UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
2015 Commission File number: 001-33422
Empresa Distribuidora y Comercializadora Norte S.A.
(Exact name of registrant as specified in its charter)
Distribution and Marketing Company of the North S.A. | Argentine Republic |
(Translation of registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Avenida Del Libertador 6363
Ciudad de Buenos Aires, C1428ARG
Buenos Aires, Argentina
(Address of principal executive offices)
Leandro Montero Tel.: +54 11 4346 5511 / Fax: +54 11 4346 5325
Avenida Del Libertador 6363 (C1428ARG)
Buenos Aires, Argentina Chief Financial Officer |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Name of each exchange on which registered |
Class B Common Shares | New York Stock Exchange, Inc.* |
American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing 20 Class B Common Shares | New York Stock Exchange, Inc. |
* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
__________
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 462,292,111 Class A Common Shares, 442,210,385 Class B Common Shares and 1,952,604 Class C Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YesoNoþ
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934. YesoNoþ
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YesþNoo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated fileroAccelerated filerþNon-accelerated filero
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAPo
International Financial Reporting Standards as issued by the International Accounting Standards BoardþOthero
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17oItem 18o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YesoNoþ
| Part I Item 1.
| |
| Item 1. | Identity of Directors, Senior Management and Advisors | 1 1
|
Item 2. | Offer Statistics and Expected Timetable | 1 1
|
Item 3. | Key Information | 1 1
|
Item 4. | Information on the Company | 3033
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Item 4A. | Unresolved Staff Comments | 63 75
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Item 5. | Operating and Financial Review and Prospects | 63 75
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Item 6. | Directors, Senior Management and Employees | 100 121
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Item 7. | Major Shareholders and Related Party Transactions | 109 132
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Item 8. | Financial Information | 113 136
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Item 9. | The Offer and Listing | 119 142
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Item 10. | Additional Information | 122 145
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Item 11. | Quantitative and Qualitative Disclosures about Market Risk | 140 173
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Item 12. | Description of Securities Other than Equity Securities | 141 174
|
|
Item 13.
| Part II | |
| Item 13. | Defaults, Dividend Arrearages and Delinquencies | 142 175
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Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 142 175
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Item 15. | Controls and Procedures | 142 175
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Item 16A. | Audit Committee Financial Expert | 143 177
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Item 16B. | Code of Ethics | 143 177
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Item 16C. | Principal Accountant Fees and Services | 144 177
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Item 16D. | Exemptions from the Listing Standards for Audit Committees | 144 178
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Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 144 178
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Item 16F. | Change in Registrant’s Certifying Accountant | 144 178
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| Item 16G. | Corporate Governance | 144 |
| Item 16H. | Mine Safety Disclosures | 148 |
|
Item 16G.
| Part III | Corporate Governance
| 178
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Item 16H. 17. | Financial Statements Mine Safety Disclosures
| 149 178
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Item 17. 18. | Financial Statements | 149 182
|
Item 18. 19. | Exhibits Financial Statements
| 149 182
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Item 19.
| Exhibits
| 182
|
Index to Financial Statements | 152 F-1
|
Table of Contents
PART I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
In this annual report, except as otherwise specified, references to “we”, “us”, “our” and “the Company” are references to (i)Empresa Distribuidora y Comercializadora Norte S.A., or “Edenor”, on a standalone basispriortoMarch 1, 2011, (ii) Edenor,Empresa Distribuidora Eléctrica Regional S.A. (“Emdersa”)andAeseba S.A. (“Aeseba”) when references are made toinformation as of any date withinthe period, between March 1, 2011 and DecemberMarch 31, 2012.2013, (iii) Edenor and Emdersa”, between March 1, 2011 and September 30, 2013, and (iv) Edenor on a standalone basis, from October 1, 2013 through the date of filing of this annual report. References to Edenor, Emdersa and/or Aeseba onastandalone basis are made by naming each company as the case may be. Our financial statements as of December 31, 2012,include the financial data of Aeseba. For more information, see “Item 4—4—Information on the Company—Company—History and Development of the Company.”
FORWARD‑LOOKING STATEMENTS
This annual report includes forward‑looking statements, principally under the captions “Item 3. Key Information—Information - Risk factors,”Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.”Prospects”. We have based these forward‑looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Forward‑looking statements may also be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ materially from those expressed or implied in our forward‑looking statements, including, among other things:
· the outcome and timing of the integral tariff revision process (Revisión TarifariaIntegral or “RTI”) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;
· general political, economic, social, demographic and business conditions in the Republic of Argentina, or“Argentina”and particularly in the geographic market we serve;
· the impact of regulatory reform and changes in the regulatory environment in which we operate;
· electricity shortages;
· potential disruption or interruption of our service;
·restrictions on the ability to exchange Pesos into foreign currencies or to transfer funds abroad;
· the revocation or amendment of our concession by the granting authority;
· our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;
· fluctuations in exchange rates, including a devaluation of the Peso;
· the impact of high rates of inflation on our costs;
· our ability to access to financing under reasonable terms,terms; and
· additional matters identified in “Risk factors”.
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Forward‑looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward‑looking statements after we file this annual report because of new information, future events or other factors. In light of these limitations, undue reliance should not be placed on forward‑looking statements contained in this annual report.
SELECTED FINANCIAL DATA
The following tables present our summary financial data for the years ended December 31, 2015, 2014, 2013, 2012 and 2011. This information should be read in conjunction with our audited consolidated financial statements as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2012 and 2011, and2015 (the“Financial Statements”), the related notes thereto (the“Consolidated Financial Statementsˮ) and Itemthe information under “Item 5. Operating and Financial Review and ProspectsˮProspects.ˮ included elsewhere in this annual report. The financial data as of December 31, 2012, is2015, has been derived from our Consolidated Financial Statements.
Our Consolidated Financial Statements are the first annual audited financial statementshave been prepared in accordance with International FinancialFinancing Reporting Standards (“(“IFRSˮ), as issued by the International Accounting Standards Board (“(“IASBˮ), and these have been approved by resolution of the board of directors’ meeting held on March 8, 2016. See “Item 18—Financial Statements”.
UntilThe selected statement of comprehensive (loss) income data for the yearyears ended December 31, 2015, 2014, 2013, 2012 and 2011, our consolidatedand the selected statement of financial statements wereposition data as of December 31, 2015, 2014, 2013, 2012 and 2011 have been prepared in accordance with generally accepted accounting principles in Argentina (“Argentine GAAPˮ) and in accordance with the rules of the Argentine National Securities Commission (“CNVˮ). For 2012, we have prepared our financial statements in accordance with IFRS, as issued by the IASB, and these have been approved by resolution of the Board of Directors’ meeting held on April 30, 2013.
The mandatory adoption of IFRS for public companies in Argentina is effective for fiscal years beginning January 1, 2012. Therefore, the consolidated financial statements as of December 31, 2011 for filing with the CNV were prepared in accordance with Argentine GAAP, which differs in certain respects from IFRS. The selected consolidated income statement data for the years ended December 31, 2012 and 2011 and the selected consolidated balance sheet data as of December 31, 2012 and 2011 have been prepared in accordance with IFRS and have been derived from our Consolidated Financial Statements,financial statements, which were audited by Price Waterhouse & Co. S.R.L. (“PwC”), member firm of PricewaterhouseCoopers network, whose report dated April 30, 2013 is included elsewhere herein. See Item 18 – “Financial Statements”.
We have prepared our annualnetwork. The financial statements for the fiscal year ended December 31, 2012 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated April 30, 2013, on our financial statements as of and for the years ended December 31, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. As discussed in Note 1 to the Consolidated Financial Statements, the delay in obtaining tariff increases, the cost adjustments recognition requested by the Company in accordance with the terms of the Adjustment Agreement and the continuous increase in operating expenses that are necessary to maintain the level of service significantly affected the economic and financial position of the Company and have raised substantial doubt with respect to our ability to continue as a going concern. Management's plans in response to these matters are also described in Note 1. However, our Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty. See Item 3: “Key Information - Risk Factors - Risks Relating to Our Business - Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.” See Item 18: “Financial Statements.”
Our Consolidated Financial Statements are included on pages F-1 through F-101 of this annual report.
Our financial statements as of December 31, 2012, include the financial data of Aeseba. In preparing the Consolidated Financial Statements, the Company combined the financial statements of Aeseba, including its subsidiary, Empresa Distribuidora de Energía Norte S.A. (“Eden”), an electricity distribution company with the concession area in the northern part of the Province of Buenos Aires, line by line, adding together alike items of assets, liabilities, equity, income and expenses in compliance with International Accounting Standard (“IAS”) 27 and IFRS 10. Furthermore, as of December 31, 2011, 2012 and 2013 is derived from our audited consolidated financial statements that are not included in this annual report, which were also audited by PwC.
Despite the delay in the implementation of certain provisions of the Adjustment Agreement, particularly in relation to the implementation of the semi-annual rate adjustments resulting from the CMM (as defined below) and the completion of the RTI process, the recent adoption of certain measures, such as Resolution No. 32/15 of the Argentine Secretariat of Energy (the “SE”) and Resolution No. 7/16 of the Ministry of Energy and Mining (the “Ministry of Energy”), has allowed us to not only maintain the quality and safety of our service but also to satisfy the constant year-on-year increase in demand for electricity following Argentina’s relative economic growth in recent years (especially, from 2012 through 2015). Accordingly, we have been able to absorb the higher costs associated with the increased supply of electricity and to carry out investments and essential operation and maintenance-related works as planned.
During 2015, we recorded positive operating and net income reversing the negative economic and financial situation experienced in previous years. Such improvement was achieved mainly as a consequence of the issuance on March 13, 2015 of Resolution No. 32/15 of the SE, which addressed the need for adjustment of the economic and financial situation of distribution companies granting us a temporary increase in income through funds provided by CAMMESA, applicable retroactively as from February 1, 2015, to cover costs and investments associated with the regular provision of the public service of distribution of energy on account of the future RTI.
Notwithstanding the foregoing, as of December 31, 2015, our negative working capital amounted to Ps. 1,811 million, which included debt owed to CAMMESA of Ps. 1,808.6 million plus accrued interest, as described under Note 2.c.IX.e to our Financial Statements, with respect to which we have submitted to CAMMESA a repayment plan in November 2015 based on available and projected cash flows data. As of the date of this annual report, negotiations with CAMMESA continue with respect to a final repayment schedule. On December 16, 2015, the Macri administration issued Decree No. 134/15, which declared the state of emergency with respect to the national electricity system, authoritizing the Ministry of Energy to implement a nation-wide plan of action for the generation, transmission and distribution of electricity and to take actions to guarantee the supply of the electricity under adequate economic and technical conditions.
During January 2016, the Ministry of Energy issued Resolutions No. 6/16 and No. 7/16 implementing a new tariff schedule that improved the income of distribution companies such as us to enable them to make investments, carry out maintenance works and expand their networks during 2016 Pursuant to such resolutions, the Argentine Electricity Agency (Ente Nacional Regulador de laElectricidad, the “ENRE”) implemented a VAD (as defined below) adjustment to the tariff schedule on account of the future RTI, and is expected to take all necessary action to conclude the RTI process by December 31, 2016.
Notwithstanding the foregoing, our board of directors (the “Board of Directors”) continues evaluating the sufficiency of financial resources allocated to pay for operation costs, investment plans and debt service, together with the impact on the different variables that affect our business, such as demand behavior, losses, penalties and service quality, among others. In addition, our Board of Directors will continue to actively participate in the RTI process, which is expected to be concluded by December 31, 2016 in accordance with Section 5 of Resolution No. 7/16 of the Ministry of Energy.
Our Financial Statements are included in this annual report beginning on page F-1.
In accordance with the decision of the Boardour board of Directorsdirectors to divest and sell the subsidiary Aeseba as of March 31, 2013 and the subsidiaries of Emdersa Holding S.A. (“Emdersa Holdingˮ or “EHSA”), including Empresa
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Distribuidora Eléctrica Regional S.A. (“Emdersa”)Emdersa and its subsidiaries, Empresa Distribuidora de San Luis S.A. (“Edesal”), Empresa Distribuidora de La Rioja S.A. (“Edelar”), Empresa Distribuidora de Salta S.A. (“Edesa”) and Emdersa Generación Salta S.A. (“EGSSA”), as of December 31, 2011, we have classified the corresponding assets and liabilities associated to these subsidiaries in the Consolidated Financial Statementsconsolidated financial statements as of December 31, 2013, 2012 and 2011 as “Assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”. As of October 11, 2011, October 25, 2011 and May 10, 2012 the Company sold its direct and indirect stake in EGSSA (subject to a condition precedent related to EMDERSA’sEmdersa’s spin-off), Edesal and Edesa, respectively. The corresponding charges to results have been included within “Loss“Income (Loss) from discontinued operations” line item in our consolidated statements of comprehensive loss for the years ended December 31, 2012 and 2011. As of April 5, 2013, the Company sold its stake in Aeseba. The corresponding charges to results have been included within “Loss from Discontinued operations” line item in our consolidated statements of comprehensive loss for the year ended December 31, 2013.
In this annual report, except as otherwise specified, references to “$”, “U.S.$” and “Dollars” are to U.S. Dollars, and references to “Ps.” and “Pesos” are to Argentine Pesos. Solely for the convenience of the reader, Peso amounts as of and for the year ended December 31, 20122015 have been translated into U.S. Dollars at the buyingselling exchange rate for U.S. Dollars quoted by Banco de la Nación Argentina (Banco(the “Banco Nación)n”) on December 31, 2012 of2015, which was Ps. 4.91813.04 to U.S. $1.00.$ 1.00, unless otherwise indicated. The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate. See “Item 3. Key Information—Exchange Rates.Rates” and “Item 3. Key Information—Risk Factors—Risks Relating to Argentina—Fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy, which could, in turn adversely affect our results of operations.”
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Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown asany discrepancies between the totals may not sumand the sums of amounts are due to rounding.
| | | |
Consolidated Statements of Comprehensive Loss | |
IFRS | | | |
| (figures in millions) |
Continuing Operations | | | |
Revenue from sales (1) | U.S. $ | 757.5 | Ps. | 3,725.3 | Ps. | 2,805.8 |
Revenue from construction (2) | 23.9 | 117.6 | 87.4 |
Electric power purchases | (419.3) | (1,740.2) | (1,130.9) |
Cost of Construction | (23.9) | (117.6) | (87.4) |
Subtotal | | | |
Transmission and distribution expenses | (319.3) | (1,570.1) | (1,094.8) |
Gross Profit | | | |
Selling expenses | (87.5) | (430.4) | (310.3) |
Administrative expenses | (60.3) | (296.4) | (224.3) |
Gain from acquisition of companies (3) | - | - | 435.0 |
Other operating income | 6.8 | 33.3 | 27.9 |
Other operating expenses | (22.9) | (112.8) | (54.9) |
Operating (expense) income | | | |
Financial Income | 17.5 | 86.0 | 55.6 |
Financial Expenses (4) | (60.4) | (296.8) | (216.1) |
Other financial results | (33.9) | (166.7) | (97.2) |
Net Financial Expense | | | |
(Loss) Profit before taxes | (221.8) | (1,090.8) | 1.1 |
Income Tax | | | |
Loss for the year from continuing operations | (201.5) | (991.0) | (151.9) |
Loss from discontinued operations | | | |
Loss for the year | | | |
| | | |
Loss for the year attributable to: | | | |
Owners of the parent | (206.7) | (1,016.5) | (304.1) |
Non- controlling interests | 0.6 | 3.1 | 12.7 |
Loss for the year | | | |
| | | |
Loss for the year attributable to Owners of the parent: | | | |
Continuing Operations | (203.5) | (1,000.6) | (157.7) |
Discontinued Operations | | | |
| | | | | | |
Other Comprehensive (income) loss | | | |
Items that will not be reclassified to profit or loss | | | |
Actuarial losses on benefit plans | 1.0 | 4.7 | (13.8) |
Tax effect of actuarial losses on benefit plans | (0.3) | (1.6) | 4.8 |
Total other comprehensive loss from discontinued operations | - | - | (3.4) |
Total other comprehensive income (loss) | | | |
| | | |
Comprehensive loss for the year attributable to: | | | |
Owners of the parent | (206.0) | (1,013.2) | (315.4) |
Non- controlling interests | 0.6 | 2,8 | 11.7 |
Comprehensive loss for the year | | | |
| | | |
Comprehensive loss for the year attributable to owners of the parent: | | | |
Continuing Operations | (202.8) | (997.4) | (166.4) |
Discontinued Operations | | | |
| | | | | | |
| | | |
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| | | |
Basic and diluted loss per share attributable to owners of the parent: | | | |
| | | |
Number of shares outstanding | 897,042,600 | 897,042,600 | 897,042,600 |
| | | |
Basic and diluted loss per share – from continuing operations | (0.228) | (1.12) | (0.17) |
Basic and diluted loss per share – from discontinued operations | (0.004) | (0.02) | (0.16) |
| | | |
Basic and diluted loss per ADS attributable to owners of the parent(5): | | | |
Basic and diluted loss per ADS - from continuing operations | (4.536) | (22.31) | (3.52) |
Basic and diluted loss per ADS - from discontinued operations | (0.072) | (0.35) | (3.26) |
______________________Statement of comprehensive (loss) income *
| | | 2015 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | US$ | | Ps. | | Ps. | | Ps. | | Ps. | | Ps. |
Continuing operations | | | | | | | | | | | | |
Revenue from sales (1) | | 291.6 | | 3,802.2 | | 3,598.4 | | 3,440.7 | | 2,976.2 | | 2,302.0 |
Electric power purchases | | (155.1) | | (2,022.0) | | (1,878.1) | | (2,050.3) | | (1,740.2) | | (1,130.9) |
Subtotal | | 136.5 | | 1,780.2 | | 1,720.3 | | 1,390.4 | | 1,236.0 | | 1,171.1 |
Transmission and distribution expenses | | (241.8) | | (3,153.7) | | (2,825.1) | | (2,055.3) | | (1,344.1) | | (970.5) |
(Loss) Gross income | | (105.3) | | (1,373.5) | | (1,104.8) | | (664.9) | | (108.1) | | 200.6 |
| | | | | | | | | | | | | |
Selling expenses | | (63.9) | | (832.8) | | (657.9) | | (548.3) | | (352.9) | | (261.9) |
Administrative expenses | | (54.1) | | (706.1) | | (496.8) | | (324.8) | | (249.4) | | (196.6) |
Other operating income | | 6.1 | | 79.2 | | 52.4 | | 61.6 | | 32.3 | | 22.5 |
Other operating expense | | (38.5) | | (502.5) | | (318.7) | | (142.8) | | (150.3) | | (93.8) |
Gain from acquisition of companies | | - | | - | | - | | - | | - | | 435.0 |
Income from non-reimbursable customer contributions | | 0.1 | | 0.8 | | 0.8 | | 0.7 | | - | | - |
Operating (loss) profit before SE Resolution 250/13 and subsequent Notes | | (255.7) | | (3,334.9) | | (2,525.0) | | (1,618.5) | | (828.4) | | 105.8 |
Income recognition on account of the RTI - SE Resolution 32/15 | | 385.4 | | 5,025.1 | | - | | - | | - | | - |
Higher costs recognition - SE Resolution 250/13 and subsequents Notes | | 42.3 | | 551.5 | | 2,271.9 | | 2,933.1 | | - | | - |
Operating profit (loss) | | 171.9 | | 2,241.7 | | (253.1) | | 1,314.6 | | (828.4) | | 105.8 |
| | | | | | | | | | | | | |
Financial income | | 7.4 | | 96.2 | | 235.5 | | 287.1 | | 75.5 | | 53.5 |
Financial expenses (2) | | (34.5) | | (450.0) | | (592.0) | | (504.9) | | (226.0) | | (150.6) |
Other financial expense | | (43.1) | | (561.7) | | (324.5) | | (273.1) | | (168.1) | | (93.5) |
Net financial (expense) income | | (70.2) | | (915.5) | | (681.0) | | (490.9) | | (318.6) | | (190.6) |
Profit (Loss) before taxes | | 101.7 | | 1,326.2 | | (934.1) | | 823.7 | | (1,147.0) | | (84.8) |
| | | | | | | | | | | | |
Income tax | | (14.1) | | (183.8) | | 154.4 | | 44.1 | | 116.7 | | (82.2) |
Profit (Loss) for the year from continuing operations | | 87.6 | | 1,142.4 | | (779.7) | | 867.8 | | (1,030.3) | | (167.0) |
| | | | | | | | | | | | |
Discontinued operations | | - | | - | | - | | (95.1) | | 16.9 | | (124.4) |
Profit (Loss) for the year | | 87.6 | | 1,142.4 | | (779.7) | | 772.7 | | (1,013.4) | | (291.4) |
| | | | | | | | | | | | | |
Profit (Loss) for the year attributable to: | | | | | | | | | | | | |
Owners of the Company | | 87.6 | | 1,142.4 | | (779.7) | | 771.7 | | (1,016.5) | | (304.1) |
Non-controlling interests | | - | | - | | - | | 1.0 | | 3.1 | | 12.7 |
Profit (Loss) for the year | | 87.6 | | 1,142.4 | | (779.7) | | 772.7 | | (1,013.4) | | (291.4) |
| | | | | | | | | | | | | |
Profit (Loss) for the year attributable to the owners of the parent | | | | | | | | | | | | |
Continuing operations | | 87.6 | | 1,142.4 | | (779.7) | | 867.9 | | (1,030.3) | | (167.0) |
Discontinued operations | | - | | - | | - | | (96.2) | | 13.8 | | (137.1) |
| | | 87.6 | | 1,142.4 | | (779.7) | | 771.7 | | (1,016.5) | | (304.1) |
Statement of comprehensive (loss) income *(continued)
| | | 2015 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | US$ | | Ps. | | Ps. | | Ps. | | Ps. | | Ps. |
Other comprehensive income | | | | | | | | | | | | |
Items that will not be reclassified to profit or loss | | | | | | | | | | | | |
Results related to benefit plans | | (0.3) | | (3.7) | | (17.8) | | (21.0) | | 7.9 | | (10.2) |
Tax effect of actuarial income (losses) on benefit plans | | 0.1 | | 1.3 | | 6.2 | | 7.4 | | (2.8) | | 3.6 |
Total other comprehensive loss from discontinued operations | | - | | - | | - | | - | | (2.1) | | (5.7) |
Total other comprehensive (loss) income | | (0.2) | | (2.4) | | (11.6) | | (13.6) | | 3.0 | | (12.3) |
| | | | | | | | | | | | | |
Comprehensive income for the year attributable to: | | | | | | | | | | | | |
Owners of the parent | | 87.4 | | 1,140.0 | | (791.3) | | 758.1 | | (1,013.2) | | (315.4) |
Non-controlling interests | | - | | - | | - | | 1.0 | | 2.8 | | 11.7 |
Comprehensive income (loss) for the year | | 87.4 | | 1,140.0 | | (791.3) | | 759.1 | | (1,010.4) | | (303.7) |
| | | | | | | | | | | | | |
Profit (Loss) for the year attributable to the owners of the parent | | | | | | | | | | | | |
Continuing operations | | 87.4 | | 1,140.0 | | (791.3) | | 757.1 | | (1,025.1) | | (173.6) |
Discontinued operations | | | | - | | - | | 1.0 | | 11.9 | | (141.8) |
| | | 87.4 | | 1,140.0 | | (791.3) | | 758.1 | | (1,013.2) | | (315.4) |
| | | | | | | | | | | | | |
Basic and diluted earnings (loss) per share: | | | | | | | | | | | | |
Basic and diluted earnings (loss) per share from continuing operations | | 0.10 | | 1.27 | | (0.87) | | 0.97 | | (1.15) | | (0.19) |
Basic and diluted (loss) earnings per share from discontinued operations | | - | | - | | - | | (0.11) | | 0.02 | | (0.15) |
| | | | | | | | | | | | | |
Basic and diluted earnings (loss) per ADS (3): | | | | | | | | | | | | |
Basic and diluted earnings (loss) per ADS from continuing operations | | 1.95 | | 25.40 | | (17.40) | | 19.40 | | (23.00) | | (3.80) |
Basic and diluted (loss) earnings per ADS from discontinued operations | | - | | - | | - | | (2.20) | | 0.40 | | (3.00) |
(*) ConsolidatedCertain amounts of the presented financial data.data for comparative purposes (2014, 2013, 2012 and 2011) have been reclassified (with regard to the financial statements as of such dates) following the disclosure criteria used for the financial statements as of December 31, 2015, mainly due to discontinued operations.
(1)Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charges determined by the Resolution No. 347/12.
(2) In accordance with IFRIC 12, the construction of the infrastructure necessary for the subsidiary EDEN S.A. to distribute electricity is considered a service rendered to the concession authority and the corresponding revenue is reflected at cost within the sales account.
(3) The excess of the fair value of the net assets acquired from Emdersa and Aeseba, including those recognized in the reassessment of the purchase price allocation, over the consideration paid and the non-controlling interest has been considered as a gain in bargain purchase, because the seller had started a process for divesting its net assets in the region and, consequently, it sold them at values lower than their respective fair value. The acquisitions have been recorded in accordance with the purchase method on the basis of the fair value measurements of the acquired assets and liabilities.
(4) Includes commercial interests accrued by CAMMESA of Ps. 55.2 million, under the Commercial Interest line item.
(5) (2)Net of interest capitalized at December 31, 2015, 2014, 2013, 2012 and 2011 for Ps. 255.9, Ps. 123.9 million, Ps. 24.5 million, Ps. 25.4 million and Ps. 16.1 million, respectively.
(3)Each ADS represents 20 Class B common shares.
Table of Contents
| | | | |
| (figures in millions) |
ASSETS | |
Non-current assets: | | | | |
Property, plant and equipment | U.S.$ 883.4 | Ps. 4,344.6 | Ps. 3,995.3 | Ps. 3,712.3 |
Intangible Assets | 172.0 | 845.8 | 793.0 | - |
Interest in joint ventures | 0.1 | 0.4 | 0.4 | 0.4 |
Trade Receivables | 9.7 | 47.7 | 45.7 | 45.5 |
Other receivables | 14.3 | 70.5 | 50.3 | 18.5 |
Total non‑current assets | | | | |
Current assets: | | | | |
Assets under construction | U.S.$ 17.2. | Ps. 84.5 | Ps. 45.5 | - |
Inventories | 17.3 | 85.0 | 45.3 | 12.4 |
Trade receivables | 180.8 | 889.4 | 534.7 | 421.2 |
Derivative Financial Instruments | - | - | 1.3 | - |
Financial Assets at fair value through profit or loss | 0.7 | 3.4 | 2.1 | 430.8 |
Other receivables | 27.6 | 135.6 | 76.3 | 40.1 |
Cash and cash equivalents | | | | |
Total current assets | | | | |
Assets of disposal groups classified as held for sale | 45.4 | 223.4 | 1,291.1 | - |
TOTAL ASSETS | | | | |
| | | | |
EQUITY | | | | |
| | | | |
Equity attributable to the owners | | | | |
Share Capital | U.S $ 182.4 | Ps. �� 897.0 | Ps. 897.0 | Ps. 897.0 |
Adjustment to Share Capital | 80.9 | 397.7 | 986.1 | 986.1 |
Additional paid- in capital | 0.7 | 3.5 | 21.8 | 18.3 |
Treasury stock | 1.9 | 9.4 | 9.4 | 9.4 |
Adjustment to treasury stock | 2.1 | 10.3 | 10.3 | 10.3 |
Legal Reserve | - | - | 64.0 | 64.0 |
Accumulated Deficit | (183.0) | (899.8) | (557.3) | (241.9) |
Equity attributable to the owners | | | | |
Non- controlling interests | 14.5 | 71.1 | 415.8 | - |
TOTAL EQUITY | | | | |
| | | | |
LIABILITIES Non -Current liabilities: | | | | |
Trade payables | 31.6 | 155.3 | 87.7 | 51.0 |
Deferred Revenues | 53.8 | 264.4 | 174.8 | - |
Other liabilities(1) | 385.3 | 1,894.8 | 1,373.7 | 984.5 |
Borrowings | 274.6 | 1,350.7 | 1,189.9 | 1,035.1 |
Salaries and social security taxes payable | 3.6 | 17.5 | 23.6 | 19.3 |
Benefit Plans | 19.8 | 97.4 | 83.5 | 41.5 |
Provisions | 16.3 | 80.0 | 66.1 | 6.8 |
Taxes Liabilities | 2.0 | 10.0 | 17.7 | 9.0 |
Deferred Tax Liability | 46.9 | 230.4 | 348.7 | 250.3 |
Total non- current liabilities | | | | |
Current liabilities: | | | | |
Trade payables | 241.7 | 1,188.5 | 623.7 | 377.1 |
Borrowings | 21.0 | 103.1 | 59.0 | 46.9 |
Derivative Financial Instruments | - | - | - | 7.3 |
Salaries and social security taxes payable | 78.1 | 384.3 | 275.8 | 180.4 |
Benefit plans | 3.0 | 15.0 | 11.3 | - |
Taxes Liabilities | 41.2 | 202.5 | 147.7 | 111.1 |
Other Liabilities(1) | 30.6 | 150.4 | 128.6 | 5.9 |
Provisions | 2.1 | 10.5 | 10.3 | 57.8 |
Total Current Liabilities | | | | |
| | | | | |
TableStatement of Contentsfinancial position
Liabilities of disposal groups classified as held for sale | 32.0 | 157.3 | 542.2 | - | |
| | | 2015 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | US$ | | Ps. | | Ps. | | Ps. | | Ps. | | Ps. |
ASSETS | | | | | | | | | | | | | |
Non-current assets | | | | | | | | | | | | | |
Property, plant and equipment | | | 681.4 | | 8,885.8 | | 6,652.5 | | 5,189.3 | | 4,344.6 | | 3,995.3 |
Intangible assets | | | - | | - | | - | | - | | 845.8 | | 793.0 |
Interest in joint ventures | | | - | | 0.4 | | 0.4 | | 0.4 | | 0.4 | | 0.4 |
Deferred tax asset | | | 3.8 | | 50.0 | | 87.2 | | - | | - | | - |
Other receivables | | | 11.8 | | 153.8 | | 249.2 | | 199.4 | | 195.0 | | 50.3 |
Trade receivables | | | 1.8 | | 23.6 | | - | | - | | 2.0 | | 45.7 |
Total non-current assets | | | 698.9 | | 9,113.6 | | 6,989.3 | | 5,389.1 | | 5,387.8 | | 4,884.7 |
| | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | |
Assets under construction | | | - | | - | | - | | - | | 84.5 | | 45.5 |
Inventories | | | 10.3 | | 134.9 | | 74.0 | | 83.9 | | 85.0 | | 45.3 |
Other receivables | | | 82.8 | | 1,079.8 | | 250.3 | | 522.1 | | 127.2 | | 76.3 |
Trade receivables | | | 73.8 | | 963.0 | | 882.9 | | 803.1 | | 889.4 | | 534.7 |
Financial assets at fair value through profit or loss | | | 119.7 | | 1,560.4 | | 254.4 | | 216.4 | | 3.4 | | 2.1 |
Derivative financial instruments | | | 0.0 | | 0.2 | | - | | - | | - | | 1.3 |
Cash and cash equivalents | | | 9.9 | | 129.0 | | 179.1 | | 243.5 | | 71.1 | | 130.5 |
Total current assets | | | 296.6 | | 3,867.3 | | 1,640.7 | | 1,869.0 | | 1,260.6 | | 835.7 |
Assets of disposal group classified as held for sale | | | - | | - | | - | | - | | 223.4 | | 1,291.1 |
TOTAL ASSETS | | | 995.4 | | 12,980.9 | | 8,630.0 | | 7,258.1 | | 6,871.8 | | 7,011.5 |
| | | | | | | | | | | | | |
EQUITY | | | | | | | | | | | | | |
Capital and reserves attributable to the owners | | | | | | | | | | | | | |
Share capital | | | 68.8 | | 897.0 | | 897.0 | | 897.0 | | 897.0 | | 897.0 |
Adjustment to share capital | | | 30.5 | | 397.7 | | 397.7 | | 397.7 | | 397.7 | | 986.1 |
Additional paid-in capital | | | 0.3 | | 3.5 | | 3.5 | | 3.5 | | 3.5 | | 21.8 |
Treasury stock | | | 0.7 | | 9.4 | | 9.4 | | 9.4 | | 9.4 | | 9.4 |
Adjustment to treasury stock | | | 0.8 | | 10.3 | | 10.3 | | 10.3 | | 10.3 | | 10.3 |
Other comprehensive (loss) income | | | (3.2) | | (42.3) | | (39.9) | | (28.3) | | (14.6) | | 64.0 |
Accumulated deficit | | | 19.1 | | 249.4 | | (893.0) | | (113.3) | | (885.1) | | (557.3) |
Equity attributable to the owners | | | 116.9 | | 1,525.0 | | 385.0 | | 1,176.3 | | 418.2 | | 1,431.3 |
Non-controlling interest | | | - | | - | | - | | - | | 71.1 | | 415.9 |
TOTAL EQUITY | | | 116.9 | | 1,525.0 | | 385.0 | | 1,176.3 | | 489.3 | | 1,847.2 |
| | | | | | | | | | | | | |
LIABILITIES | | | | | | | | | | | | | |
Non-current liabilities | | | | | | | | | | | | | |
Trade payables | | | 17.3 | | 225.0 | | 231.1 | | 220.8 | | 155.3 | | 87.7 |
Other payables (1) | | | 183.4 | | 2,391.9 | | 1,644.6 | | 944.7 | | 1,894.8 | | 1,373.7 |
Borrowings | | | 188.7 | | 2,461.0 | | 1,598.4 | | 1,309.9 | | 1,350.7 | | 1,189.9 |
Deferred revenue | | | 11.8 | | 153.8 | | 109.1 | | 33.7 | | 264.4 | | 174.8 |
Salaries and social security taxes payable | | | 6.1 | | 80.0 | | 62.9 | | 26.0 | | 17.5 | | 23.6 |
Benefit plans | | | 15.7 | | 204.4 | | 150.4 | | 102.7 | | 97.4 | | 83.5 |
Deferred tax liability | | | - | | - | | - | | 73.4 | | 230.4 | | 348.7 |
Tax liabilities | | | 0.1 | | 1.9 | | 3.2 | | 4.4 | | 10.0 | | 17.7 |
Provisions | | | 19.9 | | 259.6 | | 112.1 | | 83.1 | | 80.0 | | 66.1 |
Total non-current liabilities | | | 443.1 | | 5,777.6 | | 3,911.8 | | 2,798.7 | | 4,100.5 | | 3,365.7 |
| | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | |
Trade payables | | | 343.2 | | 4,475.4 | | 3,299.6 | | 2,481.2 | | 1,208.5 | | 623.7 |
Other payables (1) | | | 11.6 | | 151.7 | | 187.1 | | 147.2 | | 150.4 | | 128.6 |
Borrowings | | | 3.7 | | 48.8 | | 34.0 | | 40.6 | | 103.1 | | 59.0 |
Derivative financial instruments | | | - | | - | | 5.9 | | - | | - | | - |
Deferred revenue | | | 0.1 | | 0.8 | | 0.8 | | - | | - | | - |
Salaries and social security taxes payable | | | 56.2 | | 733.1 | | 610.6 | | 420.9 | | 383.6 | | 275.8 |
Benefit plans | | | 2.2 | | 28.3 | | 10.6 | | - | | 15.0 | | 11.3 |
Tax liabilities | | | 13.0 | | 169.7 | | 160.5 | | 182.5 | | 253.6 | | 147.7 |
Provisions | | | 5.4 | | 70.5 | | 24.1 | | 10.7 | | 10.5 | | 10.3 |
Total current liabilities | | | 435.5 | | 5,678.3 | | 4,333.2 | | 3,283.1 | | 2,124.7 | | 1,256.4 |
Liabilities of disposal group classified as held for sale | | | | | - | | - | | - | | 157.3 | | 542.2 |
TOTAL LIABILITIES | | | | | | 878.5 | | 11,455.9 | | 8,245.0 | | 6,081.8 | | 6,382.5 | | 5,164.3 |
| | | | | | | | | | | | | |
TOTAL LIABILITIES AND EQUITY | | | | | | 995.4 | | 12,980.9 | | 8,630.0 | | 7,258.1 | | 6,871.8 | | 7,011.5 |
| | | |
(*) Consolidated financial data.
(1)Includes the amounts collected through the Program for the Rational Use of Electricity Power (PUREE),. As of December, 31, 2014 and 2013 net of Ps. 2,235.1 million and Ps. 1,661.1 million, respectively, compensated pursuant to Resolution No. 250/2013 and Notes 6852/2013, 4012/14, 486/14 and 1136/14, which as of December 31, 2014, 2013, 2012 2011 and January 1, 2011 amounted to Ps. 1,352.517.5 million, Ps. 108.6 million, Ps. 1,352 million and Ps. 928.7 million, and Ps. 529.1, respectively. For the years ended December 31, 2012 and 2011, Ps. 74.7 million and Ps. 61.6 million, respectively, corresponded to PUREE funds collected by Aeseba, included under current liabilities, and Ps. 1,277.8 million and Ps. 867.1 corresponded to PUREE funds collected by Edenor, included under non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA according to Resolution SS.EE. 1037/07.No. 1,037/07 of the SE. Since the issuance of Resolution No. 32/15, the PUREE funds are considered part of Edenor´s income on account of the future RTI.
Table of Contents
Statement of Cash flows
| | | |
| |
Consolidated Statements of Cash Flows | | | |
| | | |
Cash flows from operating activities | | | |
| (Figures in millions) |
| | | |
Loss for the year | U.S.$ (206.1) | Ps. (1,013.4) | Ps. (291.4) |
Adjustments to reconcile net loss to net cash flows provided by operating activities: | | | |
Depreciation of property, plant and equipment | 40.2 | 197.9 | 187.9 |
Amortization of intangible assets | 5.1 | 24.9 | 20.1 |
Disposals of property, plant and equipment | 0.4 | 1.9 | 1.9 |
Loss from retirement of intangible assets | 1.6 | 8.0 | 10.7 |
Gain from the purchase of financial debt | - | - | (6.5) |
Interest on loans and other liabilities | 30.7 | 151.2 | 109.0 |
Exchange differences | 39.5 | 194.1 | 102.8 |
Income Tax | (20.3) | (99.8) | 153.0 |
Allowance for the impairment of trade receivables and other receivables | 3.8 | 18.5 | 10.8 |
Provision of Contingencies, net of recovery | 5.4 | 26.4 | 8.1 |
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | (0.1) | (0.4) | (1.2) |
Changes in fair value of financial instruments | (7.9) | (39.1) | (13.3) |
Gain from acquisition of companies | — | — | (435.0) |
Benefit Plans accrued | 6.3 | 31.0 | 15.6 |
Discontinued Operations | 50.1 | 246.2 | 202.3 |
|
Changes in operating assets and liabilities (excluding previous adjustments) |
Net increase in trade receivables | (69.5) | (342.0) | (136.6) |
Net (decrease) increase in other receivables | 2.4 | 11.7 | (88.3) |
Increase in inventories | (8.1) | (39.7) | (32.9) |
Increase in assets under construction | (7.9) | (39.0) | (45.5) |
Increase in trade payable | 110.9 | 545.6 | 25.4 |
Increase in salaries and social security taxes | 20.8 | 102.4 | 139.2 |
Decrease of benefit plans | (1.8) | (8.8) | (15.6) |
Increase in taxes | 10.1 | 49.7 | 36.5 |
Increase in deferred revenue | 18.2 | 89.6 | 174.8 |
Increase in other liabilities | 28.6 | 140.8 | 203.7 |
(Decrease) Increase in provisions | (2.5) | (12.4) | 3.7 |
Income tax paid | (6.9) | (34.1) | (24.4) |
Increase in funds obtained from PUREE (Res. SE N° 1037/07)(1) | 83.5 | 410.7 | 338.0 |
Increase in funds obtained from PUREE (Res. MIVSPBA N° 252/07) | 2.7 | 13.1 | 6.0 |
Net Cash Flows provided by operating activities | | | |
Cash flows from investing activities | | | |
Increase from sale of financial assets at fair value | 7.7 | 37.8 | 442.0 |
Additions of property, plant and equipment | (111.6) | (549.0) | (443.4) |
Additions of intangible assets | (17.4) | (85.7) | (63.4) |
Payment for acquisition of companies | - | - | (442.9) |
Payment for acquisition of additional non controlling interests | - | - | (6.4) |
Loans granted | (3.0) | (14.6) | - |
Collection of loans proceed from borrowing | 28.9 | 142.4 | - |
Collection for sale of discontinued operations | | | |
Discontinued Operations | (40.8) | (200.8) | (279.9) |
Net Cash Flows used in investing activities | | | |
Cash flows from financing activities: | | | |
Loans taken | 19.5 | 95.8 | 298.2 |
Repayment of borrowings | (42.8) | (210.3) | (380.4) |
Change in non – controlling interest- Dividend Distribution Aeseba | (1.2) | (5.8) | — |
Dividends paid(1) | (1.1) | (5.6) | — |
| | 2015 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | US$ | | Ps. | | Ps. | | Ps. | | Ps. | | Ps. |
Cash flows from operating activities | | | | | | | | | | | | |
(Loss) Profit for the year | | 87.6 | | 1,142.4 | | (779.7) | | 772.7 | | (1,013.4) | | (291.4) |
Adjustments to reconcile net (loss) profit to net cash flows provided by operating activities: | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | 21.6 | | 281.4 | | 237.6 | | 212.1 | | 192.6 | | 184.8 |
Loss on disposals of property, plant and equipment | | 0.3 | | 3.5 | | 1.0 | | 1.2 | | 1.8 | | 1.8 |
Net accrued interest | | 25.6 | | 333.7 | | 341.0 | | 196.6 | | 182.6 | | 95.3 |
Exchange differences | | 68.6 | | 894.8 | | 427.9 | | 365.8 | | 192.9 | | 100.5 |
Income tax | | 14.1 | | 183.8 | | (154.4) | | (44.1) | | (116.7) | | 82.2 |
Allowance for the impairment of trade and other receivables, net of recovery | | 1.8 | | 24.1 | | 19.7 | | 33.7 | | 54.4 | | 13.2 |
Adjustment to present value of receivables | | (0.4) | | (5.4) | | (8.1) | | (2.4) | | 2.2 | | (1.2) |
Provision for contingencies | | 17.4 | | 226.4 | | 75.4 | | 36.0 | | 24.8 | | 16.6 |
Other expenses - FOCEDE | | 4.6 | | 59.6 | | 97.7 | | - | | - | | - |
Changes in fair value of financial assets | | (24.8) | | (323.6) | | (67.6) | | (16.1) | | (39.1) | | (14.8) |
Accrual of benefit plans | | 6.8 | | 89.3 | | 51.4 | | 22.5 | | 20.4 | | 9.9 |
Gain from acquisition of companies | | - | | - | | - | | - | | - | | (435.0) |
Higher costs recognition - SE Resolution 250/13 and subsequents Notes | | (42.3) | | (551.5) | | (2,271.9) | | (2,933.1) | | - | | - |
Income recognition on account of the RTI - SE Resolution 32/15 | | (38.0) | | (495.5) | | | | | | | | |
Net gain from the repurchase of Corporate Notes | | - | | - | | (44.4) | | (88.9) | | - | | (6.5) |
Income from non-reimbursable customer contributions | | (0.1) | | (0.8) | | | | | | | | |
Discontinued operations | | - | | - | | - | | 168.6 | | 287.8 | | 349.8 |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Increase in trade receivables | | (3.1) | | (40.6) | | (55.3) | | (48.5) | | (306.0) | | (63.6) |
Increase in other receivables | | (26.7) | | (347.9) | | (134.7) | | (111.7) | | (15.6) | | (44.0) |
Decrease (Increase) in inventories | | (4.7) | | (60.9) | | 9.9 | | (42.7) | | (18.3) | | (10.5) |
Increase in assets under construction | | - | | - | | - | | - | | - | | (8.6) |
Increase (Decrease) in deferred revenue | | 3.5 | | 45.5 | | 76.2 | | (0.7) | | 16.9 | | 17.5 |
(Decrease) Increase in trade payables | | 50.7 | | 660.8 | | (528.4) | | (87.0) | | 207.7 | | 195.6 |
Increase in salaries and social security taxes payable | | 10.7 | | 139.7 | | 226.7 | | 95.3 | | 88.8 | | 63.7 |
Decrease in benefit plans | | (1.6) | | (21.2) | | (11.0) | | (7.9) | | (4.0) | | (2.7) |
(Decrease) Increase in tax liabilities | | (10.8) | | (141.0) | | (28.7) | | (44.9) | | 43.4 | | (19.2) |
Increase in other payables | | (4.8) | | (62.1) | | 162.3 | | 262.0 | | 40.9 | | 120.2 |
Funds obtained from the program for the rational use of electric power (PUREE) (SE Resolution No. 1037/07) | | 2.0 | | 25.6 | | 482.9 | | 491.9 | | 410.7 | | 338.0 |
Net decrease in provisions | | (2.5) | | (32.6) | | (33.0) | | (25.3) | | (12.1) | | (11.0) |
Subtotal before variations of debts with Cammesa | | 155.5 | | 2,027.5 | | (1,907.5) | | (794.9) | | 242.7 | | 680.5 |
Increase in account payable and mutuum with Cammesa | | 91.2 | | 1,189.5 | | 3,455.5 | | 2,231.5 | | 295.7 | | 10.1 |
Net cash flows provided by operating activities | | 246.7 | | 3,217.0 | | 1,548.0 | | 1,436.6 | | 538.4 | | 690.6 |
| | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | |
Payment of property, plants and equipments | | (160.7) | | (2,095.5) | | (1,400.1) | | (892.4) | | (537.9) | | (434.7) |
Net (payment for) collection of purchase / sale of financial assets at fair value | | (77.6) | | (1,012.1) | | (64.6) | | (97.4) | | 37.8 | | 443.5 |
Payment for adquisition of companies | | - | | - | | - | | - | | - | | (442.9) |
Payment for adquisition of additional non-controlling interests | | - | | - | | - | | - | | - | | (6.4) |
Loans granted | | - | | - | | - | | - | | (0.5) | | (39.7) |
Collection of financial receivables with related companies | | - | | - | | - | | 2.1 | | 142.4 | | 90.6 |
Collection for sales of discontinued operations | | - | | - | | - | | - | | - | | 126.7 |
Incorporation of Cash and Cash equivalents in acquired companies | | - | | - | | - | | - | | - | | 119.0 |
Collection of receivables from sale of subsidiaries - SIESA | 0.3 | | 4.3 | | 3.0 | | 2.9 | | - | | - |
Discontinued operations | | - | | - | | - | | (124.2) | | (232.1) | | (610.9) |
Net cash flows used in investing activities | | (238.0) | | (3,103.3) | | (1,461.7) | | (1,109.0) | | (590.3) | | (754.8) |
8
Table of Contents
Discontinued Operations | | | |
Net cash flows (used in) provided by financing activities | (33.7) | (165.8) | 16.3 |
Net decrease in cash and cash equivalents | | | |
| | | |
Cash and cash equivalents at beginning of year | U.S.$ 26.5 | Ps. 130.5 | Ps. 246.0 |
Gain from exchange differences in cash and cash equivalents | 7.5 | 36.8 | 3.3 |
Changes in cash and cash equivalents | (19.6) | (96.2) | (118.8) |
Cash and cash equivalents at end of the year | U.S.$ 14.5 | Ps. 71.1 | Ps. 130.5 |
Cash and cash equivalents in the statement of financial position | U.S.$ 14.5 | Ps. 71.1 | Ps. 130.5 |
Cash and cash equivalents included in assets of disposal groups classified as held for sale | 2.3 | 11.2 | 28.3 |
Cash and cash equivalents at end of the year | U.S.$ 16.7 | Ps. 82.3 | Ps. 158.8 |
| | | |
Supplemental cash flows information | | | |
| | | |
Financial cost charged to fixed assets | U.S.$ 1.3 | 6.4 | 4.1 |
| | | |
Changes in assets for disposal classified as held for sale | | | |
Increased credit extended related companies | (8.5) | (41.7) | - |
Decrease advance payments received related companies | (2.1) | (10.4) | - |
Acquired Companies | - | - | 119.0 |
Cash and cash equivalents Property, plant and equipment and intangible assets | - | - | 1,881.4 |
Inventories | - | - | 4.3 |
Trade receivables | - | - | 255.3 |
Other receivables | - | - | 84.6 |
Trade payables | - | - | (257.8) |
Borrowings | - | - | (450.0) |
Deferred tax liability | - | - | (78.8) |
Other liabilities | - | - | (331.0) |
Net Assets | | | |
Non-controlling interests | - | - | (230.0) |
Net assets acquired | | | |
Bargain Purchase | - | - | 435.0 |
Cash Paid | - | - | (562.0) |
Cash and cash equivalents in acquired companies | - | - | 119.0 |
Net Cash Flows for acquisition of companies | | | |
(*) Consolidated financial data
(1) Correspond to Eden.
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Statement of Cash flows(continued)
| |
| | | | | |
Operating data | | | | | | | |
Energy sales (in GWh): | 20,760 | 2,868 | 20,098 | 2,791 | 19,293 | 18,220 | 18,616 |
Residential | 8,662 | 648 | 8,139 | 619 | 7,796 | 7,344 | 7,545 |
Small Commercial | 1,688 | 236 | 1,601 | 227 | 1,543 | 1,470 | 1,530 |
Medium Commercial | 1,717 | 111 | 1,700 | 104 | 1,634 | 1,565 | 1,597 |
Industrial | 3,335 | 814 | 3,442 | 807 | 3,378 | 3,204 | 3,277 |
Wheeling System(1) | 4,261 | 294 | 4,156 | 291 | 3,891 | 3,622 | 3,700 |
Others: | | | | | | | |
Public Lighting | 668 | 81 | 656 | 80 | 654 | 644 | 644 |
Shantytowns | 410 | 675 | 384 | 657 | 377 | 351 | 304 |
Others(2) | 20 | 9 | 20 | 6 | 20 | 20 | 19 |
Customers (in thousands) (3) | 2,726 | 344 | 2,699 | 340 | 2,662 | 2,605 | 2,537 |
Energy Losses (%) | 13.3% | 10.6% | 12.6% | 10.4% | 12.5% | 11.9% | 10.8% |
MWh sold per employee | 7,088.0 | 3,944.2 | 7,188.1 | 3,771.2 | 7,123.9 | 6,936.1 | 7,392.8 |
Customers per employee | 931 | 473 | 965 | 460 | 971 | 978 | 997 |
| | | | | | | | |
| | | 2015 | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | | US$ | | Ps. | | Ps. | | Ps. | | Ps. | | Ps. |
Cash flows from financing activities | | | | | | | | | | | | |
Loans taken | | - | | - | | - | | - | | 0.8 | | 298.2 |
Repayment of principal on loans | | - | | - | | (0.4) | | (25.5) | | (36.5) | | (252.5) |
Payment of interest on loans | | (13.3) | | (172.9) | | (155.3) | | (177.0) | | (128.9) | | (127.9) |
Discontinued operations | | - | | - | | - | | 25.4 | | 136.8 | | 55.9 |
Net cash flows used in financing activities | | (13.3) | | (172.9) | | (155.7) | | (177.1) | | (27.8) | | (26.3) |
| | | | | | | | | | | | | |
Net (decrease) / increase in cash and cash equivalents | | (4.5) | | (59.2) | | (69.5) | | 150.5 | | (79.7) | | (90.4) |
| | | | | | | | | | | | | |
Cash and cash equivalents at beginning of year | | 13.7 | | 179.1 | | 243.5 | | 71.1 | | 130.5 | | 246.0 |
Cash and cash equivalents at beginning of year included in assets of disposal group classified as held for sale | | - | | - | | - | | 11.2 | | 28.3 | | - |
Exchange differences in cash and cash equivalents | | 0.7 | | 9.1 | | 5.1 | | 10.7 | | 3.2 | | 3.3 |
Net (decrease) increase in cash and cash equivalents | | (4.5) | | (59.2) | | (69.5) | | 150.5 | | (79.7) | | (90.4) |
Cash and cash equivalents at the end of year | | 9.9 | | 129.0 | | 179.1 | | 243.5 | | 82.3 | | 158.8 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Cash and cash equivalents at the end of the year in the statement of financial position | | 9.9 | | 129.0 | | 179.1 | | 243.5 | | 71.1 | | 130.5 |
Cash and cash equivalents at the end of the year included in assets of disposal group classified as held for sale | | - | | - | | - | | - | | 11.2 | | 28.3 |
Cash and cash equivalents at the end of the year | | 9.9 | | 129.0 | | 179.1 | | 243.5 | | 82.3 | | 158.8 |
| | | | | | | | | | | | | - |
| | | | | | | | | | | | | |
Supplemental cash flows information | | | | | | | | | | | | |
Non-cash operating, investing and financing activities | | | | | | | | | | | | |
| | | | | | | | | | | | | - |
Financial costs capitalized in property, plant and equipment | (19.6) | | (255.9) | | (123.9) | | (24.5) | | (6.4) | | 4.1 |
| | | | | | | | | | | | | - |
Acquisitions of property, plant and equipment through increased trade payables | | (12.8) | | (166.8) | | (144.8) | | (126.4) | | - | | - |
| | | | | | | | | | | | | - |
Decrease from offsetting of PUREE-related liability against receivables (SE Resolution 250/13 and SE Notes 6852/13 and 4012/14) | | 0.8 | | 10.6 | | (574.0) | | (1,661.1) | | - | | - |
| | | | | | | | | | | | | |
Decrease from offsetting of liability with CAMMESA for electricity purchases against receivables (SE Resolution 250/13 and SE Notes 6852/13 and 4012/14) | | 12.1 | | 158.1 | | (2,218.4) | | (1,152.3) | | - | | - |
| | | | | | | | | | | | | - |
Decrease from offset of other liabilities with CAMMESA for loans for consumption (Mutuums) granted for higher salary costs (SE Resolution 32/15) | | (38.0) | | (495.5) | | - | | - | | - | | - |
| | | | | | | | | | | | | - |
Decrease in financial assets at fair value from repurchase of Corporate Notes | | - | | - | | 91.6 | | 165.1 | | - | | - |
| | | | | | | | | | | | | - |
| | | | | | | | | | | | | - |
Increase in financial assets at fair value from subsidiary sale | | - | | - | | - | | (334.3) | | - | | - |
| | | | | | | | | | | | | - |
Decrease of other receivables for collection of corporate notes with related companies | | - | | - | | - | | 52.8 | | - | | - |
| | | | | | | | | | | | | - |
Net increase of trade receivables from assets of disposal group classified as held for sale | | - | | - | | - | | (44.6) | | - | | - |
| | | | | | | | | | | | | - |
Acquisitions of property, plant and equipment through increased debt FOTAE | | - | | - | | (32.9) | | (49.0) | | - | | - |
| | | | | | | | | | | | | |
Acquired Companies | | | | | | | | | | | | |
Cash and Cash equivalents | | - | | - | | - | | - | | - | | 119 |
Property, plant and equipment | | - | | - | | - | | - | | - | | 1,881 |
Inventories | | - | | - | | - | | - | | - | | 4 |
Trade receivables | | - | | - | | - | | - | | - | | 255 |
Other receivables | | - | | - | | - | | - | | - | | 85 |
Trade payables | | - | | - | | - | | - | | - | | (258) |
Borrowings | | - | | - | | - | | - | | - | | (450) |
Deferred tax liability | | - | | - | | - | | - | | - | | (79) |
Other liabilities | | - | | - | | - | | - | | - | | (331) |
Net Assets | | - | | - | | - | | - | | - | | 1,227 |
Non-controlling interests | | - | | - | | - | | - | | - | | (230) |
Net assets acquired | | - | | - | | - | | - | | - | | 997 |
Bargain Purchase | | - | | - | | - | | - | | - | | 435 |
Cash Paid | | - | | - | | - | | - | | - | | (562) |
Cash and cash equivalents in acquired companies | | - | | - | | - | | - | | - | | 119 |
Net Cash Flow for acquisition of companies | | - | | - | | - | | - | | - | | (443) |
______________________
| | Year ended December 31, |
| | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
Operating data | | | | | | | | | |
Energy sales (in GWh): | 22,402 | | 21,312 | | 21,674 | | 20,760 | | 20,098 |
Residential | 9,671 | | 9,114 | | 9,114 | | 8,662 | | 8,139 |
Small Commercial | 1,878 | | 1,714 | | 1,780 | | 1,688 | | 1,601 |
Medium Commercial | 1,828 | | 1,712 | | 1,828 | | 1,717 | | 1,700 |
Industrial | 3,680 | | 3,431 | | 3,458 | | 3,335 | | 3,442 |
Wheeling System(1) | 4,200 | | 4,213 | | 4,374 | | 4,261 | | 4,156 |
Public Lighting | 688 | | 678 | | 683 | | 668 | | 656 |
Shantytowns | 435 | | 430 | | 417 | | 409 | | 384 |
Others(2) | 21 | | 20 | | 20 | | 20 | | 20 |
Customers (in thousands) (3) | 2,835 | | 2,800 | | 2,773 | | 2,726 | | 2,699 |
Energy Losses (%) | 14.90% | | 13.82% | | 13.00% | | 13.30% | | 12.60% |
MWh sold per employee | 5,122 | | 4,920 | | 6,024 | | 7,088 | | 7,188 |
Customers per employee | 648 | | 647 | | 771 | | 931 | | 965 |
(1) Wheeling system charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2) Represents energy consumed internally by us and our facilities.
(3) We define a customer as one meter. We may supply more than one consumer through a single meter. In particular, because we measure our energy sales to each shantytown collectively using a single meter, each shantytown is counted as a single customer.
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EXCHANGE RATES
From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank of Argentina (Banco Central de la República Argentina, the “Central Bank”) was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar (the “Convertibility Regime”). On January 6, 2002, the Argentine Congress enacted the Public Emergency Law No. 25,561 (the“Public Emergency Law”), formally putting an end to the regime of the ConvertibilityRegimeand abandoning over ten years of U.S. Dollar-Peso parity. The Public Emergency Law grants the Executive Branch of the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market. The Public Emergency law has been extended until December 31, 2013.2017. For a brief period following the end of the Convertibility Regime, the Public Emergency Law established a temporary dual exchange rate system. Since February 2002, the Peso has been allowed to float freely against other currencies.currencies, although the government has the power to intervene by buying and selling foreign currency for its own account, a practice in which it may engage on a regular basis.
After several years of moderate variations in the nominal exchange rate, the Peso lost more than 30% of its value with respect to the U.S. Dollar in each of 2013 and 2014, and in 2015, the Peso lost approximately 52% of its value with respect to the U.S. Dollar, including a depreciation of approximately 34% mainly experienced after December 17, 2015 following the announcement of the lifting of a significant portion of exchange restrictions (See “—Risk Factors—Factors Relating to Argentina—Fluctuations in the value of the Peso could adversely affect the Argentine economy, and consequently, our results of operations or financial condition”). This was followed by a devaluation of the Peso with respect to the U.S. Dollar of approximately 9.9% from January 1, 2016 through April 14, 2016. There can be no assurance that the Argentine Peso will not depreciate or appreciate again in the future.
The following table sets forth the annual high, low, average and period-end exchange rates for U.S. Dollars for the periods indicated, expressed in Pesos per U.S. Dollar at the purchasing exchange rate and not adjusted for inflation. When preparing our financial statements, we utilize the selling exchange rates for U.S. Dollars quoted by the Banco Nación to translate our U.S. Dollar denominated assets and liabilities into Pesos. The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.
| | | | |
| (Pesos per U.S. Dollar) |
Year ended December 31, | | | | |
2008 | 3.01 | 3.47 | 3.16(1) | 3.45 |
2009 | 3.45 | 3.88 | 3.73(1) | 3.80 |
2010 | 3.79 | 3.99 | 3.91(1) | 3.98 |
2011 | 3.97 | 4.30 | 4.13(1) | 4.30 |
2012 | 4.31 | 4.92 | 4.58(1) | 4.92 |
| | | | |
Month | | | | |
| | | | |
January 2013 | 4.93(2) | 4.98(2) | 4.95 | 4.98 |
February 2013 | 4.98(2) | 5.05(2) | 5.01 | 5.05 |
March 2013 | 5.12(2) | 5.05(2) | 5.08 | 5.12 |
April 2013(3) | 5.13 (4) | 5.18(4) | 5.15 | 5.18 |
| | | Low | | High | | Average | | Period End |
| | | (Pesos per U.S. Dollar) |
Year ended December 31, | | | | | | | | |
2011 | | 3.97 | | 4.30 | | 4,13(1) | | 4.30 |
2012 | | 4.30 | | 4.92 | | 4,55(1) | | 4.92 |
2013 | | 4.93 | | 6.52 | | 5,48(1) | | 6.52 |
2014 | | 6.54 | | 8.56 | | 8,23(1) | | 8.55 |
2015 | | 8.56 | | 13.40 | | 9,51(1) | | 13.04 |
| | | | | | | | | |
Month | | | | |
November-2015 | | 9,56(2) | | 9,69(2) | | 9.63 | | 9.69 |
December-2015 | | 9,70(2) | | 13,40(2) | | 11.41 | | 13.04 |
January-2016 | | 13,20(2) | | 13,96(2) | | 13.65 | | 13.96 |
February-2016 | | 14,13(2) | | 15,80(2) | | 14.85 | | 15.80 |
March-2016 | | 14,39(2) | | 15,80(2) | | 14.95 | | 14.70 |
April-2016(3) | | 14,33(2) | | 14,79(2) | | 14.55 | | 14.33 |
| | | | | | | | | |
_____________________ | | | | | | | | |
Source: Banco Nación | | | | | | | | |
(1) Represents the average of the exchange rates on the last day of each month during the period. |
(2) Average of the lowest and highest daily rates in the month. |
(3) Represents the corresponding exchange rates from April 1 through April 14, 2016. |
_____________________
Source: Banco Nación
(1) Represents the average of the exchange rates on the last day of each month during the period.
(2) Average of the lowest and highest daily rates in the month.
(3)Represents the corresponding exchange rates from April 1 through April 29, 2013.
(4) Represents the average of the lowest and highest daily rates from April 1 through April 29, 2013.
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RISK FACTORS
Risks Related to Argentina
Overview
We are a stock corporation (sociedad(sociedad anónima)nima) incorporated under the laws of the Republic of Argentina and substantially all of our revenues are earned in Argentina and substantially all of our operations, facilities, and customers are located in Argentina. Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic, regulatory, political and financial conditions prevailing in Argentina, including growth, inflation rates, currency exchange rates, interest rates, and other local, regional and international events and conditions that may affect Argentina in any manner. For example, slower economic growth or economic recession could lead to a decreased demand for electricity in our concession area or to a decline in the purchasing power of our customers, which, in turn, could lead to a decrease in collection rates from our customers or increased energy losses due to illegal use of our service. Actions of the Argentine Governmentgovernment concerning the economy, including decisions with respect to inflation, interest rates, price controls (including tariffs and other compensation of public services), foreign exchange controls and taxes, have had and could continue tomay in the future have a material adverse effect on private sector entities, including us. For example, during the Argentine economic crisis of 2001, the Argentine Governmentgovernment froze electricity distribution margins and caused the pesification of our tariffs, which had a materially adverse effect on our business and financial condition and led us to suspend payments on our financial debt at the time.
We cannot assure you that the Argentine Governmentgovernment will not adopt other policies that could adversely affect the Argentine economy or our business, financial condition or results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our ADSs and Class B common shares to decline.
A global financial crisis and unfavorable credit and market conditions may negatively affect our liquidity, customers, business, and results of operations
The effects of a global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina. The effect of this economic crisis on our customers and on us cannot be predicted. Weak economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues. Economic factors such as unemployment, inflation levels and the availability of credit could also have a material adverse effect on demand for energy and therefore on our financial condition and operating results. The financial and economic situation may also have a negative impact on third parties with whom we do, or may do, business. In addition, our ability to access credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions (See Risk Factors – “Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth”). For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.
The Argentine economy remains fragilevulnerable and any significant decline could adversely affect our financial condition
The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation. Sustainable economic growth in Argentina is dependent on a variety of factors, including the international demand for Argentine exports, the stability and competitiveness of the Argentine Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable rate of inflation.
The Argentine economy remains fragile,vulnerable, as reflected by the following economic conditions:
· GDP growth has declined, and employment is beginning to show some signals of weakness;
·inflation has accelerated recently and threatens to continue at those levels;
·investment as a percentage of GDP remains too low to sustain the growth rate of recent years;
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·the availability of long-term credit is scarce, while international financing remains limited;
·the regulatory environment continues to be uncertain;
·in the climate created by the above conditions, demand for foreign currency has grown, generating a capital flight effect to which the Argentine Government has responded with regulations and currency exchange and transfer restrictions, and it is widely reported that in other countries where the Peso is traded, the Peso/U.S. Dollar exchange rate differs substantially from the official exchange rate in Argentina; and
·previous GDP performance has depended to some extent on high commodity prices which, despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine Government.government;
·Argentina’s public debt as a percentage of GDP remains high, the availability of long-term credit is scarce and international financing remains limited;
·continued increases in public expenditure could result in fiscal deficits and affect economic growth;
·inflation remains high and threatens to continue at those levels;
·investment as a percentage of GDP remains too low to sustain the growth rate of recent years;
·a significant number of protests or strikes could take place, as they have in the past, which could adversely affect various sectors of the Argentina economy;
·energy or natural gas supply may not be sufficient to supply increased industrial activity (thereby limiting industrial development) and consumption;
·unemployment and informal employment remains high; and
·in the climate created by the above-mentioned conditions, demand for foreign currency has grown, generating a capital flight effect to which the Fernández de Kirchner administration reacted in the past with regulations and currency exchange transfer restrictions.
As in the recent past, Argentina’s economy may be adversely affected if political and social pressures inhibit the implementation by the Argentine Governmentgovernment of policies designed to control inflation, generate growth and enhance consumer and investor confidence, or if policies implemented by the Argentine Governmentgovernment that are designed to achieve these goals are not successful. These events could materially adversely affect our financial condition and results of operations,or cause the market value of our ADSs and our Class B common shares to decline.
As public finances became increasingly tight, the Argentine Government decided to revise its subsidy policies, particularly those related to energy, electricity and gas, water and public transportation. However, as economic growth has not reached the levels of previous years (on average, GDP grew close to 8.0% per year between 2003 and 2010) and inflation has continued to increase, the manner in which the Argentine Government has revised those policies has been affected. As ultimately implemented, the revised policies will not have an impact on companies’ revenues but could affect the timing of the revision of the tariff process, and generate a strong negative impact on economic activity and an increase in prices, considering that they would be put into effect in a context of subpar growth, high inflation and capital flight.
We cannot assure you that a decline in economic growth, increased economic instability or the expansion of economic policies and measures taken by the Argentine Governmentgovernment to control inflation or address other macroeconomic developments that affect private sector enterprisesentities such as us, all developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact onthe market value of our ADSs and our Class B common shares.
The impact of inflationthe recent congressional and presidential elections on the future economic and political environment of Argentina is uncertain, but likely to be material
Presidential and congressional elections in Argentina took place on October 25, 2015, and a runoff election (ballotage) between the two leading Presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina. The Macri administration assumed office on December 10, 2015, and is expected to adjust longstanding fiscal and monetary policies that have resulted in recurrent public sector deficits, inflation and pervasive foreign exchange controls and limited foreign investment.
Since assuming office, the Macri administration has announced and already implemented several significant economic and policy reforms, including:
- Electricity system state of emergency and reforms. The Macri administration declared the state of emergency of the national electricity system that will remain in effect until December 31, 2017. The state of emergency allows the Argentine government to take actions designed to guarantee the supply of electricity. In addition, following the Macri administration’s announcement that it would reexamine energy subsidy policies, the Ministry of Energy increased electricity rates for the wholesale market for purchases made between February 1 and April 30, 2016. This increase was used to reduce subsidies to the sector. On January 29, 2016, the ENRE, through Resolution No. 1/16 approved a new tariff structure which became effective on February 1, 2016, and introduced different prices depending on the categories of customers. Such resolution also contemplates a social tariff for residential customers who comply with certain consumption requirements, which includes a full exemption for monthly consumptions below or equal to 150 Kwh and tariffs benefits for customers who exceed such consumption level but achieve a monthly consumption lower than that of the same period in the immediately preceding year. On the same date, through Resolution No. 2/2016, the ENRE partially repealed Resolution No. 347/2012, discontinuing the FOCEDE (as defined below) and ordering us to open a special bank account with a Central Bank authorized entity where the funds received pursuant to Resolution No. 347/2012 must be deposited.
- INDEC reforms. In light of questions raised by the International Monetary Fund (“IMF”) regarding the reliability of the information produced by the INDEC, the Macri administration appointed Mr. Jorge Todesca, previously a director of a private consulting firm, as head of the INDEC. It is expected that the INDEC will implement certain methodological reforms and adjust certain macroeconomic statistics on the basis of these reforms. On January 8, 2016, Decree No. 55/2016 was issued by the Argentine government declaring a state of administrative emergency on the national statistical system and on the official agency in charge of the system, the INDEC, until December 31, 2016. Following the declared emergency, the INDEC has ceased publishing statistical data until a rearrangement of its technical and administrative structure is finalized. During the implementation of these reforms, however, the INDEC will use official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires. Despite these expected reforms, there is uncertainty as to whether official data will be sufficiently corrected and within what time period such data will be corrected, and what effect these reforms will have on the Argentine economy and public accounts.
12
- Foreign exchange reforms. In addition, the Macri administration implemented certain reforms to the foreign exchange market regulatory framework that provide greater flexibility and easier access to the foreign exchange market. The principal measures adopted as of the date of this annual report include (i) the elimination of the requirement to register foreign exchange transactions in the Argentine Tax Authority’s (“AFIP”)database;, (ii) the elimination of the requirement to transfer the proceeds of new financial indebtedness transactions into Argentina and settle such proceeds through the single and free‑floating foreign exchange market (the “MULC”), (iii) the reestablishment of the U.S.$2.0 million monthly limit per resident on the creation of offshore assets, (iv) a decrease from 30% to 0% of the registered, non-transferable and non-interest-bearing deposit required in connection with certain transactions involving foreign currency inflows, (v) the reduction of the required period that the proceeds of any new financial indebtedness incurred by residents, held by foreign creditors and transferred through the MULC must be maintained in Argentina from 365 calendar days to 120 calendar days from the date of the transfer of the relevant amount and (vi) the elimination of the requirement of a minimum holding period (72 business hours) for purchases and subsequent sales of the securities. In addition, on December 17, 2015, following the announcement of the lifting of a significant portion of exchange restrictions, the Peso depreciated approximately 36% against the U.S. Dollar. The exchange rate published by Banco Nación as of April 14, 2016 was 14.33 to U.S.$1.00.
- Foreign trade reforms. The Macri administration eliminated export duties on wheat, corn, beef and regional products, and reduced the export duty on soybeans by 5% to 30%. Further, the 5% export duty on most industrial exports and export duties on mining exports were eliminated. With respect to payments of existing debts for imports of goods and services, the Macri administration announced the gradual elimination of amount limitations for access to the MULC and eliminated the amount for any new transactions. As of December 17, 2015, the amount limitations for such existing debt transactions are expected to gradually decrease and be eliminated in June 2016.
- Financial Policy. Soon after taking office, the Macri administration sought to settle the outstanding claims with holdout creditors. See “—Argentina’s ability to obtain financing from international markets is limited, in part due to the unresolved litigation with holdout bondholders, which may impair its ability to foster economic growth and, consequently, affect our
costsbusiness, results of operations and prospects for growth.”
As of the date of this annual report, the impact that these measures and any future measures taken by the Macri administration will have on the Argentine economy as a whole, and the electricity sector in particular, cannot be predicted. While we believe that the effect of the planned liberalization of the economy will be positive for our business by stimulating economic activity, it is not possible to predict such effect with certainty and such liberalization could also be disruptive to the economy and fail to benefit or harm our business. In addition, there is uncertainty as to which measures announced during the Presidential campaign by the Macri administration will be taken and when. Since assuming office, the Macri administration has begun reviewing certain public employee contracts in several sectors and reformed energy and gas sector tariffs. However, we cannot predict how the Macri administration will address certain other political and economic issues that were central during the presidential election campaign, such as the financing of public expenditures, public service subsidies and tax reforms, or the impact that any measures related to these matters that are implemented by the Macri administration will have on the Argentine economy as a materialwhole. In addition, political parties opposed to the Macri administration retained a majority of the seats in the Argentine Congress in the recent elections, which will require the Macri administration to seek political support from the opposition for its economic proposals and creates further uncertainty as to the ability of the Macri administration to pass any measure which it may expect to implement. Political uncertainty in Argentina relating to the measures to be taken by the Macri administration in respect of the Argentine economy could lead to volatility in the market prices of securities of Argentine companies, such as ours. We cannot assure you the impact that these measures or any future measures taken by the Macri administration will have on the Argentine economy, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact onthe market value of our ADSs and Class B common shares.
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If the high levels of inflation continue, the Argentine economy and our results of operations could be adversely affected
Inflation has, in the past, materially undermined the Argentine economy and the Argentine Government’sgovernment’s ability to create conditions that permit growth. In recent years, Argentina has confronted inflationary pressure,pressures, evidenced by significantly higher fuel, energy and food prices, among other factors. According to data published by theInstituto Nacional de Estadística y Censos (National Statistics and Census Institute or INDEC)“INDEC”), the rate of inflation reached 10.9%10.6% in 2010, 9.5%2013, 21.4% in 20112014 and 10.8%11.9% in 2012. the ten-month period ended October 31, 2015.The wholesale price index (“WPI”) increased 12.7%, 13.1%, 14.8% and 28.3% in each of those years, respectively, and 10.6% in the ten-month period ended October 31, 2015. In November 2015, the INDEC suspended the publication of the consumer price index (the “CPI”) and the WPI. See “—The credibility of several Argentine Governmenteconomic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and, in turn, limit our ability to access credit and the capital markets” below. The previous administration has in the past implemented programs to control inflation and monitor prices for essential goods and services, including freezing the prices of supermarket products, and price support arrangements agreed between the Argentine Governmentgovernment and private sector companies in several industries and markets.
A high inflation environment would underminerate affects Argentina’s foreign competitiveness by diluting the effects of the Argentine Peso devaluation, negatively impactimpacting employment and the level of economic activity and employment and undermineundermining confidence in Argentina’s banking system, which couldmay further limit the availability of domestic and international credit to businesses. In turn, a portion of the Argentine debt is adjusted by theCoeficiente de Estabilización de Referencia (Stabilization Coefficient, or “CER”“CER”), a currency index, that is strongly related to inflation. Therefore, any significant increase in inflation would cause an increase in the Argentine external debt and consequently in Argentina’s financial obligations, which could exacerbate the stress on the Argentine economy. A continuing highinflationinflationary environment could undermine our results of operations, as a result of a delay in our ability to, or our inability to, adjust our tariffs accordingly and could adversely affect our ability to finance the working capital needs of our businesses on favorable terms, and adversely affect our results of operations and cause the market value of our ADSs and Class B common shares to decline.
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The credibility of several Argentine economic indexesindices has been called into question, which may lead to a lack of confidence in the Argentine economy and, may in turn, may limit our ability to access the credit and the capital markets
In January 2007, INDEC modified its methodology used to calculate the consumer price index (the “CPI”),CPI, which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Since then, through 2015, the credibility of the CPI, as well as other indexesindices published by the INDEC hashave been affected. As a result of the uncertainty relating to the accuracy of INDEC indexes, the inflation rate of Argentina and the other rates calculated by INDEC could be higher than as indicated in official reports.called into question.
BeginningOn November 23, 2010, the Argentine government consultedFernández de Kirchner administration began consulting with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system. During the first quarter of 2011, a team from the IMF started working in conjunction with the INDEC to create such new national consumer price index. Notwithstanding the foregoing, reports publishedHowever, Argentina was subsequently censured by the IMF state that their staff also uses alternative measures of inflationin 2014 for macroeconomic surveillance, including data produced by private sources, which have shown inflation rates considerably higher than those issued by the INDEC since 2007, and the IMF has called on Argentinafailing to adoptmake sufficient progress in adopting remedial measures to address the quality of official data. data, including inflation and GDP.
In its meeting held on February 1, 2013, the Executive Board of the IMF found that Argentina’s progress in implementing remedial measures since September 2012 has not been sufficient, and as a result, the IMF issued a declaration of censure against Argentina in connection with its breach of its related obligations to the IMF under the Articles of Agreement, and called on Argentina to adopt remedial measuresorder to address the inaccuracyquality of official data, a new price index was put in place on February 13, 2014. The new price index represented the first national indicator to measure changes in prices of final consumption by households. Unlike the previous price index, which only measured inflation in the urban sprawl of the City of Buenos Aires, the new price index is calculated by measuring prices of goods across the entire urban population of the 24 provinces of Argentina. Using this new methodology, the consumer price index rose to 11.9% in the ten-month period ended October 31, 2015. Although this new methodology brought inflation statistics closer to those estimated by private sources, material differences between official inflation data and GDPprivate estimates remained during 2015. In November 2015, the INDEC suspended the publication of the CPI and the WPI.
On January 8, 2016, Decree No. 55/2016 was issued by the Argentine government declaring a state of administrative emergency on the national statistical system and on the official agency in charge of the system, the INDEC, until December 31, 2016. Following the declared emergency, the INDEC ceased publishing statistical data without further delay.until a rearrangement of its technical and administrative structure is finalized. During the implementation of these reforms, however, INDEC will use official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires. Despite these expected reforms, there is uncertainty as to whether official data will be sufficiently corrected and within what time period such data will be corrected, and what effect these reforms will have on the Argentine economy.The Macri administration has released an alternative CPI index based on data from the City of Buenos Aires and the Province of San Luis and is currently working on a new inflation index. According to the most recent publicly available information based on data from the Province of San Luis, the CPI grew by 31.6% in 2015 and the inflation rate was 6.5%, 4.2% and 2.7%, in December 2015, January 2016 and February 2016, respectively. According to the most recent publicly available information based on data from the City of Buenos Aires, the CPI grew by 26.9% in 2015 and the inflation rate was 3.9%, 4.1% and 4.0%, in December 2015, January 2016 and February 2016, respectively.As of the date of this annual report, the Argentine government has reached settlement agreements with holders of a significant portion of the defaulted bonds.
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No official inflation data has been released since the new INDEC authorities have taken charge, and there is uncertainty regarding current rates of inflation.
AnyThe discontinuation of the publication of indices by the INDEC has generated uncertainty in Argentina’s economy, and any future required correction or restatement of the INDEC indexesindices could result in a significant further decrease in confidence in Argentina’s economy, which, could, in turn, could have an adverse effect on our ability to access international capital markets to finance our operations and growth, and which could, in turn, adversely affect our results of operations and financial condition andcause the market value of our ADSs and Class B common shares to decline.
Given the limited credit available to emerging market nations as a result of the global economic crisis, our ability to access credit in the capital markets could be limited by the uncertainty relating to the inaccuracy of the economic indexes and rates in question which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and class B common shares to decline.decline.
Argentina’s ability to obtain financing from international markets is limited, in part due to the unresolved litigation with holdout bondholders, which may impair its ability to implement reforms and foster economic growth and, consequently, may affect our business, results of operations and prospects for growth
The prospects for Argentine companies of accessing financial markets might be limited in terms of the amount of financing available, and the conditions and cost of such financing.
Economic policy measures adopted by the Argentine government, may continue to prevent Argentine companies such as us from accessing the international capital markets or make the terms of any such transactions less favorable than those provided to companies in other countries in the region, and may therefore negatively impact our financial condition or cash flows.
In 2005 and 2010, Argentina restructuredconducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001. The Argentine Government announced that asAs a result of this restructuring, it had approximately U.S.$129.2 billionthese exchange offers, Argentina restructured over 92% of its eligible defaulted debt.
Commencing in total gross public debt as of December 31, 2005. Holdout2002, holdout creditors that declined to participate in the exchanges commencedfiled numerous lawsuits against Argentina in several countries,jurisdictions, including the United States, Italy, Germany,and Japan. These lawsuits generally assert that Argentina has failed to make timely payments of interest and/or principal on their bonds, and seek judgments for the face value of and/or accrued interest on those bonds. Judgments have been issued in severalnumerous proceedings in the United States and Germany, but to date judgment creditors have not succeeded, with a few minor exceptions, in havingexecuting on those judgments enforced. judgments.
In at least one case,February 2012, plaintiffs have assertedin 13 actions in New York, involving claims for U.S.$ 428 million in principal, plus interest, obtained a U.S. district court order enjoining Argentina from making interest payments in full on the bonds issued pursuant to the 2005 and 2010 exchange offers (“Exchange Bonds”) unless Argentina paid the plaintiffs in full, under the theory that allowing Argentina to makethe former payments under its newly issued bonds and remain in default on its pre-2002 bonds violatesviolated thepari passu clause in the original bonds and entitles the plaintiffs to enjoin such payments.1994 Fiscal Agency Agreement (the “FAA”) governing those non‑performing bonds. The U.S. district court order was stayed pending appeals. The Second Circuit Court of Appeals forconfirmed the Second Circuit has ruled in the case that the ranking clause in bonds issued by Argentina prevents Argentina from making such payments unless it makesso-calledpro ratapari passu paymentsinjunctions, and on June 16, 2014 the U.S. Supreme Court denied Argentina’s petition for a writ of certiorari and the stay of thepari passuinjunctions was vacated on June 18, 2014. Additionally, in respect of defaulted debt2015, plaintiffs that rankshad obtainedpari passu withinjunctions amended their complaints to include claims that Argentina’s servicing of more recently issued BONAR 2024 bonds, as well as all external indebtedness in general, would violate the performing bonds.pari passu clause. The judgmentU.S. district court has beennot ruled on these new claims and discovery among the parties remains ongoing. On October 30, 2015, the U.S. district court issued newpari passuinjunctions, substantially identical to the ones already in effect, in 49 additional proceedings, involving claims for over U.S.$ 2.1 billion under the 1994 FAA, plus billions more in pre- and post-judgment interest. On November 10, 2015, Argentina appealed the decision.
In 2014, the Argentine government took a number of steps intended to continue servicing the bonds issued in the 2005 and we cannot predict when or in what form a final appellate decision will be granted. 2010 exchange offers, which had limited success. Holdout creditors continued to litigate expanding the scope of issues to include payment by the Argentine government on debt other than the Exchange Bonds and the independance of the Central Bank.
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The Macri administration engaged in negotiations with holders of defaulted bonds in December 2015 with a view to bringing closure to fifteen years of litigation. In September 2008, Argentina announced its intentionFebruary 2016, the Argentine government entered into an agreement in principle to cancel its external publicsettle with certain holders of defaulted debt and put forward a proposal to Paris Club creditor nations using reservesother holders of defaulted debt, including those with pending claims in U.S. courts, subject to two conditions: obtaining approval by the Argentine Congress and the lifting of theBanco Central de la República Argentinapari passu (injunctions. On March 2, 2016, the U.S. district court agreed to vacate thepari passuinjunctions, subject to two conditions: first, the repealing of all legislative obstacles to settlement withholders of defaulted debt securities issued under the FAA, and second, the full payment to holders of pari passu injunctions with whom theArgentine governmenthad entered into an agreement in principle on or before February 29, 2016, in accordance with the specific terms of such agreements.The U.S. district court’s order has been appealed and on April 13, 2016 was affirmed by the Second Circuit Court of Appeals. On March 31, 2016, the Argentine Central Bank, orCongress repealed the “Central Bank”) in an amount equallegislative obstacles to approximately U.S. $6.5 billion. However, asthe settlement and approved the settlement proposal. As of the date of this annual report, the Argentine Governmentgovernment has not yet cancelled such debt. Indeed, negotiations in this respect remain stagnant. If no agreementreached settlement agreements with holders of a significant portion of the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available, which could adversely affect economic growth in Argentina and Argentina’s public finances.defaulted bonds.
Certain groups of holders that did not participate in the 2005 restructuring have filed claims against Argentina and it is possible that new claims will be filed in the future. In addition, foreign shareholders of several Argentine companies have filed claims before the ICSID alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina. Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently final and unappealable, which decisions required that the Argentine Government pay U.S. $133.2 million, U.S. $165.2 million and U.S. $105 million, respectively. As of the date of this annual report, Argentina haslitigation initiated by bondholders that have not yet paidaccepted Argentina’s settlement offer continues in several jurisdictions, although the amounts referred to above.
On April 30, 2010, Argentina launched a new debt exchange to holderssize of the securities issued in the 2005 debt exchange and to holdersclaims involved has decreased significantly. The lifting of the securities that were eligibleinjunctions issued by the United States courts preventing bondholders from receiving their interest payments on the bonds issued pursuant to participate in the 2005 debt exchange (other than Brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers Argentina restructured over 91% ofand the defaulted debt eligiblerelated subsequent events paved the way for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue with legal action against Argentina for the recovery of debt, which could adversely affect Argentina’sArgentine government to regain access to the international capital markets.
Argentina’s past defaultmarkets, with an issue of U.S.$16.5 billion aggregate principal amount of 3-year, 5-year, 10-year and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets. Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine Government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. A recent example of this is the Libertad Frigate case, in which a commercial court in Accra, Ghana, granted an order (which has been overturned) to detain an Argentine ship which had entered the Accra port30-year bonds on a routine trip. In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has adopted such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.
As a result of Argentina’s defaultApril 22, 2016 and the events that have followed it, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations. Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial condition and cause the market value of our ADSs and our Class B common shares to decline.pari passu injunctions were vacated.
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Significant fluctuationsFluctuations in the value of the Argentine Peso could adversely affect the Argentine economy which could,and, in turn, adversely affect our results of operations
Fluctuations in the value of the Peso may also adversely affect the Argentine economy, our financial condition and results of operations. The devaluation of the Argentine Peso couldmay have a negative impact on the financial conditionability of many Argentine businesses including us. Such situation could negatively impact the ability ofcertain Argentine businesses to honorservice their foreign currency-denominated debt, lead to very high inflation, and, significantly reduce real wages, jeopardize the stability of businesses whose success is dependentdepends on domestic market demand including public utilities and the financial industry and adversely affect the Argentine Government’sgovernment’s ability to honor its foreign debt obligations. After several years of moderate variations in the nominal exchange rate, the Peso lost more than 30% of its value with respect to the US Dollar in each of 2013 and 2014, and in 2015, the Peso lost approximately 52% of its value with respect to the U.S. Dollar, including a depreciation of approximately 34% mainly experienced after December 17, 2015 following the announcement of the lifting of a significant portion of foreign exchange restrictions. Since the devaluation in December 2015, the Central Bank has allowed the Peso to float and limited interventions to those needed to ensure the orderly functioning of the foreign exchange market. As of April 14, 2016, the exchange rate was Ps. 14.33 to U.S.$1.00. We are unable to predict the future value of the Peso against the U.S. Dollar. If the Argentine Peso devalues significantly,further, the negative effects on the Argentine economy could have adverse consequences tofor our businesses,business, our results of operations and the market value of our ADSs, including as measured in U.S. Dollars.U.S.Dollars.
On the other hand, a substantial increase in the valuesignificant appreciation of the Argentine Peso against the U.S. Dollar also presents risks for the Argentine economy, including the possibility of a reduction in exports (as a consequence of the loss of external competitiveness). Any such increase could also have a negative effect on economic growth and employment, reduce the Argentine public sector’s revenues from tax collection in real terms, and have a material adverse effect on our business, our results of operations and the market value of our ADSs, as a result of the weakening of the Argentine economy in general.
Certain measures that may be taken by the Argentine Government intervention may adversely affect the Argentine economy and, as a result, our business and results of operations
In Novemberthe recent past, the Fernández de Kirchner administration increased its direct intervention in the economy, including through the implementation of expropriation and nationalization measures, price controls and exchangecontrols.
In response to the global economic crisis, in December 2008, the Argentine Government enacted Law No. 26,425, which provided forwas passed by the nationalization ofArgentine Congress unifying the Argentine pension and retirement system into a system publicly administered by theAdministradorasAdministración Nacional de Fondos de Jubilaciones y Pensionesla Seguridad Social (the“AFJPs” National Social Security Agency, or the “ANSES”) (See Risk Factors “The, and eliminating the pension and retirement system previously administered by private managers. In accordance with the new law, private pension managers transferred all of the assets administered by them under the pension and retirement system to the ANSES. Prior to 2009, a significantportion of the local demand for securities of Argentine companies came from Argentine private pension funds. With the nationalization of Argentina’s private pension funds, caused an adverse effect in the Argentine capital markets and increasedgovernment, through the Argentine Government’s interest in certain stock exchange listed companies, such that the Argentine GovernmentANSES, became a significant shareholder in many of the country’s public companies. In April 2011, the Argentine government lifted certain restrictions pursuant to which ANSES had been prevented from exercising more than 5% of its voting rights in any stock exchange listed company (regardless of the equity interest held by ANSES in such companies). ANSES has since exercised its voting rights in excess of such companies”5% limit in order to appoint directors in different stock exchange listed companies. ANSES’s interests may differ from or conflict with those of the other investors in such companies. In addition, in September 2015, Law No. 27,181 was enacted, which prohibits the sale of shares in Argentine public companies held by the Argentine government or any other action that limits, alters or modifies the use, ownership or nature of such shares, without the prior authorization of Congress.Additionally, Law No. 27,181 created the National Government Equity Holdings Agency (Agencia Nacional de Participaciones Estatales en Empresas)., a decentralized agency operating under the scope of the Argentine Executive Branch, which 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.More recently, beginningAs of the date of this annual report, ANSES owns shares representing 26.8% of our capital stock, and also owns shares of capital stock of our affiliates, Pampa Energía and Transener.
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Beginning in April 2012, the Argentine GovernmentFernández de Kirchner administration provided for the nationalization of YPF S.A. and imposed major changes to the system underlegal framework in which oil companies operate, principally through the enactment of Law No. 26,741 and Decree No. 1277/1,277/2012.In February 2014, theFernández de Kirchner administration and Repsol announced that they had reached agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation amounted to U.S.$5.0 billion, payable by delivery of Argentinesovereign bonds with various maturities. Additionally, on December 19, 2012, the Argentine Government Fernández de Kirchner administrationissued Decree No. 2552/2,552/2012, pursuant to which in its article 2,it ordered the expropriation of the “PredioPredio Rural de Palermo”Palermo. However, on January 4, 2013, the Federal Civil and Commercial Chamber granted an injunction that has temporarily blocked the applicationenforcement of Decree No. 2552/2,552/2012. WeAlthough the decision was appealed by the Argentine government, the Supreme Court of Justice rejected such appeal and confirmed the Federal Civil and Commercial Chamber’s injunction subject to a decision on the merits.
Notwithstanding the measures recently adopted by the Macri administration, we cannot assure you that these or other measures that may be adopted by the current or any future Argentine Governmentgovernment, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade investment, etc,and investments will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations andor cause the market value of our ADSs and Class B common shares and ADSs.to decline.
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ExchangeThe implementation in the future of new exchange controls and restrictions on capital inflows and outflows may continue tocould limit the availability of international credit and could threaten the financial system, and lead to renewed political and social tensions, adversely affecting the Argentine economy and, as a result, our business.business
InDuring 2001 and the first half of 2002, Argentina imposedexperienced a mass withdrawal of deposits from the financial system as a result of a lack of confidence in the Argentine government’s ability to repay its debt and sustain the parity between the Peso and the U.S. Dollar. This caused a liquidity crisis in the Argentine financial system, which led the Argentine government to impose exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. After 2002, these restrictions, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad to pay principal and interest on debt obligations, were substantially eased through 2007. Since the last quarter of 2011, however, regulations were issued making foreign exchange transactions subject to the prior approval of the Argentine tax authorities. Through a combination of foreign exchange and tax regulations, the Argentine authorities have significantly curtailed access to foreign exchange by individuals and private sector entities.
Since the enhancement of exchange controls began in late 2011, and upon the introduction of measures that have practically closed the foreign exchange market to retail transactions, it is widely reported that the peso/U.S. dollar exchange rate in the unofficial market substantially differs from the official foreign exchange rate. See “Exchange Rates” and “Item 10. Exchange Controls.” In addition to the foreign exchange restrictions applicable to outflows, in June 2005 the Argentine Governmentgovernment adopted various rules and regulations that established new restrictive controls on capital inflows into the country,Argentina, including a requirement that, for certain funds remitted into Argentina, an amount equal to 30% of the funds must be deposited into an account with a local financial institution as a U.S. Dollar deposit for a one-year period without any accrual of interest, benefit or other use as collateral for any transaction.
Through a combination of foreign exchange and tax regulations from 2011 until President Macri assumed office in 2015, theFernández de Kirchner administration significantly curtailed access to the foreign exchange market by individuals and private-sector entities. In addition, during the last few years under the Fernández de Kirchner administration, the Central Bank exercised ade factoprior approvalpower for certain foreign exchange transactions otherwise authorized to be carried out under applicable regulations, such as dividend payments or repayment of principal of inter-company loans as well as the import of goods, by means of regulating the amount of foreign currency available to financial institutions to conduct such transactions. The Argentine Government could impose newnumber of exchange controls or restrictions onintroduced in the movementpast and in particular after 2011 during the Fernández de Kirchner administration gave rise to an unofficial U.S. Dollar trading market. The Peso/U.S. Dollar exchange rate in such market substantially differed from the official Peso/U.S. Dollar exchange rate. See “Item 3—Key Information—Exchange Rates” and “Item 10—Exchange Controls.”
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Additionally, the level of capitalinternational reserves deposited with the Central Bank significantly decreased from US$47.4 billion as of November 1, 2011 to US$25.6 billion as of December 31, 2015, resulting in a reduced capacity of the Argentine government to intervene in the foreign exchange market and take otherto provide access to such markets to private sector entities like us. The Macri administration recently announced a program intended to increase the level of international reserves deposited with the Central Bank through the execution of certain agreements with several foreign entities. As a result of the measures that could limit our ability to accesstaken under such program, the international capital markets and impair our abilityreserves increased to make interest or principal payments abroad or payments. Argentina may re-impose exchange controls, transfer restrictions or otherUS$30.0 billion as of January 30, 2016.
Notwithstanding the measures recently adopted by the Macri administration, in the future in response to capital flight or a significant depreciation of the Peso.
The Argentine Governmentgovernment could impose further exchangecontrols, transfer restrictions or restrictions on the movement of capital and/or take other measures in response to capital flight or a significant depreciation of the Peso, which could limit our ability to access the international capital markets and impair our ability to make interest, principal or dividend payments abroad. Such measures could lead to renewed political and social tensions and undermine the Argentine Government’sgovernment’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth which, in turn, couldand, consequently, adversely affect our business and results of operations and cause the market value of our ADSs and Class B common shares and ADSs. In addition, the Argentine Government or the Central Bank may reenact certain restrictions on the transfers of funds abroad, impairing our ability to make dividend payments to holders of the ADSs, which may adversely affect the market value of our ADSs.decline. As of the date of this annual report, however, the transfer of funds abroad to pay dividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting. Notwithstanding the foregoing, asmeeting of the dateCompany.
The actions taken by the Fernández de Kirchner administration to reduce imports may adversely affect our ability to access capital goods that are necessary for our operations
In 2012, the Argentine government adopted an import procedure pursuant to which local authorities must pre-approve any import of this annual report, in light of applicable regulationsproducts and services to Argentina as a precondition to allowing importers access to the financial situation of the Company does not permitforeign exchange market for the payment of dividends.such imported products and services. In 2012, the European Union, the United States of America and Japan filed claims with the World Trade Organization (“WTO”) against certain import-related requirements maintained by Argentina. Recently, the WTO found that those measures are not consistent with Argentina’s obligations under the WTO and requested removal. On December 22, 2015, through Resolution No. 3,823, AFIP removed the import authorization system in place since 2012 denominated Affidavit Advance Import (“DJAI”) and replaced it with the new Comprehensive Import Monitoring System (“SIMI”). Among other changes, local authorities must now reply to any request for approval within a ten-day period from the date in which the request is filed.
The nationalization of Argentina’s private pension funds caused an adverse effect in the Argentine capital markets and increased the Argentine Government’s interest in certain stock exchange, suchWe cannot assure that the Argentine Government became a significant shareholdergovernment will not modify current export tax rates and import regulations. We cannot predict the impact that any changes may have on our results of such companiesoperations and financial condition.
Application of certain laws and regulations is uncertain and could adversely affect our results of operations and financial condition.
Law No. 26,854, which regulates injunctions in cases in which the Argentine 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. Among the principal changes implemented pursuant to the judicial reform bill is a time limitation on injunctions imposed in proceedings brought against the Argentine government and the creation of three new chambers ofCasación, each of which must hear an appeal before the matter is considered bythe Supreme Court of Justice of Argentina. In recent years a significant portionaddition, Law No. 26,855, which became effective on May 27, 2013, modified the structure and functions of the local demand for securities of Argentine companies came from the Argentine private pension funds. In response to the global economic crisis, in December 2008, by means of Argentine Law No. 26,425, the Argentine Congress unified the Argentine pension and retirement system into asystem publicly administered by theAdministración NacionalConsejo de la Seguridad SocialMagistratura(judicial council), which has the National Social Security Agency, or “ANSES”), eliminating the pension and retirement system previously administered by private managers. In accordance with the new law, private pension managers transferred all of the assets administered by them under the pension and retirement system to the ANSES. With the nationalization of Argentina’s private pension funds, the Argentine Government became a significant shareholder in many of the country’s public companies. In April 2011, the Argentine Government lifted certain restrictions pursuant to which ANSES was prevented from exercising more than 5% of its voting rights in any stock exchange listed company (regardless of the equity interest held by ANSES in such companies). ANSES has publicly stated that it intends to exercise its voting rights in excess of such 5% limit in orderauthority to appoint directors in different stock exchange listed companies in which it holds an interest exceeding 5%. ANSES’ interests may differ from those of other investors,judges, present charges against them and consequently, those investors may understand thatANSES’ actions might have an adverse effect on such companies.suspend or remove them. As of the date of this annual report ANSES, owns shares representing 20.96%several aspects of the capital stock of our subsidiary Emdersa and 26.8% of the capital stock of Edenor.
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The Argentine Government has stated its intention to exert a stronger influence on the operation of stock exchange listed companies. We cannot assure you that these or other similar actions takenthis legislation have been struck down as unconstitutional by the Argentine Supreme Court.
