combined assets of all operating
segments
As well
as this, the operating segments that do not meet any of the
quantitative thresholds can be considered as reportable segments if
the management estimates that this information could be useful for
the users of the financial statements.
If,
after determining reportable segments in accordance with the
preceding quantitative thresholds, the total external revenue
attributable to those segments amounts to less than 75% of the
total Company’s consolidated external revenue, additional
segments are identified as reportable segments, even if they do not
meet the thresholds described above, until at least 75% of the
Company’s consolidated external revenue is included in
reportable segments.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
Segment
information has been prepared and classified according to different
types of businesses in which the Company conducts its activities.
The four reportable segments under IFRS 8 are as
follows:
●
Natural Gas Transportation:
revenues of this business segment are derived mainly from firm
contracts, under which pipeline capacity is reserved and paid for
regardless of actual usage by the customer. The Company also
provides interruptible natural gas transportation services subject
to available pipeline capacity. In addition, TGS renders operation
and maintenance services of the Natural Gas Transportation
facilities, which belong to certain gas trusts (fideicomisos de
gas) created by the Argentine Government to expand the capacity of
the Argentine natural gas transportation pipeline system. This
business segment is subject to ENARGAS regulation.
●
Production and Commercialization of
Liquids:
Liquids production and commercialization activities
are conducted at Cerri Complex, which is located, near the city of
Bahía Blanca in the Province of Buenos Aires. In the Cerri
Complex, ethane, LPG and natural gasoline are extracted from the
natural gas, which arrives through three main pipelines from the
Neuquén and Austral natural gas basins. TGS sells its
production of liquids in the domestic and the international
markets. TGS sells part of its production of propane and butane to
liquids marketers in the domestic market. The remainder of these
products and all of its natural gasoline are exported at current
international market prices. Ethane is entirely sold in the
domestic market to PBB-Polisur S.A. at agreed prices.
●
Other services:
Midstream
services include natural gas treatment, separation, and removal of
impurities from the natural gas stream, as well as natural gas
compression, rendered at the wellhead typically for natural gas
producers. In addition, TGS provides services related to pipeline
and compression plant construction, operation and maintenance of
pipelines and compressor plants services, as well as steam
generation for electricity production.
●
Telecommunications
:
Telecommunication services are rendered through Telcosur, a company
controlled by TGS. Telcosur provides services as an independent
carrier of carriers to leading telecommunication operators and
corporate customers located in its service area.
Detailed
information on each business segment for the years ended December
31, 2016, 2015 and 2014 is disclosed below:
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales
(1)
|
2,087,191
|
4,768,326
|
485,855
|
60,800
|
7,402,172
|
Cost
of sales
|
(997,635
)
|
(3,218,936
)
|
(187,815
)
|
(31,529
)
|
(4,435,915
)
|
Administrative
expenses
|
(264,821
)
|
(32,535
)
|
(14,734
)
|
(3,289
)
|
(315,379
)
|
Selling
expenses
|
(121,189
)
|
(180,499
)
|
(44,286
)
|
(7,540
)
|
(353,514
)
|
Other
operating (expenses) / income
|
(44,678
)
|
(19,147
)
|
(1,261
)
|
(457
)
|
(65,543
)
|
Operating profit
|
658,868
|
1,317,209
|
237,759
|
17,985
|
2,231,821
|
Depreciation
of property, plant and equipment
|
(238,844
)
|
(16,693
)
|
(31,261
)
|
-
|
(286,798
)
|
(1)
Revenues from sales from Production
and Commercialization of Liquids segment includes Ps. 183,870 of
National Government subsidies.
|
|
Identifiable
assets
|
6,454,526
|
1,184,593
|
1,235,079
|
57,134
|
8,931,332
|
Identifiable
Liabilities
|
4,209,833
|
1,214,944
|
968,527
|
11,650
|
6,404,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
market
|
-
|
1,437,902
|
-
|
-
|
1,437,902
|
Local
market
|
2,087,191
|
3,330,424
|
485,855
|
60,800
|
5,964,270
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales
(1)
|
1,013,998
|
2,907,770
|
260,600
|
44,201
|
4,226,569
|
Cost
of sales
|
(758,488
)
|
(1,869,397
)
|
(108,617
)
|
(23,403
)
|
(2,759,905
)
|
Administrative
expenses
|
(172,667
)
|
(16,512
)
|
(9,985
)
|
(2,472
)
|
(201,636
)
|
Selling
expenses
|
(48,082
)
|
(155,747
)
|
(32,889
)
|
(4,612
)
|
(241,330
)
|
Other
operating (expenses) / income
|
(332,997
)
|
(2,663
)
|
191
|
18
|
(335,451
)
|
Operating profit
|
(298,236
)
|
863,451
|
109,300
|
13,732
|
688,247
|
Depreciation
of property, plant and equipment
|
(194,659
)
|
(49,651
)
|
(17,083
)
|
-
|
(261,393
)
|
(1)
Revenues from sales from
Production and Commercialization of Liquids segment includes Ps.
129,629 of National Government subsidies.
|
|
Identifiable
assets
|
5,032,799
|
1,237,732
|
310,441
|
65,605
|
6,646,577
|
Identifiable
Liabilities
|
4,095,216
|
625,023
|
196,031
|
34,873
|
4,951,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
market
|
-
|
967,340
|
-
|
-
|
967,340
|
Local
market
|
1,013,998
|
1,940,430
|
260,600
|
44,201
|
3,259,229
|
Year ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from sales
(1)
|
744,089
|
3,243,299
|
256,716
|
59,867
|
4,303,971
|
Cost
of sales
|
(626,658
)
|
(1,828,312
)
|
(90,439
)
|
(20,126
)
|
(2,565,535
)
|
Administrative
expenses
|
(121,994
)
|
(30,814
)
|
(8,532
)
|
(2,144
)
|
(163,484
)
|
Selling
expenses
|
(35,339
)
|
(574,501
)
|
(32,148
)
|
(5,371
)
|
(647,359
)
|
Other
operating (expenses) / income
|
(2,509
)
|
7,192
|
232
|
6
|
4,921
|
Operating profit
|
(42,411
)
|
816,864
|
125,829
|
32,232
|
932,514
|
Depreciation
of property, plant and equipment
|
(189,524
)
|
(48,112
)
|
(16,675
)
|
-
|
(254,311
)
|
(1)
Revenues from sales from
Production and Commercialization of Liquids segment includes Ps.
85,945 of National Government subsidies.
|
|
Identifiable
assets
|
5,069,464
|
739,076
|
314,616
|
51,264
|
6,174,420
|
Identifiable
Liabilities
|
3,494,144
|
602,655
|
189,032
|
21,046
|
4,306,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
market
|
-
|
1,490,853
|
-
|
-
|
1,490,853
|
Local
market
|
744,089
|
1,752,446
|
256,716
|
59,867
|
2,813,118
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
8.
SUMMARY OF SIGNIFICANT STATEMENT OF FINANCIAL POSITION AND
STATEMENT OF COMPREHENSIVE INCOME ITEMS
|
|
|
|
|
|
|
|
Turnover
tax credit balance
|
1,074
|
-
|
-
|
-
|
Income
tax credit balance
|
962
|
-
|
89,311
|
-
|
VAT
credit balance
|
101,460
|
-
|
50,038
|
-
|
Asset
tax credit balance
(1)
|
-
|
-
|
-
|
42,500
|
Other
tax receivables
(2)
|
15,430
|
68,686
|
10,469
|
58,019
|
Prepaid
expenses
|
20,124
|
-
|
17,096
|
-
|
Advances
to suppliers
|
70,203
|
-
|
64,404
|
-
|
Subsidies
receivables
|
156,399
|
-
|
133,647
|
-
|
Taxes
to be recovered
|
-
|
-
|
2,346
|
-
|
Guaranteed
deposits
|
765
|
-
|
10,749
|
-
|
Easements
to be recovered
|
-
|
461
|
-
|
3,007
|
Deferred
Income tax
|
-
|
-
|
-
|
-
|
Others
|
11,855
|
6,318
|
15,720
|
4,742
|
Total
|
378,272
|
75,465
|
393,780
|
108,268
|
(1)
As of December
31, 2016 includes Ps. 71,405 the asset tax credit offsetting the
income tax payable
|
(2)
As of December
31, 2016 and 2015, other non-current tax receivables include Ps.
69,391 and Ps. 54,872, respectively of income tax and VAT credits
generated by the reversion of the tariff increase
credit.
|
The
breakdown of other receivables based on its currency of origin is
the following:
|
|
|
|
|
|
|
|
Argentine
Pesos
|
359,103
|
75,465
|
257,866
|
108,268
|
U.S.
Dollars
|
19,169
|
-
|
131,665
|
-
|
Euros
|
-
|
-
|
4,249
|
-
|
Total
|
378,272
|
75,465
|
393,780
|
108,268
|
|
|
|
|
|
|
|
|
Commons
|
1,128,454
|
8,122
|
714,626
|
6,470
|
Natural Gas
Transportation
|
405,388
|
-
|
119,290
|
-
|
Production and
Commercialization of Liquids
|
550,596
|
-
|
552,500
|
-
|
Other
services
|
172,470
|
8,122
|
42,836
|
6,470
|
Related parties
|
117,688
|
-
|
78,598
|
-
|
Natural Gas
Transportation
|
5,544
|
-
|
2,341
|
-
|
Production and
Commercialization of Liquids
|
-
|
-
|
48,317
|
-
|
Other
services
|
112,144
|
-
|
27,940
|
-
|
|
|
|
|
|
Allowance for
doubtful accounts
|
(19,703
)
|
-
|
(1,389
)
|
-
|
Total
|
1,226,439
|
8,122
|
791,835
|
6,470
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
The
breakdown of trade receivables based on its currency of origin is
the following:
|
|
|
|
|
|
|
|
Argentine
Pesos
|
568,500
|
-
|
220,743
|
-
|
U.S.
Dollars
|
657,939
|
8,122
|
571,092
|
6,470
|
Total
|
1,226,439
|
8,122
|
791,835
|
6,470
|
The
movement of the allowance for doubtful accounts is as
follows:
Balances
as of December 31, 2013
|
4,121
|
Additions
|
-
|
Applications
|
(2,525
)
|
Decreases
|
(207
)
|
Balances
as of December 31, 2014
|
1,389
|
Additions
|
-
|
Applications
|
-
|
Decreases
|
-
|
Balances
as of December 31, 2015
|
1,389
|
Additions
(1)
|
19,703
|
Applications
|
(1,389
)
|
Decreases
|
-
|
Balances
as of December 31, 2016
|
19,703
|
(1)
Included in Selling
expenses.
|
c)
Cash and cash
equivalents
|
|
|
Cash and
banks
|
650,248
|
407,038
|
Time
deposits
|
-
|
338,994
|
Mutual
funds
|
901,680
|
122,816
|
Bank
account
|
3,161
|
3,689
|
Total
|
1,555,089
|
872,537
|
The
breakdown of cash and cash equivalents based on its currency of
origin is the following:
|
|
|
Argentine
Pesos
|
921,768
|
473,222
|
U.S.
Dollars
|
633,321
|
399,315
|
Total
|
1,555,089
|
872,537
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
d)
Advances from
customers
(1)
|
|
|
|
|
|
|
|
Aluar Aluminio
Argentino S.A.C.I. (“Aluar”)
|
6,742
|
144,980
|
6,742
|
151,722
|
Fideicomiso de
Gas
|
-
|
-
|
2,760
|
-
|
Total Austral S.A.
(“Total Austral”)
|
795
|
-
|
4,770
|
795
|
YPF S.A.
(“YPF”)
|
2,434
|
6,947
|
2,347
|
9,381
|
Pan American Sur
S.A. (“PAS”)
|
530
|
-
|
3,180
|
530
|
Pan American Energy
L.L.C. (“PAE”)
|
2,182
|
58,976
|
2,182
|
60,813
|
Polisur
|
3,905
|
98,531
|
2,982
|
104,367
|
Others
|
21,006
|
4,252
|
816
|
4,700
|
Total
|
37,594
|
313,686
|
25,779
|
332,308
|
(1)
They are mainly
related to expansion works for the rendering of services contracted
by such clients. The advance will be settled with the effective
rendering of the service.
|
Advances from
customers are denominated in pesos.
|
|
|
|
|
Dividends payable
(1)
|
-
|
-
|
Provision for
compensation for the Board of Directors and Supervisory
Committee
|
2,334
|
-
|
Others
|
1,482
|
-
|
Total
|
3,816
|
-
|
(1)
Dividends were
paid on January 13, 2016.
|
Other
payables are denominated in pesos.
|
|
|
|
|
|
|
|
Asset tax credit
balance
|
-
|
-
|
42,500
|
-
|
Withholdings and
perceptions made to third parties
|
43,687
|
-
|
43,583
|
-
|
Tax on
exports
|
2,299
|
-
|
-
|
-
|
Turnover
Tax
|
4,570
|
-
|
-
|
-
|
Others
|
8,636
|
-
|
6,477
|
-
|
Total
|
59,192
|
-
|
92,560
|
-
|
Taxes
payables are denominated in pesos.
|
|
|
|
|
|
|
|
Suppliers
|
911,318
|
-
|
410,126
|
-
|
Customers (credit
balances)
|
8,592
|
-
|
9,531
|
-
|
Related
companies
|
41,338
|
-
|
22,867
|
-
|
Total
|
961,248
|
-
|
442,524
|
-
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
_____________________________________________________________________________________________________
The
breakdown of trade payables based on its currency of origin is the
following:
|
|
2016
|
|
2015
|
|
|
Current
|
Non-Current
|
|
Current
|
Non-Current
|
Argentine
Pesos
|
|
290,245
|
-
|
|
166,819
|
-
|
U.S.
Dollars
|
|
671,003
|
-
|
|
275,705
|
-
|
Total
|
|
961,248
|
-
|
|
442,524
|
-
|
|
|
2016
|
2015
|
2014
|
Inventories
at the beginning of the year
|
8,452
|
29,131
|
7,356
|
Natural
gas purchases
|
2,868,189
|
1,574,999
|
1,591,315
|
Operating
expenses (Note 8.i.)
|
1,676,137
|
1,164,227
|
995,995
|
Inventories
at the end of the year
|
(116,863)
|
(8,452)
|
(29,131)
|
Total
|
|
4,435,915
|
2,759,905
|
2,565,535
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
i)
Expenses by nature
– Information required under art. 64 paragraph I, clause B)
Commercial Companies Law
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and other contributions
|
814,731
|
403,546
|
200,403
|
163,999
|
46,783
|
-
|
Social
security taxes
|
139,356
|
64,518
|
33,944
|
30,874
|
10,020
|
-
|
Compensation
to Directors and Supervisory Committee
|
6,328
|
-
|
-
|
6,328
|
-
|
-
|
Professional
services fees
|
41,392
|
1,434
|
3,645
|
32,657
|
3,656
|
-
|
Technical
operator assistance fees
|
168,008
|
54,128
|
113,880
|
-
|
-
|
-
|
Materials
|
43,205
|
14,153
|
29,052
|
-
|
-
|
-
|
Third
parties services
|
94,185
|
37,014
|
49,257
|
7,914
|
-
|
-
|
Telecommunications
and post expenses
|
5,177
|
342
|
1,087
|
3,405
|
343
|
-
|
Rents
|
3,219
|
722
|
252
|
2,099
|
146
|
-
|
Transports
and freight
|
27,614
|
17,020
|
9,846
|
709
|
39
|
-
|
Easements
|
19,315
|
19,315
|
-
|
-
|
-
|
-
|
Offices
supplies
|
2,679
|
917
|
305
|
1,223
|
234
|
-
|
Travels
expenses
|
9,972
|
4,832
|
1,550
|
2,742
|
848
|
-
|
Insurance
|
26,509
|
15,048
|
9,330
|
1,771
|
360
|
-
|
Property,
plant and equipment maintenance
|
209,257
|
150,923
|
52,100
|
5,065
|
1,169
|
-
|
Depreciation
of property, plant and equipment
|
286,798
|
190,031
|
47,928
|
48,839
|
-
|
-
|
Amortization
of intangible assets
|
-
|
-
|
-
|
-
|
-
|
-
|
Taxes
and contributions
|
355,445
|
80,365
|
8,927
|
728
|
265,426
(1)
|
-
|
Advertising
|
584
|
-
|
-
|
-
|
584
|
-
|
Doubtful
accpunts
|
20,546
|
-
|
-
|
-
|
20,546
|
-
|
Banks
expenses
|
2,120
|
-
|
-
|
2,120
|
-
|
-
|
Interests
expense
|
431,561
|
-
|
-
|
-
|
-
|
431,561
|
Foreign
exchange loss
|
711,822
|
-
|
-
|
-
|
-
|
711,822
|
Other
financial charges
|
66,392
|
-
|
-
|
-
|
-
|
66,392
|
Derivate
financial instruments
|
8,933
|
-
|
-
|
-
|
-
|
8,933
|
Costs
of services rendered to third parties
|
40,453
|
-
|
40,453
|
-
|
-
|
-
|
Transactions
among business segments
|
-
|
(71,079
)
|
71,079
|
-
|
-
|
-
|
Other
expenses
|
28,136
|
13,908
|
5,962
|
4,906
|
3,360
|
-
|
Total
2016
|
3,563,737
|
997,137
|
679,000
|
315,379
|
353,514
|
1,218,708
|
(1)
Includes tax on exports of Ps.