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On August 7, 2014, Law No. 26,944 on State Responsibility was enacted to regulate government actions. Said law governs the responsibility of the Argentine government regarding the damages that its activity or inactivity may cause to individuals’ properties or rights. Such law establishes that the Argentine government’s responsibility is objective and direct, that the provisions of the civil and commercial codes are not applicable to the actions of the Argentine government in a direct nor subsidiary manner and that dissuasive financial penalties may be imposed on the Argentine Government, will notits agents or officers.
On September 18, 2014, the Argentine Congress enacted Law No. 26,991 amending Law No. 20,680 (the “Supply Law”), which became effective on September 28, 2014, to increase control over the supply of goods and provision of services. Such initiative includes the ability of the Argentine government to regulate consumer rights under Article 42 of the Constitution and permits the creation of an authority to maintain the prices of goods and services (the “Observer of Prices of Goods and Services”). The Supply Law, as amended: (i) requires the continued production of goods to meet basic requirements; (ii) creates an obligation to publish prices of goods and services produced and borrowed; (iii) allows financial information to be requested and seized; and (iv) increases fines for judicial and fiscal persons. The reforms and creation of the Observer of Prices of Goods and Services could adversely affect our operations. An initiative to regulate questions of consumer rights was also approved, creating the Conciliación Previa en las Relaciones de Consumo (Prior Conciliatory Procedures For Consumer Relations, or the “COPREC”), where users and consumers may present claims free of charge and have them resolved within 30 days.
The Supply Law applies to all economic processes linked to goods, facilities and services which, either directly or indirectly, satisfy basic consumer needs (“Basic Needs Goods”) and grants a broad range of powers to its enforcing agency. It also grants the enforcing agency the power to order the sale, production, distribution or delivery of Basic Needs Goods throughout the country in case of a shortage of supply.
On October 1, 2014, the Argentine Congress approved the reform, update and unification of the National Civil and Commercial codes. A single new National Civil and Commercial Code became effective on August 1, 2015. The consequences of the reform and its subsequent judicial application cannot be predicted.
The long-term impact of recently adopted legislation on Argentina’s legal system and future administrative or judicial proceedings, including potential future claims by us against the Argentine government, cannot be predicted.
A global or regional financial crisis and unfavorable credit and market conditions may negatively affect our liquidity, business and results of operations
The effects of a global or regional credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina. Such was the case in 2008, when the global economic crisis led to a sudden economic decline in Argentina in 2009, accompanied by inflationary pressures, depreciation of the Peso and a drop in consumer and investor confidence.
The effect of the economic crisis on our customers and on us cannot be predicted. Weak global and local economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues. Economic factors such as unemployment, inflation and the availability of credit could also have a material adverse effect on demand for energy and, therefore, on our financial condition and operating results. Weak global and local economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues. The financial and economic situation in Argentina or other countries in Latin America, such as Brazil, may also have a negative impact on us and third parties with whom we do, or may do, business.
In addition, the global economic crisis that began in the fourth quarter of 2008, triggering an international stock market crash and the insolvency of major financial institutions, limited the ability of Argentine companies to access international financial markets as they had in the past or made such access significantly more costly for Argentine issuers. A similar global or regional financial crisis in the future could limit our ability to access credit or capital markets at a time when we require financing, thereby impairing our flexibility to react to changing economic and business conditions (see “Argentina’s ability to obtain financing from international markets is limited, in part due to the unresolved litigation withholdout bondholders, which may impair its ability to foster economic growth and, consequently, affect our business, results of operations and prospects for growth” above). For these reasons, any of the foregoing factors could together or independently have an adverse effect on the Argentine economyour results of operations and consequently on our financial condition and resultscause the market value of operations.our ADSs and Class B common shares to decline.
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The Argentine economy could be adversely affected by economic developments in other markets and by more general “contagion” effects
Argentine financial and securities markets are influenced, to varying degrees, by economic and financial conditions in other markets. Argentina’s economy remainsis vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008 and the recent uncertainties surrounding European sovereign debt. For example,economic and financial conditions of Argentina’s major trading partners, in particular, Brazil. Specifically, the recent challenges faced bycurrent devaluation of the European Union to stabilize certainBrazilian currency and the slowdown of its member economies, such as Greece, Ireland, Italy, Portugal and Spain, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide. Should measures taken by the European Union be insufficient to restore confidence and stability to the financial markets, any recovery of the global economy including the U.S. and European Union economies, could be hindered or reversed, which couldmay negatively affect the Argentine economy, and in turn, our business and results of operations. Although economic conditions can vary from country to country, investors’ perception of the events occurring in other countries have in the past substantially affected, and may continue to substantially affect capital flows to other countries and the value ofinvestments in securities in other countries, including Argentina. The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.
In addition, 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,investors. Argentina could be adversely affected by negative economic or financial developments in other countries, which, in turn, may have material adverse effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations, and the market value of our ADSs.
Argentina’s economy is vulnerable to external shocks that could be caused by significant economic difficultiesThe designation of its major regional trading partners.
Argentina’s economy is vulnerable to adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners, such as Brazil, China or the United States, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. Recent economic slowdowns, especially in Brazil and China, have led to declines inArgentine exports. Declining demand for Argentine exports, or a decline in the international market prices for those products, could have a material adverse effect on Argentina’s economic growth.
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The actions takenveedores (supervisors) by the Argentine Government to reduce imports may affect our ability to purchase significant capital goods.
The Argentine Government has recently adopted some initiatives designed to limit the import of goods in order to prevent further deterioration of the Argentine balance of trade. The restriction of imports may limit our ability to purchase capital goods that are necessary for our operations, which may, in turn,CNV or other regulator could adversely affect our business, financial condition and results of operations.operations
The Capital Markets Law No. 26,831 provides that the CNV may inspect any entity subject to its oversight (such as the Company, its controlling shareholder or any of its affiliates subject to CNV oversight). If after any inspection the CNV determines that a resolution of the board of directors of such entity violated the interests of its minority shareholders or any holder of its securities subject to the Argentine public offering regime, it may appoint aveedor (supervisor) with veto powers. The CNV is additionally empowered to suspend a board of directors for a period of up to 180 days, subject to limited appeals and, alternatively, a veedor may be appointed through a judicial request. Any determination by the CNV or any Argentine court that the right of our minority shareholders or holders of our securities issued in Argentina has been violated could result in the direct intervention of the CNV, including the potential suspension of our board of directors for up to 180 days, and, consequently, have an adverse effect on our business, financial condition and results of operations. In this respect, on April 21, 2014, Molinos Rio de la Plata S.A., an Argentine company whose shares are publicly-traded in Argentina, reported the judicial appointment of aveedor at the request of ANSES, one of its shareholders, for a period of six months. We cannot assure you that the CNV, or any other party, will not attempt to pursue a similar course of action with respect to the Company (or to its controlling shareholder), which may have a negative effect on the Company.
Risks Relating to the Electricity Distribution Sector
The Argentine Governmentgovernment has intervened in the electricity sector in the past, and is likely to continue intervening
To address the Argentine economic crisis inof 2001 and 2002, the Argentine Governmentgovernment adopted the Public Emergency Law and other regulations, which made a number of material changes to the regulatory framework applicable to the electricity sector. These changes severely affected electricity generation, distribution and transmission companies and included the freezing of distribution nominal margins, the revocation of adjustment and inflation indexation mechanisms offor tariffs, a limitation on the ability of electricity distribution companies to pass on to the consumer increases in costs due to regulatory charges and the introduction of a new price-setting mechanism in the wholesale electricity market (the “WEM”) which had a significant impact on electricity generators and generatedcaused substantial price differences within the market. The Argentine Government continuesgovernment has continued to intervene in this sector including by, for example, granting temporary nominal margin increases, proposing a new social tariff regime for residents of poverty-strickenofpoverty-stricken areas, removing discretionary subsidies,creating specific charges to raise funds that are transferred to government-managed trust funds that finance investments in generation and distribution infrastructure and mandating investments for the construction of new generation plants and the expansion of existing transmission and distribution networks.
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Furthermore, on November 15, 2011, Note No. 8,752 of the Secretariat of Energy issued Note 8752, whichSE provided that any approval by the provincial governments of increases to the electricity tariffs applicable to end-users as of November 1, 2011 will trigger a proportionate decrease in the federal subsidy available to that end-user in connection with the purchase of electricity. Since the issuance of Note 8752,8,752, certain provincial governments have initiated legal proceedings to challenge the jurisdiction of the Secretariat of EnergySE to issue Note 8752,8,752, particularly because of the potential chilling effect that this regulation may have on the ability of the provincial governments to increase electricity tariffs. These proceedings have not been resolved as of the date of this annual report. In addition to the foregoing, several provincial governments have recently enacted new regulations in order to charge electricity end-users amounts corresponding to the cuts in the federal subsidy.
On November 27, 2012, Resolution No. 2,016/12 of the Secretariat of Energy issued Resolution 2016, whichSE approved the seasonal WEM prices – subsidized and not subsidized − for the period offrom November 2012 through April 2013. The Subsidizes WEM Seasonal Reference Priceseasonal price format was established at Ps. 320 per MWh. Each local authority is to definemodified, concluding in a single purchase price without considering any demand nor time segmentation and taking into account the localstructure of the demand as of October 2012 as the base. Subsequently, in June 2013, the SE adopted Resolution 408/13, which maintains both the single price and the criteria for raising subsidies during the winter season, with a reduction of the single price only for those months and a subsequent reversion of prices to be included in the local distributor’s tariff.
October 2013. The Argentine Governmentgovernment has also announced an analysis of new measures that would change the current regulatory framework of the energy sector. On March 26, 2013, the Secretariat of Energy issued Resolution 95 whichof the SE introduced a new scheme for the remuneration for the electricity generation sector and several modifications to the organization of the WEM, including the suspension of the administration of new contracts, or the renewal of existing contracts, in the term market of the WEM.The price scheme established by Resolution No. 95/2013 of the SE was amended by Resolution No. 529/2014 of the SE, which provided for the modification of the methodology for calculation of the fixed costs remuneration, the implementation of a new remuneration to cover extraordinary maintenance works for thermal generators and the retroactive adjustment of prices as from February 2014.
WeOn December 16, 2015, the Macri administration declared a state of emergency with respect to the national electricity system that will remain in effect until December 31, 2017. The state of emergency allows the Argentine government to take actions designed to guarantee the supply of electricity in Argentina such as instructing the Ministry of Energy to elaborate and implement, with the cooperation of all federal public entities, a coordinated program to guarantee the quality and security of the electricity system and rationalize public entities’ consumption of energy.
On February 3, 2016, Resolution No. 22/16 of the Ministry of Energy established adjustments to the remuneration of generators to support the operation and maintenance of the generation plants until the regulatory measures currently under review by the Argentine government are enacted and the operation of the WEM is normalized.
On January 25, 2016, the Ministry of Energy issued Resolution No. 6, approving the seasonal WEM prices for each category of users for the period from February 2016 through April 2016. Such resolution adjusted the seasonal prices as required by the regulatory framework. Energy prices in the spot market were set by CAMMESA which determined the price to be charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis. The WEM prices resulted in the elimination of certain energy subsidies and a substantial increase in electricity rates for individuals.
Notwithstanding the recent measures adopted by the Macri administration, we cannot assure you that these or othercertain measures that may be adopted by the Argentine Governmentgovernment will not have a material adverse effect on our business and results of operations or on the market value of our shares and ADSs or that the Argentine Governmentgovernment will not adopt emergency legislation similar to the Public Emergency Law or other similar resolutions in the future that may further increase our regulatory obligations, including increased taxes, unfavorable alterations to our tariff structures and other regulatory obligations, compliance with which wouldincrease our costs and may have a direct negative impact on our results of operations and cause the market value of our ADSs and Class B common shares to decline. See “Item 4. Information on the Company—Our Business Overview—Edenor Concession.”
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Electricity distributors were severely affected by the emergency measures adopted during the economiccrisis, many of which remain in effect
Distribution tariffs include a regulated margin that is intended to cover the costs of distribution and provide an adequate return over the distributor’s asset base. Under the ConvertibilityRegime,, distribution tariffs were calculated in U.S. Dollars and distribution margins were adjusted periodically to reflecttoreflect variations in U.S. inflation indexes. Pursuant to the Public Emergency Law, in January 2002 the Argentine government froze all distribution margins, revoked all margin adjustment provisions in distribution concessionsconcession agreements and converted distribution tariffs into Pesos at a rate of Ps. 1.00 per U.S.$ 1.00. These measures, coupled with the effect of high inflation and the devaluation of the Peso, led to a decline in distribution revenues in real terms and an increase of distribution costs in real terms, which could no longer be recoveredpassed on to users through adjustments to the distribution margin. This situation, in turn, led many public utility companies, including us and other important distribution companies, to suspend payments on their financial debt (which continued to be denominated in U.S. Dollars despite the pesification of revenues), effectively preventing these companies from obtaining further financing in the domestic or international credit markets and making additional investments. Although
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In recent years, the Argentine Governmentgovernment has granted temporary and partial relief to some distribution companies, including a limited increase in distribution margins, a temporary cost adjustment mechanism which was not fully implemented and the ability to apply certain additional charges to customers. As of the date of this annual report, the Macri administration has been engaged in negotiations with distribution companies, are currently involved in discussions withincluding us, to reestablish the regulatoryeconomic and government authorities on additional, permanent measures needed to adaptfinancial equation of the current tariff scheme to the post-crisis situation of this sector.concession agreements. We cannot assureguarantee you that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for us by the economic crisis and its aftermath. If we become unableOur inability to cover the costs of distribution or if we do notto receive an adequate return on our asset base may further adversely affect our financial condition and results of operations may be adversely affected.operations.
Electricity demand may be affected by tariff increases, which could lead distribution companies, such as us, to record lower revenues
During the 2001 and 2002 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumerscustomers to pay their electricity bills. In the years following the 2001 and 2002 economic crisis electricity demand experienced significant growth, increasing asby an estimated average of approximately 5.0%6.0% per annum from 2003 through 2012.2015. This increase in electricity demand since 2003, reflects the relative low cost, in real terms, of electricity to consumerscustomers due to the freezing of distribution margins, the establishment of subsidies in the purchase price of energy and the elimination of the inflation adjustment provisions in distribution concessions, coupled with the devaluation of the Peso and inflation. The Executive Branch of the Argentine Government granted temporary increases in transmission and distribution margins, and transmissionTransmission and distribution companies are currently negotiating further increases and adjustments to their tariff schemes with the Argentine Government.government. Although the increases in electricity transmission and distribution margins, and the elimination of some subsidies, which increased the cost of electricity to residential customers,end users, have not had a significant negative effect on demand in the past, we cannot make any assurances that these increases or any future increases in the relative cost of electricity will not have a material adverse effect on electricity demand or result in a decline in collections from customers. Further, in November 2011, the Argentine Government announced a cut in subsidies (which had no impact on our value added for distribution (“VAD”)) for electricity granted to certain customers that are presumed to be in a position to afford the cost without such subsidies. In this respect, we cannot assure you that these measures or any future measures (including increases on tariffs for residential users)tariff increase will not lead electricity utility companies, like us, to record lower revenues and results of operations, than currently anticipated, which may, in turn, have a material adverse effect on the market value of our ADSs.
If we experience continued energy shortages in the face of growing demand for electricity, our ability to deliver electricity to our customers could be adversely affected, which could result in customer claims, material penalties, government intervention and decreased results of operations
In recent years, the condition of the Argentine electricity market has provided little incentive to generators and distributors to further invest in increasing their generation and distribution capacity, respectively, which would require material long-term financialcommitments. As a result, the Argentine electricity generators aremarket is currently operating at near full capacity and both generators and distributors may not be able to guarantee thean increased supply of electricity to distribution companies, such as us,their customers, which in turn, could limit the ability of these companies, including us, to provide electricity to customers, and could lead to a decline in the growth of such companies. During December 2013, an increase in demand for electricity resulted in energy shortages and blackouts in Buenos Aires and other cities around Argentina. Under Argentine law, distribution companies, such as us, are responsible to their customers for any disruption in the supply of electricity. As a result, we could face customer claims and fines and penalties for service disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages constituteforce majeure. To date, the Argentine authorities have not been called upon to decide under which conditions energy shortages may constituteforce majeure. In the past, however, the Argentine authorities have taken a restrictive view offorce majeure and have recognized the existence offorce majeure only in limited circumstances, such as internal malfunctions at the customer’s facilities, extraordinary meteorological events (such as major storms) and third-party work in public thoroughfares. As a result, weAdditionally, disruptions in the supply of electricity could face customer claims and fines and penalties for service disruptions causedexpose us to intervention by energy shortages unless the relevant Argentine authorities determine that energy shortages constituteforce majeure,Argentinegovernment, which warned of such possibility during the blackouts of December 2013. Such claims, fines, and penalties or government intervention could have a materially adverse effect on our financial condition and results of operations, and cause the market value of our ADSs and Class B common shares to decline. See also “—A potential nationalization or expropriation of 51% of our capital stock, represented by the Class A shares, may limit the capacity of the Class B common shares to participate in the board of directors.”
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Risks Relating to Our Business
Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tarifftariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.
We are currently engaged in RTI with the ENRE, as required bySince execution of the agreement entered into with the Argentine government in February 2006 relating to the adjustment and renegotiation of the terms of our concession (the “Adjustment Agreement”). and as required by them, we have been engaged in an RTI with the ENRE. However, the timeline for completing this process and the favorability to us of the final resolution are both uncertain. Resolution No. 7/16 issued on January 2016 by the Ministry of Energy established a new deadline for the completion of the RTI process at the end of 2016.
The Adjustment Agreement currently contemplates a cost adjustment mechanism for the transition period during which the RTI is being conducted. This mechanism, known as the Cost Monitoring Mechanism (CMM)(“CMM”), requires the ENRE to review our actual distribution costs every six months (in May and November of each year) and adjust our distribution margins to reflect variations of 5% or more in our distribution cost base. We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more. Any adjustments, however, are subject to the ENRE’s assessment of variations in our costs, and we cannot guarantee that the ENRE will approveENRE’s approval of adjustments that arehave not been sufficient to cover our actual incremental costs.costs in a timely manner. In the past, even when the ENRE has approved adjustments to our tariffs, there has been a lag between the time when we actually experienceexperienced increases in our distribution costs and the time when we receivereceived increased revenuesincome following the corresponding adjustments to our distribution margins pursuant to the CMM. In addition, we have estimated that the actual distribution costs have been significantly higher than the ones determined with the CMM adjustments that have been requested. Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot assure you that we will receive similar adjustments in the future. As of the date of this annual report we have requested ten additional increases under the CMM beginning in May 2008, which increases are still being reviewed by the ENRE (other than the request submitted in May 2008). Under the terms of the Adjustment Agreement, these ten increases should have been approved in May 2008, November 2008, May 2009, November 2009, May 2010, November 2010, May 2011, November 2011, May 2012 and November 2012.
During the years ended December 31, 2012 and 2011, we recorded a significant decrease in net income and operating income (recording an operating loss in 2012), and our working capital and liquidity levels were negatively affected, primarily as a result of the delay in obtaining a tariff increase and in having our tariff adjusted to reflect increases in our distribution costs, coupled with a constant increase in operating costs to maintain adequate service levels all of which has affected our capacity to perform our commercial obligations. In this context and in light of the situation that affectsaffected the electricity sector, the ENRE issued Resolution No. 347/12 in November 2012, which establishesestablished the application of fixed and variable charges that have allowed the Company to obtain additional revenue as from November 2012.2012 through 2016. However, suchResolution No. 250/13 and Notes No. 6,852/13, No. 4,012/14, No. 486/14 and No. 1,136/14 of the SE and additional revenue isobtained through Resolution No. 347/12 were insufficient to make up our operating deficit in 2014, due to the constant increase in operating costs.
In March 2015, Resolution No. 32/15 of the SE granted us a temporary increase in income through funds provided by CAMMESA, applicable retroactively as from February 1, 2015, to cover costs and investments associated with the estimated salary or third-party costs increases forregular provision of the year 2013.public service of distribution of energy on account of the future RTI.
IfIn January 2016, the Ministry of Energy issued Resolution No. 7/16, pursuant to which the ENRE implemented a VAD adjustment to the tariff schedule on account of the future RTI in effect as of February 1, 2016, and is expected to take all necessary action to conclude the RTI process by December 31, 2016.
In addition, such resolution: (i) abrogated the PUREE; (ii) repealed Resolution No. 32/2015 as from the date the ENRE resolution implementing the new tariff schedule becomes effective; (iii) discontinued the application of mechanisms that imply the transfer of funds from CAMMESA in the form of loan agreements with CAMMESA; and (iv) ordered the implementation of the actions required to terminate the trusts created pursuant to Resolution No. 347/2012 of the ENRE.
Pursuant to Resolution No. 7/16, the ENRE issued Resolution No. 1/16 establishing a new tariff structure. However, if we are not able to recover all of the incremental costs contemplated by the increase requests pursuant tothe CMM and all such future cost increases, and/or if there is a significant lag of time between when we incur the incremental costs and when we receive increased revenues,income, and/or iforif we are not successful in achieving a satisfactory renegotiation of our tariff structure, we may be unable to comply with our financial obligations, we may suffer liquidity shortfalls and we may need to restructure our debt to ease our financial condition, any of which, individually or in the aggregate, would have a material adverse effect on our business and results of operations and may cause the value of our ADSs to decline. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.
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We have prepared our annual financial statements for the fiscal year ended December 31, 2012 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated April 30, 2013, on our Consolidated Financial Statements as of and for the years ended December 31, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. As discussed in Note 1 to our Consolidated Financial Statements, the delays in obtaining tariff increases and the cost adjustments recognition requested by the Company in accordance with the terms of the Adjustment Agreement, together with the continuous increase in operating expenses that are necessary to maintain the level of service, significantly affected the economic and financial position of the Company and have raised substantial doubt with respect to our ability to continue as a going concern. Management's plans in response to these matters are also described in Note 1. However, our financial statements as of and for the year ended December 31, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty. See Item 18: “Financial Statements.”
The goal of the RTI is to achieve a comprehensive revision of our tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our cost base, to provide us with an adequate return on our asset base. Although we believe the RTI will result in a new tariff structure, we cannot assure you that the RTI will conclude in a timely manner or at all, or that the new tariff structure will effectively cover all of our costs or provide us with an adequate return on our asset base. Moreover, the RTI 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 on our operations.
Our inability to obtain tariff adjustments in line with the actual changes in costs could result in our inability to meet our trade obligations and could also have a material adverse effect on our ability to meet our financial obligations
Although Resolution No. 7/16 of the Ministry of Energy and Resolution No. 1/16 of the ENRE established a new tariff scheme pursuant to the terms of the Adjustment Agreement and on account of the future RTI, it did not include any adjustment method to reflect future variations in costs. If inflation levels during 2016 continue the trend of 2015, the increase in tariffs provided by Resolution No. 1/16 of the ENRE may prove insufficient to support the real variation in costs.
Our inability to obtain tariff adjustments in line with future changes in costs could result in our inability to meet obligations vis-a-vis CAMMESA, our major supplier, and have a material adverse effect on our ability to meet our financial obligations as a result of a shortage in liquidity, which may result in the need to restructure our debt and may have a material adverse effect on our business and results of operations and could also adversely impact on our financial condition and the market value of the ADSs. Further, if we were unable to obtain such tariff adjustments, wecannot assure that CAMMESA or any other governmental entity will provide us the financing or that any future financing would be available in favorable terms, which may seriously impair our ability to continue providing the service.
Our distribution tariffs may be subject to challengechallenges by Argentine consumer and other groups
In November 2006, twothe recent years, our tariffs have been challenged by Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria,such as the action brought an action againstagain us and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. In March 2007, the federal administrative court dismissed these claims and ruled in our favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered this action moot. The ACIJ appealed this decision in April 2007, and the appeal was decided in our favor. However, in April 2008, the ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement, to which we timely replied. In addition, in 2008, thedefensor del pueblo (Public Ombudsman) filed a claim opposing the resolutions establishing the tariff schedule, effective as of October 1, 2008, and naming us as defendant. On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim. This injunction has been appealed by us and the Argentine government, the resolution of which is still pending as of the date of this annual report.
In addition, in December 2009, anotherby an Argentine consumer association (Unión de Usuarios y Consumidores, brought an action against us and the Argentine government) seeking to annul certain retroactive tariff increases. In November 2010, the relevant administrative court upheld the claim. We appealed the court’s order and requested that it be stayed pending a decision on the appeal. In December 2010, the court stayed its order pending a decision on the appeal. On June 1, 2011, the Administrative Court of Appeals (Cá(Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal –Sala V)V) overturned the judgment of the lower administrative court. TheUnión de Usuarios y Consumidores filed an extraordinary federal appeala Federal Extraordinary Appeal (“Recurso Extraordinario Federal”Federal”) against such decision, which was granted on March 11, 2011. The proceedings have been taken toOn October 1, 2013, the Supreme Court of Justice.
Justice decided to dismiss the Federal Extraordinary Appeal that had been filed. A final judgment in our favor was therefore rendered.
We
In February 2016, we adjusted our tariffs again, and as of the date of this annual report, there had not been any challenges thereto, but we cannot make assurances regarding how these complaints will be resolved nor can we make assurances that otherany actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our distribution tariffs. If these legal challenges arewere successful and preventprevented us from implementing tariff adjustments granted by the Argentine government, we could face a decline in collections from our customers, and a decline in our results of operations, which may have a material adverse effect onin our financial condition and the market value of our ADSs.
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We have been, and may continue to be, subject to fines and penalties that could have a material adverse effect on our financial condition and results of operations, in particular as a result of a recent measure adopted by the ENRE
We operate in a highly regulated environment and have been, and in the future may continue to be, subject to significant fines and penalties by regulatory authorities, including for reasons outside our control, such as service disruptions attributable to problems at generation facilities or in the transmission network that result in a lack of electricity supply. AfterSince 2001, the amount of fines and penalties imposed on our company has increased significantly, which we believe is mainly duesignificantly. As of December 31, 2015, 2014 and 2013, our accrued fines and penalties totaled Ps.1,253.1 million (including Ps.186.3 million under the ENRE settlement (See “Item 4. Information on the Company—Our Business Overview—Fines and Penalties.”)), Ps. 1,102.8 million and Ps. 923.8 million, respectively (taking into account adjustments made to the economicfines and political environment in Argentinapenalties following the 2001 and 2002 economic crisis. ratification of the Adjustment Agreement).
Although the Argentine government has agreed to forgivewaive a significant portion of our accrued fines and penalties pursuant to the Adjustment Agreement and to allow us to repay the remaining balance over time, this forgivenesswaiver and repayment plan is subject to a number of conditions, including compliance with quality of servicequality-of-service standards, reporting obligations and required capital investments. As of December 31, 2012, December 31, 2011 and January 1, 2011, our consolidated accrued fines and penalties totaled Ps. 662.0 million, Ps. 542.2 million and Ps. 455.4 million, respectively (taking into account our adjustment to fines and penalties following the ratification of the Adjustment Agreement). If we fail to comply with any of these conditions, the Argentine government may seek to obtain payment of these fines and penalties by us.
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On April 15, 2016, the ENRE issued Note No. 120,151(the “Note”) establishing that all fines and penalties imposed by the ENRE after April 15, 2016 (whether with respect to events occurring on or after such date or events occurring prior to the date thereof but for which fines or penalties had not been imposed on us by such date that include a reference to “the Note” must be valued according to the KWh values in effect as of the last date of the semester or period during which the event giving rise to the penalty occurred, including any increases or adjustments applicable to our company. “remuneration” at such date. In addition, the Note provides that fines and penalties that fall within the purview of the Note are to accrue interest from last day of the semester on which the event giving rise to the penalty occurred until the date they are paid by us. As of the date of this annual report, it is unclear how the ENRE will consider that the fines and penalties not yet imposed on us relating to events that occurred prior to April 15, 2016 should be valued as per our “remuneration” and we have therefore calculated the amount of such fines and penalties according to our interpretation of the Note. Regarding this, we believe that the term “remuneration” should be interpreted to mean those amounts effectively paid by the users through the tariff.
As of the date of this annual report, fines and penalties in an aggregate amount equal to Ps. 757.2 million are subject to the Note. We believe that such amount as adjusted to reflect accrued interest according to the Note would increase by Ps. 129.0 million. If the ENRE interprets that the term “remuneration” includes all amounts received by us in the form, or in lieu, of subsidies, such amount could be significantly higher (in a range of three to five times higher).
In addition, based on recent verbal exchanges with certain officials, the new administration believes that fines and penalties already imposed on us (but not yet paid) should also bear interest until the time of payment or waiver thereof. If interest over such penalties was to be payable by us (which we believe should not be the case), our results of operations could be materially and adversely affected.
In our opinion, any adjustments to our fines and penalties (whether by virtue of the Note or otherwise, and including the accrual of interest as provided in the Note) should not be applicable to us because the delay in imposing such fines and penalties was caused by the Argentine government and was not within our control. Additionally, if any such adjustments are made applicable to us, we believe the Argentine government would be binding us to the terms of the Adjustment Agreement without taking into account that it has not recognized certain of our rights thereunder, such as our right to have tariffs adjusted to reflect increases in operation costs that are necessary for adequately providing our services.
In addition, we cannot assure you that we will notmay incur materialsignificant fines in the future, which could have a material adverse effect on our financial condition, our results of operations and the market value of our ADSs. See “Item 4. Information on the Company—Our Business Overview—Fines and Penalties.”
If we are unable to control our energy losses, our results of operations could be adversely affected
Our concession does not allow us to pass through to our customers the cost of additional energy purchased to cover any energy losses that exceed the loss factor contemplated by our concession, which is, on average, 10%. As a result, if we experience energy losses in excess of those contemplated by our concession, we may record lower operating profits than we anticipate. Prior to the 2001 and 2002 economic crisis, we had been able to reduce the high level of energy losses experienced at the time of the privatization to the levels contemplated (and reimbursed) under our concession. However, during the last couple of years, our level of energy losses, particularly our non-technical losses, started to grow again, in part as a result of the increase in poverty levels and, with it, the number of delinquent accounts and fraud. Although we continue to make investments to reduce energy losses, these losses continue to exceed the 10% average loss factor incontemplated by the concession and, based on the current tariff schedule and economic turmoil, we do not expect these losses to decrease in the near term. Our energy losses amounted to 13.3%14.9% in 2012, 12.6%2015, 14.3% in 20112014 and 12.5%13.0% in 2010.2013. We cannot assure you that our energy losses will not increase again in future periods, which may lead us to have lower margins and could adversely affect our financial condition, our results of operations and the market value of our ADSs.
The Argentine government could forecloseon the pledgeof our Class A common shares under certain circumstances, which could have a material adverse effect on our business and financial condition
Pursuant to our concession and the provisions of the Adjustment Agreement, the Argentine government has the right to forecloseon the pledgeof our Class A common shares and sell these shares to a third party buyer if:
· the fines and penalties we incur in any given year exceed 20% of our gross energy sales, net of taxes (which corresponds to our energy sales);
· we repeatedly and materially breach the terms of our concession and do not remedy these breaches upon the request of the ENRE;
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· our controlling shareholder, EASA, creates any lien or encumbrance over our Class A common shares (other than the existing pledge in favor of the Argentine government);
· we or EASA obstruct the sale of Class A common shares at the end of any management period under our concession;
· EASA fails to obtain the ENRE’s approval in connection with the disposition of our Class A common shares;
· our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A common shares without the ENRE’s approval; or
· We,we, or any existing shareholders or former shareholders of EASA who have brought a claim against the Argentine government in the ICSID do not desist from such ICSID claims following completion of the RTI and the approval of a new tariff regime.
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In 2012,2015, the fines and penalties imposed on Edenor by the ENRE amounted to an estimated Ps. 116.9281.7 million, which represented 4.0%7.6% of our energy sales. See “Item 4. Information on the Company — Company—Our Concession — Concession—Fines and Penalties.”
If the Argentine government were to forecloseon the pledgeof our Class A common shares, pending the sale of those shares, the Argentine government would also have the right to exercise the voting rights associated with such shares. In addition, the potential foreclosure by the Argentine governmenton the pledgeof our Class A common shares maycould be deemed to constitute a change of control under the terms of our Senior Notes due 2017 and due 2022. See “—We may not have the ability to raise the funds necessary to finance a change of control offer as required by the Senior Notes due 2017 and 2022.” If the Argentine government forecloseson the pledgeof our Class A common shares, our results of operations and financial condition could be significantly affected and the market value of our ADSs could also be affected.
Default by the Argentine government could lead to termination of our concession, and have a material adverse effect on our business and financial condition
If the Argentine government breaches its obligations in such a way that we cannot comply with our obligationobligations under our concession agreement or in such a way that our service is materially affected, we canmay request the termination of our concession, after giving the Argentine government a 90 days’ prior notice. Upon termination of our concession, all our assets used to provide electricity distribution service would be transferred to a new state-owned company to be created by the Argentine government, whose shares would be sold in an international public bidding procedure. The amount obtained in such bidding would be paid to us, net of the payment of any debt owed by us to the Argentine government, plus an additional compensation established as a percentage of the bidding price, ranging from 10% to 30%, depending on the management period in which the sale occurs. Any such default could have a material adverse effect on our business and financial condition.
We may be unable to import certain equipment to meet the growing demand for electricity, which could lead to a breach of our concession contract and could have a material adverse effect on the operations and financial position of the Company
Certain restrictions on imports that may be adopted in the future by the Argentine government could limit or delay our ability to purchase capital goods that are necessary for our operations (including carrying out specific projects) (see “The actions taken by the Fernández de Kirchner administration to reduce imports may adversely affect our ability to access capital goods that are necessary for our operations”). Under our concession, we are obligated to satisfy all of the demand for electricity originated in our concession area, maintaining at all times certain service quality standards that have been established for our concession. If we are not able to purchase significant capital goods to satisfy all of the demand or suffer unexpected delays in the import process, we could face fines and penalties which may, in turn, adversely affect our activity, financial position and results of operations and/or the market value of your ADSs.
We employ a largely unionized labor force and could be subject to an organized labor action, including work stoppages that could have a material effect on our business
As of December 31, 2012,2015, approximately 83% and 86%87% of Edenor and Eden employees respectively, were union members. Although our relations with unions are currently stable and we have had an agreement in place with the two unions representing our employees since 1995, we cannot assure you that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues. We cannot assure you that we will be able to negotiate salary agreements or labor conditions 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. If we are unable to negotiate salary agreements or if we are subject to strikes or work stoppages, our results of operations, financial condition and the market value of our ADSs could be materially adversely affected.
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We mightcould incur material labor liabilities in connection with our outsourcing that could have an adverse effect on our business and results of operations
We outsource a number of activities related to our business to third partythird-party contractors in order to maintain a flexible cost base. As of December 31, 2012,2015, Edenor had approximately 2,777 third‑party2,927 third-party employees under contract. Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that contractors’ employeescontractors will not initiatenotinitiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizingwhich have recognized joint and several liability between thea contractor and the entity to which it is supplying services under certain circumstances. We cannot make any assurances that such proceedings will not be brought against us or that the outcome of such proceedings wouldwill be favorable to us. If we were to incur material labor liabilities in connection with our outsourcing, such liability could have an adverse effect on our financial condition, our results of operations and the market value of our ADSs.
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Our performance is largely dependent on recruiting and retaining key personnel
Our current and future performance and the operation of our business are dependent upon the contributions of our senior management and our skilled team of engineers and other specialized employees. We depend on our ability to attract, train, motivate and retain key management and specialized personnel with the necessary skills and experience. There is no guarantee that we will be successful in retaining and attracting key personnel and the replacement of any key personnel who were to leave could be difficult and time consuming. The loss of the experience and services of key personnel or the inability to recruit suitable replacements and additional staff could have a material adverse effect on our business, financial condition and results of operations.
We are currently are not able to effectively hedge our currency risk in full and, as a result, aincreased devaluation of the Peso may have a material adverse effect on our results of operations and financial condition
Our revenues are collected in Pesos pursuant to tariffs that are not indexed to the U.S. Dollar, while a significant portionall of our existing financial indebtedness is denominated in U.S. Dollars, which exposes us to the risk of loss from increased devaluation of the Peso. In the past we used to hedgeWe are currently hedging part of this risk in part by converting a portion of our excess cash denominated in Pesos into U.S. Dollars and investing those funds outside Argentina, as permitted by applicable Argentine Central Bank regulations at the time and by entering into currency forward contracts; however, pursuant to new regulationscontracts. In 2015, the Peso lost approximately 52% of the Argentine Central Bank we can no longer hedge this risk by converting a portion of our excess cash denominated in Pesos unto U.S. Dollars and because of that we continue to have substantial exposureits value with respect to the U.S. Dollar. WeDollar, including a depreciation of approximately 34% mainly experienced after December 17, 2015 following the announcement of the lifting of a significant portion of exchange restrictions, our hedging contracts did not cover all of our exposure to such depreciation. However, we cannot assure you whetherthat the Argentine Governmentgovernment will mantainmaintain these exchange regulations or whether it will allow us to access the market to acquire U.S. Dollars in the manner that we have done in the past. Although we may also seek to enter intowill find hedging transactions to cover all or a part of our exposure we have not been able to hedge any of our exposure to the U.S. Dollar on terms we consider viable for our company.us. If we continue to be unable to effectively hedge all or a significant portion of our currency risk exposure, a further devaluation of the Peso may significantly increase our debt service burden, which, in turn, may have a material adverse effect on our financial condition and results of operations.
In the event of an accident or other event not covered by our insurance, we could face significant losses that could materially adversely affect our business and results of operations
As of December 31, 2012,2015, our physical assets were insured for up to U.S. $887.7$ 1,299.5 million. However, we do not carry insurance coverage for losses caused by our network or business interruption, including for loss of our concession. See “Item 4. Information on the Company—Our Business—Insurance.” Although we believe our insurance coverage is commensurate with standards for the distribution industry, no assurance can be given of the existence or sufficiency of risk coverage for any particular risk or loss. If an accident or other event occurs that is not covered by our current insurance policies, we may experience material losses or have to disburse significant amounts from our own funds, which may have a material adverse effect on our net profits and our overall financial condition and on the market value of our ADSs.
A substantial number of our assets are not subject to attachment or foreclosure and the enforcement of judgments obtained against us by our shareholders may be substantially limited
A substantial number of our assets are essential to the public service we provide. Under Argentine law, as interpreted by the Argentine courts, assets which are essential to the provision of a public service are not subject to attachment or foreclosure, whether as a guarantee for an ongoing legal action or to allow for the enforcement of a legalcourt judgment. Accordingly, the enforcement of judgments obtained against us by our shareholders may be substantially limited to the extent our shareholders seek to attach those assets to obtain payment on their judgment.
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If our controlling shareholder fails to meet its debt service obligations, its creditors may take measures that could have a material adverse effect on our results of operations
In July 2006, EASA completed a comprehensive restructuring of all of its outstanding financial indebtedness, which had been in default since 2002. In connection with this restructuring, EASA issued approximately U.S. $85.3$ 85.3 million in U.S. Dollar‑denominatedDollar-denominated notes, in exchange for the cancellation of approximately 99.94% of its outstanding financial debt. Since EASA’s ability to meet its debt service obligations under these notes depends largely on our ability to pay dividends or make distributions or payments to EASA, our failure to do so could result in EASA becoming subject to actions by its creditors, including the attachment of EASA’s assets and petitions for involuntary bankruptcy proceedings. If EASA’s creditors were to attach our Class A common shares held by EASA, the Argentine government would have the right under our concession to forecloseon the pledgeof our Class A common shares held by the Argentine government, which could trigger a repurchase obligation under the terms of our restructured debt and our Senior Notes due 2017 and due 2022, and have a material adverse effect on our results of operations and financial condition.
Our exclusive right to distribute electric energyelectricity in our service area may be adversely affected by technological or other changes in the energy distribution industry, which would have a material adverse effect on our business
Although our concession grants us the exclusive right to distribute electric energyelectricity within our service area, this exclusivity may be revoked in whole or in part if technological developments would make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business. In no case does the complete or partialrevocation of our exclusive distribution rights entitle us to claim or to obtain reimbursement or indemnity. Although, to our knowledge, there are no current projects to introduce new technologies in the medium- or long-term which might reasonably modify the composition of the electricity distribution business, we cannot assure you that future developments will notenable competitionin our industrythatwouldadverselyaffect the exclusivity right granted by our concession. Any total or partial loss of our exclusive right to distribute electricity within our service area would likely lead to increased competition and result in lower revenues, which could have a material adverse effect on our financial condition, our results of operations and the market value of our ADSs.
Our acquisitions of Emdersa and Aeseba and the subsequent divestitures of Aeseba and the subsidiaries of Emdersa are subject to perfunctory approval by the Argentine Antitrust Commission and, in some cases, by the ENRE
In March 2011, Edenor acquired EMDERSA and AESEBA and several related companies. Edenor has since then, decided to divest, and is currently divesting, such companies. These acquisitions and divestitures are subject to perfunctory approval by the Argentine Antitrust Commission and, in some cases, by the ENRE. Although we have submitted all required documentation to the Argentine Antitrust Commission and to the ENRE, we cannot assure you that the Argentine Antitrust Commission or the ENRE, as applicable, will authorize such acquisitions and, therefore, the acquisitions may be revoked or the divestitures may never be perfected if the relevant approvals are not granted. If we do not have the regulatory authorization to consummate the acquisitions and divestitures this could have an adverse effect on our financial condition and consolidated results of operations and the market value of our shares and ADSs.
A potential nationalization or expropriation of 51% of our capital stock, represented by the Class A shares, may limit the capacity of the Class B common shares to participate in the board of directors
As of the date of this annual report, the ANSES owns shares representing 26.8% of our capital stock and appointed five Class B directors in our last Shareholders’ meeting. The remainingrest of the directors were appointed by the Class A shares.
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If the Argentine Governmentgovernment were to expropriate 51% of our capital stock, represented by our Class A shares, the Argentine Governmentgovernment would be the sole holder of the Class A shares and the ANSES would hold the majority of the Class B shares. Certain strategic transactions require the approval of the holders of the Class A shares. Consequently, the Argentine Governmentgovernment and the ANSES would be able to determine substantially all matters requiring approval by a majority of our shareholders, including the election of a majority of our directors, and would be able to direct our operations.
If the Argentine Governmentgovernment nationalizes or expropriates 51% of our capital stock, represented by our Class A shares, our results of operations and financial condition could be adversely affected and this could cause the market value of our ADSs and Class B common shares to decline.
We may not have the ability to raise the funds necessary to finance a change of control offer as requiredrepay our commercial debt with CAMMESA, our major supplier
by the Senior Notes due 2017 and 2022
As of December 31, 2015, we owed approximately Ps.3,360.6 million (Including interest) to CAMMESA. Although we submitted to CAMMESA a repayment plan in November 2015, as of the date of this annual report approximately U.S.$324.8 millionnegotiations with CAMMESA continue with respect to a final repayment schedule. This debt is due and unpaid and we have not secured any waivers from CAMMESA. If CAMMESA requested that we repay such debt in a single payment, we may be unable to raise the funds to repay it and, consequently, we could be exposed to a cash attachment, which could in turn result in our filing for a voluntary reorganization proceeding (concurso preventivo), which could cause the market value of our ADSs and Class B common shares to decline (see “—Risks related to Our Business- All of ouroutstanding financial debt is representedby the Senior Notes due 2017indebtedness contains bankruptcy, reorganization proceedings and 2022. Under the indentures for the Senior Notes due 2017 and 2022, if a changeof control occurs, we must offer to buy back any and all such notes that are outstanding at a purchase price equal to100% of the aggregate principal amount of such notes, plus any accrued and unpaid interest thereon and additionalamounts, if any, through the purchase date. We may not have sufficient funds available to us to make the requiredrepurchases of the Senior Notes due 2017 and 2022 upon a change of control. If we fail to repurchase such notes inthese circumstances that may constitute an eventexpropriation events of default, under the indentures, whichand we may in turn triggercross-default provisions in otherbe required to repay all of our outstanding debt instruments then outstanding.upon the occurrence of any such events”).
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Downgrades in our credit ratings could materially and adversely affect our business, financial condition and results of operations.
A material downgrade of our credit ratings may have various effects including, but not limited to, the following: we may have to accept less favorable terms in our transactions with counterparties, including capital raising activities, or may be unable to enter into certain transactions; existing agreements or transactions may be cancelled; and we may be required to provide additional collateral in connection with derivatives transactions. Any of these or other effects resulting from a downgrade of our credit ratings could have a negative impact on the profitability of our treasury and other operations, and could adversely affect our regulatory capital position, financial condition and results of operations.
All of our outstanding financial indebtedness contains bankruptcy, reorganization proceedings and expropriation events of default, and we may be required to repay all of our outstanding debt upon the occurrence of any such events
As of the date of this annual report, approximately U.S.$ 324.8191.1 million of our financial debt is represented by the Senior Notes due 2017 and 2022. Under the indentures for the Senior Notes due 2017 and due 2022, certain expropriation and condemnation events with respect to us may constitute an event of default, which, if declared, could trigger acceleration of our obligations under the notes and require us to immediately repay all such accelerated debt. In addition, all of our outstanding financial indebtedness contains certain bankruptcy-relatedevents of default related to bankruptcy and voluntary reorganization proceedings (concurso preventivo)-related events of default.(concurso preventivo). If we are not able to fulfill certain payment obligations as a result of our current financial situation and if the requirements set forth in the Argentine Bankruptcy Law No. 24,522 are met, any creditor, or even us, could file for our bankruptcy, or we could file for a voluntary reorganization proceeding (concurso preventivo)(concurso preventivo). In addition, all of our outstanding financial indebtedness also contains cross-default provisions and/or cross-acceleration provisions that could cause all of our debt to be accelerated if the debt containing expropriation and/or bankruptcy and/or reorganization proceeding events of default goes into default or is accelerated. In such a case, we would expect to actively pursue formal waivers from the corresponding financial creditors to avoid this potential situation, but in case those waivers are not timely obtained and immediate repayment will beare required, the Companywe could face short-term liquidity problems, which could adversely affect our results of operations and cause the market value of our ADSs and Class B common shares to decline.
We may not have the ability to raise the funds necessary to finance a change of control offer as required by the Senior Notes due 2017 and 2022
As of the date of this annual report, approximately U.S.$191.1 million of our financial debt is represented by the Senior Notes due 2017 and 2022. Under the indentures for the Senior Notes due 2017 and 2022, if a change of control occurs, we must offer to buy back any and all such notes that are currentlyoutstanding at a purchase price equal to 100% of the aggregate principal amount of such notes, plus any accrued and unpaid interest thereon and additional amounts, if any, through the purchase date. We may not have sufficient funds available to us to make the required repurchases of the Senior Notes due 2017 and 2022 upon a change of control. If we fail to repurchase such notes in circumstances that may constitute an event of default under the indentures, which may in turn trigger cross-default provisions in other of our debt instruments then outstanding, our results of operations could be adversely affected and the market value of our ADSs and Class B common shares could decline.
We may be required by law to undertake a mandatory capital stock reduction and we may in the future be required to be dissolved and liquidated.
Our accumulated deficit at the end of 2012losses for 2014 exceeded our reserves plus more than 50% of our capital stock at the end of that year, and therefore we arewere therefore required to mandatorily reduce our capital stock pursuant to Article 206 of the Argentine Corporations Law.Accordingly,Law unless we received a capital contribution or expected future revenues or results of operations which would result in our liabilities not exceeding 50% of our assets. In the shareholders’ meeting held on April 25, 2013, Edenor’s general ordinary28, 2015 it was decided not to proceed with the mandatory stock reduction considering the better results in the first quarter of 2015. If our losses for any fiscal year exceed our reserves plus 50% or more of our capital stock at the end of any such year, we will fall under the purview of Section 206 of the Argentine Corporations Law and extraordinary shareholders’ meeting resolvedwill be required to mandatorily reduce Edenor’sour capital stock. As a result of the mandatory capital stock reduction, the Company’s losses will be offset against the share premium (prima de emisión) and capital stock adjustment (ajuste sobre el capital social), as well as against 10% of the Company’s capital stock.
In addition,Moreover, if our shareholders’ equity becomes negative (that is, if our total liabilities exceedliabilitiesexceed our total assets) at the end of any year-end,fiscal year, we will be required to dissolve and liquidate pursuant to Article 94 of the Argentine Corporations Law unless we receive a capital contribution or expect future revenues or results of operations which would result in our assets exceeding our liabilities. A mandatory capital stock reduction couldcan adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.
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The New York Stock Exchange and/or the Buenos Aires Stock Exchange may suspend trading and/or delist our ADSs and Class B common shares, respectively, if our shareholders’ equity becomes negative or ifupon the occurrence of certain events relating to our financial situation further deteriorates
The New York Stock Exchange (“NYSE”) and the Buenos Aires Stock Exchange (“BASE”) may suspend and/or cancel the listing of our ADSs and Class B common shares, respectively, if our shareholders’ equity becomes negative, orin certain circumstances, including upon the occurrence of certain events relating to our financial situation. For example, the NYSE may decide such suspension or cancellation if our shareholders’ equity becomes negative.
The NYSE may in its sole discretion determine on an individual basis the suitability for continued listing of an issue in the light of all pertinent facts. Some of the factors mentioned in the NYSE Listed Company Manual, which may subject a company to suspension and delisting procedures, include: “unsatisfactory financial conditions and/or operating results,” “inability to meet current debt obligations or to adequately finance operations,” and “any other event or condition which may exist or occur that makes further dealings or listing of the securities on the NYSE inadvisable or unwarranted in the opinion of NYSE.
The BASE will suspend the listing of our Class B common shares if our financial statements or the financial information that we provide indicate that our shareholders’ equity becomes negative. Furthermore, The BASE may cancel the listing of our Class B common shares if it determines that our shareholders’ equity and our financial and economic situation do not justify our access to the stock market or if the NYSE cancels the listing of our ADSs.
We cannot assure you that the NYSE and/or BASE will not commence any suspension or delisting procedures in light of our current financial situation, including if our shareholders’ equity becomes negative. A delisting or suspension of trading of our ADSs or Class B common shares by the New York Stock Exchange and/or BASE, respectively, could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.
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Adoption of IFRS affects the presentation of our financial information, which has thus far been prepared under Argentine GAAP.
On January 1, 2012, we began preparing our financial statements in accordance with IFRS. Prior to the year ended December 31, 2012, we prepared our financial statements in accordance with Argentine GAAP. Because IFRS differ in certain significant respects from Argentine GAAP, our financial information prepared and presented in our previous annual reports under Argentine GAAP is not directly comparable to our IFRS financial data. The lack of comparability of our recent and our historical financial data may make it difficult to gain a full and accurate understanding of our operations and financial condition.
The designation of supervisors (veedores)veedores (supervisors), by the CNV or otherwise, could adversely affect the economic and financial situation of the Company
The new Capital Markets Law No. 26,831 provides in Article 20 that the CNVComisión Nacional de Valores (Argentine National Securities Commission, or “CNV”) may conduct an inspection on persons subject to its control (such as the Company). If after any inspection the CNV considers that a resolution of the board of directors of the Companysuch person violated the interests of minority shareholders or any holder of securities that are subject to the regime of aArgentine public offering regime, it may appoint a supervisor (veedor)veedor (supervisor), who will have veto powers. Additionally, the CNV may suspend the board of directors for a period of up to 180 days, until the CNV rectifies the situation. This measure may only be appealed before the Ministry of Economy and Finance.is subject to limited appeals. If the CNV makes an inspection on us and considers that any right of a minority shareholder or holder of any security has been breached,violated, it may proceed to suspend theour board of directors for the up to 180-day period, in which case the economic and financial situation of the Company could be negatively affected. In addition, aveedor may be appointed through a judicial request. In this respect, on April 21, 2014, Molinos Rio de la Plata S.A., an Argentine company whose shares are publicly-traded in Argentina, reported the judicial appointment of aveedor at the request of ANSES, one of its shareholders, which is also one of our shareholders, for a period of six months. We cannot assure you that ANSES, or any other party, will not attempt to pursue a similar course of action with respect to the Company, which may have a negative effect on the Company.
Changes in weather conditions or the occurrence of severe weather (whether or not caused by climate change or natural disasters), could adversely affect our operations and financial performance.
Weather conditions may influence the demand for electricity, our ability to provide it and the costs of providing it. In particular, severe weather may adversely affect our results of operations by causing significant demand increases, which we may be unable to meet without a significant increase in operating costs. This could strongly impact the continuity of our services and our quality indicators. For example, the exceptional thunderstorms that occurred in April and December of 2013 and a heat wave that occurred in December of 2013 affected the continuity of our services, both in the low voltage and medium voltage networks. See “Item 4. Information on the Company—Business Overview—QualityStandards – Edenor’s Concession". Furthermore, any such disruptions in the provision of our services could expose us to fines and orders to compensate those customers affected by any such power cuts, as has occurred in the past (see “Item 4. Information on the Company—Business Overview—Quality Standards —Fines and Penalties”). Our financial condition, results of operations and cash flows could therefore be negatively affected by changes in weather conditions and severe weather.
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A cyber-attack could adversely affect our business, financial condition, results of operations and cash flows.
Information security risks have generally increased in recent years as a result of the proliferation of new technologies and the increased sophistication and activities of cyber-attacks. Through part of our grid and other initiatives, we have increasingly connected equipment and systems related to the distribution of electricity to the Internet. Because of the critical nature of our infrastructure and the increased accessibility enabled through connection to the Internet, we may face a heightened risk of cyber-attack. In the event of such an attack, we could have our business operations disrupted, property damaged and customer information stolen; experience substantial loss of revenues, response costs and other financial loss; and be subject to increased regulation, litigation and damage to our reputation. A cyber-attack could adversely affect our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.
Risks relating to ADSs and our Class B common shares
Restrictions on the movement of capital out of Argentina may impair the ability of holders of ADRs to receive dividends and distributions on, and the proceeds of any sale of, the Class B common shares underlying the ADSs
The Argentine government may impose restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina. Argentine law currently permits the Argentine Governmentgovernment to imposethese kinds of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. Beginning in December 2001, the Argentine Governmentgovernment implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank, some of which are still in effect. Among the restrictions that are still in effect are those relating to the payment prior to maturity of the principal amount of loans, bonds or other securities owed to non-Argentine residents and the requirement for Central Bank approval prior to acquiring foreign currency for certain types of investments and the requirement that 30% of certain types of capital inflows into Argentina be deposited in a non-interest-bearing account in an Argentine bank for a period of one year.investments. Although the transfer of funds abroad in order to pay dividends no longer requires Central Bank approval to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting, restrictions on the movement of capital to and from Argentina such as those that previously existed could, if reinstated, impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of shares, as the case may be, from Pesos into U.S. Dollars and the remittance of such U.S. Dollars abroad. We cannot assure you that the Argentine government will not take similar measures in the future. In such a case, the depositary for the ADSs may hold the Pesos it cannot otherwise convert for the account of the ADS holders who have not been paid. Nonetheless,In addition, the adoption by the Argentine government of restrictions on the movement of capital out of Argentina may affect the ability of our foreign shareholders and holders of ADSs to obtain the full value of their shares and ADSs and may adversely affect the market value of our ADSs.
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Our ability to pay dividends is limited
In accordance with Argentine corporate law, we may only pay dividends in Pesos out of our retained earnings, if any, as set forth in our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB.IFRS. Our ability to pay dividends, however, is further restricted in accordance with the terms of the Adjustment Agreement, pursuant to which we have agreed not to pay dividends without the ENRE’s prior approval until we complete the RTI. We cannotpredict with any certainty when this process will be completed.
Our shareholders’ ability to receive cash dividends may be limited
Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distributioncashdistribution we pay on the common shares underlying the ADSs into U.S. Dollars; if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, shareholders may lose some or all of the value of the dividend distribution.
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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 and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, the rights of holders of the ADSs or the rights of holders of our common shares under Argentine corporate law to protect their interests relative to actions by our board of directors may be fewer and less well-defined than those under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in Argentina thatthan in the United States, putting holders of our common shares and ADSs at a potential disadvantage.
Holders of ADSs may be unable to exercise voting rights with respect to the Class B common shares underlying the ADSs at our shareholders’ meetings
Shares underlying the ADSs are held by the depositary in the name of the holder of the ADS. As such, we will not treat holders of ADSs as shareholders and,, therefore, holders of ADSs will not have shareholder rights. The depositary will be the holder of the common shares underlying the ADSs and holders may exercise voting rights with respect to the Class B common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying Class B common shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in an official gazette in Argentina, an Argentine newspaper of general circulation and the daily bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, do not receive notice directly from us. Instead, in accordance with the deposit agreement, we provide the notice to the depositary. If we ask it to do so, the depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the Class B common shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of Class B common shares and Class B common shares represented by ADSs may not be voted as the holders of ADSs desire. Class B common shares represented by ADSs for which the depositary fails to receive timely voting instructions may, if requested by us, be voted at the corresponding meeting either in favor of the proposal of the board of directors or, in the absence of such a proposal, in accordance with the majority.
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Our shareholders may be subject to liability for certain votes of their securities
Because we are a limited liability corporation, our shareholders are not liable for our obligations. Shareholders are generally liable only for the payment of the shares they subscribe.subscribe to. However, shareholders who have a conflict of interest with us and who do not abstain from voting at the respective shareholders’ meeting may be liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the law or our by-laws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.
Provisions of Argentine securities laws could deter takeover attempts and have an adverse impact on the price of our shares and ADSs.
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Argentine securities laws contain provisions that may discourage, delay or make more difficult a change in control of Edenor, such as the requirement, upon the acquisition of a certain percentage of our capital stock, to launch a tender offer to acquire a certain percentage of our capital stock, which percentage ranges from 10% to 100% depending on several factors. These provisions may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interest of our shareholders and may adversely affect the market value of our shares and ADSs.
Item 4. Information on the Company
History and Development of the Company
Empresa Distribuidora y Comercializadora Norte S.A., or Edenor, is a public service company incorporated as asociedad anónima (stock corporation) under the laws of Argentina. Our principal executive offices are located at Avenida del Libertador 6363, Ciudad de Buenos Aires, C1428ARG, Argentina, and our general telephone number at this location is +54 11 4346 5000.
We were incorporated on July 21, 1992, under the name Empresa Distribuidora Norte Sociedad Anónima, as part of the privatization of the Argentine state‑owned electricity utility, Servicios Eléctricos del Gran Buenos Aires S.A. (SEGBA). The Company’s term of duration is 95 years. In anticipation of its privatization, SEGBA was divided into three electricity distribution companies, including our company, and four electricity generation companies, and on May 14, 1992, the Argentine Ministry of Economy and Public Works and Utilities (currently the Ministry of Economy and Public Finance) approved the public sale of all of our company’s Class A common shares, representing 51% of the capital stock of our company.
A group of international investors, which included EDF International S.A. (a wholly owned subsidiary of Électricité de France S.A.), presented a bid for our Class A common shares through Electricidad Argentina S.A. (EASA), an Argentine company. EASA was awarded the bid and, in August 1992, EASA and the Argentine government entered into a stock purchase agreement relating to the purchase of our Class A common shares. In addition, on August 5, 1992, the Argentine government granted us a concession to distribute electricity on an exclusive basis within our concession area for a period of 95 years. On September 1, 1992, EASA acquired our Class A common shares and became our controlling shareholder.
In June 1996, our shareholders approved the change of our name to Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR S.A.) to more accurately reflect the description of our core business. The amendment to our by–laws related to our name change was approved by the ENRE and registered with the Public Registry of Commerce (Inspección General de Justicia, the “IGJ”) in 1997.
In 2001, EDF International S.A. (EDFI) acquired, in a series of transactions, all of the shares of EASA held by EASA’s other shareholders, ENDESA Internacional, YPF S.A., which was the surviving company of Astra, and SAUR. As a result, EASA became a wholly–owned subsidiary of EDFI. In addition, EDFI purchased all of our Class B common shares held by these shareholders, increasing its direct and indirect interest in us to 90%.
On January 6, 2002, the Argentine congressCongress enacted the Public Emergency Law, which authorized the Argentine government to implement certain measures to overcome the country’s economic crisis. Under the Public Emergency Law, the Argentine government altered the terms of our concession and the concessions of other public utility services by renegotiating tariffs, freezing distribution margins and revoking price adjustment mechanisms, among other measures.
In September 2005, Dolphin Energía and IEASA acquired an indirect controlling stake in our company from EDFI. Dolphin Energía and IEASA were at the time of such acquisition controlled by the principals of Grupo Dolphin, an Argentine advisory and consulting firm that carries out private equity activities. On September 28, 2007, Pampa Energía S.A. (“Pampa Energía” or “Pampa”) acquired all the outstanding capital stock of DolphinEnergía and IEASA from the then current shareholders of these companies, in exchange for common stock of Pampa Energía. Pampa Energía, which is managed by Grupo Dolphin’s former principals, owns a 50% interest in the company that co-controls the principal electricity transmission company in Argentina,Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener) (“Transener”). In addition, Pampa Energía has controlling stakes in five generation plants located in the Salta, Mendoza, Neuquén and Buenos Aires provinces (Hidroeléctrica Nihuiles, Hidroeléctrica Diamante, Central Térmica Güemes, Central Térmica Loma de la Lata and Central Piedra Buena). See “Item 7. Major Shareholders and Related Party Transactions.”Transactions”.
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In April 2007, we completed the initial public offering of our Class B common shares, in the form of shares and American depositary shares, or ADSs. We and certain of our shareholders sold 18,050,097 ADSs, representing 361,001,940 Class B common shares, in an offering in the United States and elsewhere outside Argentina, and our Employee Stock Participation Program sold 81,208,416 Class B common shares in a concurrent offering in Argentina. Our ADSs are listed in Thethe New York Stock Exchange (“NYSE”) under the symbol “EDN,” and our Class B common shares are listed on the Buenos Aires Stock Exchange (“BASE”) under the same symbol. We received approximately U.S. $61.4$ 61.4 million in proceeds from the initial public offering, before expenses, which we used to repurchase a part of our then outstanding debt. Following the initial public offering, EASA continues to hold 51% of our common shares, and approximately 49% are held by the public. See “Item 7. Major Shareholders and Related Party Transactions.”Transactions”.
On November 20, 2008, the Argentine congressCongress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the ANSES and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES. As of the date of this annual report, ANSES held 242,999,553 of our Class B common shares, representing 26.8% of our capital stock.
Business Combinations
Acquisition of EMDERSA and AESEBA
On March 4, 2011, our Board of Directors approved an offer from its indirect controlling company Pampa Energía. As a consequence, Edenor was appointed by Pampa as the acquiring party under the Pampa-AEI Agreement. Therefore, on March 4, 2011, we acquired from AEI Utilities, S.L. (“AEIU”) (i) 182,224,095 common shares of Emdersa representing 77.19% of Emdersa’s capital stock and votes (“Emdersa’s Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”) representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by us for the aforementioned assets amounted to USD 90 million for Emdersa’s Shares and the Residual Shares acquired from AEIU and to USD 50 million for AESEBA’s Shares acquired from AEIU.
Within the framework of the offer made by Pampa and accepted by us, the parties additionally agreed that if within 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, we sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).
In compliance with current regulations, we formally consulted the CNV about the steps to be followed with regards to the public offering for the acquisition of Emdersa’s shares that we are required to make to Emdersa’s minority shareholders due to the change in Emdersa´s control and in accordance with the provisions of the Capital Markets Law and the CNV’s regulations.
Spin-off Process – EMDERSA
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On August 23, 2011, Emdersa’s Board of Directors decided to convene an extraordinary general shareholders’ meeting, which was held on December 16, 2011, to consider (subject to approval by the relevant administrative authorities) the spin-off of certain assets and liabilities of Emdersa and the incorporation of three new companies, whose main assets would be the shares owned by Emdersa in each of Edesal, EDESA and EGGSA, respectively. Emdersa’s shareholders’ meeting held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the special spin-off financial statements for the period ended September 30, 2011, the spin-off of the assets and the incorporation of the three companies referred to above, the share exchange relationship, the amount of shares of the three holding companies to be incorporated, which had to be delivered to Emdersa’s shareholders in exchange for the tendering of their shares in Emdersa, and the spin-off prospectus. Further, Emdersa’s shareholders approved the by-laws of the abovementioned new holding companies and the corresponding capital reduction of Emdersa from Ps. 236,066,302 to Ps. 60,975,926.
The Spin-off process was approved by the CNV on August 16, 2012 and registered with the Public Registry of Commerce on October 10, 2012, together with the registration of the three new companies, namely, EDESAL Holding S.A. (“EDESALH”), EDESA Holding S.A. (“EDESAH”) and EGSSA Holding S.A.(“EGSSAH”). On November 8, 2012, the new companies were authorized by the CNV to go public and obtained admission to the Buenos Aires Stock Exchange listing.
Company sale agreements - Disposal group classified as "held for sale"
Offers for the acquisition of EMDERSA subsidiaries.
The Company’s Board of Directors approved the following offer letters:
i.From Rovella Carranza S.A., on September 16, 2011, for the acquisition of the Company’s direct and indirect stake in Edesal (“EDESAL Sale”).
ii.From Pampa Energía S.A., on October 11, 2011, for the acquisition of the company’s direct and indirect stake in EGSSA (“EGSSA Sale”).
iii.From Salta Inversiones Eléctricas S.A. (SIESA), on April 23, 2012 for the acquisition of the company’s direct and indirect stake in Edesa (“EDESA Sale”)
iv.From Andes Energía Argentina S.A., on September 16, 2011 and December 15, 2011 to buy a purchase option for the acquisition of the company’s direct and indirect stake in Edelar (“EDELAR Offer”).
Additionally, in order for these transactions to be carried out, the Company was required to cause Emdersa to complete its partial spin-off process, which resulted in the creation of three new investment companies, EDESALH (holder of 99.99% of EDESAL’s capital stock and votes), EDESAH (holder of 90% of EDESA’s capital stock and votes) and EGGSAH (holder of 99.99% of EGGSA’s capital stock and votes).
EDESAL Sale
On September 16, 2011, the Board of Directors of the Company approved the offer for the acquisition of Edesal by Rovella Carranza S.A. for a total and final price of U.S. $ 26.7 million that was paid in two installments, the first of them, for U.S. $4.0 million was made within the three days of the acceptance of the offer, and the remaining balance was collected by Edenor on October 25, 2011.
Furthermore, as stipulated in the offer letter, on that date EDESAL repaid the financial loan granted by the company to EDESAL for an amount of Ps.37.5 million, plus interest accrued through the settlement date.
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At that time the Company transferred 24.80% of Emdersa’s shares and 0.01% of EDESAL’s shares to Rovella Carranza S.A. which set up a collateral trust, comprised by the parties and Deutsche Bank S.A. to ensure compliance with the parties’ obligations.
From the date of final payment and during the term of the trust, EDESAL’s management was in charge of a board of directors appointed by Emdersa, in accordance with the buyer’s proposal, which is comprised of five directors, four of whom were elected by the buyer and one of whom was elected by the seller, and equal number of alternate directors, four of whom were elected by the buyer and one of whom was elected by the seller.
As security for the compliance with the obligations undertaken, the company provided a performance bond in favour of Banco Itaú Argentina S.A. and Standard Bank Argentina S.A. for the total amount of Ps. 60 million as principal plus compensatory interest at an annual nominal rate of up to 16% as collateral for EDESAL’s payment obligations with respect to these banks. The performance bond was not enforced.
As a consequence of this transaction Edenor holds 0.13% interest in EDESALH.
EGSSA sale
On October 11, 2011, Edenor’s Board of Directors approved the offer received from its controlling shareholder Pampa Energía for the acquisition through a conditioned purchase and sale transaction of 78.44% of the shares and votes of an investment company to be organized, which will be the holder of 99.99% of the shares and votes of EGSSA together with 0.01% of EGSSA’s capital stock held by Edenor.
The condition precedent for the purchase and sale transaction was the carrying out of Emdersa’s spin-off within the maximum term of 24 months as from the date of acceptance of the offer, which condition was complied with in November 2012.
The total and final agreed-upon price for this transaction amounts to U.S. $10.8 million payable in two installments. The first installment, for an amount of U.S. $2.2 million, was paid on October 31, 2011, and the remaining balance will be paid in October 2013. The second installment accrues interest at an annual rate of 9.75%, payable semi-annually.
Furthermore, the offer implied the repayment by Pampa Energía of the financial loan granted by Edenor to EGSSA for an amount of U.S. $4.27 million, plus interest accrued through the settlement date, which was entered into on October 31, 2011.
As Emdersa’s spin-off process was concluded on November 22, 2012, shares representing 78.44% of the capital stock and votes of EGSSAH have been transferred in favor of Pampa Energía.
EDESA Sale
On April 23, 2012, the Company’sour Board of Directors accepted the offer made by Salta Inversiones Eléctricas S.A. (“SIESA”) to Edenor and its subsidiary Emdersa Holding, for the acquisition of shares representingrepresenting: (i) 78.44% of the capital stock and voting rights of EDESAH and (ii) the remaining 0.01% of ESED.
The transaction was carried out on May 10, 2012 at the offered price payable through the delivery of Argentina’s sovereign debt bonds (Boden 2012) for a value equivalent to Ps. 100.5 million. Such price was partially cancelled through the payment of Ps. 83.8 million, with a sixth of the agreed-upon price remaining outstanding, whose payment SIESA is required to make in five annual and consecutive installments in US dollars, with the first of them falling due on May 5, 2013, at an interest rate of LIBOR + 2%. Payments relating to the price will be made(i) in immediately and freely available US dollars through transfer to a bank account specified by the seller, or, alternatively and at the seller’s exclusive option (that may be exercised in respect of each of the payments), (ii) through the delivery to the seller of an amount of Argentina’s sovereign debt bonds.
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As part of the aforementioned transaction, EDESA fully repaid the loan granted by Edenor for a total principal amount of Ps.131.3 million, plus interest accrued, and the buyer released Emdersa from any liability related to the collateral granted by the latter to EDESA in connection with the syndicated loan held by EDESA with various banks. By virtue of this transaction, Emdersa Holding, a directly controlled company of Edenor S.A., transferred to SIESA the shares representing 28.93% of Emdersa’s capital stock and votes, while Edenor transferred to that company 0.01% of ESED’s capital stock and votes.
As agreed in the EDESA sale agreement, SIESA and Emdersa Holding, as trustors and beneficiaries, and Deutsche Bank S.A. (“DB”) as trustee, set up a collateral trust to which they transferred their shareholdings representing Emdersa’s capital stock and votes, with SIESA transferring the shares representing 28.93% of Emdersa’s capital stock and votes (which were received at the closing of the transaction), and Emdersa Holding transferring the remaining 24.84% of the shares.
Upon the conclusion of EMDERSA’sEmdersa’s spin-off process, the shares representing 78.44% of the capital stock and votes of EDESAH, holder of 90% of EDESA’s shares and votes, were issued, and DB,Deutsche Bank, as trustee, transferred to EHSA the totality of EMDERSA’sEmdersa’s shares that had been transferred by SIESA and EHSA to the trust, resulting in SIESA holding 78.44% of EDESAH’s capital stock and votes.
As a consequence of this transaction, Edenor holds 0.13% interest in EDESA.
EDELAR Offer
TheAn offer from Andes Energía Argentina S.A. (“Andes Energía”), which was accepted by the Company’s Boardour board of Directors on September 16, 2011,directors. Such offer consisted of a proposal to buy a purchase option for a price of U.S. $1.5$ 1.5 million to buy, if Emdersa’s spin-off was completed within a term of 2two years, 78.44% of the Company’s direct and indirect stake in EDELAR for U.S. $20.29$ 20.29 million, to be paid in two installments. The purchase option was paid by the buyer on September 16, 2011.
Subsequently, the Company’s Board of Directors approved proposals from Andes Energía to extend the term during which the buyer could exercise the option, with the Company retaining the right to freely sell or assign to any third party or cause the sale or assignment of some or all the shares that are the object of the transaction and/or the rights over such shares. In the event that a sale to a third party is made, Andes Energía’s option may not be exercised, there being no outstanding payment or any responsibility of any kind for the Company or Andes Energía.
On December 31, 2012, Andes Energía’s purchase option expired.
EDELAR/EMDERSA Sale
On September 17, 2013, our Board of Directors approved an irrevocable offer to Energía Riojana S.A. (ERSA) and the government of the Province of La Rioja for the (i) sale of our indirect stake in Emdersa, Edelar’s parent company, and (ii) assignment of certain account receivables that we had against Emdersa and Edelar. On October 4, 2013, ERSA and the government of the Province of La Rioja in its capacity as controlling shareholder of ERSA accepted the offer. The transaction closed on October 30, 2013. The price agreed upon was Ps. 75.2 million payable in 120 monthly and consecutive installments. In November 2015, we began to pay installments in accordance with the agreed upon schedule.
EMDERSA Holding Merger process
On October 7, 2013, the Company resolved to initiate the proceedings pursuant to which the Company will absorb Emdersa Holding in order to optimize its resources, simplifying its corporate, administrative and operating structure.
On December 20, 2013, the merger of Emdersa Holding into Edenor was approved by an extraordinary shareholders’ meeting, as well as all documentation and information required by applicableregulation towards that end. As of the date of this annual report, the Companyadministrative approval by the IGJ is currently negotiating with Andes Energía new termspending. The effective reorganization date for all legal, accounting and conditions. At the same time, the Company has received other expressions of interests in connection with such assets from third parties, which are currently being analyzed, although no specific offers have been received yet. tax purposes will be retroactive to October 1, 2013.
Taking into consideration that the Company maintains its decision to sell these assets and that it has received other expressions of interests in connection thereto, such assets continue to be classified as assets available for sale.34
Offer for the acquisition of AESEBA/EDEN Sale
In 2013, the Company received offers from two investment groups for the acquisition of all of the shares of AESEBA, the controlling company of EDEN. On February 27, 2013, the Company'sour Board of Directors unanimously approved the acceptance of the offer letter sent by Servicios Eléctricos Norte BA S.L. (the "Purchaser") for the acquisition of AESEBA's shares representing 100% of its capital stock and voting rights. The sale price offered by the Purchaser iswas payable through the delivery of Edenor's debt securities forin Argentine government Bonar 2013 bonds, or similar bonds, in an amount equivalent to Ps. 334.3 million, considering the market price of such Argentine government securities at the closing datetime of the transaction, to approximately U.S. $80 million of face value of such securities. Suchdelivery istransaction. Such delivery was secured by the Purchaser's contribution to a trust (the "Management Trust" or the “Aeseba Sale Trust”) of Ps. 326 million in Argentina'sArgentine public debt securities, valued at the closing date of the transaction.
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Furthermore, in order to implement this transaction, on March 19, 2013, the aforementioned Management Trust was set up by and among Purchaser (as settlor), Equity Trust Company (Uruguay) S.A. (as trustee) and the Company.
At the closing date No debt instruments of the transaction (April 5, 2013), the Trust received as contributions Argentina's public debt securities for a face value amount equivalent to Ps.262 million considering the market value of each bond at the closing date, and including the guarantee the Company had received at the time of the acceptance of the offer. Moreover, the Purchaser is required to complete contributions on or prior to December 31, 2013, of Argentina´s sovereign bonds for an amount equivalent to approximately Ps. 64 million, taking into account the market value at the closing date. As a result of the liquidation of said securities that arewere contributed to the Management Trust, the Company's Class 7 and/or Class 9 Corporate Notes, maturing in 2022 and 2017, respectively, will be purchased.
At the closing date ofTrust.
Through this transaction, the Company divested the AESEBA business segment, which will result inrecording a loss of Ps. 96.5 million, included in Edenor’s Financial Statements for 2013 of about Ps. 194.3 million (a Ps. 104.9 million loss after income tax effect). The repurchasethe results from continued operations. Subsequently the Trust used all the cash and bonds deposited to purchase Notes of the Edenor´s Corporate Bonds will be recognized at the time the purchase transactions are executed.
At December 31, 2012, the recording in the accounting of the Company's interest in AESEBA remained unchanged, given that at the end of the year such interest did not meet the criteria necessary to be classifiedCompany due 2017 and valued as "assets held for sale" in accordance with the international financial reporting standards for discontinued operations.
As of the date of this annual report, the Trust purchased U.S.$ 17.3 million of face value of our Notes due 2022 in the open market.
Discontinued Operations
Emdersa, through Edelar, supplies electricity to a service area with a population of approximately 290,000 that encompasses approximately 89,680 square miles in the Province of La Rioja. As of December 31, 2012, Edelar had approximately 118,068 customers and sold approximately 1,125 GWh of electricity in 2012. Emdersa is a public company, whose shares are traded on the Buenos Aires Stock Exchange under the symbol “Emdehr”. Emdersa owns 99.9% of the capital stock of Edelar, and Edelar holds an exclusive long-term renewable concession granted by the regulator of the Province of La Rioja.
Edelar’s concession is divided into an initial period of 15 years (which expired in 2010) followed by eight successive ten-year periods. At the end of each such period a competitive bidding process for the sale of a minimum of 51% of the share capital of Edelar will take place. We can participate in the bidding and will only be required to sell and transfer control of our interest in Edelar if there is a higher bid, in which case we will receive the amount bid by such bidder. Following such auction, a new ten- year concession will be granted to Edelar at the end of which the auction process would be held again. As of the date of this annual report, the competitive bidding process with respect to Edelar has not yet taken place.
Tariffs for Argentine electricity distribution companies are periodically reviewed by the regulators within the service area in which the concession is located. Edelar generally has RTIs every five years. Edelar’s tariffs were last reviewed in an RTI in 2008. Under their current tariff schemes, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchase costs and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make required capital investments and a regulated rate of return on their regulated asset base. Tariffs are also adjusted every 6 or 12 months for inflation of fixed costs and to pass-through adjustments to variable costs. Edelar has been granted adjustments to its tariffs periodically to reflect increases in costs.
2022. The table below summarizes energy sales information regarding Edelar, solely on the basis of public information filed by Emdersa in Argentina.
EDELAR’s Energy Sales
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| |
| | | |
| | | |
| (in MWh, except percentages) |
Residential.............................................................. | 412,516 | 36.6% | 363,278 | 34.7% | 353,009 | 33.9% |
Commercial............................................................. | 96,102 | 8.5% | 90,577 | 8.6% | 88,646 | 8.5% |
Public lighting......................................................... | 38,567 | 3.4% | 37,926 | 3.6% | 36,758 | 3.5% |
Large users............................................................. | 376,162 | 33.4% | 359,627 | 34.3% | 350,723 | 33.7% |
Industrial................................................................ | 202,834 | 18.0% | 196,841 | 18.8% | 219,994 | 20.4% |
Total....................................................................... | 1,126,181 | 100.0% | 1,048,249 | 100.0% | 1,042,130 | 100.0% |
Aeseba and its Subsidiaries
Aeseba is a holding company that owns 90% of the outstanding capital stock of Eden, an electricity distribution company that supplies electricity to a service area with a population of approximately 1.0 million that encompasses approximately 42,000 square miles in the northern part of the Province of Buenos Aires. As of December 31, 2012, Eden had approximately 344,065 customers and sold approximately 2,863 GWh of electricity in 2012. The remaining ownership interest in Eden is owned by its employees. Our acquisition of Eden is still pending antitrust approval.
Eden holds an exclusive long-term renewable concession from the relevant regulator of the Province of Buenos Aires. Eden’s concession agreement is divided into nine administrative periods, the first of which lasted 15 years and expired on June, 2, 2012, followed by eight ten-year periods thereafter. At the end of the current term a competitive bid process which follows the same process described for Edelar above will take place.
Tariffs for Argentine electricity distribution companies are reviewed periodically by the regulators within the service area in which the concession is located (in the case of Eden, the Buenos Aires Province). Eden periodically has RTIs, and as of the date of this annual report, Eden’s tariffs are currently under an RTI process. Under its current tariff scheme, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchase costs and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make required capital investments and a regulated rate of return on its regulated asset base. Tariffs are also adjusted for inflation of fixed costs and to pass-through adjustments to variable costs. Eden has been granted adjustments to its tariff periodically to reflect increases in costs. See “Item 3. Key Information—Risk factors—Risks Relating to the Electricity Distribution Sector— The Argentine government has intervened in the electricity sector in the past, and is likely to continue intervening.”
The table below summarizes energy sales information regarding Eden for the years ended December 31, 2012, 2011 and 2010, respectively.
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EDEN’s Energy Sales
| |
| | | |
| (in MWh, except percentages) |
Residential | 652,805 | 22.80% | 619,224 | 22.2% | 598,619 | 22.6% |
Commercial | 346,821 | 12.11% | 331,086 | 11.9% | 308,304 | 11.7% |
Public lighting | 80,783 | 2.82% | 79,716 | 2.9% | 77,319 | 2.9% |
Large users | 1,488,579 | 51.99% | 1,462,983 | 52.5% | 1,359,219 | 51.4% |
Industrial (Grandes usuarios del MEM) | 294,126 | 10.27% | 291,400 | 10.5% | 299,936 | 11.3% |
Total | 2,863,114 | 100% | 2,784,409 | 100.0% | 2,643,397 | 100.0% |
| | | | | | |
The tables below summarize certain key financial information regarding Eden, solely on the basis of Eden’s statutory financial statements.
Income Statement: | Year ended December 31, |
| 2012 | 2011 |
| (figures in millions ) |
Net sales | U.S.$ | 174.4 | Ps. | 857.9 | Ps. | 704.4 |
Cost of sales | (132.4) | (651.0) | (493.5) |
Gross profit | | | |
Administrative and selling expenses | (25.7) | (126.3) | (88.5) |
Operating income | | | |
Financial results | (5.2) | (25.8) | (27.1) |
Other income or costs, net | (1.6) | (8.1) | 1.6 |
Income before income taxes | | | |
Income Tax Expenses | (3.3) | (16.2) | (34.3) |
Income for the Year | U.S $ | 6.2 | | | | |
| Year ended December 31, |
Balance Sheet: | 2012 | 2011 |
| (figures in millions) |
Current assets | U.S $ | 67.0 | Ps. | 329.7 | Ps. | 246.4 |
Non-Current assets | | | |
Total assets | | | |
Current liabilities | 111.9 | 550.4 | 423.6 |
Non-Current liabilities | 37.9 | 186.6 | 138.6 |
Total liabilities * | | | |
Total shareholders’ equity | | | |
Total liabilities and shareholders’ equity | | | | | | |
| | | | |
* On March 4, 2011, as a result of the changerepurchase of controlthose Notes was a gain of Ps. 116.1 million, which was recognized in Eden triggered by our acquisition of Aeseba, Eden prepaid“Other financial results” (Ps. 71.7 million in fiscal year 2013 and Ps. 44.4 million in fiscal year 2014).In April 2014, we closed the loan it had with Standard Bank Argentina S.A.Management Trust and HSBC Argentina S.A. Such repayment was made with Eden’s fundstransferred and withcancelled all the proceeds from a loan that we granted to Eden in an aggregate amount equal to Ps. 80.0 million.Edenor securities purchased. See “Item 5. Operating5.Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”Debt”.
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Business Overview
We believe we are the largest electricity distribution company in Argentina and one of the largest in Latin America in terms of number of customers and electricity sold (both in GWh and in Pesos) in 2012.2015. We hold a concession to distribute electricity on an exclusive basis to the northwestern part of the greater Buenos Aires metropolitan area and in the northern part of the City of Buenos Aires. As of December 31, 2012,2015, Edenor and Eden served 2,726,422 customers and 343,951 customers, respectively. 2,835,229 customers. The following table shows the percentage of the electricity produced and sold by generating companies that was purchased by us in the periods indicated:
| |
| Wholesale Electricity Market(1) | | | Edenor Demand as a % of the Wholesale Electricity Market | Eden’s demand as % of Wholesale Electricity Market |
2012 | 131,944 | 23,934 | 3,210 | 17.7% | 2.4% |
2011 | 116,418 | 23,004 | 3,116 | 19.9% | 2.7% |
2010 | 110,767 | 22,053 | - | 19.8% | - |
Year | | Electricity demand (1) | | Edenor demand (2) | | Edenor’s demand as % of total demand |
2013 | | 125,162 | | 24,902 | | 19.9% |
2014 | | 126,397 | | 24,860 | | 19.7% |
2015 | | 131,988 | | 26,322 | | 19.9% |
_______________________
Source:Compañía Administradora del Mercado Mayorista Eléctrico, S.A.(CAMMESA)
(1) Demand in the Mercado Eléctrico Mayorista Sistema Patagónico (Patagonia wholesale electricity market, or MEMSP).
(2) Calculated as electricity purchased by us and our wheeling system customers.
Our Strengths
We believe our main strengths are the following:
·We believe we are the largest electricity distributor in Argentina in terms of number of customers and electricity sold (both in GWh and in Pesos) in 2012. We serve the largest number of electricity customers in Argentina, which at December 31, 2012 amounted to 2,726,422 customers. Our electricity purchases, used to meet customer demand in our service area, accounted for approximately 17.7 % of total electricity demand in the country in 2012. As a result of being the largest electricity distributor in Argentina in terms of volume and customers, we have strong bargaining power with respect to many of our operating expenses, including salaries, and benefit from economies of scale. We also actively participate in industry decision making bodies and are working closely with the Argentine government to address Argentina’s current energy challenges.
·We distribute electricity to an attractive and diversified client base in a highly developed area of Argentina. We operate on an exclusive basis in the northwestern part of the greater Buenos Aires metropolitan area and in the northern part of the City of Buenos Aires, which are two of Argentina’s largest industrial and commercial centers and in the northern part of the province of Buenos Aires. We have a highly concentrated, urban client base characterized by high purchasing power and low delinquency in payments of electricity bills. Our geographically concentrated and urban client base also allows us to operate more efficiently with relatively lower distribution costs. Finally, we have a balanced distribution of clients (residential, commercial and industrial) and operate in other provinces of Argentine through its subsidiaries.
·We have substantial experience in the operation of electricity distribution systems with strong operating performance and efficiency for the characteristics of our concession area. We have substantial experience in the operation of electricity distribution systems and have received multiple ISO certifications on our commercial, technical and administrative processes, including on the quality of our services and safety and environmental standards. We were declared by the ENRE as a self-operating business in 1997, which means that we are not required to have a strategic operator conduct our business and are allowed to act as an operator in other electricity businesses. We believe that our energy losses are low compared to other electricity distribution companies in Latin America. In addition, we have maintained what we believe are optimal levels of operating efficiency, with 931 customers per employee and 7,088.1 MWh sold per employee in 2012.
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·We have a well-balanced debt profile. As of December 31, 2012, Edenor's financial debt amounted to U.S. $283.3 millionon a standalone basis. We have continued to strengthen our capital structure during 2011 by repurchasing and cancelling U.S. $12.7 million principal amount of our Senior Notes due 2019 and U.S.$41.5 million principal amount of our Senior Notes due 2022, which repurchased notes were held by the Company as of December 31, 2011.
Our Strategy
Our goal is to continue to serve the strong demand in our concession area, while maximizing profitability and shareholder value. We are seeking to realize this goal through the following key business strategies:
·Complete our tariff renegotiation process. On November 12, 2009, we submitted our tariff proposal to ENRE’s Board of Directors in response to the ENRE’s request as part of theRTI process. Our integral tariff proposal includes, among other factors, a recalculation of the compensation we receive for our distribution services based on a revision of our asset base and rate of return. Furthermore, our proposal presented the ENRE with three options for the revised tariff scheme based on three different scenarios and each of which implementation of the tariff increase in three equal semiannual installments. During 2010, Edenor, upon ENRE’s request, submitted additional information in relation to the tariff scheme presented in 2009. During 2011, the parties have not made any progress in respect of this issue. See “Risks Relating to Our Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern” On November 23, 2012, the ENRE issued Resolution 347/12 pursuant to which distribution companies were authorized, as from the issuance thereof, to include in their bills a fixed amount for small-demand (T1) customers and a variable amount for medium and large-demand (T2 and T3) customers, to be calculated as a percentage of their respective power charges. Such amounts, which will be clearly indicated in the bills sent to customers, will constitute a special account, which will be managed by a trust, and will be exclusively used for the execution of distribution infrastructure works and corrective maintenance of each distribution company’s facilities. On November 29, 2012, we, in our capacity as trustor, and Nación Fideicomisos S.A., as trustee, entered into a private Financial and Management Trust Agreement, whereby the Company, as settlor of the trust, agreed to assign and transfer to the trustee the fixed amounts set forth by Resolution 347/12 that are effectively collected, which will constitute the trust assets. On December 18, 2012, we and Nación Fideicomisos S.A., signed the respective Operating Manual, in order to implement, standardize, and enable the collection and management of the trust assets.
·Continue to serve our concession area with a high quality of service.We aim to continue serving our clients in accordance with the terms of our concession, distributing electricity within our area and meeting or exceeding the required quality standards. We intend to continue to dedicate a significant portion of our capital expenditures to the maintenance, enhancement and expansion of our network in order to achieve this goal.
·Undertake a reclassification of our smaller customers by economic activity rather than level of demand to optimize our tariff base.We intend to reclassify our client base based on type of economic activity and purchasing power rather than only on levels of electricity demand.We believe this will allow us to shift clients who currently fall within our lowest tariff categories, to other, more appropriate categories, including professionals and small businesses which, due to their low demand, are currently classified as residential customers, and to charge them accordingly.
·Focus on increasing our operating efficiency and optimizing our level of energy losses. We are committing significant resources to improving the quality of our technical services and the safety of our public infrastructure, which allows us to reduce the amount of fines imposed by Argentine regulatory authorities in the ordinary course of our operations.
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Edenor Concession
By a concession dated August 5, 1992, the Argentine government granted Edenorus the exclusive right to distribute electricity within our concession area for a period of 95 years. Our concession will expire on August 31, 2087 and can be extended for one additional 10-year period if we request the extension at least 15 months before expiration. The Argentine government may choose, however, to grant us the extension on a non-exclusive basis. The concession period was initially divided into an initial management period of 15 years expiring on August 31, 2007, followed by eight 10-year periods. However, pursuant to the terms of the concession we could request, at our option, the extension of the initial management period for an additional 5-year period from the entry into force of the new tariff structure to be adopted under theRTI process, subject to the ENRE’s approval. We presented a requestrequests for such extension in May 2007 and on July 5, 2007, and the ENRE, pursuant to ENRE resolutionits Resolution No. 467/2007, agreed to extend the initial management period for an additional period of five years from the date thatwhen the new tariff structure is adopted under the RTI. The remaining 10-year periods will run from the expiration of the extension of the initial management period.
On January 6, 2002, the Argentine congressCongress enacted the Public Emergency Law, (Law No. 25,561), which empowered the Argentine government to implement, among other things, monetary, financial and foreign exchange measures to overcome the economic crisis. These measures, combined with the devaluation of the Peso and high rates of inflation, have had a severe effect on public utility companies in Argentina, including us. Under the Public Emergency Law, the Argentine government converted public utility tariffs from their original U.S. Dollar values to Pesos at an exchange rate of Ps. 1.00 per U.S. $1.00,$ 1.00, froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services), revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including our concession) and is empowered the Executive Branch to conduct a renegotiation of public utility contracts (including our concession) and the tariffs set therein (including our tariffs).
In September 2005, we and the Argentine government entered into the Adjustment Agreement with the Argentine government, which was ratified by the Argentine Executive Branch in January 2007. Because a new Argentine Minister of Economy took office thereafter, we formally re-executed the Adjustment Agreement with the Argentine government on February 13, 2007 under the same terms and conditions originally agreed.
Pursuant to the Adjustment Agreement, the Argentine government granted us an increase of 28% in our distribution margin as a result of the implementation of a Temporary Tariff Structure (RTT), which is effective retroactively as from November 1, 2005. The Adjustment Agreement is intended to apply transitionally until we complete the RTI with the ENRE in accordance with the terms of the Adjustment Agreement. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Tariffs.” In addition, because the Adjustment Agreement is effective retroactively as of November 1, 2005, the ENRE applied the CMM retroactively in each of May and November 2006, the dates in each year on which the ENRE is required to apply the CMM. In the May 2006 CMM, the ENRE determined that our distribution cost base increased by 8.032% (compared to the distribution cost base recognized in the Adjustment Agreement), and, accordingly, approved an equivalent increase in our distribution margin effective May 1, 2006. This increase, when compounded with the 28% VAD increase granted under the Adjustment Agreement, results in an overall 38.3% increase in our distribution margins charged to our non-residential customers. Also on February 13, 2007, the ENRE authorized us to bill our clients (excluding residential clients) the retroactive portion of the 38.3% increase (corresponding to the period from November 2005 to January 2007), which amounted to Ps. 218.6 million and has been invoiced in 55 monthly installments since February 2007.
In October 2007, the Argentine Secretary of Energy issued Resolution No 1037/2007, which granted us an increase of 9.63% in our distribution margins to reflect an increase in our distribution cost base for the period from May 1, 2006 to April 30, 2007, compared to the recognized distribution cost base as adjusted by the May 2006 CMM. However, this increase was not incorporated into our tariff structure until 2008, and, instead, we were allowed to retain the funds that we are required to collect and transfer to the fund established by the PUREE, a program established by the Argentine government in 2003 in an attempt to curb increases in energy demand, to cover such CMM increase and future CMM increases.
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In July 2008, we obtained an increase of approximately 17.9% in our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and in an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh. In addition, by Note No. 83,818, the ENRE authorized us to be reimbursed for the retroactive portion of the 7.56% CMM increase amounting to 45.5 million for the period between November 2007 and June 2008, from the PUREE funds.
Furthermore, we requested an additional increase in our distribution margins under the CMM to account for fluctuations in the distribution cost base for the period from November 2007 to April 2008, in comparison to the distribution cost base recognized by the CMM in November 2007. In 2008, the ENRE adopted Note No 81,399, which authorized a 5.791% increase under the CMM for the November 2007 – April 2008 period. As of the date of this annual report, the ENRE has not approved a new tariff scheme including this tariff increase nor has it authorized us to collect such increase by other means (for example through an off-setting mechanism against contributions made to the PUREE, as was the case in the past).
As of December 31, 2012, we had submitted to the ENRE ten requests for CMM adjustments as described in the table below, since May 2008:
| | |
November 2007 – April 2008
| May 2008
| 5.791%
|
May 2008 – October 2008
| November 2008
| 5.684%
|
November 2008 – April 2009
| May 2009
| 5.068%
|
May 2009 – October 2009
| November 2009
| 5.041%
|
November 2009 – April 2010
| May 2010
| 7.103%
|
May 2010 – October 2010
| November 2010
| 7.240%
|
November 2010 – April 2011
| May 2011
| 6.104%
|
May 2011 – October 2011
| November 2011
| 7.721 %
|
November 2011 – April 2012
| May 2012
| 8.529%
|
May 2012 – October 2012
| November 2012
| 7.316%
|
Cumulative:
|
| 88.664%
|
As of the date of this annual report, the ENRE has not yet responded to these requests (other than the request submitted in May 2008, as explained above).
However, the Company has become aware of certain communications of the ENRE to the Under-Secretariat of Management Control and Coordination of the Ministry of Federal Planning, according to which the analysis made by them shows percentages similar to those calculated by the Company with regard to CMM ratios.
Based on this information, the Company has estimated that the claims effectively made for CMM adjustments, which were not transferred to tariffs nor authorized to be collected by other means, amount to approximately Ps. 1,999 million. In accordance with the Company’s estimations, the real major costs are significantly higher than the ones determined with the CMM adjustments that have been requested. These adjustments and any further adjustments granted under the CMM will remain in force until the approval of a new tariff structure under the RTI.
As of December 31, 2012 and 2011 the amounts collected by Edenor through the PUREE, amounted to Ps. 1,277.8 million and Ps. 867.1 million, respectively, and have been disclosed under other non-current liabilities. Until such time as the CMM adjustments are effectively transferred to the tariff, Edenor is entitled to use PUREE excess funds that it would otherwise be required to transfer to CAMMESA, as established in Resolution of the Secretary of Energy No. 1037/07, in order to reimburse Edenor for the amounts it is owed for CMM increases not yet reflected in Edenor’s distribution margin. As of the date of this annual report, the Company has neither recognized nor accrued any amount receivable for this concept in the Consolidated Financial Statements.
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Followingfollowing are the key provisions of the Adjustment Agreement, which are described elsewhere in this annual report:
· a cost adjustment mechanism (CMM), pursuant to which our distribution costs are reviewed semiannually (or, under certain circumstances, more often) and adjusted if deemed appropriate by the ENRE to cover increases in our distribution costs;
· an obligation to make capital expenditures of approximately Ps. 204 million for specifiedspecific projects in 2006, which we complied with although we were not required to given that the Adjustment Agreement was not ratified in 2006;
· our obligation to meet specified more stringent service quality standards than as originally contemplated in our concession;
· a restriction on our ability to pay dividends without prior ENRE approval during the period in which we are conducting the RTI;
· forgiveness of approximately one-third of our accrued and unpaid fines, subject to meeting certain conditions relating to capital expenditures obligations and service quality standards, and a 7-year payment plan for the balance, commencing 180 days after the date on which the RTI comes into effect;
· our obligation to apply a social tariff regime for low-income customers, which regime will be defined in the context of the RTI; and
·our obligation to extend our network to provide service to certain rural areas.
Furthermore, Pursuant to the necessary stepsAdjustment Agreement, the Argentine government granted us an increase of 28% in our distribution margin as a result of the implementation of a Temporary Tariff Structure (RTT), which is effective retroactively as from November 1, 2005. The Adjustment Agreement is intended to regularizeapply transitionally until we complete the situationRTI with the ENRE in accordance with the terms of the Adjustment Agreement. See “Item 5. Operating and restoreFinancial Review and Prospects—Factors Affecting Our Results of Operations—Tariffs”. In addition, the economicENRE applied a cost adjustment mechanism for the transition period during which theRTI process is being conducted. The CMM requires the ENRE to review our actual distribution costs every six months (in May and financial equationNovember of each year). If the variation between our business are being implemented, taking into consideration the increases recorded in operating costs. At the same time, administrativeactual distribution costs and judicial actions have been brought aimed at obtaining both CMM recognition and that the overall electricity rate review stipulatedour recognized distribution costs (as initially contemplated in the Adjustment Agreement be carried outor, if adjusted by any subsequent CMM, the most recent distribution cost base established by a CMM) is 5% or more, the ENRE is required to adjust our distribution margin to reflect our actual distribution cost base. The ENRE’s review is based on our distribution costs during the six-month period ending two months prior to the date on which the ENRE is required to apply the CMM. We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more. Because the Adjustment Agreement is effective retroactively as of November 1, 2005, in May 2006, the ENRE determined that our distribution cost base increased by 8.032% (compared to the distribution cost base recognized in the Adjustment Agreement), and, accordingly, approved an equivalent increase in our distribution margin effective May 1, 2006. This increase, when compounded with the 28% VAD increase granted under the Adjustment Agreement, resulted in an overall 38.3% increase in our distribution margins charged to our non-residential customers. Also, on February 13, 2007, the ENRE authorized us to bill our customers (excluding residential customers) the retroactive portion of the 38.3% increase (corresponding to the period from November 2005 to January 2007), which amounted to Ps. 218.6 million and has been invoiced in 55 monthly installments since February 2007.