11,081 for the year ended December 31, 2016.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and other contributions
|
564,489
|
295,429
|
121,264
|
114,577
|
33,219
|
-
|
Social
security taxes
|
98,812
|
46,067
|
19,839
|
25,962
|
6,944
|
-
|
Compensation
to Directors and Supervisory Committee
|
5,379
|
-
|
-
|
5,379
|
-
|
-
|
Professional
services fees
|
25,025
|
563
|
1,124
|
21,139
|
2,199
|
-
|
Technical
operator assistance fees
|
52,481
|
3,000
|
49,481
|
-
|
-
|
-
|
Materials
|
29,113
|
10,545
|
18,568
|
-
|
-
|
-
|
Third
parties services
|
51,604
|
20,161
|
25,429
|
6,014
|
-
|
-
|
Telecommunications
and post expenses
|
4,161
|
445
|
778
|
2,714
|
224
|
-
|
Rents
|
2,619
|
516
|
367
|
1,615
|
121
|
-
|
Transports
and freight
|
19,506
|
12,484
|
6,634
|
381
|
7
|
-
|
Easements
|
15,003
|
15,003
|
-
|
-
|
-
|
-
|
Offices
supplies
|
1,508
|
531
|
239
|
634
|
104
|
-
|
Travels
expenses
|
8,279
|
4,069
|
1,290
|
2,285
|
635
|
-
|
Insurance
|
22,850
|
12,935
|
8,280
|
1,279
|
356
|
-
|
Property,
plant and equipment maintenance
|
137,814
|
105,054
|
28,791
|
3,262
|
707
|
-
|
Depreciation
of property, plant and equipment
|
261,393
|
184,251
|
66,734
|
10,408
|
-
|
-
|
Taxes
and contributions
|
261,712
|
60,094
|
4,999
|
524
|
196,095
(1)
|
-
|
Advertising
|
154
|
-
|
-
|
-
|
154
|
-
|
Banks
expenses
|
1,430
|
-
|
-
|
1,430
|
-
|
-
|
Interests
expense
|
320,428
|
-
|
-
|
-
|
-
|
320,428
|
Foreign
exchange loss
|
1,164,585
|
-
|
-
|
-
|
-
|
1,164,585
|
Other
financial charges
|
41,718
|
-
|
-
|
-
|
-
|
41,718
|
Costs
of services rendered to third parties
|
26,375
|
-
|
26,375
|
-
|
-
|
-
|
Transactions
among business segments
|
-
|
(21,435
)
|
21,435
|
-
|
-
|
-
|
Other
expenses
|
17,486
|
8,512
|
4,376
|
4,033
|
565
|
-
|
Year
ended Deccember 31, 2015
|
3,133,924
|
758,224
|
406,003
|
201,636
|
241,330
|
1,526,731
|
(1) Includes tax on exports of Ps. 511,600 for the year ended
December 31, 2015.
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries,
wages and other contributions
|
416,968
|
224,727
|
84,138
|
82,777
|
25,326
|
-
|
Social
security taxes
|
74,640
|
37,074
|
15,027
|
17,136
|
5,403
|
-
|
Compensation
to Directors and Supervisory Committee
|
4,595
|
-
|
-
|
4,595
|
-
|
-
|
Professional
services fees
|
22,094
|
1,238
|
2,239
|
17,539
|
1,078
|
-
|
Technical
operator assistance fees
|
69,966
|
3,000
|
66,966
|
-
|
-
|
-
|
Materials
|
26,597
|
11,079
|
15,518
|
-
|
-
|
-
|
Third
parties services
|
41,059
|
15,650
|
20,567
|
4,842
|
-
|
-
|
Telecommunications
and post expenses
|
3,543
|
252
|
690
|
2,461
|
140
|
-
|
Rents
|
1,802
|
411
|
122
|
1,092
|
177
|
-
|
Transports
and freight
|
15,647
|
11,059
|
4,261
|
325
|
2
|
-
|
Easements
|
14,832
|
14,832
|
-
|
-
|
-
|
-
|
Offices
supplies
|
1,669
|
560
|
208
|
820
|
81
|
-
|
Travels
expenses
|
6,142
|
3,056
|
1,008
|
1,431
|
647
|
-
|
Insurance
|
19,125
|
11,386
|
6,853
|
841
|
45
|
-
|
Property,
plant and equipment maintenance
|
113,011
|
79,984
|
29,713
|
2,718
|
596
|
-
|
Depreciation
of property, plant and equipment
|
254,311
|
175,461
|
64,787
|
14,063
|
-
|
-
|
Taxes
and contributions
|
686,707
|
47,016
|
17,320
|
8,825
|
613,546
(1)
|
-
|
Advertising
|
136
|
-
|
-
|
-
|
136
|
-
|
Doubtful
accounts
|
(207
)
|
-
|
-
|
-
|
(207
)
|
-
|
Banks
expenses
|
1,155
|
-
|
-
|
1,083
|
72
|
-
|
Interests
expense
|
300,334
|
-
|
-
|
-
|
-
|
300,334
|
Foreign
exchange loss
|
777,514
|
-
|
-
|
-
|
-
|
777,514
|
Other
financial charges
|
47,456
|
-
|
-
|
-
|
-
|
47,456
|
Derivative
financia instruments results
|
103,497
|
-
|
-
|
-
|
-
|
103,497
|
Costs
of services rendered to third parties
|
18,740
|
-
|
18,740
|
-
|
-
|
-
|
Transactions
among business segments
|
-
|
(17,299
)
|
17,299
|
-
|
-
|
-
|
Other
expenses
|
14,306
|
6,908
|
4,145
|
2,936
|
317
|
-
|
Year
ended Deccember 31, 2014
|
3,035,639
|
626,394
|
369,601
|
163,484
|
647,359
|
1,228,801
|
(1) Includes tax on exports of Ps. 511,600 for the year ended
December 31, 2014.
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
|
|
|
|
Financial
income
|
|
|
|
Derivative
financial instrument results
|
-
|
128,525
|
-
|
Interest
income
|
100,418
|
79,387
|
141,453
|
Fair value gains on
financial instruments through profit or loss
|
169,890
|
55,892
|
9,238
|
Foreign exchange
gain
|
135,039
|
288,764
|
158,981
|
Subtotal
|
405,347
|
552,568
|
309,672
|
Financial
expenses
|
|
|
|
Interest
expense
|
(470,663
)
|
(343,104
)
|
(230,807
)
|
Foreign exchange
loss
|
(712,456
)
|
(1,165,803
)
|
(626,979
)
|
Derivative
financial instrument results
|
(8,933
)
|
-
|
38,025
|
Other financial
charges
|
(66,392
)
|
(41,718
)
|
(29,885
)
|
Less:
Amounts capitalised on qualifying
assets
|
39,736
|
23,894
|
7,245
|
Subtotal
|
(1,218,708
)
|
(1,526,731
)
|
(842,401
)
|
Total
|
(813,361
)
|
(974,163
)
|
(532,729
)
|
k)
Other operating
(expenses) / income
|
|
|
|
Net increase in
provisions
|
(61,634
)
|
(15,897
)
|
(1,641
)
|
Acquisition of the
Rights of the Arbitration Proceeding (Note 16.a)
|
-
|
(324,390
)
|
-
|
Others
|
(3,909
)
|
4,836
|
6,562
|
Total
|
(65,543
)
|
(335,451
)
|
4,921
|
l)
Other
financial assets at fair value through profit or loss
|
|
|
|
|
|
|
|
Public
bonds
|
55,508
|
84,857
|
2,863
|
-
|
Mutual
Funds
|
-
|
-
|
19,856
|
-
|
Private
bonds
|
-
|
58,015
|
-
|
44,063
|
Total
|
55,508
|
142,872
|
22,719
|
44,063
|
The
breakdown of other financial assets at fair value through profit or
loss based on its currency of origin is the following:
|
|
|
|
|
|
|
|
Argentine
Pesos
|
-
|
-
|
22,719
|
-
|
U.S.
Dollars
|
55,508
|
142,872
|
-
|
44,063
|
Total
|
55,508
|
142,872
|
22,719
|
44,063
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
9.
INVESTMENTS IN ASSOCIATES
|
|
|
|
|
|
|
EGS
|
116
|
357
|
1,909
|
TGU
|
5
|
2,517
|
1,775
|
Subtotal
|
121
|
2,874
|
3,684
|
Link
|
503
|
-
|
-
|
Total
|
624
|
2,874
|
3,684
|
10.
PROFIT / (LOSS) FROM ASSOCIATES
|
|
|
|
EGS
|
780
|
177
|
(197
)
|
TGU
|
742
|
77
|
29
|
Link
|
-
|
-
|
3,058
|
Total
|
1,522
|
254
|
2,890
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
______________________________________________________________________________________________
11.
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelines
|
3,644,917
|
-
|
-
|
1,794
|
3,646,711
|
1,520,415
|
-
|
86,178
|
2.2
|
1,606,593
|
2,040,118
|
|
|
|
|
|
|
|
|
|
|
|
|
Compressor
plants
|
1,512,294
|
306
|
-
|
52,220
|
1,564,820
|
910,354
|
-
|
83,439
|
|
993,793
|
571,027
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
industrial plants
|
2,868
|
-
|
-
|
-
|
2,868
|
554
|
-
|
97
|
3.3
|
651
|
2,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Stations of
regulation and/or
|
|
|
|
|
|
|
|
|
|
|
|
measurement of
pressure
|
129,228
|
-
|
-
|
7,060
|
136,288
|
87,972
|
-
|
5,235
|
4.0
|
93,207
|
43,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
technical installations
|
28,368
|
-
|
-
|
493
|
28,861
|
20,978
|
-
|
966
|
6.7
|
21,944
|
6,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
assets related to
|
|
|
|
|
|
|
|
|
|
|
|
natural gas
transportation service
|
5,317,675
|
306
|
-
|
61,567
|
5,379,548
|
2,540,273
|
-
|
175,915
|
|
2,716,188
|
2,663,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to natural gas
|
|
|
|
|
|
|
|
|
|
|
|
upstream
service
|
206,576
|
750,389
|
-
|
15,096
|
972,061
|
119,046
|
-
|
21,528
|
|
140,574
|
831,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to liquids
|
|
|
|
|
|
|
|
|
|
|
|
production and
commercialization service
|
756,700
|
-
|
-
|
25,895
|
782,595
|
570,286
|
-
|
12,648
|
5.9
|
582,934
|
199,661
|
|
|
|
|
|
|
|
|
|
|
|
|
Lands
|
6,279
|
4,935
|
292
|
-
|
10,922
|
-
|
-
|
-
|
-
|
-
|
10,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and
constructions
|
198,796
|
-
|
-
|
8,046
|
206,842
|
102,436
|
-
|
4,043
|
2.0
|
106,479
|
100,363
|
|
|
|
|
|
|
|
|
|
|
|
|
Fittings and
features in building
|
33,897
|
-
|
-
|
501
|
34,398
|
5,598
|
-
|
1,430
|
4.0
|
7,028
|
27,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery,
equipment and tools
|
48,655
|
5,780
|
-
|
569
|
55,004
|
38,370
|
-
|
2,345
|
|
40,715
|
14,289
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and
Telecommunication systems
|
419,541
|
660
|
-
|
50,148
|
470,349
|
308,394
|
-
|
56,258
|
|
364,652
|
105,697
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
33,072
|
12,281
|
453
|
-
|
44,900
|
24,351
|
389
|
4,987
|
|
28,949
|
15,951
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
13,485
|
-
|
-
|
1,372
|
14,857
|
12,852
|
-
|
121
|
10
|
12,973
|
1,884
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of foreign exchange loss
|
177,272
|
-
|
-
|
-
|
177,272
|
106,272
|
-
|
7,523
|
4
|
113,795
|
63,477
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
|
356,008
|
209,239
|
6,845
|
(75,856
)
|
482,546
|
-
|
-
|
-
|
-
|
-
|
482,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
pack
|
13,872
|
-
|
-
|
-
|
13,872
|
1,618
|
-
|
-
|
-
|
1,618
|
12,254
|
|
|
|
|
|
|
|
|
|
|
|
|
Works in
progress
|
467,188
|
424,233
|
-
|
(87,338
)
|
804,083
|
-
|
-
|
-
|
-
|
-
|
804,083
|
Total
2016
|
8,049,016
|
1,407,823
|
7,590
|
-
|
9,449,249
|
3,829,496
|
389
|
286,798
|
|
4,115,905
|
5,333,344
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
______________________________________________________________________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelines
|
3,631,240
|
-
|
-
|
13,677
|
3,644,917
|
1,434,424
|
-
|
85,991
|
2.2
|
1,520,415
|
2,124,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Compressor
plants
|
1,436,084
|
-
|
-
|
76,210
|
1,512,294
|
834,255
|
-
|
76,099
|
|
910,354
|
601,940
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
industrial plants
|
2,868
|
-
|
-
|
-
|
2,868
|
456
|
-
|
98
|
3.3
|
554
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
|
Stations of
regulation and/or
|
|
|
|
|
|
|
|
|
|
|
|
measurement of
pressure
|
129,228
|
-
|
-
|
-
|
129,228
|
82,806
|
-
|
5,166
|
4.0
|
87,972
|
41,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
technical installations
|
28,355
|
-
|
-
|
13
|
28,368
|
20,002
|
-
|
976
|
6.7
|
20,978
|
7,390
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
assets related to
|
|
|
|
|
|
|
|
|
|
|
|
natural gas
transportation service
|
5,227,775
|
-
|
-
|
89,900
|
5,317,675
|
2,371,943
|
-
|
168,330
|
|
2,540,273
|
2,777,402
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to natural gas
|
|
|
|
|
|
|
|
|
|
|
|
upstream
service
|
205,773
|
423
|
566
|
946
|
206,576
|
111,667
|
536
|
7,915
|
|
119,046
|
87,530
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to liquids
|
|
|
|
|
|
|
|
|
|
|
|
production and
commercialization service
|
695,548
|
-
|
313
|
61,465
|
756,700
|
526,427
|
311
|
44,170
|
5.9
|
570,286
|
186,414
|
|
|
|
|
|
|
|
|
|
|
|
|
Lands
|
6,279
|
-
|
-
|
-
|
6,279
|
-
|
-
|
-
|
-
|
-
|
6,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and
constructions
|
196,204
|
-
|
-
|
2,592
|
198,796
|
97,700
|
-
|
4,736
|
2.0
|
102,436
|
96,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Fittings and
features in building
|
33,975
|
-
|
242
|
164
|
33,897
|
4,319
|
142
|
1,421
|
4.0
|
5,598
|
28,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery,
equipment and tools
|
46,917
|
1,130
|
6
|
614
|
48,655
|
36,400
|
6
|
1,976
|
|
38,370
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and
Telecommunication systems
|
389,779
|
-
|
-
|
29,762
|
419,541
|
286,351
|
-
|
22,043
|
|
308,394
|
111,147
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
31,064
|
2,403
|
395
|
-
|
33,072
|
21,571
|
395
|
3,175
|
|
24,351
|
8,721
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
13,147
|
62
|
-
|
276
|
13,485
|
12,743
|
-
|
109
|
10
|
12,852
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of foreign exchange loss
|
177,272
|
-
|
-
|
-
|
177,272
|
98,754
|
-
|
7,518
|
4
|
106,272
|
71,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
|
286,677
|
161,986
|
8,349
|
(84,306
)
|
356,008
|
-
|
-
|
-
|
-
|
-
|
356,008
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
pack
|
13,872
|
-
|
-
|
-
|
13,872
|
1,618
|
-
|
-
|
-
|
1,618
|
12,254
|
|
|
|
|
|
|
|
|
|
|
|
|
Works in
progress
|
327,282
|
241,319
|
-
|
(101,413
)
|
467,188
|
-
|
-
|
-
|
-
|
-
|
467,188
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
2015
|
7,651,564
|
407,323
|
9,871
|
-
|
8,049,016
|
3,569,493
|
1,390
|
261,393
|
|
3,829,496
|
4,219,520
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
______________________________________________________________________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelines
|
3,612,277
|
-
|
-
|
18,963
|
3,631,240
|
1,348,651
|
-
|
85,773
|
2.2
|
1,434,424
|
2,196,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Compressor
plants
|
1,354,086
|
-
|
-
|
81,998
|
1,436,084
|
762,272
|
-
|
71,983
|
|
834,255
|
601,829
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
industrial plants
|
2,868
|
-
|
-
|
-
|
2,868
|
358
|
-
|
98
|
3.3
|
456
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Stations of
regulation and/or
|
|
|
|
|
|
|
|
|
|
|
|
measurement of
pressure
|
126,403
|
-
|
-
|
2,825
|
129,228
|
77,640
|
-
|
5,166
|
4.0
|
82,806
|
46,422
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
technical installations
|
28,342
|
-
|
-
|
13
|
28,355
|
19,027
|
-
|
975
|
6.7
|
20,002
|
8,353
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
assets related to
|
|
|
|
|
|
|
|
|
|
|
|
natural gas
transportation service
|
5,123,976
|
-
|
-
|
103,799
|
5,227,775
|
2,207,948
|
-
|
163,995
|
|
2,371,943
|
2,855,832
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to natural gas
|
|
|
|
|
|
|
|
|
|
|
|
upstream
service
|
205,084
|
-
|
-
|
689
|
205,773
|
103,669
|
-
|
7,998
|
|
111,667
|
94,106
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets related
to liquids
|
|
|
|
|
|
|
|
|
|
|
|
production and
commercialization service
|
677,111
|
-
|
-
|
18,437
|
695,548
|
483,606
|
-
|
42,821
|
5.9
|
526,427
|
169,121
|
|
|
|
|
|
|
|
|
|
|
|
|
Lands
|
6,279
|
-
|
-
|
-
|
6,279
|
-
|
-
|
-
|
-
|
-
|
6,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and
constructions
|
184,665
|
-
|
-
|
11,539
|
196,204
|
93,198
|
-
|
4,502
|
2.0
|
97,700
|
98,504
|
|
|
|
|
|
|
|
|
|
|
|
|
Fittings and
features in building
|
5,692
|
-
|
-
|
28,283
|
33,975
|
3,539
|
-
|
780
|
4.0
|
4,319
|
29,656
|
|
|
|
|
|
|
|
|
|
|
|
|
Machinery,
equipment and tools
|
43,036
|
3,381
|
253
|
753
|
46,917
|
34,941
|
253
|
1,712
|
|
36,400
|
10,517
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and
Telecommunication systems
|
363,374
|
-
|
-
|
26,405
|
389,779
|
264,435
|
-
|
21,916
|
|
286,351
|
103,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicles
|
28,122
|
3,549
|
607
|
-
|
31,064
|
19,210
|
607
|
2,968
|
|
21,571
|
9,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
|
13,147
|
-
|
-
|
-
|
13,147
|
12,645
|
-
|
98
|
10
|
12,743
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
of foreign exchange loss
|
177,272
|
-
|
-
|
-
|
177,272
|
91,233
|
-
|
7,521
|
4
|
98,754
|
78,518
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
|
226,701
|
112,846
|
3,916
|
(48,954
)
|
286,677
|
-
|
-
|
-
|
-
|
-
|
286,677
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
pack
|
13,872
|
-
|
-
|
-
|
13,872
|
1,618
|
-
|
-
|
-
|
1,618
|
12,254
|
|
|
|
|
|
|
|
|
|
|
|
|
Works in
progress
|
214,619
|
253,614
|
-
|
(140,951
)
|
327,282
|
-
|
-
|
-
|
-
|
-
|
327,282
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
2014
|
7,282,950
|
373,390
|
4,776
|
-
|
7,651,564
|
3,316,042
|
860
|
254,311
|
|
3,569,493
|
4,082,071
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
As of
December 31, 2016, the assets allocated to the natural gas
treatment and compression service include the following amounts in
which the Company is a financial leasing under the terms of leasing
contracts:
|
|
Cost –
Capitalized financial leasing
|
750,389
|
Accumulated
depreciation
|
(20,148
)
|
Total
|
730,241
|
The
financial leasing agreement expires in September 2026, the date on
which the purchase options provided for in the contracts may be
exercised.