36
In October 2007, Resolution No. 1,037/2007 of the SE, which granted us an increase of 9.63% in our distribution margins to reflect an increase in our distribution cost base for the period from May 1, 2006 to April 30, 2007, compared to the recognized distribution cost base as adjusted by the ENRE.May 2006 CMM. However, this increase was not incorporated into our tariff structure until 2008, and, instead, we were allowed to retain the funds that we are required to collect and transfer to the fund established by the Program for the Rational Use of Electricity Power (Programa de Uso Racional de la Energía Eléctrica, or “PUREE”), a program established by the Argentine government in 2003 in an attempt to curb increases in energy demand, to cover such CMM increase and future CMM increases.
In July 2008, we obtained an increase of approximately 17.9% in our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and in an average increase of 21% for residential customers with bi-monthly consumption levels over 650 kWh. In addition, by Note No. 83,818, the ENRE authorized us to be reimbursed from the PUREE funds for the retroactive portion of the 7.56% CMM increase amounting to Ps. 45.5 million for the period between November 2007 and June 2008.
Furthermore, we requested an additional increase in our distribution margins under the CMM to account for fluctuations in the distribution cost base for the period from November 2007 to April 2008, in comparison to the distribution cost base recognized by the CMM in November 2007. In 2008, the ENRE adopted Note No. 81,399, which authorized a 5.791% increase under the CMM for the November 2007 – April 2008 period.
We cannot predict when or howhad requested several additional increases under the RTI will be implemented.CMM since May 2008, all of which have been recognized by ENRE pursuant to Resolution No. 250/13 and Resolution No. 32/15 with retroactive effect as of May 2008. However, these increases have not been incorporated into our tariff structure in a timely manner.
On November 23, 2012, the ENRE issued Resolution No. 347/2012,15 pursuant to which it established fixed and variable charges differentiated by category of customers, which the distribution companies will collect on accountwere authorized, as from the issuance thereof, to include a fixed amount for small-demand (T1) customers and a variable amount for medium and large-demand (T2 and T3) customers as an additional charge in their bills, calculated as a percentage of the CMM adjustments stipulated in clause 4.2 of the Adjustment Agreement and will use exclusively to finance infrastructure and corrective maintenance of their facilities.power charges. Such charges, which will beare clearly identifiedindicated in the bills sent to customers, will bewere deposited ininto a special trust account to be managedcreated by the trustee. Although in the whereas clauses of Resolution No. 374/347/2012 (namely, the “FOCEDE”) and exclusively used for the execution of distribution infrastructure and corrective maintenance works on the facilities of each of the distribution companies. Resolution No. 2/2016 of the ENRE recognizespartially repealed Resolution No. 347/2012, discontinuing the existence of CMM adjustment requestsFOCEDE and it is indicated thatordering us to open a special bank account with a Central Bank authorized entity where the authorized charges are on account of CMM adjustments, nothing is said about what provisions will apply concerningfunds received pursuant to Resolution No. 347/2012 must be deposited.
In March 2015, the effect thereofSE issued Resolution No. 32/15 granting us a temporary increase in income through funds provided by CAMMESA, which was applicable retroactively as from February 1, 2015, to pay for costs and investments associated with the period elapsed between the date such requests were made and the date of their application to the customer's bill.
On December 28, 2012, the Company filed a judicial remedy (acción de amparo) against ENRE seeking to protect the Company's constitutional rights relating to the provision of a secure and continuing public service of distribution of energy. To file the amparo the Company has considered that the ENRE’s omission to implement the necessary measures to guarantee theregular provision of the public service of distribution of energy on account of the future RTI. Such additional income resulted from the difference between the “theoretical” tariff schedules set forth in such as failure to recognize the CMM adjustments that the Company has requestedresolution and the delaytariff schedule in force at each time for each category of user, according to implement the new tariff structure under the RTI, have led to an unstable situation which threatens the regular provision of the public service. As a consequence, the Company is seeking to obtain the necessary funds to provide the public service of distribution of energy as contemplated in its concession agreement. On February 19, 2013, the National Court of First Instance in Federal Administrative Claims Tribunal No. 12 (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal No 12) served summons to ENRE and at the same time denied the preliminary injunction requestedcalculations made by the Company. This resolution hasENRE, which had been timely appealed by the Company.
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Eden Concession
EDEN is a company created by the Government of the Province of Buenos Aires who privatized 100% of its capital stock under the Decree No. 106/97 of the Provincial Executive. The Banco de la Provincia de Buenos Aires ("BAPRO") was established as the Trust of 10% of the social capital until the Programa de Participación Accionaria del Personal (the "PPAP") is implemented. The privatization was carried out through the adjudication of the exclusive right to provide distribution services of electricity for a period of ninety-five years from the date of taking possession (the "Eden Concession"). The concession period is divided into management periods, the first of fifteen years and the remaining ten years each. The grantor may extend the concession for a maximum period of ten years.The capital stock of Eseba Distribución was transferred on June 2, 1997 to three private companies in which it was divided: Empresa Distribuidora de Energía Norte S.A. (EDEN S.A.), Empresa Distribuidora de Energía Sur S.A. (EDES S.A.) y Empresa Distribuidora de Energía Atlántica S.A. (EDEA S.A.).
Pursuantreported monthly to the Public Emergency Law enacted to addressSE and CAMMESA. In this respect, CAMMESA had transfered the crisis,funds contributed by the Argentine government, among other measures, converted public utility tariffsin accordance with the values reported by the ENRE.
As from their original U.S. Dollar values to Pesos at a rateFebruary 1, 2015, the PUREE funds were considered as part of Ps. 1.00 per U.S. $1.00.
On September 2, 2004, theMinisterio de Infraestructura, Vivienda y Servicios Públicos de la Provincia (Ministry of Infrastructure, Housing and Utilitiesour income on account of the Province, or MIVySP) issuedfuture RTI. We were entitled to offset the Res. No. 489/04, which requireddebts for PUREE with claims arising from the calculation of CMM until that date, including the application of interest that could correspond to both concepts. Any amount of PUREE funds in excess of those applied to offset CMM-related claims as described in the power distribution dealers of provincial jurisdiction, the presentation of an economic modelprevious sentence were to represent the operating and maintenance costs associatedbe offset against debts arising from loans granted by CAMMESA in connection with the provision of electric service,mandatory salary increases.
Although we submitted to CAMMESA a repayment plan in November 2015, as well as the valuation of the assets available to the service.
Subsequently, by Res. No. 59/05 and 632/05, the MIVySP approved the valuation of assets associated with the distribution and selling of electricity, which has been used as a basis for determining the revenue in the period 2004-2007. This mechanism allowed Eden to reach a balance objective through partial adjustment of rates based on increases in operating costs incurred. It was also decided that 2007 would be the year in which they conduct theRevisión Tarifaria Integral (Integral Tariff Revision, or RTI).
On October 25, 2005, Eden and the MIVySP signed theProtocolo de Entendimiento(Protocol of Understanding) by which they established guidelines for the end of the Public Emergency Law. In particular, it defined a plan to recover the revenue of the concession and the need to conduct an RTI, planned for October 2007. TheProtocolo de Entendimiento was approved by Decree No. 2862/05 and ratified by the budget law of 2006.
TheProtocolo de Entendimiento contemplated a delay between the subscription and execution of the Eden RTI and it was necessary to establish an adjustment mechanism that would reflect costs changes that Eden could not control, to ensure the continuity and stability of the technical relations of Eden Concession.
As of the date of this Annual Report, EDEN RTI has not yet been completed and although we are currently in discussions regardingannual report negotiations with CAMMESA continue with respect to a final repayment schedule to cancel the EDEN RTI, we cannot predict when or howobligations owed to it for the EDEN RTI will be implemented.provision of electricity.
In accordance with theapplication of the revenue adjustment mechanism contemplated in theProtocol of Understanding, electricity rate increases have been grantedto Edensince 2005as detailed below:
a.By Resolution No. 508/2005 dated September 12, 2005 issued by theMinistry of Infrastructure, Housing and Utilities of the Province, orMIVySP, it was authorized an adjustment toEden’s average rate of sale of 8.48%.
b.By Resolution No. 17/2007 dated January 17, 2007, MIVySP authorized an adjustment in EDEN’s average rate of sales of 3.10%.
c.On August 8, 2008, the Governor of the Province of Buenos Aires issued Decree No. 1578/08 whereby, in response to the request to update the costs of electric distribution service presented by Eden, he authorized an adjustment in the average selling rate of 21.56% of Eden, distributable amongend users thereof, applicable to consumption after the publication of those regulations mentioned in the Official Gazette of the Province of Buenos Aires, which occurred on August 25, 2008.
37
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d.On March 22, 2010,December 16, 2015, Macri administration declared the MIVySPstate of emergency of the national electricity system that will remain in effect until December 31, 2017. The state of emergency allows the Argentine government to take actions designed to guarantee the supply of electricity.
In January 2016, the Ministry of Energy issued Resolution No. 141/2010 whereby, in response7/16, pursuant to which the ENRE implemented a VAD adjustment to the requesttariff schedule on account of the future RTI in effect as of February 1, 2016, and is expected to updatetake all necessary action to conclude the costsRTI process by December 31, 2016.
In addition, such resolution: (i) abrogated the PUREE; (ii) repealed Resolution No. 32/2015 as from the date the ENRE resolution implementing the new tariff schedule is in force; (iii) discontinued the application of electric distribution service presented by Eden, they authorized an adjustment inmechanisms that imply the average ratetransfer of sale of 24% of Eden applicable during 2010funds from CAMMESA in the form of three staggered stages in April, Juneloan agreements with CAMMESA; and November.(iv) ordered the implementation of the actions required to terminate the trusts created pursuant to Resolution No. 347/2012 of the ENRE.
e.On June 1, 2011, Pursuant to Resolution No. 7/16, the MIVySPENRE issued Resolution No. 415/2011 whereby, in response to the request for updated service cost of electrical distribution presented by Eden, they authorized an adjustment in the average rate of sale of 9% of Eden, distributable among end users as of June 1, 2011.
f.On November 9, 2011, Eden presented1/16 establishing a new filing with the MIVySP requesting a rate adjustment based on increases in operating costs as well as the change in the valuation of assets made available by the provision of service in June 2011.tariff structure.
g.On July 20, 2012, the Infrastructure Ministry of the Province of Buenos Aires issued Resolution No. 243/2012, which established the new electricity rate schedules applicable to the July 1-July 31, 2012 and August 1-September 30, 2012 periods, and from October 1, 2012, totalizing an increase of 9%, representing a 15% increase in VAD, thereby restoring electricity rates in the concession area of Eden S.A. These electricity rate schedules were resolved with the aim of covering the increase in prices of the resources necessary to provide the service (labor, supplies and services), which have recorded a significant increase in prices.
Secretary of Energy – Note 8752
The ability of each Edenor and Eden to increase their tariffs may also be affected by Note 8752 of the Secretary of Energy, which is currently subject to legal proceedings in various provinces of Argentina. See “Item 3. Key Information—Risk factors—Risks Relating to the Electricity Distribution Sector—The Argentine government has intervened in the electricity sector in the past, and is likely to continue intervening.”
Geographic Exclusivity
Our concession gives us the exclusive right to distribute electricity within our concession area during the term of our concession. Under our concession, neither the national nor the provincial or local governments may grant further concessions to operate electricity distribution services within our concession area. In that respect, we are obligated to satisfy all of the demand for electricity originated in our concession area, maintaining at all times a service quality standard that has been established in our concession. This geographic exclusivity may be terminated in whole or in part by the Executive Branch if technological changes make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business. However, the National or the Provincial government may only exercise its right to alter or suppress our geographical exclusivity at the end of each management period under our concession, by prior written notice at least six months before the expiration of the then current management period.
Edenor’sconcession area is divided into the following operating territories:
|
| |
Morón
| Morón, Ituzaingó, Hurlingham, Merlo, Marcos Paz, Las Heras and La Matanza
|
NorteRegion I
| Ciudad de Buenos Aires, San Isidro, Vicente López, San Martín and Tres de Febrero |
OlivosRegion II
| Vicente López, San Isidro, San Fernando, TigreLa Matanza, Morón, Hurlingham, Ituzaingo, Merlo, Marcos Paz and EscobarGral. Las Heras
|
PilarRegion III
| Pilar, Escobar, Tigre, San Fernando, San Miguel, Malvinas Argentinas, José C. Paz, Moreno and Gral. Rodríguez Pilar, Malvinas Argentinas, J.C.Paz and San Miguel |
Eden’s concession area is divided into the following operating territories:
|
| |
Arrecifes
| Arrecifes, Capitán Sarmiento, Pérez Millán, Ramallo
|
Campana
| Campana, Baradero, Capilla del Señor, Los Cardales
|
Carlos Casares
| Carlos Casares, Daireaux, Henderson, Pellegrini, Salliqueló, Tres Lomas
|
Chivilcoy
| Chivilcoy, 25 de Mayo, Alberti, Bragado
|
Junín
| Junín, Alberdi, Arribeños, Ascensión, General Arenales, L.N. Alem, Vedia
|
Lincoln
| Lincoln, Blaquier, General Pinto, General Villegas
|
Mercedes
| Mercedes, Lobos, Roque Pérez, San Andrés de Giles, Suipacha
|
San Nicolás
| San Nicolás, Conesa
|
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The table below sets forth certain information relating to operating territories of Edenor as of and for the year ended December 31, 2012:2015:
Operating territory | | | |
| | |
Morón | 1,761 | 873.8 | 32.0% | 27.1% |
Norte | 164 | 845.8 | 31.0% | 27.9% |
Olivos | 1,624 | 505.6 | 18.5% | 23.0% |
Pilar | 1,088 | 501.6 | 18.4% | 22.0% |
| | | | |
The table below sets forth certain information relating to operating territories of Eden as of and for the year ended December 31, 2012:
| | | |
Operating territory | | |
Arrecifes | 1,219 | 23.3 | 6.8% | 8.8% |
Campana | 2,098 | 51.8 | 15.1% | 20.3% |
Carlos Casares | 2,309 | 29.2 | 8.5% | 9.5% |
Chivilcoy | 2,066 | 59.2 | 17.2% | 14.1% |
Junín | 2,111 | 52.0 | 15.1% | 11.1% |
Lincoln | 1,558 | 25.3 | 7.4% | 8.2% |
Mercedes | 2,307 | 53.3 | 15.5% | 16.1% |
San Nicolás | 1,384 | 49.9 | 14.5% | 11.7% |
| | | | |
(1) This figure does not include 3,226 km belonging to Transmission Lines between Operating Territories. Therefore, total length of lines is 18,278km.
Operating territory | Area | Customers |
(km2) | (in thousands) |
| | | | |
Region I | 251.0 | 1,140.8 | 40.2% |
Region II | 1,761.0 | 903.4 | 31.9% |
Region III | 2,625.0 | 791.0 | 27.9% |
Total | 4,637.0 | 2,835.2 | 100.00% |
Our Obligations
We are obligated to supply electricity upon request by the owner or occupant of any premises in our concession area. We are entitled to charge for the electricity supplied at rates that are established by tariffsbytariffs set with the prior approval of the ENRE under applicable regulations. Pursuant to our concession, we must also meet specified service quality standards relating to:
· the time required to connect new users;
· voltage fluctuations;
· interruptions or reductions in service; and
· the supply of electricity for public lighting and to certain municipalities.
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Our concession requires us to make the necessary investments to establish and maintain quality of service standards and to comply with stringent minimum public safety standards as specified in our concession. We are also required to furnish the ENRE with all information requested by it and must obtain the ENRE’s prior consent for the disposition of assets that are assigned to the provision of our electricity distribution services. The ENRE also requires us to compile and submit various types of reports regarding the quality of our service and other technical and commercial data, which we must periodically report to the ENRE.
Under our concession, we may also be required to continue rendering services after the termination of the concession term upon the request of the Argentine government, but for a period not to exceed 12 months.
We are obligated to allow certain third parties (namely, other agents and large users) to access any available transportation capacity within our distribution system upon payment of a wheeling fee. Consequently, we must render the distribution service on an uninterrupted basis to satisfy any reasonable demand. We are prohibited from engaging in practices that limit competition or result in monopolistic abuses.
In addition, Clause 22.1 of the Adjustment Agreement requires us and our shareholders and former shareholders to suspend all claims and legal proceedings (including arbitration actions) in administrative, state or federal courts located in Argentina or abroad, that are related to measures adopted since the Public Emergency Law was enacted. After the completion of the RTI, we and our shareholders and former shareholders must completely waive and desist from all of the above mentioned claims and legal proceedings. If our shareholders or former shareholders do not desist from these claims, the Argentine government will have the right to forecloseon the pledgeofour Class A common shares and sell these shares to a third party buyer. If the company or any shareholder or former shareholder re-establishes or initiates a new claim, we must hold harmless the Argentine government in respect of amounts it is required to pay pursuant to such claims. EDFI and EASA have suspended all such claims against the Argentine government as part of the Adjustment Agreement and, in connection with its sale of its controlling stake in Edenor, EDFI has agreed to withdraw its claims against the Argentine government before the ICSID at the request of Dolphin Energía S.A.
In accordance with our concession, our controlling shareholder, EASA, has pledged its 51% stake in our companythe Company to the Argentine government to secure obligations under our concession. The Adjustment Agreement requires that the pledge to be extended to secure our obligations under such agreement.
In the case of Eden, and in accordance with the obligations of Eden under the terms of its concession, Eden Class A shares are pledged to the Provincial Government until the end of Eden’s concession.
Quality Standards – Edenor´sEdenor’s Concession
Pursuant to Edenor’sour concession, we are required to meet specified quality standards with respect to the quality of the product (electricity) and the delivery of the product. The quality standards relating to the product quality refer to the electricity’s voltage levels. A disturbance occurs when there is a change in the voltage level. Edenor’s concession requires that the voltage level that we deliver must be 3x380/220 V; 13.2 kV; 33kV; 132 kV; 220 kV. Edenor’s concession provides that disturbances in the voltage level may not exceed the following (in accordance with international standards):
High voltage | ‑5.0% to +5.0% |
Overhead network (medium or low voltage) | ‑8.0% to +8.0% |
Buried network (medium or low voltage) | ‑5.0% to +5.0% |
Rural | ‑10.0% to +10.0% |
A fine is imposed under Edenor’s concession for disturbances that exceed the above‑mentioned limits for 3.0% or more of the total amount of time that electricity is provided. The amount of the fine dependsfinedepends on the magnitude of the disturbance. As the disturbance’s percentage increases (or decreases) from the contracted tension level, the rate of the fine per kWh increases. These fines are credited to the affected user���suser’s next bill.
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Table of ContentsThe standards for delivery of the product set forth in Edenor’s concession refer to the frequency and duration of the interruptions. The following table sets forth the standards set forth in our concession with respect to the frequency and duration of interruptions per customer during the current management period:
|
| Frequency of
interruptions
(maximum number of
interruptions per
semester) | Duration of interruption
(maximum amount of time
per interruption)(1) |
High voltage | 3 | 2 hours |
Medium voltage | 4 | 3 hours |
Low voltage: (small and medium demand) | 6 | 10 hours |
Large demand | 6 | 6 hours |
_______________________
(1) Interruptions of less than three minutes are not recorded.
These standards may be subject to changechanged during subsequent management periods and/or pursuant to the outcome of the RTI.
In addition, pursuant to the Adjustment Agreement, we have agreed to comply with a medium delivery standard that reflects our actual average delivery standards during the period from 2001 through 2003. This medium delivery standard requires us to comply with a maximum number of interruptions per semester (FMIK), on average, of 2.7612,761 and a maximum duration of interruption (TTIK), on average, of 5.3865,386 hours. If we do not meet the delivery standards required by our concession, as set forth in the table above, but are otherwise in compliance with the medium delivery standard under the Adjustment Agreement, we may withhold payment of any fines that may be imposed under our concession for this failure and use this amount of unpaid fines for our capital expenditures. If we fail to comply with this measure, we will be required to pay the fines.
Pursuant to our concession, the ENRE may fine us if one of our customers suffers more than the maximum number of interruptions specified for its category (excluding interruptions of less than 3 minutes) or suffers interruptions for a longer period than as specified for its category. We pay these fines by granting credits to the affected customers in their electricity bills. Fines are calculated at a rate per kWh that varies depending on the particular tariff or price schedule that is applicable to the customer.
The following table sets forth the frequency and duration of interruptions (FMIK and TTIK) of our service in the periods indicated:
| | |
| | | | | | |
Average frequency of interruptions | 6.31 | 4.50 | 5.13 | 8.23 | 8.84 | 7.14 |
Average duration of interruption (in hours) | 17.53 | 11.00 | 10.62 | 19.97 | 24.23 | 18.20 |
| | | |
The year 2012 was characterized by the occurrence of significant climatic adverse impacts on the area of concession such as high temperatures and strong storms with heavy rains that surpassed historic registrations by their concentration and frequency causing floods that obliged service cuts for security reasons of the public way. On the other hand, on April 4, 2012, a phenomenon without any precedent occurred, consisting of a tornado with hurricane force winds, which had surpassed the 200 km/hour, and affected the areas between the city of Gral. Rodriguez and Marcos Paz, from the West to the East. The main cities affected were Ituzaingó, Morón, La Matanza, Merlo and Moreno, among others. Approximately five 500 CT (Transformation Centers) MV/LV remained out of service, there were many material destructions as a consequence of the strong winds, such as damages to the wirings, private constructions, woods, signs and in general on the networks facilities.
Additionally, in order to satisfy quality standards, we must meet certain operating requirements relating to commercial service, including maintenance of the distribution network so as to minimize failures and to maximize the useful life of fixed assets and billingsbilling on actual meter readings to generaterecords from which customer bills.bills are generated. We may bill customers using estimates in cases offorce majeure, but we may not send a customer who is billed bi-monthly more than two successive estimated bills,if billed bimonthly, or in other cases, more than three successive estimated bills.bills if billed otherwise. Furthermore, estimated bills cannot exceed 8% of total billings in each category of customers.
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Table of Contents
Quality Standards – Eden´s Concession
Pursuant to Eden’s concession, we are required to meet specified quality standards with respect to the quality of the product (electricity) and the delivery of the product. The quality standards relating to the product quality refer to the electricity’s voltage levels. A disturbance occurs when there is a change in the voltage level. Eden’s concession requires that the voltage level that we deliver must be 3x380/220 V; 13.2 kV; 33kV; 132 kV; 220 kV. Eden’s concession provides that disturbances in the voltage level may not exceed the following (in accordance with international standards):
High voltage
| ‑7.0% to +7.0%
|
Medium or low voltage
| ‑8.0% to +8.0%
|
Rural
| ‑12.0% to +12.0%
|
A fine is imposed under Eden’s concession for disturbances that exceed the above‑mentioned limits for 3.0% or more of the total amount of time that electricity is provided. The amount of the fine depends on the magnitude of the disturbance. As the disturbance’s percentage increases (or decreases) from the contracted tension level, the rate of the fine per kWh increases. Fines for quality will go into a fund for works, being the regulator who determines the work to be done.
The standards for delivery of the product set forth in Eden’s concession refer to the frequency and duration of the interruptions. The following table sets forth the standards set forth in our concession with respect to the frequency and duration of interruptions per customer during the current management period:
A)User supplied from Provincial Carrier
|
| Frequency of
interruptions
(maximum number of
interruptions per
semester)
| Duration of interruption
(maximum amount of time
per interruption)(1)
|
High voltage
| 3
| 1 hours
|
Medium voltage
| 4
| 2 hours
|
Low voltage: (small and medium demand)
| 5
| 3 hours
|
_______________________
(1)Interruptions of less than three minutes are not recorded.
B)User supplied from suburban distribution systems and substations Distributor
|
| Frequency of
interruptions
(maximum number of
interruptions per
semester)
| Duration of interruption
(maximum amount of time
per interruption)(1)
|
High voltage
| -
| - hours
|
Medium voltage
| 5
| 2 hours
|
Low voltage: (small and medium demand)
| 6
| 3 hours
|
_______________________
(1)Interruptions of less than three minutes are not recorded.
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The following tables show the frequency and duration of interruptions of service distributor in the periods indicated:
·SAIFI number of interruptions
| |
| | | |
First Half | 5.40 | 4.00 | 4.72 |
Second Half | 5.33 | 2.00 | 4.43 |
Full Year | | | |
·SAIDI Hours / Client
�� | |
| | | |
First Half | 12.17 | 7.09 | 10.07 |
Second Half | 11.98 | 10.52 | 8.08 |
Full Year | | | |
Note:Not recorded interruptions of less than three minutes.
Fines and Penalties
Pursuant toUnder the terms of our concession, the ENRE may impose various fines and penalties on us if we fail to comply with our obligations under our concession.obligations.
Fines relating to our failure to meet any of the quality and delivery standards described above are payable by granting credits or bonuses to our customers to offset a portion of their electricity charges. Since 1996, we have operated a central information system that allows us to directly credit customers who are affected by these quality or delivery deficiencies in the amount of the applicable fines.
Fines and penalties that are not directly related to services rendered to our customers are paid directlyowed to the ENRE. These include fines imposed on us by the ENRE for any network installations that it determinesfound to posecreate a safety or security hazard in a public space, including streets and sidewalks. In addition, the ENRE may fine us for inconsistency in technical information that we are required to furnish to the ENRE. Fines paid to the ENRE are deposited in the Third Party Reserve Fund of the ENRE(Reserva de Fondos de Terceros del ENRE (Third Party Reserve Fund of the ENRE)) in an account atheld with Banco Nación.n. Payments accrueaccumulate in thatthe account until the accountamount deposited reaches Ps. 35.6 million and then, with the ENRE’s authorization, the amount is proportionally distributed among our customers.
When we entered into the Adjustment Agreement in September 2005, the ENRE granted usapproved a payment plan in respect of approximately Ps. 116 million of our accrued fines and penalties and agreed, subject to the condition that we meet the quality standards and capital expenditure requirements specified in the Adjustment Agreement, to forgivewaive approximately Ps. 58 million of our accrued and unpaid fines and penalties. According to the terms of theUnder such payment plan, we will repay ourthe penalties and fines and penaltiesto be paid to users were to be repaid in fourteen semiannual installments, with the first installment due upon the termination of a 180-day grace period beginning on the date the RTIRTI’s resulting tariff structure comes into effect.
Because the Adjustment Agreement was not ratified until January 2007, we have recalculated the amounts of accrued fines and penalties subjectcredited thereof, according to the payment plan under the termsincrease of the Adjustment Agreement as well asVAD charged to customers (including the amounts subjectCMM adjustments which have been transferred to forgiveness.customers for a total amount of Ps.17.2 million) up to the date of their credit to the customers’ accounts. On December 22, 2015, considering the existence of cash flow and the strong possibility that such penalties to be paid to users would not be waived, we decided to make the payment to users in the form of one single credit, which was made to the users’ accounts for an amount Ps.152.2 million in the aggregate. In addition, a total of Ps.33.7 million in the aggregate remains available for those clients which had not an active service as of December 22, 2015.
During 2015, we are requiredentered into a settlement agreement with the ENRE (the “ENRE settlement”) under which we agreed to make adjustments to our accrued finespay final penalties imposed and penalties under the payment plan in order to reflect increases in our distribution margins, including the CMM adjustments. For the year ended on December 31, 2008, we recorded adjustmentswhich have been judicially challenged by us, with an adverse result, for an amount of Ps.85.7 million plus interest of Ps. 17.2 million,84.2 million. These fines were all paid to reflect CMM adjustments. We havethe Argentine government and not recorded any adjustments since 2009. In 2012, the fines and penalties imposed on Edenor by the ENRE amounted to Ps. 116.9 million, which represented 4%of our energy sales. As of December 31, 2012 our consolidated fines and penalties amounted to Ps. 662.0 million as compared to Ps. 542.2 million as ofDecember 31, 2011. We estimate that the ENRE will forgive approximately Ps. 71.4 million of our accrued fines and penalties upon the completion of the RTI, and that we will be required to pay the remaining balance in accordance with the payment plan provided for in the Adjustment Agreement, although we cannot be certain of the amount, if any, that will ultimately be forgiven.
users.
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The following table shows the adjustments to Edenor’s standalone accruals for potential ENRE fines and penalties, including current fines and penalties and adjustments to past fines due to increases in our tariffs pursuant to the Adjustment Agreement, for the periods specified:
| | | |
| | Year ended December 31, |
| | (in millions of Pesos) |
| | | | | | | | | | | | | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 |
Accruals at beginning of year | 531.9 | 455.4 | 377.5 | 331.6 | 281.4 | 241.1 | 169.7 | 99.2 | 63.4 | 49.0 | 19.0 | 13.6 | 1,102.8 | 923.8 | 647.4 | 531.9 | 455.4 | 377.5 | 331.6 | 281.4 | 241.1 | 169.7 | 99.2 | 63.4 | 49.0 | 19.0 | 13.6 |
ENRE Fines and Penalties | 116.9 | 81.1 | 80.0 | 58.5 | 34.8 | 23.9 | 25.2 | 72.7 | 36.0 | 14.6 | 31.7 | 16.4 | 281.7 | 278.8 | 287.5 | 116.9 | 81.1 | 80.0 | 58.5 | 34.8 | 23.9 | 25.2 | 72.7 | 36.0 | 14.6 | 31.7 | 16.4 |
Accrued interests | 5.1 | — | — | - | | - | 5.1 | - |
Quality of Technical Service | 75.7 | 47.0 | 46.0 | 15.0 | 15.2 | 7.0 | 10.4 | 4.9 | 4.7 | 3.2 | 5.6 | 5.2 | 170.2 | 177.7 | 176.3 | 75.7 | 47.0 | 46.0 | 15.0 | 15.2 | 7.0 | 10.4 | 4.9 | 4.7 | 3.2 | 5.6 | 5.2 |
Quality of Technical Product | 12.4 | 3.2 | 3.4 | 3.1 | 3.0 | 0.9 | 0.6 | 1.1 | 6.9 | 6.5 | 5.5 | 2.9 | 29.0 | 19.8 | 18.7 | 12.4 | 3.2 | 3.4 | 3.1 | 3.0 | 0.9 | 0.6 | 1.1 | 6.9 | 6.5 | 5.5 | 2.9 |
Quality of Commercial Service | 6.8 | 5.1 | 3.0 | 2.4 | 1.6 | 1.1 | 1.2 | — | 1.2 | 0.5 | 1.5 | 1.7 | 14.2 | 10.6 | 13.9 | 6.8 | 5.1 | 3.0 | 2.4 | 1.6 | 1.1 | 1.2 | - | 1.2 | 0.5 | 1.5 | 1.7 |
Public Safety | 17.7 | 19.8 | 19.4 | 34.0 | 11.6 | 10.3 | 6.7 | 25.4 | 10.9 | 2.0 | 4.9 | 4.2 | 64.3 | 57.5 | 37.6 | 17.7 | 19.8 | 19.4 | 34.0 | 11.6 | 10.3 | 6.7 | 25.4 | 10.9 | 2.0 | 4.9 | 4.2 |
Transport Technical Function | 0.2 | 0.6 | 0.4 | 0.3 | 0.2 | 0.4 | — | 0.2 | — | -6.1 | 5.4 | 2.3 | 0.2 | 0.6 | 0.4 | 0.3 | 0.2 | 0.4 | - | 0.2 | - |
Reporting Violations | 3.4 | 4.2 | 6.6 | 3.7 | 2.9 | 4.4 | 5.6 | 33.7 | 12.2 | 1.7 | 4.9 | 1.9 | 10.1 | 6.2 | 25.8 | 3.4 | 4.2 | 6.6 | 3.7 | 2.9 | 4.4 | 5.6 | 33.7 | 12.2 | 1.7 | 4.9 | 1.9 |
Others | 0.9 | 1.3 | 1.3 | — | 0.2 | 7.5 | — | 0.4 | 9.0 | 0.5 | - | 1.6 | 13.0 | 0.9 | 1.3 | - | 0.2 | 7.5 | - | 0.4 | 9.0 | 0.5 |
Less: Paid during period: | | | | - | |
Quality of Technical Service | — | — | 1.6 | — | 0.9 | 3.3 | 64.1 | 85.6 | - | 1.6 | - | 0.9 | 3.3 |
Quality of Technical Product | — | — | 2.3 | 54.1 | - | 2.3 |
Quality of Commercial Service | 6.5 | 4.5 | 1.9 | 3.7 | — | 1.5 | 0.4 | 0.1 | 0.3 | 1.4 | 16.8 | 14.2 | 11.1 | 6.5 | 4.5 | 1.9 | 3.7 | - | 1.5 | 0.4 | 0.1 | 0.3 | 1.4 |
Public Safety | -- | — | 0.1 | 8.9 | 1.6 | — | 2.1 | 79.8 | - | - | 0.1 | 8.9 | 1.6 | - | 2.1 |
Transport Technical Function | -- | — | — | 0.2 | 0.3 | — | 0.1 | 0.4 | 0.2 | - | - | 0.2 | 0.3 | - | 0.1 | 0.4 | 0.2 |
Others | -- | — | — | 0.6 | — | 1.7 | 102.9 | - | - | 0.6 | - | 1.7 |
Total paid during period | | | | | | | | | | | | | 317.7 | 99.8 | 11.1 | 6.5 | 4.5 | 2.0 | 12.6 | 1.6 | 1.7 | 0.7 | 2.3 | 0.1 | 0.2 | 1.6 | 11.0 |
Plus: Adjustment to fines and penalties pursuant to the ratification of the Adjustment Agreement | | | | | | - | 17.2 | 18.1 | 47.0 | - |
Accruals at year-end | | | | | | | | | | | | | |
| | | |
Accruals at year‑end | | 1,066.8 | 1,102.8 | 923.8 | 647.4 | 531.9 | 455.4 | 377.5 | 331.6 | 281.4 | 241.1 | 169.7 | 99.2 | 63.4 | 49.0 | 19.0 |
______________________
Note: The facts or events that generated the amounts charged in each period may have occurred in prior periods and not necessarily in the period in which the charge is made.
In 2015, accrued fines and penalties do not include Ps.186.3 million under the ENRE settlement.
In 2015, the fines and penalties imposed on us by the ENRE amounted to Ps. 281.7 million, which represented 7.6% of our energy sales.
As of December 31, 2015, total accrued fines and penalties imposed on us amounted to Ps.1,253.1 million, including Ps.186.3 million under the ENRE settlement, Ps. 364.1 million in penalties accrued but not yet imposed on us and Ps. 702.7 million penalties imposed on us but not yet paid.
Although in our opinion, the RTI process will have to factor in a revised analysis of the treatment to be given to the fines and penalties determined prior the RTI and an agreement on quality levels and a new system of fines and penalties that provides for an adequate transitional period until the tariff schedule resulting from the RTI is fully implemented, recent developments may indicate otherwise.
Such recent developments include verbal exchanges with certain officials of the new administration, and the issuance of the Note by the ENRE on April 15, 2016, establishing that all fines and penalties imposed by the ENRE after April 15, 2016 (whether with respect to events occurring on or after such date or events occurring prior to the date thereof but for which fines or penalties had not been imposed on us by such date, that include a reference to “Note No. 120,151”, must be valued according to the KWh values in effect as of the last date of the semester or period during which the event giving rise to the penalty occurred, including any increases or adjustments applicable to our “remuneration” at such date. In addition, fines and penalties that fall within the purview of the Note will accrue interest from the last date of the semester on which the event giving rise to the penalty occurred until the date they are paid by us. As of the date of this annual report, fines and penalties in an aggregate amount equal to Ps. 757.2 million are subject to the Note. Such amount as adjusted to reflect accrued interest according to the Note would increase by Ps. 129.0 million.
In our opinion, any adjustments to our fines and penalties (whether by virtue of the Note or otherwise, and including the accrual of interest as provided in the Note) should not be applicable to us because the delay in imposing such fines and penalties was caused by the Argentine government and was not within our control. Additionally, if any adjustments are made applicable to us, we believe the Argentine government would be binding us to the terms of the Adjustment Agreement without taking into account that it has not recognized certain of our rights thereunder, such us our right to have tariffs adjusted to reflect increases in operation costs that are necessary for adequately providing our services.
Due to the disruption in the provision of service resulting from a power outage during a heat- wave that occurred between December 20 and December 31, 2010 in our concession area, the ENRE issued Resolution No. 32/11 in February 2011whereby2011 whereby we were fined in the amount of Ps.1.1 million and ordered to compensate those customers who had been affected by the power cuts for approximately Ps.21.2 million. We have filed a direct appeal with the Appellate Court in Contentious and Administrative Federal Matters No. 1, requesting that such resolution be declared null and void.
Additionally, we filed a petition for the granting of a precautionary measure whichinjunctive relief aimed at suspending the application of the fine imposed until a decision on the direct appeal is issued.rendered. On April 28, 2011, the court rejecteddenied the precautionary measure petition.request for injunctive relief. As a consequence, we filed ana federal extraordinary federal appeal (“Recurso Extraordinario Federal”) which was dismissed.subsequently rejected. We then filed ananother appeal (“Recurso de Quejaqueja por apelación denegada”) with the Supreme Court requesting that the rejected extraordinary federal appeal be sustained, whichsustained. During 2014, the Appellate Court in Contentious and Administrative Federal Matters No. 1, denied the direct appeal requesting such resolution be declared null and granted the extraordinary appeal on the grounds that the matter corresponded to the scope and interpretations of a federal rule but not as to the arbitrariness of the date of this annual report has not been resolved. Furthermore, on July 8, 2011,judgment claimed by Edenor. Consequently, we requestedthen filed an appeal (“Recurso de queja por apelación denegada”) requesting that notice of the substance of the caseboth appeals be served on the ENRE. Having this procedural step been carried out and the service of notice been answered, the proceedings are awaiting resolution.entertained jointly. As of December 31, 2012,2015, Edenor estimated a potential obligation of Ps. 30.434.9 million as a result of ENRE Resolution No. 32/20112011of the ENRE and registered an accrual for this amount in its financial statements for the year ended December 31, 2012.2014.
On April 24, 2013, the Company was notified that such direct appeal had been denied by the Appellate Court in Contentious and Administrative Federal Matters No. 1. As of the date of this annual report, the Company, together with its legal counsel, is assessing the situation, which involves the precautionary measure and the appeal of this last resolution.
On a separate note, on November 15, 2012, the Company was notified byof the Regulatory Authorities of ENRE’s Resolution No.336/No. 336/2012, pursuant to which the areaoffice in charge of applying and managingenforcing the ENRE’s Regulationsregulations was instructed to immediately initiate the corresponding penalty procedure in order forsanction proceeding so as to have the distribution companies EDENOR and EDESUR S.A.( “Edesur’ (“Edesur’’) to:: (a) determine the customers affected by the power cuts occurred as a consequence of failures between October 29 and November 14, 2012; (b) determine the discounts tobe recognized to each of the affected customers; and (c) credit them on account ofsuch discounts towards the final discounts that will result from the evaluation of the Technical Service Quality relating to the six-month control period.
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In addition, it was resolved that the Company and Edesur shall compensate each small“small demand residential customercustomer” (T1R) who had been affected by the power cuts occurred during the aforementioned period. The amount of the compensation will dependdepends on the length of the power cut provided, however, that such power cutwhich must have lasted for more than 12 continuous hours. AsWe have recorded a Ps. 16.7 million provision in connection with this compensation.
On January 7, 2014, we were notified of December 31, 2012,Resolution No. 1/2014 of the provision recordedENRE ordering the payment of compensation to each user affected by the Companyextreme weather occurring in December 2013 and January 2014. A credit determined by the duration of the interruption of the service was recognized to each affected user in our invoices until such credit was fully cancelled, representing an additional 100% compensation for penaltiesthose users who had been affected by similar interruptions of supply in previous years. The total compensation paid amounted to Ps. 85.6 million.
On March 28, 2016, we were notified of Resolution No. 31/2016 of the ENRE pursuant to which we were instructed to compensate the small residential customers (T1R) who had been affected by the power outages occurred during the period between February 12, 2016 and compensationsFebruary 18, 2016. The amount of such compensation depends on the duration of each relevant power outage. The total compensation to be paid amounts to Ps.16.7Ps. 73 million.
Foreclosureon the PledgeofOur Class A common shares or Revocation of Our Concession
Pursuant to the terms of the Adjustment Agreement, the Argentine government may forecloseon the pledgeofEdenor Class A common shares and sell them in a public bidding process if any of the following occur:occurs:
· Edenor incurincurs penalties in excess of 20% of our gross energy sales, net of taxes (which corresponds to our energy sales) in any given year;
· EASA, fails to obtain the ENRE’s approval in connection with the disposition of our Class A common shares;
· material and repeated breaches of the Concession that are not remedied upon request ofby the ENRE;
· EASA creates any lien or encumbrancesencumbrance on our Class A common shares (other than the existing pledge toin favor of the Argentine government);
· EASA or Edenor obstruct the sale of the Class A common shares at the end of any management period underaccording to the terms of the Concession;
· our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A common shares without the ENRE’s prior approval; or
· our shareholders or former shareholders fail to desist from any ICSID claimsclaim brought against the Argentine government following the completion of the RTI process and the approval of a new tariff regime.
Upon the occurrence of any of these events, the Argentine government will have the right to forecloseon the pledgeofour Class A common shares and exercise the voting rights of the Class A common shares until the transfer of such shares to a new purchaser occurs, at which time EASA will receive the proceeds of such transfer, net of a specified penalty payable to the Argentine government.
In addition, under the terms of our concession, the Argentine government has the right to revoke our concession if we enter into bankruptcy and the Argentine government decides that we shallmay not continue rendering services, in which case all of our assets will be transferred to a new state‑owned company that will be sold in an international public bidding process. At the conclusion of this bidding process, the purchase price willwould be delivered to the bankruptcy court in favor of our creditors, net of any debt owed by us to the Argentine government. Any residual proceeds willwould be distributed among our shareholders.
Pursuant to the Eden Concession, the grantor of the concession has the right to foreclose on the pledge of our Class A shares and sell them in the following situations:
·a breach of Articles 16 or 17 of the concession agreement;
·upon notice from theOrganismo de Control de Energía Eléctrica de la Provincia de Buenos Aires (“OCEBA”) of a continuing breach and Eden’s failure to cure such breach within the period of time specified in the concession agreement.
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·when the accumulated fines applied to Eden in the previous year are greater than 20% of its annual earnings before taxes;
·if the guarantors are taxed, or become permitted to be taxed, in any way in respect of the pledged shares;
·if Eden or the guarantors hamper in any way the national and international public tender of the Class A common shares under the Eden Concession; or
·if an Eden assembly approves, without the intervention of the enforcement authority, a reform of the Company’s by-laws or a share issuance that results in, or could result in, a change of control of the Class A shares or their voting rights.
Upon the occurrence of any of these events, the Provincial Government of Buenos Aires will have the right to foreclose its pledge over the Eden Class A common shares and exercise the voting rights of these shares until such shares are transferred to a new purchaser at which time the previous owner of those shares will receive the proceeds of such transfer, net of a specified penalty payable to the Provincial Government of Buenos Aires. The previous owner of the Class A common shares is not entitled to participate, directly or indirectly, in the public bidding process, nor will it be otherwise permitted to make an offer to buy such shares.
Periodic bidding for control of Edenor
Before the end of each management period under our concession, the ENRE will arrange for an international public bidding procedure to be conducted for the sale of 51% of our capital stock and voting rights in similar conditions to those under which EASA acquired its stake. EASA will be entitled to participatetoparticipate in the bid. The person or group offering the highest price will acquire the stock and will pay the offered price to EASA. If EASA is the highest bidder or if EASA’s bid equals the highest bid, it will retain 51% of our stock, but no funds will need to be paid to the Argentine government and EASA will have no further obligation with respect to its bid. There is no restriction as to the amount EASA may bid. In the event EASA fails to submit a bid or its bid is lower than the highest bid, the Class A common shares will be transferred to the highest bidder and the price paid by the purchaser (except for any amounts owed to the Argentine government) will be delivered to EASA.
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The first management period was set to expire on August 31, 2007. We presented a request for a five-year extension of the initial management period in May 2007 and on July 5, 2007, the ENRE, pursuant to the ENRE resolutionResolution No. 467/2007 of the ENRE, agreed to extend the initial management period for an additional five years from the date that the new tariff structure is adopted under the RTI. The remaining 10-year periods will run from the expiration of the extension of the initial management period.
Default of the Argentine government
If the Argentine government breaches its obligations in such a way that we cannot comply with our obligation under our concession or in such a way that our distribution service is materially affected, we canmay request the termination of our concession, after giving the Argentine government a 90 days’ prior notice. Upon termination of our concession, all our assets used to provide our electricity distribution service will be transferred to a new state‑owned company to be created by the Argentine government, whosewhich shares will be sold in an international public bidding procedure. The amount obtained in such bidding will be paid to us, net of the payment of any debt owed by us to the Argentine government, plus compensation established as a percentage of the bidding price, ranging from 10% to 30% depending on the management period in which the sale occurs.
Edenor Network
As of December 31, 2012,2015, the system through which we supply electricity was composed of 7275 Sub-Stations of high/high voltage, high/high/medium voltage and high/medium voltage, representing 14,70315,839 MVA of transformer capacity and 1,4101,438 kilometers of high-voltage power lines of 220 kV, 132 kV and 27.7 kV.27.5 k. Thedistribution system of medium/low voltage was comprised of 15,63616,930 transformers of medium/low voltage, representing 6,0357,171 MVA of transformer capacity, 9,57310,216 kilometers of medium‑voltage power lines of 33 and 13.2 kV and 25,47926,248 kilometers of low-voltage power lines 380 V.
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The following table provides certain information concerning our transmission and distribution system as of the dates presented:
| | As of December 31, |
| | | | 2015 | 2014 | 2013 |
Kilometers of transmission lines | | |
High voltage | 1,410 | 1,382 | 1,368 | 1,438 | 1,410 | 1,396 |
Medium voltage | 9,573 | 9,446 | 9,364 | 10,216 | 9,978 | 9,738 |
Low voltage | | | | 26,248 | 26,030 | 25,806 |
Total | 36,462 | 36,156 | 35,855 | 37,902 | 37,418 | 36,940 |
Transformer capacity (MVA) | | | |
High voltage/high voltage | 7,948 | 7,648 | 7,048 | 8,128 | 7,828 | 7,908 |
High voltage/medium voltage | 6,755 | 6,695 | 6,571 | 7,711 | 7,131 | 6,991 |
Medium voltage/low voltage and medium voltage/medium voltage | | | | 7,171 | 6,897 | 6,505 |
Total | 20,941 | 20,368 | 19,468 | 23,010 | 21,856 | 21,404 |
Demand is provided from points of interconnection with the Argentine Interconnection System (Sistema Argentina de Interconexión, or SADI) (500 kV-220 kV Rodríguez Substation, 220 kV Ezeiza Substation) and from the local Puerto and Costanera power plants. In turn, the transmission network links these nodes with head sub-stations of 220 kV: Casanova, Colegiales, Malaver, Matheu, Morón, Rodríguez, Talar and Zappalorto, and 132 kV Matanza, Ramos Mejía, Agronomía, Puerto Nuevo, Edison and Edison.Malvinas.
This transmission and subtransmission system (the “HV System”), together with the Edesur and Edelap S.A. (“Edelap”) systems, forms the Greater Buenos Aires (GBA) system. The GBA system is operated by the Sociedad Anónima Centro de Movimiento de Energía (SACME), 50% of whose share are owned by us and Edesur. SACME is responsible for the management of regional high-voltage distribution in the greater Buenos Aires metropolitan area, coordinating, controlling and supervising the operation of the generation, transmission and sub-transmission network in the City of Buenos Aires and the greater Buenos Aires metropolitan areas, including coordination with the SADI in our and Edesur’s concession areas. SACME also represents its shareholders in the control of distribution for those concession areas.
We distribute energy from the sub-stations of high/medium voltage through the primary 13.2kV and 33kV system to a secondary 380/220 V low-voltage system. Our distribution network, consisting of several transformers, power lines and substations, distributes the electricitysystem, supplying to finalend users with varieddifferent voltages dependinglevels according to their requirements. In exceptional cases we supply energy in high voltages to certain users.
Construction works on the requirementstransformation system 220/132 kV in the Rodriguez Substation were partially completed in 2015. Additionally, in 2015, 220/132 kV works on the transformation system in the Rodriguez Substation were partially completed with the startup of end users. Certain customers, however, are supplied with power at significantly higher voltages.
In May 2012, we finished the constructionone of the 220kV Edenortwo 300 MVA transformers, and the connection to the 132 kV network linkinghas been completed through two electroducts links to the Malvinas and Pilar substation heads. The startup of the local generation Central Puerto and Central Costanera, through Malaver substation. This extension was defined by the Resolution 1875/05 of the Secretary of Energy and it allows the increase in supply capacity by 600 MW. In December 2012, the third transformer ofsecond 300 MVA-220/MVA 220/132 kV was put into servicetransformer is expected to be completed in Malaver´s substation.
We are currentlythe beginning of 2016 . Furthermore, we continue working withtowards the Argentine government to constructinstallation of a new entry point for our Substation Oscar Smith, whose enlargement was includedtransformer (500/220 kV) of 800 MVA in the SecretaryRodriguez Substation, with financing from the Administration of Energy Resolution No. 700/2011.Transport and Electric Supply Works Trust (FOTAE). We believe that this new entry pointaddition will allow us to meet the increasing energy demandsdemand in the medium and long term throughout our concession area. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Demand—Capacity Demand.”Demand”.
Eden Network
Demand for electricity is provided from points of interconnection with theSistema Argentino de Interconexión, or SADI (Argentine Interconnection System). Eden responds to this demand by distributing electricity from the sub-stations of high/medium voltage through the primary 13.2kV and 33kV system to asecondary 380/220 V low-voltage system. Eden’s distribution network, consisting of several transformers, power lines and substations, distributes the electricity to final users with varied voltages depending on the requirements of end users.
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As of December 31, 2012, the extension of the network, consists of 18,278 Km divided into 7,500 km in LV, 10,450 km in MV and 328 km in HV.
Systems
During 2012 we continued with2015, the consolidation ofCompany implemented significant improvements in its technological platform, consolidating its leading position in the Systems Plan and Medium-Term Plan for Telecommunications. The majorfield. Main projects implemented were the following:were:
· In November 2012 we finalized2015, the second phasefirst stage of implementation of CC&B (Customer Care & Billing), covering the commercialproject started in 2014 aimed at maximizing the operational management of the smallCompany’s fixed assets as well as the labor force through the implementation of one integral management software has completed. This new technology provides the Company with a better understanding of its fixed assets and medium customers, adding 2.7 million customers to the system, which had been operating since 2011 for the large customers. This has been a milestone for Edenor since it reliesbetter planning of maintenance actions. The first stage focused on a modern integral system that replaces a 15 year old obsolete technology.
·We implemented a new system of consumption reading, which is compatible with CC&B,labor force administration (WOM) and allows load and transmission of data from new portable terminals thataddressed teams who carry out technical tasks. The project will continue during 2016 with the readersimplementation of this project in field.
connection with the commercial teams and assets maintenance system.
· In December 2012, we finished the total replacement of the desk computers and notebooks under a contract signedconnection with the company Dell. The project included, among others,CC&B central system (Customer Service and Invoicing), in 2015, several features were added such as the installationintroduction of electronic invoices, adjustments to support new versions of compatible applicationsfeatures for self- administered management meters, and significant adjustments were made to modify the field activities to be carried out in the Technical Project (WOM) environment and adjustments to interact with Windows 7 and Office 2010, security policies redefinition and donation of all the equipments being replaced.
Edenor 2.0.
· AWith reference to the Company’s technical system (Nexus), in 2015, the focus was set on new Intranet system was implemented, usingfeatures and performance improvement, the Microsoft SharePoint tool. The project also includedconnection with the development of various IT collaborative spacesTechnical Project for the different departmentsgeneration of repair work orders and improvement in the Company.Service Quality and Product Quality Modules.
· In July 2012, EDEN finishedWith respect to to the SAP (Data Processing Systems, Applications and Products), in 2015, new modules were implemented and significant improvements were made to the Company’s administrative management, such as the feature called “shopping cart” for minor purchases through a web portal, new features on the suppliers’ portal, including the optimization of urgent purchase processes, decentralized purchases, internal payments, implementation of SAP, thus, installing a system model with features similar to ours and full functionality.
·Theshopping cards. In addition, the electronic invoice issuance module PM of SAP was implemented in order to carry out the management of traffic fleet and maintenance of buildings.implemented.
· Within the frameworkBusiness Intelligence tool, in 2015, several dashboards for decision making have been developed such as for payment rate assessment, workforce evolution, large customer consumption curves, invoice management, sustainable development contracts control and preparation of Information Security:
·A new product for passwords administration by the critical users was acquired.
·A new antivirus was incorporated to the Windows licenses, thus, reducing the coststatistics of licensing.
·Penetration tests were carriedtransformation centers which are out to evaluate the internal security of the installations.
Telecommunications:
·During the year 2012 the 450 km optical fiber connectivity was implemented on Low Voltage, which offers connectivity to Substations, Corporate Buildings and Commercial Offices.
·18 new nodes were acquired to update the remote control network. As a consequence, the SCADA connectivity will improve and will follow the technological development of the new remote control network.order.
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· A new platformIn connection with the Edenor 2.0 System for mobile devices and the web, adjustments were implemented to support 70% of IVR of utlimate generation (GVP of Genesys) was setpaperwork usually carried out in motion with 120 ports of attention capacity, integrated to our technical system (Nexus) and to the new commercial system (CC&B) so that our clients can interact automatically before technical or commercial requests.offices.
· In order to adaptDuring 2015, Smartime was contracted and implemented, which is an attendance management system that centralizes employees’ attendance records using fingerprint registries. The project implied the installationsautomation of the Substationspayroll system to new connectivity technologies, that comply with international policies, equipments that satisfy these policies were installed in the Substationsemployees’ attendance and other reports. During 2016, the second phase of Rodriguez, Morón, Matanza, Colegiales, Edisonthe project will be implemented which involves the decentralization of administrative tasks and Pilar. This network will offer connectivity to protection and remote control equipments.corresponding approval flows.
Telecommunications
Throughout 2015:
·A new Corporate and operational IP telephone solution was implemented which meant the migration of 2,100 telephones using old technology to the IP technology and new corporate Wi-Fi systems were integrated therewith.
·The implementation of the new surveillance video, access control and high-end HD dome systems continued.
·We carried our infrastructure-related works such as the installation and launch of a telecommunications system, the extension of structure cabling, the installation of 56 new corporate network routers, fiber optic connection for Substation Malaver, Colegiales, Agronomía, and Tronador and Estomba buildings and the launch of cable laying in Urquiza, Vidal, Pilar substations and on the Pilar-Moreno sector.
Customers
The following graph shows the evolution of our customer base through December 31 2012:of each year:
As of December 31, 2012,2015, Edenor and Eden served 2,726,422 and 344,065 customers, respectively.2,835,229 customers. We define a “customer” as one meter.
Edenor Tariff Categories
Edenor classifies its customers pursuant to the following tariff categories:
· Residential (T1-R1 to R9)T1-R7): residential customers whose peak capacity demand is less than 10kW. In 2012,2015, this category accounted for approximately 42%43% of our electricity sales.
· Small commercial (T1-G1 and T1-G2)to T1-G3): commercial customers whose peak capacity demand is less than 10kW. In 2012,2015, this category accounted for approximately 8% of our electricity sales.
· Medium commercial (T2): customers whose peak capacity demand is equal to or greater than 10kW but less than 50kW. In 2012,2015, this category accounted for approximately 8% of our electricity sales.
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· Industrial (T3): industrial customers whose peak capacity demand is equal to or greater than 50kW. This category is applied to high-demand customers according to the voltage at which each customer is connected. The voltage ranges included in this category are the following: (i) Low Voltage (LV): voltage less than or equal to 1 kV; (ii) Medium Voltage (MV): voltage greater than 1kV but less than 66 kV; and (iii) High Voltage (HV): voltage equal to or greater than 66kV. In 2012,2015, this category accounted for approximately 16%17% of our electricity sales. This category does not include customers who purchase their electricity directly through the wholesale electricity market under the wheeling system.
· Wheeling System: large users who purchase their electricity directly from generation or broker companies through the wholesale electricity market. These tariffs follow the same structure as those applied under the Industrial category described above. As of December 31, 2012,2015, the total number of such large users was 707,708, and in 20122015 this category represented approximately 21%19% of our electricity sales.
· Others: public lighting (T1-PL) and shantytown customers whose peak capacity demand is less than 10kW. In 2012,2015, this category accounted for approximately 5% of our electricity sales. See “—Framework“Framework Agreement (Shantytowns)”.”
Edenor triesWe try to maintain an accurate categorization of our customers in order to charge the appropriate tariff to each of its customers. In particular, Edenor focuseswe focus on our residential tariff categorizations to both minimize the number of commercial and industrial customers who are classified as residential customers and identify residential customers whose peak capacity demand exceeds 10kW and therefore do not qualify as residential customers.
Edenor reliesWe rely on the following measures to detect incorrectly categorized customers:
· reporting by itsour employees tasked with reading metersmeter information to identify observed commercial activities which are being performed by residential customers,
· conducting internet surveys to identify advertisements for commercial services (such as medical or other professional services) that are linked to a residential customer’s address, and
· analyzing customer demand to determine whether Edenorwe should further evaluate the peak capacity demand of a given customer whose use might exceed 10kW.
Reading, Billing and Collecting
Edenor bills itsWe bill our customers based on their category of service. Residential and small commercial customers are billed a fixed charge payable bimonthlymonthly and a variable charge based on each unit of energy consumed. The price of these charges, in turn, is determined basedenergy consumption savings obtained by customers are calculated by comparing the current consumption with the customer’s consumption registered on the same period in the immediately preceding year. As of January 29, 2016, since the issuance of Resolution No. 1/16, the ENRE established a new billing schedule on a monthly basis maintaining consumption readings on a bimonthly consumption registered by each customer, which is divided into subcategories for each of ourbasis.
Our residential and small commercial customers are divided into subcategories based on their consumption, as follows:
Residential (Tariff 1-R)1-R or T1-R):
· Tariff 1-R1: bimonthly energy demand less than or equal to 300 kWh
· Tariff 1-R2: bimonthly energy demand greater than 301 kWh
· Tariff 1-R3: bimonthly energy demand greater than 651 kWh and less than 800 kWh
· Tariff 1-R4: bimonthly energy demand greater than 801 kWh and less than 900 kWh
· Tariff 1-R5: bimonthly energy demand greater than 901 kWh and less than 1000 kWh
· Tariff 1-R6: bimonthly energy demand greater than 1001 kWh and less than 1200 kWh
· Tariff 1-R7: bimonthly energy demand greater than 1201 kWh and less than 1400 kWh
·Tariff 1-R8: bimonthly energy demand greater than 1401 kWh and less than 2800 kWh
·Tariff 1-R9: bimonthly energy demand greater than 2800 kWh
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Small commercial (Tariff 1-G)::
· Tariff 1-G1: bimonthly energy demand less than or equal to 1600 kWh
· Tariff 1-G2: bimonthly energy demand greater than 1600 kWh but less than or equal to 4000 kWh
· Tariff 1-G3: bimonthly energy demand greater than 4000 kWh
Medium commercial customers (Tariff T2) are billed a fixed charge based on a fixed amount of capacity that is payable monthly and a variable charge based on each unit of energy consumed.
Industrial customers (Tariff T3) are billed two monthly fixed charges based on capacity during peak hours and non-peak hours and three variable charges for each unit of energy consumed, which charges vary based on whether the unit was consumed during peak hours (from 6 p.m. to 11 p.m.),horas de valle (valley hours, from 11 p.m. to 5 a.m.) or during the remaining hours of the day (from 5 a.m. to 6 p.m.).
Public lighting customers are billed a monthly variable energy charge based on each unit of energy consumed.
The table below shows the number of Edenor customers per category at the dates indicated.
| | | |
| | As of December 31, |
| | | | 2015 | 2014 | 2013 |
Residential | 2,376,981 | 2,354,242 | 2,325,574 | 2,467,757 | 2,443,670 | 2,418,725 |
Small commercial | 311,508 | 306,541 | 299,822 | 325,149 | 317,237 | 314,383 |
Medium commercial | 30,681 | 30,678 | 29,820 | 34,477 | 32,526 | 32,276 |
Industrial | 6,144 | 6,006 | 5,816 | 6,706 | 6,552 | 6,386 |
Wheeling system | 707 | 682 | 643 | 708 | 710 | 713 |
Other* | | | | 432 | 426 | 410 |
Total | 2,726,422 | 2,698,548 | 2,662,068 | 2,835,229 | 2,801,121 | 2,772,893 |
______________________
* Represents public lighting and shantytown customers.
All of the meters are read with portable meter‑reading terminals, either with manual access or optical reading (in the case of electronic meters for medium commercial and industrial customers). The systems validate the readings, and any inconsistent reading is checked inout on the field. Estimates of customer usage are no longer usedwere significantly reduced as a result of this new billing system. Once the invoices are printed, independent contractors in each operating area, that are subject to strict controls, distribute them.
Eden Tariff Categories
·Residential (T1-R1 to R7, T1RE and T4): residential and rural customers whose peak capacity demand is less than 10kW. In 2012, this category accounted for approximately 23% of our electricity sales.
·Small commercial (T1-G1, T1-G2 and T1GE): commercial customers whose peak capacity demand is less than 10kW. In 2012, this category accounted for approximately 8% of our electricity sales.
·Medium commercial (T2): customers whose peak capacity demand is equal to or greater than 10kW but less than 50kW. In 2012, this category accounted for approximately 4% of our electricity sales.
·Industrial (T3BT, T3MT, T8BT, T8MT and T8AT): industrial customers whose peak capacity demand is equal to or greater than 50kW. This category is applied to high-demand customers according to the voltage at which each customer is connected. The voltage ranges included in this category are the following: (i) Low Voltage (LV): voltage less than or equal to 1 kV; (ii) Medium Voltage (MV): voltage greater than 1kV but less than 66 kV; and (iii) High Voltage (HV): voltage equal to or greater than 66kV. In 2012, this category accounted for approximately 28% of our electricity sales. This category does not include customers who purchase their electricity directly through the wholesale electricity market under the wheeling system.
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·Wheeling System: large users who purchase their electricity directly from generation or broker companies through the wholesale electricity market. These tariffs follow the same structure as those applied under the Industrial category described above. As of December 31, 2012, the total number of such large users was83, and in 2012 this category represented approximately 10% of our electricity sales.
·Others: Public Lighting (T1-PL) whose peak capacity demand is less than 10kW and Cooperatives, which are energy distributors in many Municipalities in the Province. In 2012, these categories accounted for approximately 3% and 24% of our electricity sales respectively. Also, other two categories of energy can be included: Self Consumption, belonging to energy consumed in Eden facilities, and Recovered Energy, which is energy consumed in previous periods and billed in the current one. These two concepts represented 0.3% of energy sales.
Eden tries to maintain an accurate categorization of our customers in order to charge the appropriate tariff to each of our customers. In particular, Eden focuses on its residential tariff categorizations to both minimize the number of commercial and industrial customers who are classified as residential customers, and identify residential customers whose peak capacity demand exceeds 10kW and therefore do not qualify as residential customers.
Eden relies on the following measures to detect incorrectly categorized customers:
·reporting by its employees tasked with reading meters to identify observed commercial activities which are being performed by residential customers.
·conducting internet surveys to identify advertisements for commercial services (such as medical or other professional services) that are linked to a residential customer’s address, and
·analyzing customer demand to determine whether Eden should further evaluate the peak capacity demand of a given customer whose use might exceed 10kW.
Reading, Billing and Collecting
Eden bills its customers based on their category of service. Residential and small commercial customers are billed a fixed charge payable bimonthly and a variable charge based on each unit of energy consumed. The price of these charges, in turn, is determined based on the bimonthly consumption registered by each customer, which is divided into subcategories for each of our residential and small commercial customers as follows:
Residential (Tariff 1-R):
·Tariff 1-R1: bimonthly energy demand less than or equal to 200 kWh
·Tariff 1-R2: bimonthly energy demand greater than 200 kWh and less than 400 kWh
·Tariff 1-R3: bimonthly energy demand greater than 400 kWh and less than 800 kWh
·Tariff 1-R4: bimonthly energy demand greater than 800 kWh and less than 1000 kWh
·Tariff 1-R5: bimonthly energy demand greater than 1000 kWh and less than 1400 kWh
·Tariff 1-R6: bimonthly energy demand greater than 1400 kWh and less than 2800 kWh
·Tariff 1-R7: bimonthly energy demand greater than 2800 kWh
·Tariff 1-RE1 (seasonal residential): bimonthly energy demand less than or equal to 1000 kWh
·Tariff 1-RE2 (seasonal residential): bimonthly energy demand greater than 1000 kWh and less than 1400 kWh
·Tariff 1-RE3 (seasonal residential): bimonthly energy demand greater than 1400 kWh and less than 2800 kWh
·Tariff 1-RE4 (seasonal residential): bimonthly energy demand greater than 2800 kWh
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·Tariff 4 (Rural): Rural customers with less than 10 kW peak capacity demand
Small commercial (Tariff 1-G):
·Tariff 1-G1: bimonthly energy demand less than or equal to 2000 kWh
·Tariff 1-G2: bimonthly energy demand greater than 2000 kWh but less than or equal to 4000 kWh
·Tariff 1-G3: bimonthly energy demand greater than 4000 kWh
·Tariff 1-GE1 (seasonal commercial): bimonthly energy demand less than or equal to 4000 kWh
·Tariff 1-GE2 (seasonal commercial): bimonthly energy demand greater than 4000 kWh
Medium commercial customers (Tariff T2) are billed a fixed charge based on a fixed amount of capacity that is payable monthly and a variable charge based on each unit of energy consumed.
Industrial customers (Tariff T3) are billed two monthly fixed charges based on capacity during peak hours and non-peak hours and three variable charges for each unit of energy consumed, which charges vary based on whether the unit was consumed during peak hours (from 6 p.m. to 11 p.m.),horas de valle (valley hours, from 11 p.m. to 5 a.m.) or during the remaining hours of the day (from 5 a.m. to 6 p.m.).
Public lighting customers are billed a monthly variable energy charge based on each unit of energy consumed.
The table below shows the number of Eden customers per category at the dates indicated.
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| |
| | | |
Residential | 296,249 | 293,320 | 288,931 |
Small commercial | 43,491 | 42,657 | 41,130 |
Medium commercial | 1,462 | 1,446 | 1,372 |
Industrial | 834 | 812 | 748 |
Wheeling system | 83 | 81 | 83 |
Others* | 1,946 | 1,918 | 1,748 |
Total | 344,065 | 340,234 | 334,012 |
* Represents public lighting and shantytown customers.
All of the meters are read with portable meter‑reading terminals, either with manual access or optical reading (in the case of electronic meters for medium commercial and industrial customers). The systems validate the readings, and any inconsistent reading is checked in the field. Estimates of customer usage are no longer used as a result of this new billing system. Once the invoices are printed, independent contractors subject to strict controls, distribute them.
Slow-Paying Accounts and Past Due Receivables
When we assumed the operation of the distribution system from SEGBA in September 1992, many residential electricity meters had not been read for months, individual customer account information was unreliable or nonexistent, and billing and collection systems and procedures required substantial improvement. The state of these customer records made it difficult to determine how much electricity individual customers had used and whether they were delinquent in paying for the service. As a result, one of our primary objectives since 1992 has been to address and minimize slow-paying accounts and past due receivables.
Since 1992, many procedures have been established to reduce delinquency and make collection possible. Our Commercial Department oversees the strict observance of such procedures.
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Municipalities’ accounts form a significant number of our arrears accounts. The methods of collection on such arrears vary for each municipality. One method of collection is to withhold from the municipalities certain taxes collected by us from the public on behalf of the municipalities and using such taxes to offset any past due amounts owed to us by such municipalities. Another method of collection is enteringisentering into refinancing agreements with the municipalities. These procedures allowed us to reduce significantly the number of arrears accounts.
Our past due receivables increaseddecreased from Ps. 81.9229.3 million as of December 31, 20112014 to Ps. 137.1209.3 million as of December 31, 2012. This increase2015. The decrease was mainly due to a decrease in past due receivables was mainly due towith residential customers. By the resultend of 2014, the preliminary injunction awarded pursuant to the request of the Ombudsman challenging the October 2008 adjustment of our tariffs, to late payments from our government customers and to a delay in delinquency actions resulting from the implementation of our billing system and distortions in the amounts billed under the stabilization factor. The preliminary injunction prohibitsthat prevented us from cuttingtaking actions to rectify delinquent customer situations and suspend the supply of energyelectricity to customers challengingwith consumption levels above 1000 kW/h was lifted. Accordingly, we were able to reduce the October 2008 tariff increase until a decision is reached with respect to the Ombudsman’s claim. See “Item 8. Financial Information—Legal and Administrative Proceedings—Legal Proceedings—Preliminary Injunctionimpact of the Public Ombudsman.” Our collections experienced the greatest adverse impact in response to the injunction during February and March 2009; however, they continue to be adversely impacted.delinquency on our operating balance.
The following graph shows Edenor delinquent balances as of December 31, of each year:
We also supply energy to low-income areas pursuant to theframework agreement with the Argentine government and the Province of Buenos Aires, for which certain payments are still owed to us. See “—Framework“FrameworkAgreement(Shantytowns)”.”
Energy Losses
Energy losses are equivalent to the difference between energy purchased and energy sold, and may be classified as technical and non-technical losses. Technical losses represent the energy that is lost during transmission and distribution within the network as a consequence of natural heating of the transformers and conductors that transmit the electricity from the generating plants to the customers. These losses typically increase in proportion to the amount of energy volume distributed (as has been the case for us in recent years). Technical losses are normal for any energy distributor and cannot be completely eliminated, but can bethough reduced bythrough improvements in the network.
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We believe that the level of technical energy losses is approximately 7% in countries with similar distribution networks similar to ours. Non-technicalnetworks. The non-technical energy losses represent the remainder of our energy losses and are primarilymainly due to the illegal use of ourits services and administrative and technical errors.
Energy losses require us to purchase additional energy to satisfy apparent demand, thereby increasing costs. Furthermore, illegally tied-in customers typically consume more electricity than the average level of consumption for their category. We are unable to recover from customers the cost of electricity purchased beyond the average loss factor established asset at 10% (on average) pursuant to our concession. TheTherefore, the reduction of energy losses therefore reduces the amount of energy that we have to purchase to satisfy apparent demand but cannot invoice, and increases the amount of electricity actually sold.
At the time of the privatization of the electricity sector in 1992, our total energy losses were approximately 30%. At that time, our non-technical losses were estimated at 21%, with over half of that amount due to fraud and illegal use of our service. In response to the high level of losses, we implemented a loss reduction plan in 1992, which emphasized on accurate measurement of energy consumption through periodic inspections, reduction of administrative errors, regularization of shanty towns, reduction of illegal direct connections, provision of services to shantytowns and reduction of technical losses.
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At present, our goal is to maintain our energy losses at an optimal level, taking into account the cost of reducing such losses and the level at which we are reimbursed for the cost of these losses under our concession. Our procedures for maintaining an optimal level of losses are focused on improving collections to ensure that customers pay for all the energy that they consume and making investments in our network to control technical losses. To reduce the theft of electricity we have implemented vigilance and special technologies, such as much higher networks that cannot be reached using normal ladders, shields close to the electricity posts, concentric cables, shielded meters and suspension of electricity service, among other remedies. We
Moreover, we are experimenting with other programs including teaching low-income customers how to ration their consumption, providing low-income customersthem with the option of paying in installments and the installation of 4,800 prepaid meters. We also planmeters, which reached a number of 8,000 prepaid meters installed in 2015.
In Regions II and III of our concession area, low-income neighborhoods continue to encourage, through subsidies,be detected and shantytowns have expanded. Energy theft remains the installationmain cause of special low-energy lamps. A final decisionthe increase in total energy losses within such regions. Throughout 2015, we continued working with respectthe support of legal counsel to file criminal complaints against such frauds and to establish new technological criteria in order to reduce the implementationvulnerabilities of these energy sales measures on a large scale is currently under evaluation by the ENRE. In addition, the Argentine government has implemented a program through PRONUREE (Programa Nacional de Uso Racional y Eficiente de la Energía) to distribute low energy consumption lamps to our customers through agreements with local municipalities. Since 2008, over 3 million of such lamps were distributed to our customers through this program.grid.
The following table illustrates Edenor’s estimationour estimates of the approximate breakdown between technical and non-technical energy losses experienced in Edenor’sour concession area since 2002.2006. We believe that non-technical losses could increase in 2016 following the establishment of the new tariff structure pursuant to Resolution No 1/16 of the ENRE.
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| |
| | | | | | | | | | | |
Technical losses | 10.5% | 9.8% | 9.8% | 9.8% | 9.8% | 9.6% | 8.6% | 8.3% | 8.1% | 8.0% | 7.8% |
Non‑technical losses | | | | | | | | | | | |
Total losses.. | 13.3 % | 12.6% | 12.5% | 11.9% | 10.8% | 11.6% | 11.1% | 11.0% | 11.5% | 12.7% | 12.3% |
| | Year ended December 31, |
| | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
Technical losses | 11.1% | 10.8% | 10.3% | 10.5% | 9.8% | 9.8% | 9.8% | 9.8% | 9.6% | 8.6% |
Non technical losses | 3.8% | 3.5% | 2.7% | 2.8% | 2.8% | 2.7% | 2.1% | 1.0% | 2.0% | 2.5% |
Total losses | 14.9% | 14.3% | 13.0% | 13.3% | 12.6% | 12.5% | 11.9% | 10.8% | 11.6% | 11.1% |
As of December 31, 2012,2015, totalenergy lossesrecorded by Eden us were 10.6%14.9%, out of which technical losses represented 8.2%11.1% and non-technical losses represented 2.4%3.8%.
Framework Agreement (Shantytowns)
In accordance with the terms of itsour concession Edenor suppliesand given the nature of public service that the law grants to the distribution of electricity, the Company is required to supply electricity to all users within the concession area, including low-income areas and shantytowns located within its serviceour concession area. In October 2003, Edenor, Edesur and Edelap entered into a framework agreement (the“2003 Framework Agreement”) with the Argentine Governmentgovernment and the Province of Buenos Aires (the “2003 Framework Agreement”) toregulate theirthe supply of electricity to low-income areas and shantytowns. Under this agreement, Edenor is compensatedthe 2003 Framework Agreement, the Company has the right to receive compensation for the service Edenor providesservices provided to shantytowns by a commission formed in each shantytown that collectsfrom funds collected from residents of each relevant shantytown, the shantytown. In addition, Edenor is compensated separately by the municipalityMunicipality in which each shantytownit is located and, if there is any paymenta shortfall, by a special fund supported by the Argentine Governmentgovernment and the government of the Province of Buenos Aires. Specifically, theThe Argentine Government contributes an amount equal to 21%,government and the Province of Buenos Aires contribute an amount equal to 21% and 15.5%, of thesuch compensation, respectively, net of taxes, paid by those customers with payment problems and meter irregularities, whowhich are regularized under the 2003 Framework Agreement.transferred to distributors such as Edenor as compensation. On June 23, 2008, Edenor entered into an amendment to the 2003 Framework Agreement (the “Amended 2003 Framework Agreement”) with the Argentine Government,government, the Province of Buenos Aires and the other national electric distributors extending the terms of the 2003 Framework Agreement. This Amended 2003 Framework Agreement expired on December 31, 2010.
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On July 22, 2011, the Company, together with Edesur and Edelap, entered into an addendum with the Federal GovernmentArgentine government and the Governmentgovernment of the Province of Buenos Aires, to extend for the renewal for aan additional term of four years of the Amended 2003 Framework Agreement. Such extension was approved on September 21, 2012 by Resolution No.248/No. 248/12 issued by the ENRE and ratified by the Ministry of Federal Planning Public Investment and Services pursuant to Resolution No. 247/2012.12. As of December 31, 2014 the Agreement expired. As of the date of this annual report, negotiations with the Argentine government and the Government of the Province of Buenos Aires to enter into a new agreement are ongoing.
As of December 31, 20122015, 2014 and 2011,2013, our receivable balances with the Federal GovernmentArgentine government and the Governmentgovernment of the Province of Buenos Aires for the supply of electricity to shantytowns amounted to Ps. 25.475.8 million, Ps. 75.8 million and Ps. 25.756.9 million, respectively.
On October 18, 2012, we entered into an agreement for the settlement of non-financial obligations and subscription of Buenos Aires Province Government Bonds with respectDue to the amount owed to us by the Province of Buenos Aires as of December 31, 2010. Pursuant to the agreement, we agreed to receive an amount of Ps. 325,000 in cash and subscribe Series B Bonds for a residual nominal value of Ps. 6.1 million as settlementexpiration of the debt that the Province2003 Framework Agreement, no revenue was recognized on account of Buenos Aires owed to us at December 31, 2010such concept during fiscal year 2015. During 2015 we have not recorded revenues for the electric power we supplied to low-income areas.
Ps. 32.4 million.
Insurance
As of December 31, 2012,2015, we had insurance for loss and damage to property, including damage due to floods, fires and earthquakes covering up to U.S. $887.7$ 1,299.5 million, with the following deductibles:
· transformers, between U.S. $175,000$ 175,000 and U.S. $850,000$ 850,000 (depending on their power level);
· equipment of sub-stations (not including transformers), U.S. $75,000.$ 75,000.
· commercial offices, U.S. $1,500$ 1,500 for each office;
· deposits and other properties, U.S. $25,000;$ 25,000; and
· acts of terrorism, U.S.$50,000, being the maximum insured amount for this purpose, U.S.$ 10,000,000.
We are also insured against theft of cash and securities for a maximum amount of U.S. $100,000$ 150,000 and U.S. $5,000,$ 5,000, respectively.
In addition, we maintain the following insurance, subject to customary deductibles and limitations:
· Directors’ and Officers’ Liability insurance;
· Civil Liability insurance;
· Automobile insurance;
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· Mandatory life insurance for all our officers and employees which is maintained in accordance with Argentine law; and
· Optional life insurances for all our officers and employees
Although we do not have business interruption insurance, we consider our insurance coverage to be adequate and in accordance with the prevailing standards for the industry. See “Item 3. Key Information. Information—Risk Factors—Risks Relating to Our Business—OurIn the event of an accident or other event not covered by our insurance, may not be sufficient to cover certain losses.”we could face significant losses that could materially adversely affect our business and results of operations”.
Environmental Management
In Argentina, the Argentine government, the provincial governments and the government of the City of Buenos Aires are entitled to legislate on natural resources and environmental protection issues. The 1994 Constitution reaffirms this principle, assigning to the Argentine government the establishment of broad environmental guidelines and to the provincial governments and to the government of the City of Buenos Aires the duty to implement the necessary legislation to attain national environmental goals. The environmental policy for the electricity market is formulated by the Secretary of EnergySE and implemented by the ENRE. Areas regulated by the ENRE include the tolerance level for electromagnetic fields, radio interference, voltage of contact and pass, liquid spills, disposal and handling of solid wastes, noise and vibration admissible levels and use, and the transport and storage of hazardous waste, including polychlorinated biphenyl (PCB), a viscous substance which was historically used to lubricate electrical transformers. The Argentine Environmental Law requiresrequired that we eliminate the PCB in our transformers before the end of 2010.
Over the course of 2009, we completed the removal of PCBs from all our transformers with contaminated coolingcoolant oils exceeding 50 ppm (parts per million), the limit established by Federal law.National Law No. 25,670.
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As part of our investment plan, we made important improvements to our network and implemented technological innovations to evaluatewhich reduced the impact of these improvements on the environment and the surrounding areas. We are currently engaged, together with environmental governmental entities, in the application of procedures to decontaminate mineral oils.environment. We are required to apply for licenses from the ENRE for all our business activities, including thosewhich include certain requirements related to the environment.environmental protection. We believe that we are in compliance in all material respects with all applicable environmental standards, rules and regulations established by the ENRE, the Secretary of EnergySE and other federal, provincial and municipal authorities. We have implemented environmental variables testingmanagement programs to evaluate environmental variancesimpact and to take corrective actions when necessary. In addition, we have in place an environmental emergency plan designed to reduce potential adverse consequences ifshould an environment accident shouldcontingency occur. Finally, as part of our environmental actions, we improved and deepened the program of rational uses of energy in our buildings and in our customer equipment.
Regarding the addition of new installations and related construction works, all of the studies corresponding to the Environmental Impact Evaluation required by law are being made. These analyses are presented to local environmental authorities and submitted to consideration of the local communities in Public Audiences held as required by applicable regulations for the issuance of an Environmental Aptitude Certificate.
On October 19, 1999, the Argentine Institute of Normalization(Instituto Argentino de Normalización (the Argentine Institute of Normalization)) certified that we have an Environmental Management System that is in accordance with the requirements of the standards set by the International Standardization Organization (ISO) as specified in its release, ISO 14001, which relates specifically to environmental management systems. This certification is reaffirmed on an annual basis, most recently as of December 2012.2015.
Argentine law requires all persons whose activities risk environmental damage, such as us, to obtain environmental insurance up to a certain minimum coverage or set aside funds in an environmental restoration fund to pay for environmental liabilities that may arise.
Since the enactment of Resolution No. 481/11 ofby the Argentine Environment Secretary (Secretaría de Ambiente y Desarrollo Sustentable de la Nación (Argentine Environment Secretary)), our business is not considered an activity with significant environmental damage, and is exempt from the environmental insurance requirement set forth by Law 25,675 Section 22. WeHowever, we also have an environmental emergency plan that details the steps that would be taken in theevent that our operations resulted in any environmental damage.
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Seasonality
Demand for our services fluctuates on a seasonal basis. For a discussion ofthisseasonality of demand,see “Item 5. Operating and Financial Review and Prospects—Demand—SeasonalityDemand —Seasonality of Demand.”Demand”.
The Argentine Electricity Industry
Historical Background
Electricity was first made available in Argentina in 1887 with the first public street lighting in Buenos Aires. The Argentine government’s involvement in the electricity sector began in 1946 with the creation of theDirección General de Centrales Eléctricas del Estado (General Directorate of Electric Power Plants of the State) to construct and operate electricity generation plants. In 1947, the Argentine government createdAgua y Energía Eléctrica S.A. (Water and Electricity, or AyEE) to develop a system of hydroelectric generation, transmission and distribution for Argentina.
In 1961, the Argentine government granted a concession to theCompañía Italo Argentina de Electricidad (Italian‑Argentine Electricity Company, or CIADE) for the distribution of electricity in a part of the City of Buenos Aires. In 1962, the Argentine government granted a concession formerly held by theCompañía Argentina de Electricidad (Argentine Electricity Company, or CADE) toServicios Eléctricos del Gran Buenos Aires (Electricity Services of Greater Buenos Aires, or SEGBA), our predecessor, for the generation and distribution of electricity to parts of Buenos Aires. In 1967, the Argentine government granted a concession to Hidroeléctrica Norpatagónica S.A. (Hidronor) to build and operate a series of hydroelectric generation facilities. In 1978, CIADE transferred all of its assets to the Argentine government, following which CIADE’s business became government‑owned and operated.
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By 1990, virtually all of the electricity supply in Argentina was controlled by the public sector (97% of total generation). The Argentine government had assumed responsibility for the regulation of the industry at the national level and controlled all of the national electricity companies, AyEE, SEGBA and Hidronor. The Argentine government also represented Argentine interests in generation facilities developed or operated jointly with Uruguay, Paraguay and Brazil. In addition, several of the Argentine provinces operated their own electricity companies. Inefficient management and inadequate capital spending, which prevailed under national and provincial government control, were in large measure responsible for the deterioration of physical equipment, decline in quality of service and proliferation of financial losses that occurred during this period.
In 1991, as part of the economic plan adopted by former President Carlos Menem, the Argentine government undertook an extensive privatization program of all major state‑owned industries, including within the electricity generation, transmission and distribution sectors. In January 1992, the Argentine federal congress adopted the Regulatory Framework Law (Law No. 24,065), which established guidelines for the restructuring and privatization of the electricity sector. The Regulatory Framework Law, which continues to provide the framework for regulation of the electricity sector since the privatization of this sector, divided generation, transmission and distribution of electricity into separate businesses and subjected each to appropriate regulation.
The ultimate objective of the privatization process was to achieve a reduction in ratestariffs paid by users and improve quality of service through competition. The privatization process commenced in February 1992 with the sale of several large thermal generation facilities formerly operated by SEGBA, and continued with the sale of transmission and distribution facilities (including those currently operated by our company) and additional thermoelectric and hydroelectric generation facilities.
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Regulatory and Legal Framework
Role of the Government
The Argentine government has restricted its participation in the electricity market to regulatory oversight and policy-making activities. These activities were assigned to agencies that have a close working relationship with one another and occasionally even overlap in their responsibilities. The Argentine government has limited its holding in the commercial sector to the operation of international hydropower projects and nuclear power plants. Provincial authorities followed the Argentine government by divesting themselves of commercial interests and creating separate policy-making and regulatory entities for the provincial electricity sector.
Limits and Restrictions
To preserve competition in the electricity market, participants in the electricity sector are subject to vertical and horizontal restrictions, depending on the market segment in which they operate.
Vertical Restrictions
The vertical restrictions apply to companies that intend to participate simultaneously in different sub-sectors of the electricity market. These vertical restrictions were imposed by Law No. 24,065, and apply differently depending on each sub-sector as follows:
Generators
· Under Section 31 of Law No. 24,065, neither a generation company, nor any of its controlled companies or its controlling company, can be an owner or a majority shareholder of a transmitter company or the controlling entity of a transmitter company; and
· Under Section 9 of Decree No. 1398/1992, since a distribution company cannot own generation units, a holder of generation units cannot own distribution concessions. However, the shareholders of the electricity generator may own an entity that holds distribution units, either as shareholders of the generator or through any other entity created with the purpose of owning or controlling distribution units.
Transmitters
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· Under Section 31 of Law No. 24,065, neither a transmission company nor any of its controlled companies or its controlling entity can be owner or majority shareholder or the controlling company of a generation company;
· Under Section 31 of Law No. 24,065, neither a transmission company, any company controlled by a transmission company nor any company controlling a transmission company can own or be the majority shareholder or the controlling company of a distribution company; and
· Under Section 30 of Law No. 24,065, transmission companies cannot buy or sell electricity.
Distributors
· Under provision 31 of Law No. 24,065, neither a distribution company, nor any of its controlled companies or its controlling company, can be owner or majority shareholder or the controlling company of a transmission company; and
· Under Section 9 of Decree No. 1398/1992, a distribution company cannot own generation units. However, the shareholders of the electricity distributor may own generation units, either directly or through any other entity created with the purpose of owning or controlling generation units.
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Definition of Control
The term “control” referred to in Section 31 of Law No. 24,065 (which establishes vertical restrictions) is not defined in the Electricity Regulation Framework. Section 33 of the Argentine CompaniesCorporations Law states that “companies are considered as controlled by others when the holding company, either directly or through another company: (1) holds an interest, under any circumstance, that grants the necessary votes to control the corporate will in board meetings or ordinary shareholders’ meetings; or (2) exercises a dominant influence as a consequence of holding shares, quotas or equity interest or due to special linkage between the companies.” We cannot assure you, however, that the electricity regulators will apply this standard of control in implementing the restrictions described above.
Horizontal Restrictions
In addition to the vertical restrictions described above, distribution and transmission companies are subject to horizontal restrictions, as described below.
Transmitters
· According to Section 32 of Law No. 24,065, two or more transmission companies can merge or be part of the same economic group only if they obtain an express approval from the ENRE. Such approval is also necessary when a transmission company intends to acquire shares of another electricity transmission company;
· Pursuant to the concession agreements that govern the services rendered by private companies operating transmission lines above 132Kw and below 140Kw, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement; and
· Pursuant to the concession agreements that govern the services rendered by the private company operating the high-tension transmission services equal to or higher than 220Kw, the company must render the service on an exclusive basis and is entitled to render the service throughout the entire country, without territorial limitations.
Distributors
· Two or more distribution companies can merge or be part of the same economic group only if they obtain an express approval from the ENRE. Such approval is necessary when a distribution company intends to acquire shares of another electricity transmission or distribution company; and
· Pursuant to the concession agreements that govern the services rendered by private companies operating distribution networks, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement.
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2001 Economic Crisis
At the end of 2001 and beginning of 2002, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Argentine Economic Conditions.”Conditions”. The crisis and the Argentine government’s policies during this period severely affected the electricity sector. Pursuant to the Public Emergency Law enacted to address the crisis, the Argentine government, among other measures:
· converted public utility tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00;$ 1.00;
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· froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services);
· revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including energy concessions); and
· empowered the Argentine Executive Branch to conduct a renegotiation of public utility contracts (including energy concessions), including the tariffs for public utility services.
These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utilities in Argentina, including on us. Because public utilities were no longer able to increase tariffs to cover their cost increases, the impact of inflation on costs led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition. Most public utilities had also incurred large amounts of foreign currency indebtedness under the fixed one-to-one Peso per Dollar exchange rate of the ConvertibilityRegime and, following the elimination of the ConvertibilityRegime and the resulting devaluation of the Peso, the debt service burden of these utilities increased sharply, which led many of these utilities to suspend payments on their foreign currency debt in 2002. This situation caused many Argentine electricity generators, transmission companies and distributors to defer making further investments in their networks. As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand. In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.
The Argentine government has repeatedly intervened in and modified the rules of the wholesale electricity market since 2002 in an effort to address the electricity crisis generated by the economic crisis. These modifications include the establishment of caps on the prices paid by distributors for electricity power purchases and the requirement that all prices charged by generators be calculated based on the price of natural gas (also regulated by the Argentine government) regardless of the fuel actually used in generation activities. These modifications have created a huge structural deficit in the operation of the wholesale electricity market. The Argentine government has made some attempts at correcting these problems, including proposing new rules to structure the wholesale electricity market in December 2004 and creating a special fund to finance infrastructure improvements in the energy sector in April 2006, but little progress has been made in advancing a system-wide solution to the problems confronting Argentina’s electricity sector.
In September 2006, the Secretary of EnergySE issued Resolution No. 1281/1,281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis. This resolution seeks to create incentives for energy generation plants in order to meet increasing energy needs. The resolution’s principal objective is to ensure that energy available in the market is used primarily to service residential users and those industrial and commercial users whose energy demand is at or below 300 kilowatts (kW) and who lack access to other viable energy alternatives. To achieve this, the resolution provides that:
· large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kW), such as us, will be authorized to secure energy supply up to their “base demand” (equal to their demand in 2005) by entering into term contracts; and
· large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kilowatts) must satisfy any consumption in excess of their base demand with energy from theEnergía Energy Plus (Energy Plus) (Plus Energy) system at unregulated market prices.marketprices. The Energy Plus system consists of the supply of additional energy generation from new generation and/or generating agents, co-generators or auto-generators who are not agents of the electricity market or who as of the date of the resolution were not part of the wholesale electricity market. Large users in the wholesale electricity market and large customers of distribution companies can also enter into contracts directly with these new generators or purchase energy at unregulated market prices through CAMMESA.
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This resolution helped us to mitigate the risk of energy shortages due to a lack of electricity generation. See “Business—“—Business Overview—Our obligations.”
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In 2009, the Argentine government completed construction and began operation of two new 800 MW combined cycle generators constructed as part of its effort to increase energy supply. The costs of construction were financed with net revenues of generators derived from energy sales in the spot market and through specific charges from CAMMESA to large users. These funds had been deposited in the Fund for Investments Required to Increase Electricity Supply in the Wholesale Electricity Market(Fondo de Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (Fund for Investments Required to Increase Electricity Supply in the Wholesale Electricity Market,, or FONINVEMEM).
Regulatory Authorities
The principal regulatory authorities responsible for the Argentine electricity industry are:
(1) the SecretarySecretariat of Energy;Electric Energy (“SEE”);
(2) the ENRE, the regulator for EdenorENRE; and
(3) The OCEBA, the regulator for Eden.Ministry of Energy.
The Secretary of EnergySE advises the Argentine government on matters related to the electricity sector and is responsible for the application of the policies concerning the Argentine electricity industry. See “Risks“Item. 3. Key Information—Risk Factors—Risks Relating to Our Business - Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern””
The ENRE is an autonomous agency created by the Regulatory Framework Law. The ENRE has a variety of regulatory and jurisdictional powers, including, among others:
· enforcement of compliance with the Regulatory Framework Law and related regulations;
· control of the delivery of electric services and enforcement of compliance with the terms of concessions;
· adoption of rules applicable to generators, transmitters, distributors, electricity users and other related parties concerning safety, technical procedures, measurement and billing of electricity consumption, interruption and reconnection of supplies, third‑party access to real estate used in the electricity industry and quality of services offered;
· prevention of anticompetitive, monopolistic and discriminatory conduct between participants in the electricity industry;
· imposition of penalties for violations of concessions or other related regulations; and
· arbitration of conflicts between electricity sector participants.
TheUnder the Law No. 24,065, the ENRE is managed by a five-member board of directors appointed by the Executive Branch of the Argentine government. Two of these five members are nominated by theConsejo Federal de la Energía Eléctrica (Federal Council on Electricity, or CFEE). The CFEE is funded with a percentage of revenues collected by CAMMESA for each MWh sold in the market. Sixty percent of the funds received by the CFEE are reserved for theFondo Subsidiario para Compensaciones Regionales de Tarifas a Usuarios Finales (Regional Tariff Subsidy Fund for End Users), from which the CFEE makes distributions to provinces that have met certain specified tariff provisions. The remaining forty percent is used for investments related to the development of electrical services in the Argentine provinces.
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The OCEBA exercises control and supervision over, and regulatory and judicial activities related to electric power by Buenos Aires Province distributors, including Eden, Edes and Edea as well as the municipal distributors (also known as “cooperatives”). It was created as a result of the privatization process and the concession of public services and activities of general interest.
The Wholesale Electricity Market
Overview
The Secretary of EnergySE established the wholesale electricity market in August 1991 to allow electricity generators, distributors and other agents to buy and sell electricity in spot transactions or under long-term supply contracts at prices determined by the forces of supply and demand.
The wholesale electricity market consists of:
· a term market in which generators, distributors and large users enter into long-term agreements on quantities, prices and conditions;conditions. Since March 2013, pursuant to Resolution 95/2013 of the SE, all large users have to buy their backup energy from CAMMESA at any relevant contractual maturity dates.
· a spot market, in which prices are established on an hourly basis as a function of economic production costs, represented by the short-term marginal cost of production and demand; and
· a stabilization fund, managed by CAMMESA, which absorbs the differences between purchases by distributors at seasonal prices and payments to generators for energy sales at the spot price.
Operation of the Wholesale Electricity Market
The operation of the wholesale electricity marketWEM is administered by CAMMESA. CAMMESA was created in July 1992 by the Argentine government, which currently owns 20% of CAMMESA’s capital stock. The remaining 80% is owned by various associations that represent wholesale electricity market participants, including generators, transmitters, distributors and large users.
The following chart shows the relationships among the various actors in the WEM:
CAMMESA is in charge of:
· managing the national interconnection system pursuant to the Regulatory Framework Law and related regulations, which includes:
· determining technical and economic dispatch of electricity (i.e., schedule of production for all generating units on a power system to match production with demand) in the national interconnection system;
· maximizing the system’s security and the quality of electricity supplied;
· minimizing wholesale prices in the spot market;
· planning energy capacity needs and optimizing energy use pursuant to the rules set out from time to time by the Secretary of Energy,SE, and
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· monitoring the operation of the term market and administering the technical dispatch of electricity pursuant to any agreements entered into in such market;
· acting as agent of the various wholesale electricity market participants;
· purchasing or selling electricity from or to other countries by performing the relevant import/export operations; and
· providing consulting and other services related to these activities.activities;
·supplying fuel pursuant to Resolution 95/2013 of the SE, which includes the management, acquisition, nationalization, control, reception, storage and distribution of liquid fuels to Generation Centrals through marine, river and land transportation;
·administrating the expansion of gas pipelines associated to natural gas supply to the new thermal centrals under construction;
·managing the availability of the generation system, formalizing, controlling and supervising the works involved with supply commitment contracts. Implementation of the maintenance plans for the thermal system;
·implementing the increase in capacity of the central storage;
·incorporating Biodiesel to the electricity generation matrix; and
·developing related activities pursuant to the execution of new generation infrastructure and transport, managing the trust contracts for the new thermal and nuclear centrals, especially for non-conventional sources of energy or those works within the National Hydraulic Works Program.
The operating costs of CAMMESA are covered by mandatory contributions made by wholesale electricity market participants. CAMMESA’s annual budget is subject to a mandatory cap equivalent to 0.85% of the aggregate amount of transactions in the wholesale electricity market projected for that year.
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Wholesale Electricity Market Participants
The main participants in the wholesale electricity market are generation, transmission and distribution companies. Large users and traders participate also in the wholesale electricity market but to a lesser extent.
Generators
According to a recent report issued by CAMMESA, as of December 31, 2012,2015, there were 91123 generation companies 23– certain of which operate several plants such as Enarsa, Secco, Agrekko, Sullair-, 25 auto-generation and three3 co-generation companies in Argentina, most of which operate more than one generation plant.Argentina. As of December 31, 2012,2015, Argentina’s installed power capacity was 31,138 MW.33,493 MW, out of which 1,679 MW were subject to a start-up testing process. Of this amount, 61%the installed capacity, 61.1% was derived from thermal generation, 36%33.2% from hydraulic generation, and 3%5.2% from nuclear generation.generation and 0.5% from non-conventional sources of energy. Private generators participate in CAMMESA through theAsociación de Generadores de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Generators, or AGEERA), which is entitled to appoint two acting and two alternate directors of CAMMESA.
Transmitters
Electricity is transmitted from power generation facilities to distributors through high voltage power transmission systems. Transmitters do not engage in purchases or sales of power. Transmission services are governed by the Regulatory Framework Law and related regulations promulgated by the Secretary of Energy.SE.
In Argentina, transmission is carried at 500 kV, 300 kV, 220 kV and 132 kV through the national interconnection system. The national interconnection system consists primarily of overhead lines and sub-stations (i.e., assemblies of equipment through which electricity delivered by transmission circuits is passed and converted into voltages suitable for use by end users) and covers approximately 90% of the country. The majority of the national interconnection system, including almost all of the 500 kV transmission lines, has been privatized and is owned by Transener, which is indirectly co-controlled by Pampa Energía, our indirect controlling shareholder and the largest integrated electricity company in Argentina.inArgentina. Regional transmission companies, most of which have been privatized, own the remaining portion of the national interconnection system. Supply points link the national interconnection system to the distribution systems, and there are interconnections between the transmission systems of Argentina, Brazil, Uruguay and Paraguay allowing for the import and export of electricity from one system to another.
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Transmission companies also participate in CAMMESA by appointing two acting and two alternate directors through the Argentine Association of Electric Power Transmitters(Asociación de Transportistas de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Transmitters,, or ATEERA).
Distributors
Each distributor supplies electricity to consumers and operates the related distribution network in a specified geographic area pursuant to a concession. Each concession establishes, among other things, the concession area, the quality of service required, the ratestariffs paid by consumers for the distribution service and an obligation to satisfy demand. The ENRE monitors compliance by federal distributors, including us and Edesur with the provisions of the respective concessions and with the Regulatory Framework Law. In turn, provincial regulatory agencies monitor compliance by local distributors with their respective concessions and with local regulatory frameworks.
The OCEBA monitors compliance by Buenos Aires Province distributors, including Eden, Edes and Edea as well as the municipal distributors with the provisions of their respective concession agreements. We and Edesur are the largest distribution companies and, together with Edelap, originally comprised SEGBA, which was divided into three distribution companies at the time of its privatization in 1992.
Distributors participate in CAMMESA by appointing two acting and two alternate directors through the Argentine Association of Electric Power Distributors(Asociación de Distribuidores de Energía Eléctrica de la República Argentina, (Electric Power Distributors, or ADEERA).
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Large Users
The wholesale electricity market classifies large users of energy into three categories: Major Large Users(Grandes Usuarios Mayores (Major, or GUMAs), Minor Large Users or GUMAs),(Grandes Usuarios Menores (Minor, or GUMEs) and Particular Large Users or GUMEs) and(Grandes Usuarios Particulares, (Particular Large Users, or GUPAs).
Each of these categories of users has different requirements with respect to purchases of their energy demand. For example, GUMAs are required to purchase 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts.
Large users participate in CAMMESA by appointing two acting and two alternate directors through the Argentine Association of Electric Power Large Users(Asociación de Grandes Usuarios de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Large Users,, or AGUEERA).
Traders
Since 1997, traders are authorized to participate in the wholesale electricity market by intermediating block sales of energy. Currently, there are eight authorized traders in the wholesale electricity market, several of which conduct transactions with Comercializadora de Energía del Mercosur S.A. (CEMSA) in the export market.
Spot Market
Spot Prices
The emergency regulations enacted after the Argentine crisis in 2001 and 2002 had a significant impact on energy prices. Among the measures implemented pursuant to the emergency regulations were the pesification of prices in the wholesale electricity market, known as the spot market, and the requirement that all spot prices be calculated based on the price of natural gas, even in circumstances where alternative fuel such as diesel is purchased to meet demand due to the lack of supply of natural gas.
Prior to the crisis, energy prices in the spot market were set by CAMMESA, which determined the price charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis. The spot price reflected supply and demand in the wholesale electricity market at any given time, which CAMMESA determined using different supply and demand scenarios that dispatched the optimum amount of available supply, taking into account the restrictions of the transmission grid, in such a way as to meet demand requirements while seeking to minimize the production cost and the cost associated with reducing risk of system failure.
The spot price set by CAMMESA compensated generators according to the cost of the last unit to be dispatched for the next unit as measured at the Ezeiza 500 kV substation, which is the system’s load center and is in close proximity of the City of Buenos Aires. Dispatch order was determined by plant efficiency and the marginal cost of providing energy. In determining the spot price, CAMMESA also would consider the different costs incurred by generators not in the vicinity of Buenos Aires.
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In addition to energy payments for actual output at the prevailing spot market prices, generators would receive compensation for capacity placed at the disposal of the spot market, including stand-by capacity, additional stand-by capacity (for system capacity shortages) and ancillary services (such as frequency regulation and voltage control). Capacity payments were originally established and set in U.S. Dollars to allow generators to cover their foreign‑denominated costs that were not covered by the spot price. However, in 2002, the Argentine government set capacity payments in reference to the Peso thereby limiting the purpose for which capacity payments were established.
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Seasonal Prices
The emergency regulations also made significant changes to the seasonal prices charged to distributors in the wholesale electricity market, including the implementation of a pricing ladder organized by level of customer consumption (which varies depending on the category of customer)customers) charged by CAMMESA to distributors at a price significantly below the spot price charged by generators. According to the current regulatory framework, the Secretary of EnergySE is required to adjust the seasonal price charged to distributors in the wholesale electricity market every three months and the ENRE must calculate the tariff scheme as a result of applying the adjustment. However, between January 2005 and November 2008, the ENRE did not make these adjustments. In November 2008, the ENRE passed Resolution No. 628/08 establishing a new distribution tariff as from October 1, 2008 and modified seasonal prices charged to federal distributors, including the consumption levels that make up the pricing ladder.
On August 14, 2009, the ENRE adopted Resolution No. 433/2009 approving two tariff charts to be applied by Edenor, for the winter period of 2009. These charts were based on the new subsidized seasonal prices set forth by Resolution No. 652/09 issued by the Secretary of Energy.SE. The new price charts aimed at reducing the impact of increased winter electric energy consumption on the invoicing of residential customers with bi-monthly consumption exceeding 1,000 kWh. The ENRE also instructed Edenor to break down the floating charges of all invoices into the amounts subsidized and not subsidized by the Argentine government.
During the winter season for the period between 2009-2012,2009-2013, the seasonal ratetariff chart was revised twice. For the months of June and July, tariffs were revised so that residential customers with consumption levels above 1,000 kWh received a full subsidy for their energy purchases. For the months of August and September, residential customers with consumption levels above 1,000 kWh received a subsidy equal to a 70 percent70% of their energy purchase price.
Prior to the implementation of the emergency regulations, seasonal prices were determined by CAMMESA based on an estimate of the weighted average spot price that would be paid by the next generator that would come on-line to satisfy a theoretical increase in demand (marginal cost), as well as the costs associated with the failure of the system and several other factors. CAMMESA would use a seasonal database and optimization models in determining the seasonal prices and would consider both anticipated energy supplies and demand, including, expected availability of generating capacity, committed imports and exports of electricity and the requirements of distributors and large users.
In November 2012, pursuant to Resolution No. 2,016/12 of the SE and in accordance with the Summer Seasonal Program approved for the period November 2012- April 2013, the seasonal price format was modified, concluding in a single purchase price without considering any demand nor time segmentation and taking into account the structure of the demand as of October 2012 as the base. Subsequently, the SE adopted Resolution No. 408/13, which maintained both the single price and the criteria for raising subsidies during the winter season.
During the winter season 2014,theResolution No. 2,016/12 was applied without any price reduction andresidential customers with consumption levels above 1,000 kWh did not received subsidy equivalent to that received in 2013.
On January 25, 2016, the Ministry of Energy issued Resolution No. 6/16, approving the seasonal WEM prices for each category of users for the period from February 2016 through April 2016. Such Resolution adjusted the seasonal prices as required by the regulatory framework. Energy prices in the spot market were set by CAMMESA, which determined the price to be charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis. The WEM prices resulted in the elimination of certain energy subsidies and a substantial increase in electricity rates for individuals. Resolution No. 6/16, introduced different prices depending on the categories of customers. Such resolution also contemplates a social tariff for residential customers who comply with certain consumption requirements, which includes a full exemption for monthly consumptions below or equal to150 Kwh and tariffs benefits for customers who exceed such consumption level but achieve a monthly consumption lower than that of the same period in the immediately preceding year.
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Stabilization Fund
The stabilization fund, managed by CAMMESA, absorbs the difference between purchases by distributors at seasonal prices and payments to generators for energy sales at the spot price. When the spot price is lower than the seasonal price, the stabilization fund increases, and when the spot price is higher than the seasonal price, the stabilization fund decreases. The outstanding balance of this fund at any given time reflects the accumulation of differences between the seasonal price and the hourly energy price in the spot market. The stabilization fund is required to maintain a minimum amount to cover payments to generators if prices in the spot market during any relevant quarter exceed the seasonal price.
Billing of all wholesale electricity market transactions is performed monthly through CAMMESA, which acts as the clearing agent for all purchases between participants in the market. Payments are made approximately 40 days after the end of each month.
The stabilization fund was adversely affected as a result of the modifications to the spot price and the seasonal price made by the emergency regulations, pursuant to which seasonal prices were set below spot prices resulting in large deficits in the stabilization fund. As of December 31, 2012,2015, the stabilization fund balance was approximately Ps. 20,20826,376 million, resulting from the Stabilization fund plus the over expenses of dispatch net of National Treasury contributions. ThisIf all the funds and accounts of energy and power are considered (including the Additional Energy, Fuel over expenses, Quality Supply, Surplus Demand pursuant to Resolution No. 1,281/07 of the SE, MEM, over expense contracts, etc.), this balance rises to Ps. 69,466 million. The deficit has been financed by the Argentine government through loans to CAMMESA and with FONINVEMEM funds, but these continue to be insufficient to cover the differences between the spot price and the seasonal price.
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Term Market
Generators are able to enter into agreements in the term market to supply energy and capacity to distributors and large users. Distributors are able to purchase energy through agreements in the term market instead of purchasing energy in the spot market. Term agreements typically stipulate a price based on the spot price plus a margin. Prices in the term market have at times been lower than the seasonal price that distributors are required to pay in the spot market. However, as a result of the emergency regulations, spot prices in the term market are currently higher than seasonal prices, particularly with respect to residential tariffs, making it unattractive for distributors to purchase energy under term contracts while prices remain at their current levels.
As from March 2013, pursuant to the SE’s Resolution No. 95/2013 all large users have to buy their backup energy from CAMMESA at any relevant contractual maturity date.
Energía Plus Energy
In September 2006, the Secretary of EnergySE issued Resolution No. 1281/1,281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis. This resolution seeks to create incentives for energy generation plants in order to meet increasing energy needs. The resolution’s principal objective is to ensure that energy available in the market is used primarily to service residential users and industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. To achieve this, the resolution provides that:
· large users in the wholesale electricity market and large customers of distribution companies (in both cases whose energy demand is above 300 kilowatts), will be authorized to secure energy supply up to their “base demand” (equal to their demand in 2005) by entering into term contracts; and
· large users in the wholesale electricity market and large customers of distribution companies (in both cases whose energy demand is above 300 kilowatts) must satisfy any consumption in excess of their base demand with energy from the Energía Plus Energy system at unregulated market prices. The Energía Plus Energy system consists in the supply of additional energy generation from new generation and/or generating agents, co-generators or autogenerators that are not agents ofagentsof the electricity market or who as of the date of the resolution were not part of the wholesale electricity market. Large users in the wholesale electricity market and large customers of distribution companies can also enter into contracts directly with these new generators or purchase energy at unregulated market prices through CAMMESA.
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Only the new generation facilities (which include generators that were not connected to the SADI as of September 5, 2006) and new generation capacity expansions in respect of existing capacity as of such date are entitled to sell electricity under theEnergía Plus Energy system.
The resolution also established the price large users are required to pay for excess demand, if not previously contracted underEnergía Plus Energy, which is equal to the generation cost of the last generation unit transmitted to supply the incremental demand for electricity at any given time. The Secretary of EnergySE established certain temporary price caps, to be paid by large users for any excess demand until December 2008 (Ps. 225/MWh for GUDIs and Ps. 185/Mwh for GUMEs and GUMAs).
Theseprices have been updated asfollows: follows:
· After August 2011, the median incremental charge for excess demandwas set at 320 $/MWh for GUMAs and GUMEs and 455 $/MWh for GUDIs; andGUDIs;
· Afterafter December2011, median incremental charge for excess demand for those who are not subsidized was set at 360 $/MWh. MWh;
·pursuant to the SE’s Resolution No. 95/13 from March 22, 2013, as opposed to the backup contracts where a unique energy supplier is authorized by CAMMESA, the Plus Energy contracts still function are available to the large users and generators previously authorized by the Argentine National Planning, Public Investment and Services Ministry. The customers under the GUDI category, whose Energy Plus contracts mature, have the option of rehiring Energy Plus, reclassifying themselves under the GUME category; or continue buying the total amount of their energy to the distributors, paying in case needed. Base Surplus Demand pursuant to Resolution SE No. 1,281/07; and
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Table·As of ContentsMarch 13, 2015, the median incremental charge for excess demand was set at 450 $/MWh for GUMAs and GUMEs and 550 $/MWh for GUDIs.
ORGANIZATIONALSTRUCTURE
We are a subsidiary of Pampa Energía, the largest fully integrated electricity company in Argentina. In addition to its indirect stake in us, Pampa Energía currentlyas of the date of filing of this annual report owns several investments in the Argentine electricity sector, including a 50% interest in the controlling shareholder of the principal electricity transmission company in Argentina, Transener, and controlling stakes in sixfive generation plants located in the Provinces of Buenos Aires, Salta, Mendoza and Neuquén (Central Piedra Buena S.A., Hidroeléctrica Los Nihuiles S.A., Hidroeléctrica Diamante S.A., Central Térmica Güemes S.A., EGSSA and Central Térmica Loma de la Lata S.A.).
The following diagram presents our corporate structure including our subsidiaries and their respective direct ownership interests, as of the date of filing of this annual report:report.
All of the subsidiaries presented above have their jurisdiction of incorporation in the Republic of Argentina. See “—History and Development of the Company—Acquisition of Emdersa and Aeseba.”
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Property, plant and equipment
Our main properties are transmission lines, substations and distribution networks, all of which are located in the northwestern part of the greater Buenos Aires metropolitan area and in the northern part of the City of Buenos Aires. Substantially all of our properties are held in concession to provide the electricity distribution service, which, by its nature, is considered to be an essential public service. In accordance with Argentine law and court precedents, assets which arenecessary for the rendering of an essential public service are not subject to attachment or attachment in aid of execution.
The net book value of our property, plant and equipment as recorded on our balance sheetfinancial statements was Ps. 8,885.8 million, Ps. 6,652.5 million and Ps. 5,189.3 million as of December 31, 20122015, 2014 and 2011 was Ps.4,344.6 million2013, respectively. For a description of our capital expenditures plan see “Item 5. Operating and Ps. 4,738.3 million, respectively, out of which Ps. 34.3 million corresponds to Eden in 2012Financial Review and Ps. 35.7 million in 2011.Prospects—Liquidity and Capital Resources—Edenor’s Capital Expenditures”.
The total value of property, plant and equipment transferred by SEGBA on September 1, 1992 was allocated to individual assets accounts on the basis of engineering studies conducted by the Company. The value of property, plant and equipment was determined based on the price effectively paid by EASA for the acquisition of 51% of the Company’s capital stock. SEGBA neither prepared separate financial statements nor maintained financial information or records with respect to its distribution operations or the operations in which the assets transferred to EDENOR were used. Accordingly, it was not possible to determine the historical cost of transferred assets. Additions subsequent to such date have been valued at acquisition cost, net of the related accumulated depreciation. Depreciation has been calculated by applying the straight-line method over the remaining useful life of the assets, which was determined on the basis of the above-mentioned engineering studies. Furthermore, in order to improve the disclosure of the account, the Company has made certain changes in the classification of property, plant and equipment based on each technical process. In accordance with the provisions of IAS 23, borrowing costs in relation to any given asset are to be capitalized when such asset is in the process of production, construction, assembly or completion, and such processes, due to their nature, take long periods of time; those processes are not interrupted; the period of production, construction, assembly or completion does not exceed the technically required period; the necessary activities to put the asset in condition to be used or sold are not substantially complete; and the asset is not in condition so as to be used in the production or start upstartup of other assets, depending on the purpose pursued with its production, construction, assembly or completion. Subsequent costs (major maintenance and reconstruction costs) are either included in the value of the assets or recognized as a separate asset, only if it is probable that the future benefits associated with the assets will flow to the Company, being it possible as well that the costs of the assets may be measured reliably and the investment will improve the condition of the asset beyond its original state. The other maintenance and repair expenses are recognized in profit or loss in the year in which they are incurred.Seeincurred. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Tariffs—Distribution Margin or Value‑Added for Distribution (VAD)—Revisión Tarifaria Integral (Integral Tariff Revision, or RTI)(RTI)”.”
Item 4A. Unresolved Staff Comments
None.On December 30, 2015 and February 23, 2016, we received comment letters from the SEC on our Financial Statements, included in our Form 20-F for the fiscal year ended December 31, 2014. We have provided responses to, and are in contact with the Staff of the SEC regarding, such comments. As of the date of this annual report, there is one matter related to the classification of the cash flows related to the loans for consumption with CAMMESA in the statement of cash flows that is still open
Item 5. Operating and Financial Review and Prospects
The following discussion should be read in conjunction with our audited Consolidated Financial Statementsfinancial statements as of December 31, 2012 and 2011 and for the years ended December 31, 20122015, and 2011,2014, included in Item 18 inof this annual report and the “Selected Financial Data”, included in Item 3 herein. Our Consolidated Financial Statementsfinancial statements have been prepared in accordance with IFRS as issued by the IASB. See “Item 3. Key Information—Selected Financial Data.”
We have prepared our annual financial statements for the fiscal year ended December 31, 2012 included herein, assuming that we will continue as a going concern. Our independent auditors, PWC, issued a report dated April 30, 2013, on our financial statements as of and for the years ended December 31, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. As discussed in Note 1 to the Consolidated Financial Statements,Despite the delay in obtaining tariff increases and the cost adjustments recognition requested by the Company in accordance with the termsimplementation of certain provisions of the Adjustment Agreement, particularly in relation to the implementation of the semi-annual rate adjustments resulting from the CMM and thecontinuous completion of the RTI process, the recent adoption of certain measures, such as Resolution No. 32/15 of the SE and Resolution No. 7/16 of the Ministry of Energy, has allowed us to not only maintain the quality and safety of our service but also to satisfy the constant year-on-year increase in demand for electricity following Argentina’s relative economic growth in recent years (especially, from 2012 through 2015). Accordingly, we have been able to absorb the higher costs associated with the increased supply of electricity and to carry out investments and essential operation and maintenance-related works as planned.
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During 2015, we recorded positive operating expenses that are necessary to maintainincome and net income reversing the levelnegative economic and financial situation experienced in previous years. Such improvement was achieved mainly as a consequence of service significantly affectedthe issuance on March 13, 2015 of Resolution No. 32/15 of the SE, which addressed the need for adjustment of the economic and financial positionsituation of distribution companies granting us a temporary increase in income through funds provided by CAMMESA, applicable retroactively as from February 1, 2015, to cover costs and investments associated with the regular provision of the Company and have raised substantial doubtpublic service of distribution of energy on account of the future RTI.
Notwithstanding the foregoing, as of December 31, 2015, our negative working capital amounted to Ps. 1,811 million, which included debt owed to CAMMESA of Ps. 1,808.6 million plus accrued interest, as described under Note 2.c.IX.e to our Financial Statements, with respect to our abilitywhich we have submitted to continue asCAMMESA a going concern. Management's plansrepayment plan in response to these matters are also described in Note 1. However, our Consolidated Financial Statements asNovember 2015 based on available and projected cash flows data. As of and for the years ended December 31, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcomedate of this uncertainty. See Item 3: “Key Information — Risk Factors — Risks Relatingannual report, negotiations with CAMMESA continue with respect to Our Business - Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariff adjusted to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubtfinal repayment schedule. On December 16, 2015, the Macri administration issued Decree No. 134/15, which declared the state of emergency with respect to the abilitynational electricity system, authoritizing the Ministry of Energy to implement a nation-wide plan of action for the generation, transmission and distribution of electricity and to take actions to guarantee the supply of the Companyelectricity under adequate economic and technical conditions.
During January 2016, the Ministry of Energy issued Resolutions No. 6/16 and No. 7/16 implementing a new tariff schedule that improved the income of distribution companies such as us to continue asenable them to make investments, carry out maintenance works and expand their networks during 2016 Pursuant to such resolutions, the ENRE implemented a going concern” and Item 18: “Financial Statements.”
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Effective January 1, 2012, we adopted IFRS as issued byVAD adjustment to the IASB, in replacementtariff schedule on account of the previous accounting principlesfuture RTI, and is expected to take all necessary action to conclude the RTI process by December 31, 2016.
Notwithstanding the foregoing, our Board of Directors continues evaluating the sufficiency of financial resources allocated to pay for operation costs, investment plans and debt service, together with the impact on the different variables that affect our business, such as demand behavior, losses, penalties and service quality, among others. In addition, our Board of Directors will continue to actively participate in the RTI process, which were under Argentine GAAP. IFRS differis expected to be concluded by December 31, 2016 in certain aspects from the Argentine GAAP. For further information, see Note 4 to our Consolidated Financial Statements. The transition date to IFRS for the Company under first time adoption is January, 1, 2011. Comparative dataaccordance with Section 5 of Resolution No. 7/16 of the Company’s financial statements has been restated to retrospectively reflect the adoptionMinistry of IFRS. For a description of the exceptions permitted or required under IFRS 1, please see Note 4 to our Consolidated Financial Statements.Energy.
Operating Results
We distribute electricity on an exclusive basis to the northwestern part of the greater Buenos Aires metropolitan area and the northern part of the City of Buenos Aires, comprising an area of 4,637 square kilometers, with an aggregate population of approximately seven million people, and to the northern area of the Province of Buenos Aires throughtheEden Concession, which comprises an area of 109,141 square kilometers.people. Pursuant to our concession, we have the exclusive right to distribute electricity to all users within our concession area, including to wholesale electricity market participants. At December 31, 2012,2015, we had 3,070,487 customers out of which 344,065 customers correspond to Eden and 2,726,422 to Edenor.2,835,229| customers.
We serve two markets: the regulated market, which is comprised of users who are unable to purchase their electricity requirements directly through the wholesale electricity market, and the unregulated market, which is comprised of large users that purchase their electricity requirements directly from generators in the wholesale electricity market. The terms and conditions of our services and the tariffs we charge users in both the regulated and unregulated markets are regulated by the ENRE and the OCEBA.ENRE.
Factors Affecting Our Results of Operations
Our net sales consist mainly of net energy sales to users in our serviceconcession area. Our net energy sales reflect the tariffs we charge our customers (which include our energy purchase costs) and reflect deductions for fines and penalties we incur during the year. Any adjustments, however, to our accrual for fines and penalties resulting from increases in our distribution margins are recorded under financial income (expenses) and holding gains (losses). See “Item 4. Information on the Company—Our concession —Fines and penalties.”
In addition, our net sales include late payment charges that we bill our customers for delays in payment of their bills, connection and reconnection charges and leases of poles and other network equipment.
We are currently engaged in RTI with the ENRE, as required by the Adjustment Agreement. The Adjustment Agreement currently contemplates a cost adjustment mechanism for the transition period during which the RTI is being conducted. This mechanism, known as the Cost Monitoring Mechanism (CMM), requires the ENRE to review our actual distribution costs every six months (in May and November of each year) and adjust our distribution margins to reflect variations of 5% or more in our distribution cost base. We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more. Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot assure you that we will receive similar adjustments in the future. As of the date of this annual report we have
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We had requested tenseveral additional increases under the CMM beginning insince May 2008, which increases are still being reviewed by the ENRE (other than the request submitted in May 2008). Under the termsall of the Adjustment Agreement, these ten increases shouldwhich have beenapproved in recognized by ENRE pursuant to Resolution No. 250/13 and Resolution No. 32/15 with retroactive effect as of May 2008, November 2008, May 2009, November 2009, May 2010, November 2010, May 2011, November 2011, May 2012 and November 2012.
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During the year ended December 31, 2012, we recorded a significant decrease in net income and operating income, and our working capital and liquidity levels2008. However, these increases were negatively affected, primarily as a result of the delay in obtaining a tariff increase and in havingnot incorporated into our tariff adjustedstructure in a timely manner to reflect increases in our distribution costs, coupled withcosts. In January 2016, the Ministry of Energy issued Resolution No. 7/16, through which the ENRE implemented a constant increaseVAD adjustment to the tariff schedule on account of the future RTI in operating costseffect as of February 1, 2016. Pursuant to keep adequate service levels. We currently believe that our financial situation will continue worsening, and we estimate that during 2013 we will continue to have negative cash flows and operating results. such resolution, the ENRE issued Resolution No. 1/16 on January 29, 2016 establishing a new tariff structure.
If, in the future, we are not able to recover all of the real incremental costs contemplated by the increase requests pursuant to the CMM and all such future cost increases or there is a significant lag of time between when we incur the incremental costs and when we receive increased revenues,income, and/or if we are not successful in achieving a satisfactory re-negotiation of our tariff structure, we may be unable to comply with our financial and commercial obligations, we may suffer liquidity shortfallsand we may need to restructure our debt to ease our financial condition, any of which, individually or in the aggregate, would have a material adverse effect on our business and results of operations and may cause the value of our ADSs to decline. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern and our auditors’ report included elsewhere in this annual report contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Tariffs” and “Item 3. Key Information—Risk factors—Risks Relating to Our Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tarifftariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.”
In addition, if we fail to comply with the obligations under our concession, we may become subject to fines and penalties imposed by the ENRE, which may include the forfeiture of the Edenor concession. Some of these fines and penalties are payable by granting credits or bonuses to our customers to offset a portion of their electricity charges. Fines and penalties that are not directly related to our customers, such as fines for public safety violations, are paid directly to the ENRE. We charged in our operating expenses approximately Ps. 116.9 million in fines and penalties in the year ended December 31, 2012 and Ps. 81.1 million in the year ended December 31, 2011. We incurred significantly higher levels of fines and penalties in 2011 and 2012, due to an increase in the underlying cost of energy factors upon which the fines and penalties are calculated.
On November 15, 2012, the Company was notified by the Regulatory Authorities of ENRE’s Resolution No.336/2012, pursuant to which the area in charge of applying and managing the ENRE’s regulations was instructed to immediately initiate the corresponding penalty procedure in order for the distribution companies Edenor and Edesur to: (a) determine the customers affected by the power cuts occurred as a consequence of failures between October 29 and November 14, 2012; (b) determine the discounts to be recognized to each of the affected customers, and (c) credit them on account of the final discounts that will result from the evaluation of the Technical Service Quality relating to the six-month control period.
In addition, it was resolved that the Company and Edesur shall be ordered to compensate each small-demand residential customer (T1R) who had been affected by the power cuts occurred during the aforementioned period. The amount of the compensation will depend on the length of the power cut, provided, however, that such power cut lasted more than 12 continuous hours. The provision recorded by the Company for penalties and compensations amounts to Ps. 16.7 million, which is recorded in the “Other non-current liabilities” line item of our financial statements for the year ended December 31, 2012. See “Item 4. Information on the Company—Fines and penalties.”
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The following table sets forth the composition of our net sales for the periods indicated:
| | |
| |
| | |
| (figures in millions) |
Energy sales | Ps | 3,679.3 | Ps | 2,771.3 |
Connection charges | 4.9 | 5.6 |
Reconnection charges | 2.0 | 2.4 |
Pole leases | 39.0 | 26.6 |
Net sales | | | | |
| | | Year ended December 31 |
| | | 2015 | | 2014 | | 2013 |
| | | (Figures in millions) |
Sales of Electricity (1) | | 3,720.4 | | 3,536.1 | | 3,393.8 |
Right of use on poles | | 76.4 | | 57.5 | | 41.5 |
Connection Charges | | 4.2 | | 3.9 | | 4.2 |
Reconnection Charges | | 1.1 | | 0.8 | | 1.2 |
Net sales | | 3,802.1 | | 3,598.3 | | 3,440.7 |
_______________________
(1)Includes revenue from the application of Resolution No. 347/12 for Ps. 535.5 million, Ps. 508.1 million and Ps. 525.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The following tables show Edenor´sEdenor’s energy sales by category of customer (in GWh) for the periods indicated:
| | | | |
| |
| | | | | |
| | | |
| | | |
Residential | 8,662 | 42% | 648 | 23% | 8,139 | 41% | 7,796 | 40% | 7,344 | 40% | 7,545 | 41% |
Small commercial | 1,688 | 8% | 236 | 8% | 1,601 | 8% | 1,543 | 8% | 1,470 | 8% | 1,530 | 8% |
Medium commercial | 1,717 | 8% | 111 | 4% | 1,700 | 9% | 1,634 | 8% | 1,565 | 9% | 1,597 | 9% |
Industrial | 3,335 | 16% | 814 | 28% | 3,442 | 17% | 3,378 | 18% | 3,204 | 18% | 3,277 | 18% |
Wheeling system(1) | 4,261 | 21% | 294 | 10% | 4,156 | 21% | 3,891 | 20% | 3,622 | 20% | 3,700 | 20% |
Others: | | | | | | | | | | | | |
Public lighting | 668 | 3% | 81 | 3% | 656 | 3% | 654 | 3% | 644 | 4% | 644 | 3% |
Cooperatives | — | — | 675 | 24% | — | — | — | — | — | — | — | — |
Shantytowns | 03 | 2% | — | — | 384 | 2% | 377 | 2% | 351 | 2% | 304 | 2% |
Others(2) | | | | | | | | | | | | |
Total | 20,760 | 100% | 2,791 | 100% | 20,098 | 100% | 19,292 | 100% | 18,220 | 100% | 18,616 | 100% |
| | | Year ended December 31, |
| | | 2015 | | 2014 | | 2013 |
Residential | | 9,671 | 43% | | 9,114 | 43% | | 9,114 | 42% |
Small Commercial | | 1,878 | 8% | | 1,714 | 8% | | 1,781 | 8% |
Medium Commercial | | 1,828 | 8% | | 1,712 | 8% | | 1,828 | 8% |
Industrial | | 3,680 | 16% | | 3,431 | 16% | | 3,458 | 16% |
Wheeling System(1) | | 4,200 | 19% | | 4,213 | 20% | | 4,374 | 20% |
Public Lighting | | 688 | 3% | | 678 | 3% | | 683 | 3% |
Shantytowns | | 436 | 2% | | 430 | 2% | | 415 | 2% |
Others(2) | | 21 | 0% | | 20 | 0% | | 21 | 0% |
Total | | 22,402 | 100% | | 21,312 | 100% | | 21,674 | 100% |
(1)Wheeling charges represent our tariffs for generators and large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2)Represents energy consumed internally by our company and our facilities.
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| Year ended December 31, 2012 |
| | |
| (in million of Pesos) |
Residential | Ps. | 983.2 | 35% | Ps. | 200.9 | 28% |
Small Commercial | 388.8 | 14% | 102.8 | 14% |
Medium Commercial | 441.8 | 16% | 41.2 | 6% |
Industrial | 707.8 | 26% | 242.9 | 34% |
Wheeling System(1) | 171.3 | 7% | 29.2 | 4% |
Others: | | | | |
Public Lighting | 97.3 | 2% | 24.3 | 3% |
Cooperatives | | | | |
Shantytowns and others(2) | 31.0 | 1% | 71.7 | 10% |
Total | | | | | | |
| Year ended December 31, 2011 |
| | |
| (in million of Pesos) |
Residential | Ps. | 730.5 | 32% | Ps. | 162.1 | 28% |
Small Commercial | 348.7 | 15% | 86.8 | 15% |
Medium Commercial | 366.9 | 16% | 33.7 | 6% |
Industrial | 322.3 | 27% | 193.7 | 33% |
Wheeling System(1) | 150.3 | 7% | 22.8 | 4% |
Others: | | | | |
Public Lighting | 55.9 | 2% | 21.5 | 4% |
Cooperatives | | | | |
Shantytowns and others(2) | 31.0 | 1% | 61.2 | 11% |
Total | | | | | | |
______________________
(1) Wheeling charges represent our tariffs for large users, which consist of a fixed charge for recognized energy losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2) In 2009, Shantytowns sales totaled Ps. 28.4 million, which was more than offset by an adjustment due to the reversal of the rate chart that determines the prices we charged our customers for electrical power purchases in June and July 2009. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Recognition of Cost of Electric Power Purchases.”
Our revenues and results of operations are principally affected by economic conditions in Argentina, changes in our regulated tariffs and fluctuations in demand for electricity within our service area. To a lesser extent, our revenues and results of operations are also affected by service interruptions or reductions in excess of those contemplated by our concession, which may lead us to incur fines and penalties imposed by the ENRE and OCEBA.
Argentine Economic Conditions and Inflation
Because substantially all of our operations, facilities and customers are located in Argentina, we are affected by general economic conditions in the country. In particular, the general performance of the Argentine economy affects demand for electricity, and inflation and fluctuations in currency exchange rates affect our costs and our margins. Inflation primarily affects our business by increasing operating costs, while at the same time reducing our revenues in real terms.
In December 2001 Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies. The crisis and the Argentine government’s policies during this period severely affected the electricity sector, as described below. Although over the following years the Argentine economy has recovered significantly from the crisis, and the business and political environment has been largely stabilized, the Argentine government has only recently begun to address the difficulties experienced by the Argentine electricity sector as a result of the crisis and its aftermath. However, we believe that the current recovery and the recent measures adopted by the Argentine governmentMacri administration in favor of the electricity sector, such as establishing incentives for the construction of additional generation facilities and the creation offiduciary trust funds to further enhance generation, transmission and distribution of electricity throughout the country, have set the stage for growth opportunities in our industry.
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The following table sets forth key economic indicators in Argentina during the years indicated:
| | |
| | | | | | | | | | |
Real GDP (% change) | 1.9 | 8.9 | 9.2 | 0.9 | 6.8 | 2.5 | 0.4 | 3.1 | 0.7 | 8.3 |
Nominal GDP (in millions of Pesos) | 2,164,246 | 1,842,022 | 1,442,655 | 1,145,458 | 1,032,758 | 6,041,476 | 4,425,694 | 3,406,265 | 2,765,575 | 2,312,009 |
Real Consumption (% change) | 4.8 | 10.7 | 9.1 | 1.5 | 6.6 | 1.3 | (0.5) | 4.3 | 10.2 |
Real Investment (% change) | (4.9) | 16.6 | 21.2 | (10.2) | 9.1 | 2.2 | (5.5) | 3.1 | (7.0) | 19.4 |
Industrial Production (% change) | (1.2) | 6.5 | 9.7 | 0.1 | 5.0 | 0.1 | (1.8) | 0.0 | (7.8) | 6.5 |
Consumer Price Index | 10.0 | 9.8 | 10.5 | 6.3 | 8.6 | |
Nominal Exchange Rate (in Ps. /U.S.$ at year end) | 4.92 | 4.30 | 3.98 | 3.80 | 3.45 | |
Consumer Price Index ** | | 11.9 | 21.4 | 10.6 | 10.0 | 9.8 |
Nominal Exchange Rate (in Ps./U.S.$ at year end) | | 13.4 | 8.6 | 6.5 | 4.9 | 4.3 |
Exports (in millions of U.S.$) | 81,205 | 83,950 | 68,187 | 55,672 | 70,018 | 59,597 | 71,977 | 81,660 | 80,927 | 83,950 |
Imports (in millions of U.S.$) | 68,514 | 73,937 | 56,793 | 38,786 | 57,462 | 57,420 | 65,324 | 73,656 | 68,508 | 73,937 |
Trade Balance (in millions of U.S.$) | 12,691 | 10,013 | 11,394 | 16,886 | 12,556 | 2,177 | 6,653 | 8,005 | 12,419 | 10,013 |
Current Account (% of GDP) | 0.1 | (0.4) | 0.8 | 3.6 | 2.1 | (1.4) | (0.9) | (0.8) | (0.2) | (0.7) |
Reserves (in millions of U.S.$) | 43,290 | 46,376 | 52,145 | 47,967 | 46,386 | 25,563 | 31,443.0 | 30,599.0 | 43,290.0 | 46,376.0 |
Tax Collection (in millions of Pesos) | 679,799 | 540,134 | 409,900 | 304,930 | 269,375 | 1,537.9 | 1,169.7 | 858.8 | 679,799.0 | 540,134.0 |
Primary Surplus (in millions of Pesos) | (4,374) | 4,921 | 25,115 | 17,286 | 32,529 | (106,522) | (38,561.9) | (22,479.0) | (4,374.0) | 4,921.0 |
Public Debt (% of GDP at December 31) * | 40.9 | 41.3 | 44.1 | 55.1 | 54.1 | |
Public Debt (% of GDP at December 31)* | | 39.4 | 41.6 | 34.6 | 34.5 | 34.2 |
Public Debt Service (% of GDP) | 5.8 | 5.9 | 5.5 | 5.8 | 5.6 | 2.8 | 2.5 | 2.6 | 1.9 | 2.6 |
External Debt (% of GDP at December 31) | 29.5 | 30.6 | 32.5 | 36.0 | 38.6 | 14.7 | 15.8 | 11.7 | 11.8 | 12.9 |
Sources: INDEC; Central Bank; Ministry of Economy and Production.
* Includes hold-outs
** The CPI for 2015 was calculated for the ten-month period ended October 31, 2015. In November 2015, the INDEC suspended the publication of the CPI and the WPI.
Following years of hyperinflation and economic recession, in 1991 the Argentine government adopted an economic program that sought to liberalize the economy and impose monetary discipline. The economic program, which came to be known as the ConvertibilityRegime, was centered on the Convertibility Law of 1991 and a number of measures intended to liberalize the economy, including the privatization of a significant number of public sector companies (including certain of our subsidiaries and co-controlled companies). The Convertibility Law established a fixed exchange rate based on what is generally known as a currency board. The goal of this system was to stabilize the inflation rate by requiring that Argentina’s monetary base be fully backed by the Central Bank’s gross international reserves. This restrained the Central Bank’s ability to effect changes in the monetary supply by issuing additional Pesos and fixed the exchange rate of the Peso and the U.S. Dollar at Ps. 1.00 to U.S. $1.00.$ 1.00.
The ConvertibilityRegimetemporarily achieved price stability, increased the efficiency and productivity of the Argentine economy and attracted significant foreign investment to Argentina. At the same time, Argentina’s monetary policy was tied to the flow of foreign capital into the Argentine economy, which increased the vulnerability of the economy to external shocks and led to increased reliance on the services sector of the economy, with the manufacturing, agricultural and industrial sectors lagging behind due to the relative high cost of Peso-denominated products in international markets as a resultaresult of the Peso’s peg to the U.S. Dollar. In addition, related measures restricted the Central Bank’s ability to provide credit, particularly to the public sector.
Following the enactment of the Convertibility Law, inflation declined steadily and the economy experienced growth through most of the period from 1991 through 1997. This growth slowed from 1998 on, however, as a result of the Asian financial crisis in 1997, the Russian financial crisis in 1998 and the devaluation of Brazil’s currency in 1999, which led to the widespread withdrawal of investors’ funds from emerging markets, increased interest rates and a decline in exports to Brazil, Argentina’s principal export market at the time. According to INDEC, in the fourth quarter of 1998, the Argentine economy entered into a recession that caused the gross domestic product to decrease by 3.4% in 1999, 0.8% in 2000 and 4.4% in 2001. In the second half of 2001, Argentina’s recession worsened significantly, precipitating a political and economic crisis at the end of 2001.
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2001 Economic Crisis
Beginning in December 2001, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Central Bank, some of which are still in effect. On December 21, 2001, the Central Bank decided to close the foreign exchange market, which amounted to ade facto devaluation of the Peso. On December 24, 2001, the Argentine government suspended payment on most of Argentina’s foreign debt.
The economic crisis led to an unprecedented social and political crisis, including the resignation of President Fernando De la Rúa and his entire administration in December 2001. After a series of interim governments, in January 2002 the Argentine congress appointed Senator Eduardo Duhalde, a former vice-president and former governor of the Province of Buenos Aires, to complete De la Rúa’s term through December 2003.
On January 6, 2002, the Argentine congress enacted the Public Emergency Law, which introduced dramatic changes to Argentina’s economic model, empowered the Argentine government to implement, among other things, additional monetary, financial and foreign exchange measures to overcome the economic crisis in the short term and brought to an end the ConvertibilityRegime, including the fixed parity of the U.S. Dollar and the Peso. Following the adoption of the Public Emergency Law, the Peso devalued dramatically, reaching its lowest level on June 25, 2002, at which time it had devalued from Ps. 1.00 to Ps. 3.90 per U.S. Dollar according to Banco Nación. The devaluation of the Peso had a substantial negative effect on the Argentine economy and on the financial condition of individuals and businesses. The devaluation caused many Argentine businesses (including us) to default on their foreign currency debt obligations, significantly reduced real wages and crippled businesses that depended on domestic demand, such as public utilities and the financial services industry. The devaluation of the Peso created pressure on the domestic pricing system and triggered very high rates of inflation. According to INDEC, during 2002 the Argentine wholesale price indexWPI increased by approximately 118% and the Argentine consumer price indexCPI rose approximately 41%.
Following the adoption of the Public Emergency Law, the Argentine government implemented measures, whether by executive decree, Central Bank regulation or federal legislation, attempting to address the effects of the collapse of the ConvertibilityRegime, recover access to financial markets, reduce government spending, restore liquidity to the financial system, reduce unemployment and generally stimulate the economy.
Pursuant to the Public Emergency Law, the Argentine government, among other measures:
· converted public utility tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00;$ 1.00;
· froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services);
· revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including our concession); and
· empowered the Argentine Executive Branch to conduct a renegotiation of public utility contracts (including our concession) and the tariffs set therein (including our tariffs).
These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utility companies in Argentina (including us). Because public utility companies were no longer able to increase tariffs at a rate consistent with the increased costs they were incurring, increases in the rate of inflation led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition. Most public utility companies had also incurred large amounts of foreign currency indebtedness to finance the capital improvement and expenditure programs. At the time of these privatizations, the capital structures of each privatized company were determined taking into account the ConvertibilityRegimeand included material levels of U.S. Dollar‑denominated debt. Following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these utility companies significantly increased, which whencombined with the margin freeze and conversion of tariffs from U.S. Dollars to Pesos, led many of these utility companies (including us) to suspend payments on their foreign currency debt in 2002.
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Economic Recovery and Outlook
Beginning in the second half of 2002, Argentina experienced economic growth driven primarily by exports and import‑substitution, both facilitated by the lasting effect of the devaluation of the Peso in January 2002. While this devaluation had significant adverse consequences, it also fostered a reactivation of domestic production in Argentina as the sharp decline in the Peso’s value against foreign currencies made Argentine products relatively inexpensive in the export markets. At the same time, the cost of imported goods increased significantly due to the lower value of the Peso, forcing Argentine consumers to substitute their purchase of foreign goods with domestic products, substantially boosting domestic demand for domestic products.
In April 2003, Dr. Néstor Kirchner, the former governor of the province of Santa Cruz, was elected as president for a four-year term, and he took office in May 2003. During 2003, Argentina moved towards normalizing its relationship with the IMF, withdrew all the national and provincial governments’ quasi‑money securities from circulation and eliminated all deposit restrictions. The trade balance experienced a sustained surplus, aided by the rise in commodity prices and export volumes. At the same time, social indicators improved, with the unemployment rate decreasing to 17.3%, and real wages began to recover according to INDEC. In June 2005, the Argentine government completed a restructuring of Argentina’s public external debt, which had been in default since December 2001. Argentina reduced its outstanding principal amount of public debt from U.S. $191.3$ 191.3 billion to U.S. $129.2$ 129.2 billion and extended payment terms. In April 2010, the Argentine government launched a new exchange offer for the outstanding sovereign bonds that did not participate in the 2005 restructuring. On January 3, 2006, Argentina completed an early repayment of all of its outstanding indebtedness with the IMF, for an amount totaling approximately U.S. $10.0$ 10.0 billion owing under credit lines.
From 2003 to 2007, the economy continued recovering from the 2001 economic crisis. The economy grew by 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007, led by domestic demand and exports. From a demand perspective, private sector spending was accompanied by a combination of liberal monetary and conservative fiscal policies. Growth in spending, however, consistently exceeded the rate of increase in revenue and nominal GDP growth. From a supply perspective, the trade sector benefited from a depressed real exchange rate, which was supported by the intervention of the Central Bank in the foreign exchange market. Real exports improved, in part due to growth in Brazil, and the current account improved significantly, registering surpluses in 2004, 2005, 2006 and 2007.
On December 10, 2007, Cristina Fernández de Kirchner, wife of the ex-President Dr. Néstor Kirchner, was inaugurated as President of Argentina for a four-year term.
Argentina’s economy grew by 7% in 2008, 19.5% less than in 2007. According to the INDEC, growth was negative in both the first and the fourth quarter of 2008 (-0.3% for both periods) as compared to the same periods in 2007, without adjusting for seasonality. This negative growth is primarily attributable to the conflict between the Argentine government and farmers in early 2008 and the global financial crisis, which deepened in the second half of 2008.
The agricultural sector was particularly hard hit in 2008 as a result of the decrease in commodities prices as well as a significant drought. A decline in the agricultural sectorhadadverse ramifications for the entire economy due to the significant role that sector plays in the Argentine economy.
At the end of 2008, the Argentine government enacted a series of measures aimed at counteracting the decline in the level of economic activity, including special tax rates and less stringent foreign exchange restrictions in connection with the repatriation and national investment of capital previously deposited abroad by Argentine nationals, extensions in the payment terms for overdue taxes and social security taxes, reductions in payroll tax rates for companies that increase their headcounts, creation of theMinisterio de Producción (Ministry of Production), announcements regarding the construction of new public works, consumer loans for the acquisition of durable goods and loans to finance exports and working capital for industrial companies, as well as various agricultural and livestock programs, all aimed at minimizing lay-offs during the current global financial crisis. The effectiveness ofthese measures will depend on the Argentine government’s ability to fund them without reducing the amount of funding for other budgeted activities as well as the degree of confidence they create in the overall stability of the Argentine economy.
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In 2009, after six years of robust and continuous growth, the Argentine economy, according to official indicators, grew by only 1%0.1%, and according to private indicators, contracted by 3.5%. The Central Bank, reacting to local uncertainty and a bleak global economic environment, adopted policies aimed at avoiding a financial collapse. Specifically, the Central Bank sought to stabilize the exchange market. Although interest rates increased periodically during the course of the year, the exchange market remained relatively stable throughout.
According to official indicators, in 2011, real GDP in Argentina grew by approximately 8.9%8.4%, furthering the growth trend showed in 2010. The four most important factors behind the economic recovery are the following:
· the agricultural boom, with a record harvest (especially soybeans);
· a favorable international context (with Brazil growing at a 2.7% rate in 2011, which had a positive effect on the local industrial sector, and China pushing the demand for commodities in an environment of high prices);
· a climate of financial stability prevented major shocks in the short term, primarily due to an oversupply of private dollars and a reduced probability of sovereign default in the short term; and
· an expansionary economic policy program (fiscal, monetary and income).
DuringIn 2012, according to the official information created and disseminated by the INDEC, the economy expanded 2.5%0.8%. Although the real GDP continued growing during 2012,that year, there was a marked deceleration with respect to the growth rate registered in 2011.
According to the INDEC, Argentina´s real GDP grew around 2.9% in 2013, compared to 0.8% in 2012.
Despite
The increase in the decelerationagricultural harvest (the agricultural production during the season 2012/13 was approximately 11% higher than the one registered for the previous season), in alla context where international prices of commodities remained high, with greater financial stability in global markets (resulting from a more stable situation in Europe and a strengthened, though slow, growth in the componentsUnited States). These were the main factors behind the accelerated rate of the GDP, andeconomic growth during 2013.
According to official indicators (data published by INDEC), in 2014, the economic activity grew by approximately 0.2%, compared to 2.9% in 2013.
Private consumption contracted by 0.8% in 2014. The weakening of the internal demand was the main factor in the private consumption itself, gross investment sufferedcontraction of the sharpest levelseconomy, and can be explained in part by an increase in internal prices due to the financing of deceleration asthe fiscal imbalance by Central Bank to Treasury. In 2014 the public accounts contracted 1.2% of GDP compared to 2011.a contraction of 0.6% in 2013. The weaker performance of the private sector was mainly due to an increase in prices, a loss of the Peso’s purchasing power, a nominal slowdown in credit extended to the private sector and a greater propensity in customers for saving in times of uncertainty.
There are several reasonsRegarding internal market, on January 2014, the Peso lost approximately 19% of its value with respect to the US Dollar. During the following month of 2014, the US Dollar remained relatively stable.
During 2015, the economy registered a positive growth, of approximately 2.5%. The level of activity was driven by the effect that explainedthe summer crop had on GDP growth in the second and thirdquarter, while during the last months of the year the economy would evidence a more moderate expansion.
In terms of supply, industrial production continued showing a poor performance, the exchange rate lag, restrictions to import intermediate goods, the deceleration of the main Argentine commercial partners’ growth rate registered during 2012, amongand a weak domestic and external demand impacted on the following:performance of the manufacturing activity. In terms of expenses, consumption showed a good performance even though consumers continued acting with caution.
• The international financial uncertainty (especiallyWith reference to inflationary issues, a significant deceleration in the increase of prices was observed during the first half of 2012).2015, related with the high 2014 baseline. Throughout the last months of the year, retail prices relatively picked up although the average growth rate was lower than that of the previous year.
• The low economic growth registeredIn January 2016, the new INDEC authorities appointed by the Macri administration announced the discontinuation of the methodology used by the Fernandez de Kirchner administration to measure inflation and declared a state of administrative emergency in the developed countries (mainly,national statistics system, suspending the publication of all indices until the INDEC is able to calculate such indices based on accurate official data. See“Item 3. Key Information—Risk factors—Risks Relating to Our Business—The impact of the recent congressional and presidential elections on the future economic and political environment of Argentina is uncertain, but likely to be material.”
On December 17, 2015, the Peso depreciated approximately 36% against the U.S. Dollar following the announcement of the lifting of a significant portion of exchange restrictions (See “—Risk Factors—Factors Relating to Argentina—Fluctuations in Europe)the value of the Peso could adversely affect the Argentine economy, and consequently, our results of operations or financial condition”), which caused the Peso to U.S. Dollar exchange rate to reach Ps.13.40 to U.S.$1.00 as of December 31, 2015. .
• The deceleration of the rhythm of expansion in the relevant emerging economies for Argentina (Brazil and China).
• The drought produced during last summer which adversely affected the yield and the quantities produced by the farming sector during the campaign 2011/12.
• The application of certain internal economic policies measures, such as the limitations to the accumulation of currencies and to the imports, which generated uncertainty among consumers and entrepreneurs.
The deceleration of the economic activity that took place during 2012 had a negative impact on the performance of the public accounts.
Outlook for 20132016
In general, itForecasts for 2016 are characterized by caution. The macroeconomic context and the imbalances (including high inflation, fiscal deficit, monetary and trade restrictions) deriving from certain policies adopted during recent years represent substantial obstacles for the Macri administration to introduce economic policy shifts. As of the date of this annual report, a drop in real GDP is expected for 2016, along with an inflation rate which would remain high, surpassing that the situation, in terms of economic growth, will improve in 2013. For the year, a recovery in activity (compared to the 2012 levels) is expected, with real GDP growth of around 4.0% according to official data, and of around 2.5% according to private estimates. In either case (considering one indicator or the other), the performance of the economy is expected to be better than that in 2012 for several reasons, mainly because of a more favorable external context than that in 2012.2015.
Greater financial stability is expected in international markets (due to the fact that, though the problems in Europe are very far from being solved definitively, the risks of a total collapse of the Euro are today much lower than they were one year ago). Additionally, the agricultural harvest for the 2012-2013 campaign is expected to be greater than those of 2010-2011 and 2011-2012, with commodity prices also above levels recorded in the recent past. The combination of both factors is expected to provide more U.S. Dollars to the domestic economy. Further, Brazil’s recovery (the year on year expansion of the GDP projected for 2013 is 2.5%/3.0% versus an expansion of 1.0 % in 2012), and a lower rate of devaluation of the Real, are expected to contribute to the reactivation of the local industrial sector, which suffered during 2012.
However, there are some risks regarding the realization of that baseline scenario. First, as we do not control some of the variables of the external context or other exogenous factors, such as weather, we cannot provide assurances that there will not be changes that even significantly affect the above outlook, and that might have a negative impact on the domestic economy. There are also some internal factors which have not been resolved, and which may limit the size of the recovery of economic activity in the short and medium term. These issues will still be present in 2013.
The fiscal performance of the Argentine Government (and also of the provinces) has suffered in recent years, and it is not likely that this situation will change in 2013, especially when considering the midterm elections of October 2013.
The situation in the foreign exchange market will probably remain unstable in the short term. The increase in the monetary base and the utilization of international reserves by the Treasury (to pay public debt in foreign currency) have generated a situation in which U.S. Dollars are scarce and, therefore, where the desire to hold rather than use foreign currency is high. In this context, it is probable that the spread between the official and the unofficial price of the U.S. Dollar will remain high.
Finally, another of the yet unresolved issues is the matter of competitiveness. As has been the case in recent years, the rate of devaluation (in the official market) will be lower than the rate of inflation. Therefore, and even though the deterioration is not expected to be as sharp as it was in previous years, the external competitiveness of domestic products and services is expected to be reduced in 2013.
Considering the foregoing, economic growth will probably be around 2.5%/3.0% in 2013. Inflation will likely remain stable (around 25% for the year), with a deceleration during the first half of the year, as a consequence of the prices agreements, and an expected acceleration during the second half of the year. Trade surplus will likely increase slightly (mainly as a consequence of the anticipated better harvest), but the situation will likely continue to be unstable in the foreign exchange market.
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Tariffs
Our revenues and margins are substantially dependent on the composition of our tariffs and on the tariff setting and adjustment process contemplated by our concession.
The following chart shows the variation in Edenor´sEdenor’s average tariff,tariffs, including taxes, in Pesos per MWh in the periods indicated:
______________________
As for the year 2012 Energy Purchases for Eden were: Ps.$130.6/MWh, VAD: Ps. $147.6/MWh and, Taxes: Ps. $141.1MWh.
Our tariffs for all of our customers (other than customers in the wheeling system) are composed of:
· the cost of electric power purchases, which we pass on to our customers, and a fixed charge (which varies depending on the category and level of consumption of each customer and their energy purchase prices) to cover a portion of our energy losses in our distribution activities (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in our concession);
· our regulated distribution margin, which is known as the value‑added for distribution, or VAD,and the fixed and variable charges of the Resolution No. 347/12; and
· any taxes imposed by the Province of Buenos Aires or the City of Buenos Aires, which may differ in each jurisdiction.
Certain of our large users (which we refer to as wheeling system customers) are eligible to purchase their energy needs directly from generators in the wholesale electricity market and to acquire from us only the service of delivering that electricity to them. Our tariffs for these large users (known as wheeling charges) do not include, therefore, charges for energy purchases. Accordingly, wheeling charges consist of the fixed charge for recognized losses (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in our concession) and our distribution margin. As a result, although the amounts billed to wheeling system customers are relatively lower than those billed to other large users, namely industrial users, the distribution margin on sales to wheeling system customers is similar to that of other large users because we do not incur the corresponding cost of electric power purchases related to those sales.
Recognition of Cost of Electric Power Purchases
As part of our tariffs, we bill our customers for the costs of our electric power purchases, which include energy and capacity charges. In general, we purchase electric power at a seasonal price, which is approved by the ENRE every six months and reviewed quarterly. Our electric power purchase price reflects transportation costs andcertain other regulatory charges (such as the charges imposed by theFondo Nacional de Energía Eléctrica(National Electricity Energy Fund)).
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According to the current regulatory framework, the ENRE is required to adjust the seasonal price charged to distributors in the wholesale electricity market every six months. However, between January 2005 and November 2008, the ENRE did not make these adjustments. In November 2008, the ENRE issued Resolution No. 628/08, which established the new tariffs applied by Edenor as of October 1, 2008 (see “— Tariffs — “Tariffs—Distribution margin or value added for distribution (VAD)—Adjustment Agreement”) and modified seasonal prices charged to distributors, including the consumption levels that make up the pricing ladder. The new pricing ladder setsset prices according to the following levels of consumption: bimonthly consumption up to 1,000 kWh; bimonthly consumption greater than 1,000 kWh and less than or equal to 1,400 kWh; bimonthly consumption greater than 1,400 kWh and less than or equal to 2,800 kWh; and bimonthly consumption greater than 2,800 kWh. In 2012, pursuant to Resolution No. 90688/2009, approximately 290,000 customers were exempted from paying the prices set forth by Resolution No. 628/2008 of the ENRE. In addition, the ENRE authorized us to pass through some regulatory charges associated with the electric power purchases to our customers, excluding residential customers with bi-monthly consumption levels below 1,000 kWh. In 2012, we collected Ps. 410.7 million through PUREE funds.
On November 7, 2011, through Secretary of Energy Resolution No. 1301/2011 of the SE, a new unsubsidized tariff scheme applicable to non-residential customers grouped together by certain economic activities came into effect. According to this new tariff scheme, depending on the final seasonal schedule for the period November 2011 and April 2012 for the Wholesale Electricity Market, the affected customers will pay an average price of $320/$ 320/MWh as from December 2011.
On November 24, 2011, through joint resolution No.218Resolution No. 218 of the Undersecretary for Coordination and Management Control, Ministry of Federal Planning and resolution No.799Resolution No. 799 of the Budget Undersecretary of Ministry of Finance of the Ministry of Economy and Public Finance, the removal of subsidies as from the January 1, 2012 applied to certain residential areas within the City of Buenos Aires, including the neighborhoods of Puerto Madero, Barrio Parque, Recoleta, portions of Palermo and certain closed community neighborhoods in the northern part of the Greater Buenos Aires Metropolitan Area.
On December 2, 2011, through joint resolutionResolution No. 229 of the Undersecretary for Coordination and Management Control, Ministry of Federal Planning and resolutionResolution No. 810 of the Budget Undersecretary ofMinistry of Finance of the Ministry of Economy and Public Finance, the removal of subsidies as from January 1, 2012 applied to certain high-end residential type buildings in the City of Buenos Aires and to certain public agencies pertaining to the government of the City of Buenos Aires, as well as to the concessionaire of the highway network in the City of Buenos Aires.
On December 5, 2011, the Secretary of Energy issued Resolution No. 1537/1,537/2011 whichof the SE implemented the Volunteer Waiver Form Subsidy.
On May 8, 2012, Resolution No. 2,883/2012 of the Secretary of Energy issued Resolution 2883/2012, whereby instructingSE instructed the Company to apply a methodology to stabilize the bills, in order to minimize the effects of the seasonal consumption of all the residential customers. The application of this methodology is optional for these costumers.
Average consumption is determined based on the consumption recorded infor the last six two-month consumption periods. The stabilization factor arisesresults from the difference between the aforementioned average consumption and the current two-month consumption period. This value will beis added to or subtracted from the two-month consumption period charges, and the result obtained will beis the amount to be paid before the correspondingapplicable taxes. The adjustments that areAdjustments to be made in accordance with the differences between average consumption and recorded consumption will be reflected in the billconsumer bills for the last two-month consumption period of each calendar year.
The differences that arose as a consequence of comparing the annual average consumption to the current two-month consumption period have been recorded at the end of each period in the trade receivables balance sheetin the Statement of Financial Position account, crediting or debiting the account as the case may be, ifapplicable, depending on whether the annual average consumption is higher or lower than the current two-month consumption period. Resolution No. 7/16 repealed the stabilization factor.
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We purchased a total of 19,65322,126 GWh in 2012, 18,8622015, 20,694 GWh in 20112014 and 18,15620,552 GWh in 20102013 (excluding wheeling system demand). Until 2004, we purchased a portion of our energy needs under long-term supply contracts. Following the adoption of certain amendments to the pricing rules applicable to the wholesale electricity market pursuant to the Public Emergency Law, however, we currently purchasehave purchased all of our energy supply in the wholesale electricity market at the spot price.price ever since. We have not purchased any energy under long-term supply contracts since 2004 and we do not anticipate making any material purchases of energy in the term market in the near future.
During 2015, the customers who are not subsidized continued paying a monomial price of Ps. 320 /MWh, as set by Resolution No 324/2008 of the SE.
On January 25, 2016, the Ministry of Energy issued Resolution No. 6/16, approving the seasonal WEM prices for each category of users for the period from February 2016 through April 2016. Such Resolution adjusted the seasonal prices as required by the regulatory framework. Energy prices in the spot market were set by CAMMESA, which determined the price to be charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis. The WEM prices resulted in the elimination of certain energy subsidies and a substantial increase in electricity rates for individuals. Resolution No. 6/16, introduced different prices depending on the categories of customers. Such resolution also contemplates a social tariff for residential customers who comply with certain consumption requirements, which includes a full exemption for monthly consumptions below or equal to 150 Kwh and tariffs benefits for customers who exceed such consumption level but achieve a monthly consumption lower than that of the same period in the immediately preceding year.
Recognition of cost of energy losses
Energy losses are equivalent to the difference between energy purchased (including wheeling system demand)demand and energy sold. These losses may be classified as technical and non-technical losses. Technical losses represent the energy that is lost during transmission and distribution within the network as a consequence of natural heating of the conductors and transformers that transmit electricity from the generating plants to the customers. Non-technical losses represent the remainder of our energy losses and are primarily due to illegal use of our services. Energy losses require us to purchase additional electricity to satisfy demand and our concession allows us to recover from our customers the cost of these purchases up to a loss factor specified in our concession for each tariff category. Our loss factor under our concession is, on average, 10%. Our management is focused on taking the necessary measures to ensure that our energy losses do not increase above current levels because of their direct impact on our gross margins. However, due to the inefficiencies associated with reducing our energy losses below the level at which we are reimbursed pursuant to our concession (i.e., 10%), we currently do not intend to significantly lower our level of losses.
At the time of our privatization, our total energy losses represented approximately 30% of our energy purchases, of which more than two thirds were non-technical losses attributable to fraud and illegal use of our service. Beginning in 1992, we implemented a loss reduction plan (plan de disciplina del mercado, or market discipline plan) that allowed us to gradually reduce our total energy losses to 10.0% by 2000, with non-technical losses of 2.7%. However, beginning in mid-2001 and up until 2004, we experienced an increase in our non-technical losses, as the economic crisis eroded the ability of our customers to pay their bills, and in our technical losses in proportion withto the increased volume of energy we supplied during those periods. Our total losses amounted to 12.5%14.9% in 2010, 12.6%2015, 14.3% in 20112014, and 13.3%13% in 2012.2013.
The following table sets forth the approximateour estimated breakdown between technical and non-technical energy losses experienced in Edenorour concession area oversince 2006. We believe that non-technical losses could increase in 2016 following the periods indicated:establishment of the new tariff structure pursuant to Resolution No 1/16 of the ENRE.
| | | Year ended December 31, |
| | | | | 2015 | | 2014 | | 2013 |
Technical losses | 10.5.% | 9.8% | 9.8% | | 11.1% | | 10.8% | | 10.3% |
Non‑technical losses | | | | | 3.8% | | 3.5% | | 2.7% |
Total losses | 13.3% | 12.6% | 12.5% | | 14.9% | | 14.3% | | 13.0% |
Our capital expenditure program includes investments to improve and update our network, which we believe will allow us to maintain our technical losses at current levels despite further increases in demand. See “Item 4. Information on the Company—Business Overview —Energy losses.”Overview—Energy losses”.
Distribution margin or value‑added for distribution (VAD)
Our concession authorizes us to charge a distribution margin for our services to seek to cover our operating expenses, taxes and amortization expenses and to provide us with an adequate return on our asset base.
Historical Overview of VAD.Our concession originally contemplated a fixed distribution margin for each tariff parameter with semiannual adjustments based on variations in the U.S. wholesale price index (67% of the distribution margin) and the U.S. consumer price index (the remaining 33% of the distribution margin). However, pursuant to the Public Emergency Law, all adjustment clauses in U.S. Dollars or other foreign currencies andindexation clauses based on foreign indexes or other indexation mechanisms included in contracts to be performed by the Argentine government were revoked. As a result, the adjustment provisions contained in our concession are no longer in force and, from January 2002 through January 2007, we were required to charge the same fixed distribution margin in Pesos established in 2002, without any type of currency or inflation adjustment. These measures, coupled with the effect of accumulated inflation since 2002 and the devaluation of the Peso, have had a material adverse effect on our financial condition, results of operation and cash flows, leading us to record net losses.
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Adjustment Agreement.On September 21, 2005, we entered into theActa Acuerdo sobre la Adecuación del Contrato de Concesión del Servicio Público de Distribución y Comercialización de Energía Eléctrica (Adjustment Agreement), an agreement with the Argentine government relating to the adjustment and renegotiation of the terms of our concession. Because a new Minister of Economy took office thereafter, we formally re-executed the Adjustment Agreement with the Argentine government on February 13, 2006 under the same terms and conditions originally agreed. The ratification of the Adjustment Agreement by the Argentine government was completed in January 2007. Pursuant to the Adjustment Agreement, the Argentine government granted us an increase of 28% in our distribution margin, which includes a 5% increase to fund specified capital expenditures we are required to make under the Adjustment Agreement. See “—“Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital expenditures.” This increase was subject to a cap in the increase of our average tariff of 15%. Although this increase was applied to the distribution margin as a whole, the amount of the increase was allocated to our non-residential customers (including large users that purchase electricity in the wheeling system) only, which, as a result, experienced an increase in VAD greater than 28%, while our residential customers did not experience any increase in VAD. The increase is effective retroactively from November 1, 2005 and will remain in effect until the approval of a new tariff scheme under the RTI.
The Adjustment Agreement also contemplates a cost adjustment mechanism for the transition period during which theRTIprocess is being conducted. This mechanism, known as the Cost Monitoring Mechanism, or CMM, requires the ENRE to review our actual distribution costs every six months (in May and November of each year). If the variation between our actual distribution costs and our recognized distribution costs (as initially contemplated in the Adjustment Agreement or, if adjusted by any subsequent CMM, the most recent distribution cost base established by a CMM) is 5% or more, the ENRE is required to adjust our distribution margin to reflect our actual distribution cost base. The ENRE’s review is based on our distribution costs during the six-month period ending two months prior to the date on which the ENRE is required to apply the cost adjustment mechanism (on May 1 and November 1) and any adjustment will become effective from such date. The CMM takes into consideration, among other factors, the wholesale and consumer price indexes, current exchange rates, the price of diesel and construction costs and salaries, all of which are weighted based on their relative importance to operating costs and capital expenditures. We may also request that the CMM be applied at any time that the variation between our actual distribution costs and our then recognized distribution costs is at least 10% or more, and any adjustment to our distribution cost base that results from this CMM will become effective retroactively from the date we present the CMM request to the ENRE. We cannot make any assurances, however, that we will receive any future increases under the CMM.
On January 30, 2007, the ENRE formally approved our new tariff schedule reflecting the 28% increase in the distribution margins charged to our non-residential customers contemplated by the Adjustment Agreement. In addition, because the Adjustment Agreement is effective retroactively as offrom November 1, 2005, the ENRE applied the CMM retroactively in each of May and November 2006, the dates in each year on which the ENRE is required to apply the CMM. In the May 2006 CMM, the ENRE determined that our distribution cost base had increased by 8.032% (compared to the distribution cost base originally recognized in the Adjustment Agreement), and, accordingly, approved an equivalent increase in our distribution margins effective May 1, 2006. This increase, when compounded with the 28% increase granted under the Adjustment Agreement, resulted in an overall 38.3% increase in our distribution margins charged to our non-residential customers. In the November 2006 CMM, the ENRE determined that our distribution cost base had increased by 4.6% (compared to our distribution cost base as adjusted by the May 2006 CMM), and accordingly, did not approve any further increase in our distribution margins at such time.
The ENRE also authorized us to charge our non-residential customers the retroactive portion of these tariff increases for the period from November 2005 through January 2007, which amounted in the aggregate to Ps. 218.6million and, at December 31, 2011, had been fully invoiced. In October 2007, the Secretary of EnergySE issued Resolution No 1037/No. 1,037/2007, which granted us an increase of 9.63% in our distribution margins to reflect an increase in our distribution cost base for the period from May 1, 2006 to April 30, 2007, compared to the recognized distribution cost base as adjusted by the May 2006 CMM. However, this increase was not incorporated into our tariff structure, and, instead, we were allowed to retain the funds that we are required to collect and transfer to the PUREE to cover this CMM increase and future CMM increases. In November 2007, we began accounting for the retroactive portion of the May 2007 CMM increase for the period from May 1, 2007 to October 31, 2007, which amounted to Ps. 49.6 million.
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In July 2008, we obtained an increase of approximately 17.9% to our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh. In addition, the ENRE authorized us to be reimbursed for the retroactive portion of the 7.56% CMM increase for the period between November 2007 and June 2008, from the PUREE funds.
Furthermore, weWe had requested anseveral additional increase to our distribution marginsincreases under the CMM to account for fluctuations in the distribution cost base for the period from November 2007 to Aprilsince May 2008, in comparison to the distribution cost baseall of which have been recognized by the CMM in November 2007. The ENRE issued Notepursuant to Resolution No. 81,399, which authorized a 5.791% increase under the CMM. As250/13 and Resolution No. 32/15 with retroactive effect as of the date of this annual report, the ENRE has not approved a new tariff scheme including this tariff increase nor has it authorized us to collect such increase by any other means (for example through an off-setting mechanism against contributions made to the PUREE, as was the case in the past). As of December 31, 2012, we had submitted to the ENRE ten requests for CMM adjustments as described in the table below, since May 2008:
| | |
November 2007 – April 2008
| May 2008
| 5.791%
|
May 2008 – October 2008
| November 2008
| 5.684%
|
November 2008 - April 2009
| May 2009
| 5.068%
|
May 2009 – October 2009
| November 2009
| 5.041%
|
November 2009 – April 2010
| May 2010
| 7.103%
|
May 2010 – October 2010
| November 2010
| 7.240%
|
November 2010 – April 2011
| May 2011
| 6.104%
|
May 2011 – October 2011
| November 2011
| 7.721%
|
November 2011 – April 2012
May 2012 – October 2012
Cumulative:
| May 2012
November 2012
| 8.529%
7.316%
88.664%
|
As of the date of this annual report, the ENRE has not yet responded to2008. However, these requests (other than the request submitted in May 2008, as explained above.
However, the Company has become aware of certain communications of the ENRE to the Under-Secretariat of Management Control and Coordination of the Ministry of Federal Planning, according to which the analysis made by them shows percentages similar to those calculated by the Company with regard to CMM ratios.
Based on this information, the Company has estimated that the claims effectively made for CMM adjustments, whichincreases were not transferred to tariffs nor authorized to be collected by other means, amount to approximately Ps. 1,999 million. In accordance with the Company’s estimations, the real major costs are significantly higher than the ones determined with the CMM adjustments that have been requested.
As of December 31, 2012 and 2011 the amounts collected by Edenor through the PUREE, amounted to Ps. 1,277.8 million and Ps. 867.1 million, respectively, and have been disclosed under other non-current liabilities. Until such time as the CMM adjustments are effectively transferred to the tariffs, Edenor is entitled to use PUREE excess funds that it would otherwise be required to transfer to CAMMESA, as established in Resolution of the Secretary of Energy No. 1037/07, in order to reimburse Edenor for the amounts it is owed for CMM increases notyet reflected in Edenor’s distribution margin. As of the date of this annual report, the Company has neither recognized nor accrued any amount receivable for this concept in the Consolidated Financial Statements.
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Although we believe that these increases comply with the terms of the CMM, we cannot assure you that the ENRE will grant us these increases in full, or at all, or if granted, that we will be able to bill our customers or otherwise recover these increases from other sources of payment (such as PUREE). See “Item 3. Key Information—Risk factors—Risks Relating to Our Business—Failure or delay to negotiate further improvements toincorporated into our tariff structure including increases in our distribution margin, and/or to have our tariff adjusteda timely manner to reflect increases in our distribution costs in a timely manner, could have a material adverse effect on our capacity to perform our financial and commercial obligations.” and “Item 3. Key Information—Risk factors—Risks Relatingcosts.
On May 7, 2013, pursuant to the Electricity Distribution Sector—The Argentine government has intervened inSE’s Resolution No. 250/2013, the electricity sector incompany was authorized to compensate its debt registered under the past,PUREE against CMM recognitions for the period from May 2008 through February 28, 2013.
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In addition, CAMMESA was instructed to issue sale settlements with maturity dates to be determined for the surplus generated after compensation between the credits of the CMM and is likelythe PUREE debts, to continue intervening.”partially compensate the debt with the WEM.
On November 23, 2012, the ENRE issued Resolution No.347/No. 347/2012, pursuant to which it established a fixed and variable charge differentiated by category of customers, which the distribution companies will collect on account of the CMM adjustments stipulated in clause 4.2 of the Adjustment Agreement, and will use exclusively to finance infrastructure and corrective maintenance of their facilities. Such charges, which will beare being clearly identified in the bills sent to customers, will beare being deposited in a special account to be managed by a Trustee. AlthoughSuch amounts are being used exclusively to finance infrastructure and corrective maintenance of the facilities and will be taken into account towards ENRE’s RTI.
Pursuant to the SE’s Resolution No. 250/13 and Notes No. 6,852/13, No. 4,012/14, No. 486/14 and No. 1,136/14 of the SE, the Company was authorized to compensate its debt registered under the PUREE against CMM recognitions for the period from May 2008 through December 2014.
In addition, CAMMESA was instructed to issue sale settlements with maturity dates to be determined for the surplus generated after compensation between the credits of the CMM and the PUREE debts, to partially compensate the debt with the WEM. We were also entitled to deposit the remaining sale settlements with maturity dates to be determined in the whereas clausestrust created pursuant to ENRE’s Resolution No. 347/2012. As of the date of this annual report, all the sale settlements with maturity dates to be determined issued by CAMMESA were compensated with PUREE debts or with Commercial debt with CAMMESA.
As from February 1, 2015, pursuant to Resolution No.347/2012No. 32/15 of the ENRE recognizes the existenceSE, PUREE funds were considered as part of CMM adjustment requests and it is indicated that the authorized charges areEdenor’s income on account of the future RTI. We compensated up to January 31, 2015, the debts for PUREE, with claims arising from the calculation of CMM adjustments, nothinguntil that date, including the application of interest that could correspond to both concepts.
In January 2016, the Ministry of Energy issued Resolution No. 7/2016, pursuant to which the ENRE implemented a VAD adjustment to the tariff schedule on account of the future RTI in effect as of February 1, 2016, and is said about what provisions will apply concerningexpected to take all necessary action to conclude the effect thereof forRTI process by December 31, 2016.
In addition, such resolution: (i) abrogated the period elapsed betweenPUREE; (ii) repealed Resolution No. 32/2015 as from the date such requests were madethe ENRE resolution implementing the new tariff schedule; (iii) discontinued the application of mechanisms that imply the transfer of funds from CAMMESA in the form of loan agreements with CAMMESA; and (iv) ordered the dateimplementation of their applicationthe actions required to terminate the customer's bill.trusts created pursuant to Resolution No. 347/2012 of the ENRE. Resolution No. 2/2016 of the ENRE partially repealed Resolution No. 347/2012, discontinuing the FOCEDE and ordering us to open a special bank account with a Central Bank authorized entity where the funds received pursuant to Resolution No. 347/2012 must be deposited. Pursuant to Resolution No. 7/16, the ENRE issued Resolution No. 1/16 establishing a new tariff structure.
The following table sets forth the relative weight of our distribution margin in our average tariffs per category of customer (other than wheeling system, public lighting and shantytown customers) in our concession area at the dates indicated. Although the VAD and electric power purchases per category of customer are the same, we are subject to different taxes in the Province of Buenos Aires and the City of Buenos Aires.
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| | | | | | | | VAD | | Average Taxes | | Electric Power Purchases |
| | | | | | | | | | | | | | | | |
Tariff(1) | | | November | | January | | February | | October 2008 | | Res.1301 | | Res. 1 | | November | | January | | February | | October 2008 | | Res.1301 | | Res. 1 | | November | | January | | February | | October 2008 | | Res.1301 | | Res. 1 |
| | 2001 | | 2005 | | 2007 | | 2011(2) | | 2016(3) | | 2001 | | 2005 | | 2007 | | 2011(2) | | 2016(3) | | 2001 | | 2005 | | 2007 | | 2011(2) | | 2016(3) |
Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TIRI (0-300) | 49.40% | 44.50% | 44.69% | 11.26% | 28.70% | 21.90% | 26.80% | 26.61% | 60.00% | | 49.40% | | 44.50% | | 44.50% | | 44.69% | | 11.26% | | 30.63% | | 28.70% | | 28.70% | | 28.70% | | 28.70% | | 28.70% | | 28.70% | | 21.90% | | 26.80% | | 26.80% | | 26.61% | | 60.00% | | 40.65% |
TIRI2 (301-650) | 36.20% | 33.00% | 30.81% | 4.80% | 29.20% | 29.23% | 34.60% | 37.80% | 39.95% | 65.91% | | 36.20% | | 33.00% | | 33.00% | | 30.81% | | 4.80% | | 15.40% | | 29.20% | | 29.20% | | 29.20% | | 29.23% | | 29.23% | | 29.23% | | 34.60% | | 37.80% | | 37.80% | | 39.95% | | 65.91% | | 55.33% |
TIR# (651-800) | | 32.08% | 4.55% | | 29.23% | | 38.68% | 66.15% | | | | | | | | 32.08% | | 4.55% | | 14.48% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 38.68% | | 66.15% | | 56.23% |
TIR4 (801-900) | | 31.63% | 4.32% | | 29.23% | | 39.13% | 66.39% | | | | | | | | 31.63% | | 4.32% | | 13.91% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 39.13% | | 66.39% | | 56.81% |
TIR5 (90-1000) | | 32.75% | 4.35% | | 29.23% | | 38.02% | 66.37% | | | | | | | | 32.75% | | 4.35% | | 14.04% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 38.02% | | 66.37% | | 56.69% |
TIR6 (1001-1200) | | 26.29% | 4.19% | | 29.23% | | 44.48% | 66.51% | | | | | | | | 26.29% | | 4.19% | | 15.98% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 44.48% | | 66.51% | | 54.73% |
TIR 7 (1201-1400) | | 27.18% | 3.98% | | 29.23% | | 43.59% | 66.73% | | | | | | | | 27.18% | | 3.98% | | 15.25% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 43.59% | | 66.73% | | 55.47% |
TIR8 (1401-2800) | | 25.94% | 4.81% | | 29.23% | | 44.83% | 65.89% | | | | | | | | 25.94% | | 4.81% | | 17.83% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 44.83% | | 65.89% | | 52.88% |
TIR9 (> 2800) | | 22.50% | 3.84% | | 29.23% | | 48.26% | 66.88% | | | | | | | | 22.50% | | 3.84% | | 14.81% | | | | | | | | 29.23% | | 29.23% | | 29.23% | | | | | | | | 48.26% | | 66.88% | | 55.92% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial - small demands | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
TIG1 | 55.10% | 40.00% | 47.80% | 48.76% | 21.91% | 25.70% | 25.68% | 19.20% | 34.30% | 26.50% | 25.55% | 52.34% | | 55.10% | | 40.00% | | 47.80% | | 48.76% | | 21.91% | | 53.18% | | 25.70% | | 25.70% | | 25.70% | | 25.68% | | 25.68% | | 25.68% | | 19.20% | | 34.30% | | 26.50% | | 25.55% | | 52.34% | | 21.11% |
TIG2 | 53.60% | 31.10% | 43.60% | 42.39% | 15.97% | 25.60% | 25.64% | 20.70% | 43.20% | 30.70% | 31.97% | 58.29% | | 53.60% | | 31.10% | | 43.60% | | 42.39% | | 15.97% | | 41.52% | | 25.60% | | 25.60% | | 25.60% | | 25.64% | | 25.64% | | 25.64% | | 20.70% | | 43.20% | | 30.70% | | 31.97% | | 58.29% | | 32.79% |
TIG3 | | 37.40% | 9.13% | | 25.63% | | 37.57% | 65.12% | | | | | | | | 37.40% | | 9.13% | | 26.24% | | | | | | | | 25.63% | | 25.63% | | 25.63% | | | | | | | | 37.57% | | 65.12% | | 48.04% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commercial - medium demand | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
T2 | 43.30% | 27.90% | 35.50% | 38.03% | 16.03% | 25.60% | 25.63% | 31.00% | 46.40% | 38.90% | 36.34% | 58.15% | | 43.30% | | 27.90% | | 35.50% | | 38.03% | | 16.03% | | 44.80% | | 25.60% | | 25.60% | | 25.60% | | 25.63% | | 25.63% | | 25.63% | | 31.00% | | 46.40% | | 38.90% | | 36.34% | | 58.15% | | 29.47% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Industrial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
T3 low voltage below 300kw | 44.20% | 26.50% | 34.30% | 37.86% | 15.37% | 25.70% | 25.66% | 30.10% | 47.80% | 40.10% | 36.48% | 58.84% | | 44.20% | | 26.50% | | 34.30% | | 37.86% | | 15.37% | | 43.74% | | 25.70% | | 25.70% | | 25.70% | | 25.66% | | 25.66% | | 25.66% | | 30.10% | | 47.80% | | 40.10% | | 36.48% | | 58.84 | | 30.53% |
T3 low voltage over 300kw | 42.60% | 24.50% | 32.10% | 27.09% | 11.99% | 25.60% | 25.62% | 31.80% | 49.90% | 42.30% | 47.29% | 62.29% | | 42.60% | | 24.50% | | 32.10% | | 27.09% | | 11.99% | | 22.80% | | 25.60% | | 25.60% | | 25.60% | | 25.62% | | 25.62% | | 25.62% | | 31.80% | | 49.90% | | 42.30% | | 47.29% | | 62.29 | | 51.55% |
T3 medium voltage below 300kw | 29.30% | 14.10% | 19.70% | 25.25% | 8.46% | 25.70% | 25.68% | 45.00% | 60.30% | 54.60% | 49.06% | 65.73% | | 29.30% | | 14.10% | | 19.70% | | 25.25% | | 8.46% | | 30.72% | | 25.70% | | 25.70% | | 25.70% | | 25.68% | | 25.68% | | 25.68% | | 45.00% | | 60.30% | | 54.60% | | 49.06% | | 65.73 | | 43.51% |
T3 medium volgate over 300kw | 27.30% | 12.30% | 17.50% | 17.71% | 7.09% | 25.70% | 25.69% | 47.00% | 62.00% | 56.80% | 56.60% | 67.11% | | 27.30% | | 12.30% | | 17.50% | | 17.71% | | 7.09% | | 14.50% | | 25.70% | | 25.70% | | 25.70% | | 25.69% | | 25.69% | | 25.69% | | 47.00% | | 62.00% | | 56.80% | | 56.60% | | 67.11 | | 59.77% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average Tariff | 41.20% | 28.50% | 33.90% | 33.16% | 9.57% | 27.20% | 27.24% | 31.50% | 44.20% | 38.90% | 39.60% | 63.10% | | 41.20% | | 28.50% | | 33.90% | | 33.16% | | 9.57% | | 28.33% | | 27.20% | | 27.20% | | 27.20% | | 27.24% | | 27.24% | | 27.24% | | 31.50% | | 44.20% | | 38.90% | | 39.60% | | 63.10% | | 44.38% |
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(1) T1R1 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is less than or equal to 300 kWh. T1R2 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 300 kWh but less than 650 kWh. TIR3 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 650 kWh but less than 800 kWh. TIR4 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 800 kWh but less than 900 kWh. TIR5 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 900kWh but less than 1,000 kWh TIR6 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,000 kWh but less than 1,200 kWh. TIR7 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,200 kWh but less than 1,400 kWh. TIR8 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,400 kWh but less than 2,800 kWh. TIR9 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 2,800kWh. T1G1 refers to commercial customers whose peak capacity demand is less than 10kW and whose bimonthly energy demand is less than or equal to 1600 kWh. T1G2 refers to commercial customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1600 kWh but less than 4,000 kWh.T1G3kWh. T1G3 refers to commercial customers whose peak capacity demand is greater than 4,000 kWh. T2 refers to commercial customers whose peak capacity demand is greater than 10 kW but less than 50 KW. T3 refers to customers whose peak capacity demand is equal to or greater than 50 kW. The T3 category is applied to high-demand customers according to the voltage (tension) at which each customer is connected. Low tension is defined as voltage less than or equal to 1 kV and medium tension is defined as voltage greater than 1kV but less than 66 kV.
(2) On November 7, 2011, the Energy SecretariatSE issued Resolution No. 1301/1,301/11, which established the summer scheduling, eliminating government grants to certain economic activities, which, in accordance with the provisions of the Resolution, are in conditions to pay the actual cost that needs to be incurred for being supplied with their demand of electricity. The removal of government grants has been extended to residential customers, who were classified by geographical areas and type of residence. The modification related only to electricity purchase prices in the Wholesale Electricity Market, for which reason the Company’s VAD (value added for distribution) remained practically unchanged.
(3) On January 29, 2016, the ENRE issued Resolution No. 1/16establishing a new tariff structure.
Revisión Tarifaria Integral (Integral Tariff Revision or RTI)(RTI). Pursuant to the Adjustment Agreement, Edenor is currently engaged in anRTI process with the ENRE.
OurAn integral tariff proposal includes, among other factors, a recalculation of the compensation we receive for our distribution services, including taxes that are not currently passed onto our customers (such as taxes on financial transactions), a revised analysis of our distribution costs, modifications to our quality of service standards and penalty scheme and, finally, a revision of our asset base and rate of return. For this purpose, we have submittedwill submit to the ENRE a post-tax return on our asset base, which we calculate as operating income plus depreciation ofproperty, plant and equipment, less the tax charge resulting from the application to this amount of the legal tax rate (currently, at 35%), divided by the value of our gross asset base. We believe that this method of calculating our return on assets is consistent with the requirements of the Adjustment Agreement, although we cannot guarantee that the ENRE will not decide to use other factors or methods to calculate our return on assets.
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On April 30, 2007, the Secretary of EnergySE issued Resolution No. 434/2007, which established that the new tariff structure resulting from the RTI would take effect on February 1, 2008 and would be implemented in two installments, in February and August 2008.
In July 2008, the Secretary of EnergySE issued Resolution No. 865/2008, which reviews the RTI schedule contemplated by the Adjustment Agreement. The Secretary of EnergySE revised the original RTI schedule and stated that the new tariff structure of the RTI would take effect in February 2009 and that if in February 2009 the tariff resulting from the RTI were greater than the tariff in place at that moment, the tariff increase would be applied in three stages: the first adjustment would take place in February 2009, the second in August 2009 and the last one in February 2010.
As of the date of this annual report, no resolution has been issued concerning the application of the electricity rate schedule resulting from the RTI, which was expected to be in effect since February 1, 2009.
On November 12, 2009, we submitted an integral tariff proposal to the ENRE’s Board of Directors as requested by ENRE Resolution No. 467/2008.2008 of the ENRE. Our proposal included, among other factors, a recalculation of the compensation we receive for our distribution services, including taxes that are not currently passed onto to our customers (such as taxes on financial transactions), a revised analysis of our distribution costs, modification to our quality of service standards and penalty scheme and, finally, a revision of our asset base and rate of return. Our presentation included three different scenarios and related tariff proposals; two scenarios contemplated in Resolution No. 467/08 of the ENRE and a third scenario which contemplated a quality regime and cost of undelivered energy similar to the one currently in effect. Each scenario included the assumptions on which the hypothetical scenario was prepared and detailed supporting studies: projected demand, demand curve studies by clientcustomer category, environmental management plan, capital base study, study of the group of facilities required to meet the demand of a certain homogeneous market in terms of consumption with the lowest costs (known as “Sistemas“Sistemas Eléctricos Representativos”Representativos”), contemplated investment plan, operating costs analysis, profitability rate analysis, resulting revenue requirement and electricity ratetariff adjustment criterion. Each scenario assumed that the tariff increase would be implemented in three equal semiannual installments.
We statedAdditionally, in June 2013, we filed a complaint against the Argentine government claiming full compliance with the Adjustment Agreement and compensation for damages as a result of non-compliance of the commitments established therein. The complaint was amended so as to extend it in November 2013. In February 2014, we filed for injunctive relief with the Federal Court requesting that the Argentine government be compelled to provide us with economic assistance during the course of litigation. The petition was rejected in both first and second instance in June and December 2014, respectively.
In our opinion, the RTI process will have to factor in a revised analysis of our distribution costs, modifications to our quality of service standards and penalty scheme and, finally, a revision of our asset base and rate of return, and the balances and other issues resulting from the measures recently adopted by the Argentine government to provide us with temporary and partial relief.
Such issues include, among other: (i) the treatment to be given to the ENRE thatoutstanding amounts granted under the sustainabilityloans for consumption (mutuums) to cover the insufficiency of the proposals depends onfunds deriving from the actual occurrenceFOCEDE; (ii) the conditions for the settlement of the assumptionsoutstanding debt with CAMMESA as of the date of issuance of Resolution No. 32/15, for which purpose we have submitted and that any changeare currently negotiating a repayment plan; (iii) the treatment to be given to the penalties and discounts determined prior and subsequent to the Adjustment Agreement (in our opinion the generation and accumulation of unpaid balances for this concept are not attributable to us inasmuch as the inaction and discretionary decisions of the Argentine government in the criteria and/or parameters contemplated inpast have led to the deterioration of our proposal could directly affect the economic and financial equation, that supports eachthus preventing us from complying with its basic and elemental obligations for the provision of the proposed options. Furthermore, the calculations made in eachpublic service) ; (iv) an agreement on quality levels and a new system of the three options took into account the implementation ofpenalties and discounts that provides for an adequate transitional period until the tariff in three equal semiannual installments. The presentation included regulatory and legal considerations as well. Due to the lack of data provided by the ENRE, we were unable to include an electricity rate structure or schedule and included instead the revenue requirements per voltage level for each of the options we presented.
We anticipate that, once the ENRE has reviewed our integral tariff proposal, it will hold a public hearing on the proposal, following which we expect that the ENRE will adopt a revised tariff scheme.
Based on the parameters of the RTI set forth in the Adjustment Agreement, we expect that this revised tariff scheme will maintain our current distribution margins following the increases granted under the Adjustment Agreement (including any increases granted pursuant to the CMM) and include a cost adjustment mechanism similar to the CMM. Becauseresulting from the RTI is provided for infully implemented; and (v) the Adjustment Agreement, which was approved bytermination and liquidation of the Argentine CongressFOCEDE and ratified by the Argentine Executive Branch, we believe that the ENRE’s decision will not be subject to ratification procedures.its effects.
The outcome of the renegotiation of our tariff structure, however, is highly uncertain as to its final result. We cannot assure you that the renegotiation process will conclude in a timely manner or that the revised tariff structure will cover our costs and compensate us for inflation and currency devaluations in the future and provide us with an adequate return on our asset base. See “Item 3. Key Information—Risk factors—Risks Relating to OurBusiness—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tarifftariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial and commercial obligations.”obligations”.
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Social Tariff Regime.According to the Adjustment Agreement, we will be required to apply a social tariff regime as part of our revised tariff structure resulting from the RTI. This regime is a system of subsidized tariffs for the poverty‑stricken sectors of the community to be approved by the ENRE in the context of the RTI. The social tariff regime will provide poverty‑stricken sectors of the community with the same service and quality of service as other users. The beneficiaries under this regime must register with the Argentine government and meet certain criteria, including not owning more than one home and having a level of electricity consumption that is not higher than a maximum to be established by the Argentine government. According to the Adjustment Agreement, the Argentine government will subsidizewillsubsidize the increased costs associated with the social tariff regime in part with contributions by users not subject to this regime. We will be required to cover a portion of these costs by not charging the beneficiaries of this regime for reconnection expenses and installation of new equipment, updating our billing system and granting payment plans to beneficiaries for existing past-due electricity bills. We currently anticipate that the incremental cost to us of providing services under the social tariff regime will not be significant. However, we cannot guarantee that the social tariff regime will be implemented in the manner, or under the terms, we currently anticipate.
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In January 2016, through Resolution No. 6/16, the Government introduced a social tariff for residential customers who comply with certain consumption requirements, which includes a full exemption for monthly consumptions below or equal to 150 Kwh and preferential tariffs for customers who exceed such consumption level but achieve a monthly consumption lower than that of the same period in the immediately preceding year.
Demand
Energy demand depends to a significant extent on economic and political conditions prevailing from time to time in Argentina, as well as seasonal factors. In general, the demand for electricity varies depending on the performance of the Argentine economy, as businesses and individuals generally consume more energy and are better able to pay their bills during periods of economic stability or growth. As a result, energy demand is affected by Argentine governmental actions concerning the economy, including with respect to inflation, interest rates, price controls, foreign exchange controls, taxes and energy tariffs.
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Electricity demand
The following table sets forth the amount of electricity generated in Argentina and our electricity purchases in each of the periods indicated.
| | | | Edenor’s Demand
as a% of Total Demand | Eden’s Demand
as a% of Total Demand(3) | | Electricity demand in Gwh(1) | | Edenor demand in Gwh(2) | | Edenor’s demand as % of total demand |
(in Gwh) | |
1994 | 55,827 | 11,386 | - | 20.4% | - | | 55,827 | | 11,386 | | 20.4% |
1995 | 57,839 | 11,629 | - | 20.1% | - | | 57,839 | | 11,629 | | 20.1% |
1996 | 61,513 | 12,390 | - | 20.1% | - | | 61,513 | | 12,390 | | 20.1% |
1997 | 66,029 | 13,046 | - | 19.8% | - | | 66,029 | | 13,046 | | 19.8% |
1998 | 69,103 | 13,768 | - | 19.9% | - | | 69,103 | | 13,768 | | 19.9% |
1999 | 71,689 | 14,447 | - | 20.2% | - | | 71,689 | | 14,447 | | 20.2% |
2000 | 75,591 | 15,148 | - | 20.0% | - | | 75,591 | | 15,148 | | 20.0% |
2001 | 78,098 | 15,414 | - | 19.7% | - | | 78,098 | | 15,414 | | 19.7% |
2002 | 76,483 | 14,865 | - | 19.4% | - | | 76,483 | | 14,865 | | 19.4% |
2003 | 82,261 | 15,811 | - | 19.2% | - | | 82,261 | | 15,811 | | 19.2% |
2004 | 87,477 | 16,673 | - | 19.1% | - | | 87,477 | | 16,673 | | 19.1% |
2005 | 92,340 | 17,623 | - | 19.1% | - | | 92,340 | | 17,623 | | 19.1% |
2006 | 97,590 | 18,700 | - | 19.2% | - | | 97,590 | | 18,700 | | 19.2% |
2007 | 102,950 | 20,233 | - | 19.7% | - | | 102,950 | | 20,233 | | 19.7% |
2008 | 105,959 | 20,863 | - | 19.7% | - | | 105,959 | | 20,863 | | 19.7% |
2009 | 104,592 | 20,676 | - | 19.8% | - | | 104,592 | | 20,676 | | 19.8% |
2010 | 110,767 | 22,053 | - | 19.9% | - | | 110,767 | | 22,053 | | 19.9% |
2011 | 116,418 | 23,004 | 3,116 | 19.8% | 2.7% | | 116,418 | | 23,004 | | 19.8% |
2012 | 131,944 | 23,934 | 3,210 | 17.7% | 2.4% | | 131,944 | | 23,933 | | 18.1% |
2013 | | | 125,162 | | 24,902 | | 19.9% |
2014 | | | 126,397 | | 24,860 | | 19.7% |
2015 | | | 131,988 | | 26,322 | | 19.9% |
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Source: Compañía Administradora del Mercado Mayorista Eléctrico, S.A.(CAMMESA)
(1)Includes demand in theMercado Eléctrico Mayorista Sistema Patagónico (Patagonia wholesale electricity market, or MEMSP).
(2)Calculated as electricity purchased by us and our wheeling system customers.
(3) Eden was purchased on March 4th, 2011 and on February 27, 2013, Edenor sold the shares representing 100% of Aeseba’s capital stock and voting rights, the controlling company of Eden. See Item4. “Information on the Company –History and Development of the Company –Offer for the acquisition of Eden.”
Electricity demand in our concession area has grown an average of 4.3%6% per annum since 1994. The evolution of demand shows two growth periods interrupted by a slight decline in demand in 2002 attributable to the economic crisis, and a slight decrease registered in 2009, as a consequence of theglobalfinancial crisis.
The following graph represents the annual growth of energy purchased to satisfy the demand of each operating area within Edenor concession area from 2000 through 2012:2015:
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Beginning in mid-2001 through 2002, the decline in the overall level of economic activity and the deterioration in the ability of many of our customers to pay their bills as a result of the crisis led to an overall decrease in demand for electricity and an increase in non-technical energy losses. After the economic crisis, however, demand started growing again, increasing an average of 4.9%4.3% per annum from 2003 through 2012.2013. This increase in demand was due to renewed growth in the Argentine economy since the second half of 2003 and the relative low cost of energy to consumers, in real terms, resulting from the freeze of our distribution margin and the elimination of the inflation adjustment provisions of our concession in 2002. Demand by residential customersIn 2015, the demand increased by 6.7% in 2012, primarily6% compared to 2014, principally due to the addition of new appliances and the relative low cost of energy,a 9.5% increase in real terms. Demand by our high-demandsmall commercial customers and wheeling system customers remained practicallya 6% increase on average in the same levels as during 2011, mainly due to the deceleration that the industrial sector experienced in the second semester of 2012 (including the wheeling system demand). residential and medium commercial customers.
The small commercial category of customers registered a decrease in demand in 2002, but recovered slightly after the initial effects of the economic crisis due to the sensitivity of customers in this category to the economic status of their small businesses. The medium commercial category of customers has generally demonstrated the same volatility in demand as low-demand customers in recent years.