As of
December 31, 2015, there are no PPE items under this
category.
Short-term and
long-term loans as of December 31, 2016 and 2015 comprise the
following:
|
|
|
Current loans:
|
|
|
2007 EMTN Program:
Series 1 Notes
|
-
|
401,903
|
Interest
payable
|
31,269
|
32,493
|
Other financial
loans
|
1,466
|
12,696
|
Financial
leasing
|
112,661
|
-
|
Total
current loans
|
145,396
|
447,092
|
Non-current loans
|
|
|
2007 EMTN Program:
Series 1 Notes
|
-
|
401,903
|
2014 EMTN Program:
Series 1 Notes
|
3,036,084
|
2,484,786
|
Other financial
loans
|
-
|
1,411
|
Financial
leasing
|
735,520
|
-
|
Total
non-current loans
|
3,771,604
|
2,888,100
|
Total
loans
(1)
|
3,917,000
|
3,335,192
|
(1)
Issuance expenses
net.
The
breakdown of loans based on its currency of origin is the
following:
|
|
|
Argentine
pesos
|
1,466
|
14,107
|
U.S.
Dollars
|
3,915,534
|
3,321,085
|
Total
loans
|
3,917,000
|
3,335,192
|
The
activity of the loans as of December 31, 2016 and 2015 is the
following:
|
|
|
Beginning
balance
|
3,335,192
|
2,465,689
|
Finance
leasing
|
750,389
|
-
|
Accrued
interest
|
362,127
|
246,079
|
Effect of foreign
exchange rate change
|
710,651
|
1,148,011
|
Payment of
loans
|
(916,490
)
|
(294,556
)
|
Interest
paid
|
(324,869
)
|
(230,031
)
|
Ending
balance
|
3,917,000
|
3,335,192
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
The
maturities of the current and non-current loans as of December 31,
2016 are as follows:
|
|
Less than 1
year
|
38,054
|
From 1 to 2
years
|
2,029,564
|
From 3 to 4
years
|
1,014,781
|
Financial
lease as of December 31, 2016
(1)
|
3,082,399
|
(1)
Excluding issuance
expenses
The
following table sets reconciliation between the total of future
minimum lease payments as of December 31, 2016, and their present
value:
|
|
Less than 1
year
|
164,874
|
From 1 to 2
years
|
237,746
|
From 3 to 4
years
|
237,746
|
Over 4
years
|
546,538
|
Total
future minimum payments
|
1,186,904
|
Future financial
expenses over financial lease
|
(338,725
)
|
Financial
lease as of December 31, 2016
|
848,179
|
The
following are the maturities of the finance leases in force as of
December 31, 2016:
|
|
Less than 1
year
|
112,660
|
From 1 to 2
years
|
128,709
|
From 3 to 4
years
|
158,075
|
Over 4
years
|
448,735
|
Financial
lease as of December 31, 2016
|
848,179
|
Issuance of notes under the 2007 Global Program (the “2007
Program”):
The
Extraordinary Shareholders’ meeting held on December 21, 2006
approved the creation of the 2007 Global Program for the issuance
of new notes up to a maximum aggregate amount of US$ 650.0 million.
The 2007 Program was authorized by the CNV on January 18,
2007.
Accordingly,
between May and June 2007, the Company refinanced its outstanding
indebtedness through the issuance of US$500.0 million new notes
(the “2007 Notes”), the early prepayment of its
outstanding debt through an exchange offer, the cancellation of
outstanding notes which did not participate in the exchange offer
and cancellation of bank loans. The Company’s goal in issuing
these notes was to improve the Company’s financial
indebtedness profile and to ease the restrictions imposed by the
prior debt restructured in 2004, including but not limited to
dividend distribution, additional indebtedness and capital
expenditures.
The
2007 Notes have a coupon rate of 7.875%, with interest being paid
semiannually, and maturity date of May 2017. Principal on the 2007
Notes is to be paid in four equal annual installments beginning in
May 2014 until maturity. The 2007 Notes are traded in the
Bolsa de Comercio de Buenos
Aires
("BCBA"), the
Mercado
Abierto Electrónico
(“MAE”) and the Euro
MTF of the Luxembourg Exchange.
Moreover, between
August 2008 and August 2010, considering favorable conditions in
the market, the Company reduced its financial indebtedness through
the cancellation of a portion of the 2007 Notes for an aggregate
amount of US$ 125,976,000, which had previously been purchased on
the market at a lower price.
On
January 10, 2014, TGS launched an offer to exchange its outstanding
2007 Notes for newly issued notes under the 2014 Global Program
(the “2014 Global Program”), as it is described below.
The period of acceptance of this offer expired on February 7, 2014.
The percentage of acceptance received amounted to 67%. As a result
of the exchange, a total US$ 123,283,000 of the 2007 Notes remained
outstanding and thus, the amortization payments are expected to
amount to US$ 30,820,750.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
During
2016, the Company made the cancellation of the principal with
maturity on May 14, 2016 and the early cancellation of the
principal corresponding to the 2017 fiscal year according to the
provisions of the Board Meeting of TGS held on October 14, 2016. As
of December 31, 2016, the financial debt of TGS corresponding to
the 2007 Program is totally canceled.
The
fair value of the 2007 Notes is based on a discounted cash flow at
an effective interest rate of 7.942%.
Issuance of notes under the 2014 Global Program (the “2014
Program”):
The
2014 Program provides for the issuance of up to a maximum principal
amount of US$400 million in notes, and was authorized by
resolutions of an Extraordinary Shareholders’ Meeting dated
April 25, 2013, and by resolutions of its Board of Directors
adopted on July 23, 2013 and December 23, 2013. The program was
also authorized by the CNV on January 3, 2014, after the issuance
of Resolution No. 17,262.
As it
is mentioned above, on January 10, 2014 TGS launched an offer for a
voluntary exchange. The exchange offer settled on February 7, 2014.
TGS accepted 67% of the 2007 Notes. For this reason, on February 7,
2014, the Company issued its 2014 Notes in aggregate principal
amount of US$255,451,506 under its 2014 Program. The main
conditions of 2014 Notes are as follows:
|
|
|
|
2014 Notes
|
|
|
|
|
Amount
in US$
|
255,451,506
|
|
Interest
rate
|
9.625%
anual
|
|
|
Scheduled
payment date
|
Percentage of original
principal amount
|
|
Amortization
|
May 14,
2014
|
25%
|
|
|
May 14,
2018
|
25%
|
|
|
May 14,
2019
|
25%
|
|
|
May 14,
2020
|
25%
|
|
Frequency
of Interest payment
|
Semiannual, payable
el May 14 and November 14 of each year.
|
|
Guarantor
|
None
|
The
2014 Notes are traded in the BCBA, the MAE and the Euro MTF of the
Luxembourg Exchange.
The
terms and conditions of the 2014 Notes are similar to those applied
to the 2007 Notes, having not changed financial covenants with
respect to those effective for the 2007 Notes. According to the
criteria established by IAS 39, the exchange offer was not
accounted for as an extinguishment of financial liabilities, and
thus, the costs paid are amortized over the remaining life of the
2014 Notes.
The
fair values are based on cash flows discounted at an effective rate
of 10.126%.
Covenants
:
The
2014 Notes contain certain restrictive covenants that, among other
things, limit the ability of the Company to (i) incur additional
indebtedness, (ii) pay dividend, (iii) issue guarantees, (iv)
dispose certain assets and (v) make certain related party
transactions. The Company was in compliance with all covenants of
the 2014 Notes as of the December 31, 2016.
The
foregoing limitations are subject to exceptions as set forth in the
Indenture. For example, the Company may incur in additional
indebtedness as long as (i) after issuing it, the consolidated
coverage ratio (calculated as the quotient of the consolidated
adjusted EBITDA -earnings before financial results, income tax,
depreciation and amortization-) and the consolidated interest
expense) is equal or higher than 2.0:1; and (ii) the consolidated
debt ratio (calculated as the quotient of the consolidated debt and
the consolidated EBITDA) is equal or lower than 3.75:1; (ii) it is
incurred to refinance outstanding debt and (iii) it is originated
in advances from customers.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Additionally, the
Company may pay dividends as long as (i) the Company is not in
default under 2014 Notes, (ii) immediately after any dividend
payment, the Company would be able to incur in additional
indebtedness pursuant to item (i) and (ii) of the preceding
paragraph.
Financial Lease
On
August 11, 2016, the Company entered into a financial lease
agreement with Pampa Energía. The agreement is valid for 10
years, for 9 years and 11 months TGS pays Pampa Energía a
monthly fee of USD 623.5, without taxes, with an option to purchase
in month 120 for the same amount.
Other Loans:
On
November 22, 2013, the Company entered into a loan with Itaú
Bank for Ps. 20.0 million. The loan has a repayment schedule with
25 equal and monthly installments and final maturity in November
2016. The first installment was in November 2014. As of the date of
the issuance of these consolidated financial statements, the loan
was totally cancelled. The loan bore interest at an annual fixed
rate of 15.25% payable on a monthly basis.
On
December 3, 2013, the Company entered into a loan with Macro Bank
for Ps. 10.0 million. The loan bears interest at an annual fixed
rate of 15.25% payable on a monthly basis. The loan has a repayment
schedule with 34 monthly installments as from July 2014 and final
maturity in April 2017.
The
fair value of such loans is equivalent to their book value. The
fair values are based on discounted cash flows at an effective rate
of 15.25% for the loans received from Banco Macro S.A. and Banco
Itaú Argentina S.A.
The
current terms of the Company’s interest-bearing borrowings as
of December 31, 2016 and 2015 have been reviewed and compared to
the market pricing at year’s end, and the carrying value is
considered to represent a reasonable approximation to fair
value.
13.
INCOME TAX AND DEFERRED TAX
The
reconciliation between the tax computed for tax purposes and the
income tax expense charged to the statement of comprehensive income
in the years ended December 31, 2016, 2015 and 2014 is as
follows:
|
|
|
|
Estimated current
income tax gain / (expense)
|
(482,721
)
|
68,626
|
(78,658
)
|
Deferred income
tax
|
(6,583
)
|
44,927
|
13,892
|
Income
tax (expense) / gain
|
(489,304
)
|
113,553
|
(64,766
)
|
The
analysis of the net deferred tax assets and liabilities is as
follows:
|
|
|
Deferred
tax assets:
|
|
|
Deferred tax assets
to be recovered after more than 12 months
|
375,430
|
126,350
|
Deferred tax assets
to be recovered after more than 12 months
|
12,184
|
10,463
|
Deferred
tax liabilities:
|
|
|
Deferred tax
liabilities ti be recovered after more than 12 months
|
(791,823
)
|
(539,622
)
|
Deferred tax
liabilities to be recovered after more than 12 months
|
(12,507
)
|
(7,325
)
|
Deferred
tax liabilities, net
|
(416,716
)
|
(410,134
)
|
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
The
components of the net deferred tax assets and liabilities as of
December 31, 2016, 2015 and 2014 are the following:
The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the years in which those
temporary differences become recoverable. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning in making these
assessments.
Income
tax expense computed at the statutory tax rate on pre-tax income
differs from the income tax expense for the years ended December
31, 2016, 2015 and 2014 as follows:
|
|
|
|
Pre-tax
income
|
1,419,982
|
(285,662
)
|
169,754
|
Statutory income
tax rate
|
35
%
|
35
%
|
35
%
|
Pre-tax income at
statutory income tax rate
|
(496,994
)
|
99,982
|
(59,411
)
|
Tax effects due
to:
|
|
|
|
-Non-taxable
income or non-deductible expenses
|
7,690
|
13,571
|
(5,355
)
|
Income
tax expense
|
(489,304
)
|
113,553
|
(64,766
)
|
Cumulative tax loss
carryforwards recorded by the Company that are pending at year end
may be offset against taxable income in future years, according to
the following detail:
Year
|
|
|
2015 tax loss
carryforward (estimated)
|
168,383
|
2020
|
Tax loss
carryforward used
|
(168,383
)
|
|
Cumulative
tax loss carryforward
|
-
|
|
The
realization of deferred tax assets, including those mentioned
losses, depends on the generation of future taxable income during
the years in which temporary differences become deductible. To
determine the realization of deferred tax assets, the Company
considers the reversal of deferred tax liabilities, tax planning
and projections of future taxable profits based on its best
estimate in accordance with the guidelines set out in Note 5.d).