Public lighting demand has declined significantly over the past few years due to the introduction of low-consumption lighting. We believe that the public lighting category will continue to register low demand despite continued economic expansion and urban development. After having increased significantly in 2005, demand in shantytowns stabilized in 2006, remaining in line with historic growth levels, and was below the increase in demand for our low demand residential category of customers. However, overall demand in this category is relatively small in comparison to other larger categories of our customers. See “Item 4. Information on the Company—FrameworkAgreement(Shantytowns)”
The Argentine government has also implemented the PUREE in an attempt to curb increases in energy demand by offering rewards to residential and small commercial customers who reduce their energy usage in comparison to their use in 2003. In 2005, the Argentine government implemented a second version of the PUREE (PUREE II), which rewards residential and small commercial customers based on their usage in 2003 and industrial customers based on their usage in 2004. The PUREE II also penalizes industrial customers whose usage exceeds 90% of the 2004 levels and penalizes residential customers with bi-monthly consumption levels at or above 300 KWh and small commercial customers whose usage exceeds 90% of their usage levels for 2003. Residential customers with consumption levels below 300 KWh are exempt from penalty. In spite of the PUREE and PUREE II, energy demand has continued to increase during the three years it has been in effect.
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On October 31, 2008, the Secretary of EnergySE adopted Resolution 1170/No. 1,170/08, which excludes all the T1G, T2, T3 and T1R customers with bi-monthly consumption levels over and above 1,000 KWh from receiving PUREE reward payments.
On March 2, 2010, the Secretary of EnergySE adopted Resolution No. 45/2010, which revised the calculation of the coefficient used to reward T1R customers with consumption levels below 1,000 KWh.ThisKWh. This resolution decreased the rewards that such users are entitled to receive.
On January 25, 2016, through Resolution No. 7/16 the Ministry of Energy abrogated the PUREE.
We cannot assure you that the tariffs that result from the RTI or future economic, social and political developments in Argentina, over which we have no control, will not have an adverse effect on energy demand in Argentina. See “Item 3. Key Information—Risk factors—Risks related to the electricity distribution sector—Electricity demand may be affected by tariff increases, which may lead distribution companies, such as us, to record lower revenues.”
Capacity demand
Demand for installed capacity to deliver electricity generally increases with growth in demand for electricity. However, since the 2001 and 2002 crisis, with the exception of the two thermal generation plants described below, no new generation plants have been built in Argentina. However, the Argentine government has implemented some economic incentives, such as those contained in theEnergía Plus EnergyProgram, which have served to increase generating capacity in existing generation plants such as Central Térmica Güemes and Central Loma de laLata. A lack of generation capacity would place limits on our ability to grow and could lead to increased service disruptions, which could cause an increase in our fines. See “Item 3. Key Information—Risk factors—Risks Relating to the Electricity Distribution Sector—ifIf we experience continued energy shortages in the face of growing demand for electricity, our ability to deliver electricity to our customers could be adversely affected, which could result in customer claims, material penalties, government intervention and decreased results of operations.”
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In response to the lack of private investment in new generation plants, the Argentine government undertook a project to construct two 800 MW thermal generation plants, Central Termoeléctrica Manuel Belgrano and Central Termoeléctrica General San Martín. Construction of these two plants was completed and operations commenced in 2009. The two plants were constructed with funds derived from three sources: net revenues of generators derived from energy sales in the spot market, a special charge to our non-residential customers per MWh of energy billed and a specific charge from CAMMESA applicable to large users. In addition to the construction of these two new thermal generation plants, in September 2006 the Secretary of EnergySE issued Resolution No. 1281/1,281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis. This Resolutionresolution seeks to create incentives for energy generation plants to meet increasing energy needs. The government has also required us to finance 24% and Edesur 26%, of the construction costs of two high-tension 220 kV lines between theCentral Puerto andCentral Costanera generators and theMalavernetwork, which will provide access to an additional 600MW of energy from theCentral Puerto andCentral Costanera generators that currently cannot be distributed due to saturation of their grids. In May 2012, we finished the construction of the 220kV linking lines of the local generators Central Puerto and Central Costanera with Edenor network, through Malaver substations. This extension was decided by the Resolution No.1875/No. 1,875/05 of the Secretary of EnergySE and it allows an increase in supply capacity by 600 MW from Central Puerto and Central Costanera generators. In December 2012, the third transformer of 300 MVA-220/132 kV was put into service in Malaver´s substation.
We cannot assure you that these new generation plants will be able to serve our energy demands in the manner we anticipate.
Seasonality of Demand
Seasonality has a significant impact on the demand for electricity in our concession area, with electricity consumption peaks in summer and winter. The impact of seasonal changes in demand is registered primarily in our residential and small commercial customer categories. The seasonal changes in demand are attributable to the impact of various climatological factors, including weather and the amount of daylight time, on the usage of lights, heating systems and air conditioners.
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The impact of seasonality on industrial demand for electricity is less pronounced than on the residential and commercial sectors, primarily because different types of industrial activity by their nature have different seasonal peaks, such that the climatic effect is more varied.
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The chart below shows seasonality of demand in Edenor’s residential customer category for the periods indicated.
The chart below shows seasonality of demand in Edenor’s small commercial customer category for the periods indicated.
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The chart below shows seasonality of demand in Edenor’s medium commercial customer category for the periods indicated.
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The chart below shows seasonality of demand in Edenor’s industrial customer category for the periods indicated.
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The chart below shows seasonality of demand in Eden’s residential customer category for the periods indicated.
The chart below shows seasonality of demand in Eden’s small commercial customer category for the periods indicated.
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The chart belowshows seasonality of demand in Eden’s medium commercial customer category for the periods indicated.
The chart below shows seasonality of demand in Eden’s industrial customer category for the periods indicated.
Taxes on Electricity Tariffs
Sales of electricity within our service area are subject to certain taxes, levies and charges at the federal, provincial and municipal levels. These taxes vary according to location and type of user. In general, residential and governmental users are subject to a lower tax rate than commercial and industrial users. Similarly, taxes are typically higher in the Province of Buenos Aires than in the City of Buenos Aires. All of these taxes are billed to our customers along with electricity charges.
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Framework Agreement (Shantytowns)
Since 1994, we have supplied electricity to low-income areas and shantytowns within our concession area under a special regime established pursuant to aseries of framework agreements. For a discussion of these agreements and our ongoing negotiations to extend the most recentframework agreement, see “Item 4. Information on the Company—Company—Framework Agreement (Shantytowns)”
Operating Expenses
Our most significant operating expenses are transmission and distribution expenses, which include depreciation charges, salaries and social security taxes, outsourcing, fines and penalties, and purchases of materials and supplies, among others.
We seek to maintain a flexible cost base by achieving an optimal level of outsourcing, which allows us both to maintain a lower cost base and gives us the ability to respond more quickly to changes in our market. We had approximately 3,0844,297 employees and 3,0961,847 third party employees under contract with us as of December 31, 2012 and20152011, respectively. The number of third parties employees as of December 31, 2012 and 2011 includes 307 and 300 employees, respectively,under contract with us as a result of our acquisition of, Aeseba.respectively. The number of third‑party employees under contract does not directly relate to the number of third‑party employees actually performing services for us at any given time, as we only pay for the services of these employees on an as-needed basis. See “Item 6. Directors, Senior Management and Employees—Employees.”Employees”.
Our principal material and supply expenses consist of purchases of wire and transformers (i.e., electromagnetic devices used to change the voltage level of alternating‑current electricity), which we use to maintain our network.
Summary Historical Results of Operations
The following table provides a summary of our operations for the years ended December 31, 20122015, 2014 and 2011.2013.
| |
| | |
Continuing Operations | | |
Revenue from sales (1) | Ps. | 3,725.3 | Ps. | 2,805.8 |
Revenue from construction | 117.6 | 87.4 |
Electric power purchases | (1,740.2) | (1,130.9) |
Cost of Construction | (117.6) | (87.4) |
Subtotal | | |
Transmission and distribution expenses | (1,570.1) | (1,094.8) |
Gross Profit..................................................... | | |
Selling expenses | (430.4) | (310.3 |
Administrative expenses | (296.4) | (224.3) |
Gain from acquisition of companies | - | 435.0 |
Other operating income | 33.3 | 27.9 |
Other operating expenses | (112.8) | (54.9) |
Operating (expense) / income | | |
Financial Income | 86.0 | 55.6 |
Financial Expenses(2) | (296.8) | (216.1) |
Other financial results | | |
Net Financial Expense | (377.5) | (257.8) |
(Loss) Profit before taxes | | |
Income Tax | 99.8 | (153.0) |
Loss for the year from continuing operations | (991.0) | (151.9) |
Loss from discontinued operations | (22.4) | (139.5) |
Loss for the year | 1,013.4 | 291.4 |
Loss for the year attributable to: | | |
Owners of the parent | (1,016.5) | (304.1) |
Non- controlling interests | 3.1 | 12.7 |
Loss for the year | | |
Loss for the year attributable to Owners of the parent from: | | |
Continuing Operations | (1,000.6) | (157.7) |
Discontinued Operations | (15.8) | (146.4) |
Loss for the year | | |
Statement of comprehensive income (loss)*
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100
| | | 2015 | | 2015 | | 2014 | | 2013 |
| | | US$ | | Ps. | | Ps. | | Ps. |
Continuing operations | | | | | | | | |
Revenue from sales (1) | | 291.6 | | 3,802.2 | | 3,598.4 | | 3,440.7 |
Electric power purchases | | (155.1) | | (2,022.0) | | (1,878.1) | | (2,050.3) |
Subtotal | | 136.5 | | 1,780.2 | | 1,720.3 | | 1,390.4 |
Transmission and distribution expenses | | (241.8) | | (3,153.7) | | (2,825.1) | | (2,055.3) |
(Loss) Gross income | | (105.3) | | (1,373.5) | | (1,104.8) | | (664.9) |
| | | | | | | | | |
Selling expenses | | (63.9) | | (832.8) | | (657.9) | | (548.3) |
Administrative expenses | | (54.1) | | (706.1) | | (496.8) | | (324.8) |
Other operating income | | 6.1 | | 79.2 | | 52.4 | | 61.6 |
Other operating expense | | (38.5) | | (502.5) | | (318.7) | | (142.8) |
Gain from acquisition of companies | | - | | - | | - | | - |
Income from non-reimbursable customer contributions | | 0.1 | | 0.8 | | 0.8 | | 0.7 |
Operating (loss) profit before SE Resolution 250/13 and subsequent Notes | | (255.7) | | (3,334.9) | | (2,525.0) | | (1,618.5) |
Income recognition on account of the RTI - SE Resolution 32/15 | | 385.4 | | 5,025.1 | | - | | - |
Higher costs recognition - SE Resolution 250/13 and subsequents Notes | | 42.3 | | 551.5 | | 2,271.9 | | 2,933.1 |
Operating profit (loss) | | 171.9 | | 2,241.7 | | (253.1) | | 1,314.6 |
| | | | | | | | | |
Financial income | | 7.4 | | 96.2 | | 235.5 | | 287.1 |
Financial expenses (2) | | (34.5) | | (450.0) | | (592.0) | | (504.9) |
Other financial expense | | (43.1) | | (561.7) | | (324.5) | | (273.1) |
Net financial (expense) income | | (70.2) | | (915.5) | | (681.0) | | (490.9) |
Profit (Loss) before taxes | | 101.7 | | 1,326.2 | | (934.1) | | 823.7 |
| | | | | | | | |
Income tax | | (14.1) | | (183.8) | | 154.4 | | 44.1 |
Profit (Loss) for the year from continuing operations | | 87.6 | | 1,142.4 | | (779.7) | | 867.8 |
| | | | | | | | |
Discontinued operations | | - | | - | | - | | (95.1) |
Profit (Loss) for the year | | 87.6 | | 1,142.4 | | (779.7) | | 772.7 |
| | | | | | | | | |
Profit (Loss) for the year attributable to: | | | | | | | | |
Owners of the Company | | 87.6 | | 1,142.4 | | (779.7) | | 771.7 |
Non-controlling interests | | - | | - | | - | | 1.0 |
Profit (Loss) for the year | | 87.6 | | 1,142.4 | | (779.7) | | 772.7 |
| | | | | | | | | |
Profit (Loss) for the year attributable to the owners of the parent | | | | | | | | |
Continuing operations | | 87.6 | | 1,142.4 | | (779.7) | | 867.9 |
Discontinued operations | | - | | - | | - | | (96.2) |
| | | 87.6 | | 1,142.4 | | (779.7) | | 771.7 |
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| | | 2015 | | 2015 | | 2014 | | 2013 |
| | | US$ | | Ps. | | Ps. | | Ps. |
Other comprehensive income | | | | | | | | |
Items that will not be reclassified to profit or loss | | | | | | | | |
Results related to benefit plans | | (0.3) | | (3.7) | | (17.8) | | (21.0) |
Tax effect of actuarial income (losses) on benefit plans | | 0.1 | | 1.3 | | 6.2 | | 7.4 |
Total other comprehensive loss from discontinued operations | | - | | - | | - | | - |
Total other comprehensive (loss) income | | (0.2) | | (2.4) | | (11.6) | | (13.6) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Comprehensive income for the year attributable to: | | | | | | | | |
Owners of the parent | | 87.4 | | 1,140.0 | | (791.3) | | 758.1 |
Non-controlling interests | | - | | - | | - | | 1.0 |
Comprehensive income (loss) for the year | | 87.4 | | 1,140.0 | | (791.3) | | 759.1 |
| | | | | | | | | |
Profit (Loss) for the year attributable to the owners of the parent | | | | | | | | |
Continuing operations | | 87.4 | | 1,140.0 | | (791.3) | | 757.1 |
Discontinued operations | | | | - | | - | | 1.0 |
| | | 87.4 | | 1,140.0 | | (791.3) | | 758.1 |
| | | | | | | | | |
Basic and diluted earnings (loss) per share: | | | | | | | | |
Basic and diluted earnings (loss) per share from continuing operations | | 0.10 | | 1.27 | | (0.87) | | 0.97 |
Basic and diluted (loss) earnings per share from discontinued operations | | - | | - | | - | | (0.11) |
| | | | | | | | | |
Basic and diluted earnings (loss) per ADS (3): | | | | | | | | |
Basic and diluted earnings (loss) per ADS from continuing operations | | 1.95 | | 25.40 | | (17.40) | | 19.40 |
Basic and diluted (loss) earnings per ADS from discontinued operations | | - | | - | | - | | (2.20) |
(*) Consolidated financial data.Translated into U.S. Dollars at the selling exchange rate for U.S. Dollars quoted by Banco de la Nación Argentina (the “Banco Nación”) on December 31, 2015, which was Ps. 13.04 to U.S.$ 1.00.
(1)Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charge regarding with the Resolution No. 347/12.
(2) Includes commercial interests accrued by CAMMESANet of interest capitalized at December 31, 2015, 2014 and 2013 for Ps. 55.2255.9 million, under the Commercial Interest line item.Ps. 123.9 million and Ps. 24.5 million, respectively.
(3)Each ADS represents 20 Class B common shares.
Year Ended December 31, 20122015 compared with Year Ended December 31, 2011.2014.
Revenue from sales
Revenue from sales increased 32.8%5.7% to Ps. 3,725.33,802.2 million infor the year ended December 31, 20122015, from Ps. 2,805.83,598.4 million infor the year ended December 31, 2011. Revenue from sales as of December 31, 20122014.
This increase was composed of Ps. 2,977.1 million of net sales of Edenor.
The increase in revenue from sales represents a 29.3% increase compared with Edenor figures of 2011, basicallymainly due to the increase in the electric power price as a result of the subsidies cuts, which had no impact in the value added for distribution, additional income from the charges set forth by ENRE’s Resolution 347/2012, and also due to a 3.3%an increase in the volume of energy sold, which went from 20,09821,312 GWh in 20112014 to 20,76022,402 GWh in 2012. This2015, representing a 5.1% increase, and to an increase of Ps.19 million in energy sales is mainly due to a 2.3% increase in the average consumption per customer and a 1.0% increase in the number of customers.
In the case of Eden the increase in Net sales was mainly due to the higher energy prices as a result of the tariff increases obtained in 2012 and also due to the subsidies cuts.revenue from pole leases.
Net energy sales represented approximately 98.8%97.8% of our net sales in 20122015 and 96.6%98.3% in 2011;2014; late payment charges, pole leases, and connection and reconnection charges account for the remaining balance.
Electric Power Purchases
The amount of electric power purchases increased 55.6%7.7 % to Ps. 2,062.22,022.0 million for the year ended December 31, 20122015, from Ps. 1,325.51,878.1 millionfor the year ended December 31, 2011.2014. Thisincrease ofPs. 736.7143.9 million was mainly due to thean increase in the purchase price as a resultvolume of the subsidies cutsenergy sold and to an increase in the case of Edenor, alsoenergy losses due to thean increase in the price at which the non-recognized energy losses are measured and the cost set for the mobile generation.
non-technical losses.
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The volume of electric power purchases of Edenor on a standalone basis increased 4.0%5.9% to 23,93426,322 GWh for the year ended December 31, 20122015, from 23,00424,860 GWh for the year ended December 31,2011(in 2014 (in both cases excludingincluding wheeling system demand).
Energy lossesincreasedto 13.3%14.9% for the year ended December 31, 20122015, from 12.6%14.3% for the year ended December 31, 2011.2014. See “—Factors Affecting Our Results of Operations—Recognition of Cost of Energy Losses.”
Transmission and Distribution Expenses
Transmission and distribution expenses increased 43.4%11.6 % to Ps. 1,570.13,153.7 millionfor the year ended December 31, 20122015, from Ps. 1,094.82,825.1 millionfor the year ended December 31, 2011.2014. This increase was mainly due to a Ps. 245.8 million increase in fees and remuneration for services due to an increase in contractor’s prices (99% compared to 2011) and a Ps. 119.7486.5 million increase in salaries and social security taxes attributable to an increase in employee compensation granted in 2012 (26% compared to 2011).
2015, along with an increase in the number of employees. This increase was partially offset by a decrease of Ps.251.1 million in fees and remuneration for services.
As a percentageof netrevenue from sales, transmission and distribution expenses increased to 42.1%for the year ended December 31, 2012 from 39.0%82.9% for the year ended December 31, 2011. 2015, from 78.5% for the year ended December 31, 2014.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated.The figures are presented on a consolidated basis.
| | | Year ended December 31, |
| | 2015 | | | | % of 2015 | | 2014 | | | | % of 2014 |
| | | | | | | | net sales | | | | net sales |
| (in millions of Pesos) | | | | | | | | | | | |
Salaries and social security taxes | Ps. 582.4 | 37.1% | 15.6% | Ps. 462.7 | 42.3% | 16.5% | 1,859.70 | | 59.0% | | 48.9% | | 1373.2 | | 48.6% | | 38.2% |
Supplies consumption | 93.1 | 5.9% | 2.5% | 57.2 | 5.2% | 2.0% | 211.40 | | 6.7% | | 5.6% | | 205.9 | | 7.3% | | 5.7% |
Fees and remuneration for services | 495.3 | 31.5% | 13.3% | 249.5 | 22.8% | 8.9% | 463.20 | | 14.7% | | 12.2% | | 714.3 | | 25.3% | | 19.9% |
Depreciation of property, plant and equipment | 187.5 | 11.9% | 5.0% | 183.2 | 16.7% | 6.5% | 236.80 | | 7.5% | | 6.2% | | 208.5 | | 7.4% | | 5.8% |
ENRE penalties | 113.6 | 7.2% | 3.1% | 74.8 | 6.8% | 2.7% | 257.30 | | 8.2% | | 6.8% | | 233.9 | | 8.3% | | 6.5% |
Others | | | | | | | 125.30 | | 3.9% | | 3.3% | | 89.3 | | 3.2% | | 2.5% |
Total | | | | | | | 3,153.7 | | 100% | | 82.9% | | 2,825.1 | | 100% | | 78.5% |
Gross (loss) profit
Our gross profit,loss, including transmission and distribution expenses, decreased 75.9%increased by Ps. 268.7 million, or 24.3%, to Ps. 93.01,373.5 millionfor the year ended December 31, 20122015, from a gross loss of Ps. 385.51,104.8 millionfor the year ended December 31, 2011.2014. Thisdecrease ofPs. 292.5 million increase was basically due to the increase in transmission and distribution expenses described above, which were partially offset by the slight increase in netrevenue from sales.
Selling Expenses
Our selling expenses are related to customer services provided at our commercial offices, billing, invoice mailing, collection and collection procedures, as well as allowances for doubtful accounts.
Selling expenses increased 38.7%26.6 % to Ps. 430.4832.8 millionfor the year ended December 31, 20122015, from Ps. 310.3657.9 millionfor the year ended December 31, 2011.2014. Thisincrease ofPs. 120.1174.9 millionwas mainly due to a Ps. 51.5 million increase in salaries and social security taxes (47% compared to 2011) (attributable to an increase inemployee compensation granted in 2012), a Ps. 41.266.7 million increase in fees and remuneration for services, (32% compareda Ps. 50.8 million in salaries and social security taxes (attributable to 2011)an increase in employee compensation granted in 2015), and a Ps. 7.719.6 million increase in allowances for doubtful account (71% compared to 2011).
communications expenses.
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As a percentage of net sales, selling expenses increased to 11.6%21.9 % of net sales in the year ended December 31, 20122015, from 11.1% in18.3 % for the year ended December 31, 2011. 2014.
The following table sets forth the principal components of our selling expenses for the years indicated. The figures are presented on a consolidated basis.indicated.
| |
| | | | |
| (in millions of Pesos) |
Salaries and social security taxes | Ps. | 161.8 | 37.6% | 4.3% | Ps. | 110.3 | 35.5% | 3.9% |
Allowance for doubtful accounts | 18.5 | 4.3% | 0.5% | 10.8 | 3.5% | 0.4% |
Fees and remuneration for services | 170.5 | 39.6% | 4.6% | 129.3 | 41.7% | 4.6% |
Taxes and charges | 32.5 | 7.6% | 0.9% | 27.0 | 8.7% | 1.0% |
Others | | | | | | |
Total | | | | | | | | |
| | Year ended December 31, |
| | 2015 | | | | % of 2015 | | 2014 | | | | % of 2014 |
| | | | | net sales | | | | | net sales |
| | | | | | | | | | | | |
Salaries and social security taxes | 299.8 | | 36.0% | | 7.9% | | 249.0 | | 37.8% | | 6.9% |
Allowance for the impairment of trade and other receivables | 24.1 | | 2.9% | | 0.6% | | 21.5 | | 3.3% | | 0.6% |
Communication expenses | 58.7 | | 7.0% | | 1.5% | | 39.1 | | 5.9% | | 1.1% |
Fees and remuneration for services | 329.5 | | 39.6% | | 8.7% | | 262.8 | | 39.9% | | 7.3% |
ENRE penalties | 24.4 | | 2.9% | | 0.6% | | 18.4 | | 2.8% | | 0.5% |
Others | 96.3 | | 11.6% | | 2.5% | | 67.1 | | 10.2% | | 1.9% |
Total | 832.8 | | 100% | | 21.9% | | 657.9 | | 100% | | 18.3% |
Administrative Expenses
Our administrative expenses include, among others, expenses associated with accounting, payroll administration, personnel training, systems operation maintenancethird-party services and advertising. taxes.
Administrative expenses increased 32.1%42.1% to Ps. 296.4706.1 millionfor the year ended December 31, 20122015, from Ps. 224.3496.8 millionfor the year ended December 31, 2011.2014. Thisincrease ofPs. 72.1209.3 million was mainly due to a Ps. 42.286.3 million increase in salaries and social security taxes attributable to an increase in employee compensation granted in 2012 (43% compared to 2011),2015, a Ps. 15.665.7 million increase in fees and remuneration for services, (25% compared to 2011) and a Ps. 1223.0 million increaseincreases in pension plan agreements (31% compared to 2011).
rent and insurance.
As a percentage of netrevenue from sales, administrative expenses remained the same level of 8.0% inincreased to 18.6% for the year ended December 31, 2012,2015, as compared to 13.8% for the year ended December 31, 2011.2014.
| |
| | | | |
| (in millions of Pesos) |
Salaries and social security taxes | Ps. | 139.6 | 47.1% | 3.7% | Ps. | 97.4 | 43.4% | 3.5% |
Rent and insurance | 18.5 | 6.2% | 0.5% | 14.5 | 6.5% | 0.5% |
Fees and remuneration for services | 78.3 | 26.4% | 2.1% | 62.7 | 27.9% | 2.2% |
Pension plan | 14.3 | 4.8% | 0.4% | 2.3 | 1.0% | 0.1% |
Others | | | | | | |
Total | | | | | | | | |
| | | | | | | |
The following are the principal components of our administrative expenses for the years indicated. The figures are presented on a consolidated basis.
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indicated.
| | Year ended December 31, |
| | 2015 | | | | % of 2015 | | 2014 | | | | % of 2014 |
| | | | | net sales | | | | | net sales |
| | | | | | | | | | | | |
Salaries and social security taxes | 328.4 | | 46.5% | | 8.6% | | 242.1 | | 48.7% | | 6.7% |
Rent and insurance | 58.2 | | 8.2% | | 1.5% | | 35.2 | | 7.1% | | 1.0% |
Fees and remuneration for services | 213.8 | | 30.3% | | 5.6% | | 148.1 | | 29.8% | | 4.1% |
Security Services | 24.1 | | 3.4% | | 0.6% | | 15.1 | | 3.0% | | 0.4% |
Others | 81.6 | | 11.6% | | 2.1% | | 56.3 | | 11.3% | | 1.6% |
Total | 706.1 | | 100% | | 18.6% | | 496.8 | | 100% | | 13.8% |
Other (expense)operating (expenses) income
Other operating expenses include mainlyretirement payments,, severance payments and accrual for lawsuits. Other operating income expenses, net increased 194.5%by 59.1% to a loss of Ps. 79.5422.5 millionfor the year ended December 31, 2012,2015, compared to a loss of Ps. 27.0265.5 millionfor the year ended December 31, 2011.2014. The negative variation of Ps. 157 million was mainly due to a Ps. 151 million increase in accrual for lawsuits, a Ps.27.1 million increase in fees for services provided to third parties and a Ps. 20.4 million increase in debit and credit taxes partially offset by a decrease of Ps.38.1 million in expenses related to FOCEDE.
Operating profit (loss)
Our operating profit increased Ps. 2,494.8 million to a gain of Ps. 2,241.7 million for the year ended December 31, 2015, from a loss of Ps. 253.1 million for the year ended December 31, 2014, mainly due to the recognition of additional income as set forth in Resolution No. 32/15 of the SE of Ps. 5,025.1 million, partially offset by an increase in other operating expenses described above and a decrease of 75.7% in the partial recognition of CMM adjustment pursuant to Resolution No. 250/13 and subsequent notes of the SE, of Ps. 1,720.4 million.
Net Financial Expense
Net financial expense totaled Ps. 915.5 million for the year ended December 31, 2015, compared to Ps. 681.0 million for the year ended December 31, 2014. This increase of Ps. 52.5234.5 million was primarily due to a Ps. 466.9 million increase in exchange differences as a result of exchange rate variations, a Ps. 122.4 million increase in financial expense, which was partially offset by a decrease of Ps. 267.2 million in interest due on the debt with CAMMESA, and to a Ps. 279.5 million gain derived from changes in fair value of financial assets.
Income Tax
The Company’s income tax charge includes three effects: (i) the current tax payable for the year pursuant to tax legislation applicable to the Company; (ii) the effect of applying the deferred tax method on temporary differences arising out of the asset and liability valuation according to tax versus financial accounting criteria; and (iii) the analysis of recoverability of deferred tax assets. We recorded an income tax charge of Ps.183.8 million in 2015, compared to an income tax credit of Ps. 154.4 million in 2014, mainly as a result of the increase in the additional income derived from the application of Resolution No. 32/15 of the SE, partially offset by a tax loss carry forward generated in recent years.
Profit (Loss) for the year
We recorded a profit of Ps. 1,142.4 million for the year ended December 31, 2015, compared to a loss of Ps. 779.7 million for the year ended December 31, 2014 mainly as a consequence of the additional income derived from the application of Resolution No. 32/15 of the SE.
Year Ended December 31, 2014 compared with Year Ended December 31, 2013.
Revenue from sales
Revenue from sales increased 4.6% to Ps. 3,598.4 million for the year ended December 31, 2014, from Ps. 3,440.7 million for the year ended December 31, 2013.
Although the volume of energy sold went from 21,674 GWh in 2013 to 21,312 GWh in 2014, which represents a decrease of 1.7%, the increase in revenue from sales is attributable to the removal in 2014 of subsidies on tariffs for certain categories of users.
Net energy sales represented approximately 98.3% of our net sales in 2014 and 98.6% in 2013; late payment charges, pole leases, and connection and reconnection charges account for the remaining balance.
Electric Power Purchases
The amount of electric power purchases decreased 8.4% to Ps. 1,878.1 million for the year ended December 31, 2014, from Ps. 2,050.3 million for the year ended December 31, 2013. This decrease of Ps. 172.2 million was mainly due to a decrease in the impairmentcost of other receivables (Ps. 37.3 million)mobile generation (which is the cost of hiring transportable diesel fuel generators to address the failures in the grid), which has been reduced in its use and provisionpartially recognized as “distributed energy” (which is subject to lower pricing than energy derived from mobile generation) since November 2013.
The volume of electric power purchases of Edenor for contingencies (Ps.2014 remained stable compared to purchases registered in 2013, at 24,860 GWh and 24,902 GWh, respectively (in both cases including wheeling system demand).
Energy losses increased to 14.3% for the year ended December 31, 2014, from 13.0% for the year ended December 31, 2013. See “—Factors Affecting Our Results of Operations—Recognition of Cost of Energy Losses.”
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Transmission and Distribution Expenses
Transmission and distribution expenses increased 37.5 % to Ps. 2,825.1 million for the year ended December 31, 2014, from Ps. 2,055.3 million for the year ended December 31, 2013. This increase was attributable to a Ps. 582.6 million increase in salaries and social security taxes mainly as a result of an increase in the number of employees, and an increase in employee compensation granted in 2014 (7 % as from January 2014 , 15% as from May 2014 and 10% as from July 2014), along with increases in payments for seniority and working modality, and to a lesser extent to a Ps. 84 million increase in supplies consumption and Ps.49.2 million increase in fees and remuneration for services.
As a percentage of revenue from sales, transmission and distribution expenses increased to 78.5% for the year ended December 31, 2014, from 59.7% for the year ended December 31, 2013, basically due to higher expenses not accompanied by increases in tariffs.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated.
| | Year ended December 31, |
| | 2014 | | | | % of 2014 | | 2013 | | | | % of 2013 |
| | | | | net sales | | | | | net sales |
| | | | | | | | | | | | |
Salaries and social security taxes | 1,373.20 | | 66.8% | | 38.2% | | 790.7 | | 38.5% | | 23.0% |
Supplies consumption | 205.90 | | 10.0% | | 5.7% | | 121.9 | | 5.9% | | 3.5% |
Fees and remuneration for services | 714.30 | | 34.8% | | 19.9% | | 665.1 | | 32.4% | | 19.3% |
Depreciation of property, plant and equipment | 208.50 | | 10.1% | | 5.8% | | 194.8 | | 9.5% | | 5.7% |
ENRE penalties | 233.90 | | 11.4% | | 6.5% | | 234.8 | | 11.4% | | 6.8% |
Others | 89.30 | | 4.3% | | 2.5% | | 48.0 | | 2.3% | | 1.4% |
Total | 2,825.1 | | 137% | | 78.5% | | 2,055.3 | | 100% | | 59.7% |
Gross (loss) profit
Our gross loss, including transmission and distribution expenses, increased by Ps. 439.9 million, or 66.2%, to Ps. 1,104.8 million for the year ended December 31, 2014, from a gross loss of Ps. 664.9 million for the year ended December 31, 2013. This increase was basically due to the increase in transmission and distribution expenses described above, which were partially offset by the increase in revenue from sales.
Selling Expenses
Selling expenses increased 20.0 % to Ps.657.9 million for the year ended December 31, 2014, from Ps. 548.3 million for the year ended December 31, 2013. This increase of Ps. 109.7 million was mainly due to a Ps. 69.7 million increase in salaries and social security taxes (attributable to an increase in employee compensation granted in 2014 as explained under the line item “Transmission and Distribution Expenses” above and to an increase in the number of employees), a Ps. 64.4 million increase in fees and remuneration for services (a 32.4 % increase as compared to 2013), which was partially offset by Ps. 34.3 million decrease in ENRE penalties.
As a percentage of net sales, selling expenses increased to 18.3 million).% of net sales in the year ended December 31, 2014, from 15.9 % for the year ended December 31, 2013.
The following table sets forth the principal components of our selling expenses for the years indicated.
| | Year ended December 31, |
| | 2014 | | | | % of 2014 | | 2013 | | | | % of 2013 |
| | | | | net sales | | | | | net sales |
| | | | | | | | | | | | |
Salaries and social security taxes | 249.0 | | 37.8% | | 6.9% | | 179.4 | | 32.7% | | 5.2% |
Allowance for the impairment of trade and other receivables | 21.5 | | 3.3% | | 0.6% | | 38.0 | | 6.9% | | 1.1% |
Communication expenses | 39.1 | | 5.9% | | 1.1% | | 32.6 | | 5.9% | | 0.9% |
Fees and remuneration for services | 262.8 | | 39.9% | | 7.3% | | 198.5 | | 36.2% | | 5.8% |
ENRE penalties | 18.4 | | 2.8% | | 0.5% | | 52.7 | | 9.6% | | 1.5% |
Others | 67.1 | | 10.2% | | 1.9% | | 47.1 | | 8.6% | | 1.4% |
Total | 657.9 | | 100% | | 18.3% | | 548.3 | | 100% | | 15.9% |
Administrative Expenses
Administrative expenses increased 53.0% to Ps. 496.8 million for the year ended December 31, 2014, from Ps. 324.8 million for the year ended December 31, 2013. This increase of Ps. 172 million was mainly due to a Ps. 92.2 million increase in salaries and social security taxes attributable to an increase in employee compensation granted in 2014, a Ps. 44.7 million increase in fees and remuneration for services, and Ps. 13.3 million increases in rent and insurance.
As a percentage of revenue from sales, administrative expenses increased to 13.8% for the year ended December 31, 2014, as compared to 9.4% for the year ended December 31, 2013.
The following are the principal components of our administrative expenses for the years indicated.
| | Year ended December 31, |
| | 2014 | | | | % of 2014 | | 2013 | | | | % of 2013 |
| | | | | net sales | | | | | net sales |
| | | | | | | | | | | | |
Salaries and social security taxes | 242.1 | | 48.7% | | 6.7% | | 149.9 | | 46.2% | | 4.4% |
Rent and insurance | 35.2 | | 7.1% | | 1.0% | | 21.9 | | 6.7% | | 0.6% |
Fees and remuneration for services | 148.1 | | 29.8% | | 4.1% | | 103.4 | | 31.8% | | 3.0% |
Security Services | 15.1 | | 3.1% | | 0.4% | | 10.4 | | 3.2% | | 0.3% |
Others | 56.3 | | 11.3% | | 1.6% | | 39.2 | | 12.1% | | 1.1% |
Total | 496.8 | | 100% | | 13.8% | | 324.8 | | 100% | | 9.4% |
Other operating (expenses) income
Other operating expenses, increased by 229.8% to a loss of Ps. 265.5 million for the year ended December 31, 2014, compared to a loss of Ps. 80.5 million for the year ended December 31, 2013. The negative variation of Ps. 185.1 million was mainly due to a Ps. 97.7 million increase in expenses related to FOCEDE, Ps. 39.4 increase in accrual for lawsuits, Ps. 16.2 in fees for services provided to third parties and a Ps. 9.2 million increase in debit and credit taxes.
Operating (loss) profit
Our operating loss was Ps. 253.1 million for the year ended December 31, 2014, from a profit of Ps. 1,314.6 million for the year ended December 31, 2013. This increase in operating losses was mainly due to the increase in other operating expenses described above and a 22.5% decrease in the partial recognition of a CMM adjustment pursuant to Resolution No. 250/13 and Notes No. 6,852/13, No. 4,012/14, No. 486/14 and No. 1,136/14 of the SE, of Ps. 661.2 million, given that the retroactive effect of higher costs (in accordance with the provisions of Section 4.2 of the Adjustment Agreement) was recognized in 2013 for the period May 2007 through September 2013.
Net Financial Expense
Net financial expense wastotaled Ps. 377.5681.1 millionfor the year ended December 31, 2012,2014, compared to Ps. 257.8490.9 millionfor the year ended December 31, 2011.2013. This increase of Ps. 119.7190.2 million was primarily due to an increase of Ps. 87.2 million in commercialfinancial expense, including interest due to thein connectionwith debt with CammesaCAMMESA of Ps. 133.9 million, a Ps. 62.1 million increase in exchange differences as a result of exchange rate variations , and a Ps.48.1. million decrease in financial income due to lower recognition of interest due in connection with lower income during 2014 arising from the recognition of CMM adjustments (which covered the period October 2013 through December 2014) pursuant to Resolution No. 250/2013 and Notes No. 6,852/13, No. 4,012/14, No. 486/14 and No. 1,136/14 of the SE, in 2014, as compared to non-recurrent higher income during 2013 as a result of the variations inrecognition of CMM adjustments (which covered the exchange rate.period May 2007 through September 2013, which period is greater than the period covered by the CMM recognition during 2014).
Income Tax
We recordedan income tax credit of Ps. 99.8Ps.154.4 millionfor the year ended December 31, 2012, in 2014, compared to an income tax chargecredit of Ps. 153.0102.5 millionfor the year ended December 31, 2011.
Loss for the year
We recorded in 2013. Regarding current tax expenses, we generated a tax loss carry forward in 2014 of Ps. 1,013.4240.1 million at the applicable tax rate as a result of the increase in operating costs described above, which was offset by an allowance for the year ended December 31, 2012,impairment of tax loss carry forward, compared to a losstax payable of Ps. 291.4288.3 millionfor the year ended December 31, 2011. This increase in net loss was mainly2013 due to an increase in operating expensestaxable income as a result of higher cost recognition in 2013 under Resolution No. 250/13 and Note No.6,852/of the SE. Regarding the deferred tax, in financial expenses2014 we recorded a net deferred taxbenefit of Ps. 154.4 million compared to Ps. 44.1 million in 2013, mainly due to the gain generated by the tax effects of temporary differences related to other payables for ENRE penalties and a decreasesalaries and provisions made in other income,connection with seniority-based bonus payments.eachas described above.
Loss(Loss) / Profit from discontinued operations
LossDuring 2012 and 2013, Edenor completed the sale of its formerly controlled companies (see “Item 4. Information on the Company”). As a result, in 2014 Edenor did not present results from discontinued operations. In 2013, loss from discontinued operations decreased 84%, fromtotaled Ps. 95.1 million mainly as a result of AESEBA/EDEN’s assets sale which resulted in a loss of Ps. 139.596.5 million, as of December 31, 2011 toafter tax related effects.
Profit (Loss) for the year
We recorded a loss of Ps. 22.4779.7 million as offor the year ended December 31, 2012. As2014, compared to a profit of Ps. 772.7 million for the year ended December 31, 2012, this line item was comprised2013 mainly as a consequence of a loss recognized on the remeasurement of assets of disposal group of Ps. 15.7 millionincrease in other operating costs as described above and a loss from subsidiaries operations of Ps. 6.7 million. As of December 31, 2011, this line item was comprised of a loss recognized on the remeasurement of assets of disposal group of Ps. 177.7 million and a loss from assets classified as held for sale of Ps. 70.1 million, which losses were partially offset by gainslower income during 2014 arising from the tax effectrecognition of these line itemsCMM adjustments (which covered the period October 2013 through December 2014) pursuant to Resolution No. 250/2013 and Notes No. 6,852/13, No. 4,012/14, No. 486/14 and No. 1,136/14 of Ps. 40.4 million and from subsidiaries operationsthe SE, as compared to non-recurrent higher income during 2013 as a result of Ps. 67.9 million.the recognition of CMM adjustments (which covered the period May 2007 through September 2013, which period is greater than the period covered by the CMM recognition during 2014).
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Liquidity and capital resources
Sources and Uses of Funds
Our cash flows from operations have been significantly affected in recent periods due to our failure to obtain adjustments to our tariffs to cover increases in our distribution costs, resulting in a working capital deficit as of December 31, 20122015, 2014 and 2011.2013. In order to preserve and guarantee the provision of the public service and improve the existing cash deficit, beginning in October 2012, the Company decided to only partially cancel the obligations with the wholesale electricity market (CAMMESA)CAMMESA with surplus cash balances. This decision arose as a consequence of all the commitments necessary to ensure the provision of the public service, including investment plans and ongoing operation and maintenance tasks. In 2015, following the issuance of Resolution No. 32/2015, we resumed full payment of our commercial obligations with CAMMESA, but did not cancel past commercial debt. As of the date of this annual report,December 31, 2015 the commercial debt with CAMMESA amounts to approximately Ps. 696.5 million. We expect to resume full payment of our payment obligations with CAMMESA once the economic and financial equation of Edenor is restored.2,714.3 million including interests. In connection with the aforementioned, the Company has been ordered by the ENRE and CAMMESA to cancel such debt. In its reply to the ENRE, the Company rejected the Regulatory Authority’s competence to intervene in its commercial issues with third parties, and, in its replyNovember 2015, we submitted to CAMMESA the Company stated that the cash deficit that prevents it from canceling the total amounta repayment plan. As of the debt is a case of force majeure inasmuch as the Company does not have the possibility of approving its electricity rates, but, at the same time, has to maintain the priority given to the operation of the public service. If the conditions prevailing at the date of this annual report, remain unchanged,negotiations with CAMMESA continue with respect to a final repayment schedule. See “Item 3. Risk Factors—Risk relating to our Business—We may not have the economic and financial situation will continue deteriorating. For fiscal year 2013,ability to raise the Company also estimates negative cash flows and losses from operations, as well as a greater reductionfunds necessary to repay our commercial debt with CAMMESA, our major supplier.”
Since entering into the Adjustment Agreement in the financial ratios.
We are currentlyFebruary 2006, we have been engaged in an Integral Tariff Revision or RTI with the ENRE, as required byrelating to the Adjustment Agreement, but the timeline for completing this processadjustment and the favorability to usrenegotiation of the final resolution are both uncertain.terms of the concession. If we are not able to recover all of the incremental costs contemplated in the Adjustment Agreement and all such future cost increases or there is a significant lag of time between when we incur the incremental costs and when we receive increased revenues, and/or if we are not successful in achieving a satisfactory re-negotiation of our tariff structure, we may be unable to comply with our financial and commercial obligations, we may suffer liquidity shortfalls and we may need to restructure our debt to ease our financial condition, anyall of which, individually or in the aggregate, would have a material adverse effect on our business and results of operations and may cause the value of our ADSs to decline. In this context and in light
The Argentine government adopted a series of measures such as the issuance of Resolution No. 347/2012 of the situation that affects the electricity sector, the ENRE, issued Resolution No. 347/1232/15 of the SE and the granting of certain economic assistance program (through the extension of loans for consumption (mutuums)) (the “Program”) for us to be able to cope with our cash needs for specific purposes. We consider the funds received through the Program as a supplementary measure to being granted increases in November 2012, which establishestariffs/rates. In connection with the foregoing, following the adoption of a new transitional tariff schedule as from February 1, 2016 and until completion of the RTI process, Resolution No. 7/16 of the Ministry of Energy suspended the transfer of funds that we received under the Program. Considering the funds received through the Program temporarily substituted or replaced the funds that we should have received through the collection of adjusted tariffs pursuant to the Concession Agreement and that such an atypical situation is not expressly covered by the accounting framework applicable to us, the obligations deriving from such economic assistance programs were classified in our financial statements as “Other payables” and the related costs as “Financial expenses”.
On June 24, 2014, by Note No. 4012/14, the SE instructed CAMMESA to enter into a loan for consumption (mutuum) and assignment of secured receivables agreement with us in order to pay the higher salary costs indicated in “Item 6. Directors, Senior Management and Employees – Employees”. The aforementioned agreement was entered into on July 10, 2014. The agreement was guaranteed by us with the assignment of the future surplus sale settlements with maturity dates to be determined (Liquidaciones de Venta con Fecha de Vencimiento a Definir - LVFVD) , as a result of the application of fixedResolution No. 250/13 of the SE.
As of December 31, 2014, our debt related to this financing amounted to Ps. 298 million (comprised of Ps.280.6 million in principal and variable chargesPs. 17.4 million in accrued interest).
In September 2014, the SE, through Resolution No. 65/14, instructed CAMMESA to enter into a Loan and Guarantee Assignment Agreement with us in order to provide the necessary financing to cover the Extraordinary Investment Plan approved by the SE as a consequence of a temporary insufficiency of funds received through Resolution No. 347/12. During 2015, after several amendments, such loan agreement reached Ps. 2,913 million for the entire plan.
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Resolution No. 32/15 resolved that has allowedLVFVDs be issued in our favor for the Companyamounts generated by the salary increases deriving from the application of Resolution No. 836/14 of the Ministry of Labor, Employment and Social Security for which payment we received this loan (Mutuum); allowing the offsetting of any amounts discussed thereunder against outstanding balances of LVFVDs. The LVFVDs were issued on July 16, 2015 to obtain additional revenueoffset the debt under the loan for consumption (mutuum) and assignment of secured receivables agreement entered into to pay for the higher salaries cost.
As of December 31, 2015, the total debt under these loans (mutuums agreements) amounted to Ps. 1,099.8 million, comprised of Ps. 923.6 million in principal for the actual disbursements, and Ps. 176.2 million in accrued interest.
As explained before, these loans were discontinued as from November 2012. However, such additional revenue is insufficientFebruary 1, 2016 under the terms of Resolution No. 7/16 of the Ministry of Energy.
Our principal uses of cash are expected to make up the operating deficit due to the constant increase inbe operating costs, the servicing of our financial debt and our investment plan. We are subject to limitations on our ability to incur new debt under the estimated salary or third-party costs increases for the year 2013. Additionally,terms of our debt instruments so the Company cannot assure that it will be able to obtain additional financing on acceptable terms. As a result, thereSee “Debt”.
Although the ENRE is substantial doubt with respectexpected to take all necessary action to conclude the RTI process by December 31, 2016, the outcome of such process is uncertain as to its final form. Thus, if in the future: (i) the new electricity rate schedules are not issued pursuant to the abilityRTI by the ENRE; (ii) we are not granted any other recognition of additional revenue or any other mechanism to compensate for cost increases, and/or; (iii) we do not obtain from the CompanyArgentine government any other financing to continue as a going concerncover cost increases, it is likely that we will have insufficient liquidity and will therefore be obliged to pursue measures similar to those applied in the past in order to preserve cash and enhance our auditors’ report included elsewhere in this annual report contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. liquidity.
See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Tariffs” and “Item 3. Key Information—Risk factors—Risks Relating to Our Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tarifftariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial and commercial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.”
Our principal uses of cash are expected to be operating costs, the servicing of our financial debt and our capital expenditures plan. We may need to incur indebtedness in the short term or increase our debt with the wholesale electricity market to cover operating costs, including further increases in our distribution costs and/or debt service payments. However, we are subject to limitations on our ability to incur new debt under the terms of our debt instruments so the Company cannot assure that it will be able to obtain additional financing on acceptable terms. See “—Debt”. As of December 31, 20122015, 2014 and 2011,2013, our cash and cash equivalents amounted to Ps. 71.1129.0; Ps. 179.1 million and Ps. 130.5243.5 million, respectively. We generally invest our cash in a range of instruments, including sovereign debt, corporate debt securities and other securities. The table below reflects our cashand cash equivalents position at the dates indicated and the net cash provided by (used in) operating, investing and financing activities during the years indicated:
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| | | Year ended December 31 |
| | | 2015 | | 2014 | | 2013 |
| | | (Figures in millions) |
Cash and cash equivalents at beginning of year | | 179.1 | | 243.5 | | 71.1 |
Net cash flows provided by operating activities (1) | | 3,217.0 | | 1,547.9 | | 1,436.6 |
Net cash flows used in investing activities | | (3,103.3) | | (1,461.7) | | (1,109.0) |
Net cash flows used in financing activities | | (172.9) | | (155.7) | | (177.1) |
Cash and cash equivalents at beginning of year included in assets of disposal group classified as held for sale | | - | | - | | 11.2 |
Exchange differences in cash and cash equivalents | | 9.1 | | 5.1 | | 10.7 |
Cash and cash equivalents at the end of year | | 129.0 | | 179.1 | | 243.5 |
| |
| | |
| (in millions of Pesos) |
Cash and cash equivalents at the beginning of the year | Ps. | 130.5 | Ps. | 246.0 |
Net cash flows provided by operating activities | 635.1 | 659.0 |
Net cash flows used in investing activities | (565.5) | (794.0) |
Net cash flows (used in) provided by financing activities | (165.8) | 16.3 |
Gain from exchange differences in cash and cash equivalents | 36.8 | 3.3 |
Changes in cash and cash equivalents | (96.2) | (118.8) |
Cash and cash equivalents at the end of the year | Ps. | 71.1 | Ps. | 130.5 |
(1) Includes CAMMESA financing of Ps. 1,189.6 million; Ps.3,455.8 million, and Ps. 2,231.5 million as of December 31, 2015, December 31, 2014 and December 31, 2013, respectively.
Net Cash flows provided by Operating Activitiesoperating activities
Net cash flows provided by operating activities decreased by 3.6%increased 107.8% to Ps. 635.13,217.0 million in the year ended December 31, 2012, compared to2015, from Ps. 659.01,548.0 million in the year ended December 31, 2011.
2014.
ThisChanges in net cash flows provided by operating activities in 2015 were primarily due to the income recognized pursuant Resolution No.32/15, partially offset by a decrease is basically attributablein debt with CAMMESA of Ps. 2,266.0 million. The Company understands the debt with CAMMESA as a type of assistance program tocope with the company’s need of cash for specific purposes. All these supplementary measures were used by the Argentine Government so as to avoid increasing the tariffs.
Net cash flows provided by operating activities increased by 7.7% to Ps. 1,547.9 million in the year ended December 31, 2014, from Ps. 1,436.6 million in the year ended December 31, 2013.
Changes in net cash flows provided by operating activities in 2014 were primarily due to an increase in debt with CAMMESA (Ps. 3,455.5 million) and to the funds obtained from PUREE (Ps. 482.9 million), partially offset by the recognition of higher costs under Resolution No. 250/13 of the SE and subsequent notes of the SE (Ps. 2,271.9 million), to a decrease in net loss (Ps. 779.7 million) and a decrease in trade payables (Ps. 528.4 million).
Net cash flows provided by operating activities increased 166.8% to Ps. 1,436.6 million in the year ended December 31, 2013, from Ps. 538.4 million in the year ended December 31, 2012.
Changes in net cash flows provided by operating activities in 2013 were primarily due to an increase in debt with CAMMESA (Ps. 2,231.5 million), to the funds obtained from PUREE (Ps. 491.9 million) and to an increase in net loss from a net loss of Ps. 291.4 million for the year ended December 31, 2011, to a net loss of Ps. 1,013.4 million for the year ended December 31, 2012, mainly due to an increase in operating expenses during 2012, exchange rate differences and an interests in loans and other receivables,profit (Ps. 772.7 million), partially offset by a Ps. 99.8 million decrease in income tax. Moreover, the Company recognized a gain from acquisitionrecognition of companies in 2011higher costs by Resolution No. 250/13 and a loss on dispositionsubsequent notes of subsidiaries in 2012.
These negative impacts were partially offset by an increase in operating assets and liabilities, mainly due to a Ps. 410.7 million increase in funds collected through the Program on Rational Use of Electric Energy (PUREE), a Ps. 545.6 million increase in trade payables (including Ps. 189.9 million to the wholesale electricity market) and a Ps. 102.4 million increase in salaries and social security taxes payable. These increases in operating assets and liabilities were partially offset by a Ps. 342.0 million increase in trade receivables.
SE (Ps. 2,933.1 million).
Net Cash flows used in Investing Activitiesinvesting activities
Net cash flows used in investing activities decreased 28.8%increased by 112.3% to Ps. 565.53,103.3 million in the year ended December 31, 20122015, from Ps. 794.01,461.7 million in the year ended December 31, 2011.2014.
Changes in net cash flows used in investing activities in 20122015 were primarily due to an increase in our capital expenditures (Ps. 695.4 million) and in net payments for the purchase of financial assets at fair value (Ps. 947.5 million).
Net cash flows used in investing activities increased by 31.8% to Ps. 1,461.7 million in the year ended December 31, 2014, from Ps. 1,109 million in the year ended December 31, 2013.
Changes in net cash flows used in investing activities in 2014 were primarily due to variations in our capital expenditures (Ps. 1,400.1 million) and in net payments for the purchase of financial assets at fair value (Ps. 64.6 million).
Net cash flows used in investing activities increased by 87.9% to Ps. 1,109 million in the year ended December 31, 2013, from Ps. 590.3 million in the year ended December 31, 2012.
Changes in net cash flows used in investing activities in 2013 were primarily due to variations in our capital expenditures (Ps. 892.4 million) and, to a lesser extent to variations in discontinued operations partially offset by(Ps. 124.2 million) and in net payments for the collectionpurchase of loans proceeds from borrowingsfinancial assets at fair value (Ps. 142.4 million), and to the cash collected from the sale of Edesa (Ps. 83.097.4 million).
Net Cash flows (used in) provided by Financing Activitiesused in financing activities
In the year ended December 31, 2012, ourNet cash flows from financingused in investing activities decreasedincreased by 1,117.1%, from a provision of Ps.16.311.0% to Ps. 172.9 million in the year ended December 31, 20112015, from Ps. 155.7 million in the year ended December 31, 2014, primarily as a result of the payment of interest on loans (Ps. 172.9 million).
Net cash flows used in investing activities decreased by 12.1% to Ps. 155.7 million in the year ended December 31, 2014, from Ps. 177.1 million in the year ended December 31, 2013, primarily as a useresult of the payment of interest on loans (Ps. 155.3 million).
Net cash flows used in investing activities increase by 537.1% to Ps. 165.8177.1 million in the year ended December 31, 2013, from Ps. 27.8 million in the year ended December 31, 2012, primarily as a result of the repaymentpayment of borrowings and discontinued operations, which was partially offset by theinterest on loans entered into during 2012 (68% lower than 2011)(Ps. 177 million).
Edenor’s Capital Expenditures
Edenor’s concession does not require us to make mandatory capital expenditures. Edenor’s concession does, however, set forth specific quality standards that become progressively more stringent overstringentover time, which require us to make additional capital expenditures. Financial penalties are imposed on us for non-compliance with the terms of our concession, including quality standards.
Prior to our privatization, a low level of capital expenditures and poor maintenance programs adversely affected the condition of our assets. After our privatization in 1992, we developed an aggressive capital expenditure plan to update the technology of our productive assets, renew our facilities and expand energy distribution services,automate the control of the distribution network and improve customer service. Following the crisis, however, the freeze of our distribution margins and the pesification of our tariffs and our inability to obtain financing, coupled with increasing energy losses, forced us to curtail our capital expenditure program and make only those investments that were necessary to permit us to comply with quality of service and safety and environmental requirements, despite increases in demand in recent years.
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We are not subject to any limitations on the amount of capital expenditures we are required to make pursuant to our concession and applicable laws or regulations.
Our capital expenditures consist of net cash used in investing activities during a specified period plus supplies purchased in prior periods and used in such specified period. The following table sets forth our actual capital expenditures for the years indicated:
| | | Year ended December 31, |
| | 2015 | | 2014 | | 2013 |
| | | (Figures in millions) |
| (in millions of Pesos) | | | | | |
Supplies | Ps. | 287.4 | Ps. | 323.3 | |
Network Infraestructure (1) | | 1,468.5 | | 1,284.2 | | 835.5 |
Network maintenance and improvements | 208.9 | 55.7 | 307.5 | | 201.4 | | 174.3 |
Legal requirements(1)(2) | 11.7 | 6.1 | 2.9 | | 6.1 | | 11.0 |
Communications and telecontrol | 5.5 | 9.1 | 64.4 | | 55.7 | | 13.3 |
Others | | | 674.9 | | 154.3 | | 58.4 |
Total | Ps. | 544.3 | Ps. | 434.7 | 2,518.2 | | 1,701.7 | | 1,092.5 |
_______________________
______________________
(1)Includes network infrastructure and additional network supplies.
(2) Capital expenditures required to be made to comply with the ENRE quality standard and other regulations.
In 2012,2015, in accordance with our capital expenditure program, we invested Ps. 544.32,518.2 million, a substantial portion of which was dedicated to increasing the capacity of our grid in line with the growth of our customer base, which increased 1.0% in 2012.base. In addition, we made investments in order to meet our quality standards levels. Historical information on capital expenditures is not indicative of future capital expenditures. In October 2015, we decided to acquire real property with the aim of concentrating centralized functions and reducing rental costs and the risk of future increases in rent, for a total amount of Ps.439.2 million, which was fully paid, as of December 31, 2015.
Debt
The economic crisis in Argentina had a material adverse effect on our operations. The devaluation of the Peso caused the Peso value of our U.S. Dollar-denominated indebtedness to increase significantly, resulting in significant foreign exchange losses and a significant increase, in Peso terms, in our debt service requirements. At the same time, our cash flow remained Peso-denominated and our distribution margins were frozen and pesified by the Argentine government pursuant to the Public Emergency Law. Moreover, the 2001 and 2002 economic crisis in Argentina had a significant adverse effect on the overall level of economic activity in Argentina and led to deterioration in the ability of our customers to pay their bills. These developments caused us to announce on September 15, 2002 the suspension of principal payments on our financial debt. On September 26, 2005, our board of directors decided to suspend interest payments on our financial debt until the restructuring of this financial debt was completed.
The purpose of the restructuring was to restructure all, or substantially all, of our outstanding debt, in order to obtain terms that would enable us to service our financial debt. We believe that the restructuring was the most effective and equitable means of addressing our financial difficulties for our benefit and that of our creditors. We developed a proposal that we believed was necessary to address our financialourfinancial and liquidity difficulties, while we continued to pursue tariff negotiations with the Argentine government to improve our financial condition and operating performance.
On January 20, 2006, we launched a voluntary exchange offer and consent solicitation to the holders of our outstanding financial debt. All of these holders elected to participate in the restructuring and, as a result, on April 24, 2006, we exchanged all of our then-outstanding financial debt for the following three series of newly issued notes, which we refer to as the restructuring notes:
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· U.S. $123,773,586$ 123,773,586 Fixed Rate Par Notes due December 14, 2016, with approximately 50% of the principal due and payable at maturity and the remainder due in semiannual installments commencing June 14, 2011, and bearing interest starting at 3% and stepping up to 10% over time;
· U.S. $12,656,086$ 12,656,086 Floating Rate Par Notes due December 14, 2019, with the same payment terms as the Fixed Rate Par Notes and bearing interest at LIBOR plus a spread, which starts at 1% in 2008 and steps up to 2% over time; and
· U.S. $239,999,985$ 239,999,985 Discount Notes due December 14, 2014, with 60% of the principal due and payable at maturity and the remainder due in semiannual installments commencing on June 14, 2008, and bearing interest at a fixed rate that starts at 3% and steps up to 12% over time.
As of the date of this annual report, all of the restructuring notes have been repaid and cancelled.
In October 2007, we completed an offering of U.S. $220$ 220 million aggregate principal amount of our 10.5% Senior Notes due 2017, which we refer to as the Senior Notes due 2017. We used a substantial portion of the proceeds from that offering to redeem in full our Discount Notes due 2014 in several transactions throughout the period from October through December 2007.
During 2008, we repurchased and cancelled in several market transactions U.S. $32.5$ 17.5 million principal amount of our Fixed Rate Par Notes due December 2016 and repurchased U.S. $17.5$ 6 million of our Senior Notes due 2017, of which U.S. $6 million Senior Notes due 2017 were cancelled.respectively.
In May 2009, we issued Ps. 75.7 million principal amount of Par Notes due 2013 under our Medium Term Note Program. The Par Notes due 2013 are denominated and payable in Pesos and accrue interest on a quarterly basis at a rate equal to the private BADLAR, as published by the Central Bank, for each such quarter plus 6.75%. Principal on the notes is payable in 13 quarterly installments, starting on May 7, 2010. As of December 31, 2012, the outstanding amount was Ps. 11.7 million.2013, these Notes had been fully paid.
During 2009, we repurchased and cancelled U.S. $32.2 million Fixed Rate Par Notes due 2016 and repurchased U.S. $53.8$ 53.8 million Senior Notes due 2017, U.S. $24.5$ 24.5 million of which was transferred to us as a consequence of the dissolution of the discretionary trust described below.
On October 25, 2010, we issued Senior Notes due 2022 with a face value of U.S.$ 230.3 million, of which U.S.$ 140 million were subscribed under a cash offer and U.S.$ 90.3 million were exchanged, as a result of an exchange offer, for Senior Notes due 2017, paying in cash U.S.$ 9.5 million plus accrued unpaid interest on those Senior Notes due 2017. Edenor lunched an offer to purchase under which we purchased Senior Notes due 2017 with a face value of U.S. $33.6$ 33.6 million for U.S. $35.8$ 35.8 million, including payment of accrued and unpaid interest on the Senior Notes due 2017.
The Senior Notes due 2022 have a 12-year maturity and were issued at par, with interest accruing from the date of issuance at a fixed rate of 9.75% and payable semi-annually on October 25 and April 25 of each year, with the first interest payment on April 25, 2011.
During 2010 weAs of December 31, 2015, the outstanding amount of Senior Notes due 2022 is U.S.$ 176.4 million. Edenor repurchased and cancelled in several market transactions approximately U.S. $7.3$ 123.6 million in principal amountduring 2014, of our Fixed Rate Par Notes due 2016 andwhich, U.S. $0.04$ 68 million of our Senior Notes due 2017. Additionally,were repurchased by the Aeseba Sale Trust during 2014 (see Item 4. “Information on the Company”).
On October 18, 2010, we cancelled Senior Notes due 2017 with a nominal value of U.S. $65.3$ 65.3 million.
In addition, on October 25, 2010, November 4, 2010, and December 9, 2010, we cancelled Senior Notes due 2017 for a face value of U.S. $122.6$ 122.6 million, U.S. $1.3$ 1.3 million, and U.S. $0.04$ 0.04 million, respectively, representing approximately 83.3% of the Senior Notes due 2017 then outstanding. As of December 31, 2012,thedate of filing of this annual report, the outstanding amount of Senior Notes due 2017 wasis U.S. $24.8$ 14.8 million.
On December 13, 2010, we Edenor through Aeseba Sale Trust, repurchased and cancelled the outstanding amount of our Fixed Rate Par Notes due 2016.U.S.$ 10 million.
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InOn February 2011, JPMorgan Chase Bank N.A., Sucursal Argentina, Deutsche Bank S.A., Banco Macro S.A., Banco de la Nación Argentina and Standard Bank Argentina S.A. granted us a series of short-term loans for a total of Ps. 280 million, at an average annual interest rate of 14.5% and for an average term of 90 days. The proceeds of these loans were used to grant short-term loans to certain of our affiliates. Such affiliates used the proceeds of these short-term loans to repay a portion of their own indebtedness. Below is a brief description of the Short-Term Loans2, 2016, we received and of the short-term loans we granted to certain of our affiliates.
Short-Term Loansreceived by Edenor:
·Banco Macro S.A. granted us a loan in an aggregate principal amount of Ps. 60 million (approximately U.S. $15 million) maturing on May 13, 2011 and bearing interest at an annual rate of 15.16%, payable in a single installment at maturity;
·Deutsche Bank S.A. granted us a loan in an aggregate principal amount of Ps. 60 million (approximately U.S. $15 million) maturing on May 13, 2011 and bearing interest at an annual rate of 14.85%. Accrued interest had been payable monthly and principal had been repaid in a single installment at maturity;
·Standard Bank Argentina S.A. granted us a loan in an aggregate principal amount of Ps. 55 million (approximately U.S. $13.75 million) maturing on May 13, 2011 and bearing interest at an annual rate of 14.75%. Accrued interest had been payable monthly and principal had been repaid in a single installment at maturity;
·Banco de la Nación Argentina granted us loans in an aggregate principal amount of Ps. 81 million (approximately U.S. $20.25 million), in three different tranches: (i) Ps. 50 million (approximately U.S. $12.5 million) were disbursed on February 16, 2011; this tranche beared interest at an annual rate equal to the BADLAR Rate (as defined below) plus 400 bps and matured on August 16, 2011, (ii) Ps. 21 million (approximately U.S. $5.25 million) were disbursed on February 16, 2011; this tranche beared interest at an annual rate of 11% and was renewable for fifteen-day periods until September 30, 2011, and (iii) Ps. 10.0 million (approximately U.S. $2.5 million) were disbursed on March 4, 2011; this tranche beared interest at an annual rate equal to the BADLAR Rate plus 400 bps and matured on September 5, 2011. The BADLAR Rate was the interest rate for a 30 to 35 day fixed-term deposit of more than Ps. 1.0 million in Argentine private banks, which is published daily by the Central Bank; and
·JPMorgan Chase Bank N.A., Sucursal Argentina granted us a loan in an aggregate principal amount of Ps. 24 million (approximately U.S. $6 million) which matured on May 13, 2011 and beared interest at an annual rate of 12%. Accrued interest was payable monthly and principal was repaid in a single installment at maturity.
Short-Term Loans grantedby usto certain of our affiliates:
·Loan granted to Eden in an aggregate principal amount of Ps. 80.0 million (approximately U.S. $20.0 million). This loan was canceled on May 2, 2012;
·Loan granted to Edelar in an aggregate principal amount of Ps. 31.2 million (approximately U.S. $7.80 million);
·Loan granted to Edesa in an aggregate principal amount of Ps. 131.3 million (approximately U.S. $32.83 million). This loan was cancelled when Edesa was sold to SIESA; and
·Loan granted to Edesal in an aggregate principal amount of Ps. 37.5 million (approximately U.S. $9.37 million). This loan was canceled when Edesal was sold to Rovella.
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The proceeds of these short-term loans were applied by Edelar, Edesa and Edesal to repay certain overdrafts of Edelar, Edesa and Edesal, and a portion of the balance under the loan agreement dated July 15, 2010, among Edelar, Edesa, Edesal, Standard Bank Argentina S.A., Banco Hipotecario S.A., Banco de Galicia y Buenos Aires S.A., Banco Ciudad de Buenos Aires y Banco Itaú Argentina S.A.
On March 4, 2011, as a result of the change of control in Eden triggered by our acquisition of Aeseba, Eden prepaid its loan with Standard Bank Argentina S.A. and HSBC Argentina S.A. Such repayment was made with Eden’s funds and with the proceeds from the short-term loan that we granted to Eden in an aggregate amount equal to Ps. 80.0 million.
On the same date, we redeemed and cancelled all of our Floating Rate Par Notes due 2019.
In addition,on April 4, 2011,we and Pampa Energía S.A. entered into an agreement pursuant to which the Company would receive aU.S. $5 million two-year term loan at an annual rate of 5%. The loan was used to finance several investmentsof the Company.This loan was repaid on November 3, 2011.
On April 26, 2011, we issued approximately U.S. $69.7 million Senior Notes due 2022. This issuance constituted a reopening ofrepurchased the Senior Notes due 2022 originally issued in 2010; the new notes have the same terms as the Senior Notes due 2022 originally issued in 2010. The first interest payment on the new notes was made on October 25, 2011 and its cash proceeds were used to cancel the Short-Term Loans.
In the last week of April, we used the cash proceeds from the reopening of the Senior Notes due 2022 to cancel the Short-Term Loans.
On April 29, 2011, we entered intoone-year term loans (with a maturity date of April 30, 2012) with each of Eden, Edesal, Edelar and Edesato refinance the loans we granted to them at the timethat we acquired them, with the purpose of allowing for the restructuring of their financial loans,in the amounts of Ps. 80.0 million, in the case of Eden, Ps. 31.2 million in the case of Edelar, Ps. 131.3 million in the case of Edesa and Ps. 37.5 million in the case of Edesal,eachat an annual nominal rate of 16% withsemiannualinterestpayments due on October 31, 2011 and April 30, 2012.These financing conditions are in accordance with those usually obtained in the market for this type oftransaction.
At December 31, 2012, we recorded an allowance of Ps. 37.3 million for the total amount of the loan granted to Edelar, as we consider unlikely that such subsidiary, considering its current cash flows, will comply with payment when due. With the exception of this loan to Edelar, at the date of issuance of this annual report, the other loans have been totally repaid by the subsidiaries.
Furthermore, on November 3, 2011, we granted a loan to Eden forU.S. $3.1 million at an annual rate of 8.50% and final maturity on November 2, 2012, which was used by Eden to pay its management fee to EASA.
Additionally, on July 8, August 5 and December 29, 2011, Eden made payments for Ps. 2.0 million, Ps. 2.5 million and Ps. 1.5 million, respectively, as earlyrepayments of the loan granted by us, and in February 2012, Eden paidan additionalPs. 60.0 million. On May 2, 2012, Eden canceled the balance due under this loan.
Also, in June 2012 Eden canceled the U.S. $ 3.1 million loan granted by us in November 2011. In April 2012, the Company capitalized in EDELAR’s loan, the interest due and refinanced the loan on the same terms as the original agreement.
On May 10, 2012, the Edesa Sale was carried out, and as part of the transaction, Edesa fully repaid the loan granted by usprices for a total principal amountnominal value of Ps. 131.3 million, plus accrued interest.U.S.$ 0.3 million.
On August 29, 2012, the Company signed a loan agreement with Emdersa for an amount of Ps.400 thousand maturing on November 29, 2012. It was granted at a nominal rate of 16%. At the maturity date, the accrued interests were capitalized and the loan was refinanced for a period of six months, under the same conditions.
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Also, on November 20, 2012, the Company granted Emdersa loans for a total amount of Ps.1 million, at an annual fixed rate of 16%, with semiannual interest, to be paid in two amortizations due on May 31 and November 20, 2013. As of the date of this annual report, the amount due under this facility was Ps. 266 thousands.
Line of Credit –Edenor –Banco Ciudad Loan
In order to optimize our management of working capital, in August 2011, as part of our line of credit withBanco Ciudad, we received a six-month loan for Ps. 5.8 million, with principal payment at the maturity. We made monthly interest payments on accrued interest at a fixed annual rate of 14.8%. This loan waspaid in full andcanceledbefore its maturity, which was scheduled for February2014.
Line of Credit – Edenor–Banco de la Provincia de Buenos Aires Loans
In March and June 2011, the company entered into loans for a total aggregate amount of Ps. 22 million, from Banco de la Provincia de Buenos Aires, with principal payments at maturity (March 2012, May 2012 and June 2014). We made monthly interest payments on accrued interest at a fixed annual rate of 14.0%.
As of December 31, 20122013 and 2011,2012, the outstanding balance under these loans amounted to Ps. 1.20.4 million and Ps. 13.91.2 million, respectively. As of December 31, 2014, this line of credit was cancelled.
Line of Credit – Eden– Banco Nación Argentina – Banco Santander Río.
On February 10, 2012, EDEN entered into a loan agreement of Ps. 60 million with Banco Nación Argentina, with monthly amortization and monthly interest payments at an annual interest rate at Badlar rate plus a spread of 4% and final maturity in February 2014. These funds were applied to the repayment of the financial loan granted by Edenor.
On June 22, 2012, EDEN entered into an overdraft agreement with Banco Santander Rio, the main terms of which are the following: (i) the bank commits to provide financial assistance up to Ps.35 million which Eden may draw by no more than three requests under the agreement; (ii) the proceeds will be mainly used to refinance working capital; (iii) the final maturity of thefirst two drafts of Ps.5 million each, will be on July 23and August 21, 2012, respectively; and the remaining draft of Ps.25 million, will fall due on February 27, 2013; (iv) the drafts will accrue compensatory interest at an annual nominal rate of 16.50%, 16.75% and 21.75% respectively; and (v) Eden will pay default interest at an annual nominal rate equivalent to 50% of the applicable interest rate.
Short–debt Securities Program – Eden
On April 13, 2012, EDEN Shareholders’ Meeting approved: (i) the creation of a short-term debt securities program of up to Ps.200.0 million (or its equivalent in other currencies) outstanding at any time, in the form of unsecured, subordinated or not, non-convertible into shares, with or without third-party guarantee, short-term corporate notes, promissory notes and/or short-term securities, under the umbrella of the special system of short-term debt securities established in the CNV’s regulations; (ii) the issuance, under the framework of the Program, such short-term securities for up to the maximum amount permissible at any time, to be issued in one or more classes and/or series and denominated in pesos and/or in any other currency; and (iii) the application for the registration of this program in the special registry created by the CNV for the purpose of the issuance and public offering (to qualified investors only) of these short-term debt securities.
As of the date of this annual report, such short-debt securities program’s approval by CNV is still pending.
Derivatives Contracts
Management of derivative financial instruments
The Company has carried out transactions with derivative financial instruments with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.
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a.Corporate Notes – Cash flows SWAP
In November 2010, the Company carried out a transaction with a derivative financial instrument with JP Morgan Chase Bank N.A.September 2015, with the aim of hedging the foreign currency exchangerisk associated with the payment of the next interest coupon of our Senior Notes 2017 and 2022, we entered into futures contracts to buy U.S. Dollars for a nominal value of U.S. Dollars 10 million, at the average rate of the cash flows and the interest paymentsexchange of Ps. 10.829 to be made under its financial debt transactions.U.S.$1.00, expiring in April 2016.
This instrument provides an economic and financial hedgeThose contracts are secured for a value of the amounts in foreign currency that the Company must pay on the interest payment datesPs. 16.5 million. As of its financial debt, arising from the Class 9 Fixed Rate Notes for up to US$ 230.3 million, due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012, in the event of fluctuations in foreign currency exchange rates.
Additionally, in April 2011, the Company carried out a transaction with a derivative financial instrument with Deutsche Bank S.A. with the aim of hedging the foreign currency exchange rate of the cash flows and interest payments arising from the new issuance of Class 9 Fixed Rate Notes for up to US$69.7 million, payable on October 25, 2011, April 25, 2012 and October 25, 2012.
At December 31, 2012,2015, the economic impact of these transactions resulted in a lossgain of Ps 2.2Ps. 29.2 million, which has beenis recorded in the “Other financial expenses accountresults of the Consolidated Statement of Comprehensive Loss.Income” .
b.Forward and Future Contracts
During the years ended December 31, 2012 and 2011, the Company entered into forward and futures contracts in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.
As of December 31, 2011, the aforementioned transactions were fully settled. As of December 31, 2012, the Company did not enter into forward and future contracts.
Critical accounting policies and estimates
A summary of our significant accountingfinancial policies is included in Note 64 to our Consolidated Financial Statements,financial statements, which are included elsewhere in this annual report. The preparation of financial statements requires our management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying footnotes. Our estimates and assumptions are based on historical experiences and changes in the business environment. However, actual results may differ from estimates under different conditions, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results of operation and require management’s most subjective judgments. Our most critical accounting policies and estimates are described below.
Allowances for the impairment of receivables
The Company is exposed to impairment losses of receivables. Management estimates the final collectability of accounts receivable.
The allowance for the impairment of accounts receivable is evaluated based on the historical level of collections for services billed through the end of each year and collections subsequent thereto. Additionally, Management records an allowance based on an individual analysis of the recoverability of receivable accounts in litigation and of those customers included in the Framework Agreement.
Revenue recognition
Revenue is recognized on an accrual basis upon delivery to customers, which includes the estimated amount of unbilled distribution of electricity at the end of each year. We consider our accounting policy for therecognition of estimated revenue critical because it depends on the amount of electricity effectively delivered to customers which is valued on the basis of applicable tariffs. Unbilled revenue is classified as current trade receivables.
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Impairment of long-lived assets
Long-term assets, including identifiable intangibleLong-lived assets are tested for impairment at the lowest disaggregation level at which independent cash flows can be identified (cash generating units, or CGU).
The Company’s subsidiaries constitute a cash generating unit as they have a concession area for the distribution of electricity. Consequently, each subsidiary represents the lowest asset disaggregation level that generates independent cash flows.
The Company analyzesWe analyze the recoverability of its non-currentlong-lived assets on a periodical basis or when events or changes in circumstances indicate that the recoverable amount of assets, which is measured as the higher of value in use and fair value less costs to sell at the end of the year, may be impaired.
Due to the implementation of Resolution No. 1/16 of the ENRE, which established an increase in income as from February 1, 2016, the projections concerning the recoverability of property, plant and equipment made by the Company, have been updated.
The value in use is determined based on projected and discounted cash flows, using discount rates that reflect the time value of money and the specific risks of the assets considered.
Cash flows are prepared on the basis of estimates concerning the future performance of certain variables that are sensitive to the determination of the recoverable amount, among which the following can be noted: (i) nature, opportunity and modality of electricity rate increases andand/or cost adjustment recognition in accordance with the Adjustment Agreement;adjustmentrecognition; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred, and;incurred; (iv) investment needs in accordance with the service quality levels required by the regulatory authority, and (v) macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates.
The future increase in electricity rates used by the Companyus to assess the recoverability of its long-lived assets as of December 31, 2012,2015 is based on the Company’s contractual right derived fromrights to which the concession contractCompany is entitled, as stipulated in the Concession Agreement and the adjustment agreementagreements described in Note No. 2. C. I. of our Consolidated Financial Statements.2 to the financial statements included in this annual report. Furthermore, the actions taken to maintain and guarantee the provision of the public service, the filingspresentations made to thebefore regulatory authorities, the status quo of the discussions that are being held with government representatives, the announcements made by government officials concerning possible changes in the sector’s revenues to restore the economic and financial equation, and certain adopted measures, recently adopted, such as the new fixed and variable chargesthose described in Note 2 of our Consolidated Financial Statements,Notes 2.c.III, V and VI to the financial statements included in this annual report, have also been considered. In light of the aforementioned, the Company’s ManagementOur management estimates that it is reasonable to expect that new increases in revenues will be obtained as from 2013.
In spite2017 as a result of the current economic and financial situation,completion of the Company hasRTI during 2016.
We have made its projections under the assumption that thewe will obtain higher electricity rates, will be improved accordingin addition to the circumstances.adjustments on account of the VAD provided for by Resolution No. 7/2016. However, due to the Companycomplexity of the RTI process our management may not ensure that the future performance of the variables used to make its projections will be in line with what it has estimated. Therefore, significant differences may arise in relation to the estimates used and assessments made as ofestimated at the date of this annual report.preparation of the financial statements.
In order to contemplate the estimation risk contained in the projectionprojections of the aforementioned variables, the Company haswe have considered three different probability-weighted scenarios. Although in all of them it is estimated that we will succeed in reaching an acceptable agreement with the Argentine National Governmentgovernment resulting in a gradual tariff increases is assumed, the Company hasincrease, we have considered different timing and magnitude of expectedan increase in the VAD increases. (Distribution Added Value).
The three scenarios consider VADthat have been considered are the following:
a) Scenario called “Pessimistic” scenario: in this scenario, the Company assumes modest electricity rate increases as from 2017 as a result of the RTI process since 2013. Thesegradual implementation of the schedule resulting from the RTI. A five-year term payment plan is established for repayment of the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and loans for consumption), including interest, is paid in 4 years. Probability of occurrence assigned 20%.
b) Scenario called “Intermediate” scenario: in this case, the Company assumes reasonable electricity rate increases as from 2017 as a result of the gradual implementation of the schedule resulting from the RTI. A five-year term payment plan is established for repayment of the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and loans for consumption), including interest, is paid in 10 years with funds deriving from a specific charge included in electricity bills. Probability of occurrence assigned 65%.
c) Scenario called “Optimistic” scenario: in this case, the Company assumes increases in its remuneration, in addition to the ones recognized in the Intermediate scenario, as from 2017 as a result of the gradual implementation of the schedule resulting from the RTI. A five-year term payment plan is established for repayment of the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and loans for consumption) is waived as part of the Concession Agreement renegotiation process. Probability of occurrence assigned 15%.
We have assigned to these three scenarios can be classified into optimistic, intermediate and pessimistic cash flows depending on the opportunity of the application and magnitude of the expected CMM. The Company has assigned for these scenarios the followingpreviously described percentages of probability of occurrence based primarilymainly on experience and considering the experiencepresent economic and financial situation, the status quo of the conversations that are being held with past delaysthe Argentine government and the need to maintain the public service, object of the concession, in operation.
In all of the scenarios described above a discount rate (WACC) in Pesos has been used for each year of the projection. For the first 5 years, the average of these rates is 31%.
Sensitivity analysis:
The main factors that could result in impairment charges in future periods are: i) a distortion in the tariff renegotiation process: optimistic scenario: 30%, intermediate scenario: 50%,nature, opportunity and pessimistic scenario: 20%.
Based onmodality of the above description,electricity rate increases and recognition of costadjustments, ii) the development of the costs to be incurred, and iii) the investment needs in accordance with service quality levels required by the regulatory authority in the RTI process, among other factors. These factors have been taken into account in the aforementioned weight of scenarios. Due to the inherent uncertainty involved in these assumptions, the Company has determinedestimates that the valuationany sensitivity analysis that considers changes in any of property, plant and equipment does not exceed their recoverable amount as of December 31, 2012.them considered individually could lead to distorting conclusions.
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Revenue recognition
Revenue is recognized on an accrual basis upon delivery to customers, which includes the estimated amount of unbilled distribution of electricity at the end of each year. We consider our accounting policy for the recognition of estimated revenue critical because it depends on the amount of electricity effectively delivered to customers which is valued on the basis of applicable tariffs. Unbilled revenue is classified as current trade receivables.
Allowances for the doubtful accounts
The allowance for the impairment of accounts receivable is assessed based on the delinquent balance, which comprises all such debt arising from the bills for electricity consumption that remain unpaid 13 working days after their due dates for small-demand (tariff 1) customers and 7 working days after due date for medium and large-demand (tariff 2 and 3) customers. Our management records an allowance applying to the delinquent balances of each customer category an uncollectibility rate that is determined according to each customer category based on the historical comparison of collections made.
Additionally, and faced with temporary and/or exceptional situations, our management may redefine the amount of the allowance, specifying and supporting the criteria used in all the cases.
Current and deferred income tax/ Tax on minimum presumed income
In orderA degree of judgment is required to determine the income tax provision it is necessary to make estimates inasmuch as the Company will haveour management has to evaluate, on an ongoing basis, the positions taken in tax returns in respect of those situations in which the applicable tax legislationregulation is subject to interpretation. Wheneverinterpretation and, whenever necessary, the Company is required to make provisions based on the amount expected to be paid to the tax authorities.
When the final taxable resulttax outcome of these matters differs from the amounts initially recognized, in the provision as a consequence of estimates, such differences will affectimpact on both the income tax and the determination of deferred tax assets and liabilities.provisions in the period in which such determination is made.
If the final taxable result differs by 10% from the estimates made, the Company would need to:
·Increase the net deferred tax liability by Ps.11.4 million, if the difference was unfavorable; or
·Decrease the net deferred tax liability by Ps.11.4 million, if the difference was favorable.
A significant degree of judgment is required to determine the income tax provision. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for eventual tax claims based on estimates of whether additional taxes will be due in the future. When the final tax outcome of these matters differs from the amounts initially recognized, such differences will impact on current and deferred income tax assets and liabilities in the period in which such determination is made.
Deferred tax assets are reviewed at each reporting date and reduced in accordance with the low probability that the sufficient taxable base will be available to allow for the total or partial recovery of these assets. Deferred tax assets and liabilities are not discounted. In assessing the realization of deferred tax assets, management considers that it is likely that a portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income in the periods in which these temporary differences become deductible. To make this assessment, our management takes into consideration the scheduled reversal of deferred tax liabilities, the projections of future taxable income and tax planning strategies.
Going concern
The Consolidated Financial Statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of the adjustments or reclassifications, if there were any, which might be necessary to make if the situation described in Note 1 to our Consolidated Financial Statements is not resolved.
In the years ended December 31, 2012 and 2011, the Company recorded negative operating and net results, with its liquidity level and working capital having been affected as well. This situation is due mainly to both the continuous increase of its operating costs that are necessary to maintain the level of the service, and the delay in obtaining rate increases and higher costs recognition (“CMM”), requested in the presentations made until the date of this annual report by the Company in accordance with the terms of the Adjustment Agreement.
It is worth mentioning that the Company has not only maintained the quality of the distribution service but also satisfied the constant year-on-year increase in the demand for electricity that has accompanied the economic growth of recent years. Due to both the continuous increase recorded in the costs associated with the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, such as reducing certain specified costs, selling certain investments, reducing top management personnel’s fees, seeking new financing options, refinancing the financial debt with extended maturity terms and/or deferring the timing for certainestimated capital expenditures; provided that these measures do not affect the sources of employment, the execution of the investment plan or the carrying out of the essential operation and maintenance works that are necessary to maintain the provision of the public service.
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In this regard, and among other measures, the Company has (i) entered into an agreement with unions in order to grant interim advances, which were included in salaries as from January 2013; (ii) made arrangements and obtained payments in advance by the Federal Government of amounts relating to the Framework Agreement; (iii) collected the total amount of the loans granted to the subsidiary company EDEN, and (iv) sold its shareholding in connection with EDESA’s assets and collected the totality of the loan granted to such subsidiary company.
Furthermore, the Company has made a series of presentations before control and regulatory authorities in order to jointly instrument the necessary mechanisms to contribute to an efficient provision of the distribution service, the maintenance of the level of investments and the compliance with the increased demand. In this context and in light of the situation that affects the electricity sector, the ENRE has issued Resolution No. 347/12 (see note 2.c.V to the Consolidated Financial Statements), which establishes the application of fixed and variable charges that have allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up the aforementioned deficit due to the constant increase of operating costs and the expectations regarding salary or third-party costs increases for the year 2013.
In view of the foregoing, and given the inefficacy of the administrative and judicial actions pursued and presentations made by the Company, on December 28, 2012, an action for the protection of the Company’s rights (“acción de amparo”) was brought against the ENRE so that the Regulatory Authority, in the performance of its duties, could adopt those measures which, in the Company’s opinion, are not only urgently needed but also essential for the provision of the public service of electricity distribution that the Company is required to provide under the concession agreement on a continuous, regular and safe basis. Specifically, this action was brought not only to abate the ENRE’s unlawful omission, as the Application Authority, to adjust the electricity rate schedule in accordance with the variations recorded in costs, as established in the applicable agreement and the law, thus preventing the Company from receiving, in consideration of the service currently provided, sufficient revenues to face the necessary operating costs and the indispensable and imperative investments to provide the service in a continuous, regular, and, especially, safe manner, but also as a protection against corporate, personal and criminal liability that could eventually arise from the conditions under which the Company is forced to provide the service.
With the aim of maintaining and guaranteeing the provision of the public service, and in order to mitigate the effects of our adverse financial situation, given the aforementioned cash deficit, as from October 2012 the Company found itself forced to partially cancel, on a temporary basis, the obligations with the Wholesale Electricity Market with surplus cash balances after having complied with the commitments necessary to guarantee the provision of the public service, including the investment plans underway and operation and maintenance works. We consider this situation as a transitional measure to be applied until the new regulatory model announced by the National Authorities, aimed at restoring the economic and financial equation of the Concession Agreement, is implemented. In connection with the foregoing, the Company has been ordered by the ENRE and CAMMESA to cancel such debt. In its reply to the ENRE, the Company rejected the Regulatory Authority’s competence to intervene in its commercial issues with third parties, and, in its reply to CAMMESA, the Company stated that the cash deficit that prevents it from canceling the total amount of the debt is a case of force majeure inasmuch as the Company does not have the possibility of approving its electricity rates, but, at the same time, has to maintain the priority given to the operation of the public service.
Should the conditions existing at the date of the Consolidated Financial Statements continue, the Board of Directors believes that the Company’s economic and financial situation will continue to deteriorate and cash flows and operating results for the year 2013, and financial ratios, will be negatively impacted.
Furthermore, the negative results recorded by the Company as of December 31, 2012, require the use of 100% of the Company’s reserves and more than 50% of it’s capital stock. Section 206 of the Commercial Companies Act provides for acompulsory reduction of capital stock when this situation occurs and, therefore this loss of capital stock must be dealt with and resolved by the Company's shareholders.
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In light of the foregoing the Company’s Board of Directors continues analyzing different scenarios and possibilities to mitigate or reduce the negative impact of the Company’s situation on its operating cash flows and thereby present the shareholders with diverse courses of action. Nevertheless, the improvement of revenues so as to balance the economic and financial equation of the concession continues to be the most relevant aspect.
The outcome of the overall electricity rate review is uncertain as to both its timing and final form. Therefore, the uncertainties of the year 2011continued during 2012 . Thus if in fiscal year 2013: (i) the new electricity rate schedules are not issued by the ENRE; (ii) the Company is not granted another mechanism to compensate for it’s cost increases, in addition to the revenue obtained as a result of Resolution 347/12 or the funds derived from the PUREE, and/or; (iii) the Company does not obtain from the Federal Government another mechanism that provides it with financing for cost increases, it is likely that the Company will have insufficient liquidity and will therefore be obliged to implement various measures to preserve cash and enhance its liquidity. Additionally, the Company may not assure you that it will be able to obtain additional financing on acceptable terms. Therefore, should any of these measures, individually or in the aggregate, not be achieved; there is significant risk that such situation will have a material adverse impact on the Company’s operations. Edenor may need to enter into a renegotiation process with its suppliers and creditors in order to obtain changes in the terms of its obligations to ease the aforementioned financial situation.
Given the fact that the realization of the projected measures to revert the manifested negative trend depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases or their replacement by a new remuneration system, the Board of Directors has raised substantial doubt about the ability of the Company to continue as a going concern in the term of the next fiscal year.
Nevertheless, the Consolidated Financial Statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of the adjustments or reclassifications, if there were any, that might result from the outcome of this uncertainty.
Benefit plansThe liability recognized by the Company is the best estimate of the present value of the cash flows representing the benefit plan obligation at the closing date of the year together with the adjustments for past service costs and actuarial losses. Cash flows are discounted using a rate that contemplates actuarial assumptions about demographic and financial conditions that affect the interest ratedetermination of high-quality corporate bonds denominated in the same currency in which the benefits will be paid.benefit plans. Such estimate is based on actuarial calculations made by independent professionals in accordance with the projected unit credit method.
ENRE Penaltiespenalties and Discounts - PUREEdiscounts
We consider ourThe Company considers its applicable accounting policy for the recognition of the ENRE Penaltiespenalties and Discountsdiscounts critical because it depends on the penalizable events, which are valued on the basis of managementofmanagement best estimate at the date of the Consolidated Financial Statements, of the expenditure required to settle the present obligation. The balances corresponding toof the ENRE Penaltiespenalties and Discountsdiscounts are adjusted in accordance with the regulatory framework applicable thereto.
The balances corresponding tothereto and estimated based on the Program for the Rational Use of Electric Power (PUREE) are the bestCompany’s estimate of the expenditure required to settle the present obligation.
Allocationoutcome of the purchase priceRTI process described in business combinations
The Company accounts for business combinations by applyingNote 2 to the acquisition method, which requires that identifiable assets acquired and liabilities assumed be recorded at their respective fair value at the acquisition date.The determination of the fair values of identifiable assets acquired and liabilities assumed requires management to make estimates and use valuation techniques, including the use of independent appraisers, when the market value is not easily available. The excess of the acquisition cost over the fair value of the net identifiable assets acquired is allocated to goodwill.financial statements includes in this annual report.
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If the fair value of the net identifiable assets acquired is higher than their acquisition cost, Management must reassess whether all acquired assets and all liabilities assumed have been properly identified before recognizing a bargain purchase in order to ensure that the measurements properly reflect the consideration of all the available information as from the acquisition date. Once the Company is certain that measurements are appropriate, the resulting gain must be recognized on the acquisition date. The gain is attributed to the acquiring entity.
The valuation assumptions underlying each of these valuation methods are based on the current available information, including discount rates, estimated cash flows, market risk rates and other.
The purchase price allocation is subject to changes during the twelve-month period subsequent to the acquisition date, with the adjustments reflected prospectively. At present, there are no balances related to purchase accounting subject to change. We consider our accounting policy for the valuation of acquisitions critical because the judgments made to determine the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired may impact the value of the asset or liability, including the impact on deferred taxes, the respective amortization periods and ultimately net income (loss). Therefore, the use of other valuation methods, as well as other assumptions underlying these valuation methods, could impact the determination of our financial position and results of operations.
On March 4, 2011, our Board of Directors approved an offer from the Company’s indirect controlling company Pampa Energía. As a consequence, Edenor was appointed by Pampa as the acquiring party under the Pampa-AEI Agreement. Therefore, on March 4, 2011, we acquired from AEI Utilities, S.L. (“AEIU”) (i) 182,224,095 common shares of Emdersa representing 77.19% of Emdersa’s capital stock and votes (“Emdersa’s Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”) representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all of the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by us for the aforementioned assets amounted to U.S. $ 90 million for Emdersa’s Shares and the Residual Shares acquired from AEIU and to U.S. $50 million for AESEBA’s Shares acquired from AEIU.
Within the framework of the offer made by Pampa and accepted by us, the parties additionally agreed that if within 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, we sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).
In compliance with current regulations, we formally consulted the CNV about the steps to be followed with regards to the public offering for the acquisition of Emdersa’s Shares that we are required to make to Emdersa’s minority shareholders due to the change in Emdersa´s control and in accordance with the provisions of the Capital Markets Law and the CNV’s regulations.
The acquisitions have been recorded in accordance with the purchase method on the basis of the fair value measurements of the acquired assets and liabilities.
The consideration paid, the amount of the net acquired assets recognized at the acquisition date and the generated gain are as follows:
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| $
|
Consideration:
| |
Cash
| (561,953)
|
Consideration transferred
| (561,953)
|
Fair value of net assets acquired
| 996,912
|
Gain burgain purchase
| 434,959
|
In addition, under IFRS the excess of the fair value of the net assets acquired, including those recognized in the reassessment of the purchase price allocation, over the consideration paid and the non-controlling interest has been considered as a gain in bargain purchase, because the seller had started a process for divesting its net assets in the region and, consequently, it sold them at values lower than their respective fair value.
This gain from acquisition of companies is included in the consolidated statement of comprehensive loss.
The fair value of the assets acquired and liabilities assumed, recognized at the date of acquisition, as well as the fair value of the non-controlling interest are as follows:
| Fair
value
|
Cash and cash equivalents
| 119,042
|
Property, plant and equipment
| 1,120,925
|
Intangible assets
| 760,479
|
Inventories
| 4,256
|
Trade receivables
| 255,260
|
Other receivables
| 84,649
|
Trade payables
| (257,770)
|
Borrowings
| (450,018)
|
Deferred tax liability
| (78,845)
|
Other liabilities
| (331,026)
|
Net assets
| 1,226,952
|
Non-controlling interests
| (230,040)
|
Net assets acquired
| 996,912
|
| |
Assets available for sale
As a consequence of the tariffs delay, and with the aim of mitigating unfavorable financial and economic aspects, the Company considered the disposition of certain subsidiaries. In this context, it has decided to sell certain subsidiaries with the consequent loss of control. In accordance with IFRS, when the following criteria are met (even if the entity retains a non-controlling interest in its former subsidiary after the sale), the Company will classify all the associated assets and liabilities as available for sale:
i.Its carrying amount will be recovered mainly through a sale transaction, rather than by its continued use.
ii.It must be available, in its current conditions, for immediate sale, subject exclusively to the usual terms for the sale of this subsidiary.
iii.Its sale must be highly probable, for which purpose management must be committed to a plan to sell, and an active program to locate a buyer and complete such plan must have been initiated. Moreover, the sale of the subsidiary must be actively negotiated at a sale price reasonable in relation to its present fair value. Furthermore, it must be expected that the sale will comply with the conditions to be recognized as a completed sale within a year of classification as held for sale (unless the delay is caused by events or circumstances that are not under the entity’s control, and sufficient evidence exists that the entity is still committed to its plan to sell the subsidiary), and the actions required to complete the plan indicate that it is unlikely that the plan will be significantly changed or withdrawn.
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The assets and liabilities associated to those subsidiaries that the Company intends to sell, which comply with the aforementioned conditions, were reclassified in a single line item within current assets and current liabilities, denominated “Assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”, respectively. In addition, these assets and liabilities have been valued at the lower of carrying amount or fair value less costs to sell, recognizing a loss when the first value is higher than the second.
Measurement on fair value less costs to sell implies assumptions that are determined based on current available information, such as offers, if any, and market conditions.
Contingencies and provisions for lawsuits
The Company is a party to several complaints, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or compensation. The Company’s potential liability with respect to such claims, lawsuits and legal proceedings may not be accurately estimated. Management,Our management, with the assistance of its legal advisors (attorneys),counsel, periodically analyzes the status of each significant lawsuitlegal matter and evaluates the Company’s potential financial exposure. If the loss deriving from a complaint or legal proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded.
Provisions for contingent losses represent a reasonable estimate of the losses that will be incurred, based on the information available to our management at the date of the financial statements preparation, taking into account the Company’s litigation and settlement strategies. These estimates are mainly made with the help of legal advisors. However, if theour management’s estimates proved wrong, the current provisions could be inadequate and result in a charge to profits that could have a material adversesignificant effect on the statements of financial position, comprehensive income, changes in equity and cash flows.
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Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 20122015, 2014 and 2011.2013.
Tabular Disclosure of Contractual Obligations
The following table summarizes our contractual liabilities and commitments as of December 31, 2012. Peso amounts have been translated from U.S. Dollar amounts at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2012 of Ps. 4.918 to U.S. $1.00.2015.
| | | Payments due by period |
| | | | | | | Total | | Less than | 1‑3 | 4‑5 | More than |
| (in millions of Pesos) | | | 1 year | years | 5 years |
Long term debt obligations and commercial debt obligations (1) | Ps.4,082.2 | 1,457.0 | 171.9 | 561.8 | 1,891.4 | |
| | | | (in millions of Pesos) |
Debt obligations and commercial debt obligations (1) | | | 7,210.2 | | 4,524.2 | 417.5 | - | 2,268.5 |
Accrued fines and penalties(2) | 662.0 | 45.0 | 617.0 | — | | 1,253.1 | | 116.7 | 1,136.4 | - |
Financial assistance fees(3) | 12.2 | — | | 154.9 | | 24.5 | 97.8 | 32.6 | - |
Operating leases(4) | 53.2 | 16.7 | 31.6 | 4.9 | — | | 78.3 | | 47.9 | 30.1 | 0.3 | - |
Capital expenditures(5) | — | | - | | - |
Total | Ps.4,809.6 | Ps. 1,530.9 | Ps. 820.5 | Ps. 566.7 | Ps. 1,891.4 | | 8,696.5 | | 4,713.3 | 1,681.8 | 32.9 | 2,268.5 |
| | | |
_______________________
(1)1) Includes amortization of principal and interest payments. All of our financial indebtedness is unsecured. None of our financial indebtedness is guaranteed. See “—Debt”“Debt” in this section for a broader description of our financial debt.
(2)2) Includes adjustments made to reflectSee “Item. 4. Information on the ratification of the Adjustment Agreement. We were required to make an adjustment to a portion of our accrued fines and penalties totaling (i) Ps. 47.0 million to reflect the increase to our VAD pursuant to the Adjustment Agreement and the May 2006 CMM and (ii) Ps. 17.2 million and Ps. 18.1 million to reflect the CMM adjustment for the years ending December 31, 2008 and 2007, respectively. In addition, pursuant to the terms of the Adjustment Agreement, the Argentine government agreed, subject to the fulfillment of certain conditions, to forgive, upon the completion of the RTI, approximately Ps. 71.4 million of our accrued fines and penalties and allow us to pay the balance of these fines and penalties in semi-annual installments over a 7-year period commencing 180 days after the RTI comes into effect. Because the Adjustment Agreement was not ratified until January 2007, we have recalculated the amounts of accrued fines and penalties subject to the payment plan under the terms of the Adjustment Agreement as well as the amounts subject to forgiveness. See “Business—Company—Business Overview—Our Concession—Fines and Penalties.”
3)Fees payable under our financial services agreement with EASA, our controlling shareholder. This agreement expired in 20102015 and was renewed for a five-year period. See “Related“Item 7. Major Shareholders and Related Party Transactions—FinancialRelated Party Transactions —Financial Services Agreement with EASA.”
(3)4) Represents our minimum required lease payments.
(4)5) Our concession does not require us to make any specified amount of capital expenditures, but requires us to meet certain quality and other service standards. See “—Liquidity and Capital Resources—Capital Expenditures.”
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Item 6. Directors, Senior Management and Employees
DIRECTORS AND SENIOR MANAGEMENT
Board of Directors
Our business and affairs are managed by our board of directors in accordance with our bylaws and the Argentine CompaniesCorporations Law. Our bylaws provide that our board of directors will consist of twelve directors and up to the same number of alternate directors. Pursuant to the Argentine CompaniesCorporations Law, a majority of our directors must be residents of Argentina.
Edenor bylawsEdenor's by laws provide that holders of our Class A common shares are entitled to elect seven directors and up to seven alternate directors, one of which must be independent in accordance with CNV regulations, holders of our Class B and Class C common shares are entitled to elect five directors and up to five alternate directors, one of which must be independent in accordance with CNV regulations. Holders of Class C common shares vote jointly as a single class with the holders of Class B common shares in the election of directors. In the absence of a director elected by holders of a class of shares, any alternate director elected by holders of the same class may legally attend and vote at meetings of our board of directors. The board of directorsdirector’s elects among its members a chairman and a vice president.
Directors and alternate directors serve for one-year periods, indefinitely renewable.Ourrenewable. Our directors and alternate directors are as follows:
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| | | Year of appointment
(class electing director) |
Ricardo Torres | Chairman | 5557
| 20132015 (Class A)
|
Gustavo Mariani | Vice ChairmanVicechairman
| 4245
| 2013(Class2015 (Class A)
|
Pablo Díaz | Director | 4558
| 20132015 (Class A)
|
Marcos Marcelo Mindlin** | Director | 4851
| 20132015 (Class A)
|
Maximiliano Alejandro Fernández* | Director | 5255
| 20132015 (Class A)
|
Eduardo Llanos* | Director | 6871
| 20132015 (Class A)
|
Edgardo Alberto VolosíDamián
| Director
| 59
| 2013 (Class A)
|
Emmanuel Alvarez Agis*
| Director
| 31
| 2013 (Class B/C)
|
Patricia Charvay Miguel Mindlin**
| Director | 3049
| 20132015 (Class B/C)
|
Marcela Sacavini*
| Director
| 27
| 2013 (Class B/C)
|
Victoria Von Storch*
| Director
| 35
| 2013 (Class B/C)
|
Valeria Martofel*
| Director
| 34
| 2013 (Class B/C)A)
|
Diego Martín Salaverri | Alternate Director | 4851
| 20132015 (Class A)
|
Jaime Barba
| Alternate Director
| 49
| 2013 (Class A)
|
Damian Miguel Mindlin **
| Alternate Director
| 46
| 2013 (Class A)
|
Leandro Carlos Montero | Alternate Director | 3740
| 20132015 (Class A)
|
Daniel Flaks | Alternate Director | 4851
| 20132015 (Class A)
|
Mariano Batistella | Alternate Director | 3033
| 20132015 (Class B/C)A)
|
Gerardo Paz | Alternate Director | 47 | 2015 (Class A) |
Diana Mondino* | Alternate Director | 5457
| 20132015 (Class A)
|
Eduardo Setti*
| Alternate Director
| [ ]
| 2013 (Class B/C)
|
Edgardo Ruibal *
| Alternate Director
| 39
| 2013 (Class B/C)
|
Diego Leiva *
| Alternate Director
| 37
| 2013 (Class B/C)
|
Eduardo Endeiza *
| Alternate Director
| 37
| 2013 (Class B/C)
|
Pablo Martínez Burket*
| Alternate Director
| 47
| 2013 (Class B/C)
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__________________________________________
* Independent under Argentine law and under Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
** The following family relationships exist within the board of directors: Marcos Marcelo Mindlin and Damián Miguel Mindlin are brothers.
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TableAs of Contentsthe date of this annual report, no Class B directors or alternate directors have been appointed to replace directors or alternate directors who resigned in December 2015 when the Macri administration began.
The following is a brief description of our current directors’ and alternate directors’ background, experience and principal business activities:
Ricardo Alejandro Torreswas born on March 26, 1958. He has been a member of our board of directors since November 2005 and was reelected as a director in 2011. From 1993 and 2001 Mr. Torres served as Financial Director of Inversiones y Representaciones S.A. and as a director of Alto Palermo, Brazil Realty, Emprendimentos e Participacoes S.A., Abril S.A. and Inversora Bolivar S.A. Mr. Torres is, since March 2012 President of Edenor. Mr. Torres has also held a post as a professor of Tax and Finance at the School of Economics of the Universidad de Buenos Aires. He currently serves as director of Pampa Real Estate S.A., Pampa Participaciones II S.A., HINISA, HIDISA, Inversora Nihuiles S.A, Inversora Diamante S.A, Darwin Chile Inversora Inmobiliaria S.A., Veredit S.A., Central Térmica Güemes, Powerco S.A. Darwin Chile II Inversora Inmobiliaria S.A., Loma de la Lata, Central Piedra Buena, Corporación Independiente de Energía S.A., Dolphin Energía S.A, IEASA S.A, Inversora Ingentis S.A., Energía Distribuida S.A., Pampa Generación S.A., Petrolera Pampa S.A., Pampa Participaciones S.A., Central Hidroeléctrica Lago Escondido S.A., Empresa Distribuidora de Salta S.A., Inversora Ingentis S.A., Empresa Distribuidora de La Rioja S.A., Esed S.A.and Bodega Loma de la Lata S.A. and as alternate director of Emdersa, Citelec, Transba and Transener. Mr. Torres holds a degree in Public Accounting from the Universidad de Buenos Aires and a MastersMaster’s degree in Business Administration from the Instituto de Altos Estudios Empresariales—Escuela de Negocios de la Universidad Austral. He has been a member of Pampa Energía’s board of directors since November 2005 and was elected as Vice Chairman in 2013. Mr. Torres is, since March 2012, Chairman of our Board of Directors.He currently serves as director of Bodega Loma de la Lata S.A., CPB, CTG, Loma de la Lata, Energía Distribuida S.A., EASA, PEPCA,HIDISA, HINISA, IEASA, Diamante, Nihuiles, IPB, Pampa Comercializadora S.A., PISA, Pampa Participaciones, Pampa Participaciones II, Petrolera Pampa, Ponderosa Assets Holding I LLC. Ponderosa Assets Holding II LLC, RT Warrants S.A., Transelec, Pop Argentina S.R.L. (Partner), Todos Capital S.R.L. (Partner);Citelec (alternate director), Orígenes Seguros de Vida S.A., Orígenes Seguro de Retiro S.A., Transba (alternate director). Also, Mr. Torres is the vocal of the management board of “Fundación Pampa Energía Comprometidos con la Educación.”
Gustavo Mariani was born on September 9, 1970. Mr. Mariani holds a degree in Economics from the Universidad de Belgrano and a Master’s degree in Business Administration from the Universidad del CEMA and also is a Chartered Financial Analyst (CFA) since 1998. He has been a member of our board of directors since November 2005 and was elected as Chairman in 2013. Mr. Mariani joined Grupo Dolphin in 1993 as an analyst and also 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, Compañía de Inversiones S.A., Citelec, Comunicaciones y Consumo S.A., Consultores Fund Management S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Finance S.A, Dolphin Fund Management S.A., Dolphin Inversora S.A., IEASA, EASA, Transba, Pampa Energía, Energía Distribuida S.A., PEPCA, Grupo Dolphin S.A. Grupo Dolphin Holding S.A., HIDISA, HINISA, Nihuiles, Diamante, IEASA, IPB, Orígenes Seguros de Vida S.A., Orígenes Seguros de Retiro S.A., Pampa Comercializadora S.A., Pampa F&F LLC, Pampa Participaciones II, Pampa Participaciones, Transelec, Petrolera Pampa, CIESA, Sitios Argentinos S.A. and TGS, and as alternate liquidator of CAM Gerenciadrora S.A. (en liquidación). Also, Mr. Mariani is the executive secretary of the management board of “Fundación Pampa Energía Comprometidos con la Educación.”
Pablo Díaz was born on June 26, 1957. Mr. Díaz has been member of our board of directors since 2012. Previously he served as alternate director. Mr. Díaz currently serves as an advisor to the president of Grupo Dolphin S.A. He also serves as an alternate director at Transba S.A. and a Director of Inversora Ingentis S.A., Inversora Nihuiles S.A., Inversora Diamante S.A., Pampa Participaciones II S.A., Central Térmica Güemes S.A., Inversora Piedra Buena S.A., Hidroeléctrica Diamante S.A., Hidroeléctrica Nihuiles S.A., Citelec S.A. and Transener S.A. Previously, he was an Advisor at the Argentine Undersecretary for Electrical Energy(Subsecretaría de Energía Eléctrica) and has held various positions in the electricity industry.
Marcos Marcelo Mindlinwas born on January 19, 1964. He has been Chairmana member of our board of directors since June 16, 2006,2006. He is a member of the Council of the Americas. Mr. Mindlin received a Master of Science in Business Administration from the Universidad del CEMA (Center ofMacroeconomic Studies). He also holds a degree in Economics from theUniversidad de Buenos Aires. In 2008, Mr. Mindlin founded and since that time has directed a charity foundation called “Fundación Pampa Energía Comprometidos con la Educación” whose purpose is to improve childhood development and education. Mr. Mindlin is also a member and was reelected as Chairman in 2009.of the Board of the Executive Committee of Tzedaka, a leading Jewish-Argentine foundation. From 1989 to 2004, Mr. Mindlin served as the founder, Senior Portfolio Manager and a shareholder of Grupo Dolphin. From 1991 to 2003, Mr. Mindlin was also a shareholder, Vice-Chairman and Chief Financial Officer of Inversiones y Representaciones S.A. (IRSA), a leading Argentine real estate company listed on the New York Stock Exchange. In November 2003, Mr. Mindlin resigned from IRSA to focus his work on Grupo Dolphin. Mr. Mindlin has extensive expertise in Latin America through his role as Chairman of the board of directors of Grupo Dolphin and several of its affiliates. From 1999 to 2004, Mr. Mindlin also served as Vice President of Alto Palermo S.A. (a leading owner and operator of shopping centers in Buenos Aires), Vice President at Cresud S.A.I.C. (one of the largest listed agricultural companies in Argentina) and as Director and member of the Executive Committee of Banco Hipotecario, the leading mortgage bank in Argentina. Mr. Mindlin also serves as director of Edenor,Pampa Energía S.A., Grupo Dolphin S.A., Dolphin EnergíaFinance S.A., Electricidad Argentina S.A., IEASA S.A., Citelec, Transba, HINISA, HIDISA, Transelec Argentina S.A., Loma de la Lata, Comunicaciones y Consumos S.A., Préstamos y Servicios S.A., Powerco S.A., Central Térmica Güemes, Inversora Diamante S.A., Inversora Nihuiles S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Inversora S.A., Grupo ST S.A., Inversora Ingentis S.A., Central Piedra Buena, Corporación Independiente de Energía S.A.,IPB, Petrolera Pampa, S.A., Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Central Hidroeléctrica Lago Escondido S.A., Pampa Participaciones S.A., Bodega Loma de la Lata S.A., PEPCA, Grupo Dolphing Holding S.A., Orígenes Seguros de Retiro S.A., Orígenes Seguros de Vida S.A. Consultores Fund Management, Sitios Argentinos S.A., Pampa Real EstateComercializadora S.A. and Enron Pipeline Company Argentina S.A.. In 2008, Mr. Mindlin founded and since that time has directed a charity foundation called “Fundación Todo X los Chicos,” whose purpose is to improve childhood development and education. Mr. Mindlin is also a member and was Chairman of the Board of the Executive Committee of Tzedaka, a leading Jewish-Argentine foundation. He is a member of the Council of the Americas. Mr. Mindlin received a Master of Science in Business Administration from the Universidad del CEMA (Center of Macroeconomic Studies). He also holds a degree in Economics from the Universidad de Buenos Aires.
Pablo Díaz was born on June 26, 1957. Mr. Díaz has been member of our board of directors since 2012. Previously he has served as alternate director. Mr. Díaz currently serves as an advisor to the president of Grupo DolphinWarrants S.A. He also serves as an alternate director at Transba S.A. and a Director of Inversora Ingentis S.A., Inversora Nihuiles S.A., Inversora Diamante S.A., Pampa Participaciones II S.A., Central Térmica Güemes S.A., Corporación Independiente de Energía S.A., Hidroeléctrica Diamante S.A., Hidroeléctrica Nihuiles S.A., Citelec S.A. and Transener S.A. Previously, he was an Advisor at the Argentine Undersecretary for Electrical Energy(Subsecretaría de Energía Eléctrica) and has held various positions in the electricity industry.
Gustavo Mariani was born on September 9, 1970. He has been a member of our board of directors since November 2005 and was reelected as a director in 2012. Mr. Mariani joined Grupo Dolphin in 1993 as an analyst and also served as an investment portfolio manager. He currently serves as Director of Grupo Dolphin S.A., Dolphin Energía S.A., Dolphin Finance S.A, Electricidad Argentina S.A., Edenor, HINISA, HIDISA, Inversora Nihuiles S.A, Inversora Diamante SA, Enron Pipeline Company Argentina S.A., TGS, Compañía de Inversiones deEnergía S.A., Central Térmica Güemes, IEASA S.A., Transelec Argentina S.A., Loma de la Lata, Pampa Participaciones S.A., Pampa Real Estate S.A., Comunicaciones y Consumos S.A., Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Dolphin Inversora S.A., Inversora Ingentis S.A., Central Piedra Buena, Corporación Independiente de Energía S.A., Petrolera Pampa S.A., Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Central Hidroeléctrica Lago Escondido S.A., and Bodega Loma de la Lata S.A.,and as alternate director of Citelec, Transba, Préstamos y Servicios S.A. y Grupo ST S.A. Mr. Mariani holds a degree in Economics from the Universidad de Belgrano and a Masters degree in Business Administration from the Universidad del CEMA.
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Maximiliano Alejandro Fernándezwas born on April 21, 1960. He has been a director of Edenor since 2007 and has served as a director of EASA from 2005 to 2007. Mr. Fernández has been an associate at Impsat Fiber Network since 1998, and currently serves as president of Red Alternative S.A. Mr. Fernández served as the chairperson of Alternativa Gratis S.A, which he founded along with IRSA, until its merger in 2005. Since 1991, he has worked as an independent contractor in the telecommunications industry. Mr. Fernández is an industrial engineer and graduate of the Universidad de Buenos Aires.
Eduardo Llanoswas born on April 29, 1944. He has been a Directordirector of Edenor since 2008. Mr. Llanos served as a member of the Supervisory Committee of Televisión Federal S.A. (Telefé), Telefónica de Argentina S.A. y Telefónica Holding Argentina S.A. From 1969 to 2000, Mr. Llanos worked at Arthur Andersen / Pistrelli, Diaz y Asociados, in the Auditing Division and the Tax Division. When he left Arthur Andersen, Mr. Llanos was an International Partner, the Director of Tax Practice for Argentina, Chile, Uruguay, Paraguay and Boliva and the Director of Operations in Bolivia. FromBolivia.From 2000, Mr. Llanos is a partner at Estudio E. Llanos y Asociados. Throughout his career, Mr. Llanos has taught tax and public finance classes at the Universidad de Buenos Aires, Universidad Nacional de Lomas de Zamora and Universidad de Morón. Mr. Llanos graduated with a degree in public accountingPublic Accounting from the Universidad de Buenos Aires in 1971.
Edgardo Alberto Volosínwas born on May 18, 1953. He has been a member of the board of directors of Edenor since 2005. In addition, Mr. VolosíDamián served as Director of Human Resources and Legal Affairs of Edenor since our privatization in 1992 through July 2002 and as Director of Corporate Affairs since August 2002. Since 2012 he has served as Chief Executive Officer at Edenor. Mr. Volosín holds a degree in Law from the Universidad de Belgrano in Buenos Aires.
Emmanuel Alvarez Agis was born on May 9, 1981. Mr. Alvarez Agis has been a member of our board of directors since 2012. He is also director of Pampa and Transener. He holds a degree in Economics from the Universidad de Buenos Aires.
Patricia Charvay was born on November 9, 1982. She has been a member of our board of directors since 2012. She is also director of Sectorial Development of the Ministry of Economy and Public Finances. She holds a degree in Economics from the Universidad de Buenos Aires.
Marcela SacaviniMiguel Mindlinwas born onSeptember 23, 1985. January 3, 1966. He has been a member of our board of directors since 2013.
Victoria Von Storchwas born onNovember 7, 1977. He2005. Mr. Mindlin joined Grupo Dolphin in 1991 as a shareholder and a director. Since November 2003, Mr. Mindlin has been a memberserved as Investment Portfolio Manager of ourGrupo Dolphin. Also, Mr. Mindlin is the vice president of management board of directors since 2013. “Fundación Pampa Energía Comprometidos con la Educación”. Additionally, he currently serves as director ofPampa Energía S.A.,Grupo Dolphin S.A., Dolphin Finance S.A., Electricidad Argentina S.A., IEASA S.A., HINISA, HIDISA, Transelec Argentina S.A., Pampa Participaciones S.A., Güemes, Inversora Diamante S.A., Inversora Nihuiles S.A., Piedra Buena, IPB, Dolphin Créditos S.A., Dolphin Créditos Holding.S.A., Dolphin Inversora S.A., Petrolera Pampa, Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Inversiones, Bodega Loma de la Lata S.A., PEPCA(alternate director), Citelec(alternate director), Grupo Dolphin Holding S.A., ARPHC S.A., Estancia María S.A., Pampa Comercializadora S.A., Consultores Fund Management, Dolphin Fund Management, Pampa F&F and DMM Warrants S.A., Orígenes Seguros de Vida S.A., Orígenes Seguros de Retiro S.A. and Sitios Argentinos S.A., and as liquidator of CAM Gerenciadora S.A. (en liquidación).
Valeria Martofelwas born onJanuary 18, 1979. He has been a member of our board of directors since 2013.
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Diego MartínMartin Salaverriwas born on August 7, 1964. He has been a member of our board of directors since June 2006. He is a founding partner of the Argentine law firm of Errecondo, Salaverri, Dellatorre, GonzálezBurgio & Burgio.Wetzler Malbrán. He earned a degree in law in 1988 from the Universidad Católica Argentina, Buenos Aires. He is member of the board of directors of Edenor,Pampa Energía S.A., Estancia María S.A., Socotherm Amercias S.A. and ARPHC S.A. He is also a member of the supervisory committee of Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Grupo Dolphin Holding S.A., Dolphin Finance S.A.FinanceS.A., Orígenes Seguros de Retiro S.A., Socotherm AméricasOrígenes Seguros de Vida S.A., Compañía de Inversiones en Energía S.A., TGS,CIESA and Grupo ST S.A.TGS. Until 2007, he was a member of the board of directors of EASA. Mr. Salaverri resigned from his position as director of EASA at the November 14, 2007 meeting of the board of directors of EASA. Mr. Salaverri is also an alternate member of the statutory audit committee of GSF S.A. and Partners I S.AS.A.
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Jaime J. Barbawas born on October 14, 1963. He has been a member of our board of directors since 2009. Mr. Barba also served as legal manager and secretary of the board of directors at Edenor, since April 2012 Mr. Barba serves as Director of Corporate Affairs of Edenor. In addition, he is a director and member of the executive committee at CAMMESA, and a member of the supervisory committees at Petropack S.A. and SACME. Between 1996 and 2004 he worked in various positions at EDEERSA (Empresa Distribuidora de Energía Entre Rios SA). Mr. Barba holds a degree in law from the Universidad Nacional del Litoral and a master’s from the Direct Development Program at IAE.
Damián Miguel Mindlinwas born on January 3, 1966. He has been a member of our board of directors since November 2005 and was reelected as a director in 2012. Mr. Mindlin joined Grupo Dolphin in 1991 as a shareholder and a director. Since November 2003, Mr. Mindlin has served as Investment Portfolio Manager of Grupo Dolphin. Additionally, he currently serves as director of Edenor, Grupo Dolphin S.A., Dolphin Energía S.A., Dolphin Finance S.A., Electricidad argentina S.A., IEASA S.A., CAM S.A., HINISA, HIDISA, Transelec Argentina S.A., Pampa Participaciones S.A., Pampa Real Estate S.A., Comunicaciones y Consumos S.A., Préstamos y Servicios S.A., Powerco S.A., Central Térmica Güemes, Inversora Diamante S.A., Inversora Nihuiles S.A., Central Piedra Buena, Corporación Independiente de Energ��a S.A., Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding.S.A., Dolphin Inversora S.A., Petrolera Pampa S.A, Pampa Participaciones II S.A., Energía Distribuida S.A., Pampa Generación S.A., Pampa Inversiones S.A., Central Hidroeléctrica Lago Escondido S.A., Bodega Loma de la Lata S.A., Emdersa S.A., Empresa Distribuidora de Salta S.A., Empresa Distribuidora de La Rioja S.A., Empresa Distribuidora de San Luis S.A. and Esed S.A.
Leandro Carlos Monterowas born on February 11, 1976. Mr. Montero has been a member of our board of directors since 2012. He is the chief financial officer of Edenor and previously served in the investment group of Pampa Energía S.A. He also served as director in CAMMESA. Prior to joining Pampa EnergíaEdenor in 2008,2012, Mr. Montero held various positions in the Administration and Finance areas of Pampa Energía and Petrobras Argentina S.A., both public and SEC-listed companies. Mr. Montero worked at Ernst & Young - Pistrelli, Henry Martin y Asociados in the Advisory and Auditing Division. Mr. Montero holds a degree in Public Accounting from the Universidad de Buenos Aires and a Master degree in Business Administration from the Instituto de Altos Estudios Empresariales (IAE), school of business of the Universidad Austral.
Mariano Batistella: was born on July 31, 1982. He has been a member of our board of directors since 2012. He joined Pampa Energía, Edenor's parent company, in 2006. He currently works as Investor Relations Officer, Planning Manager and Special Projects Manager of Pampa Energía. Prior to joining Pampa, Mr. Batistella worked in investment banking at Goldman Sachs. Mr. Batistella holds a degree in business administration from the Universidad de San Andres in Argentina and has a postgraduate degree in finance from the same institution
Diana Elena Mondinowas born on August 8, 1958. Ms. Mondino has been an alternate director of Edenor since 2012. She is also a director of ISE, an agribusiness company based in Argentina. Previously, she was based in New York, as Regional Head for Latin America for Standard & Poor’s Credit Market Services, reporting to the executive vice president. Before joining Standard & Poor’s, she was one of the principal and founding members of the leading credit rating agency in Argentina which Standard & Poor’s acquired in 1997. Previously, Ms. Mondino held various advisory positions in finance, marketing and strategic planning for various companies and was Dean of Studies for the MBA program at CEMA-Buenos Aires. Ms. Mondino holds an MBA from IESE in Spain. She received a B.A. in Economics from the University of Cordoba, Argentina.
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Eduardo Setti: was born on. She has been a member of our board of directors since 2013.
Edgardo Ruibal: was born on 1974. He has been a member of our board of directors since 2012.
Diego Leiva: was born on 1976. He has been a member of our board of directors since 2012.
Eduardo Endeiza: was born on 1976. He has been a member of our board of directors since 2012.
Pablo Martínez Burket: was born on 1966. He has been a member of our board of directors since 2012.
Daniel Eduardo Flakswas born on November 19, 1964. Mr. Flaks has been a member of our board of directors since 2012. He joined Edenor in 1993. Between 1993 and 2003, Mr. Flaks served as department head and assistant manager in the areas of San Justo and Olivos. Between 2003 and 2006, he worked first as business manager and later as operations manager of the areas of Olivos and Pilar. Between 2006 and 2010, he worked as manager of distribution, responsible for directing, coordinating and controlling the technical and commercial operations of Edenor relating to the operation of the high, medium and low voltage facilities, control centers and commercial operations referring mainly to the attention of customers and the relationship with municipal governments and the ENRE. He currently serves as technical director of Edenor. Between 1993 and 1998, he was assistant professor of electrical power systems at Universidad Tecnológica Nacional. Mr. Flaks has a degree in electrical engineering from the Universidad Tecnológica Nacional and holds an MBA from the Universidad del Salvador in Argentina.
Mariano Batistellawas born on July 31, 1982. He has been a member of our board of directors since 2012. He currently works as Investor Relations Officer, Planning Manager and Special Projects Manager of Pampa Energía S.A. Mr. Batistella worked in investment banking at Goldman Sachs. Mr. Batistella holds a degree in business administration from the Universidad de San Andres and has a postgraduate degree in finance from the same institution. He currently serves as alternate director for Pampa Energía S.A., CIESA and TGS.
Diana Elena Mondinowas born on August 8, 1958. Ms. Mondino has been an alternate director of Edenor since 2012. She is also a director of ISE, an agribusiness company based in Argentina. Previously, she was based in New York, as Regional Head for Latin America for Standard & Poor’s Credit Market Services, reporting to the executive vice president. Before joining Standard & Poor’s, she was one of the principal and founding members of the leading credit rating agency in Argentina which Standard & Poor’s acquired in 1997. Previously, Ms. Mondino held various advisory positions in finance, marketing and strategic planning for various companies and was Dean of Studies for the MBA program at CEMA-Buenos Aires. Ms. Mondino holds an MBA from IESE in Spain. She received a B.A. in Economics from the University of Cordoba, Argentina.
Compensation
Our board of directors does not have a compensation or remuneration committee. The aggregate remuneration paid to the members and alternate members of our board of directors, the members and alternate members of our supervisory committee and our senior management during 20122015 was Ps. 2.43.1 million, Ps. 0.20.4 million and Ps. 22.370.5 million, respectively.
Board Practices
The duties and responsibilities of the members of our board of directors are set forth in Argentine law and our by-laws. Under Argentine law, directors must perform their duties with loyalty and the diligence of a prudent business person. Directors are prohibited from engaging in activities that compete with our company without express authorization of a shareholders’ meeting. Certain transactions between directors and our company are subject to ratification procedures established by Argentine law.
On November 29, 2012, the Argentine Governmentgovernment enacted law No. 26,831 (the “Capitalthe Capital Markets Law”)Law which revokes law No. 17,811 and Decree No. 677/01. However, Capital Markets Law took most of the provisions established in those regulations. The Capital Markets Law was enacted with the aim of creatingofcreating an adequate legal framework to strengthen the level of protection of investors in the market. Other objectives of the Capital Markets Law were to promote the development, liquidity, stability, solvency and transparency of the market, generating procedures to guarantee the efficient distribution of savings and good practices in the administration of corporations.
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The Capital Markets Law imposes the following duties on members of the board of directors of Argentine public companies:
· a duty to disclose all material events related to the company, including any fact or situation which is capable of affecting the value or trading of the securities of the company;
· a duty of loyalty and diligence;
· a duty of confidentiality; and
· a duty to consider the general interests of all shareholders over the interests of controlling shareholders.
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There are no agreements between our company and the members of our board of directors that provide for any benefits upon termination of their designation as directors.
None of our directors maintains service contracts with us except as described in “Item 7. Major Shareholders and Related Party Transactions – Transactions—Related Party Transactions.”
The significant differences between our corporate governance practices and the NYSE standards are listed on our website in compliance with the NYSE requirements. For a summary of these differences see item 16;“Item 16. Corporate Governance.”Governance”.
Executive Committee
On October 4, 2007, our board of directors created an executive committee, as contemplated by our by-laws and Law 19.550, and delegated to the executive committee the authority to take certain actions on behalf of the board. The executive committee complements the work of the board by executing certain day-to-day tasks required to oversee our activity. By creating an executive committee, the board sought to increase the efficiency of our management. The Executive Committee consists of Ricardo Torres, Marcos Marcelo Mindlin, Damián Mindlin, Gustavo Mariani and Edgardo Volosin.Damián Mindlin.
Audit Committee
Pursuant to the Capital Market LawsMarkets Law and CNV rules, Argentine public companies must appoint acomité de auditoría (audit committee) composed of at least three members of the board of directors, a majority of which must be independent in accordance with the criteria set forth by Argentine law. They serve for one-year periods
Pursuant to our by-laws, one director is appointed by holders of our Class A common shares and one by holders of our Class B common shares. Our audit committee’s duties include:
· monitoring our internal control, administrative and accounting systems;
· supervising the application of our risk management policies;
· providing the market adequate information regarding conflicts of interests that may arise between our company and our directors or controlling shareholders;
· rendering opinions on transactions with related parties;
· supervising and reporting to regulatory authorities the existence of any kind of conflict of interest;
· supervising external audit and evaluating their independence, plans and performance;
· evaluating plans and performance of the internal audit, and
· supervising the operations of the complaints channel.
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The members of our audit committee are:
|
| | | Class electing member |
Eduardo Llanos(1) | | Member | | Class A |
MaximilianoMaximiliano Alejandro Fernández(1)
| Member
| Class A
|
Valeria Martofel(1)
| Member | | Class B/CA |
(1) Independent under Argentine law and under Rule 10A-3 under the Securities Exchange Act of 1934.
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Senior Management
The following table sets forth information regarding our senior management:
|
| | | Age |
Ricardo Torres | Chairman
| 55
|
Edgardo Alberto Volosin
| Chairman and Chief Executive Officer (CEO) | | 5957
|
Leandro Carlos Montero | | Chief Financial Officer (CFO) | | 3740
|
Daniel Eduardo Flaks | | Technical Director | | 4851
|
Eduardo Maggi | | Director of Operations | 57
|
Jaime Javier Barba
| Director of Corporate Affairs
| 4960
|
Gerardo Tabakman | | Director of Information Technology and Telecommunications | | 3841
|
Victor Augusto Ruiz | | Principal Accounting Officer | | 5256
|
María Carolina Sigwald | | Director of Legal and Regulaory Affairs | | 48 |
Mariana De La Fuente | | Director of Human Resources | | 47 |
Eduardo Maggiwas born on December 31, 1955. Mr. Maggi was appointed director of operations of Edenor in 2001. Mr. Maggi currently serves as a director of SACME, which is responsible for the management of regional high-voltage distribution in the greater Buenos Aires metropolitan area and for coordinating, controlling and supervising the operation of the generation, transmission and sub-transmission network in the City of Buenos Aires. Previously, Mr. Maggi served as director of operations of two of Edenor’s operation areas, San Martín and Morón. Mr. Maggi began his career at Edenor as a technical manager. Mr. Maggi received a degree in engineering from the Universidad Tecnológica Nacional and an MBA from the Universidad del Salvador y Deusto in Spain.
Gerardo Tabakman was born on January 22, 1975. He is Director of Information Technology and Telecommunications of Edenor since April 2012. He has also served as Manager of Edenor area between September 2011 and April 2012. Previously, he served as Manager of Systems in Pampa Energía, between February 2008 and September 2011, and Accenture, where he worked from June 1997 to February 2008. Mr. Tabakman has a degree in Business Administration from the Universidad de Buenos Aires and an MBA in Management Development Program from the Instituto de Altos Estudios Empresariales (IAE), school of business of the Universidad Austral.
Víctor Augusto Ruizwas born on December 20, 1959. He began working at Edenor in 1992. Mr. Ruiz was one of the original partners from the consortium that participated in the privatization of our company. He was part of the Grupo ASTRA CAPSA (Astra Compañía Argentina de Petroleo S.A.). Between 1992 and 2006, he worked as financial statements sub-manager and accounting sub-manager at Edenor. Between 2006 and 2008, he worked as tax manager and since August 2008 he has worked as principal accounting officer. He is a consultant member of the Tax Commission and the Accounting Rules and Public Offering Commission at laCámara de Sociedades Anónimas (Chamber of Businesses). Mr. Ruiz holds a CPA from la Universidad de Buenos Aires and an MBA from la Universidad del Salvador in Argentina and Deusto in Spain.
Carolina Sigwald was born on November 15, 1967. She is Director of Legal and Regulatory Affairs of Edenor since October 2015. She started her professional career as a lawyer in Central Puerto after its privatization and then joined Chadbourne & Parke in New York and later the Inter-American Investment Corporation (IIC) in Washington. Carolina returned to Argentina in 1998 as founding partner of Law Firm Díaz Bobillo, Sigwald & Vittone, where she performed as external advisor for energycompanies, Pampa Energia among them. Likewise, she took office in Transportadora de Gas del Sur’s and Telefónica de Argentina’s Board of Directors. Mrs. Sigwald obtained her law degree in from the University of Buenos Aires, where she graduated with honors.
Mariana de la Fuente was born on December 5, 1968. She is Director of Human Resources of Edenor since July 2014. She has also served as Manager of Edenor. Before joining the company, she served as Manager of Human Resources EDEN (Empresa Distribuidora Norte Energia SA) company that was part of Pampa Energía since 2011. In addition, she has served since 1990 in various areas of responsibility in human resources in various multinational companies such as Monsanto, Cerveceria Quilmes, Cabot and Abertis. Miss de la Fuente has a degree in psychology from the University of Buenos Aires an MBA in Management Development Program from the Instituto de Altos Estudios Empresariales (IAE), school of business of the Universidad Austral.
Supervisory Committee
Argentine law requires certain corporations, such as us, to have aComisión Fiscalizadora (supervisory committee). The supervisory committee is responsible for overseeing compliance with our by-laws, shareholders’ resolutions and Argentine law and, without prejudice to the role of external auditors, is required to present to the shareholders at the annual ordinary general meeting a written report on the reasonableness of the financial information included in our annual report and in the financial statements presented to the shareholders by our boardof directors. The members of the supervisory committee are also authorized to attend board of directors’ audit committee’ and shareholders’ meetings, call extraordinary shareholders’ meetings, and investigate written complaints of shareholders holding at least 2% of our outstanding shares. Pursuant to Argentine law, the members of the supervisory committee must be licensed attorneys or certified public accountants.
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Our by-laws provide that our supervisory committee must consist of three members and three alternate members, elected by our shareholders at an ordinary meeting. Members of our supervisory committee are elected to serve one-year terms and may be re-elected. Pursuant to our by-laws, holders of our Class A common shares are entitled to appoint two members and two alternate members of the supervisory committee and holders of our Class B and Class C common shares are entitled to collectively appoint one member and one alternate member.
The members and alternate members of our supervisory committee are:
|
| | | Year of appointment
(class (class electing member)director) |
| | |
José Daniel Abelovich(1) | | Member | | 20122015 (Class A)
|
Damián Burgio | | Member | | 20122015 (Class A)
|
Jorge Roberto PardoWalter Antoni Pardi(1)(1)
| | Member | | 20122015 (Class B/C)
|
Santiago Dellatorre | | Alternate memberMember | | 20122015 (Class A)
|
Marcelo Fuxman(1) | | Alternate memberMember | | 20122015 (Class A)
|
Fernando SanchezJorge Roberto Pardo(1)(1)
| | Alternate memberMember | | 20122015 (Class B/C)
|
_______________________
______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
(1) Independent under Argentine law.
José Daniel Abelovich was born on July 20, 1956. He has been a member of oursupervisory committee since June 2006.2007. Mr. Abelovich is a founding partner of Abelovich, Polano & Asociados/Nexia International, NEXIA INTERNATIONAL, an auditing firm. Previously, he served as Manager of Coopers & Lybrand and as Senior Consultant to the World Bank in Argentina. He currentlyMr. Abelovich also serves as statutory auditormember of BHHthe supervisory committees of Abus las Americas I S.A., Agra Argentina S.A., Agro Investment S.A., Agrotech S.A., Agrology S.A., Alto Palermo S.A., Arcos del Gourmet S.A., Baicom Networks S.A., Banco de Crédito y Securitización S.A., Banco Hipotecario S.A., BH Valores S.A. de Sociedad de Bolsa, BHN Seguros Generales S.A., BHN Sociedad de Inversión S.A., BHN Vida S.A., Bitania 26 S.A., Cactus Argentina S.A., Canteras Natal Crespo S.A., Loma de la Lata, Güemes, Compañía Buenos Aires S.A., Transener, Citelec, Conil S.A., Convexity Sociedad Gerente de Fondos Comunes de Inversión S.A., Cresud SACIF y A, Cyrsa S.A., Dolphin Créditos Holding S.A., Dolphin Créditos S.A., E-Commerce Latina S.A., EASA, Emprendimiento Recoleta S.A., Transba S.A., EDENOR, Energía Distribuida S.A., PowercoExportacionesAgroindustriales Argentinas S.A., Electricidad Argentina S.A., HINISA, HIDISA, Pampa Generación S.A., Petrolera Pampa S.A., Central Térmica Güemes, Edenor, Emdersa Generación Salta S.A., Emdersa Holdings S.A., Agropoly S.A., Alto Palermo S.A., BHN Seguros Generales S.A., BHN Vida S.A., Cactus Argentina S.A., Cresud SACIF y A, Cyrsa S.A., Dolphin Inversora S.A., E-Commerce Latina S.A., Empalme S.A., Emprendimiento Recoleta S.A., Exportaciones Agroindustriales Argentinas S.A.,FCMI ARGENTINA FINANCIAL CORPORATION SA S G F C I, Fibesa S.A., Futuros y opciones.ComOpciones.Com S.A., FYO Trading S.A., Grupo Dolphin Holding S.A., HIDISA, Hoteles Argentinos S.A., Inversora Bolívar S.A., IRSA Inversiones y Representaciones S.A., La Clara de Banderaló SA, Llao – Llao Resorts S.A., Metroshop S.A., Northagro S.A., Nuevas Fronteras S.A., Nuevo Puerto Santa Fe S.A., Orígenes Seguros de Retiro S.A., Palermo Invest S.A., Panamerican Mall S.A., PEPASA, Pluriagro S.A., Powerco, Préstamos y Servicios S.A., Puerto Retiro S.A., Quality Invest S.A., Qualcomm International Inc., Real Estate Investments S.R.L., Shopping Neuquén S.A., Solares de Santa María S.A., Tarshop S.A. and Unicity S.A. Mr. Abelovich holds a degree in Public Accounting from the Universidad de Buenos Aires.
Damián Burgio was born on December 13, 1963. He has been a member of our supervisory committee since 2012 Mr. Burgio is a co-founder partner of the Law Firm Salaverri Delatorre, Burgio & Wetzler Malbrán He holds a degree in Law from the Universidad Católica Argentina.Mr. Burgio is member of Urbanizadora del Sur S.A. board of directors and serves as an alternate director of AFI Servicios S.A. Additionally, Mr. Burgio currently serves as a member of the supervisory committe of Bodega Loma de Lata S.A. , Central Térmica Loma de Lata S.A. , Desarrollos Caballito S.A., Dolphin Créditos Holding S.A., Dolphin Créditos S.A., Dolphin Finance S.A., IEASA S.A., Inversora Diamante S.A., Inversora Nihuiles S.A., Inversora Piedra Buena S.A., Pampa Energía S.A., Argentina SRL, Compañía de Inversiones de Energía S.A., Distribuidora Disco S.A., T.G.S. S.A., Envases Plásticos S.A., Formosa Refrescos S.A., Salta Refrescos S.A. and Transelec Argentina S.A.
Walter Antonio Pardiwas born on April 14, 1961. He has been a member of our supervisory committee since April 2015. Since 1993, Mr. Pardi has served in the internal audit body of the Argentine Government (Sindicatura General de la Nación). He also serves in the supervisory committee for several Argentine companies, including Telam S.E., Nación Leasing S.A. and Operadora Ferroviaria S.E. Mr. Pardi holds a degree in Public Accounting from the Universidad de Buenos Aires.
Santiago Dellatorrewas born onJanuary 26, 1967.Heis a founding partner of the Argentine law firm Errecondo, Salaverri, Dellatorre, Burgio & Wetzler Malbrán. He is a director of Envases Plásticos S.A. and Salta Refrescos S.A. He is a member of the statutory audit comittees of Desarrollos Gastronómicos S.A.; and an alternate member of the statutory audit committees of Pampa Energía S.A., Central Térmica Loma de la Lata S.A., Bodega Loma de la Lata S.A., IEASA S.A., Pampa Participaciones S.A., Pampa Participaciones II S.A., HIDISA, HINISA, IPB, Transelec Argentina S.A., EPCA S.A. and Electricidad Argentina S.A. Mr Dellatorre received his law degrees with honors from the Universidad Católica Argentina in 1990.
Marcelo Fuxman was born on November 30, 1955. He has been a member of our supervisory committee since June 2006. Mr. Fuxman is a partner of Abelovich, Polano & Asociados/ NEXIA INTERNATIONAL, an auditing firm, and managing partner of Real Estate Investments S.R.L. He currently serves as Director of Agencia Marítima Bluemar S.A. and Agra Argentina S.A., and as a statutory auditor of Agro Investment S.A., BHN Sociedad de Inversión S.A., Agropoly S.A., Agropecuaria Cervera S.A., BHN Seguros Generales S.A., BHN Vida S.A., Comercializadora Los Altos S.A., Credud SACIF y A, Cyrsa S.A., E- Commerce Latina S.A., Empalme S.A., Emprendimiento Recoleta S.A., Fibesa S.A., Futuros y Opciones.Com S.A., FYO Trading S.A., Inversiones Ganaderas S.A., Inversora Bolívar S.A., IRSA Inversiones y Reparaciones S.A., Llao-Llao Resorts S.A., Nuevas Fronteras S.A., Palermo Invest S.A., Panamerican Mall S.A., Patagonian Investment S.A., Quality Invest S.A., Shopping Alto Palermo S.A. (SAPSA), Shopping Neuquén S.A., Solares de Santa María S.A., and Tarshop S.A. and Powerco S.A. and as alternate member of the statutory audit committee of, Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Myland S.A., Petrolera Pampa S.A., Alto Palermo S.A., Cactus Argentina S.A., Dolphin Inversora S.A., Grupo Dolphin S.A. and Central Térmica Güemes, Electricidad Argentina S.A.,HIDISA. and Edenor. Mr. AbelovichFuxman holds a degree in Public Accounting from the Universidad de Buenos Aires.
Damián Burgio: Mr. Burgio has a degree in law from the Universidad Católica Argentina. He has been a member of our supervisory committee since June 2012.
Jorge Roberto Pardo was born onMarch 31, 1953. Between 1993 and 2008, Mr. Pardo worked at General Union of the Republic of Argentina (la Sindicatura General de la Nación, or SIGEN) in several positions, including as Joint General Statutory Auditor of the Nation. Between 1983 and 1992 he worked in General Union of State-Owned Companies (la Sindicatura General de Empresas Públicas, or SIGEP). Mr..Mr. Pardo holds a CPA from la Universidad de Buenos Aires.
Santiago Dellatorrewas born onJanuary 26, 1967. He is a founding partner of the Argentine law firm Errecondo, Salaverri, Dellatorre, González & Burgio. Between 1994 and 1995, Mr. Dellatorre worked as an international associate at the United States law firm Shearman & Sterling LLP. Mr. Dellatorre received his law degrees with honors from the Universidad Católica Argentina in 1990. He is a director of Cablevisión S.A., Dico S.A., Embotelladoras ARCA Argentina S.A., Envases Plásticos S.A., Formosa Refrescos S.A. and Salta RefrescosS.A.; and an alternate director of AEI Servicios Argentina S.A., Patagonia Oil and Gas S.A., PSA Energy Mendoza S.A., and Urbanizadora del Sur S.A. In addition, he is a member of the statutory audit committee of Empresa de Energía Río Negro S.A. (EdERSA); and an alternate member of the statutory audit committee of Dolphin Energía S.A., GSF S.A., Canepa Hermanos SAICAF, Chain Services S.A., EASA, Grupo Los Grobo S.A., LM Los Grobo S.A., Los Grobo Agropecuaria S.A., Los Grobo Inversora S.A., Los Grobo San Pedro S.A., Los Grobo Servicios S.A., Los Silos del 13 de Abril S.A., Maltería del Puerto S.A., Partners I S.A. and TGLT S.A.
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Marcelo Fuxman was born on November 30, 1955. He has been a member of our supervisory committee since June 2006. Mr. Fuxman is a partner of Abelovich, Polano & Asociados/ NEXIA INTERNATIONAL, an auditing firm, and managing partner of Real Estate Investments S.R.L. He currently serves as Director of Agencia Marítima Bluemar S.A. and Agra Argentina S.A., and as a statutory auditor of Agro Investment S.A., BHN Sociedad de Inversión S.A., Pampa Real Estate S.A , Agropoly S.A., Agropecuaria Cervera S.A., BHN Seguros Generales S.A., BHN Vida S.A., Comercializadora Los Altos S.A., Credud SACIF y A, Cyrsa S.A., E- Commerce Latina S.A., Empalme S.A., Emprendimiento Recoleta S.A., Fibesa S.A., Futuros y Opciones.Com S.A., FYO Trading S.A., Inversiones Ganaderas S.A., Inversora Bolívar S.A., IRSA Inversiones y Reparaciones S.A., Llao-Llao Resorts S.A., Nuevas Fronteras S.A., Palermo Invest S.A., Panamerican Mall S.A., Patagonian Investment S.A., Quality Invest S.A., Shopping Alto Palermo S.A., Shopping Neuquén S.A., Solares de Santa María S.A., Tarshop S.A. and Powerco S.A. and as alternate member of the statutary audit committee of, Compañía Buenos Aires S.A., Dolphin Créditos S.A., Dolphin Créditos Holding S.A., Myland S.A., Pampa Generación S.A., Petrolera Pampa S.A., Alto Palermo S.A., Cactus Argentina S.A., Dolphin Inversora S.A., Grupo Dolphin S.A. and Central Térmica Güemes, Electricidad Argentina S.A., Hidroeléctrica Diamante S.A. and Edenor. Mr. Fuxman holds a degree in Public Accounting from the Universidad de Buenos Aires.
Fernando Sanchezwas born on June 24, 1962. He has been a member of our supervisory committee since 2011.He currently serves as an officer of Sindicatura General de la Nación en la Gerencia de Fiscalización de Empresas, Sociedades y Entidades Financieras.He is also the Consultant Corporate Trustee in Consultatio S.A., in Talleres Navales Darsena Norte S.A.C.I.yN., and in Nacion Servicios S.A. Mr. Sanchez is a CPA and has a Bachelor of Administration degree from the University of Buenos Aires.
Employees
Excluding those employed by us on a temporary basis, Edenor had 4,696 employees as of December 31, 2015, 4,314 employees as of December 31, 2014 and 3,563 employees as of December 31, 2013.
As of December 31, 2012, Edenor had 2,929 full-time employees and Eden had 727 full time employees. As of December 31, 2011, Edenor had 2,822 full-time employees and Eden had 740 full time employees.
As of December 31, 2012,2015, approximately 83%87% of our full-time employees were subject to two collective bargaining agreements. After our privatization, we implemented an employee reduction plan to reduce the number of employees from 6,368 employees at the time of the privatization. The employee reductions were primarily effected through an early retirement program. In addition, we implemented an early retirement plan for employees who had already contributed the retirement payments required by law and had less than five years before retirement, offering them monthly payments of 80% of their pre-retirement net salary. Access to this plan is conditioned upon our own approval and the prior separation from us pursuant to a contract signed before the Argentine Ministry of Labor and Social Security or before a public notary according to the legal requirements. In July 1995, we signed two collective bargaining agreements withSindicato de Luz y Fuerza andAsociación del Personal Superior,, the two unions that represent our employees, which are currently in force pursuant to collective bargaining agreements 817/06 “E” (LYF) y 805/06 “E” (APSEE). The union agreements have a joint commission integrated by representatives of the Company and the unions entities, to interpret the agreements and analyze claims and unresolved issues that arise in our daily activities. The most common issues that arise are related to changes to employment categories, relocation of employees, detailed situations with personnel and the analysis of the suitability of different technological advances. In case of dispute and lack of agreement between the parties, a mediation or arbitration procedure is available. Currently, our relations with the unions are stable. However, we cannot guarantee that we will not experience any conflicts with our employees in the future, including with our unionized employees in the context of future negotiations of our collective bargaining agreements, which could result in events such as strikes or other disruptions that could have a negative impact on our operations.
On February 26, 2013,May 28 and October 16, 2014, the Company, the MinistrySecretariat of Labor (ST) issued Resolutions No. 836/14 and No. 1,928/14 whereby the Economic Policyfollowing was established: a) a salary increase, until April 30, 2015, for the benefits of Edenor’s employees and Development Planning Secretariat of the Economy Ministry, the Management Coordination and Control Under-Secretariat of the Federal Planning Ministry,contractors who are represented by the Sindicato de Luz y Fuerza de Capital Federal (Electric Light and Power Labor Union) and other companiesUnion of the electric power sector entered into City of Buenos Aires) and the Asociación del Personal Superior de Empresas de Energía (Association of Supervisory Personnel of Energy Companies) of 15% effective as of May 1, 2014 and of a cumulative 10% as of July 1, 2014; b) an increase, from May 1, 2014, in the percentage applicable on account of employee seniority, reaching 2.12% of the basic salary, agreement forper year of seniority; and c) a term10% to 18% increase, from May 1, 2014, in the percentage applicable to the non-calendar week modality of eighteen months which establishes a 18%increase as from January 2013, a 5% non-cumulative increase as from June 2013 and a 7% cumulative increase as from January 2014.
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Tablework. The aforementioned salary increases apply also to Edenor’s contractors whose direct employers are included in the collective bargaining agreements of Contentsthe above-mentioned union/association.
We have outsourced a number of activities related to our business to third party contractors in order to achieve a lower and more flexible cost base and to provide us with the ability to respond more quickly to changes in our market. During 2011, several contractors have subscribed collective bargaining agreements with the production union, and their employees have acquired benefits similar to our employees. Edenor had approximately 2,7772,927 third-party employees under contract as of December 31, 2012, 2,7042015, 1,847 third-party employees as of December 31, 20112014 and 2,6822,518 third-party employees as of December 31, 2010. Eden had approximately 307 third party employees under contract as of December 31, 2012, and 300 as of December 31, 2011.2013. We calculate our need for third-party employeescontractors based on our number of employees and the needs that arise in order to provide an adequate service. We only pay for services of third-party employees on the basis of services actually rendered. During 2015, 380 third party employees were included in our stable workforce as full time employees. Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that, if conflicted, contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services under certain circumstances. As of December 31, 2012 contractors’ employees were seeking2015, 2014 and 2013 indemnification from us for an aggregate amount ofcomplaints amounted to Ps. 70.0162 million, Ps. 130 million and as of December 31, 2011, the amount was Ps. 53.0 million.89 million, respectively. As of December 31, 2012, based on legal advice, we have recorded2015, the Company established allowances for an aggregate amount ofmore than Ps. 27.762.5 million to cover the liabilities we may have in connectionobligations that could correspond with such claims.
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Share Ownership
None of the members of our board of directors, our audit committee or our senior management beneficially own any shares of our capital stock, except for Messrs. Ricardo Torres, Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani who, through Pampa Energía, are controlling shareholders of Dolphin Energía and IEASA, which makes them indirect beneficiaries of all of our Class A common shares. In addition, Messrs.Mr. Diego Martín Salaverri and Gustavo Mariani are each, individually,is the beneficial ownersowner of less than one percent of our capital stock represented by Class B common shares. See “Item 7. Major Shareholders and Related Party Transactions.”
Item 7. Major Shareholders and Related Party Transactions
The following table sets forth information relating to the ownership of our common shares as of the date of this annual report.
| | | | | Class(1) | | Shares | | Percent Ownership |
Electricidad Argentina S.A.(2) | A | 462,292,111 | 51.0% | | A | | 462.292.111 | | 51,00% |
Employee Stock Participation Program | C | 1,952,604 | 0.2% | | C | | 1.952.604 | | 0,22% |
Public | B | 154,798,798 | 17.1% | | B | | 189.798.332 | | 20,94% |
Pampa Inversiones | B | 34,999,534 | 3.9% | |
ANSES(3) | B | 242,999,553 | 26.8% | | B | | 242.999.553 | | 26,81% |
Treasury Shares | B | | | | B | | 9.412.500 | | 1,04% |
Total | | 906,455,100 | 100.0% | | | | 906.455.100 | | 100,00% |
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(1)Each class of shares entitles holders to one vote per share.
(2)All of our Class A common shares have been pledged to the Argentine government to secure our obligations under our concession and cannot be transferred without the prior approval of the ENRE. See “Item 4. Information on the Company—Business Overview —OurOverview—Our obligations.” Electricidad Argentina S.A. (EASA) is an Argentine corporation wholly owned by Dolphin Energía andPampa Participaciones S.A.and IEASA. Dolphin EnergíaPampa Participaciones S.A. holds 90%0.01% of the voting stock and 92.3% of the total outstanding stock of EASA and IEASA holds the remainder.remainder 99.99% of the capital stock of EASA. Pampa Energía S.A. currently owns, directly and indirectly, 100% of the capital stock of Dolphin EnergíaPampa Participaciones and IEASA.
(3)On November 20, 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the ANSES and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES. These transferred assets included 242,999,553 of our Class B common shares, representing 26.8% of our capital stock. The ANSES is subject to the same investment rules, prohibitions and restrictions that were applicable to the Argentine private pension funds under the retirement savings system, except as described in the following sentence. On April 12, 2011, the Executive Power issued Emergency Decree No. 441, which annulled the restrictions under Section 76(f) of Law No. 24,241 on the exercise of more than 5% of the voting power in any local or foreign company, such as us, in any meeting of shareholders, irrespective of the actual interestheld in the relevant company’s capital stock. The annulment of the restrictions under Section 76(f) of Law No. 24,241 came into effect on April 14, 2011. As of such date, ANSES may exercise its voting power in any local or foreign company, such as us, based on the actual interest held in the relevant company’s capital stock.
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All of our shares have the same voting rights. As of December, 31 2012,2015, there was one resgisteredregistered shareholder of our ADSs in the United States and 3,921,3345,265,701 of our ADSs were outstanding. Since certain of our ADSs are held by brokers or other nominees, the number of direct record holders in the United States may not be fully indicative of the number of direct beneficial owners in the United States or of where the direct beneficial owners of such shares are residents. We have no information concerning holders with registered addresses in the United States that hold our shares not represented by ADSs.
Acquisition by Dolphin Energía and IEASA
In September 2005, Dolphin Energía and IEASA purchased an indirect controlling stake in us from EDFI. Until September 28, 2007, Dolphin Energía and IEASA were controlled by the principal members of Grupo Dolphin, Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani. SuchMariani.Such principal members had significant experience investing in the Argentine energy sector dating back to 2004.
Initial Public Offering
In April 2007, we completed the initial public offering of our Class B ordinary shares in the form of American Depository Shares (ADSs). We and a group of our shareholders sold 18,050,097 ADSs, representing 361,001,940 ordinary Class B common shares, in an offering in the United States and other jurisdictions outside of Argentina, and the Employee Stock Participation Program sold 81,208,416 ordinary class B shares in a simultaneous offering in Argentina. The ADSs are listed on the New York Stock Exchange under the symbol “EDN” and the Class B common shares are listed on the Buenos Aires Stock Exchange (BASE) under the same symbol. We received approximately U.S. $61.4$ 61.4 million from the initial public offering, before costs. Of this amount, we used approximately U.S. $36$ 36 million to repurchase some of our Discount Notes due 2014. The remainder of the proceeds from the initial public offering was used to repurchase some of our Fixed Rate Par Notes due 2016 and for capital expenditures. After the initial public offering, our controlling shareholder continues to own 51% of our ordinary shares.
Acquisition by Pampa Energía S.A. (Formerly Pampa Holding S.A.)
On June 22, 2007, the principal members of Grupo Dolphin, Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani, and certain other minority investors, signed a stock subscription agreement with Pampa Energía S.A., pursuant to which they agreed to transfer all of the stock of Dolphin Energía and IEASA to Pampa Energía S.A. in exchange for common stock of Pampa Energía S.A. On August 30, 2007, the shareholders of Pampa Energía S.A. approved this transfer of shares, and the CNV and the BASE approved the public offering and listing of its shares in September 2007. The transaction was consummated on September 28, 2007, and as a result, Pampa Energía S.A. now owns 100% of the capital stock of each of Dolphin Energía and IEASA, which in turn collectively own all of the capital stock of EASA, our controlling shareholder. The ratio of exchange of common shares of Pampa Energía S.A. and shares of Dolphin Energía and IEASA was determined using the respective averages of the closing prices of Pampa Energía S.A.’s and our shares on the Buenos Aires Stock Exchange during a 10-trading day period ending on August 15, 2007, taking into account, in the case of shares of Dolphin Energía and IEASA, EASA’s stake in us, the net present value of EASA’s outstanding indebtedness and the net present value of fees to be paid by us to EASA under the Financial Services Agreement dated April 4, 2006 between us and EASA. See “Related“—Related party transactions—Financial services agreement with EASA.”
The former shareholders of Dolphin Energía and IEASA, Messrs. Marcos Marcelo Mindlin, Damián Mindlin and Gustavo Mariani, are the controlling shareholders of Grupo Dolphin and are managers of Pampa Energía S.A., an Argentine public company with a market capitalization (net of repurchases) of U.S. $181$ 275.5 million as of December 31, 2011.2013. Pampa Energía S.A. was acquired in November 2005 by certain principals of Grupo Dolphin to serve as a corporate vehicle for private equity investments in Argentina. Through companies under their control, Messrs. Marcos Marcelo Mindlin, Damián Mindlin and Gustavo Mariani currently control approximately 22.77% of the common stock of Pampa Energía S.A. In addition, Messrs. Marcos Marcelo Mindlin and Damián Mindlin and GustavoMariani, together with Pampa Energía S.A.’s chief executive officer Mr.officers Messrs. Gustavo Mariani and Ricardo Alejandro Torres, hold warrants to purchase, in the aggregate, approximately 22.5% of the common stock of Pampa Energía S.A. (on a fully diluted basis). The board of directors of Pampa Energía S.A. consists of nine directors, of which five are affiliated with Grupo Dolphin, including Mr. Marcelo Mindlin,Gustavo Mariani who serves as chairman of the board of directors , Marcelo Mindlin, and Damián Mindlin and Gustavo Mariani,, members of the board of directors. The principal executive officers of Pampa Energía S.A.,excluding its chiefCo-chief executive officer, are also affiliated with Grupo Dolphin.
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In addition to its indirect stake in us, Pampa Energía S.A. currently owns as of the date of filing of this annual report, several investments in the Argentine electricity sector, including a 50% interest in the controlling shareholder of the principal electricity transmission company in Argentina, Transener and controlling stakes in six generation plants located in the Buenos Aires, Salta, Mendoza and Neuquén provinces (Central Piedra Buena S.A., Hidroeléctrica Los Nihuiles S.A., Hidroeléctrica Diamante S.A., Central Térmica Güemes S.A., EGSSA and Central Térmica Loma de la Lata S.A.).
Share Buy-Back Program
On October 23, 2008, we launched a tender offer in Argentina for our Class B common sharesat a purchase price of Ps. 0.65 per share 400,000 Class B common shares were validly tendered and purchased pursuant to the offer.
On November 14, 2008, we commenced an open-market share purchase program. Under the terms of the program, we were authorized to purchase our Class B common shares for up to Ps. 45 million, subject to certain volume and price restrictions. The open market share purchase program expired on March 17, 2009. Pursuant to the program we purchased 9,012,500 Class B common shares, at an average price of Ps. 0.65 per share, representing approximately 1%1.03% of our capital stock. We currently holdAs of the date of filing of this annual report, we held 9,412,500 Class B common shares as treasury stock.
The original term of the open-market share purchase program was extended by resolution of the Ordinary General Meeting of Shareholders of the Company dated March 3, 2011, for the same term, computable from November of that year.
On November 18, 2014, the Extraordinary General Meeting of the Company approved an additional extension of three years which will allow for an automatic reduction of capital under the Capital Market Law and develop a proposal to target those shares, which will be submitted for consideration and approval of the relevant corporate bodies.
Employee Stock Participation Program
At the time of the privatization of SEGBA (our predecessor), the Argentine government allocated all of our Class C common shares, representing 10% of our outstanding capital stock, to establish aPrograma de Propiedad Participada (employee stock participation program,or PPP), pursuant to Law No. 23,696 and regulations thereunder, through which certain eligible employees (including former employees of SEGBA who became our employees) were each entitled to receive a specified number of our Class C common shares, calculated in accordance with a formula that considered a number of factors, including the employee’s salary level, position and seniority. In order to implement the PPP, a general transfer agreement, a share syndication agreement and a trust agreement were executed.
Pursuant to the transfer agreement, participating employees were allowed to defer payment for the Class C common shares over time. As a guarantee for the payment of the deferred purchase price, the Class C common shares were pledged in favor of the Argentine government. Furthermore, under the original trust agreement, the Class C common shares were placed in trust by the Argentine government with Banco Nación, acting as trustee for the Class C common shares, for the benefit of the participant employees and the Argentine government. In addition, pursuant to the share syndication agreement, all political rights of the participant employees (including the right to vote at our ordinary and extraordinary shareholders’ meetings) were to be exercised collectively until the payment in full of the deferred purchase price and the release of the pledge in favor of the Argentine government. On April 27, 2007, the participant employees paid the deferred purchase price of all of the Class C common shares in full to the Argentine government and, accordingly, the pledge was released and the share syndication agreement was terminated.
According to the regulations applicable to the Employee Stock Participation Program, participating employees who terminated their employment with us before the payment in full of the deferred purchase price to the Argentine government were required to transfer their shares to the Guarantee and Repurchase Fund, at a price calculated pursuant to a formula set forth in the transfer agreement. As of the date of payment of the deferred purchase price, the Guarantee and Repurchase Fund had not paid in full the amounts due to the former participating employees for the transfer of their Class C common Shares.
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A number of our and SEGBA’s former employees have brought claims against the Guaranty and Repurchase Fund, the Argentine government and, in certain limited cases, us, in each case relating to the administration of our Employee Stock Participation Program. The plaintiffs who are former employees of SEGBA were not deemed eligible by the relevant authorities to participate in the Employee Stock Participation Program at the time of its creation, which determination these plaintiffs dispute and are seeking compensation for. The plaintiffs who are our former employees are either seeking payment of amounts due to them by the Guaranty and Repurchase Fund for share transfers that occurred upon their retirement from our employment or disputing the calculation of the amounts paid to them by the Guaranty andGuarantyand Repurchase Fund. In several of these claims, the plaintiffs have obtained attachment orders or injunctive relief against the Guaranty and Repurchase Fund over approximately 1,567,231 Class C common shares and Ps. 709,149 of the funds on deposit in the fund, in each case up to the amount of their respective claims. Because the outcome of these proceedings has not yet been determined, the Argentine government has instructed Banco Nación to create a Contingency Fund to hold a portion of the proceeds of the offering of Class B common shares by the Employee Stock Participation Program pending the outcome of these legal proceedings.
According to the agreements, laws and decrees that govern the Employee Stock Participation Program, our Class C common shares may only be held by our employees. Upon the closing of our initial public offering, substantially all of our Class C common shares were converted into Class B common shares and sold. In accordance with these agreements, laws and decrees, the rights previously attributable to the Class C common shares have been combined with those attributable to the Class B common shares, and holders of the remaining Class C common shares will vote jointly as a single class with the holders of Class B common shares in the election of directors. Only 1,952,604 Class C common shares remain outstanding, representing 0.2% of our capital stock.
RELATED PARTY TRANSACTIONS
Financial Services Agreement with EASA
On April 4, 2006, we entered into a Financial Services Agreement with EASA pursuant to which EASA shall provide us with advisory services, as well as services related to the potential development of new lines of business compatible with our corporate objectives. The services to be performed by EASA include providing assistance and advice in respect of our financial performance, our finance management team and our financial decision‑making process, our engagement of financial advisory services firms and the development of new financial products, the restructuring of our commercial and financial debt, feasibility, profitability and implementation of new businesses, hedging and derivatives strategies, relationship with foreign and local financial institutions, financial aspects of tariffs renegotiation and concession contract process and our annual budget.
The term of the agreement is five years from September 2005, with each party having the right to terminate it at any time without cause with 60 days prior notice. The consideration to be received by EASA is U.S. $2$ 2 million per year, plus Argentine value added tax, and is payable in advance in October of each year, or as otherwise agreed by the parties. The Board of Directorsdirectors of both EASA and us has approved the agreement, and our audit committee has indicated that the agreement was entered into on a commercial arms’ length basis. The payment related to the first year of services was made on April 19, 2006.
In April 2008, our board of directors approved an amendment to the EASA agreement increasing the amount to be paid by us in consideration for the services provided by EASA to U.S. $2.5$ 2.5 million, plus Argentine value added tax, payable retroactively from January 1, 2008.
On August 31, 2010, we signed an amendment to the EASA agreement extending the term of the agreement to five years following September 19, 2010. Our Board of Directorsdirectors approved the amendment on August 31, 2010. No other terms of the contract have been modified.
On November 10, 2015, another amendment was entered into to extend the term of the EASA agreement until September 19, 2020 and ratifying all other provisions. Such amendment was approved by our board of directors on November 9, 2015, with the prior favorable opinion of our Audit Committee.
Agreement with Comunicaciones y Consumos S.A.
On March 16,14, 2007 we entered into an agreement with Comunicaciones y Consumos S.A. (CYCSA), an Argentine company wholly owned by Mr. Marcelo Mindlin, pursuant to which we granted CYCSA the exclusive right to provide telecommunication services to our customers through the use of our network in accordance withFederal Decree 764/2000, which contemplates the integration of voice, data and imaging services through the existing infrastructure of electricity distribution companies such as us. Under the terms of this agreement, CYCSA is responsible for all expenses relating to the maintenance and adaptation of our network for use in providing its telecommunications services. The agreement is validwasvalid for ten years commencing on July 11, 2008.2008 but in November 2008, we extended its term from ten to twenty years, thus terminating in July 2028.
The agreement also provides for automatic renewal at the expiration of each term for subsequent five-year periods, unless either party gives notice not less than 120 days prior to the expiration of such term. Under the agreement, CYCSA is required to make periodic requests for access to our network, which we will evaluate and grant based on available capacity in our network. In return for the use of our network, CYCSA will compensate us with 2% of its annual charges to customers, before taxes, as well as 10% of any profits derived from its services. In addition, CYCSA will indemnify us for any liability arising from the rendering of its services through our network. In October 2008, we entered into an amendment to the agreement with CYCSA granting CYCSA the right to use poles and towers of our overhead lines to lay a network of fiber optic cables. The amendment also grants us the right to use part of the capacity of the fiber optic cables
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TableOn December 28, 2015, a consolidated agreement was instrumented as approved by our Board of Contents
In November 2008, we extendedDirectors on December 16, 2015, with the termprior favorable opinion of our initial agreement with CYCSA from ten to twenty years.Audit Committee, replacing all previous agreements, letters of intent, arrangements, statements, warranties or other provisions, but without amending any of its terms and conditions.
Agreement with Préstamos y Servicios S.A.
On March 16, 2007, we entered into an agreement with Préstamos y Servicios S.A. (PYSSA)(“PYSSA”), a company indirectly controlled by Messrs. Marcelo Mindlin, Damian Mindlin and Gustavo Mariani,financial services firm, pursuant to which we granted PYSSA the exclusive right to conduct itsrender their direct and marketingcommercial services through the use of our facilities and mailing services. Under the termsmail service. As a part of thethis agreement, we agreehave to provideinstall special modules in our offices through which PYSSA with office spacewill offer their financial services and allow them to communicate financial and loan offers directlygrant loans to our customers. In addition,Moreover, we agreed to include PYSSA’s marketing material for PYSSA in the invoices and otherour customer’s mail we send to our customers.distribution.
The term of the agreement is valid for five years which automatically renewsand provides for automatic renewal at the expiration of each term for subsequent five-year periods, unless terminated by one of the parties witheither party gives notice not less than 120 days prior notice. In accordance withto the termsexpiration of such term. Under the agreement, PYSSA payswill compensate us with 2% of theits monthly charges collected from ourto customers before taxes, andas well as the 10% of profits.any profit derived from its services. In addition PYSSA has agreed to indemnify us for any obligation arising from the renderingproviding of their services. The agreement established that its services. This agreement requiredterm was subject to the authorization fromof the ENRE, which was receivedgranted through Resolution No. 381/2007 on June 15, 2007.
However, the work in our office space related to this agreement has been temporarily suspended.
As07 of the date of this annual report, Mr. Marcelo Mindlin holds 3% of the stocks of PYSSA.
Technical Assistance Agreement between Emdersa, Eden and EASA.
As of March 4, 2011, as a consequence of the acquisition of AEIServicios by Pampa Energía, we ceded the total of the rights and obligations arising from the technical assistance agreement formerly in effect among Emdersa Eden and AEIServicios to Electricidad Argentina S.A. (“EASA”).
As of January 9, 2012, due to the sale of Emdersa’s subsidiaries, the agreement with EASA has been cancelled.
As of February 27, 2013, due to the sale of Eden, the agreement with EASA has been cancelled.
Loans with subsidiaries and related companies
See “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Debt.”
ENRE.
Item 8. Financial Information
See “Item 18. Financial Statements” beginning on page F-1.
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LEGAL AND ADMINISTRATIVE PROCEEDINGS
Legal Proceedings
In the normal course of our business, we are a party to lawsuits of various types. Our management evaluates the merit of each claim and assesses its likely outcome, recording an allowance in our financial statements for the related contingent liability when an unfavorable decision is probable and the amount may be reasonably estimated. At December 31, 2012,2015, we had established allowancesprovisions in the aggregate amount of Ps. 90.5330.1 million out of which Ps.83.1 million correspond to Edenor on a standalone basis, to cover potential losses from such claims and legal proceedings. Except as disclosed below, we are not a party to any legal proceedings or claims that may have a material adverse effect on our financial position or results of operations.
We are not aware of any other contingencies that are reasonably possible and, as of December 31, 2012,2015, there were no losses in excess of the contingencies that we recognized in our Consolidated Financial Statements as of and for the year ended December 31, 2012.2015.
Proceedings Challenging the Renegotiation of our Concession
In November 2006, two Argentine consumer associations, ACIJ and Consumer’s Cooperative for Community Action, brought an action against us and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional. On March 26, 2007, the federal administrative court dismissed these claims and ruled in our favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered the action moot. ACIJ appealed this decision on April 12, 2007, and the appeal was decided in our favor. However, on April 14, 2008, ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement. Specifically, the claim alleges that Article 4 of Law No. 24,790, which authorized the Congress to tacitly approve agreements negotiated between the Argentine government and public service companies, such as us, violated the congressional procedures established in the Argentine Constitution. ACIJ has requested that the Adjustment Agreement be renegotiated and submitted to Congress for its express approval. We have responded to this complaint. The federal administrative court ruled in our favor on May 26, 2011. This sentence was not appealed by the ACIJ, thus, is final and has the force of res judicata.
In December 2009, an Argentine consumer association,Unión de Usuarios y Consumidores, brought an action against us and the Argentine government before a federal administrative court seeking to (i) abrogate Clause 4.6 of Annex I of the Adjustment Agreement, which provides that the ratetariff increase has retroactive effects; (ii) annul ENRE Resolution No. 51/07 of the ENRE, which authorizes the retroactive increase of ratestariffs in our favor; and (iii) obtain an order that requires that we reimburse our customersourcustomers the full amounts paid by them based on the retroactive ratetariff increase and that such reimbursement be made by crediting our customers’ accounts.
On November 11, 2010, the judge upheld the claim and ordered that (i) Clause 4.1 of Annex I of Decree No. 1957/06 and Articles 2, 3 and 4 of ENRE Resolution No. 51/07 of the ENRE, which had authorized the retroactive rate increase for the period between 11/1/2005 and 1/31/2007, be annulled; (ii) the fees collected retroactively during such period be repaid to our customers; (iii) the ENRE be instructed to control our distribution of refunds and to report the results to the court; and (iv) each party bear its own court-related costs. On November 25, 2010, we appealed the court’s order and requested that the court’s order be stayed pending a decision on the appeal. On December 2, 2010, the court stayed its order pending a decision on the appeal. On June 1, 2011, the Administrative Court of Appeals (Cá(Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V)V) overturned the judgment of the lower administrative court.court in our favor. The plaintiff filed ana Federal Extraordinary Appeal, which admissibility was granted as of November 3, 2011. The case is currently inOn October 1, 2013, the Supreme Court dismissed the appeal. As a result, the decision of Justice.the Administrative Court of Appeals in our favor became final.
We cannot assure you regarding how these complaints will be resolved nor can we assure you that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our tariffs.
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Preliminary Injunction of the Public Ombudsman
On October 31, 2008, the Secretary of EnergySE approved the seasonal reference prices of power and energy in the Wholesale Electricity Market. Consequently, the ENRE applied the new rate schedule as of October 1, 2008. The new rate schedule passed the purchase price of electricity as well as the other costs related to the Wholesale Electricity Market, including transmission, onto the final customer.
In response to the new tariff schedule, theDefensor del Pueblo de la Nación (National Public Ombudsman)Ombudsman, the “Ombudsman”) filed a claim opposing the resolutions that approved the October 1, 2008 tariff schedule and naming us as a third-party defendant. On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim. We have appealed this injunction along with the Argentine government have appealed this injunction through various legal actions. AsOn August 20, 2013, the Court of First Instance in Federal Administrave Claims(Juzgado en lo Contencioso Administrativo Federal)dismissed the judicial remedy action initiated.
This decision was appealed by the plaintiff and upheld in its entirety by the Administrative Court of Appeals(Cámara Nacional de Apelaciones en lo Contencioso Administrativ Federal – Sala IV) on May 20, 2014. The Ombudsman filed an Federal Extraordinary Appeal with the Supreme Court. At the request of the dateCompany, on September 29, 2014, the relevant court of this annual report,first instance formally declared the loss of validity of the injunction timely delivered, thus being the authorized to issue the respective dunning notices Company and act in each case as provided in the rules of supply its concession agreement.
However, by Note No. 114,039/14 dated October 11, 2014, the ENRE instructed the Company to refrain from cutting supply to user with unpaid balances until the number of affected users and the amounts owed are reported by the Company and such report’s accuracy is evaluated and confirm by the ENRE.
Once the above was accomplished, the relevant court revoked the measures issued in 2009. The Ombudsman filed an extraordinary federal appeal against such decision, which was considered improper by the acting court. In view of the situation, the Ombudsman filed a “Remedy of Complaint” to the Supreme Court decision is pending.which was dismissed, thus putting an end to the dispute.
On August 14, 2009, the Secretary of Energy issued Resolution No. 652/09 whichof the SE ordered the suspension of the then applicable reference market prices of energy, and established new reference prices for the periods from June to July 2009 and from August to September 2009, reinstating partial government subsidies to the electricity generation sector. Furthermore, the resolution also established the unsubsidized reference market prices of energy for the months of June and July 2009 and August to October 2009.
On October 26, 2009, we received notice of a complaint filed by a consumer association, the Consumer’s Cooperative for Community Action, against the Argentine government, the ENRE, Edesur,Edelap and us. In accordance with the terms of the complaint, two additional associations for the defense of consumer rights, Association for the Legal Defense of Consumers(Asociación de Defensa de los Derechos de los Usuarios y Consumidores) and Consumers Union Legal Defense (Unión de Usuarios y Consumidores en Defensa de sus Derechos), have joined the complaint.
The remedies sought in the complaint are as follow:
· that all the most recent tariff resolutions be declared null and unconstitutional (ENRE Resolution(Resolutions No. 324/08 – 365/08 – 628/08, 645/08 of the ENRE and Secretary of EnergySE No. 1169/08 – 797/08 – 1170/08 and its annexes) and, as a consequence, that the amounts billed by virtue of these resolutions be refunded;
· that all the defendants be required to carry out the RTI;
· that the resolutions issued by the Secretary of EnergySE that extend the transition period of the Adjustment Agreement be declared null and unconstitutional;
· that the defendants be ordered to carry out the sale process, through an international public bidding, of their respective class “A” shares, due to the fact that the management period of the respective concessions has ended;
· that the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional;
· that the resolutions that extend the management periods contemplated in the defendant’s respective concessions be declared null and unconstitutional; and
· that, alternatively, should the main claim be rejected, the defendants be ordered to bill all customers on a bi-monthly basis.
Additionally, the plaintiffs requested that the court issue a preliminary injunction suspending the rate hikes established in the resolutions questioned by the plaintiffs and that, alternatively, the application of the resolutions be partially suspended. Finally, the plaintiffs also requested that the application authority be ordered not to approvenew increases other than within the framework of the RTI process. As
The Company answered the complaint denying all its terms and requesting the summoning of CAMMESA as a third-party. The relevant court upheld the datethird-party summon and CAMMESA answered such third-party summon. The Argentine government answered the complaint filed against it by arguing lack of personal jurisdiction(“Falta de legitimación pasiva”). A decision on this annual report, the court has neither granted nor rejected these requests.case is pending.
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We can give no assurance that these actions or other potential future actions or requests for injunctive relief will not reverse the adjustments we have obtained or block any further adjustments to our tariffs.
Breach of Contract Claims
In March 2010Consumidores Financieros, Asociación Civil Para Su Defensa,a consumers’ association, instituted an action against us and Edesur in the National Court of First Instance in Federal Administrative Claims Tribunal No. 2, Secretariat 3 (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal No 2, Secretería 3) seeking repayment to customers for alleged excess charges over the course of the past 10 years. The action is based on three claims. First, the plaintiffs claim a refund for the percentage payment of VAT over a taxable base they allege was inappropriately increased to include an amount that exceeded our and Edesur’s own payments to the wholesale electricity market. Second, the plaintiffs claim a refund for charges relating to interest on payments by customers that the plaintiffs claim we and Edesur failed to adjust to reflect the actual number of days the payment was outstanding. Finally, the plaintiffs claim a refund for late payment charges from 2008 onwards calculated at the rate of thetasa pasiva(the interest rate thatBanco de la Nación Argentinapays on deposits) in alleged contravention of the Law of Consumer Defense (Ley de Defensa del Consumidor) in April 2008. We have given express directions to our legal advisors to contest the suit and all related claims and, on April 22, 2010, we answered the complaint and filed a motion to dismiss for lack of standing on the part of the plaintiffs, requesting, at such opportunity, that a summons be served upon the Argentine government, the Federal Government, the AFIPTax Administration Agency (“AFIP”) and the ENREtheENRE as third-party defendants. Although plaintiffs’ opposition to the requested summons has not been resolved, the proceedings were brought to trial, in response to which we filed a motion for reversal with a supplementary appeal. As
The court ordered the summoning as third parties of the date ofArgentine government, ENRE and AFIP, which was already effected. A decision on this annual report, the proceedings are awaiting resolution, as a step prior to open the trial to testimony and other evidence. While we expect to prevail in this matter, an adverse decision could have a material adverse effect on our results of operations.case is pending.
On October 21, 2011, we were notified of a lawsuit filed by the Association for the Defense of Rights of Users and Consumers (Asociación de Defensa de Derechos de Usuarios y Consumidores, ADDUCor “ADDUC”) requesting that the interviewing Court (i) order the reduction or moderation of penalty interest rates or late payment interests that we charge to customers, because such rates allegedly violate Art. 31 of Law 24,240, and (ii) declare the non-implementation of the agreements or conventions which have stipulated the interest rates that we apply to our customers, and of the administrative regulations on the basis of which we justify the interest charging and (iii) orders the restitution of wrongfully perceived interests of customers provided since 08/15/August 15, 2008 until the day that we comply with the order of interest reduction. The plaintiff also requested the reinstatement of VAT (21%) and other taxes charged on the portion of charges unlawfully perceived. On November 11, 2011, we answered the complaint and filed a motion to dismiss for both lack of standing and the fact that the claims at issue were being litigated in another lawsuit.lawsuit (lis pendes). The summoning as third-party of the ENRE was also requested. On April 8, 2014, the court decided to grant the motion to dismiss on account of the existence of other action pending (lis pendens) and ordered that the proceedings be referred to such othrt court, to be consolidated with such other case"Consumidores Financieros Asociación Civil c/EDESUR y Otro s/ incumplimiento contractual".
We can give no assurance that these actions or other potential future actions or requests for injunctive relief will not reverse the adjustments we have obtained or block any further adjustments to our tariffs.
Legal actions brought by Edenor
On February 9, 2011, the Company challenged Resolution No. 32/11 of the ENRE which, withinin the frameworkcontext of the power cuts that occurred between December 20 and December 31, 2010, established the following:
- That the Company be fined in the amount of Ps. 750,000 due to its failure to comply with the obligations arising from the Concession Agreement and Section 27 of Law No. 24,065.
- That the Company be fined in the amount of Ps. 375,000 due to its failure to comply with the obligations arising from Section 25 of the Concession Agreement and Resolution No. 905/1999 of the ENRE.
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- That Companythe Company’s customers be paid the following amounts as compensation for the power cuts suffered: Ps. 180 to each small-demand residential customer who suffered power cuts that lasted more than 12 continuous hours, Ps. 350 of each of to those who suffered power cuts that lasted more than 24 continuous hours, and Ps. 450 to of each of those who suffered power cuts that lasted more than 48 continuous hours. The resolution stated that such compensation did not include damages to customer facilities and/or appliances, which were to be dealt with in accordance with a specific procedure.
On July 8, 2011, the Company requested that notice of the substance of the case be served on the ENRE, which has effectively taken place. The proceedingsWe have been“awaiting resolution” since the date on which the ENRE answered the notice served. Furthermore, on October 28, 2011, we filed an appeal (“recurso de queja por apelación denegada”) to the Federal Supreme Court requesting that the rejected extraordinary federal appeal be sustained.
On April 24, 2013, the Company was notified that sucha direct appeal had been denied bywith the Appellate Court in Contentious and Administrative Federal Matters No. 1.1, requesting that such resolution be declared null and void. Additionally, we filed a petition requesting injunctive relief aimed at suspending the application of the fine imposed until a decision on the direct appeal is issued.
On July 8, 2011, we requested that process be served on the ENRE. On October 28, 2011, the court denied the request for injunctive relief. As a consequence, we filed a Federal Extraordinary Appeal with the Supreme Court which was dismissed. We then filed another appeal with the Supreme Court (“Recurso de Queja por apelación denegada”) requesting review of the rejected federal extraordinary appeal, which as of the date of this annual report had not been resolved.
On April 24, 2013, we were notified of the decision of the Appellate Court in Contentious and Administrative Federal Matters No. 1 to deny direct appeal filed by Edenor. On May 3, 2013 and on May 13, 2013, we filed an Ordinary Appeal and an Extraordinary Appeal, respectively, with the Supreme Court. On November 7, 2014, our Ordinary Appeal was rejected and our Federal Extraordinary Appeal,partially granted. Edenor timely submitted an extraordinary appeal on account of the partially denied appeal(“Recurso de Queja por Recurso Extraordinario Denegado”). As of the date of this annual report, the Company, together with its legal counsel, is assessingappeals to the situation, which involvesSupreme Court on the precautionary measuremerits and on the appealdenial of this last resolution.injunctive relief have not been resolved yet.
As of December 31, 2012,2015, the provision recorded in relation to the aforementioned compensations amounted to Ps. 30.434.9 million, including principal amount and accrued interestinterest. For further information on this legal proceeding, see “Item 4. Business Overview—Fines and penalties.”
On December 7, 2012, the Company challenged Resolution No. 336/12 of the ENRE pursuant to which:
-the Company is to determine the customers affected by the power cuts that occurred as a consequence of failures between October 29 and November 14, 2012;
-the Company is to determine the discounts to be recognized to each of the customers identified in accordance with the preceding caption;
- the Company is to credit such discounts on account of the final discounts that will result from the evaluation of the
Technical Service Quality relating to the six-month control period;
- the Company is to compensate each small-demand residential customer (T1R) who has been affected by the power cuts occurred during the aforementioned period. The amount of the compensation will depend on the length of the power cut, provided, however, that such power cut lasted more than 12 continuous hours.
This resolution has been challenged by us by means of a direct appeal (“Recurso Directo”), which is pending before the Court of Appeals in Contentions and Administrative Federal Matters (Chamber No. 4). The appeal was filed on February 4, 2014 and has been served upon the ENRE. As of December 31, 2012,April 14, 2016, the provision recorded in relationENRE had not yet submitted an answer to the aforementioned penalties and compensations amounted to Ps. 16.7 million. It is estimated that this case will not come to an end during 2013.complaint.
On December 28, 2012, the Company filed a judicial remedy (accióanacción de amparo)amparo (judicial remedy action) against the ENRE seeking to protect the company'sCompany’s constitutional rights relating to the provision of a secure and continuouscontinuing public service of distribution of energy. To file theamparo the Company has considered thatunconstitutional the ENRE’s omissionfailure to implement the necessary measures to guarantee the provision of the public service of distribution of energy, such as it’sthe failure to recognize the CMM adjustments that the Company has requested and the delay to implementin implementing the new tariff structure under the RTI, haswhich have led to an unstable situation whichthat threatens the regular provision of the public service. As a consequence, the Company is seeking to obtain the necessary funds to provide the public service of distribution of energy as contemplated in its concession agreement.
On February 19, 2013, the National Court of First Instance in Federal Administrative Claims Tribunal No. 12 (Juzgado(Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal No 12)12) served summons to ENRE and at the same time denied the preliminary injunction requested by the Company. This resolutionThe Company decided to discontinue this action.
As a consequence of Resolution No. 250/13, issued by the SE partially modifying the situation described in the previous paragraph, the Company attempted to resolve throughout the initiated judicial remedy of December 2012 and the requirements of art. 12 (abandonment of actions in process). On May 29, 2013, the Company discontinued the action. As of the date of this annual report, the issue regarding the legal expenses of the process had not been resolved.
On June 28, 2013, we initiated a legal action against the Ministry of Planning, Public Investment and Services pursuant to the acknowledgment process and benefit of litigation without expenses, both entertained by the National Court of First Instance in Federal Administrative Claims Tribunal No. 11 (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal No 12). Breach by the Argentine government of the agreed terms under the Adjustment Agreement was claimed and compensation of damages sought.
On November 22, 2013, the Company amended the complaint so as to claim additional damages as a consequence of the Argentine government’s omission to perform the obligations under theAdjustment Agreement. On February 3, 2015, the court hearing the case ordered that notice of the complaint be served to be answered within the time limit prescribed by law, which was answered by the Argentine government. Subsequently, we informed the court of the issuance by the SE of Resolution No. 32/15as new event (“hecho nuevo”) under the terms of Section 365 of the Federal Code of Civil and Commercial Procedure. After notice was served, the court rejected the treatment thereof as an “event”, holding the Company liable for costs. The Company filed an appeal, which was admitted “with a delayed effect” (i.e. the Appellate Court will grant or reject the appeal when deciding on the granting or rejection of the appeal against final judgment). On December 4, 2015, we requested the suspension of the procedural time-limits under the terms of section 157 of the Federal Code of Civil and Commercial Procedure, in accordance with the provisions of Resolution No. 32/15 of the SE, notice of which has been timely appealed byserved upon the Company.defendant. On February 16, 2016, we reiterated the request due to the revocation of Resolution No. 32/15 of the SE.
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Petition against AFIPThe motion to litigate without liability for court fees or costs, which was filed on July 2, 2013, is currently at the discovery period.
Additionally, and in the same action, in February 2014, we applied for the immediate granting of a provisional remedy in order to maintain an efficient and safe service, requesting that until judgment is passed on the merits of the case, the Argentine government be compelled to provide us with economic assistance, whether by means of a temporary rate adjustment or through government grants. After notice was served upon and answered by the Argentine government – DGI
Ministry of Federal Planning, on May 27, 2014, the court hearing the case rejected the provisional remedy sought by us, which decision was confirmed by Division V of the Appellate Court and notified to us on December 19, 2014.
On May 15, 2012, the CompanyIn December 2015, we filed a petition for a declaratory judgment and requested injunctive relief with the City of Buenos Aires Courts in Contentious and Tax-Related Matters (Fuero Contencioso Administrativo y Tributario de la Ciudad de Buenos Aires), in connection with a claim by the City of Buenos Aires against AFIP – DGI pursuantus in connection with an alleged local tax liability (relating to Section 322the Study, Review and Inspection of Works in Public Spaces Fees, the “TERI”). The injunctive relief requested aims at suspending the foreclosure proceedings initiated by the City of Buenos Aires and avoiding an attachment on our assets. As of the Federal Civil and Commercial Procedural Code in order to obtain assurance as to the application of the minimum presumed income tax based on the decision by the Supreme Court in Hermitage”passed on June 15, 2010. In this precedent, the Court had declared this tax unconstitutional.
As of December 31, 2012 and 2011, the Company held a provision for the minimum presumed income tax for the fiscal years 2012 and 2011 and for the proportional tax estimated for such years for a total amount of Ps. 34.15 million and Ps. 40.8 million, respectively, including compensatory interest.
Legal actions brought by Eden
Eden brought an administrative reimbursement claim (acción de repetición) against the AFIP, for the excess amounts paid by AESEBA as Minimum Presumed Income Tax during the fiscal years 1998 through 2003.
Eden has filed two special appeals (Recursos de reconsideración) against the AFIP’s resolutions claiming not only the approval of the amounts not approved by the tax authorities but also that interest be calculated as from the filing date of the administrative claim.filing of the petition, the City of Buenos Aires’ claim amounted to Ps. 28.8 million.
In August 2011, the AFIP corrected the interest calculationour opinion, such local taxes are not applicable to us under federal regulations and case law. Our management and its external counsel understand that there are reasonable grounds to believe that we should prevail on August 17, 2011, it made payment for the fiscal years 1998 through 2001. The appeal concerning fiscal years 2002 and 2003 is still pending resolution.this matter.
DIVIDENDS
Under Argentine corporations’ law, declaration and payment of annual dividends, to the extent the distribution of available earnings complies with the requirements of applicable Argentine corporate law, is determined by our shareholders at the annual ordinary shareholders’ meeting. Generally, but not necessarily, the board of directors makes a recommendation with respect to the payment of dividends. Edenor has not declared or paid any dividends since August 14, 2001.
Amount available for distribution
Dividends may be lawfully declared and paid only out of our retained earnings stated in our yearly financial statements prepared in accordance with Argentine GAAPIFRS and CNV regulations and approved by the annual ordinary shareholders’ meeting.
According to Argentine Corporations Law and our by-laws we are required to maintain a legal reserve of 20% of our outstanding capital stock. The legal reserve is not available for distribution to shareholders. Under Argentine corporations’ law and our by-laws, our yearly net income (as adjusted to reflect changes in prior results) is allocated in the following order:
(i) to comply with the legal reserve requirement;
(ii) to pay the accrued fees of the members of our board of directors and supervisory committee;
(iii) to pay any amounts owed to our employees under the “Bonos de Participación para el Personal” (which are bonds issued to our employees according to the provisions of our by-laws, that entitle each holder to a pro rata portion of 0.5% of our earnings, after payment of taxes);
(iv) for voluntary or contingent reserves, as may be resolved from time to time by our shareholders at the annual ordinary shareholders’ meeting; and
(v) remainderof the net income for the year may be distributed as dividends on common shares or as otherwise decided by our shareholders at the annual ordinary shareholders’ meeting.
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Our board of directors submits our financial statements for the preceding fiscal year, together with reports thereon by the supervisory committee, at the annual ordinary shareholders’ meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders’ meeting must be held to approve the financial statements and determine the allocation of our net income for such year.
Under applicable CNV regulations, cash dividends must be paid to shareholders within 30 days of the shareholders’ meeting approving any dividends. In the case of stock dividends, shares are required to be delivered within three months of our receipt of notice of the authorization of the CNV for the public offering of the shares arising from such dividends. The statute of limitations for any shareholder to receive dividends declared by the shareholders’ meeting is 3 years from the date in which they have been made available to the shareholder.
Pursuant to the Adjustment Agreement, Edenor cannot make any dividend payments without the ENRE’s prior approval during the period in which Edenor is conducting the RTI.
SIGNIFICANT CHANGES
Except as identified in this annual report on Form 20-F, no significant change in our financial condition has occurred since the date of the most recent audited Consolidated Financial Statementsfinancial statements contained in this annual report. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations”, “Item 5. Operating and Financial Review and Prospects—Prospects - Liquidity and Capital Resources” and “Item 3. Key Information—Risk factors—Risks Relating to Our Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tarifftariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial obligations.
On March 28, 2016, we were notified by the ENRE’s of Resolution No. 31/2016, pursuant to which we were instructed to compensate the small residential customers (T1R) who had been affected by the power cuts occurred during the period between February 12 and commercial obligations.”18, 2016. The amount of the compensations depends on the duration of each power cut, totalizing a loss of Ps.73.0 million.
Item 9. The Offer and Listing
Since April 26, 2007, our Class B common shares and the ADSs have been listed on the Buenos Aires Stock ExchangeBASE and the NYSE, respectively. The ADSs have been issued by the Bank of New York as depositary. Each ADS represents 20 Class B common shares.
Offer and Listing Details
The following table sets forth, for the periods indicated, the annual high and low market prices for the ADSs on the New York Stock ExchangeNYSE and for the shares on the Buenos Aires Stock Exchange.BASE.
| Buenos Aires Stock Exchange | |
| | |
| | | | |
2008 | 3.50 | 0.56 | 22.16 | 3.06 |
2009 | 1.70 | 0.61 | 9.02 | 3.20 |
2010 | 2.90 | 1.26 | 14.32 | 6.36 |
2011 | 2.71 | 1.27 | 13.49 | 5.26 |
2012 | 1.65 | 0.52 | 7.03 | 1.71 |
| | | Buenos Aires Stock Exchange | | New York Stock Exchange |
| | | Pesos per Share | | U.S. Dollars per ADS |
Year | | High | | Low | | High | | Low |
2011 | | 2.71 | | 1.27 | | 13.49 | | 5.26 |
2012 | | 1.65 | | 0.52 | | 7.03 | | 1.71 |
2013 | | 3.55 | | 0.67 | | 8.79 | | 1.90 |
2014 | | 8.70 | | 2.32 | | 16.47 | | 4.93 |
2015 | | 14.55 | | 5.39 | | 19.75 | | 8.90 |
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The following tables set forth, for the periods indicated, the reported high and low sales prices for our shares on the Buenos Aires Stock ExchangeBASE and the reported high and low sales prices for the ADSs on the New York Stock Exchange.NYSE.
| | | Buenos Aires Stock Exchange | | New York Stock Exchange |
| | Pesos per Share | | U.S. Dollars per ADS |
Period | | High | | Low | | High | | Low |
2014 | | | | | | | | |
First Quarter | | 3.60 | | 2.32 | | 7.40 | | 4.93 |
Second Quarter | | 6.72 | | 3.60 | | 12.70 | | 7.35 |
Third Quarter | | 8.70 | | 6.35 | | 16.47 | | 10.32 |
Fourth Quarter | | 8.70 | | 5.38 | | 13.49 | | 9.32 |
| | | | | | | | | |
| | | | | | | | | |
| | | Buenos Aires Stock Exchange | | New York Stock Exchange |
| | Pesos per Share | | U.S. Dollars per ADS |
Period | | High | | Low | | High | | Low |
2015 | | | | | | | | |
First Quarter | | 10.90 | | 5.39 | | 18.47 | | 8.90 |
Second Quarter | | 10.30 | | 8.20 | | 17.43 | | 12.93 |
Third Quarter | | 9.96 | | 8.00 | | 15.03 | | 11.88 |
Fourth Quarter | | 14.55 | | 8.40 | | 19.75 | | 12.13 |
| Buenos Aires Stock Exchange | |
| | |
| | | | |
2011 | | | | |
First Quarter | 2.71 | 2.12 | 13.49 | 9.97 |
Second Quarter | 2.37 | 1.78 | 11.31 | 8.24 |
Third Quarter | 2.28 | 1.42 | 10.85 | 6.06 |
Fourth Quarter | 2.08 | 1.27 | 8.40 | 5.26 |
| Buenos Aires Stock Exchange | |
| | |
| | | | |
2012 | | | | |
First Quarter | 1.65 | 0.96 | 7.03 | 3.70 |
Second Quarter | 1.00 | 0.60 | 3.77 | 1.98 |
Third Quarter | 0.88 | 0.69 | 2.66 | 2.06 |
Fourth Quarter | 0.71 | 0.52 | 2.40 | 1.71 |
| | | | |
| | | | |
| Buenos Aires Stock Exchange | |
| | |
| | | | |
2012 | | | | |
December | 0.68 | 0.60 | 2.05 | 1.85 |
2013 | | | | |
January | 1.14 | 0.66 | 2.98 | 1.99 |
February | 1.13 | 0.85 | 2.85 | 2.06 |
March | 0.97 | 0.90 | 2.50 | 2.12 |
April(1) | 0.96 | 0.90 | 2.48 | 1.92 |
(1)Represents the corresponding sale prices from April 1 through April 29, 2013.15, 2016.