Based on these projections, the Company estimates that as of
December 31, 2016 it is probable that all deferred tax assets are
made.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
|
For
legal claims and others
|
Balances
as of December 31, 2013
|
143,412
|
Additions
(1)
|
42,859
|
Uses
|
(13,238
)
|
Decreases
(2)
|
(22,686
)
|
Balances
as of December 31, 2014
|
150,347
|
Additions
(1)
|
51,929
|
Uses
|
(45,963
)
|
Decreases
(1)
|
(5,727
)
|
Balances
as of December 31, 2015
|
150,586
|
Additions
(1)
|
115,056
|
Uses
|
(27,986
)
|
Decreases
(3)
|
(16,223
)
|
Balances
as of December 31, 2016
|
221,433
|
(1)
Ps. 76,603, Ps.
21,625 and Ps. 24,327 are included in “Other operating
expenses” and Ps. 38,453, Ps. 30,304 and Ps. 18,532 in
“Financial expenses” for the years ended on December
31, 2016, 2015 and 2014, respectively.
(2)
The total amount
is recorded in “Other operating income”.
(3)
Ps. 14,852 are
included in “Other operating expenses” and Ps. 1,371 in
“Financial expenses”.
The
total amount of the Provisions are included in current
liabilities.
15.
FINANCIAL RISK MANAGEMENT
1.
Financial risk factors
The
Company’s activities and the market in which it operates
expose it to a series of financial risks: market risk (including
foreign exchange risk, cash flows interest rate risk, and commodity
price risk), credit risk and liquidity risk. To that extent, the
Company has different policies adopted to mitigate its exposure to
financial risks.
1.1
Foreign exchange
risk
The
Company is primarily exposed to the fluctuation of the exchange
rate of the U.S. dollar against the Argentine Peso due to the fact
that almost its entire financial indebtedness is denominated in
U.S. dollars.
As
regards to the revenue derived from the Natural Gas Transportation
segment, under Public Emergency and Reform of the Foreign Exchange
System Law No. 25,561 (the “Public Emergency Law”), the
tariffs charged by the Company are currently denominated in
Argentine pesos. In accordance with the Public Emergency Law, in
January 2002, public service tariffs were converted into Argentine
pesos and fixed at an exchange rate of Ps. 1.00 = US$ l.00 even as
the Argentine peso was allowed to devalue against the US dollar. On
the other hand, revenues in US dollars derived from the Liquids
Production and Commercialization segment accounted for
approximately 79%, 84% and 83% of the segment’s total
revenues for both the years ended December 31, 2016 and 2015,
respectively. Total revenues denominated in Argentine Pesos
accounted for 43%, 40% and 35% for the years ended December 31,
2016, 2015 and 2014, respectively.
Considering the net
liability financial position described in the table below, the
Company estimated that, other factors being constant, a 10%
appreciation of the US dollar against the Argentine Peso for the
years ended December 31, 2016, 2015 and 2014 would have decreased
the Company’s income before tax for the year in approximately
Ps. 306,961, Ps. 244,418, and Ps. 196,725 respectively. A 10%
depreciation of the US dollar against the Argentine Peso would have
an equal and opposite effect on the income statement. Actual
results may differ significantly from these theoretical sensitivity
scenarios.
Net
liability position in US$
|
|
|
|
U.S.
dollars
|
(192,574
)
|
(186,754
)
|
(229,489
)
|
Total
|
(192,574
)
|
(186,754
)
|
(229,489
)
|
Decrease
of financial results in Ps.
|
|
|
|
Pesos
|
306,961
|
244,418
|
196,725
|
Total
|
306,961
|
244,418
|
196,725
|
Derivative Financial Instruments
To
mitigate the foreign exchange risk, during the year 2015, the
Company entered into forward purchase of US dollars, as well as
investments in mutual funds linked to the US dollar in order to
cover the exposure to the risk associated with the foreign exchange
rate derived from its financial debt.
At the
end of 2015, the net position is buying US dollars amounting to US$
52.5 million at a weighted average exchange rate of Ps. 11.65 which
due in May 2016. The fair value of these contracts as of December
31, 2015 amounted to a net asset position of Ps. 128,124, which is
disclosed under the item “Derivative financial
instruments” in the Statement of Financial Position. Such
contracts are guaranteed by Ps. 29,910 which are disclosed under
"Other Receivables."
The
Company’s interest rate risk arises from long-term
borrowings. Borrowings issued at floating rates expose the Company
to cash flow interest rate risk. Borrowings issued at fixed rates
expose the Company to fair value interest rate risk. The interest
rate profile of the Company's borrowings is set out in Note
12.
Currently, the
Company’s exposure to cash flow interest rate risk is limited
due to the fact that 100% of its outstanding financial indebtedness
bears fixed interest rates.
As far
as interest-bearing financial assets, the exposure to interest rate
risk is limited to the financial assets of the Company which bear
variable interest rate. Most of the financial assets of the Company
bear fix rate interests.
The
following table shows a breakdown of the Company’s fixed-rate
and floating-rate financial assets and liabilities as of December
31, 2016 and 2015:
|
|
Financial
liabilities
(2)
|
|
|
|
|
|
Fix interest
rate
|
-
|
333,100
|
3,068,819
|
3,335,192
|
Variable interest
rate
|
39,645
|
50,817
|
-
|
-
|
Total
|
39,645
|
383,917
|
3,068,819
|
3,335,192
|
(1)
Includes time
deposits, bank accounts and trade receivables. Trade receivables do
not bear interests, except for Ps. 36,484 and Ps. 47,128 which
bears CER plus a spread of 8% as of December 31, 2016 and 2015,
respectively.
|
(2)
Includes loans,
excluding issuance expenses.
|
In view
of the nature of the Company’s financial assets which bear
variable interest, an immediate 100 basis points decrease in the
interest rate would not have a significant impact on the total
value of the financial assets.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Commercial
operations performed by the Company in its Liquids Production and
Commercialization segment are affected by a number of factors
beyond its control, including changes in the international prices
of the products sold, and government regulations on prices, taxes
and other charges, among others.
The
sale prices of propane and butane (“LPG”) and natural
gasoline the Company exports in its Liquids Production and
Commercialization segment are referenced to international prices
(Mont Belvieu for the LPG and NWE ARA for the natural gasoline).
These prices have historically been cyclical, reflecting overall
economic conditions and changes in capacity within the industry,
which may affect the profitability of companies engaged in this
business.
Based
on the volume of sales for the years ended December 31, 2016, 2015
and 2014, the Company estimated that, other factors being constant,
a decrease of US$50/ton in the international price of LPG and
natural gasoline, respectively, would have decreased the
Company’s net comprehensive income in its Liquids Production
and Commercialization segment in Ps.233,323, Ps. 157,051 and Ps.
69,228 respectively.
The
Company does not currently use derivative financial instruments to
mitigate the risks associated with international commodity price
fluctuations.
Ethane
is sold to PBB Polisur S.A. (“Polisur”) under a
recently negotiated annual contract with a maturity date of May 31,
2017. Furthermore, due to the sharp decrease in the international
price of the ethane, the gap between the selling price of TGS has
increased against the price offer by the alternative
Polisur’s alternative supplier. This gap, plus the expiration
of the contract, it would be expected that the risk of lower price
or volumes of ethane sales could be considered high. This, together
with the expiration of the contract, means that the risk of price
decrease or displacement in supply (lower product sales) is
considered high.
The
Company’s exposures to credit risk takes the form of a loss
that would be recognized if counterparties failed to, or were
unable to, meet their payment obligations. These risks may arise in
certain agreements in relation to amounts owed for physical product
sales, the use of derivative instruments, and the investment of
surplus cash balances. This risk mainly results from economic and
financial factors or from a possible default of
counterparty.
The
Company is subject to credit risk arising from outstanding
receivables, cash and cash equivalents and deposits with banks and
financial institutions, and from the use of derivative financial
instruments. The Company’s policy is to manage credit
exposure to trading counterparties within defined trading
limits.
If any
of the Company’s customers are independently rated, these
ratings are used. Otherwise, if there is no independent rating, the
Company assesses the credit quality of the customer taking into
account its financial position, past experience and other factors.
The Company may seek cash collateral, letter of credit or parent
company guarantees, as considered appropriate.
As of
December 31, 2016 and 2015, the balance of current and non-current
trade receivables, net of allowances of doubtful accounts are as
follows:
|
|
|
Current trade
receivables
|
1,246,742
|
793,224
|
Non-current trade
receivables
|
8,122
|
6,470
|
Allowances for
doubtful accounts
(1)
|
(19,703
)
|
(1,389
)
|
Total
|
1,235,161
|
798,305
|
(1)
Corresponds to the
best estimate made by TGS according to what is mentioned in note
5.b.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
The
Company, in the normal course of business, renders natural gas
transportation services, principally to gas distribution companies
and to Pampa Energía. Significant customers in terms of
revenues and trade receivables (net of allowances of doubtful
accounts) from natural gas transportation for the years ended
December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
MetroGAS
|
597,041
|
70,319
|
268,626
|
28,511
|
194,904
|
20,001
|
Camuzzi Gas
Pampeana S.A.
|
358,756
|
51,908
|
154,209
|
16,480
|
108,668
|
22,433
|
Gas Natural BAN
S.A. (“BAN”)
|
268,043
|
38,635
|
110,259
|
12,185
|
78,913
|
8,501
|
Pampa
Energía
|
27,353
|
5,943
|
27,681
|
29,348
|
30,192
|
13,517
|
Camuzzi Gas del Sur
S.A.
|
58,056
|
50,001
|
36,614
|
3,939
|
26,296
|
2,905
|
Revenues from
Liquids Production and Commercialization customers (including those
made on behalf of third parties, from whom the Company earns a
commission and trade receivables (net of allowances of doubtful
accounts) for the years ended December 31, 2016, 2015 and 2014 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
Polisur
|
1,949,460
|
223,938
|
1,298,152
|
346,197
|
1,055,582
|
89,148
|
Petredec
|
-
|
-
|
254,061
|
29,435
|
944,233
|
42,989
|
Petroleo
Brasileiro
|
513,912
|
57,335
|
95,618
|
25,475
|
627,468
|
25,475
|
Petrobras
Global
|
-
|
-
|
44,058
|
-
|
-
|
-
|
Braskem Netherlands
B.V.
|
19,706
|
-
|
135,971
|
35,996
|
-
|
-
|
Trafigura Beheer
B.V.
|
-
|
-
|
159,911
|
-
|
-
|
-
|
Geogas Trading
S.A.
|
460,234
|
125,303
|
112,392
|
33,796
|
83,134
|
-
|
Below
is a detail of the maturities of the financial assets included in:
(i) cash and cash equivalents, (ii) loans granted to related
parties, (iii) other financial assets at fair value through profit
or loss, (iv) trade receivables, (v) other receivables, (vi)
derivate financial instruments, and (vii) Other financial assets at
amortized cost as of December 31, 2016 and 2015:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
The
Company is exposed to counterparty credit risk on cash and cash
equivalent balances. The Company holds cash on deposit with a
number of financial institutions. The Company manages its credit
risk exposure by limiting individual deposits to clearly defined
limits in various financial institutions. The Company considers
that this risk is limited because it has short-term funds policies
whose main objective is to obtain an adequate return in terms of
market characteristics and minimizing exposure. The Company only
deposits with high quality banks and financial
institutions.
The
maximum exposure to credit risk is represented by the carrying
amount of cash and cash equivalents in the statement of financial
position. Below we include information regarding their credit
rating:
Concept
|
|
|
Mutual
funds
|
189,953
|
A+
|
Mutual
funds
|
120,024
|
|
Mutual
funds
|
112,449
|
|
Mutual
funds
|
242,206
|
|
Mutual
funds
|
229,338
|
|
Public
bonds
|
140,364
|
|
The
Company is exposed to liquidity risks, including: risks associated
with refinancing borrowings as they mature, the risk that borrowing
facilities are not available to meet cash requirements and the risk
that financial assets cannot readily be converted to cash without
loss of value. Failure to manage financing risks could have a
material impact on the Company’s cash flow and statement of
financial position.
Prudent
liquidity risk management includes managing the profile of debt
maturities and funding sources and close oversight of cash flows
projections. The Company has funding policies whose main objectives
are to meet the financing needs at the lowest cost possible
according to market conditions. The main objective of the Company
is its financial solvency. Given the current financial market
conditions, the Company believes that the availability of resources
and the positive cash flow from operations are sufficient to meet
its current obligations.
Additionally, TGS
applies a methodology for analyzing and assigning credit limits to
individual financial institutions in order to minimize the
associated credit risk. In line with this, the Company invests its
liquid funds in certain financial institutions with an appropriate
credit rating.
The
table below includes a detail of the maturities of the obligations
corresponding to financial liabilities corresponding to: trade
payables, payroll payables, other payables, derivative financial
instruments and loans as of December 31, 2016 and 2015. The amounts
disclosed in the table are the contractual undiscounted cash flows
and as a result, they do not reconcile to the amounts disclosed on
the statement of financial position.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
1.6
Capital risk
management
The
Company’s objectives when managing capital are to safeguard
the Company’s ability to continue as a going concern in order
to provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal credit quality and capital
structure to reduce the cost of capital.
The
Company seeks to maintain a level of cash generation from operating
activities, which may allow it to meet all of its
commitments.
The
Company monitors capital on the basis of the gearing ratio. This
ratio is calculated as total financial debt (including current and
non-current loans as shown in the consolidated statement of
financial position, if applicable) divided by total capital. Total
capital is calculated as equity, as shown in the consolidated
statement of financial position, plus total debt.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
During
the year ended December 31, 2016 and 2015, the gearing ratio was as
follows:
|
|
|
Total Loans (note
12)
|
3,917,000
|
3,335,192
|
Total
Equity
|
2,526,378
|
1,695,434
|
Total
Capital
|
6,443,378
|
5,030,926
|
Gearing
ratio
|
0.61
|
0.66
|
2
FINANCIAL INSTRUMENTS BY CATEGORY AND HIERARCHY
2.1
Financial
instrument categories
Accounting policies
for the categorization of financial instruments are explained in
Note 4.d. According to the provisions of IFRS 7 and IAS 32,
non-financial assets and liabilities such as property, plant and
equipment, investments in associates, inventories, advances from
customers, deferred income tax, taxes and social taxes payables and
provisions are not included.
The
categories of financial assets and liabilities as of December 31,
2016 and 2015 are as follows:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
2.2
Fair value
measurement hierarchy and estimates
According to IFRS
13, the fair value hierarchy introduces three levels of inputs
based on the lowest level of input significant to the overall fair
value. These levels are:
●
Level 1: includes
financial assets and liabilities whose fair values are estimated
using quoted prices (unadjusted) in active markets for identical
assets and liabilities. The instruments included in this level
primarily include balances in mutual funds and public or private
bonds listed on the MERVAL/BCBA. Additionally within this level,
the Company included derivative financial instruments because the
settlement date thereof coincided with the closing date of the
fiscal year. For the calculation of fair value, the corresponding
quoted price was obtained.
●
Level 2: includes
financial assets and liabilities whose fair value is estimated
using different assumptions quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (for example, derived from prices).
Within this level, the Company includes those derivate financial
instruments for which it was not able to find an active
market.
●
Level 3: includes
financial instruments for which the assumptions used in estimating
fair value are not based on observable market
information.
During
2015, there were neither transfers between the different
hierarchies of fair values nor reclassifications between financial
instruments categories.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
The
table below shows different assets and liabilities at their fair
value classified by hierarchy as of December 31, 2016 and
2015:
|
|
|
|
|
|
|
Financial
assets at fair value
|
|
|
|
|
Cash and cash
equivalents
|
901,680
|
-
|
-
|
901,680
|
Other current
financial assets at fair value through profit or loss
|
55,508
|
-
|
-
|
55,508
|
Other non-current
financial assets at fair value through profit or loss
|
142,872
|
-
|
-
|
142,872
|
Total
|
1,100,060
|
-
|
-
|
1,100,060
|
|
|
|
|
|
|
|
|
Financial
assets at fair value
|
|
|
|
|
Cash and cash
equivalents
|
122,816
|
-
|
-
|
122,816
|
Derivative
financial instruments
|
30,530
|
97,594
|
-
|
128,124
|
Other current
financial assets at fair value through profit or loss
|
22,719
|
-
|
-
|
22,719
|
Other non-current
financial assets at fair value through profit or loss
|
44,063
|
-
|
-
|
44,063
|
Total
|
220,128
|
97,594
|
-
|
317,722
|
The
carrying amount of the financial assets and liabilities is the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
As of
December 31, 2016 and 2015, the carrying amount of certain
financial instruments used by the Company including cash, cash
equivalents, other investments, receivables, payables and short
term loans are representative of fair value because of the
short-term nature of these instruments.
The
estimated fair value of other Non-current assets and Other loans
does not differ significantly from the carrying amount. The
following table reflects the carrying amount and estimated fair
value of the 2007 Notes and 2014 Notes at December 31, 2015 and for
the 2014 Notes at December 31, 2016, based on their quoted market
price:
|
|
|
|
Carrying
amount
|
-
|
811,609
|
Fair
value
|
-
|
837,762
|
|
|
2016
|
2015
|
Carrying
amount
|
3,067,355
|
2,509,476
|
Fair
value
|
3,275,135
|
2,518,552
|
a)
General framework of the regulated
segment
:
General aspects
Regarding
TGS’ Natural Gas Transportation business, it is regulated by
Law No. 24,076 (“the Natural Gas Act”), its regulatory
Decree No. 1,738/92 and the Regulatory framework for the
transportation and distribution of natural gas in Argentina. The
Natural Gas Act created ENARGAS, which is entitled, among other
things, to set the basis for the calculation, monitoring and
approval of tariffs. On January 28, 2016, Resolution No. 7 of the
Ministry of Energy and Mining (“MINEM”) of Argentina
repealed the Resolution 2000/2005 of the former Ministry of Federal
Planning, Public Investment and Services (“ex MPFIPyS”)
which provided that all tariff increases should have the prior
intervention of the Undersecretary of Coordination and Management
Control.
TGS
License has been granted for an original period of 35 years
beginning on December 28, 1992. However, the Natural Gas Act
provides that TGS may apply to ENARGAS for a renewal of its license
for an additional period of ten years. ENARGAS should evaluate at
that time the performance of TGS and raise a recommendation to the
Executive Branch. At the end of the period of validity of the
license, 35 or 45, as appropriate, the Natural Gas Act requires a
call for a new tender for the granting of a new license, in which
TGS, provided the Company fulfilled substantially with the
obligations resulting from the license, would have the option of
matching the best offer that the Government received in this
bidding process.
General tariff situation
Prior
the enactment of the Public Emergency Law, and according to the
Regulatory Framework, transportation tariffs were to be calculated
in US dollars and converted into Argentine pesos at the time the
customer was billed using the exchange rate prevailing at the date
of the billing. The basic natural gas transportation tariffs
charged by TGS had been established at the time of the
privatization of GdE and were to be adjusted, subject to prior
authorization, in the following cases: (i) semi-annually to reflect
changes in the US producer price index (“PPI”) and (ii)
every five years according to efficiency and investment factors
determined by ENARGAS. The “efficiency factor” is a
reduction to the base tariff resulting from future efficiency
programs while the “investment factor” increases the
tariffs to compensate the licensees for future investments which
are not repaid through tariffs. Also, subject to ENARGAS approval,
tariffs were to be adjusted to reflect non-recurrent circumstances
or tax changes, other than income tax.
The
terms and conditions as described in the precedent paragraph in
connection with tariff adjustments contemplated within the
Regulatory Framework are no longer effective since the enactment of
the Public Emergency Law in early 2002, which, among other
provisions, eliminated tariff increases based on US dollar exchange
rate fluctuations, foreign price indexes or any other indexing
procedure and established a conversion rate of one peso to one US
dollar for tariffs. The Public Emergency Law also granted the
Executive Branch power to renegotiate contracts entered into with
private utility companies, pursuant to the framework included in
the said law as long as it is in force, which will expire in
December 31, 2017, after several extensions.
In July
2003, the former Unit for Renegotiation and Assessment of Utilities
Contracts (“ex UNIREN”) was created under the joint
jurisdiction of the Ministry of Economy and Finance and the
Ministry of Federal Planning, Public Investment and Services
(“ex MPFIPyS”). Ex UNIREN conducts the renegotiation
process of the contracts related to utilities and public works, and
is entitled to enter into total or partial agreements with the
licensees and submit projects regulating the transitory adjustment
of tariffs and prices, among other things. As provided in the
Public Emergency Law, TGS should reach a consensus with the ex
UNIREN on the modalities, terms and dates for signing the
comprehensive agreement before its due date. In the event that such
a consensus is not reached, ex UNIREN will submit a report to the
Executive Branch with recommendations of the next steps to follow
in the future.
On
February 16, 2016, the Executive Branch issued Decree No. 367/2016.
It establishes the dissolution of the ex UNIREN and transfers to
each ministry the responsibility to renegotiate public service
agreements. In our case, the assumption of ex UNIREN duties will be
by the MINEM together with the Ministry of Economy and Public
Finance (“MHPP”).
Transitional Agreement
After
having received two proposals during 2005 from the ex UNIREN, on
October 9, 2008, TGS signed the 2008 Transitional Agreement with ex
UNIREN that contemplated a tariff increase of 20%, which would be
retroactively applicable to September 1, 2008 (the “2008
Transitional Agreement”). On December 3, 2009, the Executive
Branch ratified this transitional agreement through Decree No.
1,918/09. By means of this decree, TGS will be able to bill the
tariff increase to its clients as soon as ENARGAS publishes the new
tariffs schedule and sets the methodology to bill the retroactive
effect.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
This
administrative act did not become effective promptly and because of
this delay, in August 2010, TGS requested from ENARGAS
authorization to issue the tariff schedule, including the 20%
transitory tariff increase and the retroactive collection
methodology, and application of an interest rate in line with the
established method of payment. ENARGAS responded to TGS that they
had submitted the records and the tariff project to the
Coordination and Management Control Under-Secretariat
(“SCyCG”), which is under the scope of ex MPFIPyS,
based on Resolution No. 2000/2005 of ex MPFIPyS.
On
September 30, 2010, the Company filed an acción de amparo (a
summary proceeding to guarantee constitutional rights) under the
terms of the Article 43 of the National Constitution and Law No.
16,986, against ENARGAS and the SCyCG, in order to obtain the
implementation of the new tariff schedule, which had favorable
reception in court.
On
April 7, 2014, ENARGAS issued Resolution No. I-2852 (the
“Resolution No. I-2852”) containing the new rate
schedules authorizing an increase to the rate applicable to the
natural gas firm and interruptible transportation rates. This
tariff increase was established in a progressive scheme beginning
with an 8% increase as from April 1, 2014, an accumulated 14%
increase as from June 1, 2014 and an accumulated 20% increase as
from August 1, 2014. These tariff increases were not enough to
effectively support the increasing operating costs in the natural
gas transportation business segment.
Over
the past 15 years, the Consumer Price Index has increased by
582.6%, while the Wholesale Price Index rose 828.6% and the Salary
Index jumped by 1,323.1%.
On June
5, 2015, ENARGAS issued Resolution No. 3347, complementary to
Resolution No. I-2852, which approves an increase in the tariff
schedule applicable to the public transportation of natural gas as
from May 1, 2015. This increase represents to TGS a temporary
increase of 44.3% in the price of the service of natural gas
transportation and 73.2% in the Charge of Access and Use
(“CAU”).
These
increases represent a partial recognition of prior administrative
claims made by the Company but they were not enough to alleviate
the constant increase in the operating costs. TGS will continue
with the corresponding actions towards safeguarding its rights,
including those necessary to accomplish the signing of the Integral
Renegotiation License Agreement (“Integral Renegotiation
Agreement”).
On
December 9, 2014, TGS filed administrative claims under the terms
of Article 30 of the National Administrative Procedures Act to the
Argentine government claiming damages for the failure to implement
the retroactive increase provisions of the 2008 Transitional
Agreement for the period between September 1, 2008 and March 31,
2014 and the lack of adjustment of the CAU.
On the
other hand, and in relation to the execution of a sentence
corresponding to the acción de amparo initiated by TGS in
September 2010 in order require that the Argentine Government
implements the increase established in the 2008 Transitional
Agreement, the Judge of First Instance rejected TGS’ request
that ENARGAS publish the corresponding tariff schedule for the
increase included in the 2008 Transitional Agreement effective as
of October 1, 2008. Therefore, in September 2014, TGS filed an
appeal before the National Chamber for Federal Administrative Law
Disputes of the City of Buenos Aires who dismissed the same. Upon
the rejection of this appeal, in April 2015, TGS filed a complaint
with the Supreme Court of Justice and the Court was informed of the
ruling of Resolution 3347, which complied with TGS's requirements
regarding the validity of the appeal. On November 18, 2015, the
appeal filed by TGS was dismissed.
Finally, on
February 24, 2016, jointly with the MINEM and the Ministry of
Economy and Public Finances, TGS signed a new Transitional
Agreement (“2016 Transitional Agreement”). The main
implications of the 2016 Transitional Agreement are:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
●
It sets the
guidelines to grant to TGS an additional transitional tariff
increase;
●
It sets the
guidelines for the implementation of a Mandatory Investment Plan to
be approved by ENARGAS;
●
It provides the
basis for the signing of the Integral Renegotiation License
Agreement (“Integral Renegotiation
Agreement”)
●
Set guidelines to
perform a RTI process which will be in a period not exceeding 12
months from the issuance of ENARGAS Resolution No. I/3724/2016
("Resolution 3724"), which instructed the start of the RTI,
and;
●
Obligates TGS for
the non-distribution of dividends without prior authorization of
ENARGAS.
On
March 19, 2016, MINEM issued Resolution No. 31/2016
(“Resolution 31”) instructing ENARGAS to carry out the
above-mentioned RTI process and to grant a tariff increase on a
transitional basis until the RTI process ends, which allows the
execution of the Mandatory Investment Plan (the “Investment
Plan”) committed for 12 months to cover operating and
maintenance, administration and commercialization expenses, and to
comply with the expiration of the obligations contracted ensuring
the continuity of the normal provision of the public natural gas
transportation service until the final tariff charts are
established.
On
March 31, 2016, and according to the provisions of Section 2 of
Resolution 31 enacted by the MINEM, ENARGAS issued Resolution No.
3724 which granted to TGS a 200.1% tariff increase effective as
from April 1, 2016 (the “Increase”). This resolution
also provides that TGS will not be able to distribute dividends in
the transition period until the end of the RTI process, without the
prior authorization of ENARGAS.
As
mentioned, the increase was granted based on TGS’
economic-financial condition and is subject to compliance with the
Investment Plan for Ps. 794.3 million, which is greater by
approximately four times the capital expenditures made in 2015, to
be controlled by ENARGAS. At the date of issuance of these
consolidated financial statements, the Investment Plan is being
implemented with certain delays due to the impossibility on the
part of TGS to invoice the entire Increase in accordance with the
provisions of Resolution 3724.
As
referred in the section "Legal actions initiated against
Resolutions 28 and 31", on August 18, 2016, the Supreme Court of
Justice of the Nation (“Supreme Court”) unanimously
upheld the judgment issued by Chamber II of the Federal Court of
Appeals of La Plata regarding the nullity of Resolutions 31 and No.
28/2016 ("Resolution No. 28", and in conjunction with Resolution
31, jointly referred as "Resolutions 28 and 31") with respect to
resident users. For further information see “
Legal actions initiated against Resolution 28 and
31
” below.
On
August 23, 2016, ENARGAS issued Resolution No. I/3961 instructing
TGS to apply in relation to the transportation service provided to
the license of the natural gas distribution service to supply
residential users, the tariff schedule in force as of March 31,
2016. On September 9, 2016, ENARGAS notified the natural gas
distribution service licensees the applicable procedure to
determine and to inform the Company of the volumes of natural gas
destined for residential users.
The
aforementioned Supreme Court ruling and the numerous legal actions
initiated against the application of Resolutions 28 and 31, of
which the Company was and is not a party, seriously affected and
accentuated the economic and financial imbalance of TGS, which
resulted in almost 15 years of failure to update the natural gas
transportation tariff. This was due to the delayed billing that TGS
was obliged to comply with the impossibility of the full
application of the tariff scheduled provided by Resolution
3724.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Subsequently, and
within the framework of the public hearing held on September 16 and
18, 2016 (the "September Public Hearing") following the provisions
of the Supreme Court in the ruling issued in the CEPIS case (for
further information see "Legal actions Initiated against
Resolutions 28 and 31"), on 6 October 2016, ENARGAS issued
Resolution No. I-4054/2016 ("Resolution 4054"). The resolution
includes the same terms than those included in Resolution 3724 in
respect of: (i) the Increase applicable to all users of the public
natural gas transportation service, (ii) the execution of the
Investment Plan and (iii) restrictions on the payment of dividends.
The effect of these tariff schedules is as from October 7,
2016.
This
Increase, together with those previously obtained in 2014 and 2015,
represent a partial recognition of prior administrative claims
initiated by TGS but they were not enough to alleviate the
persistent increase in operating costs of the Company. TGS will
continue with the corresponding actions towards safeguarding their
rights, including those necessary to sign the Integral
Renegotiation Agreement.
Legal actions initiated against Resolution 28 and 31
As a
result of the tariff increases provided by ENARGAS to the Licensees
of the Public Service of Natural Gas Transportation and
Distribution, as well as the increase in the price of Natural Gas
provided by Resolution 28, numerous legal actions were initiated
bringing about their nullity, which seriously affected their
application and the established framework.
After
the request to freeze rates filed by an NGO, on July 6, 2016, the
Federal Court of La Plata issued a ruling which declared the null
and void of Resolutions No. 28 and 31 rolling back the tariff
situation to the existing prior to the issuance of these
regulations.
The
National Government requested the review of the judgment by the
Supreme Court, and thus filed the corresponding extraordinary
appeal before the Federal Court of La Plata.
On July
12, 2016, the MINEM issued Resolution No. 129/2016 (the "Resolution
129") which places limits on final charges to be included in
invoices issued by the distribution of natural gas for residential
consumers and businesses. This scheme will be in force until
December 31, 2016. Resolution 129 does not change the current value
of the tariff chart that pays the service provided by the Company
nor the service for the distribution of natural gas. These maximum
limits will be retroactive to April 1, 2016. In addition Resolution
129 provides that, for both segments of transportation and
distribution of natural gas, the actions planned will be
implemented to develop the RTI process in the last quarter of 2016,
including conducting public hearings before October 31,
2016.
Finally, on August
18, 2016, the Supreme Court partially upheld the ruling issued by
the Chamber, establishing: (i) the obligation to comply with the
prior public hearing for the determination of the natural gas
tariffs related to the transportation and distribution segments,
(ii) it will also be mandatory to carry out prior public hearings
to fix the price of natural gas at the Point of Entry to the
Transportation System (“PIST” as its acronym in
Spanish), and (iii) the nullity of Resolutions 28 and 31 regarding
the residential users, in respect of which the rates had to be
retroactive to the amounts in force as of March 31,
2016.
Regarding the
transportation system, the Supreme Court remarks the illegitimate
claim that the tariff regime remains unchanged over time if
circumstances require its modification. At the same time, it is
highlighted that the evolution of natural gas tariffs for
distribution and transportation service has been almost null,
concluding that the tariffs are deficient.
In
accordance with the ruling of the Supreme Court, on August 19,
2016, the MINEM published Resolution No. 152/2016 instructing
ENARGAS to provide the necessary measures to enable natural gas
distributors to apply to residential users the tariff charts in
force as of March 31, 2016, for the consumptions made as from April
1, 2016.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Likewise, ENARGAS
issued Resolution No. 3953/2016, which provided for the holding of
the September Public Hearing required by the Supreme Court, which
was held between September 16 and September 18, 2016. The Public
Hearing considered: (i) the transfer to tariffs of the new price of
natural gas in the PIST; and (ii) the transitory tariffs for the
public natural gas transportation and distribution service that
will be in force until the new tariffs resulting from the ongoing
RTI process are effective.
After
the September Public Hearing, the MINEM issued Resolution No.
212/2016 instructing ENARGAS to provide for the applicable
transitional tariff increases until the completion of the initiated
RTI process.
Integral Renegotiation Agreement
In
October 2008, TGS received an integral license renegotiation
agreement from ex UNIREN (which included the initial 20% tariff
increase), whose purpose is the license renegotiation and the
overall tariff revision. This proposal was not accepted by TGS
since the granting of an indemnity required for the Argentine
Government was unable to provide.
In
October 2011, TGS received a new proposal from ex UNIREN (the
“Renegotiation Agreement”) which included similar terms
and conditions from the ones included in the last proposal received
in 2008. In August 2011 TGS’ Board of Directors approved the
new proposal, which was initiated by the Company allowing ex UNIREN
to initiate the administrative procedure for finalizing the
Renegotiation Agreement. Ex UNIREN issued a supplementary report
for the subscription of the Renegotiation Agreement between the
Argentine Government and TGS, filing it on December 22, 2011
together with the Agreement filed by TGS before the Legal Under
Secretary of the ex MPFIPyS. Taking into consideration that the
case was returned to UNIREN, on July 16, 2012 TGS called for the
continuation of appropriate administrative proceedings. On October
4, 2012, TGS notified the ex UNIREN the filing made before ENARGAS
and the CNDC regarding the suspension of the claim initiated by
Enron Corp. and Ponderosa against the Argentine Republic mentioned
above, and formally required the order of quick
sentence.