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MARKETS
Trading on the Buenos Aires Stock Exchange
Trading in the Argentine securities market
The securities market in Argentina is comprised of 11 stock exchanges consisting of the BCBA,Buenos Aires, Bahía Blanca, Corrientes,Chaco, Córdoba, La Plata, La Rioja, Mendoza, Rosario, Santa Fe, Mar del PlataSalta, Tucumán and Tucumán.Confederado Stock Exchange. Six of these exchanges (Buenos Aires, Rosario, Córdoba, Mendoza, Santa Fe, and La Rioja) have affiliated stock markets and, accordingly, are authorized to quote publicly offered securities. Securities listed on these exchanges include corporate equity and bonds and government securities.
The BCBA is the principal and longest-established exchange in Argentina and is currently the fourth largest exchange in Latin America in terms of market capitalization. The BCBA began operating in 1854 and accounts for approximately 95% of all equity trading in Argentina. Bonds listed on the BCBA may simultaneously be listed on the Mercado Abierto Electrónico, the Argentine over-the-counter market, or MAE, pursuant to an agreement between BCBA and MAE which stipulates that equity securities are to be traded exclusively on the BCBA while debt securities (both public and private) may be traded on both the MAE and the BCBA. In addition, through separate agreements with the BCBA, all of the securities listed on the BCBA may be listed and subsequently traded on the Córdoba, Rosario, Mendoza, La Plata and Santa Fe exchanges, by virtue of which many transactions originating on these exchanges relate to BCBA-listed companies and are subsequently settled in Buenos Aires. Although companies may list all of their capital stock on the BCBA, controlling shareholders in Argentina typically retain the majority of a company’s capital stock, resulting in a relatively small percentage of active trading of the companies’ stock by the public on the BCBA.
The Buenos Aires Stock Market or Mercado de Valores de Buenos Aires (MERVAL) is the largest stock market in Argentina and is affiliated with the BCBA. MERVAL is a corporation consisting of 133 shareholder members who are the sole individuals or entities authorized to trade, either as principalsasprincipals or agents, in the securities listed on the BCBA. Trading on the BCBA is conducted either through the traditional auction system from 11:00 a.m. to 5:00 p.m. on trading days, or through theSistema Integrado de Negociación Asistida por Computación (Computer-Assisted Integrated Negotiation System, or SINAC). SINAC is a computer trading system that permits trading in both debt and equity securities and is accessed by brokers directly from workstations located in their offices. Currently, all transactions relating to listed negotiable obligations and listed government securities can be effectuated through SINAC. In order to control price volatility, MERVAL imposes a 15-minute suspension on trading when the price of a security registers a variation in price between 10% and 15% and between 15% and 20%. Any additional 5% variation in the price of a security will result in additional 10-minute successive suspension periods.
Recently, the shareholders of the MERVAL and the BASE entered into a framework agreement to create Bolsas y Mercados Argentinos S.A. for the purposes of operating a stock market in accordance with the requiements of Capital Markets Law. The new entity will be formed by a spin–off of certain assets of the MERVAL relating to its stock market business and the BASE will make further capital contributions to such entity; in addition, an authorization for the public offering in respect of its shares has been requested to the CNV. In addition, the Merval and the BASE entered into memorandums of understanding with Mercado de Valores de Cordoba S.A. to integrate the stock market of Córdoba into a federal stock market managed by Bolsas y Mercados Argentinos S.A., and with several brokers of the city of Santa Fe, Province of Santa Fe, for them to act within such federal market.
As of the date of this annual report, the required authorization from the CNV with respect to the aforementioned spin–off and the public offering of the shares of Bolsas y Mercados Argentinos S.A. is pending.
CNV Resolution No. 17,501/2014 dated September 11, 2014 authorized the BCBA to act as a qualified entity for the purposes of carrying out the activities referred to in paragraph b) of Article 32 of the Capital Markets Law on account of the delegation by the MERVAL pursuant to the “Agreement on Delegation of Functions” dated February 26, 2014 between BCBA and MERVAL. As a result, BCBA is authorized to suspend and cancel the listing or trading of securities in the form prescribed by the applicable regulations. In this context, on January 8, 2015, the MERVAL set the terms on which the delegation to the BCBA is to be implemented to ensure the continuity of securities trading.
Regulation of the Argentine securities market
The Argentine securities market is regulated and overseen by the CNV, pursuant to Capital MarkerMarkets Law, No. 26,831, as well as stockbroker transactions, market operations, the public offering of securities, corporate governance matters relating to public companies and the trading of futures and options. Argentine insurance companies are regulated by a government agency, theSuperintendencia de Seguros de la Nación, whereas financial institutions are regulated primarily by the Central Bank.
In Argentina, debt and equity securities traded on an exchange or the over-the-counter market must, unless otherwise instructed by their shareholders, be deposited withCaja de Valores S.A. ("(“Caja de Valores"Valores”), a corporation owned by the Buenos Aires Stock Exchange, MERVAL and certain provincial exchanges. Caja de Valores is the central securities depositary of Argentina and provides central depositary facilities and acts as a clearinghouse for securities trading and as a transfer and paying agent for securities transactions. Additionally, Caja de Valores handles the settlement of securities transactions carried out by the Buenos Aires Stock Exchange and operates the computerized exchange information system mentioned above.
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Despite a change in the legal framework of Argentine securities trading in the early 1990s, which permitted the issuance and trading of new financial products in the Argentine capital markets, including commercial paper, new types of corporate bonds and futures and options, and significant corporate governance regulations introduced in 2001 as further described below, there is still a relatively low level of regulation of the market for Argentine securities and investors’ activities in such markets and enforcement of them has been extremely limited. Because of the limited exposure and regulation in these markets, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the United States and certain other countries. However, the CNV has taken significant steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for noncompliance.
In order to improve Argentine securities market regulation, the Argentine Governmentgovernment issued Decree No. 677/01 on June 1, 2001, which provided certain guidelines and provisions relating to capital markets transparency and best practices. Decree No. 677/01 applies to individuals and entities that participate in the public offering of securities, as well as to stock exchanges. Among its key provisions, the decree broadens the definition of a “security,” governs the treatment of negotiable securities, mandatory and voluntary tender offers, authorizes market stabilization transactions under certain circumstances, governs insider trading, market manipulation and securities fraud, regulates going-private transactions and acquisitions of voting shares, including controlling stakes in public companies and set forth a number of corporate governance standards including regulations regarding treatment of related party transactions and establishment of independent audit committees in publicly traded companies. Further improvements to Argentine securities market regulations were introduced in December 2011 when the Argentine Congress enacted changes to the Argentine Criminal Code to include insider trading as a criminal offense. Also, on November 29, 2012, the Argentine Governmentgovernment enacted law No. 26,831 (the “Capitalthe Capital Markets Law”)Law which revokes lawsuperseded Law No. 17,811 and Decree No. 677/01.
However, Capital MarketsMarket Law tookincorporated most of the provisions established in those regulations. In this respect, the following key provisions of Decree No. 677/01 have been incorporated into the Capital Market Law, among others: the definition of the term “security”; corporate governance requirements, including the obligation for publicly-listed companies to have an audit committee composed of three or more members of the board of directors (the majority of which must be independent under CNV regulations); the regulation of market stabilization transactions under certain circumstances; regulation governing insider trading, market manipulation and securities fraud; and the regulation of going-private transaction and acquisitions of voting shares, including controlling stakes in public companies. In addition, the Capital Market Law included relevant changes for the modernization and future design of the Argentine capital markets, such as granting regulatory powers and resources to the CNV, providing for a mandatory tender offer system and other provisions such as certain requirements for brokers/dealers and other market participants. These provisions were regulated by the CNV through Resolution No. 622/2013.
Before offering securities to the public in Argentina, an issuer must meet certain requirements established by the CNV with regard to the issuer’s assets, operating history and management, among others, and only securities for which an application for a public offering has been approved by the CNV may be listed on a stock exchange. Despite these requirements imposed by the CNV, CNV approval does not imply any kind of certification as to the quality of the securities or the solvency of the issuer, although issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements and various other periodic reports with the CNV and the stock exchange on which their securities are listed, as well as to report to the CNV and the relevant stock exchange any event related to the issuer and its shareholders that may affect materially the value or trading volume of the securities traded.
Item 10. Additional Information
MEMORANDUM AND ARTICLES OF INCORPORATION
Set forth below is a brief summary of certain significant provisions of our by-laws and Argentine law. This description does not purport to be complete and is qualified by reference to our by-laws, which have been filed as an exhibit to this annual report. For a description of the provisions of our by-laws relating to our board of directors and statutory auditors, see “Item 6. Directors, Senior Management and Employees.”
Description of Capital Stock
We are a public service company incorporated on July 21, 1992 as asociedad anónima,a limited liability corporation, duly incorporated under the laws of Argentina for a 95−year period and registered on August 3, 1992 with the Public Registry of Commerce of the City of Buenos Aires under Nr. 7041 of Book 111, Volume A ofSociedades Anónimas.
As of the date of this annual report, our capital stock consists of Ps. 906,455,100, represented by 462,292,111 book-entry Class A common shares, with a par value of one Peso each and the right to one vote per share, 442,210,385 book-entry Class B common shares, with a par value of one Peso each and the right to one vote per share, and 1,952,604 book-entry Class C common shares, with a par value of one Peso each and the right to onevote per share. Under our by-laws, we are required to ensure, unless the ENRE approves otherwise, that Class A common shares represent 51% of our outstanding capital stock andstockand that new Class A, Class B and Class C common shares are issuedpro rata to the percentage of the outstanding capital stock represented by them prior to a capital increase, unless a general or special shareholder’s meeting approves otherwise. All of our outstanding shares are currently fully paid.
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Our shareholders authorized a capital increase of 83,161,020 common shares on June 7, 2006 composed of 42,412,120 Class A common shares, 32,432,797 Class B common shares and 8,316,102 Class C common shares. Our Class B common shares have been listed on the Buenos Aires Stock Exchange since 1995 although they have never been traded effectively on that exchange or any other market. Holders of Class A common shares may convert any Class B common shares they may hold into Class A common shares, on a one−for−one basis, if such conversion would be required to maintain at all times 51% of our outstanding capital stock. Our Class A common shares have been pledged in favor of the Argentine government to secure our obligations under our concession and may not be transferred, not even to shareholders of the same class, without the prior approval of the ENRE. Under the Adjustment Agreement, these shares may not be transferred until the approval of the RTI.
Upon the closing of our IPO, substantially all our Class C common shares were converted into Class B common shares. The rights previously attributable to our Class C common shares were combined with those attributable to our Class B common shares, and holders of our remaining Class C common shares vote jointly as a single class with the holders of our Class B common shares in the election of directors.
Corporate Purpose
Article 4 of our by-laws establishes that our corporate purpose is to engage in the distribution and sale of electricity within our concession area. We can also acquire the capital stock of other electricity distribution companies, subject to regulatory approval, lease our network to provide power line communication or other voice, data and image transmission services, and render operating, advisory, training, maintenance, consultancy, management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by us or through subsidiaries or affiliates. In addition, we may act as trustees of trusts created under Argentine law to the extent they are related to credit facilities granted to vendors and service providers acting in the distribution and sale of electricity who have guaranties granted by reciprocal guaranty companies owned by us.
Shareholders’ Liability
Under Argentine corporate law, shareholder liability for a company’s losses is limited to the value of the shareholder’s shareholding in the company. However, shareholders who have a conflict of interest with the company with respect to certain matters and who do not abstain from voting on such matters may be held liable for damages to the company, provided that their votes were involved in the adoption of the relevant decision. In addition, shareholders who voted in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or the company’s by-laws (or regulations, if any) may be held jointly and severally liable for damages to the company, other shareholders or third parties resulting from the resolution. See also “Item 3. Key Information—Risk factors—Risks related to our ADSs and common shares—Our shareholders may be subject to liability for certain votes of their securities.”
Appraisal Rights
Whenever our shareholders approve:
· a merger or spin-off in which we are not the surviving corporation, unless the acquiroracquirer shares are authorized for public offering or listed on any stock exchange;
· a transformation of our corporate legal status;
· a fundamental change in our by-laws;
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· a change in our domicile outside Argentina;
· a voluntary termination of the public offering or listing authorization;
· a decision in favor of our continuation upon delisting or cancellation of our public offering authorization; or
· a total or partial recapitalization following a mandatory reduction of our capital or liquidation
any shareholder that voted against such action or did not attend the relevant meeting may exercise appraisal rights, that is, the rights to withdraw as our shareholder and have its shares cancelled in exchange for the book value of its shares, determined on the basis of our latest balance sheet prepared,Statement of Financial Position, or that should have been prepared, in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within the time frame set forth below.
Appraisal rights must be exercised within five days following the meeting at which the relevant resolution was adopted, in the event of a dissenting shareholder that voted against such resolution, or within 15 days following such meeting in the case of a dissenting shareholder that did not attend the meeting and who can prove that it was a shareholder at the date of the meeting. In the case of mergers or spin-offs involving an entity authorized to make public offering of its shares, appraisal rights may not be exercised if the shares to be received as a result of the transaction are listed in any stock exchange. Appraisal rights are terminated if the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 60 days as from the meeting at which the resolution was adopted.
Payment of appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except where the resolution was to delist our capital stock, in which case the payment period is reduced to 60 days from the date of the relevant resolution.
Because of the absence of legal precedents directly on point, there is doubt as to whether holders of ADSs would be able to exercise appraisal rights either directly or through the depositary with respect to our Class B common shares represented by ADSs.
Redemption or Repurchase
According to the Capital Markets Law, asociedad anónima may acquire its own shares, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and other regulations that may be issued by the CNV. The conditions are: (a) the shares to be acquired should be fully paid; (b) there shall be a resolution of the board of directors to such effect, (c) the acquisition shall be made out of net profits or voluntary reserves; (d) the total amount of shares acquired by the company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower percentage determined by the CNV. The shares acquired in excess of such limit shall be disposed of within 90 days after the date of the acquisition originating the excess.
The shares acquired by the company shall be disposed of by the company within a maximum term of three years counted as from the date of the acquisition thereof. Upon disposition of the shares, the company shall make a preemptive rights offering of such shares. The offer is not mandatory if the shares are issued in connection with a compensation plan or program for the company’s employees or if the shares are distributed among all shareholders in proportion to their shareholding. If shareholders do not exercise in whole or in part, their preemptive rights, the sale shall be made in a stock exchange.
In 2008, we repurchased our class B common shares in Argentina through a public tender offer and through open market repurchases. Through both operations, we repurchased 9,412,500 shares. On October 31, 2008, we launched a public tender offer in Argentina for our Class B common shares. According to the terms of the tender offer, we were permitted to purchase up to 65 million shares, or 7.17% of our outstanding Class B common shares,at a price of Ps. 0.65 per share for a total maximum expenditure of Ps. 45 million. The CNV approved the tender offer on October 30, 2008. The offer expired on November 14, 2008.
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Preemptive and Accretion Rights
Under Argentine law, shareholders of any given class of common shares have preemptive rights, on apro rata basis, to subscribe shares of the same class owned by them, and accretion rights, on apro rata basis, to subscribe additional shares of its class or other classes of shares not subscribed by other shareholders of the same class. Preemptive rights and accretion rights may be waived only by each shareholder on a case-by-case basis. Pursuant to the Argentine corporations law,Corporations Law, in exceptional cases and on a case by case basis when required for the best interest of the relevant company, its shareholders at anatan extraordinary meeting with a special majority may decide to limit or suspend preemptive rights, provided that the resolution is included in the meeting’s agenda and the shares to be issued are paid in kind or are issued to cancel preexisting obligations.
In the event of a capital increase, our by-laws provide that holders of Class A, Class B and Class C common shares have preemptive rights, on apro rata basis, to subscribe new Class A, Class B or Class C common shares, as the case may be, in order to maintain theirpro rata interest in our capital stock, unless otherwise decided at our general or extraordinary shareholders’ meeting. The holders of our Class A common shares, in any capital increase, must exercise their preemptive rights to maintain at least 51% of our capital stock outstanding after giving effect to the capital increase, unless otherwise authorized by the ENRE or to the extent any other legal mechanism is used to secure the 51% ownership of our capital stock. In order for the participant employees of the PPP to participate in such an offering, all of our Class C common shares (including shares of PPP participants who will not participate in such an offering) shall be converted into Class B common shares.
Pursuant to Argentine law, if approved by an extraordinary shareholders’ meeting, companies authorized to make a public offering of their securities may shorten the period during which preemptive rights may be exercised from 30 to 10 days following the publication of the offering in the Argentine Official Gazette and a newspaper of wide circulation in Argentina. Preemptive rights are exercisable following such publication (which must be made for three days) for a period of 30 days, provided the period is not reduced in the manner described above.
Shareholders who have exercised their preemptive rights have the right to exercise accretion rights, on apro rata basis, with respect to any unsubscribed shares. Shares not subscribed by shareholders by virtue of preemptive or accretion rights may be offered to third parties. EASA and certain of our selling shareholders have assigned their preemptive and accretion rights to the international underwriters. Holders of ADSs may be restricted in their ability to exercise preemptive rights if a prospectus under the Securities Act relating thereto has not been filed or is not effective or an exemption is not available.
Voting Rights
Under our by-laws, each class of common shares entitles its holder to one vote per share at any meeting of our shareholders. Under Argentine corporations’ law, a shareholder is required to abstain from voting any resolution in which his direct or indirect interest conflicts with that of, or is different from, the company. In the event that such shareholder votes on such resolution, and such resolution would not have been approved without such shareholder’s vote, the resolution may be declared void by a court and such shareholder may be held liable for damages to the company, other shareholders and third parties.
Registration Requirements of Foreign Companies Holding Class B Shares
Under Argentine regulations, foreign companies that hold shares directly (and not indirectly through ADSs) in an Argentine company must register with theInspección General de Justicia (the City of Buenos Aires Public Registry of Commerce) to exercise certain shareholder rights, including voting rights. The registration requires the filing of certain corporate and accounting documents in order to demonstrate that the foreign shareholder is not a special purpose vehicle organized solely to conduct business in Argentina that it is entitled to conduct business in its place of incorporation and meets certain foreign assets requirements.
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Liquidation Rights
In case of liquidation or dissolution, our assets will be applied to satisfy our outstanding liabilities and then be proportionally distributed among holders of our common stock without distinction of classes.
Ordinary and Extraordinary Shareholders’ Meetings
Shareholders’ meetings may be either ordinary meetings or extraordinary. We are required to convene and hold an ordinary meeting of shareholders within four months of the close of each fiscal year to consider the matters specified in the first two paragraphs of Section 234 of the Argentine corporations law,Corporations Law, such as the approval of our financial statements, allocation of net income for such fiscal year, approval of the reports of the board of directors and the statutory audit committee and election, performance and remuneration of directors and members of the statutory audit committee. In addition,pursuant to the Capital Markets Law, at an ordinary shareholders’ meetings, our shareholders must consider (i) the disposition of, or creation of any lien over, our assets as long as such decision has not been performed under the ordinary course of our business and (ii) the execution of administration or management agreements and whether to approve any agreement by virtue of which the assets or services provided to us are paid partially or totally with a percentage of our income, results or earnings, if the payment is material when measured against the volume of the ordinary course of business and our shareholders’ equity. Other matters which may be considered at an ordinary meeting convened and held at any time include the responsibility of directors and members of the statutory audit committee, capital increases and the issuance of certain corporate bonds. Extraordinary shareholders’ meetings may be called at any time to consider matters beyond the authority of an ordinary meeting including, without limitations, the amendment of our by-laws, issuance of debentures, early dissolution, merger, spin off, reduction of capital stock and redemption of shares, transformation from one type of entity to another, appointment, removal and retribution of the liquidators and limitation or suspension of shareholders’ preemptive rights.
Special Shareholders Meetings of Classes of Shares
In the event a shareholder’s meeting is held to adopt any resolution affecting the rights of a class of shares, the consent or ratification of shareholders of that class is required and a special shareholder’s meeting shall be held. The special shareholder’s meetings shall be governed by the rules provided for the ordinary shareholder’s meetings.
Notices of Meetings
Notices of shareholders’ meetings are governed by the provisions of Argentine Corporations Law. Furthermore, notice of shareholders’ meetings must be published for five days in the Official Gazette, in an Argentine newspaper of wide circulation and in the bulletin of the Buenos Aires Stock Exchange, at least 20 but not more than 45 days prior to the date on which the meeting is to be held. Such notice must include information regarding the type of meeting to be held, the date, time and place of such meeting and the agenda. If quorum is not available at such meeting, a notice for a second meeting, which must be held within 30 days of the date on which the first meeting was called, must be published for three days, at least eight days before the date of the second meeting. The above−described notices of shareholders’ meetings may be held simultaneously for the second meeting to be held on the same day as the first meeting, only in the case of ordinary meetings and special shareholder’s meetings of a relevant class of shares. Shareholders’ meetings may be validly held without notice if all shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote of shares entitled to vote.
Quorum and Voting Requirements
The quorum for ordinary meetings of shareholders on first call is a majority of the shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the shares present that are entitled to vote on such action. If a quorum is not available at the first meeting a second meeting may be held at which action may be taken by the holders of an absolute majority of the shares present, regardless of the number of such shares. The quorum for an extraordinary shareholders’ meeting on first call is 70% of the shares entitled to vote, and if such quorum is not available, a second meeting may be held, for which the quorum is 35% of the shares entitled to vote.
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Action may be taken at extraordinary shareholders’ meetings by the affirmative vote of an absolute majority of shares present that are entitled to vote on such action, except that: the approval of a majority of shares with voting rights (for these purposes non−voting preferred shares shall have voting rights), without application of multiple votes, is required at both the first and second meeting for: (i) the transfer of our domicile outside Argentina, (ii) a fundamental change of the corporate purpose set forth in our bylaws, (iii) our anticipated dissolution, (iv) the total or partial redemption of shares, or (v) the transformation of our corporate legal status, in which cases resolutions shall be adopted by the affirmative vote of the majority of shares with the right to vote. Preferred shares will be entitled to one vote in these circumstances. Moreover, pursuant to our by-laws, the extension of the company’s duration, the withdrawal from public offering or delisting, the total or partial recapitalization, the merger or spin-off (including if we are the surviving entity) or the termination of the concession agreement for the distribution and sale of electricity, on first and second calls, shall be taken by the affirmative vote of shares representing at least 80% of the outstanding shares entitled to vote, whether present or not at the shareholder’s meeting, without application of multiple votes, if applicable. An amendment to our by-laws requires the prior approval of the ENRE. Shareholder’s meetings shall approve amendments “ad-referendum” of the ENRE.
Shareholders’ meetings may be called by the board of directors or the members of the statutory audit committee whenever required by law or whenever they deem it necessary. Also, the board or the members of the statutory audit committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock in which case the meeting must take place within 40 days of such shareholders’ request. If the board or the statutory audit committee fails to call a meeting following such a request, a meeting may be ordered by the CNV or by the courts. In order to attend a meeting, a shareholder must also deposit with us a certificate of book-entry shares registered in its name and issued byCaja de Valores S.A.at least three business days prior to the date on which the meeting is to be held. If so entitled to attend a meeting, a shareholder may be represented by proxy. Proxies may not be granted to our board, members of the statutory audit committee, officers or employees.
Election of Directors
Our board of directors must have 12 acting directors and the number of alternate directors that the shareholders may resolve in a general annual ordinary meeting or at a class annual ordinary meeting, such number not to exceed the number of acting directors. All directors are elected to serve for one fiscal year. Holders of Class A common shares are entitled to elect, at a general annual ordinary meeting or at an annual ordinary meeting of Class A holders 7 directors, two of which must be independent in accordance with CNV regulations and our by-laws. Holders of Class B common shares are entitled to elect, at a general annual ordinary meeting or at an annual ordinary meeting of Class B holders, 4 directors one of which must also be independent in accordance with CNV regulations and our by-laws. Holders of Class C common shares are entitled to elect, at a general annual ordinary meeting or at an annual ordinary meeting of Class C holders 1 director until the percentage of our capital stock represented by Class C common shares decreases below 6% at which moment holders of Class C common shares will be required to vote together with holders of Class B common shares to elect, as a common class, 5 directors. Upon the closing of the Argentine offering (to the extent consummated), substantially all Class C common shares will have been converted into Class B common shares and a nominal amount of Class C common shares will remain outstanding. Accordingly, any rights previously attributable to the Class C common shares will have been combined with those attributable to the Class B common shares, and holders of the remaining Class C common shares will vote jointly as a single class with the holders of Class B common shares in the election of directors.
Form and Transfer
Our current capital stock is represented by book-entry shares. Our shareholders are required to hold their shares through book-entries directly made byCaja de Valoresin the stock registry of the company carried byCaja de Valoresor through book-entries with brokers, banks and other entities approved by the CNV that have accounts withCaja de Valores, or with the participants of theCaja de Valores.Caja de Valoresis in charge of maintaining a stock registry on our behalf based on information received from shareholders that chose to hold their shares directly by registration on the stock registry of the company and from participants of theCaja de Valores, and in accordance with Argentine law only those holders listed in the stock registry either directly or through participants of theCaja de Valoreswill be recognized as shareholders. Shares held by participants of theCaja de Valores -have the same rights as shares recorded in our shareholders’ register.
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MATERIAL CONTRACTS
We are party to various contracts in the ordinary course of business. For a discussion of the agreements relating to (i) our acquisition of Emdersa and Aeseba and (ii) the ongoing divestiture of Aeseba and the subsidiaries of Emdersa, see “Item 4. Information on the Company—History and Development of the Company.”
EXCHANGE CONTROLS
Prior to December 1989, the Argentine foreign exchange market was subject to exchange controls. From December 1989 until April 1991, Argentina had a freely floating exchange rate for all foreign currency transactions, and the transfer of dividend payments in foreign currency abroad and the repatriation of capital were permitted without prior approval of the Central Bank. From April 1, 1991, when the Convertibility Law became effective, until December 21, 2001, when the Central Bank decided to close the foreign exchange market, the Argentine currency was freely convertible into U.S. Dollars.
On December 3, 2001, the Argentine government imposed a number of monetary and currency exchange control measuresthrough Decree 1570/01, which included restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade.
In January 2002, pursuant tothe Argentine Congress issued the Public Emergency Law and declared a state of public emergency in respect of its social, economic, administrative, financial and foreign exchange matters, authorizing the Argentine Executive Branch was empoweredgovernment to establish a system to determine the foreign exchange rate between the Argentine Peso and foreign currencies and to formulate exchangeissue foreign exchange-related rules and regulations. On February 8, 2002, pursuant tothrough Decree No. 260/2002, the Argentine Executive Branchgovernment established a single free currency market (mercado único y libre de cambios, hereinafter(i) the “MULC”) through which all foreign exchange transactions in foreign currency exchange operations were to take place,must be conducted, and provided(ii) that foreign exchange transactions in foreign currency exchange operations wouldmust be madeconducted at a freely determinedthe foreign exchange rate to befreely agreed upon among contracting parties, subject to certainthe requirements and regulations ofimposed by the Central Bank. A summary of the main regulations is set forth below.
In January 2003, the Central Bank gradually eased the restrictions mentioned above and expanded the list of transfers of funds abroad that did not require its prior authorization. However, in
On June 20039, 2005, through Decree No. 616/2005, the Argentine government instituted restrictions on capital flows into Argentina, which mainly consistedmandated that (i) all inflows of a prohibition against the transfer abroad of any funds until 180 days after their entry into the country.
In June 2005,local foreign exchange market arising from foreign debts incurred by residents (including both individuals and legal entities in the Argentine Executive Branch issued Decree 616/05, which established additional restrictions on capital flows. Pursuant to the decree, all indebtedness of Argentine residents within the private sector is required to be agreed upon and repaid not prior to 365 days from the date of entry of the funds into Argentina, regardless of the form of repayment. The decree outlines several types of transaction that are exempt from its requirements, includingsector), other than those concerning foreign trade financings, foreign trade balances of those entities authorized to carry out foreign exchange,financing and primary offeringsissuances of debt securities issued pursuantoffered to athe public offering and listed on a self-regulated market.
In addition, the decree, as supplemented by subsequent regulations, stipulates thatmarkets, and (ii) all capital inflows of residents exceeding U.S. $2 million per month,funds by non-residents channeled through the MULC and intended to be held in local currency for acquiring all types of financial assets or liabilities in the financial or non-financial private sector (except for foreign direct investments and primary issuances of debt securities and shares offered to the public and listed on self-regulated markets), as well as all capital inflows of non-residents settled in the local exchange market destined for local money holdings, acquisition of active or passive private sector financings and investments in securities issued by the public sector that areand acquired in secondary markets, (excluding foreign direct investment, which includes capital contributionshad to local companiesmeet the following requirements: (a) such inflows of direct investments (namely, a company in which the foreign direct investor holds at least 10% of ordinary shares or voting rights, or its equivalent), and primary offerings of debt securities issued pursuant to a public offering and listed on a self-regulated market), must meet certain requirements, including those outlined below:
(i) such funds maycould only be transferred only outside the local foreign exchange market afterat the expiration of a 365-day periodterm of 365 calendar days from the date of entry of the funds into Argentina;
(ii) any Pesos resulting from the exchangesettlement of such funds areinto Pesos; (b) the proceeds of such inflows of funds had to be credited to an account withinin the Argentinelocal banking system; and
(iii) except for certain types of capital inflows,(c) a non-transferable and non-interest-bearing U.S. dollar-denominated mandatory deposit mustfor 30% of the amount of the transaction had to be maintainedkept in Argentina for a termperiod of 365 calendar days, in an amount equalaccordance with the terms and conditions set forth in the applicable regulations (the “Deposit”); and (d) the Deposit had to 30% of any inflow offunds to the local foreign exchange market arising from certain enumerated transactions (which mandatory depositbe denominated in U.S. Dollars and held in Argentine financial institutions, and it may not be used to guarantee or serve as collateral or guaranty for any transaction).
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In addition, on November 16, 2005, the Ministry of Economy and Production issued Resolution 637/05, pursuant to which Decree 616/05 was regulated, providing that any inflow of funds to the local exchange market in connection with an initial public offering of securities, bonds or certificates issued by a trustee under a trust, whether or not such trust is publicly offered and listed in a self-regulated market, shall comply with allcredit transactions. The requirements provided in section 4 of Decree 616/05 whenever such requirements are applicable to the inflow of funds to the local exchange market in connection with the acquisition of any of the assets under the trust (Communication “B” 8599).
The transfer abroad of dividend payments is currently authorized by applicable regulations to the extent such dividend payments are made in connection with audited consolidated financial statements and are approved by a shareholders’ meeting. Any breach of the provisions of Decree No. 616/05 or any other foreign exchange regulation is subject to criminal penalties2005 were subsequently eased.
On December 16, 2015, following the election of President Macri, the newly appointed Central Bank authorities issued Communication “A” 5,850, which lifted many of the laws governing the Argentine exchange market.
Below are the most important aspects of Central Bank regulations, concerning inflowsexisting restrictions and, outflows of funds in Argentina.
Capital Inflows
Current income and transfers
Any income received by residents on investments is not required to be settled through the MULC, except in the case of companies that purchase foreign direct investment assets totally or partially financed through indebtedness incurred abroad, in which case, due to the amount involved in the investment, prior authorization from the Central Bank is required in order to haveamong other things, established free access to the exchange market. In this latter case, those companies must, before accessingMULC to purchase foreign currency for general purposes without requiring the Central Bank’s or the AFIP’s prior authorization and eliminated the requirement of the mandatory deposit of 30% of certain funds remitted to Argentina.
Although these recent changes to the Argentine government’s foreign exchange market to make any payment under such financing provide evidence of such settlement of any income received on investments made with the proceeds of indebtedness incurred abroad.
Capital
Any transactions involving debts incurred abroad by the private non financial and financial sectors in relation to bonds, financial loans (including reverse repurchase transactions) and external financial credit facilities must be entered into and settled through the MULC (Communications “A” 3,712, “A” 3,972 and “A” 5265).
Any issues of debt securities by the private (financial and non financial) sector in a foreign currency where the principal and interest are not solely payable in Argentine Pesos within the country must be denominated in such foreign currency, and the proceeds of such issues must be settled through the MULC (Communications “A” 3,820 and “A” 5,265).
Transfer and settlement of such funds through the foreign exchange market shall be made within 30 calendar days after the date of disbursement of the relevant amount and shall be subject to the rules and regulations in force on the date the foreign currency is settled through the MULC (Communication “A” 5,265).
Any new financial indebtedness entered into in the domestic foreign exchange market and the renewal of any debts payable abroad by Argentine residents of the financial and private non financial sectors must be agreed upon and maintained for not less than 365 calendar days. Such debts may not be repaid prior to the expiration of the aforementioned period, whichever the form of repayment of the obligation abroad, and whether repayment is made with or withoutpolicies allow all individuals free access to the local foreign exchange market, (Communication “A” 4,359, as amended by Communication “A” 5,265).certain restrictions remain, including the following:
The balances of any transactions between correspondent entities authorized to conduct foreign exchange transactions are exempted from the above rules only·Argentine residents have free access to the extent that they do not involve financial credit facilities, in which case they will be required to comply with the requirements applicable to the inflows of financial loans. Also exempted are any primary issues of debt securities that are authorized for public offering and listed on self-regulated markets.
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Communication “A” 4,359 established regulations for the creation of a deposit pursuant to the description included in Communication “A” 4,360. Such deposit must be made in U.S. Dollars for 30% of the U.S. Dollar equivalent ofMULC, provided the total amount entering into the foreign exchange markettransacted in the following transactions:
·Financial debts of the financial and private non financial sectors, other than primary issues of debt securities that are authorized for public offering and listed on self-regulated markets.
·Primary issues of shares of resident companies which aremarket does not authorized for public offering and are not listed on self-regulated markets, provided that they are not direct investment funds.
·Portfolio investments by non residents designed to acquire holdings of domestic currency and financial assets and liabilities of the financial and private non financial sectors, provided that they are not made for the primary subscription of debt securities authorized for public offering and listed on self-regulated markets, and/or the primary subscription of shares of resident companies which are authorized for public offering and listed on self-regulated markets.
·Portfolio investments by non residents designed to purchase any rights in secondary markets with respect to securities issued by the public sector.
Pursuant to Resolution No. 365/2005 of the Ministry of Economy, by Communication “A” 4,377 the following transactions were included in Communication “A” 4,359 from June 29, 2005:
·Portfolio investments by non residents for the primary subscription of securities issued by the Argentine Central Bank.
·Amounts entering into the domestic foreign exchange market from sales of foreign assets owned by private sector residents, for any amount exceedingexceed the equivalent of U.S.$2,000,000 for each calendarper month, among all the entities authorized to conduct foreign exchange transactions.
In addition, pursuant to Resolution No. 637/2005 of the Ministry of Economy, the following transactions were also included in Communication “A” 4,359 as from November 17, 2005:
·Any capital inflows into the domestic foreign exchange market for the purpose of subscribing the primary issue of notes, bonds or certificates of participation issued by the trustee of a trust, whether or not authorized for public offering and whether listed or not on any self-regulated markets, when such requirements are applicable to the purchase of any of the trust assets.
In the case of capital inflows in foreign currencies other than the U.S. Dollar, for purposes of determining the amount of the required deposit the repurchase transaction rates quoted by Banco Nación at closing of the foreign exchange market on the business day immediately preceding the date of the deposit must be taken into consideration.
The following transactions, among others, are exempted from the requirement of a non interest bearing deposit:
·Foreign currency amounts settled by residents and derived from foreign currency denominated loans extended by local financial entities.per person;
· Inflows of foreign currency amounts into the foreign exchange marketany proceeds from a contribution of direct investments in the country and sales of equity interests in local companies to direct investors, provided that the entity taking part in the transaction has executed the documents required under Communication “A” 4,933, as amended and supplemented.
·Any indebtedness as to Multilateral and Bilateral Lending Agencies and Governmental Lending Agencies (listed in an Annex to Communication “A” 4,662), as amended by Communications “A” 4,832 and “A” 5,011, whether directly or through related agencies (Communication “A” 4,377) when incurred for the performance of their specific purpose.
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·Financial indebtedness of the financial and private non financial sectors as to foreign creditors, provided that the proceeds of the foreign exchange settlement, net of taxes and expenses, are at the same time allocated to (i) the purchase of foreign currency for the repayment of the principal under external debt, and/or (ii) the creation of long term external assets (Communication “A” 4,377).
·Financial indebtedness of the private non financial sector as to foreign creditors, provided that such indebtedness is incurred and repaid within an average life of not less than two years, including in the respective calculation any payments of principal and interest, and allocated to an investment in non financial assets (Communication “A” 4,377).
·The proceeds of sales of external assets owned by resident legal entities, when they are allocated by the company to the purchase of non financial assets falling within the scope of the purchases listed in Communications “C” 42,303, 42,884, 44,670 and 46,394.
·The proceeds of sales of external assets owned by resident individuals or legal persons, when they are allocated to new capital contributions of resident companies, and the recipient company uses such funds for the purchase of non financial assets listed in Communications “C” 42,303, 42,884, 44,670 and 46,394.
Capital Outflows
Payment of services
No restrictions are applicable to payments made abroad for services provided by non residents, under any concept (freight, insurance, royalties, technical advice, professional fees, etc.) (Communication “A” 3,826 as amended by Communication “A” 5,264). Access to the MULC for such payments requires the filing of documentation by residents evidencing the authenticity of the transaction, the type of service rendered and the amount to be transferred abroad.
Rent payments (interest, profits and dividends)
Access to the MULC is admitted for the payment of interest by the financial and private non financial sectors (Communication “A” 4,177 as amended by Communication “A” 5,264), subject to the satisfaction of the following requirements:
·Access is not permitted prior to 15 calendar days in anticipation of the maturity date of each interest payment.
·Access is only permitted to pay interest accrued any time during the current interest period.
·As from the date of disbursement of the funds abroad up to the relevant settlement through the MULC, access to the MULC is permitted solely for the difference between any accrued interest and the income earned on the funds deposited abroad.
Access to the MULC for the payment of interest on any debt will be allowed for any income accrued as from the date of the agreement concerning the exchange rate for the sale of foreign currency in the MULC, or the effective date of disbursement of the funds if they are credited in correspondent accounts of entities authorized to settle such funds through the MULC, within 48 business hours after the date of disbursement (Communication “A” 5,264).
Before taking action in relation to any payment of interest on any kind of debts abroad, the entities involved must verify that the debtor has filed, if applicable, a statement of debt pursuant to the information reporting regulations established under Communication “A” 3,602, dated May 7, 2002, and comply with all other requirements set forth in paragraph 4 of Communication “A” 4,177 and in Communication “A” 5,264.
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Also, access to the MULC is allowed for the purpose of remitting abroad profit and dividend payments, provided they are derived from closed and audited financial statements (Communication “A” 3,859 as amended by Communication “A” 5,264).
Financial debts
The repayment of the principal of financial debts incurred abroad by Argentine residents of the financial and private non financial sectors (except for the payment of primary issues of debt securities that are authorized for public offering and listed on self-regulated markets) may only be made through access to the MULC after 365 calendar days have elapsed after the date of settlement in the relevant foreign currency in such market, or the most recent renewal thereof (Communication “A” 5,265).
Access to the local exchange market forthat exceeds the paymentequivalent of principal installments under indebtedness incurred abroad by participantsU.S.$2,500 per month must be credited to a checking or savings account in the private nonPesos at a domestic financial sector, pursuant to the rules published under Communication “A” 4,177, as amended and restated by Communication “A” 5,265, is allowed under the following terms:
·At any time within 30 calendar days prior to the relevant due date, provided any applicable minimum permanence period has been complied with.institution;
· On an early date within periodsalthough the requirement of mandatory inflow and settlement of funds resulting from foreign indebtedness transactions is no longer than 30 days, provided any applicable minimum permanence period has been complied within effect, the transfer and onesale of the following conditions is satisfied:
– If the payment involved is not part of a debt restructuring process, the foreign currency amount to be prepaid under the external indebtedness must not be higher than the current value of the prepaid portion of such indebtedness, or else such prepayment must be 100% set off by the entry of new foreign financing for a current amount not exceeding the debt being prepaid.
– If the payment involved is part of a restructuring of indebtedness incurred abroad, the new terms of the indebtedness and cash payment being made must not entail an increasefunds in the current indebtedness amount. Communication “A” 4,960 describes clearlylocal foreign exchange market will be necessary to make any payments of principal or interest through the method to be used for the calculation of the current debt value based on the interest rate implied in thelocal foreign exchange rates quoted in any futures markets operating in the country.market; and
· Payments may be madeforeign indebtedness incurred or renewed after December 17, 2015 must remain in advanceArgentina for a minimum period of when due as may be necessary for operating purposes in order to effect payment to the relevant creditor, of any principal installments when the relevant payment obligation dependsat least 120 concurrent days, commencing on the fulfillment of specific conditions expressly contemplateddate on which the funds are transferred into Argentina.
The Argentine government may, in any external refinancing agreements made and implemented with foreign creditors beginningthe future, impose additional controls on February 11, 2002, this being the date of initial operation of the MULC.
Dividends
The transfer of dividend payments abroad is currently authorized under applicable regulations, provided such payments are made in relation to financial statements that have been audited and approved by a shareholders’ meeting.
Other provisions
Sales of foreign currency to non residents
Communication “A” 4,662 and amending Communications “A” 4,692, “A” 4,832 and “A” 5,011 published a rearrangement of certain regulations and new applicable rules governing access to the foreign exchange market by non residents (as definedand on capital flows from and into Argentina, in the IMF Balance of Payments Manual – fifth edition, chapter IV).
In this respect, no prior Central Bank approval is required for anyresponse to capital flight or depreciation of the following transactions conducted by non residentsPeso. These restrictions may have a negative effect on the Argentine economy and our business if imposed in so far, provided that all the requirements established in each case have been satisfied:
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·Purchase of foreign currencyan economic environment where access to be transferred abroad, provided the purchaser has executed the documents required under the above regulations, including, in the cases set forth below, when the relevant transactions are conducted or correspond to payments received in the country in relation to:
– Financial indebtedness derived from foreign loans from non residents.
– Recovery of claims arising from the bankruptcy of domestic companies and collection of debts under reorganization proceedings, provided that the non resident customer has been the owner of the claim and such claim has been recognized in court under the bankruptcy or insolvency proceedings by a final and conclusive judgment.
– The repatriation of direct investments in the private non financial sector, in companies that are not the controlling entities of domestic financial entities and/or real estate, provided that the investorlocal capital is recorded as having maintained such investment in the country for at least 365 calendar days, under the following concepts:
– Sale of the direct investment.
– Final liquidation of the direct investment.
– Capital decrease by decision of the domestic company.
– Reimbursement of irrevocable contributions made by the local company.
– Receipt of payments for services or settlement of the sale of other portfolio investments (and any income derived therefrom), provided that such payments in conjunction do not exceed the equivalent of U.S.$500,000 per calendar month for each individual or legal entity, in relation to all the entities authorized to conduct foreign currency transactions. Such repatriation of portfolio investments include, among others: portfolio investments in shares and equity interests in local companies, investments in local mutual funds and trusts, purchase of loan portfolios consisting of loans extended to residents by local banks, purchase of invoices and promissory notes for domestic commercial transactions, investments in domestic bonds issued in Argentine Pesos and foreign currency and payable locally, and purchase of other domestic loans.
– Indemnities under rulings entered by local courts in favor of non residents.
limited·Purchase of foreign currency or foreign currency banknotes, provided the amount does not exceed the equivalent of U.S. Dollars 5,000 per calendar month for all the entities authorized to conduct foreign exchange transactions.
·Purchase of foreign currency by international agencies and entities acting as public export financing agencies, which are listed in Communication “A” 4,662 (as amended and supplemented).
Any transactions not falling within the scope of the above paragraphs may only be conducted with the prior authorization of the Argentine Central Bank.
In particular, as from October 28, 2011, access to the MULC for purposes of repatriation of direct investments is subject to evidencing that any funds involved in new investments derived from new contributions to local companies and the purchase of interests therein as well as from the purchase of real property, which are made in a foreign currency, have been entered through the MULC (Communication “A” 5,237). This requirement is also applicable to: (i) any transfers of investment rights between foreign residents; and (ii) any direct investments in Argentina by means of a purchase by non-residents of domestic assets belonging to foreign companies directly or indirectly owned by Argentine residents, to the extent such domestic assets were included as assets of the seller company.
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In case the requirement above cannot be complied with as of the date of access to the MULC, prior consent of the Argentine Central Bank shall be necessary to effect the repatriation of the relevant direct investment.
Creation of foreign assets belonging to residents
Communication “A” 5,085 (as amended by Communications “A” 5,126 and “A” 5,198), effective as of June 8, 2010, rearranged and updated the rules applicable to resident individuals and legal entities not included in the financial sector for their access to the MULC for the purpose of purchasing, subject to a monthly limit, foreign currency under the following types of transactions: real estate transactions abroad, loans extended to non residents, contributions under direct investments by residents abroad, portfolio investments of individuals abroad, other investments by residents abroad, portfolio investments of legal entities abroad, purchase of foreign currency banknotes in the country for holding purposes and purchase of traveler checks, portfolio investments of mutual funds, purchase of banknotes from mutual funds and gifts.
The monthly limit applicable to the above transactions, for all financial entities, is currently of U.S. $2 million (Communication “A” 4,871).
Under Communication “A” 4,803 local governments were exempted from the limit established for the purchase of foreign currency banknotes, provided such purchases are made for purposes of a deposit in accounts maintained in domestic financial entities in the framework of the conditions established for the disbursement of loans by International Agencies.
Also, some extensions of the above limit have been contemplated for purposes of creating portfolio investments abroad, provided such funds are allocated to a specific use and certain requirements prescribed under Communication “A” 4,822, as amended and supplemented, are complied with.
Mutual funds may have access to the MULC under the foreign exchange regulations in effect at the time the relevant transactions are made (Communication “A” 4,086).
In order to have access to the MULC for the creation of external assets in accordance with the rules and limits established under Communication “A” 3,722 and supplementary regulations, as of the date of access to the foreign exchange market the customer must not have on record any overdue and unpaid debts as to foreign creditors in relation to the repayment of principal and payment of interest on indebtedness of any kind. This condition shall not apply to the purchase of banknotes and traveler checks for amounts not exceeding the equivalent of U.S. $10,000 per calendar month (Communications “A” 4,349 and “A” 4,390).
Subsequently, Communication “A” 5,236 established that entities taking part in transactions involving persons whose transactions exceed U.S.$ 250,000 per calendar year will be required to determine that the amounts of any purchased foreign currency do not exceed:
(i) For individuals: (a) their respective assets reported as investments in local financial assets and their Argentine Peso cash holdings, as reflected in their most recent personal assets tax return, (b) the amounts resulting from the sale in Argentina and in Argentine Pesos of any non financial assets subject to registration and of foreign currency, as reflected in the individual’s most recent tax return and its income for the period, (c) income for the calendar year and subject to income tax withholdings, (d) income for the year on financial assets and not subject to income tax, and (e) amounts received during the year as inheritance. Evidence of the entity’s determination accompanied by any relevant supporting documents showing that the purchase of foreign currency was effected with funds derived from the aforementioned sources shall remain in the entity’s records for inspection by the Argentine Central Bank; and
(ii) For legal entities: the amount of their respective shareholders’ equity as shown in their financial statements for the most recently ended fiscal year, minus any investments in foreign assets as of such date, foreign currency denominated deposits in local entities, interests held in other local entities, distribution of profits and dividends approved after the balance sheet date, plus any earnings obtained after the end of the fiscal year and any sales of foreign currency in the domestic market.
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Similarly, Communication “A” 5,236 established that foreign currency purchased may not be used to purchase notes and securities issued by residents or representatives thereof, or issued by non-residents but traded within the country, in the secondary market.
AFIP Resolution 3210/2011 and Communication “A” 5,239 established a “Foreign Exchange Transaction Inquiry System” (“Consulta de Operaciones Cambiarias”) applicable to all forms of transactions involving the purchase of foreign currency, whichever the purpose thereof. In this respect, AFIP will conduct a real-time assessment of each transaction to determine whether the intended transaction by a prospective foreign-currency purchaser is consistent with such purchaser’s background and decide whether the transaction is authorized or not.
Capital markets
Transactions involving securities that are conducted in stock exchanges and self-regulated securities markets must be paid by any of the following means: (a) in Argentine Pesos, in any of the different manners permitted under payment systems, (b) in a foreign currency by means of an electronic transfer of funds from and to demand deposit accounts maintained in local financial entities, and (c) by wire transfer from a foreign account. These transactions for the sale and purchase of securities may in no event be settled by means of a payment in foreign currency banknotes or by a deposit in custody or third-party accounts (Communication “A” 4308).
Survey of security issues and other external obligations of the private financial and non financial sectors
By Communication “A” 3,602, dated May 7, 2002, the implementation of an External Liabilities and Security Issues Survey was decided. The statements included in this survey correspond to the existing indebtedness at the end of each calendar month and must be filed by any individuals and legal entities of the private financial and non financial sectors with any kind of liabilities as to foreign residents. All individuals and legal entities in the private financial and non-financial sector must report their outstanding foreign indebtedness (whether in Argentine Peso or foreign currency-denominated) at the end of each quarter. Such reports must be filed through financial entities, with the nature of sworn statements. The debts incurred and repaid within the same calendar quarter need not be reported.
Survey of direct investments
Communication “A” 4,237, dated November 10, 2004, implemented a Survey of Direct Investments by Non Residents in the country and by Argentine Residents abroad. A direct investment is an investment that reflects a long-standing interest of a resident of a country (direct investor) in an entity that is resident of another country (direct investment company), such as an ownership interest representing at least 10% of a company’s capital stock or voting rights. The reporting requirements prescribed by this Communication “A” 4,237 are to be met on a bi-annual basis.
Money Laundering
The concept of money laundering is generally used to denote transactions aimed at introducing funds from illicit activities in the institutional system and thus transform profits from illegal activities in assets of a seemingly legitimate source.
On April 13, 2000, the Argentine Congress enactedpassed Law No. 25,246, (asas amended by Laws No. 26,087, 26,119, and 26,268 and No. 26,683 hereinafter jointly referred to as the “Law of Money Laundering”(the “Money Laundering Law”), which establishes an administrative criminal system and supersedes various sections of the Argentine CriminalPenal Code relating to money laundering. The Law of Money Laundering Law defines money laundering as a crime, stating that a crime is committed whenever a person converts, transfers, manages, sells, encumbers, or otherwise uses money, or any other assets, connected with a crime in which that person has not participated, with the possible result that the originaltheoriginal or substituted assets may appear to be of a legitimate origin, provided the amount of money or value of the relevant assets exceeds Ps. 300,000, whether such amount results from one or more transactions. Also, under Law No. 26,683 money laundering is defined as a separate crime against the economic and financial order, independent from the legal concept of concealment, which is an offense against the Public
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Administration. Thus, the separate money laundering crime may be penalized independently, whether or not the money launderer took part in the crime from which the proceeds of which are being laundered.
In addition, the Law of Money Laundering Law created the Financial Information Unit, (hereinafter “UIF”), under the Argentine Ministry of Justice, Security and Human Rights, which is in charge of the handling and transmittingtransmission of information in order to prevent the laundering of assets originating from:
· Crimes related to illegal trafficking and commercialization of narcotics (Law No. 23,737);
· Crimes related to arms trafficking;trafficking (Law No. 22,415);
· Crimes related to the activities of an illegal association as defined in SectionArticle 210 bis of the Argentine Criminal–Argentine Penal Code;
· Illegal acts committed by illegal associations (Section(Article 210 of the Argentine CriminalPenal Code) organized to commit crimes with political or racial objectives;
· Crimes of fraud against the Public Administration (Section(Article 174, ParagraphSection 5 of the Argentine CriminalPenal Code);
· Crimes against the Public Administration under Chapters VI, VII, IX and IX bis of Title XI of Book Two of the Argentine CriminalPenal Code;
· Crimes of underage prostitution and child pornography under SectionsArticles 125, 125 bis, 127 bis and 128 of the Argentine CriminalPenal Code; and
· Crimes involving terroristrelated to terrorism financing (Section(Article 213 quaterquarter of the Argentine CriminalPenal Code);
·Extortion (Section 168 of the Argentine Criminal Code);
·Tax crimes contemplated by Law No. 24,769; and
·Human trafficking..
Argentina’s Law of Money Laundering Law, like other international money laundering laws, does not designate sole responsibility to the Argentine government for the monitoring of these criminal activities, but rather also delegates certain obligations to various private sector entities (including us) such as banks, stockbrokers, stock market entities and insurance companies. These obligations essentially consist of information gathering functions, such as:
· obtaining from clients documents that indisputably prove the identity, legal status, domicile and other information, concerning their operations needed to accomplish theany type of intended activity;
· reporting any suspicious activity or operation; and
· keeping any monitoring activities in connection with a proceeding pursuant to the Money Laundering Law confidential from both clients and third parties.
·periodically produce reports of suspicious operations.
In addition, Central Bank regulations require that Argentine banks undertake certain minimum procedures to prevent money laundering. Each entity must designate a top level administrative officer asCNV regulations also require that the person responsible forissuers and traders of publicly traded securities in Argentina and those persons participating in financial trusts and common investment funds subject to the prevention ofCNV’s control comply with certain obligations and requirements relating to money laundering prevention and place that officer in chargeto the suppression of centralizing any information that the Central Bank may require for itself or on behalffinancing of any other governmental authority. terrorism.
·Financial entities must inform theUnidad de Información Financiera (“UIF”) about any suspicious or unusual transactions,transaction, or transactions lackingeconomical or legal justification, or being unnecessarily complex. The Central Bank publishes a list of “non-cooperating” jurisdictions, so that Argentinejurisdictions. The UIF has regulated the duty to report through Resolution No. 229/2011. In addition, it has established guidelines and internal procedures for unusual or suspicious transactions which must be implemented by financial institutions carefully analyze transactions from and to such jurisdictions.
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On August 19, 2011, UIF Resolution No. 121/2011 came into effect. This Resolution repealed former Resolution No. 37/2011 and updated regulations under Argentine Law No. 26,683. Consequently, financial and foreign exchange entities have a duty to prevent, detect and report any events, acts, transactions or omissions that might involve money laundering and terrorist financing crimes. The above resolution established that financial entities are required to adopt a money laundering and terrorist financing prevention policy, consisting mainly in the conduct of an exhaustive analysis and recording of all transactions made through them. In this respect, financial entities are responsible for, among others, implementing a prevention manual detailing the mechanisms and procedures to be observed in their practice, organizing periodic training activities for their employees, implementing periodic audits, preparing an analysis and risk management record of unusual and suspicious transactions detected, appointing a member of the board of directors as the compliance officer, implementing measures aimed at consolidating all transactions conducted with customers into an electronic file and developing technological tools to examine or monitor certain behaviors and detect suspicious transactions, requesting information and, if applicable, supporting documents from its customers, and also adopting reinforced identification methods applicable to customers with specific features as provided by applicable regulations.
In this sense, the guide on unusual or suspected money laundering or terrorist financing transactions in the financial and foreign exchange system (pursuant to UIF Resolution No. 121/2011) requires the reporting of unusual transactions suspected of pursuing money laundering or terrorist financing purposes, based on the relevant capabilities of the entity subject to the reporting obligation and on the analysis performed. In particular, the following special circumstances, among others, shall be considered: (a) if the amount, type, frequency and nature of a transaction made by a customer holds no relationship to such customer’s previous history and financial activity; (b) amounts that are unusually high or transactions that are of a complexity and type not usual for the relevant customer; (c) if a customer refuses to provide information or documents required by the entity or the information furnished is found to have been altered; (d) if a customer fails to comply with any applicable regulation; (e) if a customer appears to show an unusual disregard for risks it may be assuming and/or costs involved in the transactions, and this is incompatible with the customer’s financial profile; (f) if a country or jurisdiction that are considered “tax havens” or have been identified as non cooperative by the Financial Action Task Force (“FATF”) are involved; (g) if a same address appears registered for different legal entities or the same natural persons have been empowered by and/or act as attorneys-in-fact for different legal entities and such circumstance is not justified by any financial or legal reason, in particular taking into account whether any such companies or entities are located in “tax havens” and their main business involves off-shore transactions; (h) if transactions of a similar nature, amount, type or which are conducted simultaneously, it may be presumed that a single transaction that has been split into several for the purpose of avoiding the application of transaction detection and/or reporting procedures; (i) if continued profits or losses are derived from transactions repeatedly conducted between the same parties; or (j) if certain signs suggest an illegal source, handling or use of funds involved in the transactions, and the entity subject to the legal obligation does not have any explanation for this.
In the context of the capital markets, in addition to the Argentine Money Laundering Law, any individual and/or legal entity authorized to act as agent, broker-dealer, agent of the Mercado Abierto Electrónico (“MAE”), futures and options broker, manager of mutual funds or intermediary for the purchase, lease or loan of securities acting in stock exchanges, with or without follower markets, shall observe the provisions of UIF Resolution No. 229/2011, notwithstanding any other regulations issued by the CNV on this matter.entities.
On January 21, 2009, under paragraph 15 of Section 20 of the Money Laundering Act, the CNV issued General Resolution No. 547 (hereinafter the “Resolution 547”), amending Chapter XXII (Prevention of Money Laundering and Counter-terrorism) with “Chapter XXII—Prevention of Money Laundering and the Financing of Terrorism,” of the CNV Norms (which was later amended by CNV General Resolutions No. 554/09, 572/10 and 580/10). ·CNV regulations provide that entities involved in the public offering of securities (other than issuers), including, among others, underwriters of any primary issuance of securities, must comply with the standards set by the UIF. In particular, they must comply with the obligation regarding customer identification and required information, record-keeping, precautions to be taken to report suspicious operations, and policies and procedures to prevent money laundering and financing of terrorism.terrorism financing. With respect to issuers (such as us), CNV regulations provide that any entity performingsignificant capital contributions or loans must be identified, as to whether or not it is a shareholder at the time of the contributions, and must meet the requirements for general participants in the public offering of securities, provided in the CNV regulationsCNVregulations and the UIF regulations, especially with regards to the identification of such persons and to the origin and legality of the funds and loans provided.
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In compliance with recommendations made by the Financial Action Task Force (“FATF”) on money laundering prevention, onOn June 1, 2011 the Argentine Congress enacted Argentine Lawadopted law No. 26,683. Under thisPursuant to such law, money laundering is now aan autonomous crime per se, and self-money laundering one’s own money is also penalized. Also, thispunished. The law extendsalso extended the reporting dutiesobligations to certain members of the private sector whoparties which were formerly not under such obligation,obliged before, and extendsalso extended from 30 to 150 days the period duringlapse of time within which certain private entities are required to report suspicious activities or transactions must be reported,operations, in order to give privatepermit those entities an opportunity to investigate such activities oranalyze transactions and operations in greatermore detail before reporting them to the enforcementrelevant authorities.
The underwriters and sub-underwriters shall formally declare that they have proper knowledge of their customers and shall implement policies, structures and systems for maintaining a policy for the prevention of money laundering and terrorism financing.
The purchasers of the Notes shall assume the obligation to provide information and documentation related to the origin of the funds and their legitimacy.
The CNV, by Resolution No. 554/09, prescribed that “any persons under the jurisdiction of this Commission and falling within the scope of sections 1, 3, 4 and 5 of this Chapter, shall only be able to carry out any transactions therein contemplated under the public offering system, when such transactions are carried out or ordered by persons organized, domiciled or resident in dominions, jurisdictions, territories or associated States not included in the list contained in Executive Decree No. 1344/98”, pursuant to which Regulations were issued under Income Tax Law No. 20,628, as amended, and published by UIF in its website “www.uif.gov.ar.”
Also, any person organized, domiciled or resident in dominions, jurisdictions, territories or associated States not included in the list referred to in the preceding paragraph, which act in their original jurisdiction in the capacity of brokers registered with a self-regulated entity subject to the monitoring and supervision of an agency whose functions are similar to those of the CNV, may carry out transactions under the public offering system provided that they furnish evidence that such agency of its original jurisdiction has subscribed a memorandum of understanding, cooperation and information exchange with the CNV.
Interested investors may be required to furnish to us and the Initial Purchasers, if any, all the information and documents that they are required to submit, or such information and documents that we and the Initial Purchasers, if any, may require in order to comply with criminal law and other money laundering laws and regulations, including capital market regulations for the prevention of money laundering issued by the financial information unit and similar regulations issued by the CNV and/or the Central Bank. We and the Initial Purchasers, if any, reserve the right to reject orders from any investor if we believe that such regulations have not been complied with to our/their full satisfaction.
Also, it is expressly stated that any foreign exchange transaction will be carried out through the single free foreign exchange market.
At the end of 2011, Laws No. 26,733 and No. 26,734 introduced new offenses to the Argentine Criminal Code to protect the financial and stock market activities and prevent terrorist financing. Law No. 26,733 punishes with imprisonment, fines and disqualification anyone who: uses or provides inside information for the transaction of securities (Article 307 of the Argentine Criminal Code); manipulates stock markets offering or conducting transactions of securities through false news, fake negotiations or the meeting of the principal bondholders to negotiate a fixed price (Article 308 of the Argentine Criminal Code), and performs financial activities in the stock market without corresponding authorization (Article 309 of the Argentine Criminal Code). Law No. 26,734 incorporated Article 306 to the Argentine Criminal Code, which punishes with imprisonment and fines anyone who directly or indirectly collects goods or money to be used to fund a crime, or to fund an individual or organization that terrorizes the population or forces national or foreign authorities, or an international organization, to perform or refrain from performing a certain act. These penalties shall apply regardless of whether the crime is actuallycommitted or the financing is actually used. These offenses shall be equally punishable if the crime, individual or organization intends to be funded is developed or resides outside of Argentina. The UIF is also authorized to freeze assets associated with financing terrorism by means of a reasoned decision and immediate communication to a judge with jurisdiction.
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For a more thorough analysis of money laundering regulations in effect as of the date of this annual report, investors are advised to read Chapter XII, Title XI, Second Book of the Argentine Criminal Code and any regulations issued by the UIF in their entirety. For this purpose, interested parties may visit the websites of the Argentine Ministry of Economy and Public Finance www.infoleg.gov.ar, the UIF, www.uif.gob.ar, or the CNV, www.cnv.gob.ar.
Taxation
The following summary contains a description of the materialprincipal Argentine and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase common shares or ADSs. The summary is based upon the tax laws of Argentina and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change. Investors should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs.
Although there is at present no income tax treaty between Argentina and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs.
Argentine Tax Considerations
The following discussion is a summary of the material Argentine tax considerations relating to the purchase, ownership and disposition of our Class B common shares or ADSs.
Dividends Tax
Dividends paid on our Classclass B common shares or ADSs whetherto individuals or undivided estates domiciled in cash, propertyArgentina and non-resident persons (whether individuals or other equity securities,legal entities) are not subject to income tax withholding, exceptat a 10% rate as a single and final payment (except for dividends paid out in the form of shares or quotas); additionally, such dividends paid in excess of our taxable accumulated income up toat the previous fiscal period which are subject to withholding at the rate of 35% in respect of such excess. This is a final taxthe excess portion of the dividends paid.If applicable, the 10% withholding will apply on the amount resulting from subtracting the 35 % withholding from the dividends or earnings distribution amount.Both the 10% and it is not applicable if dividendsthe 35% withholdings are paidsubject to the limits set forth by Double Taxation Treaties inacciones liberadas(shares) rather than in cash. force.
Class B Capital Gains Tax
Due to certain amendments madeResident individuals.
The Income Tax Reform introduced by Act No. 26,893 provided for the taxability of resident individuals’ income resulting from the disposition of shares not listed on stock exchanges or securities markets as authorized by the CNV, irrespective of the frequency or regularity of such operations.This income is subject in all cases to the Argentine15% tax rate.
Foreign beneficiaries.
Pursuant to the previously mentioned Income Tax Law (AITL), it is not entirely clear whether certain amendments concerning payment ofReform, all income tax on capital gains arisingresulting from the purchase and sale, exchange or other disposition of shares are in effect or not. Although Opinion No. 351 of the National Treasury General Attorney Office clarified the legal status of certain matters affecting the tax treatment of capital gains certain issues still remain unclear.
Resident individuals.Under what we believe to be a reasonable interpretation of existing applicable tax laws and regulations: (i) income derived from the sale, exchange or other disposition of our Class B common shares or ADSsearned by resident individuals who do not sell or dispose of Argentine shares on a regular basis would notforeign beneficiaries will be subject to Argentinethe income tax, and (ii) although there still exists uncertainty regarding this issue,whether or not they are listed on stock exchanges or securities markets and/or have an authorization for public offering, or if they do not meet such requirements. A13.5% effective income derived from the sale, exchange or other disposition of our Class B common shares or ADSs by resident individuals who sell or dispose of Argentine shares on a regular basis should be exempt from Argentine income tax.
Foreign beneficiaries.Capital gains obtained by non resident individuals or foreign entities from the sale, exchange or other disposition of our Class B common shares or ADSs are exempt from income tax. Pursuant to areasonable construction of the AITL, and although the matter is not completely free from doubt, such treatment should alsotax withholding rate will apply to those foreign beneficiaries that qualify as “offshore entities” for purposes of Argentine tax laws. For this purpose, an offshore entity is any foreignindividual and legal entity which pursuant to its by-laws or to the applicable regulatory framework (i) its principal activity is to invest outside the jurisdiction of its incorporation and/or (ii) cannot perform in such jurisdiction certain transactions.entities.
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Local entities.
Capital gains obtained by Argentine entities in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina derived from the sale, exchange or other disposition of our Classclass B common shares or ADSs are subject to income tax at the rate of 35%. Losses arising from the sale of our Classclass B common shares or ADSs can be applied only to offset such capital gains arising from sales of shares or ADSs.income.
Personal Assets Tax
Argentine entities, such as us, have to pay the personal assets tax on behalf of allcorresponding to Argentine and foreign individuals and undistributed estates of deceased individuals and foreign entities for the holding of our shares at December 31 of each year. The applicable tax rate is 0.5% and is levied on thevalor patrimonial proporcional (equity value), equity value, or the book value, of the shares arising from the latest financial statements.last balance sheet. Pursuant to the Personal Assets Tax Law, we arethe Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine individuals and/or foreign shareholders even by withholding and/or foreclosing the shares, or by withholding dividends.dividend payments.
Value Added Tax
The sale, exchange or other disposition of our Class B common shares or ADSs and the distribution of dividends are exempted from the value added tax.
Transfer Taxes
The sale, exchange or other disposition of our Class B common shares or ADSs is not subject to transfer taxes.
Stamp Taxes
Stamp taxes may apply in the City of Buenos Aires and in certain Argentine provinces in case transfer of our Class B common shares or ADSs is performed or executed in such jurisdictions by means of written agreements. Transfer of our Class B common shares is exempted from stamp tax in the City of Buenos Aires.
Tax on credits and debits on bank accounts
Money amounts paid through bank checking accounts in Argentine banks are subject to a 0.6% tax levied on credits, and a 0.6% tax levied on debits. In certain cases, an increased rate of 1.2% and a reduced rate of 0.075% may apply. Any payments deposited in saving accounts are exempt, in principle, from this tax. The tax is withheld by the banking institution.
The movement of funds in some special checking accounts is exempt from this tax (Central Bank Communication “A” 3250), when such accounts have been created in the name of foreign legal entities, and to such an extent they are solely used to make financial investments in Argentina (see Section 10, paragraph (s), of the annex to Executive Decree No. 380/2001).
The owners of bank accounts on which the tax is levied at 0.6% and 1.2% rates may compute 34% and 17%, respectively, of the amounts paid under this tax on amounts credited to their accounts as a payment on account of income tax, presumed minimum income tax and/or the special contribution or cooperative capital.
Other Taxes
There are no Argentine inheritance or succession taxes applicable to the ownership, transfer or disposition of our Class B common shares or ADSs. In addition, neither the minimum presumed income tax nor any local gross turnover tax is applicable to the ownership, transfer or disposition of our Class B common shares or ADSs.
Tax Treaties
Argentina has signed tax treaties for the avoidance of double taxation with Australia, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden Switzerland and the United Kingdom.Switzerland. There is currently no tax treaty or convention in effect between Argentina and the United States. It is not clear when, if ever, a treaty will be ratified or entered into effect. As a result, the Argentine tax consequences described in this section will apply, without modification, to a holder of our Class B common shares or ADSs that is a U.S. resident. Foreign shareholders located in certain jurisdictions with a tax treaty in force with Argentina may be exempted from the payment of the personal assetsasset tax.
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United States Federal Income Tax Considerations
This summary describes the materialcertain U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of ADSs. This summary applies to a holder only if such holder holds the ADSs as capital assets for tax purposes. This summary does notaddress the Medicare tax on net investment income and does notapply to investors that are members of a class of holders subject to special rules, such as:
· a dealer in securities or currencies;
· a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
· a bank;
· a life insurance company;
· a tax-exempt organization;
· a person that holds ADSs that are a hedge or that are hedged against interest rate or currency risks;
· a person that holds ADSs as part of a straddle or conversion transaction for tax purposes;
· a person who is liable for the alternative minimum tax;
· a person whose functional currency for U.S. tax purposes is not the U.S. Dollar; or
· a person that owns or is deemed to own 10% or more of any class of our stock.
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Investors should consult their own tax advisors concerning the consequences of purchasing, owning, and disposing of ADSs in their particular circumstances, including the possible application of state, local, non-U.S. or other tax laws. For purposes of this summary, an investor is a “U.S. holder” if such investor is a beneficial owner of an ADS and is:
· a citizen or resident of the United States;
· a U.S. domestic corporation; or
· otherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADS.
If a partnership holds our ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. An investor who is a partner of a partnership holding our ADSs should consult its own tax advisor.
In general, if an investor is the beneficial owner of ADSs, such investor will be treated as the beneficial owner of the common stock represented by those ADSs for U.S. federal income tax purposes,and no gain or loss will be recognized if such investor exchanges an ADS for the common stock represented by that ADS.
Dividends
The gross amount of cash dividendsdistributions that investors receive (prior to deduction of Argentine taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income.income, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Dividends paid in Argentine Pesos will be included in an investor’s income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of the depositary’s receipt of the dividend, regardless of whether the payment is in fact converted into U.S. Dollars. A U.S. holder will have a tax basis in such Pesos for U.S. federal income tax purposes equal to the U.S. Dollar value on the date of such receipt. Any subsequent gain or loss in respect of such Pesos arising from exchange rate fluctuations will be ordinary income or loss and will be treated as income from U.S. sources for foreign tax credit purposes. If such a dividend is converted into U.S. Dollars on the date of receipt,investors generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Subject to certain exceptions for short-term (60 days or less) and hedged positions, the U.S. Dollar amount of dividends received by an individual U.S. holder in respect of ADSs generally will be subject to taxation at a maximum rate of 20% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The ADSs are listed on the New York Stock Exchange and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our current expectationsaudited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 20122015 taxable years.year. In addition, based on our audited Consolidated Financial Statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 20132016 taxable year.
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Based on existing guidance, it is not entirely clear whether dividends received with respect to the Class B common shares will be treated as qualified dividends, because the common shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. U.S. holders of ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.
Distributions of additional shares in respect of ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
Sale or Other Disposition
Upon a sale or other disposition of ADSs, an investor will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. Dollar value of the amount realized and such investor’s tax basis, determined in U.S. Dollars, in the ADSs. Generally, such gain or loss realized on the sale or other disposition of ADSs will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the ADSs were held for more than one year. The ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at a reduced rate.
Foreign Tax Credit Considerations
Investors should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits. If no such rules apply, investors may claim a credit against their U.S. federal income tax liability for Argentine taxes withheld from cash dividends on the ADSs, so long as they have owned the ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. It is unclear whether the Argentine personal assets tax (as described in “—“ - Argentine Tax Considerations”) is treated as an income tax for U.S. federal income tax purposes. If the Argentine personal assets tax is not treated as an income tax for U.S. federal income tax purposes, a U.S. holder would be unable to claim a foreign tax credit for any Argentine personal assets tax withheld. A U.S. holder may be able to deduct such tax in computingincomputing its U.S. federal income tax liability, subject to applicable limitations. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involve the application of complex rules that depend on a U.S. holder’s particular circumstances. Investors should consult their own tax advisors regarding the creditability or deductibility of such taxes.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting unless the holder is an exempt recipient and may also be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides aits taxpayer identification number and
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certifies that no loss ofit is not subject to backup withholding or (2) otherwise establishes an exemption from backup withholding has occurred.withholding. Investors may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim or refund with the Internal Revenue Service and filing any required information.
Description of American Depositary Shares
American Depositary Receipts
The Bank of New York is the depositary for the American Depositary Shares, also referred to as ADSs. Each ADS represents 20 Class B common shares (or a right to receive 20 Class B common shares) deposited with the principal Buenos Aires office of Banco Río de la Plata S.A., as custodian for the depositary in Argentina. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADRs are administered is located at 101 Barclay Street, 22W, New York, NY 10280.
The depositary is required to keep books at its corporate trust office for the registration of ADSs and transfers of ADSs which at all reasonable times shall be open for inspection by the holders of ADSs, provided that such inspection shall not be for the purpose of communicating with holders in the interest of a business or object other than the business of Edenor or a matter related to the deposit agreement or the receipts.
Investors hold ADSs directly either by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in the investor’s name, or by having ADSs registered in the investor’s name in the Direct Registration System. Investors also hold ADSs indirectly by holding a security entitlement in ADSs through the investor’s broker or other financial institution. If investors hold ADSs directly, they are ADS registered holders. This description assumes that such investors are ADS registered holders. If investors hold the ADSs indirectly, the investors must rely on the procedures of their broker or other financial institution to assert their rights as ADS registered holders described in this section. Investors should consult with their broker or financial institution to learn what those procedures are.
The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.
We do not treat ADS holders as one of our shareholders and ADS holders do not have shareholder rights. Argentine law governs shareholder rights. The depositary is the holder of the common shares underlying the ADSs. Holders of ADSs have ADS holder rights. A deposit agreement among us, the depositary, the ADS holder, and the beneficial owners of ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement. For more complete information, investors should read the entire deposit agreement and the form of ADR.
Dividends and Other Distributions
How will investors receive dividends and other distributions on the shares?
The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, after deducting its fees and expenses described below. ADS holders will receive these distributions in proportion to the number of common shares your ADSs represent.
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Cash
The depositary will convert any cash dividend or other cash distribution we pay on the common shares into U.S. Dollars; if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. It may hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution, the depositary will deduct any withholding taxes that must be paid. See “—Taxation.”“Taxation”. It will distribute only whole U.S. Dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, holders of ADSs may lose some or all of the value of the distribution.
Shares
The depositary may distribute additional ADSs representing any common shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will try to sell common shares, in lieu of delivering fractional ADS and distribute the net proceeds in the same way as it does with cash. The depositary may also sell a portion of the distributed common shares to pay its fees and expenses in connection with the distribution. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new common shares.
Rights to Purchase Additional Common Shares
If we offer holders of our securities any rights to subscribe for additional common shares or any other rights, the depositary may make these rights available to holders of ADSs. If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash. The depositary will allow rights that are not distributed or sold to lapse. In that case, holders of ADSs will receive no value for them.
If the depositary makes rights to purchase common shares available to holders of ADSs, it will exercise the rights and purchase the common shares on their behalf. The depositary will then deposit the shares and deliver ADSs to the investor. It will only exercise rights if the investor pays it the exercise price and any other charges the rights require the investor to pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs representing common shares purchased upon exercise of rights. For example, you may not be able to trade these ADSs freely in the United States. In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.
Other Distributions
The depositary will send to holders of ADSs anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to holders of ADSs unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed property to pay its fees and expenses in connection with the distribution.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADSs, common shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permittopermit the distribution of ADSs, common shares, rights or anything else to ADS holders. This means that holders of ADSs may not receive thedistributions we make on our common shares or any value for them if it is illegal or impractical for us to make them available to holders of ADSs.
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Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver ADSs if the investor or the investor’s broker deposits common shares or evidence of rights to receive common shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names the investor requests.
How do ADS holders cancel ADSs and obtain shares?
If an investor surrenders ADSs to the depositary, upon payment of the investor’s fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the common shares and any other deposited securities underlying the surrendered ADSs to the investor or a person the investor designates at the office of the custodian. Or, at the investor’s request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible.
How do ADS holders interchange between certified ADSs and uncertified ADSs?
Investors may surrender their ADRs to the depositary for the purpose of exchanging their ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS registered holder a statement confirming that the ADS registered holder is the registered holder of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS registered holder an ADR evidencing those ADSs.
Voting Rights
How do holders ADSs vote?
Holders of ADSs may instruct the depositary to vote the number of common shares their ADSs represent. If we ask for the instructions of the holders of the ADSs, the depositary will notify the holders of the ADSs of shareholders’ meetings and the upcoming vote and arrange to deliver our voting materials to the holder of the ADSs. Those materials will describe the matters to be voted on and explain how holders of ADSs may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as the holder of the ADSs directs by a specified date. For instructions to be valid, the depositary must receive them on or before the date specified.
The depositary will try, as far as practical, subject to Argentine law and the provisions of our by-laws or similar documents, to vote or to have its agents vote the number of common shares or other deposited securities represented by the ADSs as the holder of the ADSs instructs. Otherwise, the holder of the ADSs will not be able to exercise their right to vote unless they withdraw the shares underlying their ADSs. In the absence of the instruction of the holder of the ADSs, our company may request the depositary to vote as we instruct at the corresponding meeting. The holder of the ADSs may otherwise not know about the meeting far enough in advance to withdraw the shares. We will use our best efforts to request that the depositary notify holders of ADSs of upcoming votes and ask for the instructions of holders of ADSs.
If we timely ask the depositary to solicit the instructions of holders of ADSs and the depositary does not receive voting instructions from the holder of the ADSs by the specified date, the depositary will consider the holder of the ADSs to have authorized and directed it to vote the number of deposited securities represented by their ADSs in favor of all resolutions proposed by our board of directors or, if not so proposed, to vote in the same manner as the majority of all other shares voted in respect of this resolution. The depositary will vote as described in the preceding sentence unless we notify the depositary that:
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· we do not wish the depositary to vote those deposited securities;
· we think there is substantial shareholder opposition to the particular question; or
· we think the particular question would have an adverse impact on our shareholders.
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Fees and Expenses
Reclassifications, Recapitalizations and Mergers
If we: | Then: |
· Change the nominal or par value of our common shares · Reclassify, split up or consolidate any of the deposited securities · Distribute securities on the common shares that are not distributed to the holders of ADSs · Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action | The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. The depositary may distribute some or all of the cash, shares or other securities it received. It may also deliver new ADRs or ask the holder of ADSs to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities. |
Limitations on Obligations and Liability
Limits on Our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADRs
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
· are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
· are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement;
· are not liable if either of us exercises discretion permitted under the deposit agreement;
· have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on behalf of holders of ADSs or on behalf of any other party; and
· may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party.
In the deposit agreement, we agree to indemnify the depositary for acting as depositary, except for losses caused by the depositary’s own negligence or bad faith, and the depositary agrees to indemnify us for losses resulting from its negligence or bad faith.
�� Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of an ADR, make a distribution on an ADR, or permit withdrawal of common shares, the depositary may require:
· payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any common shares or other deposited securities;
· satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
· compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
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The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
The Right of Holders of ADSs to Receive the Common Shares Underlying their ADRs
Holders of ADSs have the right to surrender their ADSs and withdraw the underlying common shares at any time except:
When temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of common shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our common shares.
When holder of ADSs seeking to withdraw common shares owe money to pay fees, taxes and similar charges.
When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of common shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Pre-Release of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying common shares. This is called a Pre-Release of the ADSs. The depositary may also deliver common shares upon the receipt and cancellation of pre-released ADSs (even if the ADSs are surrendered before the Pre-Release transaction has been terminated). A Pre-Release is terminated as soon as the underlying common shares are delivered to the Depositary. The depositary may receive ADSs instead of common shares to satisfy a Pre-Release. The depositary may pre-release ADSs only under the following conditions: (a) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer (i) owns the common shares or ADSs to be deposited; (ii) transfers all beneficial right, title and interest in such common shares or ADSs, as the case may be, to the Depositary in its capacity as such and for the benefit of the Beneficial Owners, and (iii) will not take any action with respect to such common shares or ADSs, as the case may be, that is inconsistent with the transfer of ownership (including, without the consent of the Depositary, disposing of common shares or ADSs, as the case may be, other than in satisfaction of such Pre-Release); (b) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; (c) the depositary must be able to terminate the pre-release on not more than five business days’ notice and (d) Pre-Release is subject to such further indemnities and credit regulations as the Depositary deems appropriate. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of Pre-Release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC. DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements sent by the depositary to the registered holders of uncertificated ADSs. Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS registered holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not verify, determine ordetermineor otherwise ascertain that the DTC participant, which is claiming to be acting on behalf of an ADS registered holder in requesting registration of transfer and delivery described in the paragraph above, has the actual authority to act on behalf of the ADS
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registered holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement, shall not constitute negligence or bad faith on the part of the depositary.
Shareholder Communications and Inspection of Register of Holders of ADSs
The holders of ADSs are holders of deposited securities. As such, the depositary will make available for inspection by the holders of ADSs at its office all communications that it receives from us that we make generally available to holders of deposited securities. The depositary will send holders of ADSs copies of those communications if we ask it to. Holders of ADSs have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
Amendment and Termination
We may agree with the depositary to amend the deposit agreement and the ADRs without the consent of holders of ADSs for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADR holders, it will not become effective for outstanding ADRs until 30 days after the depositary notifies ADR holders of the amendment. At the time an amendment becomes effective, the holders of ADSs are considered, by continuing to hold their ADR, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.
The depositary will terminate the deposit agreement if we ask it to do so. The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign and we have not appointed a new depositary bank within 60 days. In either case, the depositary must notify the holder of ADSs at least 30 days before termination.
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else: (a) advise the holders of ADSs that the deposit agreement is terminated, (b) collect distributions on the deposited securities, (c) sell rights and other property, and (d) deliver common shares and other deposited securities upon surrenders of ADRs. One year after termination, the depositary may sell any remaining deposited securities by public or private sale. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for thepro rata benefit of the ADR holders that have not surrendered their ADRs. It will not invest the money and has no liability for interest. The depositary’s only obligations will be to account for the money and other cash. After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Fees, Expenses and Payment of Taxes
See Item 12. Description of Securities other than Equity Securities.
DOCUMENTS ON DISPLAY
The materials included in this annual report on Form 20-F, and exhibits thereto, may be inspected and copied at the Securities and Exchange Commission’s public reference room in Washington, D.C. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. The Securities and Exchange Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports and information statements and other information regarding us. The reports and information statements and other information about us can be downloaded from the Securities and Exchange Commission’s website.
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Table of ContentsItem 11. Quantitative and Qualitative Disclosures about Market Risk
Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates or commodity prices. We are exposed to changes in financial market conditions in the normal course of our business due to our use of certain financial instruments and to our execution of transactions in various foreign currencies.
As of December 31, 2012,2015, we had no material exposure to interest rate risk because only approximately 3.24 % ofall our outstanding financial debt bore interest at variablefixed rates. See Note 5.1 of our Consolidated Financial Statementsfinancial statements for further information. In addition, we had no material exposure to commodity price risk because our commodities represented less than 1.8%1.4% of our operating expenses.
Foreign Currency Risk
Our cash and deposits in U.S.Dollars amounted to U.S.$ 1.70.8 million atas of December 31, 2012.2015.
As of December 31, 2011,2015, the potential loss to Edenor that would result from a hypothetical 10% change in foreign currency exchange rates, after giving effect to the impact of the change on our assets and liabilities denominated in foreign currency as of December 31, 2012,2015, was approximately Ps. 138.4246.1 million (without taking into account hedging contracts), primarily due to the increase in the principal amount of, and debt service payments on, our foreign currency indebtedness.
In 2011, Edenor entered into various derivative financial agreements with JP Morgan Chase Bank N.A. to hedge its exposure to fluctuations in exchange rates on our interest payments. These derivative financial agreements provide hedging on the fluctuation of exchange rates relating to our interest payments due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012 under the Senior Notes due 2022. We have not formally qualified these transactions as coverage instruments. For accounting purposes, we have followed the guidelines under Resolución Técnica No. 18As of the FACPCE. Accordingdate of this annual report, the Argentine Peso continued to said Resolution, derivative instruments which do not qualify as coverage instruments must be recorded in our financial statementsdepreciate, by approximately 9.9% compared to its value at their net realizable value (if recorded as assets) or settlement value (if recorded as liabilities). Our income statement records the financial gains and losses associated with these instruments. As of December 31, 2012, the economic2015. This variation would generate a negative impact of this operation implied a loss of Ps. 2.2243.1 million which has been accounted for under financial income and holding gains generated by liabilities, under exchange difference in the income statement, and under the line item other credits under current assets.
AESEBA’s financial debt is Peso denominated.
We may use derivative instruments as an economic hedge to adjust our exposures or to reduce our costs of financing. Our(without taking into account hedging practices will be guided by the level of risk, expectations as to interest or exchange rate movements and the costs of using derivative instruments. We may enter into new derivative instruments or modify our practices at any time.contracts).
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Item 12. Description of Securities Other than Equity Securities
Persons depositing common shares or holders of ADSs will be required to pay certain fees and expenses, as described in the table below, which the depositary is entitled to deduct prior to making any cash dividend or other cash distribution on the deposited shares.
Persons depositing common shares or ADS holders must pay: | For: |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | · Issuance of ADSs, including issuances resulting from a distribution of common shares or rights or other property · Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates |
$0.02 (or less) per ADS | · Any cash distribution to the holder of the ADSs |
$0.02 (or less) per ADS per year | · Depositary services |
A fee equivalent to the fee that would be payable if securities distributed to the holder of ADSs had been common shares and the shares had been deposited for issuance of ADSs | · Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders |
Registration or transfer fees | · Transfer and registration of common shares on our common share register to or from the name of the depositary or its agent when the holder of ADSs deposits or withdraw common shares. |
Expenses of the depositary in converting foreign currency to U.S. Dollars | |
Expenses of the depositary | · Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) |
Taxes and other governmental charges the depositary or the custodian have to pay on any ADSs or common share underlying ADSs, for example, stock transfer taxes, stamp duty or withholding taxes | |
Any charges incurred by the depositary or its agents for servicing the deposited securities | · No charges of this type are currently made in the Argentine market |
Reimbursement of fees
The Bank of New York Mellon, as depositary, reimbursed us for certain expenses relating to our initial public offering and establishment of our ADR program in 2007. Aside from that initial payment, we do not receive any reimbursement from the depositary for expenses we incur that related to the maintenance of the ADS program.
The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collectsfees related to making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
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Payment of taxes
The depositary may deduct the amount of any taxes owed from any payments to the holder of ADSs. It may also sell deposited securities, by public or private sale, to pay any taxes owed. The holder of ADSs will remain liable if the proceeds of the sale are not enough to pay the taxes. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to the holder of ADSs any proceeds, or send to the holder of ADSs any property, remaining after it has paid the taxes.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
The economic crisis in Argentina had a material adverse effect on our operations. The 2001 and 2002 economic crisis in Argentina had a material adverse effect on our operations. The devaluation of the Peso caused the Peso value of our U.S. Dollar-denominated indebtedness to increase significantly, resulting in significant foreign exchange losses and a significant increase, in Peso terms, in our debt service requirements. At the same time, our cash flow remained Peso-denominated and our distribution margins were frozen and pesified by the Argentine government pursuant to the Public Emergency Law. Moreover, the 2001 and 2002 economic crisis in Argentina had a significant adverse effect on the overall level of economic activity in Argentina and led to deterioration in the ability of our customers to pay their bills. These developments caused us to announce on September 15, 2002 the suspension of principal payments on our financial debt. On September 26, 2005, our board of directors decided to suspend interest payments on our financial debt until the restructuring of this debt was completed.
On January 20, 2006, we launched a voluntary exchange offer and consent solicitation to the holders of our then-outstanding financial debt. All of these holders elected to participate in the restructuring and, as a result, on April 24, 2006, we exchanged all of our then-outstanding financial debt for three series of newly-issued notes, which we refer to as the restructuring notes. As of the date of this annual report, all of the restructuring notes have been repaid and cancelled. For a description of our debt following the restructuring see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”Debt”.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Use of Proceeds
On April 30, 2007, we completed an initial public offering. We received U.S. $57.7$ 57.7 million in net proceeds from the offering. We did not receive any proceeds from the sale of our shares and ADSs by our selling shareholders in the offering. We used all of the net proceeds we received from the offering to repurchase a part of our then outstanding Fixed Rate Par Notes due 2016 and Discount Notes due 2014 in various market repurchase transactions during 2007 and to make capital expenditures.
Item 15. Controls and Procedures
(a) a)Disclosure Controls and Procedures.
Management
Our management has evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15e of the Securities Exchange Act of 1934 as of December 31, 2012.2015.
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There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation, management, including the chief executive officer and chief financial officer concluded that as of December 31, 2012,2015, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including ourincludingour chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
b)Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The company’s internal control over financial reporting is 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.IFRS. The company’s internal control over financial reporting includes those policies and procedures that:
(i)
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)
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)
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.
Management
Our management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2012.2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(COSO 2013) in Internal Control-Integrated Framework. Based on our assessment and those criteria, management believes that the company maintained effective internal control over financial reporting as of December 31, 2012.2015.
The effectiveness of the Company´s internal control over financial reporting as of December 31, 20122015 has been audited by Price Waterhouse & Co. S.R.L., an independent registered public accounting firm, as stated in their audit report, which appearsis included herein.
(c)
c) Attestation Report of the Registered Public Accounting Firm
Reference is made to the report of the Price Waterhouse & Co. S.R.L. on page F-102[F-102] of this annual report.
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(d) d)Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during 20122015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Eduardo Llanos, an independent member of our board of directors, under Argentine law and Rule 10A-3, is an “audit committee financial expert” as defined in Item 16A of Form 20F under the Securities and Exchange Act of 1934. See “Item 6. Directors, Senior Management and Employees – —Directors and Senior Management – —Audit Committee.”Committee”.
Item 16B. Code of Ethics
Our company adopted a code of ethics in May 1999, which applies to all of our employees, including our principal executive, financial and accounting officers. In 2012 and 2015, we reviewed and updated our code of ethics, and we posted a copy of our revised code of ethics in both English and Spanish, on our website athttp://www.edenor.com.arwww.edenor.com.ar..
Item 16C. Principal Accountant Fees and Services
Price Waterhouse & Co. S.R.L. (member firm of PricewaterhouseCoopers network) acted as our independent registered public accounting for the fiscal years ended December 31, 20122015, 2014, 2013 and 2011.2012. The chart below sets forth the services rendered to us by Price Waterhouse & Co. S.R.L. and the fees billed in each year for those services (including related expenses), and breaks down these amounts by category of service in Pesos:
| | | |
| | |
| | | Year ended December 31, |
| | | | |
Audit fees | Ps. | 4,246,047 | Ps. | 3,758,889 | 4,153,479 | 3,194,984 |
Audit-related fees | 999,154 | 748,621 | 305,155 | 223,196 |
Non-Audit fees | - | 39,830 | |
Tax fees | | - | - |
All other fees | | - | - |
Total | | | | | | |
____________________
(1)Includes the amount in fees billed in U.S. Dollars, which, for the convenience of the reader, has been converted into Pesos at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2012 of Ps. 4.918 to U.S. $1.00.
(2)Includes the amount in fees billed in U.S. Dollars, which, for the convenience of the reader, has been converted into Pesos at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2011 of Ps. 4.3032 to U.S. $1.00.
All of our audit fees audit-related fees and non-auditaudit-related fees, contained in the above table were billed by Price Waterhouse & Co. S.R.L., independent registered public accounting firm.
Audit-related fees in the above table are the aggregate fees for services provided in connection with various corporate transactions and, such as the review of corporate filings and certifications of Audit Committee Pre-Approval Policies and Procedures.
We have adopted pre-approval policies and procedures under which all audit and non-audit services provided by our external auditors must be pre-approved by the audit committee as set forth in our internal policies. Any service proposals submitted by external auditors need to be discussed and approved by the audit committee during its meetings, which take place at least four times a year. Once the proposed service is approved, we formalize the engagement of services. The approval of any audit and non-audit services to be provided by our external auditors is specified in the minutes of our audit committee.
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Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither we nor any affiliated purchaser has engaged in share repurchases during the year ended December 31, 2012.2015.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
Pursuant to Rule 303A.11 of the Listed Company Manual of the New York Stock Exchange (NYSE), we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards. Our corporate governance practices are governed by our bylaws, Argentine corporate and securities law (including the Business CompaniesArgentine Corporations Law, the Capital Markets Law No. 26,386) and the regulations issued by the Argentine National Securities Commission (Comisión Nacional de Valores), such as the Corporate Governance Code CNV’s General Resolution No. 606/2012 (the “CGC”).
F. NYSELISTED COMPANY MANUAL SECTION303.A | G. Edenor’sCorporatePractices |
SECTION 303A.01. Independent directors must constitute the majority of a listed company’s board of directors. | EdenorfollowsArgentinelaw,whichdoesnotrequirethatamajorityoftheboard ofdirectorsbecomprisedofindependentdirectors.ArgentinelawinsteadrequiresthatpubliccompaniesinArgentina haveasufficientnumberofindependentdirectorsto beabletoformanauditcommitteeofatleastthreemembers,themajorityofwhichmustbeindependentpursuanttothecriteriaestablishedbytheCNV.Asofthe date of this annual report,sevenofEdenor’stwelvedirectorsareindependentunderArgentinelawandRule10A-3 of theSecuritiesExchangeAct of1934,asamended(the“ExchangeAct”). |
SECTION 303A.02.This rule establishes the standards that determine whether a director qualifies as independent. It provides that directors cannot qualify as independent unless the board of directors finds them to have no material relationship with the listed company. A number of per se exclusions from independence apply, generally triggered by having a connection, individually or through an immediate family member, to the listed company or to a company that has a material relationship with the listed company as a shareholder, employee, officer, or director of the listed company. | In defining the “independence” of directors,CNVstandards (General ResolutionNo. 400)aresubstantially similar toNYSEstandards.In ordertomeet the CNV definition The CNV’s Regulations, specifically Article 11 of independence,independence is requiredwith respect totheCompSection III, Chapter III, Title II I, indicate the criteria for establishing independence of any itself and toits shareholders with direct or indirect material holdings (35% or more). To qualify as anindependent director, adirector must notperform executive functions within thecompany.Close relatives of any persons whowould not qualify as “independent directors” shallalso director. They provide that any director who does any of the following is not be considered“independent.” independent:
T(i)Is a member of the board of directors of or employee of any of the shareholders with material holdings1he in the company or of other companies whose shareholders have direct or indirect material holdings;
bo(ii)works at the company in an employment relationship or worked in an employment relationship at any time in the past 3 years;
(iii)performs professional services or belongs to a company or professional association that provides such services to the company or its shareholders with material holdings; r(iv)ddirectly or indirectly has a material holding in the company;
e(v)vdirectly or indirectly sells or supplies goods or services to the company and/or its direct or indirect shareholders with material holdings;
al(vi)uis spouse, relative to the fourth degree of consanguinity, or relative to the second degree of affinity of any individuals who would qualify as non-independent if they were members of the management body.ates the independenceof each director appointedto the audit committee.
In addition, Article 4 of Section III, Chapter I, Title XII of the CNV’s Regulations provides that at each election of directors, the non-independence or independence of any candidates proposed at the shareholders’ meeting must be disclosed. Moreover, after the shareholders’ meeting in which directors are appointed, the personal data of the appointed directors and their qualification as independent or non-independent (in the latter case in the form of an affidavit executed by each director) must be disclosed to the CNV and the exchanges where the company has its securities listed. |
1Under Argentine law, a “material holding” is defined as any shareholding equivalent to at least 15% of a company’s capital stock.