Given
the lack of progress in the administrative procedure in ex MPFIPyS,
on December 29, 2014, TGS filed a preliminary administrative appeal
under the terms of article 30 of the National Administrative
Procedures Act to the Argentina Government claiming damages for the
failure to implement the recomposition of the tariff.
In
October 2015, the Company and the ex UNIREN signed a new version of
the Integral Renegotiation Agreement to incorporate as legal
predecessor the Resolution 3347.
As
mentioned above, the 2016 Transitional Agreement sets the basis for
the signing of the Integral Agreement Act and the guidelines for
carrying out the RTI within a period of no more than 12
months.
Within
this framework, on November 9, 2016, ENARGAS issued Resolution No.
I-4122/2016 calling for a public hearing to consider: (i) the RTI,
(ii) the proposals for amendments made by ENARGAS to the License
and (iii) the semiannual adjustments methodology (the " December
Public Hearing"). This public hearing was finally held on December
2, 2016. The Company was able to highlight the negative impact on
its economic and financial situation of the lack of adjustment of
its tariff charts after more than 15 years in which the different
macroeconomic variables that impacted on their business suffered
significant increases.
The
sustainable recovery of the natural gas transportation segment,
which, in view of the national energy matrix, is strategic for the
country's development, will depend of the immediate implementation
of the RTI process for which TGS presented an ambitious investments
and expenditures plan for the five – year period 2017-2021
and for the effective implementation of the Integral Renegotiation
Agreement.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
As
of the date of issuance of these consolidated financial statements
there is no certainty of when the Integral Renegotiation Agreement
shall be subscribed and implemented by the Argentine
Government.
Acquisition of the Rights of Arbitration Proceedings
In
November 2005, in response to the requirement made by the ex
UNIREN, Ponderosa Assets L.P., as an indirect shareholder of TGS
and CIESA, informed a claim that was filed jointly with Enron Corp.
against the Argentine Government under the International Centre for
Settlement of Investment Disputes of the World Bank (the
“ICSID Claim”). The ICSID Claim argues that the
pesification of tariffs and other unilateral changes to our
regulatory structure affected by the Public Emergency Law and
related laws and decrees violate the requirement of fair and
equitable treatment under the treaty. On May 22, 2007, ICSID
decided in favor of Enron and ordered the Government to pay US$
106.2 million to the Claimants. In July 2010, an ICSID committee
annulled the award rendered in 2007 and ordered the Claimants to
reimburse the Government the total amount of the annulment award
costs. This annulment does not prevent the plaintiff from filing a
new claim before the ICSID. On October 18, 2010, Enron Creditors
Recovery Corp. (Enron’s new corporate name) and Ponderosa
filed a new claim against the Government before the ICSID. In June
2011, a tribunal to hear the case was constituted.
On
March 11, 2011, Pampa entered into a call option agreement with the
Claimants in order to acquire the rights to monitor, suspend and
withdraw the ICSID Claim. In October, 2011, Pampa acquired the
rights under the arbitration proceeding (the "Rights of the
arbitration proceeding") which include the powers to suspend,
monitor and withdraw from arbitration proceedings.
Through
the enactment of Resolutions No. I-2852 and No. I-3347 and after
having verified its effectiveness, the Transitional Agreement was
implemented between the Company and ex UNIREN in October 2008, and
thus, the condition provided by the loan awarded by TGS to Pampa
Energía that consists of its compulsory cancellation by
transferring the rights acquired by Pampa with the proceeds of the
Loan in respect of the arbitration proceeding initiated by Enron
Creditors Recovery Corp. and Ponderosa Assets LLP against the
Republic of Argentina before the International Centre for
Settlement of Investment Disputes ("ICSID") of the World Bank ("the
Arbitration Proceeding"). The rights acquired under the arbitration
proceeding (the "Rights of the arbitration proceeding") include the
powers to suspend, monitor and withdraw from arbitration
proceedings.
The
acquisition of the Rights of the Arbitration Proceeding by TGS was
implemented through the transfer to a trust established abroad of
which TGS shall be its beneficiary.
The
exercise of the Rights of the arbitration proceeding allows TGS to
continue with the tariff renegotiation process and comply with the
conditions for the signing and implementation of the Integral
Renegotiation Agreement by the Executive Branch and the new rate
schedules resulting from the Integral tariff Review process
provided therein. In accordance with the terms and conditions of
the Integral Renegotiation Agreement, TGS may suspend and
subsequently abandon those claims brought against Argentina for the
lack of tariff adjustments by the PPI following the enactment of
the Public Emergency Law.
According to IFRS,
the Rights of the arbitration proceeding do not qualify to be
recognized as an asset in the financial statements of the Company.
Consequently, they were recognized and classified under "Other
Operating (loss) / Income" in the Statement of Comprehensive Income
for the year ended December 31, 2015. The net loss recognized
amounted to Ps. 324,390.
As of
the date of issuance of these consolidated financial statements, as
agreed with the National Government, the Arbitration Proceeding is
suspended until April 15, 2017.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
b)
Regulatory
Framework for non-regulated segments
Domestic market
The
Production and Commercialization of Liquids segment is subject to
regulation by ENARGAS, and as it is provided in the Transfer
Agreement, is organized as a separate business unit within TGS,
keeping accounting information separately. However, over recent
years, the Argentine Government enacted regulations which
significantly impacted on it.
In
April 2005, the Argentine Government enacted Law No. 26,020 which
sets forth
the regulatory framework for the industry and commercialization of
LPG. Among other things, the Law No. 26,020 creates the
framework through which the Secretary of Hydrocarbon Resources
(“SHR”) (formerly the Federal Energy Bureau)
establishes regulations meant to cause LPG suppliers to guarantee
sufficient supply of LPG in the domestic market at low prices. Law
No. 26,020 creates a price regime pursuant to which the SRH
periodically publish reference prices for LPG sold in the local
market. It also sets forth LPG volumes to be sold in the local
market.
On
March 30, 2015, the Executive Branch issued Decree No. 470/2015,
regulated by Resolution No. 49/2015 issued by the Federal Energy
Bureau, which created the
Programa
Hogares con Garrafa
(the “New Program”). It
replaced Stabilization Agreement signed in September 2008 between
the Federal Energy Bureau and the LPG producers (“2008
Stabilization Agreement”) (which, after several extensions,
remained in force until March 31, 2015).
In line
with the 2008 Stabilization Agreement, the New Program sets a
maximum reference price for the members of the marketing chain in
order to guarantee the supply to low-income residential user, by
committing the LPG producers to supply at a fixed price (below the
market price) with a quota assigned to each producer. This price
reduction is partially offset by a subsidy paid to producers by a
trust fund created for that purpose. Through the New Program, the
Argentine government subsidizes low-income residential
users.
On
April 1, 2015, the former Federal Energy Bureau issued Resolution
No. 70/2015, which sets the new reference prices and the
compensation to be paid to domestic LPG producers intended for ten,
twelve and fifteen kilos LPG bottles under the New Program. Notes
547/15 and 612/15 of the Federal Energy Bureau notified the volumes
to be sold by TGS during 2015.
On
March 28 and March 29, 2016, the MINEM informed TGS the volumes of
butane and propane, respectively that were assigned to
commercialize under this program during 2016. These administrative
acts were also duly challenged by TGS.
It is
noteworthy that participation in the new program implies that the
Company produces and markets the volumes of LPG required by the SHR
at prices significantly lower than the market price, which means
that, under limited circumstances, the Company will fail to cover
production costs, providing a negative operating
margin.
As in
prior periods, the Company will continue making the corresponding
objections in order to safeguard its financial position and to
ensure that this situation is not extended in the
future.
In this
regard, on April 4, 2016, the Company made a request for early
release regarding the claim filed on August 18, 2015 on the
objections made to Resolutions 49/15 and 70/15.
In
addition, on May 26, 2016, the Company filed a motion for
reconsideration to administrative acts, which provided butane and
propane quotas under the New Stabilization Program for 2016.
Likewise, on September 21, 2016, TGS filed a motion for
reconsideration for the period from May to December
2016.
In
addition, the Company is a party of the Propane Gas Supply
Agreement for Induced Propane Gas Distribution Networks ("Propane
Agreement for Networks") entered into with the Argentine Government
by which it undertakes to supply propane to the domestic market at
a lower price to the market. In compensation, the Company receives
an economic compensation calculated as the difference between the
sales price and the export parity determined by the
MINEM.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
In June
2016, the Company signed the thirteenth and fourteenth extensions
to the Propane Network Agreement, which provides for propane
deliveries through April 30, 2017. In September 2016, the Company
signed the addenda corresponding to these agreements for the
purpose of re-determination of the price of propane sold by TGS to
distributors and sub-distributors as a result of the
Judgment.
On
October 6, 2016, the MINEM issued Resolution No. 212, which
provided for the new price of propane to be sold under the Propane
Networks Agreement paid by residential users.
As
mentioned above, both the New Program and the Propane for Networks
Agreement established payment of compensation, calculated as a
difference between the price set by the Government and the export
parity price. Over recent years, this compensation has been paid
with significant delays.
On May
20, 2016, Decree No. 704/2016 provided for the extension of the
issuance of Argentine Bonds in US dollars with an annual rate of 8%
which will expire in 2020 ("BONAR 2020") which were used to, among
others, the cancellation of the compensation due of related to
Propane for Networks Agreement. On June 22, 2016, the Company gave
written consent and agreement to the terms and conditions of Decree
No. 704/2016 (the "Letter of Consent") to the MINEM. Within this
letter, TGS accepted the cancellation of the amounts due as
compensation for propane networks Agreement until December 31,
2015, according to the methodology of cancellation informed by the
SHR, which amounted to Ps. 140,496. On October 5, 2016, TGS
received BONAR 2020 for an original nominal value of US $
8,030,650.92.
As of
December 31, 2016, the Argentine Government owes Ps. 156,399 to the
Company for these concepts. On September 2, 2016, TGS submitted a
note to MINEM demanding payment of the amounts owed on that date.
As of the date of the issuance of these Consolidated Financial
Statements, the collection of Ps. 17,227 corresponding to
compensations due to TGS as of December 31, 2016.
Decree No. 2,067 / 08 (the "Decree")
Through
Presidential Decree No. 2,067/08, the Executive Branch created a
tariff charge to be paid by (i) the users of regulated services of
transportation and / or distribution, (ii) natural gas consumers
receiving natural gas directly from producers without making use of
transportation systems or natural gas distribution, (iii) the
natural gas processing companies in order to finance the import of
natural gas. The tariff charge sets forth in the Decree finance the
higher price of the natural gas imports required to compensate the
injection of natural gas necessary to meet national
requirements (the “Charge”). When the Charge was
created, TGS paid it in accordance with the provisions of
Resolution I-563/2008, at Ps. 0.0492/m3.
The
payment of the natural gas processing tariff charge was selectively
subsidized from 2008 according to the destination of the natural
gas. In November 2011, however, ENARGAS issued Resolution No.
1,982/11 and 1,991/11 (the “Gas Tariff Resolutions”)
which modified the list of the subsidy beneficiaries, and thus,
involved a cost increase for many of our clients and for us (for
certain of our consumption for our own account). The natural gas
processing tariff charge increased from Ps. 0.049 to Ps. 0.405 per
cubic meter of natural gas effective from December 1, 2011,
representing a significant increase in our variable costs of
natural gas processing.
In
order to avoid this damage, TGS appealed against the Presidential
Decree and the Resolutions including National Government, ENARGAS
and ex MPFIPyS as defendants. For further information regarding the
legal action filed by the Company, see note 18.b.
On
March 28, 2016, the MINEM issued Resolution 28, which instructs
ENARGAS to take all the necessary measures to derogate the tariff
charge created by Decree No. 2,067/08 as from April 1,
2016.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
International market
Exports
of natural gasoline and LPG have been subject to a withholding
regime consistent in the application of a percentage tax on
exported amounts varying depending on the FOB price of them. In
this context, Resolution No. 394/2007 and No. 127/2008 of the
Ministry of Economy and Production disposed this
determination.
Under
the current framework in which the activities of this business
segment are developed, the national government introduced
amendments to the rates in force.
On
December 30, 2014, the MEF issued Resolution No. 1,077/2014, which
modified the nominal rates applicable for the export of oil and oil
by-products, including the natural gasoline sold by TGS. The new
withholding tax on exports regime considers the price of Brent
crude oil less 8 US$/bbl (“IP”) as a reference price to
determine the applicable rate. When the IP is less than 71 US$/bbl
the nominal rate of the withholding tax on export for the natural
gasoline will be 1%. When the IP is greater than 71 US$/bbl, the
rate will be (IP- 70) / 70 x 100. Thus far during 2016, IP has been
below US$ 71/bbl, so the applicable nominal rate for the exports of
natural gasoline has been 1%.
On
February 25, 2015, the Ministry of Economy issued Resolution No.
60/2015. This resolution modified the variable export withholding
tax regime established under Resolution No. 127/08. According to
the new methodology, the minimum tax rate is 1% if the
international prices for propane and butane are lower than US$ 464
and US$ 478 (the “reference value”) per metric ton,
respectively. If the propane and butane international prices are
higher than the reference value, tax rate applicable to the selling
price is calculated on a sliding scale according the amount by
which the selling price exceeds the cut-off value of US$ 460 and
US$ 473 per metric ton, respectively.
Said
withholding system provided by the Public Emergency Law and
successively extended, the last time by Law No. 26,732, was
suspended on January 7, 2017 after the Argentine Government has not
issued a new extension to it.
c)
Expansion of the natural
gas transportation system
Since
2004, the natural gas transportation system expansion works have
been carried out under the Gas Trust Fund Program framework, which
was created through Executive Branch Decree No. 180/04 and
Resolution No. 185/04 issued by the ex MPFIPyS, aimed at financing
the expansion of the national natural gas transportation system in
a manner different from that established in the
License.
Under
such framework, the ex MPFIPyS, the Federal Energy Bureau and the
natural gas transportation companies, among others, signed in April
2006 a Letter of Intent to carry out the second expansion of the
gas pipeline system.
In
December 2006, the gas trust fund contracts for the second
expansion were signed, and TGS entered into an agreement under
which TGS will manage the expansion project.
Expansion works
initiated in 2006, which were planned in gradual stages, were
executed with the aim to be financed by other gas trust funds,
whose trustors are the gas producers and the shippers who
subscribed the additional capacity. The works will be repaid with a
new tariff charge that will be finally paid by the business and
industrial users with firm transportation contracts, except for the
distribution companies. In addition, TGS is in charge of the
rendering of firm transportation services. For these services, TGS
is paid a monthly Charge for Access and Use (“CAU”). As
of December 31, 2016, the incremental transportation capacity was
307 MMcf/d after the works came into service.
In May
2011, TGS received
Valores
Representativos de Deuda
(“debt securities”)
from the trust fund, date of issue February 2010, which cancelled
the account receivable of Ps. 48.1 million related to services
rendered for the 247 MMcf/d expansion works. These debt
securities
amortize
principal in 85 monthly, consecutive and equal installments and
bear CER interest plus an 8% from their date of issue.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
In
October 2011, TGS, the Federal Energy Bureau and the trustee of the
gas trust funds agreed the terms and conditions under which TGS
will render the operation and maintenance services of the assets
associated with the incremental transportation capacity of 378
MMcf/d.
Moreover, in
October 2011 an amendment to the management agreement corresponding
to the works initiated in 2006 was agreed in order to include
management services associated with an expansion which will
increase firm transportation capacity by 131 MMcf/d and its
remuneration, which amounted to Ps. 37 million. Said agreement
provided an advance payment equivalent to 20% of the total
remuneration, and the remainder 80% through debt securities which
amortize principal, in 96 monthly, consecutive and equal
installments and bear CER plus a spread of 8% from their date of
issue.
As of
the date of the issuance of these consolidated financial
statements, TGS received debt securities from the trust fund which
cancelled the 90% of the mentioned advanced payment and the works
that started operating. The principal of said debt securities
amounted to Ps. 36.5 million (including accrued interest) as of
December 31, 2016 and it is amortized in 96 monthly, consecutive
and equal installments which bear CER plus a spread of 8% from
their date of issue. The 10% remaining amount was cancelled in
cash.
On July
20, 2016,
Nación
Fideicomiso
S.A. ("NAFISA") notified TGS of MINEM´s
decision to suspend works to expand the natural gas transportation
capacity under the Gas Trusts Program created by Presidential
Decree No. 180/04 and its regulations by Resolution No. 185/04
issued by the ex MPFIPyS (the "Program").
TGS is
making the necessary arrangements for the collection of amounts
owed by NAFISA under the respective management contract for the
works. In this sense, in December 2016, a meeting of VRD holders
was held in order to analyze the proposal made by NAFISA for the
cancellation of the outstanding receivables which, was resumed in
January 2017. VRD holders resolved to instruct the Trustee to make
partial payments to the extent that there is availability of funds
in the Financial Trust of
Obra
Gasoducto Sur 2006-2008
("Trust Agreement"), according to
the priority order established in the Trust Agreement and their
addenda. As of December 31, 2016, these securities were classified
as "Other financial assets at amortized cost" in the Statement of
Financial Position.
d)
Essential
assets
A
substantial portion of the assets transferred by GdE has been
defined as essential for the performance of the natural gas
transportation service. Therefore, TGS is required to keep
separated and maintain these assets, together with any future
improvements, in accordance with certain standards defined in the
License.
TGS may
not, for any reason, dispose of, encumber, lease, sublease or loan
essential assets nor use such assets for purposes other than the
provision of the licensed service without ENARGAS´s the prior
authorization. Any expansion or improvements that it makes to the
gas pipeline system may only be encumbered to secure loans that
have a term of more than one year to finance such extensions or
improvements.
Upon
expiration of the License, TGS will be required to transfer to the
Argentine government or its designee, the essential assets listed
in an updated inventory as of the expiration date, free of any
debt, encumbrances or attachments, receiving compensation equal to
the lower of the following two amounts:
i)
the net book value
of the essential assets determined on the basis of the price paid
by the acquiring joint venture, and the original cost of subsequent
investments carried in US dollars and adjusted by the PPI, net of
accumulated depreciation according to the calculation rules to be
determined by ENARGAS; or
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
ii.
the net
proceeds of a new competitive bidding.
Once
the period of the extension of the License expires, TGS will be
entitled to participate in the New Bidding, and thus, it shall be
entitled to:
(i)
that its bid in the New Bidding be computed at an equal and not
lower price, than the appraisal value determined by an investment
bank selected by ENARGAS, which represents the value of the
business of providing the licensed service as it is driven by the
Licensee at the valuation date, as a going concern and without
regard to the debts;
(ii) to
obtain the new License, without payment, in the event that any bid
submitted in the new tender exceeds the appraised
value;
(iii)
to match the best bid submitted by third parties in the new
Bidding, if it would be higher than its bid mentioned in (i),
paying the difference between both values
to obtain the
new License;
(iv) if
the Licensee has participated in the New Bidding but is unwilling
to match the best bid made by a third party, to receive the
Appraisal Value as compensation for the transfer of the Essential
Assets to the new licensee, any excess paid by the third party
shall remain for the grantor.
17.
COMMON
STOCK AND DIVIDENDS
a)
Common stock structure and shares’ public offer
As of
December 31, 2016 and 2015, TGS’ common stock was as
follows:
Common
Shares Class
(Face
value $ 1, 1 vote)
|
|
Amount
of common stock, subscribed,
issued,
paid in, and authorized for public offer
|
Class
“A”
|
|
405,192,594
|
Class
“B”
|
|
389,302,689
|
|
|
794,495,283
|
TGS's
shares are traded on the BCBA and under the form of the ADS
(registered in the SEC and representing 5 shares each) on the New
York Stock Exchange.
b)
Limitation on the
transfer of the TGS’ shares
TGS’ by-laws
provide that prior approval of ENARGAS and the unanimous approval
of CIESA’s shareholders, under agreements among them, must be
obtained in order to transfer Class “A” shares
(representing 51% of common stock). The Bid Package states that
approval of ENARGAS will be granted provided that:
-
The sale covers 51%
of common stock or, if the proposed transaction is not a sale, the
transaction that reduces the shareholding will result in the
acquisition of a shareholding of not less than 51% by another
investment company; and
-
The applicant
provides evidence to the effect that the transaction will not
impair the operating quality of the licensed service.
In the
case of shareholders of CIESA who have qualified to obtain such
condition due to the equity, guarantee and/or technical background
of their respective parent companies, the sale of shares
representing the capital of such subsidiaries by the respective
ultimate, direct or indirect parent companies, and/or the cessation
of management running TGS, requires the prior authorization of
ENARGAS.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
In case
TGS wishes to reduce its capital, redeem its shares or distribute
any part of its equity, except for the payment of dividends, in
accordance with the provisions of the Argentine Business
Associations Law, it requires prior authorization from
ENARGAS.
On July
22, 2016, Law No. 27,260 was enacted, which modifies the
investments allowed to the fund managed by the
Administración Nacional de la Seguridad
Social
. (“
Fondo de
Garantía de Sustentabilidad
” or
“FGS”), which as of December 31, 2016 held 183,618,632
shares class "B" of TGS. Thus, the FGS may invest in shares of
national corporations - among others - whose public offering is
authorized by the CNV and which are listed on markets authorized by
the CNV. The FGS may invest between the 7% and the 50% of its total
assets in these kind of investments. However, it stipulates that
the transfer and / or any other act or action that limits, alters,
deletes or modifies the destiny, ownership, dominion or nature of
the shares of which the FGS is entitled, provided that it results
in a less than the previously established FGS, without prior
express authorization of the Argentine Congress, with the following
exceptions:
-
Public takeover
bids addressed to all holders of said assets and at a fair price
authorized by the CNV, under the terms of Chapters II, III and IV
of Title III of Law 26,831.
-
Exchange of shares
for others shares of the same or another company in the framework
of merger excision or corporate reorganization
processes.
c)
Restrictions on
distribution of retained earnings
Under
current Argentine legal requirements and CNV standards, 5% of each
fiscal year net income must be appropriated into a legal reserve,
provided that there is no unappropriated retained deficit. In such
case, the 5% should be calculated on any excess of the net income
over the unappropriated retained deficit. This appropriation is
legally binding until such reserve equals 20% of the amount which
results from the sum of the “Common stock nominal
value” and the balance of “Cumulative inflation
adjustment to common stock”.
In
addition, the by-laws provide for the issuance of Profit Sharing
Vouchers, as defined in Article 230 of the Argentine Business
Associations Law, which Vouchers entitle all regular employees to
share in 0.25% of TGS’ net income for each year.
According to law
No. 25,063, the dividends paid in cash or in kind, in excess of the
tax profit, will be subject to a 35% withholding tax of the income
tax, as sole and only payment.
Furthermore, TGS is
subject to certain restrictions for the payment of dividends, which
were contemplated in the outstanding debt agreements (Note 11
– “Covenants”).
Likewise,
Resolution No. 31 of MINEM and Resolution No. 4054 limit the
distribution and payment of dividends until ENARGAS verified
compliance with the Investment Plan associated with the tariff
increase established by Resolution 4054, which is scheduled to be
finalized in the last quarter of 2017 due to the delay in the
implementation of the tariff increase.
18.
LEGAL CLAIMS AND OTHER MATTERS
a)
Exemption of the sales of
liquids in Turnover Tax
In the
framework of the Tax Agreement subscribed by the Argentine
Government and the Provinces in 1993, and as from the enactment of
provincial Law No. 11,490, TGS required the Tax Bureau of the
Province of Buenos Aires (“ARBA”) to exempt the sales
of liquids from the turnover tax in its jurisdiction. In September
2003, the Tax Bureau of the Province of Buenos Aires, through
Resolution No. 4,560/03, denied the exemption. In October 2003, TGS
filed an administrative appeal with the Tax Court of the Province
of Buenos Aires.
In
February 2007, the Tax Court partially upheld TGS’s
complaint. In this ruling, the Tax Court determined that the sale
of ethane is exempt from the payment of the turnover tax, not being
the case the sale of Propane and butane in the domestic market
where they are not intended to be a raw material for an industrial
activity.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
For the
previously mentioned, TGS filed an appeal in May 2007 before the
Province of Buenos Aires Court to obtain the exemption alleging
that propane and butane sales might be utilized for other uses
different from petrochemical industry. On December 14, 2014, the
Company was notified of the sentence against its interests. On
December 15, 2014, TGS filed an appeal against this sentence. This
appeal was partially accepted in April 2016, as the Chamber of
Appeals determined the exemption for the production of propane,
butane, ethane and natural gasoline, but not for LPG.
Subsequently, TGS
and ARBA filed an Extraordinary Appeal of Inapplicability of the
law before the Supreme Court of Justice of the Province of Buenos
Aires. As of the date of the issuance of these consolidated
financial statements, a resolution is pending.
On
February 19, 2008, TGS was notified with a formal assessment notice
of Ps. 3.6 million (not including interest) regarding the payment
of the turnover tax corresponding to the period ranging from August
2003 to December 2004. On March 11, 2008, TGS filed a discharge
within the Tax Bureau of the Province of Buenos Aires which was
rejected and thus, the Company filed an appeal with the Tax Court
of this province in January 2009. On November 23, 2013 the Tax
Court partially upheld TGS’s complaint, as of the date
of issuance of these consolidated financial statements, the
settlement of the debt is pending of approval. On March 16, 2015,
TGS proceeded to pay the sum of Ps. 3.3 million corresponding to
the fiscal periods between August 2003 and December 2004 in
accordance with ARBA's claims under the pending
procedure.
On
December 4, 2012, TGS was notified with a new formal assessment
notice of Ps. 0.8 million regarding the payment of the turnover tax
corresponding to the fiscal year 2006 related to the production of
liquefied gas, butane, propane and natural gasoline. TGS
unsuccessfully argued that the prescribed period was time limit.
Subsequently, on August 5, 2015, the Court of First Instance upheld
the time limit exception raised by TGS, which was appealed by ARBA.
Currently, the record is for judgment by the Supreme Court of
Justice of the Province of Buenos Aires.
As of
December 31, 2016, TGS maintained no provision of for this concept
because under the legal advisors opinion and given the recent
decision of the Chamber of Appeals, TGS would not have to pay the
tax.
As of
December 31, 2015 and 2014, TGS maintains a provision of Ps. 14.9
million and Ps. 21.1 million, respectively.
b)
Turnover tax calculated on
the natural gas price used by TGS as fuel to render its
transportation services
The
Company has interpretative differences with several provinces
regarding the liquidation of the turnover tax calculated on the
natural gas price used by TGS as fuel to render its transportation
services. In this framework there have been initiated several
lawsuits against TGS, which have adversely concluded by the
Company. In this respect, after having paid the amounts claimed in
previous years, the Company has begun a tax recovery appeal process
to claim to the provinces of Santa Cruz and Tierra del Fuego a
total amount of Ps. 8.4 million and Ps. 11.2 million,
respectively.
In
January 2016, the Company was notified of a new claim initiated by
the Tax Bureau of the Province of Santa Cruz for fiscal periods May
2011 to July 2014 claiming for an amount of Ps. 5.0 million. In
March 2016, the Company filed a reconsideration petition rejecting
the request of the claimant, which was subsequently rejected. In
April 2016, TGS filed a hierarchical appeal before the Ministry of
Economy and Public Works, which was rejected. On May 24, 2016, Ps.
9.0 million were paid in concept of principal and interest. For the
recovery of the amount paid, the Company did not submit a
repetition appeal but instead, TGS requested the pass-through to
the tariff.
On
September 9, 2016, the Supreme Court of Justice of the Province of
Tierra del Fuego rejected the recurring appeal initiated by TGS for
the recovery of Ps. 11.2 million subscribed in 2013. Consequently,
the administrative instance has been extinguished, so that the
Company initiated before ENARGAS the corresponding administrative
process for the transfer of said amount in order to maintain the
tax neutrality guaranteed in the license.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
On
October 5, 2016, the Company proceeded to pay the settlement made
for the period April 2013-June 2014 for the amount of Ps. 18.6
million (including fines and interest).
In
2016, new tax settlements were received by the Tax Bureau of the
Province of Tierra del Fuego, which amounts to Ps. 34.9 million
plus taxes. The Company presented the corresponding disclaimers
which are still pending.
As of
December 31, 2016 and 2015, the Company recorded a provision of Ps.
207.7 million and Ps. 127.8 million, respectively, in respect of
this contingency under the line item "Provisions", which amounts
were determined in accordance with the estimations of tax and
interests, that would be payable as of such date, in case this
contingency turns out unfavorable for the Company.
c)
Action for annulment of ENARGAS Resolutions No. I-1,982/11 and No.
I-1,991/11 (the “Resolutions”)
After
the issuance of the Resolutions, TGS filed a judicial action before
the National Court of First Instance in Federal Administrative
Litigation No. 1 (the "Court") in order to obtain the declaration
of nullity of the Decree and the Resolutions as well as the
Unconstitutionality of the administrative acts that created the
Charge. The probative stage of these proceedings was concluded and
the allegations are currently being carried out.
On July
5, 2012, the Court issued in favor of TGS a precautionary measure
by which the suspension of the Charge was ordered in the terms set
forth in the Resolutions. This decision was appealed in different
opportunities by the National Government, by virtue of which the
dictating of the precautionary measure was limited to the validity
of 6 months. However, at maturity, the Company is entitled to
obtain a new precautionary measure for a similar
period.
As a
result, on September 20, 2016, a new extension of the precautionary
measure was obtained (which prevents the National Government from
claiming to TGS the payment of the amounts resulting from the new
value of the Charge for the period between the November 2011 and
March 2016), thus extending its validity until March
2017.
On the
other hand, the National Court of Appeals in Contentious
Administrative Dismissal rejected the extraordinary appeal filed by
the National Government against the judgment of that court that
confirmed the rejection made by the Court at the request of ENARGAS
to declare abstract the legal action initiated by TGS in accordance
with the precedent "Alliance" issued by the Supreme Court in
December 2014.
TGS’s
Management believes it has sufficient valid arguments to defend its
position, and thus, the Company has not recorded the increase of
the charge for natural gas consumptions from the date of obtaining
the injunction until April 1° 2016, effective date of
Resolution 28. In the event this injunction had not been obtained,
the impact of the Resolutions for the years ended December 31, 2016
taking into account the possibility of carryforward of the charge
to the sales price of the product, would have implied a net loss of
Ps. 52.1 million. Meanwhile, the accumulated impact on the retained
earnings since obtaining the injunction would have involved a
reduction effect of Ps. 601.6 million.
d)
Recovery
action of VAT and income tax
On
October 9, 2008, TGS signed the 2008 Transitional Agreement with ex
UNIREN that contemplated a tariff increase of 20%, which would be
retroactively applicable to September 1, 2008. On December 3, 2009,
the Executive Branch ratified this transitional agreement through
the Presidential Decree No. 1,918/09. By means of this decree, TGS
will be able to bill the tariff increase to its clients as soon as
ENARGAS publishes the new tariffs schedule and sets the methodology
to bill the retroactive effect. Finally, this administrative act
did not become effective and therefore in September 2010 TGS filed
an acción de amparo (a summary proceeding to guarantee
constitutional rights). Due to the passing of time since the
enactment of Decree No. 1918/09, on December 16, 2010 the Board of
Directors of the Company resolved to discontinue the recognition of
the tariff increase revenue and to reverse the credit provision of
the tariff increase revenue already accrued in the year ended
December 31, 2009. The reversal of the tariff increase does not
imply any resignation to the Company´s right resulting from
the Decree No. 1,918/09.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
On May
24, 2013, TGS filed a tax recovery appeal with respect to the
income tax and VAT credits generated by the reversal of the tariff
increase credit mentioned above. After the omission to pass
judgment on the claim within the three months of the filing of the
tax recovery appeal, on October 9, 2013, TGS filed an appeal before
the Federal Tax Bureau, which was not solved yet. As of the date of
the issuance of these consolidated financial statements, the case
is about to dictate sentence.
The
total amount claimed by TGS amounted to Ps. 69.4 million plus
compensatory interests. The outstanding balance of this credit has
been valued at its amortized cost and it has been included in
“Other non-current receivables.”
e)
Turnover
tax withholding in the Province of Buenos Aires
The
Company was notified by ARBA regarding the initiation of various
determinative procedures in which TGS is claimed for a total of Ps.
4.9 million (without fine or interest) for the omission as agent of
withholding and collection of the turnover tax corresponding to the
period July 2009 - June 2011. Given this determination, the Company
presented to ARBA various elements of evidence that allow reducing
substantially the amount claimed. As of the date of issuance of
these consolidated financial statements, the Tax Court has not
resolved the issue.
At
December 31, 2016, the Company recorded a provision for these items
of Ps. 6.9 million recorded in "Provisions", determined based on
the estimated tax and interest payable at that date, in the event
that this claim is unfavorable to TGS
In
addition to the matters discussed above, the Company is a party to
certain lawsuits and administrative proceedings which involve
taxation, labor claims, social security, administrative and others
arising in the ordinary course of business. The Company’s
Management and its legal advisors estimate that the outcome of
these differences will not have significant adverse effects on the
Company’s financial position or results of operations. As of
December 31, 2016, 2015 and 2014 the total amount of these
provision amounted Ps. 6.5 million, Ps. 7.3 million and Ps. 8.3
million, respectively.
The
Company is subject to extensive environmental regulations in
Argentina. TGS’ management believes that its current
operations are in material compliance with applicable environmental
requirements, as currently interpreted and enforced. The Company
has not incurred in any material environmental liabilities as a
result of its operations to date. As of December 31, 2016, 2015 and
2014 the total amount of these provision amounted Ps. 0.1 million,
respectively.
On May
8, 2015, the Secretariat of the International Court of Arbitration
of the International Chamber of Commerce notified TGS regarding the
request for arbitration initiated by PAE and Pan American Sur SA
(the "applicants") related to the execution of three natural gas
processing contracts between the applicants and TGS (the
“Agreements”). On April 4, 2016, the Company was
notified of the beginning of the corresponding demand, which TGS
was responded on August 17, 2016. On March 16, 2017, the applicants
submitted its response to the arguments filed by us
previously.
According to the
demand, the applicants allege breach of contracts during the period
between February 2006 and February 2016, that would have resulted
in a lower allocation of the products obtained (the
“Products”), which shortfall at March 31, 2017 is
claimed to be equal to US$ 134 million without interest or US$
306.3 million, including interest (the
“Claim”).
TGS
considers that the Claim contains inconsistencies resulting from
misinterpretations of the contractual provisions and an incorrect
application of the mechanisms for calculating the allocation of the
Products, and therefore the Company believes that the amount
claimed is not supportable. Thus, management, jointly with its
legal counsel, considers that there are meritorious arguments of
defense that will allow to refute the Claim
vigorously.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Given
the present stage of the arbitration process, as of the date of
issuance of these Financial Statements, TGS cannot predict the
outcome of this proceeding.
19.
BALANCES AND TRANSACTIONS WITH RELATED COMPANIES
Technical Assistance Agreement
Pampa
Energía is TGS’s technical operator, according to the
approval of ENARGAS in June 2004, and subject to the terms and
conditions of the Technical Assistance Agreement which provides
that Pampa Energía is in charge of providing services related
to the operation and maintenance of the natural gas transportation
system and related facilities and equipment, to ensure that the
performance of the system is in conformity with international
standards and in compliance with certain environmental standards.
For these services, the Company pays a monthly fee based on a
percentage of the operating income of the Company. In October 2014,
TGS and Petrobras Argentina approved the renewal of the Technical
Assistance Agreement for a three-year term, beginning on December
28, 2014.
Commercial transactions
In the
normal course of business, the Company holds with Petrolera Pampa
SA and Pampa Energía, agreements to transfer natural gas and
richness. The price, which is denominated in US dollars, is
determined according to common practices.
In
addition, in the normal course of business, TGS carries out liquid
sales, natural gas transportation services and other services with
its associated companies, Pampa Energía and related
companies.
On
November 1, 2016, Pampa Energía ceded to YPF the operation of
the Río Neuquén area and related contracts, which until
that date
were exposed as transactions
with related parties in the Other Services business
segment.
Financial transactions.
Loan agreement with Pampa Energía S.A.
On
October 5, 2011, TGS granted a US$26 million loan to Pampa
Energía S.A. Proceeds from the loan were used by Pampa
Energía to exercise the option contained in the "Call Option
Agreement". Additionally, to guarantee compliance with its
obligations, Pampa Energy S.A. created a pledge on the rights that
correspond to the arbitration actions of Ponderosa Assets LP and
Enron Creditors Recovery Corp. against Argentine Government
acquired upon exercise of the option mentioned above. For more
information, see Note 16.a.
After
several extensions of the maturity, on May 7, 2013, the Board of
Directors approved the amendments of certain terms and conditions
of the loan granted to Pampa Energía S.A., among
others:
i)
Extended the
expiration date until October 6, 2014, with option of an automatic
renewal for one additional period of one year. For this reason, the
expiration date was October 6, 2015.
ii.
Previous to the
expiration date, the loan should have been paid or prepaid
compulsorily by the assignment of rights and obligations to TGS of
all assigned to Pampa Energía S.A., mentioned in Note 16.a,
Ponderosa Assets LP and Enron Creditors Recovery Corp against
Argentina in the event that, on or before the due date: (a) the 20%
effective increase on the tariff schedule has been granted to TGS,
under the provisions of the Transitional Agreement approved by
Presidential Decree No. 1918/09 or (b) it has been granted to TGS:
(x) the tariff adjustment as provided by the Adjustment Agreement
initialed by TGS approved by the Board of Directors Meeting held on
October 5, 2011, or (y) any other compensatory arrangements
implemented by any mechanism or system of tariff revision in the
future to replace those currently in force under the Public
Emergency Law with an equivalent economic effect on
TGS.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
iii.
The applicable
interest rate was equivalent to 6.8% annual plus VAT.
After
verifying compliance with clause ii) mentioned above, on September
30, 2015, the Board of Directors of the Company approved the
acquisition of the Rights of the arbitration proceedings. For
further information, see Note 16.a "Regulatory Framework - General
framework of the regulated segment. - Acquisition of the Rights of
Arbitration Proceedings"
The
evolution of this loan was as follows:
Balances
as of December 31,2013
|
194,154
|
|
|
Interest
income
|
14,941
|
Foreign exchange
gain
|
59,016
|
Balances
as of December 31,2014
|
268,111
|
|
|
Interest
income
|
25,144
|
Foreign exchange
gain
|
31,135
|
Write-off of
debt
|
(324,490
)
|
Balances
as of December 31,2015
|
-
|
Financial leasing with Pampa Energía
As
mentioned in Note 12 to these Consolidated Financial Statements, on
August 11, 2016, the Company entered into a financial lease
agreement with Pampa Energía. The outstanding balance of debt
cancellation as of December 31, 2016, amounts to Ps.
848,181.
Key management compensation
The
accrued amounts corresponding to the compensation of the members of
the Board of Directors, the Statutory Committee and the Executive
Committee for the years ended December 31, 2016 and 2015 were Ps.
39,409 and Ps. 27,280, respectively.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Balances and transactions with related parties
The
detail of significant outstanding balances for transactions entered
into by TGS and its related parties as of December 31, 2016 and
2015 is as follows:
|
|
|
Company
|
|
|
|
|
Controlling shareholder:
|
|
|
|
|
CIESA
|
44
|
-
|
74
|
-
|
Associate which exercises joint control on the controlling
shareholder:
|
|
|
|
|
Pampa
Energía
(1)
|
114,039
|
883,781
|
29,348
|
18,303
|
Associate which exercises significant influence on the controlling
shareholder:
|
|
|
|
|
Link
|
425
|
-
|
370
|
-
|
EGS
|
-
|
602
|
-
|
4,564
|
TGU
|
-
|
2,529
|
-
|
-
|
Other related companies:
|
|
|
|
|
Petrolera
Pampa S.A.
|
-
|
2,634
|
-
|
-
|
Compañía
Mega S.A.
(2)
|
-
|
-
|
12,321
|
-
|
Braskem
Netherlands BV
(2)
|
-
|
-
|
35,996
|
-
|
Pampa
Comercializadora S.A.
|
943
|
-
|
156
|
-
|
Petrolera
Entre Lomas S.A.
|
17
|
-
|
16
|
-
|
Oleoductos
del Valle S.A.
|
297
|
-
|
317
|
-
|
Central
Térmica Piedrabuena S.A.
|
1,224
|
-
|
-
|
-
|
Transener
S.A.
|
727
|
-
|
-
|
-
|
Total
|
117,716
|
889,547
|
78,598
|
22,867
|
(1)
Accounts payable
includes Ps. 848,181 corresponding to the leasing booked as
"Loans".
|
(2)
As of July 27, 2016,
those companies are not considered as related parties due to the
acquisition of Petrobras Argentina shares by Pampa Energía as
described in Note 1.
|
The
detail of significant transactions with related parties for the
years ended December 31, 2016, 2015 and 2014 is as
follows:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Year ended December 31, 2016:
Year ended December 31, 2015:
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Year ended December 31, 2014:
20.
CONTRACTUAL
OBLIGATIONS
As of
December 31, 2016, the Company had the following contractual
commitments:
|
|
|
|
|
|
|
Financial
indebtedness
(1)
|
3,485.4
|
294.5
|
3,190.9
|
-
|
-
|
Purchase
obligations
(2)
|
264.8
|
264.8
|
-
|
-
|
-
|
Other long term
purchase obligations
(3)
|
467.2
|
467.2
|
-
|
-
|
-
|
Financial
leases
(1)
|
1,187.0
|
164.9
|
237.8
|
237.8
|
546.5
|
Total
|
5,404.3
|
1,191.4
|
3,428.7
|
237.8
|
546.5
|
(1)
Corresponds to the
cancellation of principal and interest of the financial
indebtedness. For further information, see Note 12.
(2)
Corresponds to
purchase of natural gas contracts for the processing of
liquids.
(3)
Corresponds to the
payment related to the Technical Assistance Agreement with Pampa
Energía. For further information, see Note 19.
Almost
all the financial indebtedness of TGS and the totality of the
obligations corresponding to gas purchases are denominated in U.S.
dollars which have been translated into Argentine pesos at the
exchange rate as of December 31, 2016 (US$ 1.00 = Ps. 15.89). The
amounts to be paid in pesos could vary depending on the actual
fluctuations in the exchange rate.
Guarantees granted and goods of restricted
availability
The
Company has not granted any additional guarantees other than those
set out in the remaining notes.
Regarding
the existence of restricted assets, as mentioned in Note 16.b, on
October 5, 2016, TGS received BONAR 2020 for an original face value
of US $ 8,030,650.92 in compensation for the cancellation due on
December 31, 2015 corresponding to the Propane for Networks
Agreement.
Decree
No. 704/2015 establishes a restriction on the transferability of
such bonds to third parties until December 31, 2017. This
restriction implies that up to 3% of the bonds received may be sold
on a monthly basis, that amount cannot be exceeding 12% of this
total amount (since the percentage is cumulative in case the
allowed 3% is not sold in other month). In addition, a monthly
information regime is stipulated.
In case
of non-compliance with this reporting obligation, a fine of up to
1% of the market value of the bond balance will be applied. In case
of breach with the limit of bonds that can be sold, the fine will
be up to 10% of the market value of the bonds received. As of the
date of issuance of these Consolidated Financial Statements, TGS is
complying with all the commitments assumed.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
21.
SUBSIDIARY AND
ASSOCIATES
Link:
Link
was created in February 2001, with the purpose of the operation of
a natural gas transportation system, which links TGS’s
natural gas transportation system with the Cruz del Sur S.A.
pipeline. The connection pipeline extends from Buchanan, located in
the high-pressure ring that surrounds the city of Buenos Aires,
which is part of TGS’s pipeline system, to Punta Lara.
TGS’s ownership interest in such company is 49% and Dinarel
S.A. holds the remaining 51%.
TGU:
TGU is
a company incorporated in Uruguay. This company rendered operation
and maintenance services to Gasoducto Cruz del Sur S.A. and its
contract terminated in 2010. TGS holds 49% of its common stock and
Petrobras Argentina holds the remaining 51%.
EGS (in liquidation):
In
September 2003, EGS, a company registered in Argentina, was
incorporated. The ownership is distributed between TGS (49%) and
TGU (51%). EGS operates its own pipeline, which connects
TGS’s main pipeline system in the Province of Santa Cruz with
a delivery point on the border with Chile.
In
October 2012, ENARGAS issued a resolution which authorizes EGS to
transfer the connection pipeline and service offerings in operation
to TGS. On December 17, 2013, the sale of all the fixed assets of
EGS to TGS for an amount of $ 350,000 was made, the existing
natural gas transportation contracts were transferred and the
procedures to dissolve the Company were initiated.
The
Board of Directors Meeting held on January 13, 2016, approved to
initiate the necessary steps for the dissolution of EGS. The
Extraordinary Shareholders Meeting held on March 10, 2016 appointed
EGS’ liquidator.
On
October 13, 2016, the liquidator of EGS resolved the distribution
of a dividend in kind of Ps. 4,673 through the partial transfer of
the credit that EGS has with TGS as a result of the sale of the
Connection Gas Pipeline, which was implemented through TGS and TGU
Assignment Agreements, which had full effects on November 4,
2016.
22.
SUBSEQUENT
EVENTS
The
financial statements were authorized for issuance by the Board of
Directors on March 7, 2017.
No
subsequent events between the end of the fiscal year ended December
31, 2016 and the date of the issuance of these consolidated
financial statements have had a material effect on the financial
position or the results of operations of the Company, except for
those mentioned below:
Collection of Polisur sinister
On
November 3, 2015, Polisur (the only customer to whom ethane is
sold) suffered a sinister at its plant located in the petrochemical
complex of Bahia Blanca, Buenos Aires Province, which brought
operational and commercial limitations for the processing of ethane
delivered by TGS, affecting the income of the Company.
For
this reason, TGS initiated proceedings with its insurance company
in order to claim, under the coverage of loss of contingent benefit
provided in the policies of all operational risk, the corresponding
compensation for the economic loss derived from said circumstance.
Finally, in January 2017, this claim was accepted by the insurer
company, and the compensation was settled for a total amount of US$
6.9 million on January 31, 2017.
TRANSPORTADORA DE GAS DEL SUR S.A.
Notes
to the Consolidated Financial Statements as of December 31, 2016
and comparative information
(Stated
in thousands of pesos as described in Note 3, unless otherwise
stated)
Tariff Increase and Integral Renegotiation Agreement
On
March 30, 2017, the National Government and TGS signed the 2017
Transitional Agreement. On the same day and in the same sense as
agreed in the 2017 Transitional Agreement, ENARGAS issued
Resolution 4362 by which:
●
The RTI process is
approved, which will culminate in the signing of the integral
agreement, carried out within the framework of Ministry of Energy.
From this RTI, a new tariff schedule was set. However, according to
the provisions of Resolution 74, the Ministry of Energy provides
for a limitation to the tariff increase arising from the RTI
process. Accordingly, a new transitional tariff schedule in force
as of April 1, 2017, which implies a rate increase of 64.2%, is
approved, but none increases for the CAU were approved at this
stage.
Resolution 74
provides that the remaining tariff increases resulting from the RTI
will be granted as from December 1, 2017 (40% of the total
increase) and April 1, 2018 (30% of the total increase). According
to said resolution, the ENARGAS should consider the corresponding
financial impact of the delay in the implementation of the tariff
increase.
●
In addition,
Resolution 4362 obliged TGS for the execution of the Five-Years
Plan, which requires a high level of essential investments for the
operation and maintenance of the pipeline system, to provide
quality, safe and reliable service. The Five-Years Plan shall be
for the period from April 1, 2017 to March 31, 2022.
●
A non-automatic
six-month adjustment mechanism for the natural gas transportation
tariff was approved. This adjustment must be approved by ENARGAS
and for its calculation, the evolution of the Wholesale Price Index
(“WPI”) published by INDEC will be
considered.
●
The 2017
Transitional Agreement provides for the inability to pay dividends
without the prior authorization of ENARGAS until the final tariff
schedule will be in force or the 2017 Integral Renegotiation
Agreement was ratified by the Executive Branch.
In
addition to the conclusion of the 2017 Transitional Agreement, we
have signed the 2017 Integral Renegotiation Agreement, which will
conclude the RTI process and the renegotiation of our License. This
integral renegotiation agreement is pending approval by the
Ministry of Energy, MH, T
he Office of
the Attorney for the National Treasury, The General Office of the
Comptroller
and the Argentine Congress. Once these
governmental approvals are obtained, the Executive Branch must
issue a decree to put into effect.
Turnover tax calculated on the natural gas price used by TGS as
fuel to render its transportation services
As it
is mentioned in note 18.b above, TGS has received new tax
settlements from the Tax Bureau of the Province of Tierra del
Fuego.
In this
regard, on April 18, 2017, the Company entered into an agreement
with the Province of Tierra del Fuego for the payment of Ps. 110.1
million corresponding to the settlement of the turnover tax for the
period January 2013 to September 2016.
23.
INFORMATION REQUIRED BY
ARTICLE 26 OF SECTION VII CHAPTER IV TITLE II OF CNV
RULES
In
order to comply with General Resolution No. 629/2014 of the CNV,
TGS informs that by March 7, 2017, supporting and management
documentation related to open tax periods is safeguarded by Iron
Mountain Argentina S.A. at its facilities are located at 2396
Amancio Alcorta Avenue in the Autonomous City of Buenos
Aires.
As for
commercial books and accounting records, they are situated in the
headquarters of the Company in areas that ensure its preservation
and inalterability.
The
Company has available in its headquarters to CNV details of the
documentation given in safeguard to third parties.