SECTION 303A.03.This rule requires regularlyregular scheduled meetings of non-executive directors to increase the involvement and efficiency of such director. | Neither NeitherArgentinelaw norEdenor’sbylawsrequirethatanysuchmeetingsbeheld. Edenor’s board Edenor’s board of directors as directors as a whole isresponsible for whole is responsible for administering andmonitoring monitoringthecompany’saffairs.UnderArgentinelaw,theboardofdirectorsmayapprovethedelegationofspecificresponsibilitiesto designateddirectorsorexecutivedirectorsand ormanagersoftheCompany.Also,itismandatoryforpubliccompaniestohaveasupervisorycommittee(ComisiónFiscalizadora),whichisresponsibleformonitoringlegalcompliancebytheCompany withArgentinelaw,itsbylawsandshareholders’resolutions.Thesupervisorycommittee,withoutprejudicetotheroleofexternalauditors,isalsorequiredto presenttotheshareholdersattheannualordinarygeneralmeetingawrittenreportonthereasonablenessofthefinancialinformation oftheCompany’sannualreportandthefinancialstatementspresentedtotheshareholdersbyEdenor’sboardofdirectors.Thesupervisorycommitteealsopresentsareporttothe boardofdirectorson Edenor’squarterlyfinancialstatements.Themembersofthesupervisorycommitteearenotdirectorsofthecompany. |
SECTION 303A.04.Listed companies must organize an Appointment and Corporate Governance Committee composed entirely of independent directors. | NeitherNeitherArgentinelaw norEdenor’sbylawsrequirehavinganAppointmentCommitteenoraCorporateGovernanceCommittee. We note, however, that CNV corporate governance rules recommend having rules and procedures relating to the selection of Board members and executive directors. Theboardofdirectorsispermittedtoand often doesnominateboardmembercandidatesforconsideration bytheshareholders,whoelectthe boardofdirectors. Theentireboardofdirectorsisincharge ofoverseeingEdenor’scorporategovernance practices. |
SECTION 303A.05.Listed companies must organize a Compensation Committee composed entirely of independent directors. | NeitherArgentinelaw norEdenor’sbylawsrequireto havea“compensationcommittee”and Edenorhasnosuchcommittee. The CNV corporate governance rules recommend issuers to have compensation policies applicable to Board members and corporate managers. Edenor’s Audit Committee is required to give an opinion about the reasonableness of a director’s fees and stock option plans (if applicable), as proposed by our Board of Directors. Shareholdersattheannualordinarygeneralmeetingdeterminetheannual compensationtomembersofthe boardofdirectors. TheCEO ofEdenorsetsthesalaryoftheothermembersoftheseniormanagement.Theboard of directors determines the salary of the CEO. |
SECTION 303A.06.Listed companies must organize an audit committee that meets the requirements set forth in the Securities Exchange Act of 1934. | Edenorissubjecttoandincompliancewith §303A.06andRule10A-3. Edenor’sauditcommitteeis entirelycomposed of independentmembersofEdenor’sboardofdirectors. |
Table of ContentsSECTION 303A.07.The audit committee must have at least 3 members, all of whom must qualify as independent. In addition, the audit committee must have written regulations establishing: (i) the purpose of the committee; (ii) the annual assessment of the committee’s performance; and (iii) the committee’s obligations and responsibilities. Finally, the rule establishes that listed companies must have internal audit functions within their organization in order to assist both the audit committee and the company’s management in matters related to risk and internal control processes. | Asaforeign privateissuer,Edenorisnotsubjectto §303A.07.Assuch,Edenor’sauditcommitteechartermaynotprovideforeveryoneofthespecificdutiesrequired by§303A.07. ThedutiesoftheauditcommitteeincludemonitoringEdenor’sinternalcontrol,administrativeandaccountingsystems;supervisingtheapplicationofEdenor’sriskmanagement policies;providingthemarketadequateinformationregardingconflictsofintereststhatmayarisebetween Edenor’scompanyand Edenor’sdirectorsorcontrollingshareholders;renderingopinionsontransactionswithrelated parties;andsupervisingandreportingtoregulatoryauthoritiestheexistenceofanykind of conflictofinterest. UnderArgentinelaw,thereisnorequirementrelatedtothefinancialexpertiseofthemembersoftheauditcommittee.However,themembersof Edenor’sauditcommitteehaveextensivecorporateandfinancialexperience.Atleastonememberoftheauditcommitteehassufficientexpertiseasanexternalauditortoberecognized bytheboardof directorsofEdenorasan“auditcommitteefinancialexpert”asdefinedinItem16A ofForm 20F.Inaccordancewith Edenor’sinternalpolicies, Edenor’sauditcommitteemustpre-approveallauditandnon-auditservicesprovided byexternalauditors. |
SECTION 303A.08.The shareholders must be given the opportunity to vote on equity-compensation plans and their material revisions, although there are exceptions to this requirement, such as when these compensation plans serve as labor incentive tools. | Edenordoesnothaveanyequitycompensation plansandthereforedoesnothaveinplace proceduresforshareholderapprovalofsuchplans. |
SECTION 303A.09.Listed companies must adopt and disclose their corporate governance guidelines. | Law No. 26,831 (Capital Market´s Law)requiresEdenortoprovidegovernance-relatedinformationintheannualreportstotheCNV,includinginformationrelatingtothedecision-makingorganization(corporategovernance),thecompany’sinternalcontrolsystem, normsfor directorandmanagementcompensation,andanyothercompensationsystemapplyingto boardmembersandmanagers.AllrelevantinformationprovidedbytheCompanytotheCNVissentthroughtheCNV’selectronicfinancialreportingdatabaseandmaybeviewed bythepublicontheCNVwebsite. Edenor’sAnnualReport,financialstatementsand pressreleasesmayalso be viewed ontheCompany’sWebsite(www.edenor.com.ar). UnderArgentinelaw,theboard’sperformanceisevaluatedattheannualShareholders’Meeting. Listed companies must meet the annual disclosure requirements of the CGC. Listed companies must issue a report stating whether and how they follow the recommendations provided by the CGC or explaining the reasons for their failure to adopt such recommendations, either fully or in part, and/or whether they plan to adopt them in the future. This information must appear in their annual report, attached to the financial statements for the relevant fiscal year as a separate exhibit. Once filed with the CNV and the exchange markets where the company is listed, the CGC report qualifies as public information. Edenor complies with the CGC annual disclosure requirements and fully disclose all corporate governance policies and practices. This information may be viewed on the company’s website at http://www.edenor.com.ar. |
SECTION 303A.10.Listed companies must adopt and disclose to the market a Code of Ethics and Business Conduct which is applicable to their directors, managers and employees. In addition, any waiver of the provisions contained in this Code in favor of any of the parties that are subject to it must be immediately disclosed. | Under Argentine law there is no requirement that companies adopt a code of conduct. Nonetheless, our company adopted a code of ethics in 1999, which applies to all of our employees, including our principal executive, financial and accounting officers. In 2012 we reviewed and updated our code of ethics. |
SECTION 303A.12(a).The Chief Executive Officer (CEO) of a listed company must certify on an yearly basis that he or she has no knowledge of any violation or default of the corporate governance standards. Additionally, the CEO must report any default or violation of the corporate governance standards contained in the NYSE LCM by any of the company’s executives to the NYSE immediately. Finally, listed companies must file an annual statement and updated reports with the NYSE disclosing any changes in the composition of their board of directors or any of the committees described in Section 302A of the NYSE LCM. | NosimilarobligationexistsunderArgentinelegislation.However,inaccordancewithArgentinelawthedirectorsofacompanymustannuallysubmitforitsshareholders’approvalsuchcompany’sannualreportandfinancialstatementsatsuchcompany’sannualshareholders’meeting.Also, EdenordisclosesmaterialeventsinregulatoryfilingsbothwiththeCNVinArgentinaandwiththeSEC onform6KintheUnitedStates(as“materiality”isunderstoodineachofthoserespectivejurisdictions).UnderapplicablerulesoftheNYSE, EdenorisrequiredtodisclosetotheNYSEcertainchangesinitsauditcommittee,includinganychangethataffectsthecommittee’sindependence. Edenorissubjecttoandcomplieswith §303A.12(b),totheextentthatitrelatestothesectionsoftheNYSE ListedCompanyManualthatapplytoforeign privateissuers. Edenor complies with the certification requirements under §303A.12(c). |
Item 16 H. Mine Safety Disclosures
Not applicable.
178
Table of Contents
PART III
Item 17. Financial Statements
The Registrant has responded to Item 18 in lieu of this Item.
Item 18. Financial Statements
Reference is made to pages F-1 to F-101 ofOur financial statements are included in this annual report.report beginning on page F-1.
Item 19. ExhibitsExhibits
Documents filed as exhibits to this annual report:
1.1 Estatutos sociales (corporate bylaws) of Empresa Distribuidora y Comercializadora Norte S.A. (English translation) (previously filed as Exhibit 3.1 to Edenor’s Registration Statement on Form F-1 (File No. 333-141894) on April 4, 2007 and incorporated by reference herein.)
2.1 Form of Deposit Agreement among Empresa Distribuidora y Comercializadora Norte S.A., The Bank of New York, as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the form of American Depositary Receipts (previously filed as Exhibit 4.1 to Edenor’s Amendment No. 2 to Registration Statement on Form F-1 (File No. 333-141894) on April 20, 2007 and incorporated by reference herein.)
2.2 Indenture dated April 24, 2006, between Empresa Distribuidora y Comercializadora Norte S.A., as Issuer, and The Bank of New York, as Trustee, Co-Registrar and Paying Agent, and Banco Santander Río S.A., as Registrar, Transfer and Paying Agent in Argentina and Representative of the Trustee in Argentina (previously filed as Exhibit 2.2 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
2.3 Indenture dated October 9, 2007, between Empresa Distribuidora y Comercializadora Norte S.A., as Issuer, and The Bank of New York, as Trustee, Co-Registrar and Paying Agent, and Banco Santander Río S.A., as Registrar, Transfer and Paying Agent in Argentina and Representative of the Trustee in Argentina (previously filed as Exhibit 2.3 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
2.42.3 Registration Rights Agreement, dated October 9, 2007, between Empresa Distribuidora y Comercializadora Norte S.A. and Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. as Representatives of the Initial Purchasers (previously filed as Exhibit 2.4 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
2.52.4 Indenture dated October 25, 2010, between Empresa Distribuidora y Comercializadora Norte S.A., as Issuer, and The Bank of New York, as Trustee, Co-Registrar and Paying Agent, and Banco Santander Río S.A., as Registrar, Transfer and Paying Agent in Argentina and Representative of the Trustee in Argentina (previously filed as Exhibit 2.5 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 6, 2011, and incorporated by reference herein).
8.1List of Subsidiaries of Empresa Distribuidora y Comercializadora Norte S.A.
12.1 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
179
Table of ContentsSIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Empresa Distribuidora y Comercializadora Norte Sociedad Anónima |
| By: /s/ Leandro Carlos Montero |
| Name: Leandro Carlos Montero
Title: Chief Financial Officer |
Date: April 30, 201327, 2016
180
EDENOR S.A.
CONSOLIDATED FINANCIAL STATEMENTS
ATAS OF DECEMBER 31, 20122015 AND 2014
151
CONTENTS
Legal Information | 1 |
Statement of Financial Position | 2 |
Statement of Comprehensive Income | 4 |
Statement of Changes in Equity | 6 |
Statement of Cash Flows | 7 |
Notes to the financial statements |
|
Note 1.General information | 9 |
Note 2.Regulatory framework | 10 |
Note 3.Basis of preparation | 24 |
Note 4.Accounting policies | 25 |
Note 5.Financial risk management | 36 |
Note 6.Critical accounting estimates and judgments | 43 |
Note 7.Interest in joint venture | 46 |
Note 8.Contingencies and lawsuits | 46 |
Note 9.Property, plant and equipment | 52 |
Note 10.Financial instruments | 54 |
Note 11.Other receivables | 57 |
Note 12.Trade receivables | 58 |
Note 13.Financial assets at fair value through profit or loss | 59 |
Note 14.Inventories | 60 |
Note 15.Cash and cash equivalents | 60 |
Note 16.Share capital and additional paid-in capital | 60 |
Note 17.Allocation of profits | 61 |
Note 18.Trade payables | 61 |
Note 19.Other payables | 62 |
Note 20.Deferred revenue | 62 |
Note 21.Borrowings | 63 |
Note 22.Salaries and social security taxes payable | 65 |
Note 23.Benefit plans | 66 |
Note 24.Income tax and tax on minimum presumed income/Deferred tax | 68 |
Note 25.Tax liabilities | 70 |
Note 26.Assignments of use | 71 |
Note 27.Provisions | 72 |
Note 28.Revenue from sales | 73 |
Note 29.Expenses by nature | 73 |
Note 30.Other operating expense, net | 75 |
Note 31.Net financial expense | 75 |
Note 32.Basic and diluted earnings (loss) per share | 76 |
Note 33.Related-party transactions | 78 |
Note 34.Trust for the Management of Electric Power Transmission Works (FOTAE) | 79 |
Note 35.Assets and liabilities of disposal group classified as held for sale and discontinued operations | 79 |
Note 36.Merger process – EMDERSA HOLDING S.A | 80 |
Note 37.Electric works Arrangement - Agreement for the supply of electric power toMitre and Sarmiento railway lines | 81 |
Note 38.Construction works - San Miguel and San Martín Transformer Centers | 81 |
Note 39.Agreementfor the execution of works -La Matanza District | 81 |
Note 40.Safekeeping of documentation | 82 |
Note 41.Events after the reporting period | 82 |
Note 42.Financial Statements translation into English language | 82 |
Independent Auditors’ Report |
|
Glossary of Terms
The following definitions, which are not technical ones, will help readers understand some of the terms used in the text of the notes to the Company’s Financial Statements.
Terms | Definitions |
AFIP | Federal Administration of Public Revenue |
CAMMESA | Compañía Administradora del Mercado Mayorista Eléctrico(the company in charge of the regulation and operation of the wholesale electricity market) |
CNV | National Securities Commission |
CYCSA | Comunicaciones y Consumos S.A. |
EASA | Electricidad Argentina S.A. |
Edenor S.A | Empresa Distribuidora y Comercializadora Norte S.A. |
Edesur S.A | Empresa Distribuidora Sur S.A. |
ENRE | National Regulatory Authority for the Distribution of Electricity |
FNEE | National Fund of Electricity |
FOCEDE | Fund for Electric Power Distribution Expansion and Consolidation Works |
FOTAE | Trust for the Management of Electricity Power Transmission Works |
IAS | International Accounting Standards |
IASB | International Accounting Standards Board |
IFRIC | International Financial Reporting Interpretations Committee |
IFRS | International Financial Reporting Standards |
LVFVD | Sale Settlements with Maturity Dates to be Determined |
MEM | Wholesale Electricity Market |
MEyFP | Economy and Public Finance Ministry |
MEyM | Energy and Mining Ministry |
MMC | Cost Monitoring Mechanism |
MPFIPyS | Ministry of Federal Planning, Public Investment and Services |
PEN | Federal Executive Power |
PEPASA | Petrolera Pampa S.A. |
PESA | Pampa Energía S.A. |
PISA | Pampa Inversiones S.A. |
PUREE | Program for the Rational Use of Electric Power |
PYSSA | Préstamos y Servicios S.A. |
RTI | Tariff Structure Review |
SACME | S.A. Centro de Movimiento de Energía |
SE | Energy Secretariat |
SEGBA S.A. | Servicios Eléctricos del Gran Buenos Aires S.A. |
SIESA | Salta Inversiones Eléctricas S.A. |
TERI | Study, Review and Inspection of Works in Public Spaces Fees |
VAD | Distribution Added Value |
VRD | Debt Securities |
TableLegal Information
Corporate name: Empresa Distribuidora y Comercializadora Norte S.A.
Legal address:6363 Del Libertador Ave., City of ContentsBuenos Aires
Main business:Distribution and sale of electricity in the area and under the terms of the concession agreement by which this public service is regulated.
Date of registration with the Public Registry of Commerce:
-of the Articles of Incorporation: August 3, 1992
-of the last amendment to the By-laws: May 28, 2007
Term of the Corporation:August3, 2087
Registration number with the “Inspección General de Justicia” (the Argentine governmental regulatory agency of corporations):1,559,940
Parent company:Electricidad Argentina S.A. (EASA)
Legal address:3302 Ortiz de Ocampo, Building 4, City of Buenos Aires
Main business of the parent company: Investment in Edenor S.A.’s Class “A” shares and rendering of technical advisory, management, sales, technology transfer and other services related to the distribution of electricity.
Interest held by the parent company in capital stock and votes:51.54%
CAPITAL STRUCTURE
AS OF DECEMBER 31, 2015
(amounts stated in pesos)
Class of shares | | |
|
|
|
Common, book-entry shares, face value 1and 1 vote per share |
|
|
| | |
Class A | | 462,292,111 |
Class B (1) | | 442,210,385 |
Class C (2) | | 1,952,604 |
| | 906,455,100 |
(1)Includes 9,412,500 treasury shares as of December 31, 2015 and 2014.
(2)Shares of the Employee Stock Ownership Program that have not been transferred
Edenor S.A.
Consolidated StatementsStatement of Financial Position
atas of December 31, 2012, 20112015 and January 1, 20112014
(Stated in thousands of pesos)
| Note | 12.31.12 | | 12.31.11 | | 01.01.11 | Note | | 12.31.15 | | 12.31.14 |
ASSETS | | | | | | | | | | | |
| | | | | | | | | | | |
Non-current assets | | | | | | | | | | | |
Property, plant and equipment | 10 | 4,344,599 | | 3,995,310 | | 3,712,330 | 9 | | 8,885,789 | | 6,652,482 |
Intangible assets | 11 | 845,848 | | 793,015 | | - | |
Interest in joint ventures | 7 | 422 | | 419 | | 415 | 7 | | 433 | | 432 |
Trade receivables | 15 | 47,730 | | 45,725 | | 45,531 | |
Deferred tax asset | | 24 | | 50,048 | | 87,167 |
Other receivables | 14 | 70,491 | | 50,263 | | 18,496 | 11 | | 153,777 | | 249,235 |
Financial assets at fair value through profit or loss | | 13 | | 23,567 | | - |
Total non-current assets | | 5,309,090 | | 4,884,732 | | 3,776,772 | | | 9,113,614 | | 6,989,316 |
| | | | | | | | | | | |
Current assets | | | | | | | | | | | |
Assets under construction | 12 | 84,466 | | 45,504 | | - | |
Inventories | 16 | 85,002 | | 45,325 | | 12,407 | 14 | | 134,867 | | 73,970 |
Other receivables | | 11 | | 1,079,860 | | 250,307 |
Trade receivables | 15 | 889,383 | | 534,732 | | 421,193 | 12 | | 963,005 | | 882,949 |
Financial assets at fair value through profit or loss | | 13 | | 1,560,434 | | 254,447 |
Derivative financial instruments | 13 | - | | 1,316 | | - | | | 197 | | - |
Financial assets at fair value through profit or loss | 13 | 3,415 | | 2,132 | | 430,836 | |
Other receivables | 14 | 135,578 | | 76,265 | | 40,069 | |
Cash and cash equivalents | 17 | 71,108 | | 130,509 | | 246,007 | 15 | | 128,952 | | 179,080 |
Total current assets | | 1,268,952 | | 835,783 | | 1,150,512 | | | 3,867,315 | | 1,640,753 |
Assets of disposal groups classified as held for sale | 40 | 223,398 | | 1,291,078 | | - | |
TOTAL ASSETS | | 6,801,440 | | 7,011,593 | | 4,927,284 | | | 12,980,929 | | 8,630,069 |
Edenor S.A.
Statement of Financial Position
as of December 31, 2015 and 2014(Continued)
(Stated in thousands of pesos)
| Note | | 12.31.15 | | 12.31.14 |
EQUITY | | | | | |
Share capital | 16 | | 897,043 | | 897,043 |
Adjustment to share capital | | | 397,716 | | 397,716 |
Additional paid-in capital | | | 3,452 | | 3,452 |
Treasury stock | 16 | | 9,412 | | 9,412 |
Adjustment to treasury stock | | | 10,347 | | 10,347 |
Other comprehensive loss | | | (42,253) | | (39,862) |
Accumulated losses | | | 249,336 | | (893,107) |
TOTAL EQUITY | | | 1,525,053 | | 385,001 |
| | | | | |
| | | | | |
LIABILITIES | | | | | |
Non-current liabilities | | | | | |
Trade payables | 18 | | 224,966 | | 231,105 |
Other payables | 19 | | 2,391,878 | | 1,644,587 |
Borrowings | 21 | | 2,460,975 | | 1,598,442 |
Deferred revenue | 20 | | 153,816 | | 109,089 |
Salaries and social security payable | 22 | | 80,039 | | 62,858 |
Benefit plans | 23 | | 204,386 | | 150,355 |
Tax liabilities | 25 | | 1,922 | | 3,164 |
Provisions | 27 | | 259,573 | | 112,095 |
Total non-current liabilities | | | 5,777,555 | | 3,911,695 |
Current liabilities | | | | | |
Trade payables | 18 | | 4,475,427 | | 3,299,891 |
Other payables | 19 | | 151,674 | | 187,096 |
Borrowings | 21 | | 48,798 | | 33,961 |
Derivative financial instruments | | | - | | 5,895 |
Deferred revenue | 20 | | 764 | | 764 |
Salaries and social security payable | 22 | | 733,131 | | 610,649 |
Benefit plans | 23 | | 28,291 | | 10,566 |
Tax liabilities | 25 | | 169,747 | | 160,483 |
Provisions | 27 | | 70,489 | | 24,068 |
Total current liabilities | | | 5,678,321 | | 4,333,373 |
TOTAL LIABILITIES | | | 11,455,876 | | 8,245,068 |
| | | | | |
TOTAL LIABILITIES AND EQUITY | | | 12,980,929 | | 8,630,069 |
The accompanying notes are an integral part of the Financial Statements
F-3Edenor S.A.
Statement of Comprehensive Income (Loss)
for the years ended December 31, 2015, 2014 and 2013
(Stated in thousands of pesos)
| | Note | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Revenue | 28 | | 3.802.162 | | 3.598.376 | | 3.440.691 |
Electric power purchases | | | (2.021.981) | | (1.878.088) | | (2.050.295) |
Subtotal | | | 1.780.181 | | 1.720.288 | | 1.390.396 |
Transmission and distribution expenses | 29 | | (3.153.664) | | (2.825.062) | | (2.055.285) |
Gross loss | | | (1.373.483) | | (1.104.774) | | (664.889) |
| | | | | | | | |
Selling expenses | 29 | | (832.806) | | (657.909) | | (548.256) |
Administrative expenses | 29 | | (706.091) | | (496.762) | | (324.768) |
Other operating expense, net | 30 | | (422.546) | | (265.505) | | (80.497) |
Gain from interest in joint ventures | | | 1 | | 5 | | 5 |
| | | | | | | | |
Operating loss before higer costs recognition and SE Resolution 32/15 | | | (3.334.925) | | (2.524.945) | | (1.618.405) |
Income recognition on account of the RTI - SE Resolution 32/15 | 2 | | 5.025.114 | | - | | - |
Higher cost recognition – SE Resolution 250/13 and subsequent Notes | 2 | | 551.498 | | 2.271.927 | | 2.933.052 |
Operating profit (loss) | | | 2.241.687 | | (253.018) | | 1.314.647 |
| | | | | | | | |
Financial income | 31 | | 96.225 | | 235.534 | | 276.221 |
Financial expenses | 31 | | (450.016) | | (592.013) | | (504.854) |
Other financial results | 31 | | (561.723) | | (324.575) | | (262.263) |
Net financial expense | | | (915.514) | | (681.054) | | (490.896) |
Profit (Loss) before taxes | | | 1.326.173 | | (934.072) | | 823.751 |
| | | | | | | |
Income tax | 24 | | (183.730) | | 154.356 | | 44.116 |
Profit (Loss) for the year from continuing operations | | | 1.142.443 | | (779.716) | | 867.867 |
Table of Contents
Edenor S.A.
Consolidated StatementsStatement of Financial PositionComprehensive Income (Loss)
atfor the years ended December 31, 2012, 20112015, 2014 and January 1, 20112013(Continued)
(Stated(Stated in thousands of pesos)
| | | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Other comprehensive income | | | | | | | |
Items that will not be reclassified to profit or loss | | | | | | | |
Results related to benefit plans | 23 | | (3.678) | | (17.823) | | (20.951) |
Tax effect of actuarial income on benefit plans | 24 | | 1.287 | | 6.238 | | 7.333 |
Total other comprehensive losses | | | (2.391) | | (11.585) | | (13.618) |
| | | | | | | | |
| | | | | | | | |
Comprehensive income for the year attributable to: | | | | | | | |
Owners of the parent | | | 1.140.052 | | (791.301) | | 758.121 |
Non-controlling interests | | | - | | - | | 1.020 |
Comprehensive income (loss) for the year | | | 1.140.052 | | (791.301) | | 759.141 |
| | | | | | | | |
Comprehensive (loss) Profit for the year attributable to the owners of the parent | | | | | | | |
Continuing operations | | | 1.140.052 | | (791.301) | | 757.101 |
Discontinued operations | | | - | | - | | 1.020 |
| | | | 1.140.052 | | (791.301) | | 758.121 |
| | | | | | | | |
Basic and diluted earnings (loss) per share: | | | | | | | |
Basic and diluted earnings (loss) per share | 32 | | 1,27 | | (0,87) | | 0,97 |
Basic and diluted (loss) earnings per share from discontinued operations | 32 | | - | | - | | (0,11) |
| Note | 12.31.12 | | 12.31.11 | | 01.01.11 |
EQUITY | | | | | | |
Equity attributable to the owners | | | | | | |
Share capital | 19 | 897,043 | | 897,043 | | 897,043 |
Adjustment to capital | 19 | 397,716 | | 986,142 | | 986,142 |
Additional paid-in capital | 19 | 3,452 | | 21,769 | | 18,317 |
Treasury stock | 19 | 9,412 | | 9,412 | | 9,412 |
Adjustment to treasury stock | 19 | 10,347 | | 10,347 | | 10,347 |
Legal reserve | 20 | - | | 64,008 | | 64,008 |
Accumulated deficit | 20 | (899,789) | | (557,336) | | (241,942) |
Equity attributable to the owners | | 418,181 | | 1,431,385 | | 1,743,327 |
Non-controlling interests | | 71,107 | | 415,801 | | - |
TOTAL EQUITY | | 489,288 | | 1,847,186 | | 1,743,327 |
| | | | | | |
LIABILITIES | | | | | | |
Non-current liabilities | | | | | | |
Trade payables | 21 | 155,313 | | 87,682 | | 50,984 |
Deferred revenues | 23 | 264,427 | | 174,796 | | - |
Other liabilities | 22 | 1,894,772 | | 1,373,689 | | 984,518 |
Borrowings | 24 | 1,350,700 | | 1,189,882 | | 1,035,113 |
Salaries and social security taxes payable | 25 | 17,460 | | 23,591 | | 19,277 |
Benefit plans | 26 | 97,436 | | 83,503 | | 41,492 |
Provisions | 30 | 80,019 | | 66,144 | | 6,816 |
Taxes liabilities | 28 | 9,971 | | 17,652 | | 8,979 |
Deferred tax liability | 27 | 230,411 | | 348,749 | | 250,279 |
Total non-current liabilities | | 4,100,509 | | 3,365,688 | | 2,397,458 |
| | | | | | |
Current liabilities | | | | | | |
Trade payables | 21 | 1,188,532 | | 623,673 | | 377,113 |
Borrowings | 24 | 103,143 | | 59,025 | | 46,855 |
Derivative financial instruments | 13 | - | | - | | 7,253 |
Salaries and social security taxes payable | 25 | 384,307 | | 275,789 | | 180,432 |
Benefit plans | 26 | 14,968 | | 11,326 | | - |
Taxes liabilities | 28 | 202,546 | | 147,723 | | 111,080 |
Other liabilities | 22 | 150,387 | | 128,634 | | 5,934 |
Provisions | 30 | 10,493 | | 10,344 | | 57,832 |
Total current liabilities | | 2,054,376 | | 1,256,514 | | 786,499 |
Liabilities of disposal groups classified as held for sale | 40 | 157,267 | | 542,205 | | - |
TOTAL LIABILITIES | | 6,312,152 | | 5,164,407 | | 3,183,957 |
TOTAL LIABILITIES AND EQUITY | | 6,801,440 | | 7,011,593 | | 4,927,284 |
The accompanying notes are an integral part of these consolidated financial statements.the Financial Statements.
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Edenor S.A.
Consolidated Statements of Comprehensive Loss
for the years ended December 31, 2012 and 2011
(Stated in thousands of pesos)
| | Note | 12.31.12 | | 12.31.11 |
Continuing operations | | | | |
Revenue from sales | 31 | 3,725,256 | | 2,805,817 |
Revenue from construction | | 117,615 | | 87,374 |
Electric power purchases | | (2,062,220) | | (1,325,458) |
Cost of construction | | (117,615) | | (87,374) |
Subtotal | | 1,663,036 | | 1,480,359 |
Transmission and distribution expenses | 32 | (1,570,072) | | (1,094,825) |
Gross profit | | 92,964 | | 385,534 |
| | | | |
Selling expenses | 32 | (430,403) | | (310,312) |
Administrative expenses | 32 | (296,404) | | (224,316) |
Gain from acquisition of companies | 38 | - | | 434,959 |
Gain from interest in joint ventures | | 3 | | 4 |
Other operating income | 33 | 33,336 | | 27,901 |
Other operating expense | 33 | (112,787) | | (54,880) |
Operating (expense/income) | | (713,291) | | 258,890 |
| | | | | |
Financial income | 34 | 86,009 | | 55,568 |
Financial expenses | 34 | (296,848) | | (216,123) |
Other financial results | 34 | (166,698) | | (97,214) |
Net financial expense | | (377,537) | | (257,769) |
(Loss) Profit before taxes | | (1,090,828) | | 1,121 |
Income tax | 27 | 99,779 | | (152,971) |
Loss for the year from continuing operations | (991,049) | | (151,850) |
Loss from discontinued operations | 18 | (22,367) | | (139,531) |
Loss for the year | | (1,013,416) | | (291,381) |
| | | | | |
Loss for the year attributable to: | | | | |
Owners of the parent | | (1,016,470) | | (304,057) |
Non-controlling interests | | 3,054 | | 12,676 |
Loss for the year | | (1,013,416) | | (291,381) |
| | | | | |
Loss for the year attributable to owner of the parent: | | | | |
Continuing operations | | (1,000,621) | | (157,675) |
Discontinued operations | | (15,849) | | (146,382) |
| | | (1,016,470) | | (304,057) |
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Edenor S.A.
Consolidated Statements of Comprehensive Loss
for the years ended December 31, 2012 and 2011
(Stated in thousands of pesos)
| | Note | 12.31.12 | | 12.31.11 |
Other comprehensive loss | | | | |
Items that will not be reclassified to profit or loss | | | | |
Actuarial losses on benefit plans | 26 | 4,701 | | (13,764) |
Tax effect of actuarial losses on benefit plans | | (1,646) | | 4,817 |
Total other comprehensive loss from discontinued operations | | - | | (3,393) |
Total other comprehensive loss | | 3,055 | | (12,340) |
| | | | | |
Comprehensive loss for the year attributable to: | | | | |
Owners of the parent | | (1,013,204) | | (315,394) |
Non-controlling interests | | 2,843 | | 11,673 |
Comprehensive loss for the year | | (1,010,361) | | (303,721) |
| | | | | |
Comprehensive loss for the year attributable to owner of the parent: | | | | |
Continuing operations | | (997,355) | | (166,393) |
Discontinued operations | | (15,849) | | (149,001) |
| | | (1,013,204) | | (315,394) |
| | | | | |
Basic and diluted loss per share attributable to owner of the parent: | | | | |
Basic and diluted loss per share – from discontinued operations | 35 | (0.02) | | (0.16) |
Basic and diluted loss per share – from continuing operations | 35 | (1.12) | | (0.17) |
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
Edenor S.A.
Consolidated StatementsStatement of Changes in Equity
for the years ended December 31, 20122015, 2014 and 20112013
(Stated in thousands of pesos)
| | Share capital | | Adjustment to share capital | | Treasury stock | | Adjust- ment to treasury stock | | Additional paid-in capital | | Other comprehesive
loss | | Accumulated deficit | | Total equity |
Balance at December 31, 2013 | 897,043 | | 397,716 | | 9,412 | | 10,347 | | 3,452 | | (28,277) | | (113,391) | | 1,176,302 |
| | | | | | | | | | | | | | | | |
Loss for the year | - | | - | | - | | - | | - | | - | | (779,716) | | (779,716) |
Other comprehensive loss for the year | - | | - | | - | | - | | - | | (11,585) | | - | | (11,585) |
Balance at December 31, 2014 | 897,043 | | 397,716 | | 9,412 | | 10,347 | | 3,452 | | (39,862) | | (893,107) | | 385,001 |
| | | | | | | | | | | | | | | |
Profit for the year | - | | - | | - | | - | | - | | - | | 1,142,443 | | 1,142,443 |
Other comprehensive loss for the year | - | | - | | - | | - | | - | | (2,391) | | - | | (2,391) |
Balance at December 31, 2015 | 897,043 | | 397,716 | | 9,412 | | 10,347 | | 3,452 | | (42,253) | | 249,336 | | 1,525,053 |
| | | | | | | | | | | | | | | | |
| Attributable to the owners of the parent at 12.31.12 | | | | |
| Share capital | Adjustment to capital | Treasury stock | Adjustment to treasury stock | Additional paid-in capital | Legal reserve | Other comprehensive income | Accumulated deficit | | Subtotal | | Non-controlling interests | | Total equity |
Balance at January 1, 2011 | 897,043 | 986,142 | 9,412 | 10,347 | 18,317 | 64,008 | (6,588) | (235,354) | | 1,743,327 | | - | | 1,743,327 |
Acquisition of companies (Note 38) | - | - | - | - | - | - | | - | | - | | 230,040 | | 230,040 |
Additional purchase of non-controlling interests (Note 37) | - | - | - | - | 3,452 | - | | - | | 3,452 | | (9,861) | | (6,409) |
Variation in non-controlling interests due to acquired companies
sale agreements | - | - | - | - | - | - | | - | | - | | 183,949 | | 183,949 |
Other comprehensive loss for the year | - | - | - | - | - | - | (11,337) | - | | (11,337) | | (1,003) | | (12,340) |
(Loss) gain for the year | - | - | - | - | - | - | | (304,057) | | (304,057) | | 12,676 | | (291,381) |
Balance at December 31, 2011 | 897,043 | 986,142 | 9,412 | 10,347 | 21,769 | 64,008 | (17,925) | (539,411) | | 1,431,385 | | 415,801 | | 1,847,186 |
Subsidiarie´s sale | - | - | - | - | - | - | - | - | | - | | (365,499) | | (365,499) |
Cash dividends - Aeseba S.A. | - | - | - | - | - | - | - | - | | - | | (5,811) | | (5,811) |
Absorption of accumulated losses - Shareholders' Meeting
of 04/27/2012 (Note 41) (1) | - | (588,426) | - | - | (18,317) | (64,008) | - | 670,751 | | - | | - | | - |
Increase of non-controlling interest of discontinued operations
(Note 40) | | | | | | | | | | - | | 23,773 | | 23,773 |
Other comprehensive (loss) gain for the year | - | - | - | - | - | - | 3,266 | - | | 3,266 | | (211) | | 3,055 |
(Loss) gain for the year | - | - | - | - | - | - | | (1,016,470) | | (1,016,470) | | 3,054 | | (1,013,416) |
Balance at December 31, 2012 | 897,043 | 397,716 | 9,412 | 10,347 | 3,452 | - | (14,659) | (885,130) | | 418,181 | | 71,107 | | 489,288 |
(1) The absorption of accumulated losses was made on the basis of the Financial Statements prepared under previous generally accepted accounting principles (Argentine GAAP), in effect as at December 31, 2011.
The accompanying notes are an integral part of these consolidated financial statements.the Financial Statements.
Table of Contents
Edenor S.A.
Consolidated StatementsStatement of Cash Flows
for the years ended December 31, 20122015, 2014 and 20112013
(Stated(Stated in thousands of pesos)
| | Note | | 12.31.15 | | 12.31.14 | 12.31.13 |
Cash flows from operating activities | | | | | | |
Profit (Loss) for the year | | | 1.142.443 | | (779.716) | 772.759 |
Adjustments to reconcile net (loss) profit to net cash flows from operating activities: | | | | | | |
Depreciation of property, plants and equipments | 29 | | 281.407 | | 237.639 | 212.148 |
Loss on disposals of property, plants and equipments | 9 | | 3.513 | | 959 | 1.230 |
Net accrued interest | 31 | | 333.674 | | 340.970 | 196.626 |
Exchange differences | 31 | | 894.773 | | 427.896 | 365.759 |
Income tax | 24 | | 183.730 | | (154.356) | (44.116) |
Allowance for the impairment of trade and other receivables, net of recovery | | | 24.084 | | 19.692 | 33.699 |
Adjustment to present value of receivables | 31 | | (5.387) | | (8.128) | (2.378) |
Provision for contingencies | 27 | | 226.449 | | 75.417 | 36.033 |
Other expenses - FOCEDE | 30 | | 59.563 | | 97.701 | - |
Changes in fair value of financial assets | 31 | | (323.610) | | (67.591) | (16.097) |
Accrual of benefit plans | 23 | | 89.254 | | 51.425 | 22.540 |
Gain from interest in joint ventures | | | (1) | | (5) | (5) |
Higher cost recognition – SE Resolution 250/13 and subsequent Notes | 2 | | (551.498) | | (2.271.927) | (2.933.052) |
Income recognition on account of the RTI - SE Resolution 32/15 | 2 | | (495.516) | | - | - |
Net gain from the repurchase of Corporate Bonds | 31 | | - | | (44.388) | (88.879) |
Income from non-reimbursable customer contributions | 30 | | (764) | | - | 168.628 |
Changes in operating assets and liabilities: | | | | | | |
Increase in trade receivables | | | (40.557) | | (55.276) | (48.471) |
Increase in other receivables | | | (347.996) | | (134.708) | (111.942) |
Increase in inventories | | | (60.898) | | 9.883 | (42.692) |
Increase in deferred revenue | | | 45.490 | | 76.187 | (700) |
Increase (Decrease) in trade payables | | | 660.835 | | (528.353) | (87.028) |
Increase in salaries and social security payable | | | 139.663 | | 226.689 | 95.319 |
Decrease in benefit plans | | | (21.177) | | (11.017) | (7.904) |
(Decrease) in tax liabilities | | | (140.955) | | (28.704) | (44.888) |
Increase in other payables | | | (62.125) | | 162.316 | 262.007 |
Funds obtained from the program for the rational use of electric power (PUREE) (SE Resolution No. 1037/07) | | | 25.612 | | 482.929 | 491.947 |
Net decrease in provisions | | | (32.550) | | (33.042) | (25.299) |
Subtotal before variations of debts with Cammesa | | | 2.027.456 | | (1.907.508) | (794.756) |
Increase in account payable and mutuum with Cammesa | | | 1.189.555 | | 3.455.498 | 2.231.477 |
Net cash flows generated by operating activities | | | 3.217.011 | | 1.547.990 | 1.436.721 |
| | Note | 12.31.12 | | 12.31.11 |
Cash flows from operating activities | | | | |
Loss for the year | | (1,013,416) | | (291,381) |
Ajustments to reconcile net loss to net cach flows provided by operating activities | | | | |
Depreciation of property, plant and equipment | 10 | 197,871 | | 187,893 |
Amortization of intangible assets | 11 | 24,891 | | 20,093 |
Disposals of property, plant and equipment | 33 | 1,886 | | 1,878 |
Loss from retirement of intangible assets | 33 | 7,962 | | 10,737 |
Gain from interest in joint ventures | | (3) | | (4) |
Gain from the purchase of financial debt | 34 | - | | (6,546) |
Interest on loans and other liabilities | 34 | 151,169 | | 109,028 |
Exchange differences | 34 | 194,087 | | 102,822 |
Income tax | 27 | (99,779) | | 152,971 |
Allowance for the impairment of trade receivables and
other receivables | 14, 15 | 18,520 | | 10,808 |
Provision for contingencies, net of recovery | | 26,442 | | 8,094 |
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | 34 | (421) | | (1,170) |
Changes in fair value of financial instruments | 34 | (39,053) | | (13,296) |
Gain from acquisition of companies | 38 | - | | (434,959) |
Benefit plans accrued | 26 | 31,026 | | 15,647 |
Discontinued operations | | 246,227 | | 202,348 |
Changes in operating assets and liabilities (excluding previous adjustments): | | | | |
Net increase in trade receivables | | (341,952) | | (136,560) |
Net increase in other receivables | | 11,720 | | (88,337) |
Increase in inventories | | (39,677) | | (32,918) |
Increase in assets under construction | | (38,962) | | (45,504) |
Increase in trade payables | | 545,572 | | 25,413 |
Increase in salaries and social security taxes payable | | 102,388 | | 139,244 |
Decrease in benefit plans | | (8,750) | | (15,647) |
Increase in taxes | | 49,654 | | 36,461 |
Increase in deferred revenue | | 89,630 | | 174,796 |
Increase in other liabilities | | 140,799 | | 203,684 |
(Decrease) Increase in provisions | | (12,418) | | 3,746 |
Income tax paid | | (34,099) | | (24,376) |
Increase for funds obtained from the program for the rational use of electric power (Res SE N° 1037/07) | | 410,674 | | 337,990 |
Increase for funds obtained from the program for the rational use of electric power (Res MIVSPBA N° 252/07) | | 13,127 | | 5,995 |
Net cash flows provided by operating activities | | 635,115 | | 658,950 |
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Edenor S.A.
Consolidated StatementsStatement of Cash Flows
for the years ended December 31, 20122015, 2014 and 20112013(Continued)
(Stated(Stated in thousands of pesos)
| | | | | |
| | Note | 12.31.2012 | | 12.31.2011 |
Cash flows from investing activities | | | | |
Decrease from sale of financial assets at fair value | | 37,770 | | 442,000 |
Additions of property, plant and equipment | | (549,046) | | (443,407) |
Additions of intangible assets | | (85,686) | | (63,366) |
Payment for acquisition of companies | | - | | (442,911) |
Payment for acquisition of additional non-controlling interests | | - | | (6,409) |
Loans granted | | (14,643) | | - |
Collection of loans proceeds from borrowing | | 142,372 | | - |
Collection for sale of discontinued operations | | 104,610 | | |
Discontinued operations | 18 | (200,839) | | (279,940) |
Net cash flows used in investing activities | | (565,462) | | (794,033) |
| | | | | |
Cash flows from financing activities | | | | |
Loans taken | | 95,751 | | 298,190 |
Repayments of borrowings | | (210,263) | | (380,433) |
Change in non-controlling interest - Dividend Distribution Aeseba | | (5,811) | | - |
Dividends paid | | (5,588) | | - |
Discontinued operations | 18 | (39,919) | | 98,547 |
Net cash flows (used in) provided by financing activities | | (165,830) | | 16,304 |
| | | | | |
Net decrease in cash and cash equivalents | | (96,177) | | (118,779) |
| | | | | |
Cash and cash equivalents at beginning of year | 17 | 130,509 | | 246,007 |
Gain from exchange differences in cash and cash equivalents | | 36,776 | | 3,281 |
Changes in cash and cash equivalents | | (96,177) | | (118,779) |
Cash and cash equivalents at end of year | | 71,108 | | 130,509 |
| | | | | |
Cash and cash equivalents in the statements of financial position | 17 | 71,108 | | 130,509 |
Cash and cash equivalents included in assets available for sale | 40 | 11,154 | | 28,305 |
Cash and cash equivalents at end of year | | 82,262 | | 158,814 |
| | Note | | 12.31.15 | | 12.31.14 | 12.31.13 |
Cash flows from investing activities | | | | | | |
Payment of property, plants and equipments | | | (2.095.532) | | (1.400.140) | (892.431) |
Net (payment for) collection of purchase / sale of financial assets at fair value | | | (1.012.037) | | (64.625) | (97.399) |
Collection of financial receivables with related companies | | | - | | - | 2.051 |
Collection of receivables from sale of subsidiaries - SIESA | | | 4.272 | | 2.976 | 2.940 |
Discontinued operations | | | - | | - | (124.246) |
Net cash flows used in investing activities | | | (3.103.297) | | (1.461.789) | (1.109.085) |
| | | | | | | |
Cash flows from financing activities | | | | | | |
Payment of principal on loans | 21 | | - | | (424) | (25.535) |
Payment of interest on loans | 21 | | (172.923) | | (155.251) | (176.976) |
Discontinued operations | | | - | | - | 25.388 |
Net cash flows used in financing activities | | | (172.923) | | (155.675) | (177.123) |
| | | | | | | |
Decrease in cash and cash equivalents | | | (59.209) | | (69.474) | 150.513 |
| | | | | | | |
Cash and cash equivalents at the beginning of year | 15 | | 179.080 | | 243.473 | 71.108 |
Cash and cash equivalents at the beginning of year included in assets of disposal group classified as held for sale | | | - | | - | 11.154 |
Exchange differences in cash and cash equivalents | | | 9.081 | | 5.081 | 10.698 |
Decrease in cash and cash equivalents | | | (59.209) | | (69.474) | 150.513 |
Cash and cash equivalents at the end of the year | 15 | | 128.952 | | 179.080 | 243.473 |
Supplemental cash flows information | | | | | | |
Non-cash activities | | | | | | |
| | | | | | | |
Financial costs capitalized in property, plants and equipments | 9 | | (255.932) | | (123.861) | (24.532) |
| | | | | | | |
Acquisitions of property, plant and equipment through increased trade payables | | | (166.763) | | (144.833) | (126.419) |
| | | | | | | |
Increase (Decrease) from offsetting of PUREE-related liability against receivables (SE Resolution 250/13, subsequent Notes and SE Resolution 32/15) | 2 | | 10.619 | | (574.010) | (1.661.105) |
| | | | | | | |
Increase (Decrease) from offsetting of liability with CAMMESA for electricity purchases against receivables (SE Resolution 250/13, subsequent Notes and SE Resolution 32/15) | 2 | | 158.081 | | (2.218.424) | (1.152.266) |
| | | | | | | |
Decrease from offset of other liabilities with CAMMESA for loans for consumption (Mutuums) granted for higher salary costs (SE Resolution 32/15) | 2 | | (495.516) | | - | - |
| | | | | | | |
Decrease in financial assets at fair value from repurchase of Corporate Bonds | 21 | | - | | 91.638 | 165.085 |
Increase in financial assets at fair value from subsidiary sale | | | - | | - | (334.340) |
| | | | | | | |
Decrease of other receivables for collection of receivables from related companies with corporate notes | | | - | | - | 52.840 |
| | | | | | | |
Net increase of trade receivables from sale of assets of disposal group classified as held for sale | | | - | | - | (44.627) |
| | | | | | | |
Acquisitions of property, plant and equipment through increased FOTAE debt | 34 | | - | | (32.939) | (48.960) |
The accompanying notes are an integral part of the Financial Statements.
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EdenorEDENOR S.A.
Consolidated Statements of Cash Flows
for the years ended December 31, 2012 and 2011
(Stated in thousands of pesos)
| | Note | 12.31.2012 | | 12.31.2011 |
Supplemental cash flows information | | | | |
Investing and financing activities that do not generate cash flow | | | | |
| | | | | |
Financial cost charged to fixed assets | | 6,405 | | 4,095 |
| | | | | |
Changes in assets for disposal classified as held for sale | | | | |
Increased credit extended related companies | | (41,707) | | - |
Decrease advance payments received related companies | | (10,406) | | - |
| | | | | |
Acquired companies | | | | |
Cash and cash equivalents | | - | | 119,042 |
Property, plant and equipment and intangible assets | | - | | 1,881,404 |
Inventories | | - | | 4,256 |
Trade receivables | | - | | 255,260 |
Other receivables | | - | | 84,649 |
Trade payables | | - | | (257,770) |
Borrowings | | - | | (450,018) |
Deferred tax liability | | - | | (78,845) |
Other liabilities | | - | | (331,026) |
Net assets | 38 | - | | 1,226,952 |
Non-controlling interests | | - | | (230,040) |
Net assets acquired | 38 | - | | 996,912 |
Bargain purchase | | - | | 434,959 |
Cash paid | 38 | - | | (561,953) |
Cash and cash equivalents in acquired companies | | - | | 119,042 |
Net cash outflow for acquisition of companies | 38 | - | | (442,911) |
Table of Contents
EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 2011
2014(continued)
(Continued)
1. General information
History and development of the Company
Empresa Distribuidora NorteEdenor S.A. (EDENOR S.A. or the Company) was organized on July 21, 1992 by Decree No. 714/92 in connection with the privatization and concession process of the distribution and sale of electric power carried out by Servicios Eléctricos del Gran Buenos Aires S.A. (Segba S.A.).SEGBA.
By means of an International Public Bidding, the Federal Government awarded 51% of the Company’s capital stock, represented by the Class "A" shares, to the bid made by Electricidad Argentina S.A. (EASA),EASA, the parent company of Edenor S.A. The award as well as the transfer contract were approved on August 24, 1992 by DecreeExecutive Order No. 1,507/92 of the Federal Government.
On September 1, 1992, EASA took over the operations of EDENOR S.A.
The corporate purpose of EDENOR S.A. is to engage in the distribution and sale of electricity within the concession area. Furthermore, among other activities, the Company may subscribe or acquire shares of other electricity distribution companies, subject to the approval of the regulatory agency, leaseassign the use of the network to provide electricity transmission or other voice, data and image transmission services, and render advisory, training, maintenance, consulting, and management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by EDENOR S.A. or through subsidiaries or related companies. In addition, the Company may act as trustee of trusts created under Argentine laws, including extending secured credit facilities to service vendors and suppliers acting in the distribution and sale of electricity, who have been granted guarantees by reciprocal guarantee companies owned by the Company.laws.
Edenor S.A. and its indirectly controlled company EDEN, distribute electricity to more than 3.03 million customers in a concession area that is comprised of the northern area of the City of Buenos Aires, the northern and northwestern metropolitan areas of Greater Buenos Aires, and the northern area of the Province of Buenos Aires.
The Company’s economic and financial situation
In the years ended December 31, 2012 and 2011,fiscal year 2015, the Company recorded negativepositive operating and net results, withthus reversing its liquidity levelnegative economic and working capital havingfinancial situation of the last years. This improvement has been affectedachieved as well. Thisa consequence of the issuance by the SE on March 13, 2015 of Resolution 32/15, which addresses the need for the adjustment of the economic and financial situation is due mainly to both the continuous increase of its operating costsdistribution companies and considers it necessary that are necessaryurgent and temporary measures should be adopted in order to maintain the levelnormal provision of the public service, object of the concession (Note 2.c.IX).
In spite of the deterioration of the economic and financial equation over the last years as a consequence of the delay in obtaining rate increases and higher coststhe compliance with certain obligations under the Adjustment Agreement, especially with regard to the recognition (“CMM”), requested in the presentations made until now by the Company in accordance with the terms of the Adjustment Agreement.
It is worth mentioning thatsemiannual rate adjustments resulting from the MMC, and the carrying out of the RTI, thanks to the adoption of certain measures aimed at mitigating the impact thereof, the Company has been able to not only maintainedmaintain the quality of the electricity distribution service but also satisfiedsatisfy the constant year-on-year increase in the demand for electricity that has accompanied the economic growth and the standard of living of the last years. Due to bothIn this regard, the continuous increase recorded inCompany absorbed the higher costs associated with the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, such as reducing certain specified costs, selling certain investments, reducing top management personnel’s fees, seeking new financing options, refinancing the financial debtcomplied with extended maturity terms and/or deferring the timing for certain estimated capital expenditures; provided that these measures do not affect the sources of employment, the execution of the investment plan orand the carrying out of the essential operation and maintenance works that are necessary to maintain the provision of the public service.service in a satisfactory manner in terms of quality and safety.
In spite of that which has been mentioned in the first paragraph of this regard, and among other measures,Note, as of December 31, 2015 the Company’s negative working capital amounts to $ 1.8 billion, which includes the amount owed to CAMMESA for $ 1.8 billion plus interest accrued as of December 31, 2015, as described in Note 2.c.IX.e, in respect of which the Company submitted a payment proposal based on its available and projected cash flows. Until the date of issuance of these financial statements, no answer from CAMMESA has (i) entered into an agreement with unionsbeen received.
Furthermore, on December 16, 2015, the Federal Government issued Executive Order No. 134, which declared the state of emergency in orderthe country’s electricity sector and authorized the MEyM to grant interim advances, which were included in salaries as from January 2013, on accountimplement a plan of action for the generation, transmission and distribution of electricity at national level and guarantee the provision of the future salary increases that could finally result from the collective bargaining negotiationelectricity public service under adequate economic andmade arrangements with the authorities concerning the funds necessary to face the increases that could result from the new collective bargaining negotiation underway(Note 5.3.c); (ii) made arrangements and obtained for the payment in advance by the FederalGovernment of amounts relating to the Framework Agreement; (iii) collected the total amount of the loans granted to the subsidiary company EDEN, and mainly (iv) sold its shareholding in connection with EDESA’s assets and collected the totality of the loan granted to such subsidiary company. technical conditions.
Table of ContentsEDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 2011
2014(continued)
(Continued)
Furthermore,After the Company has madeclosing date of the fiscal year being reported, in January 2016, the MEyM issued, as part of the measures aimed at the restructuring of the electricity sector, Resolutions Nos. 6 and 7 which implemented a seriesnew electricity rate system aimed at improving the distribution companies’ revenue in order for them to be able to make investments and carry out network maintenance and expansion works. Additionally, the ENRE was instructed to adjust, on account of presentationsthe RTI, the VAD in electricity rate schedules and to take all the necessary steps to carry out the RTI before controlDecember 31, 2016. This new electricity rate system will protect those sectors that cannot afford the full cost of the service through the creation of a “Social Tariff”, will be accompanied by a program aimed at reducing the consumption of electricity and regulatory authoritieswill provide for the billing of electricity consumption on a monthly basis in order to jointly instrumentsoften the necessary mechanisms to contribute to an efficient provisionimpact of the distribution service, the maintenance of the level of investments and the compliance with the increased demand. In this context and in light of the situation that affects the electricity sector, the ENRE has issued Resolution 347/12 (see note 2.c.V), which establishes the application of fixed and variable charges that allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up the aforementioned deficit due to the constant increase of operating costs and the expectations regarding salary or third-party costs increases for the year 2013.on customers.
In view of this scenario, the aforementioned, and givenCompany Board of Directors is currently assessing the inefficacysufficiency of the administrativefinancial resources granted to cover the costs of the operation, the investment plans and judicial actions pursueddebt service payments, as well as the impact of the different variables that affect the Company’s business, such as behavior of demand, losses, delinquency, service quality and presentations made bypenalties, etc.
Additionally, the Company on December 28, 2012, an action forBoard of Directors will continue to take steps to resolve with the protectionGrantor of the Company’s rights (“acción de amparo”) was brought againstConcession and the ENRE so thatregulatory agency the Regulatory Authority, inissue related to the performance of its duties, could adopt those measuresRTI, which in the Company’s opinion, are not only urgently needed but also essential for the provision of the public service of electricity distribution that the Company is required to provide under the concession agreement on a continuous, regular and safe basis. Specifically, this action was brought not only to abate the ENRE’s unlawful omission, as the Application Authority, to adjust the electricity rate scheduleexpected will be concluded in accordance with the variations recordedprovisions of MEyM Resolution 7/16 (Note 2.c.II) in costs, as established in the agreementa satisfactory manner with regard to its timing and the law, thus preventing the Company from receiving, in considerationfinal form.
Development of the service currently provided, sufficient revenues to face the necessary operating costs and the indispensable and imperative investments to provide the serviceeconomic context in a continuous, regular, and, mainly, safe manner, but also as a protection against corporate, personal and criminal liability that could eventually arise from the conditions under which the Company is forced to provideoperates
On December 17, 2015, the service.Argentine peso underwent a devaluation of approximately 40% that affected not only the economic context in which the Company operates but also its results in these financial statements.
WithSuch impact resulted in a loss of $ 683.2 million, almost entirely generated by the aim of maintaining and guaranteeingCompany’s net liability exposure to USD, which has been included in the provisionOther financial results line item of the public service, and in order to alleviateStatement of Comprehensive Income.
At the financial situation, given the aforementioned cash deficit, as from October 2012 the Company found itself forced to partially cancel, on a temporary basis, the obligations with the Wholesale Electricity Market with surplus cash balances after having complied with the commitments necessary to guarantee the provisiondate of the public service, including the investment plans underway and operation and maintenance works. We consider this situation as a transitional system to be applied until the new regulatory model announced by the National Authorities, aimed at restoring the economic and financial equation of the Concession Agreement, is implemented. In connection with the aforementioned, the Company has been ordered by the ENRE and CAMMESA to cancel such debt. In its reply to the ENRE, the Company rejected the Regulatory Authority’s competence to intervene in its commercial issues with third parties, and, in its reply to CAMMESA, the Company stated that the cash deficit that prevents it from canceling the total amount of the debt is a case of force majeure inasmuch as the Company does not have the possibility of approving its electricity rates, but, at the same time, has to maintain the priority given to the operation of the public service.
Should the conditions existing at the dateissuance of these financial statements, continue, the Board of Directors believes that the Company’s economic and financial situation will continue to deteriorate and cash flows and operating results for the year 2013, and financial ratios, will be negatively impacted.
Furthermore, and as described in Note 19 to these financial statements, the Company’s loss of capital stock must be dealt with and resolved by its shareholders.
In lightdevaluation of the above mentioned, the Company’s Board of Directors continues analyzing different scenarios and possibilitiesArgentine peso increased, as compared to mitigate or reduce theits value at year-end, by approximately 17%. This variation would generate a negative impact of the Company’s situation on its operating cash flows and thereby present the shareholders with diverse courses of action. Nevertheless, the improvement of revenues so as to balance the economic and financial equation of the concession continues to be the most relevant aspect.$ 455 million.
The outcome of the overall electricity rate review is uncertain as to both its timing and final form. Therefore, the uncertainties of the previous year continued during the year being reported, thus if in fiscal year 2013: (i) the new electricity rate schedules are not issued by the ENRE; (ii) the Company is not granted other mechanism tocompensate cost increases, in addition to the revenue obtained as a result of Resolution 347/12 or the funds derived from the PUREE, and/or; (iii) the Company does not obtain from the Federal Government other mechanism that provides it with financing for cost increases, it is likely that the Company will have insufficient liquidity and will therefore be obliged to implement various measures to preserve cash and enhance its liquidity. Additionally, the Company may not ensure that it will be able to obtain additional financing on acceptable terms. Therefore, should any of these measures, individually or in the aggregate, not be achieved, there is significant risk that such situation will have a material adverse impact on the Company’s operations. Edenor may need to enter into a renegotiation process with its suppliers and creditors in order to obtain changes in the terms of its obligations to ease the aforementioned financial situation.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Given the fact that the realization of the projected measures to revert the manifested negative trend depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases or their replacement by a new remuneration system, the Board of Directors has raised substantial doubt about the ability of the Company to continue as a going concern in the term of the next fiscal year.
Nevertheless, these Consolidated Financial StatementsThose impacts have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not includedetermined without considering the effects of the adjustments or reclassifications, if there were any that might result from the outcome of this uncertainty.hedging contracts mentioned in Note 5.1.a).
2. Regulatory framework
2.1EDENOR S.A.
a. General
The Company is subject to the regulatory framework provided under Law No. 24,065 and the regulations issued by the National Regulatory Authority for the Distribution of Electricity (ENRE).ENRE.
The ENRE is empowered to approve and control tariffs, and control the quality levels of the technical product and service, the commercial service and the compliance with public safety regulations, as establishedprovided for in the Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE will be entitled to apply the penalties stipulated in the Concession Agreement, which may include the foreclosure on the Class “A” shares, which have been pledged as collateral by the majority holders thereof.Agreement.
The Distribution Company’s obligations are, among others, to make the necessary investments and carry out the necessary maintenance works in order to ensure that the quality levels established for the provision of the service in the concession area will be complied with and that electricity supply and availability will be sufficient to meet the demand in due time, securing the sources of supply.
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EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
If the Company repeatedly fails to comply with the obligations assumed in the Concession Agreement, the grantor of the concession will be entitled to foreclose on the collateral granted by the majority shareholders by means of the pledge of the Class A shares and sell them in a Public Bid. This, however, will not affect the continuity of the Holder of the concession. This situation may also occur if after the publication of the electricity rate schedule resulting from the RTI, the Company, the Company shareholders representing at least two thirds of the share capital, and/or the former Company shareholders do not submit their waivers to the rights to claim or abandon the actions filed as a consequence of Law 25,561, which in part depends on the decisions of third parties. At the date of issuance of these financial statements, there have been no events of non-compliance by the Company that could be regarded as included within the scope of this situation.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Furthermore, the Concession Agreement may be rescinded in the event of the Distribution Company undergoing bankruptcy proceedings. Additionally, if the Grantor of the Concession fails to discharge his obligations in such a manner that the Distribution Company is prevented from providing the Service or the Service is severely affected on a permanent basis, the Distribution Company may request, after demanding the regularization of such situation in a term of 90 days, that the agreement be rescinded.
b. Concession
The term of the concession is 95 years, which may be extended for an additional maximum period of 10 years. The term of the concession is divided into management periods: a first period of 15 years and subsequent periods of 10 years each. At the end of each management period, the Class “A” shares representing 51% of the capital stock of EDENOREdenor S.A., currently held by EASA, must be offered for sale through a public bidding. If EASA makes the highest bid, it will continue to hold the Class “A” shares, and no further disbursements will be necessary. On the contrary, if EASA is not the highest bidder, then the bidder who makes the highest bid shall pay EASA the amount of the bid in accordance with the conditions of the public bidding. The proceeds from the sale of the Class “A” shares will be delivered to EASA after deducting any amounts receivable to which the Grantor of the concession may be entitled.
On July 7, 2007 theOfficial Gazette published ENRE Resolution No. 467/07 of the ENRE pursuant to which the first management period is extended for 5 years to commence as from the date on which the Review of the Company Tariff Structure (RTI)RTI goes into effect.effect, which has not yet occurred. Its original maturity would have taken place on August 31, 2007.
InFurthermore, in accordance with the provisions of ENRE Resolution No. 467/2007 of the ENRE,07, the commencement of the aforementioned process for the sale of the shares shall take place when the five-year tariff period beginning after the ending of the RTI comes to an end.
The Company has the exclusive right to render electric power distribution and sales services within the concession area to all users who are not authorized to obtain their power supply from the Wholesale Electricity Market (MEM),MEM, thus being obliged to supply all the electric power that may be required in due time and in accordance with the established quality levels. In addition, the Company must allow free access to its facilities to any MEM agents whenever required, under the terms of the Concession.
No specific fee must be paid by the Company under the Concession Agreement during the term of the concession.
On January 6, 2002, the Federal Executive PowerPEN passed Law No. 25,561 whereby adjustment clauses in US dollars, as well as any other indexation mechanisms stipulated in the contracts entered into by the Federal Government, including those related to public utilities, were declared null and void as from such date. The resulting prices and rates were converted into Argentine pesos at a rate of 1 peso per US dollar.
Furthermore, Law No. 25,561 authorized the Federal Executive PowerPEN to renegotiate public utility contracts taking certain criteria into account.
It is worth mentioning thatAdditionally, both the declaration of economic emergency and the period to renegotiate public utility contracts were extended through December 31, 20132017 by Law No. 26,729.27,200 that came into effect on January 1, 2016.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
Moreover, on December 16, 2015, by Executive Order No. 134/2015, the President of Argentina declared the state of emergency in the country’s electricity sector. The declaration of the state of emergency and the measures to be adopted as a consequence thereof, as indicated in Section 2 of the aforementioned Executive Order, will remain in effect until December 31, 2017.
In this regard, the MEyM is instructed to prepare, launch and implement a plan of action for the electricity generation, transmission and distribution segments at national level with the aim of adjusting the quality and safety of the electricity supply and guaranteeing the provision of the electricity public service under adequate economic and technical conditions.
c. Edenor’s electricityElectricity rate situation
I. Adjustment Agreement entered into between Edenor S.A. and the Federal Government
On September 21, 2005, Edenor S.A. signedentered into an Adjustment Agreement within the framework of the process of renegotiation of the Concession Agreement set forth in Law No. 25,561 and supplementary regulations, which was ratified on February 13, 2006.
The Adjustment Agreement establishesprovides for the following:
i) theThe implementation of a Temporary Tariff Structure (“RTT”) effective as from November 1, 2005, including a 23% average increase in the distribution margin, which may not result in an increase in the average rate of more than 15%, and an additional 5% average increase in the distribution added value,VAD, allocated to certain specified capital expenditures;
ii) theThe requirement that during the term of said temporary tariff structure, dividend payment be subject to the approval of the regulatory authority;
iii) theThe establishment of a “social tariff” for the needy and the levels of quality of the service to be rendered;
iv) theThe suspension of the claims and legal actions filed Edenor S.A.by the Company and its shareholders in national or foreign courts due to the effects caused by the Economic Emergency Law;
v) theThe carrying out of a Tariff Structure Review (“RTI”)RTI which will result in a new tariff structure that will go into effect on a gradual basis and remain in effect for the following 5 years. In accordance with the provisions of Law No. 24,065, the ENRE will be in charge of such review;
vi) theThe implementation of a minimum investment plan in the electric network for an amount of $ 178.8 million to be fulfilled by Edenor S.A.the Company during 2006, plus an additional investment of $ 25.5 million should it be required;
vii) theThe adjustment of the penalties imposed by the ENRE that are payable to customers asby way of discounts, which were notified by such regulatory agency prior to January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect through the date on which they are effectively paid, using, for such purpose, the average increase recorded in the Company’s distribution costs as a result of the increases and adjustments granted at each date;
viii) theThe waiver of the penalties imposed by the ENRE that are payable to the National State, which have been notified, or their cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect;
The payment term of the penalties imposed by the ENRE, which are described in paragraph vii above, is 180 days after the approval of the Tariff Structure Review (RTI)RTI in fourteen semiannual installments, which represent approximately two-thirds of the penalties imposed by the ENRE before January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect, subject to compliance with certain requirements.
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EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
Said agreement was ratified by the FederalPEN by means of Executive Power through DecreeOrder No. 1,957/06, signed by the President of Argentina on December 28, 2006 and published in theOfficial Gazette on January 8, 2007. ThisThe aforementioned agreement stipulates the terms and conditions that, upon compliance with the other procedures required by the regulations, will be the fundamental basis of the Comprehensive Renegotiation of the Concession Agreement of the public service of electric power distribution and sale within the federal jurisdiction, between the Federal Executive PowerPEN and the Company.holder of the concession.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Additionally, on February 5, 2007 theOfficial Gazette published ENRE Resolution No. 51/07 of the ENRE which approves the electricity rate schedule resulting from the RTT,Temporary Tariff Structure, applicable to consumption recorded as from February 1, 2007. This document providesprovided for the following:
i) A 23% average increase in distribution costs, service connection costs and service reconnection costs in effect, except for the residential tariffs;
ii) An additional 5% average increase in distribution costs, to be applied to the execution of the works and infrastructure plan detailed in the Adjustment Agreement;
iii) Implementation of the Cost Monitoring Mechanism (“CMM”) contemplatedMMC set forth in the Adjustment Agreement, which for the six-month period commenced November 1, 2005 and ended April 30, 2006, shows a percentage of 8.032%. This percentage willwould be applied to non-residential consumption recorded from May 1, 2006 through January 31, 2007;
iv) Invoicing in 55 equal and consecutive monthly installments of the differences arising from the application of the new electricity rate schedule for non-residential consumption recorded from November 1, 2005 through January 31, 2007 (paragraphs i) and ii) above) and from May 1, 2006 through January 31, 2007 (paragraph iii) above);
v) Invoicing of the differences corresponding to deviations between foreseen physical transactions and those effectively carried out and of other concepts related toassociated with the MEM, such as the Specific fee payable for the Expansion of the Network, Transportation and Others;
vi) Presentation, within a period of 45 calendar days from the issuance of this resolution, of an adjusted annual investment plan, in physical and monetary values, in compliance with the requirements of the Adjustment Agreement.
Resolution No. 434/2007 established,provided, among other things, that the obligations and commitments set forth in section 22 of the Adjustment Agreement be extended until the date on which the electricity rate schedule resulting from the RTI goes into effect, allowing Edenor S.A.the Company and its shareholders to resume the legal actions suspended as a consequence of the Adjustment Agreement if the new electricity rate schedule does not go into effect.
II.Tariff Structure Review(RTI)
On July 30, 2008, the National Energy Secretariat (“SE”)SE issued Resolution No. 865/08 which modifiesmodified Resolution No. 434/07 and establishesprovided that the electricity rate schedule resulting from the RTI willwould go into effect in February 2009. At2009, which, due to the date ofnon-compliance therewith, has been resumed as from the issuance of these financial statements, no resolution has been issued concerning the applicationResolution 7 of the electricity rate schedule resulting from such process.MEyM.
With regard toThe ENRE began the commencementTariff Structure Review Process with the issuance of the RTI process, the ENRE has begun this process, and Edenor S.A., onResolution 467/08. On November 12, 2009, submittedthe Company made its revenue requirements proposalrequest presentation for the new period, which included the grounds and criteria based on which the request iswas made. As from that moment, the Company has made successive and reiterated presentations. In this regard,presentations aimed at ending the Company has filedaforementioned process as well as obtaining the new electricity rate schedule, filing a Preliminary Administrative Action (“Reclamo Administrativo Previo”) before the Ministry of Federal Planning, Public Investment and Services as well asin March 2012 and a petition for the immediate resolution thereof in October 2012. In the Company’s opinion, this claim has come to an end due to the issuance of the subject matter.SE Resolution 250/13 dated May 2013.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
III.PUREE-CMM (ProgramAdditionally, in June 2013, the Company filed a complaint against the Federal Government claiming full compliance with the Adjustment Agreement and compensation for the Rational Use of Electric Power-Cost Monitoring Mechanism)
Resolution No. 1,037/07 of the SE established that the amounts paid by Edenor S.A. as Quarterly Adjustment Coefficient (“CAT”) implemented by section 1 of Law No. 25,957, as well as the amounts correspondingdamages due to the Cost Monitoring Mechanism (CMM) fornon-compliance with the period May 2006 through April 2007 (see point iiand iii), be deducted from the funds resulting from the difference between surcharges billed and discounts madecommitments stipulated therein. The complaint was amended so as to customers, resulting from the implementation of the PUREE, until their transfer to the tariff is granted by the regulatory authority. Furthermore,extend it establishes that the CMM adjustment for the period May 2006 through April 2007, applicable as from May 1, 2007, is 9.63%.
The CMM adjustment for the May - October 2007 period, applicable as fromin November 1, 2007 was 7.56 % and amounted to $ 45.531 million.2013 (See Note 8.e).
On October 25, 2007, the ENRE issued Resolution No. 710/2007 which approved the aforementioned CMM compensation mechanism.
Additionally, in November 2007 and May 2008,December 4, 2015, the Company requested additional increases in its distribution marginsthe suspension of the procedural time-limits under the terms of section 157 of the Federal Code of Civil and Commercial Procedure, in accordance with the CMMprovisions of SE Resolution 32/15, and reiterated the request on February 16, 2016 due to the revocation of SE Resolution 32/15, as indicated below.
By means of MEyM Resolution No. 7/16, SE Resolution 32/15 was repealed and the ENRE was instructed to adopt measures, within its field of competence, to finish the RTI so that the rates resulting therefrom will come into effect before December 31, 2016.
Although in orderthe last years, the Grantor of the Concession adopted palliative measures to reflect the variations recorded in its distribution cost baseallow for the periods May-October 2007operations to continue, such measures were partial and November 2007-April 2008.considered neither all the variables nor the essential elements of the rights and obligations deriving from the Concession Agreement.
In July 2008, the Company obtainedCompany’s opinion, the RTI must include, in addition to the definitive Electricity Rate Schedules, a review of costs, the required quality levels and other rights and obligations that would lead to an increase of approximately 17.9%updated Concession Agreement, which, in the DAV that could be transferred to tariffs. This increase represented the 9.63% CMM increaseturn, must provide for the May
2006-Abril 2007 period, as well asdefinitive treatment to be given to all those issues, about which a decision is still pending, resulting from the 7.56% CMM increasenon-compliance with the Adjustment Agreement, including the remaining balances and other effects caused by the partial measures adopted.
These issues include, among other, the following:
i)The treatment to be given to the remaining balances received for the May–October 2007 period.
These CMM increases were transferredfulfillment of the Investment plan through the Loans for consumption (Mutuums) granted to cover the Company’s tariff structure asinsufficiency of the funds deriving from July 1, 2008 and resulted in an average increase of 10% for small and medium-demand commercial customers, industrial customers and large-demand users who buy energy directly from generators, and in an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh, in accordance with a step-up system depending on bimonthly consumption levels. the FOCEDE,
Notwithstanding the fact that pursuant to Note No. 81,399 sent to the Energy Secretariat the ENRE confirmed an additional 5.79% increase in accordance with the CMMii)The conditions for the November 2007-April 2008 period, as of to date, the Regulatory Authority has neither approved a new rate system that would include such increase in the Company’s rates nor authorized the Company to collect such increase by other means, for example through an off-setting mechanism against contributions made to the PUREE, as was the case in the past.
Due to the increase recorded in operating and maintenance costs in accordance with the criterionsettlement of the polynomial formula contemplated in the Adjustment Agreement,balance outstanding with CAMMESA at the date of issuance of these Financial Statements,Resolution 32/15, for which purpose the Company has submitted to the ENRE the CMM adjustment requests in accordance with the following detail:a payment plan,
Period
| Application date
| CMM Adjustment
|
November 2007 - April 2008
| May 2008
| 5.79%
|
May 2008 – October 2008
| November 2008
| 5.68%
|
November 2008 - April 2009
| May 2009
| 5.07%
|
May 2009 – October 2009
| November 2009
| 5.04%
|
November 2009 – April 2010
| May 2010
| 7.10%
|
May 2010 – October 2010
| November 2010
| 7.24%
|
November 2010 – April 2011
| May 2011
| 6.10%
|
May 2011 – October 2011
| November 2011
| 7.72%
|
November 2011 – April 2012
| May 2012
| 8.53%
|
May 2012 – October 2012
| November 2012
| 7.32%
|
Atiii)The treatment to be given to the datePenalties and Discounts determined prior and subsequent to the Adjustment Agreement.
The Penalties and Discounts are determined by the ENRE when the Company fails to comply with certain quality parameters stipulated in the Concession Agreement. The non-compliance with those parameters is indirectly caused by the insufficiency of issuancethe necessary funds to be allocated to the investments that would allow for the maintenance of these financial statements, the aforementioned ratios as wellinitially agreed-upon quality levels, due to the lack of a timely and proper adjustment of the Electricity Rate Schedule. In the Company’s opinion the generation and accumulation of unpaid balances for this concept are not attributable to the Distribution Company inasmuch as the real major costs that should be recognizedinaction and transferreddiscretionary decisions of the Grantor of the Concession in the past have led to the tariff are pending approvaldeterioration of the Company’s economic and financial equation, thus preventing it from complying with its basic and elemental obligations for the provision of the public service.
iv)The establishment, on a mutually agreed basis, of new quality levels and a system of Penalties and Discounts that provides for an adequate transition period for the effective application of the new conditions,
v)The termination and liquidation of the FOCEDE in order to reach an agreement on the treatment to be given to the obligations assumed by the ENRE. However,Fund and theCompany has become aware of certain internal administrative proceedings through communications of the Regulatory Entity transfer thereof to the Under-Secretariat of Management Controltrustee and Coordination of the Ministry of Federal Planning, Public Investment and Services, according to which the analysis made by them shows percentages similar to those calculated by the Company with regard to CMM ratios. beneficiary.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
Based on this information, the Company has estimated that the claims effectively made for CMM adjustments, which were not transferred to tariffs nor authorized to be collected by other means, amount to approximately $ 1,999 million. In accordance with the Company’s estimate, the amount of the real major costs submitted in the presentations made and not yet authorized to be transferred to electricity rates is significantly higher than that determined after solely considering the CMM adjustments confirmed by the Regulatory Authority.
For these concepts, and until such time as the CMM adjustments are effectively transferred to tariffs, the distribution company is entitled to use PUREE excess funds, as established in Resolutions 1037/07 and 1383/08 of the Energy Secretariat and ENRE Note 83818. In this regard, and up to date, the Company has neither recognized nor accrued any amount receivable for this concept in these financial statements, until approval is granted by the control authority.
By Resolution 347/12, the ENRE established the application of a fixed and a variable charge associated with power to be included in customer bills, which the distribution company will collect on account of the CMM adjustments stipulated in section 4.2 of the Adjustment Agreement and specifically use for the making of investments and reactive maintenance tasks. Although in the whereas clauses of the Resolution the ENRE recognizes the existence of CMM adjustment requests (incorporar con la terminología usada en la resolución) and states that the authorized charges are on account of CMM adjustments, it says nothing about what provisions will apply concerning the effect thereof for the period elapsed between the date such requests were made and the date of their application to the customer bill.
In this regard, the Company is currently analyzing the steps to be followed in order to obtain economic recognition of the CMM adjustments resulting from this new charge, the company estimates this charge in $ 1,661 million approximately, until the provisions for the management and quantification thereof are determined by the competent authorities.
At December 31, 2012, and 2011 and January 1, 2011, liabilities generated by the excess funds deriving from the application of the PUREE, amount to $ 1,277.76 million, $ 867.09 million and $ 529.10 million, respectively, and have been disclosed in the Other non-current liabilities account. This increase in liabilities is due to the fact that the Company was allowed to keep such funds (SE Resolutions Nos. 1037/07 and 1383/08 and ENRE Note No 83818 in order to cover the CMM increases not transferred to the tariff.
Furthermore, the necessary steps to regularize the situation are being taken in order to restore the economic and financial equation of the business, in view of the increases recorded in operating costs. At the same time, administrative and judicial actions have been brought aimed at obtaining both CMM recognition and that the Overall Electricity Rate Review stipulated in the Adjustment Agreement, whose performance is pending, be carried out by the ENRE.
IV.III.Electricity rate schedules
The SE issued Resolution No. 1,169/1169/08 which approved the new seasonal reference prices of power and energy in the Wholesale Electricity Market (“MEM”).MEM. Consequently, the ENRE issued Resolution No. 628/08 which approved the values of the electricity rate schedule to be applied as from October 1, 2008. The aforementioned electricity rate schedule included the transfer of the increase in the seasonal energy price to tariffs, with the aim of reducing Federal Government grants to the electricity sector, without increasing Edenor’s distribution added value.the Company’s VAD.
On June 15, 2012, the National Energy Secretariat established the Seasonal Prices to be paid by the customers served by the agents who provide the public service of electricity distributionThe purpose of the MEM in orderPUREE, created by SE Resolution 415/04, is to work on the demand for themelectricity, promoting energy savings so as to generate surpluses that may be consistent with the situation existing in winter and compatible with payment capacityused by those users, like industries, whose energy needs increase as a consequence of the different socialclasses comprisinggrowth in the residential customer categorylevel of the referred to agents’ electricity rate schedules. For such purpose, the Energy Secretariat issued Resolution No. 255/12 which suspended the application of sections 6, 7, and 8 of SE Resolution No. 1169/08 from June 1, 2012 through September 30, 2012. Furthermore, it established the energy reference prices in the Market, applicable to the June 1-July 31, 2012 and the August 1-September 30, 2012 periods, for the different customer categories. Additionally, it established the application of SE Resolution No. 1301/11, and other complementary regulations and instructions, to all the customers mentioned therein as the parties subject to compliance thereof (section 8 of SE Resolution No. 255/12).
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Furthermore, on November 30, 2012, the Company was notified of SE Resolution No. 2016, which approved the MEM Summer Scheduling for the November 1, 2012-April 30, 2013 period, calculated in accordance with the “Scheduling of Operation, Load Dispatch and Price Calculation Procedures”. Additionally, it establishes the application as from November 1, 2012 of the Subsidized Seasonal Reference Prices defined in Appendix I for each Distribution Agent identified therein. It is also established that, as from November 1, 2012, the Un-Subsidized Seasonal Reference Price in the MEM is kept at an annual average value of $320 Mwh for each Distribution Agent mentioned in Appendix II. It is clearly stated that in the case of Un-Subsidized Seasonal Reference Prices, the values to be transferred to final tariffs will in no case exceed those established in Appendix II.economic activity.
As in previous years, SE Resolution No. 1,037/1037/07, of the Energy Secretariat, ratified by SE Note No. 1,383/1383/08, of that Secretariat, continued to produce effects. The aforementioned resolution modified the earmarking of the funds resulting from the application of the Program for the Rational Use of Electric Power (“PUREE”),PUREE, being it possible to deduct therefrom a) the amounts paid by the Company as Quarterly Adjustment Coefficient (“CAT”) implemented by Section 1 of Law No. 25,957, to calculate the total value of the National FundFNEE.
By means of Electricity (FNEE);MEyM Resolutions Nos. 6/16 and b)7/16, as from February 1, 2016 the amounts correspondingcurrent electricity rate schedule of Distribution companies is readjusted within the framework of the Temporary Tariff Structure, which is not an electricity rate schedule resulting from the RTI process but rather the adaptation of the existing one to the semiannual readjustment that was pending.
IV.Resolution 6/16 – Seasonal reference prices
By means of MEyM Resolution No. 6/2016 the MEM summer quarterly rescheduling relating to the February 1-April 30, 2016 period is carried out.
The seasonal reference prices fixed by the aforementioned resolution are as follow:
-Power: $ 1,427.60/MW month
-Energy: $ 773.02/Mwh, $ 768.72/Mwh, $ 763.89/Mwh, in peak hours, other hours and off-peak hours, respectively.
With regard to residential utility customers, who are beneficiaries of the social tariff, the prices are as follow:
-Monthly consumption of up to 150 Kwh/month. $ 0,00 / Mwh.
-Monthly consumption exceeding 150 kwh/month:
i.If it is equal to or lower than the consumption recorded in the same month of 2015, the reference prices will be $ 31.39/Mwh, $ 27.09/Mwh, $ 22.26/Mwh, in peak hours, other hours and off-peak hours, respectively.
ii.If it is higher the consumption recorded in the same month of 2015, the reference prices will be $ 312.39 /Mwh, $ 317.09/Mwh, $ 312.26/Mwh, in peak hours, other hours and off-peak hours, respectively.
These are the prices which, together with those for power, are to be applied to the respective electricity ratesrate schedules.
V.Resolution 7/16 and its effects
By MEyM Resolution No. 7/2016 the ENRE is instructed to adjust the VAD in electricity rate schedules, on account of the RTI, and to take all the necessary steps to carry out the RTI before December 31, 2016.
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EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
Furthermore, the aforementioned Resolution provided for: (i) the cancellation of the PUREE (Note 2.c.VI); (ii) the revocation of SE Resolution 32/2015 as from the date on which ENRE Resolution that implements the electricity rate schedule comes into effect (Note 2.c.IV and IX); (iii) the suspension until further instruction of all the effects of the loans for consumption (mutuums) agreements entered into by and between the distribution companies and CAMMESA (Note 2.c.VIII); (iv) the implementation of the necessary actions to end the Trusts created by ENRE Resolution 347/2012 (Note 2.c.VII); the restriction on the distribution of dividends in accordance with the provisions of clause 7.4 of the adjustment agreement (Note 17).
VI.PUREE - MMC (Program for the Rational Use of Electric Power - Cost Monitoring Mechanism)
On May 7, 2013, the SE issued SE Resolution 250/13 and subsequent Notes, whereby it:
a)Authorized the values of the adjustments due toresulting from the MMC for the period May 2007 through January 2015, determined in accordance with Section 4.2 of the Adjustment Agreement, but without initiating the review process contemplated in the event of variations exceeding 5%.
b)Assessed the Company’s debt as of December 31, 2015 deriving from the application of the Cost Monitoring Mechanism (“CMM”)PUREE for the period May 2007 through January 2015.
c)Authorized the Company to offset until December 2014 the debt indicated in paragraph b) against and up to the amount of the receivables established in paragraph a), including interest, if any, on both amounts.
d)Instructed CAMMESA to issue LVFVD for the MMC surplus amounts after the offsetting process indicated in paragraph c) has been carried out.
e)Authorized CAMMESA to receive LVFVD as part payment for the past due debts deriving from the economic transactions of the MEM.
f)Instructed the Company to assign the credits from the surplus LVFVD, if there were any, after having complied with that established in the Adjustment Agreement, until the transferpreceding paragraph, to the tarifftrust created under the terms of ENRE Resolution 347/12 (FOCEDE).
The SE, if deemed timely and suitable, may extend, either totally or partially, the application of the aforementioned concepts,resolution and amplifying note pursuant to the information provided by the ENRE and CAMMESA. In this regard, on November 6, 2013, October 9, 2014 and December 18, 2014 it issued SE Notes 6852/13, 4012/14, 486/14 and 1136/14 respectively.
Additionally, and in accordance with sections 8 and 9 of SE Resolution 250/2013 –which recognize the Company’s right to apply to the payment of its debts with the MEM the amount receivable deriving from the MMC for economic transactions, with charge to the Unified Fund– the Company transferred in lieu of payment the trade liability it has with CAMMESA for energy purchases by applying the balance of the MMC receivable recognized by the ENRE, but not offset, in the periods covered by SE Resolution 250 and the extensions thereof.
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EDENOR S.A.
Notes to the Financial Statements as applicable,of December 31, 2015 and 2014(continued)
The impacts of SE Resolution 250/13 and subsequent Notes on the Statement of financial position are summarized below:
| | | | 2013 | | 2014 | | 2015 | | Total |
Other receivables | | | | | | | | | |
Cost Monitoring Mechanism (1) | | 2,978,582 | | 2,271,927 | | 186,596 | | 5,437,105 |
Net interest CMM - PUREE | | | 197,510 | | 157,786 | | (309) | | 354,987 |
Other payables - Program for the rational use of electric power | | (1,661,105) | | (574,010) | | 10,619 | | (2,224,496) |
Trade payables - CAMMESA | | | (1,152,266) | | (2,218,424) | | (196,906) | | (3,567,596) |
LVFVD to be issued | | | 362,721 | | (362,721) | | - | | - |
Furthermore, in November 2015, the SE issued Notes 2097 and 2157, which ordered the application of the MMC percentages of 6.20% and 9.05% as from May 1 and November 1, 2015, respectively.
As of December 31, 2015, the Company recognized a total of $ 364.9 million for the aforementioned concept.
Pursuant to MEyM Resolution No. 7/16, as from February 1, 2016 the PUREE is recognized.cancelled and the Stimulus Plan (a system that rewards energy-saving efforts and results in a reduction of the previously mentioned wholesale electricity Seasonal Price), comes into effect.
V.VII.ENRE Resolution ENRE No. 347/201212
On November 23, 2012, the ENRE issued Resolution 347 pursuant to which distribution companies were authorized, as from the issuance thereof, to include in theirthe bills a fixed amount for small-demand (T1) customers and a variable amount for medium and large-demand (T2 and T3) customers, to be calculated on a percentage of their respective power charges. Such amounts, which will beare clearly indicated in the bills sent to customers, will constitute a special account, which will beis managed by a Trust, and willto be exclusively used for the execution of distribution infrastructure works and corrective maintenance of each distribution company’s facilities. This Trust will be administered by an Implementation Committee comprised of 5 members: 1 from the MEyFP, 2 from the MPFIPyS, 1 from CAMMESA and 1 from the ENRE.
As established in such Resolution, on November 29, 2012, the Company, in its capacity as Trustor, and Nación Fideicomisos S.A., as Trustee, entered into a private Financial and Management Trust Agreement, whereby the Company, as settlor of the trust, agreed to assign and transfer to the Trustee the fixed amounts set forth by Resolution 347 that are effectively collected, which will constitute the trust assets. Such agreement was ratified and approved by the Company’sCompany Board of Directors on December 11, 2012.
On December 18, 2012, the Company and Nación Fideicomisos S.A., signed the respective Operating Manual, whose purpose is to implement, standardize, and enable the collection and management of the trust assets. On that date, the Company’sCompany Board of Directors approved the Operating Manual and appointed its attorneys-in-fact to represent the Company before Nación Fideicomisos S.A. in issues related to the Trust and theits Operating Manual.
On July 4, 2013, the Company and Nación Fideicomisos S.A. signed an Addendum to the private Financial and Management Trust Agreement entered into by the parties on November 29, 2012.
In the aforementioned Addendum it is agreed that Nación Fideicomisos S.A., in its capacity as trustee, will issue VRD to be offered to the market, in accordance with the public offering system authorized by the CNV, for a nominal value of up to $ 312.5 million. The fixed amountsproceeds will be used to pay the Company’s investment plan.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
On July 4, 2013, VRDs for $ 250 million were issued through a private placement. A subsequent public offering of these debt securities, with the possibility of being paid-in in kind is estimated. The VRD will accrue interest at the Private BADLAR rate plus a spread of 4% and will be amortized in 5 years with increasing installments.
In this regard, said agreement stipulates that payment obligations under the VRD will be solely and exclusively the obligations of Nación Fideicomisos S.A. (to the extent that the trust assets are sufficient) and will not imply in any way whatsoever any guarantee or recourse against the Company, which in no case will be liable for the non-payment, whether total or partial, of any amount owed under the VRD or any other concept contemplated by the Trust Agreement duly signed. Moreover, and in view of the fact that up to now the only income of the trust derives from the Company’s contributions and, also, that the VRD have accrued interest that will have to be paid by the trust assets, the Company has decided to record a provision for an amount equivalent to the trust’s net financial charges, which has been recorded as other payables and charged to other operating expense.
Additionally, on January 3, 2014, by Resolution 3/2014 of the MPFIPyS, it was established that the investments to be made with the FOCEDE funds will be decided by the Management Control and Coordination Undersecretariat, which will provide the necessary instructions for the carrying out of the works and investments under the FOCEDE to the Implementation Committee of the trust created by ENRE Resolution 347/12 as well as to electricity distribution companies Edenor S.A. and Edesur S.A.
By Resolution 266/14 dated January 24, 2014, a technical commission to participate and give advice to the Management Control and Coordination Undersecretariat on technical and economic matters as well as on other issues relating to the investments to be made with the FOCEDE funds was created. This commission will be comprised of one representative of the ENRE, one representative of the SE, one representative of the Public Works Secretariat, both under the authority of the Ministry of Federal Planning, Public Investment and Services. The MEyFP and the National Comptroller’s Office will also be invited to participate.
In this regard, by Resolution No. 2 dated January 29, 2016, the ENRE resolved to discontinue as of January 31, 2016 the current Trust mechanism for the management of the funds resulting from the application of this resolution represent revenueENRE Resolution No. 347/12, and instructed the Company to open a checking account for the deposit of the funds that will be received as from February 1, 2016 from the application of the fixed amount to afford the investments approved by the ENRE. Additionally, the Company accordingly as mentioned in Note 4.4.a.is required to submit to the ENRE a Works Plan, identifying which works of such Plan will be financed with the funds received.
Moreover, a plan forBy MEyM Resolution No. 7/2016, the executionSE is instructed to direct the Execution Committee of works is agreed by and betweenthe Trusts to discontinue the transfers of resources to the Company, in the name and control authorities, based on which,to the order of the Unified Fund of Law 24,065, as well as to adopt the necessary measures to terminate the Trusts.
At the date of issuance of these financial statements, the Company is taking steps aimed at the termination of the trust and the transfer of the remaining trust assets.
VIII.Loans for consumption (mutuums) and assignments of secured receivables
Due to the delay in obtaining the Tariff Structure Review, which will subsequently request that trust funds be withdrawn inmake it possible to restore the economic and financial equation of the concession, the Company lacks the necessary conditions to come to the financial market to make up the deficit of both its operations and the investment plans necessary to maintain the quality of the service, object of the concession. In order to apply themdeal with this situation, the Company has obtained from the Federal Government a series of measures such as the issuance of ENRE Resolution 347/12 (Note 2.c.VII) and SE Resolution 250 (Note 2.c.III), and the granting of loans for consumption (mutuums) to the payment of the aforementioned works. At December 31, 2012, these trust assets have been disclosed in the Other receivables account and amount to $ 3.79 million.help it cope with its cash needs for specific purposes.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January2014(continued)
The obligations deriving from this assistance are classified as Other payables and the related costs as financial expenses, due to both the fact that they result from the lack of adjustment of the Electricity Rate Schedule, which depends exclusively on the Federal Government’s resolution, and the fact that such assistance has been granted under these special circumstances. Therefore, such obligations do not constitute financing decisions made by the Company in the ordinary course of business.
As instructed by MEyM Resolution No. 7/16, as from February 1, 20112016 CAMMESA shall suspend -until further notice- all the effects of the loans for consumption (mutuums) agreements entered into, as well as the transfers of resources to Distribution companies on behalf and to the order of the FOCEDE. As previously mentioned, the new Works Plan will be exclusively financed with the funds collected from customers.
The loans for consumption (mutuums) granted up to December 31, 2015 are detailed below:
1) Extraordinary Investment Plan - Temporary insufficiency of the revenue deriving from the FOCEDE
Due to the measures adopted by the Ministry of Planning and the fact that the funds of the FOCEDE were insufficient to cover the estimated disbursements under the Investment Plan, the Company has requested of the respective authorities that it be provided with funding assistance, which has been called Extraordinary Investment Plan.
Consequently, on September 26, 2014, the SE, by Resolution 65/14, instructed CAMMESA to enter into a Loan for consumption (Mutuum) and assignment of secured receivables agreement with the Company for a total of $ 500 million to cover the Extraordinary Investment Plan as a consequence of the temporary insufficiency of the revenue deriving from Resolution 347/12, mentioned in caption V of this note. The aforementioned agreement was entered into on September 30, 2014. On December 18, 2014, said agreement was extended, as instructed by the SE to CAMMESA, for an additional amount of $ 159.4 million.
In the current fiscal year, the loan for consumption (mutuum) agreement was extended, as instructed by the SE to CAMMESA, for an additional amount of $ 2.2 billion.
As of December 31, 2015, the debt related to this concept amounts to $ 1.1 billion (comprised of $ 923.6 million principal and $ 176.2 million in accrued interest) which is disclosed in the Other non-current payables account.
Furthermore, as security for the performance of the obligations assumed and the repayment of the funds granted, the Company agreed to assign and transfer in favor of CAMMESA, as from the end of the grace period that the SE will estipulate along with the methodology and terms for the reimbursement of the funds, the amounts receivable which the Company may have with the MEM up to the actual amount of the funds granted. At the date of issuance of these financial statements, the Company does not have any amount receivable with the MEM.
2)Higher salary costs
On June 24, 2014, by Note 4012/14, the SE instructed CAMMESA to enter into a Loan for consumption (Mutuum) and assignment of secured receivables agreement with the Company in order to pay the higher salary costs indicated in Note 5.2. The aforementioned agreement was entered into on July 10, 2014.
The agreement would be guaranteed by the Company with the assignment of the future surplus LVFVD to be issued, as a result of the application of SE Resolution 250/13, as described in Note 2.c.III. At the date of issuance of these financial statements, the Company does not have any surplus LVFVD.
The aforementioned SE Resolution 32/15 (Note 2.c.IX) resolves that LVFVD be issued in favor of the Company for the amounts generated by the salary increases deriving from the application of Resolution 836/14 of the Ministry of Labor, Employment and Social Security for whose payment the Company received this Loan for consumption (Mutuum); allowing for the offsetting thereof against the outstanding balances for this concept. The LVFVD were issued on July 16, 2015.
EDENOR S.A.
(Continued)Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
In this regard, the Company made the pertinent recordings, fully canceling the $524.7 million liability for this concept, thus generating a positive result of $ 495.4 million related to the principal received, which is disclosed in the “Recognition of income on account of the RTI – SE Resolution 32/15” line item of the income statement, and a positive result of $ 29.3 million, related to interest accrued, which is disclosed in the “Financial expenses” line item of the income statement.
IX.SE Resolution 32/15
The SE issued SE Resolution 32/15, whereby it:
a)Grants a temporary increase in income to Edenor S.A. effective as from February 1, 2015, and on account of the RTI, in order for the Company to cover the expenses and afford the investments associated with the normal provision of the public service, object of the concession.
The additional income will arise from the difference between the “Theoretical electricity rate schedule” included in the resolution and the electricity rate schedule currently applied to each customer category, according to the ENRE’s calculations, which are to be informed to the SE and CAMMESA on a monthly basis. The above-mentioned funds will be contributed by the Federal Government and transferred to the Company by CAMMESA.
b) Provides that, as from February 1, 2015, the funds related to the PUREE to which SE Resolution 745/05 refers will be regarded as part of the Company’s income on account of the RTI and earmarked to cover the higher costs of the provision of the public service, object of the concession.
c) Authorizes the Company to offset, until January 31, 2015, the PUREE-related debts against and up to the amount of the MMC established receivables, including interest, if any, on both concepts.
d) Instructs CAMMESA to issue LVFVD in favor of the Company for the surplus amounts in favor of the Company, resulting from the offsetting process indicated in the preceding paragraph, and for the amounts owed by the Company under the Loans for consumption (Mutuums) granted for higher salary costs.
e) Instructs CAMMESA to implement a payment plan to be defined with the Company, with the prior approval of the SE, for the settlement of the remaining balances in favor of the MEM.
f) Provides that the Company will neither distribute dividends nor use the income deriving from that which has been detailed in caption a) to repay loans to financial entities, restructure financial debts, acquire other companies, grant loans, or carry out other transactions that are not strictly related to the payment of its obligations with the MEM, the payment of salaries of the Company’s own or hired personnel or the making of payments to suppliers of goods and/or services related to the provision of the public service of electricity distribution.
g) Provides that the Company shall observe the provisions of clause 22.1 of the Adjustment Agreement and suspend any administrative claim and/or judicial action it may have brought against the Federal Government, the SE and/or the ENRE in relation to the compliance with clause 4.2 of the Adjustment Agreement and the provisions of the resolution’s clauses.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The impacts of SE Resolution 32/2015 and SE Resolution 250/13 on the Statement of Comprehensive Income are summarized below:
| | 12.31.15 |
Other income | | |
Additional increase from the difference between the electricity rate schedules (February-December/15) (1) | a) | 3,961,378 |
Funds obtained from the program for the rational use of electric power (PUREE) | b) | 568,220 |
Decrease in loans for consumption (Mutuums) granted for higher salary costs | d) | 495,516 |
Higher cost recognition | c) | 551,498 |
Total other income | | 5,576,612 |
(1)As of December 31, 2015, the balance pending collection amounts to $ 650.9 million. At the date of issuance of this financial statement, there is no balance pending collection.
As of December 31, 2014 CAMMESA had claims against the Company for net late payment charges and compensatory interest for a total of $ 214 million, which were not recorded by the Company in the framework of IAS 37 provisions, because in its opinion they were not attributable to the Company.
Additionally, and as established by the SE through SE Note No. 1208 dated June 29, 2015, the amounts owed to CAMMESA have been recalculated based on the new adopted criteria. In that regard, on July 22, 2015, the new owed amounts were agreed upon, and CAMMESA issued the LVFVD established in captions c) and d) and the documents supporting that which had been agreed. The net result of this agreement generated a profit of $ 254.4 million that has been recorded in the “Financial expenses” line item within the Statement of Comprehensive Income.
As from February 1, 2016, by MEyM Resolution No. 7/16, the aforementioned SE Resolution 32/15 was repealed and the application of the new electricity rate schedules came into effect. Additionally, and in relation to that which has been detailed in the preceding caption g) and as indicated in section 14 of SE Resolution 32/15, the Company has requested the suspension of the procedural time-limits, about which no decision has yet been made by the Court.
d. Framework agreement
On January 10, 1994, the Company, together with EDESUR S.A., the Federal Government and the Government of the Province of Buenos Aires entered into a Framework Agreement, whose purpose was to establish the guidelines under which the Company is to supply electricity to low-income areas and shantytowns.
On July 22, 2011, the Company, together with EDESUR S.A. and EDELAP S.A., entered into an Addendum with the Federal Government, and the Government of the Province of Buenos Aires entered into an Addendum for the renewal for a term of four years (from January 1, 2011 through December 31, 2014) of the New Framework Agreement that had been signed on October 6, 2003. Such extension was approved on September 21, 2012 by Resolution 248/12 issued by the ENRE and ratified by the Ministry of Federal Planning, Public Investment and Services through Resolution 247.
At December 31, 2012, 2011 and January 1, 2011, receivable balances with the Federal Government and the Government247 of the Province of Buenos Aires amount to $ 25.4 million, $ 25.7 million and $ 33.05, respectively.MPFIPyS.
With regard to the amount receivable the Company has with the Province of Buenos Aires, on October 18, 2012 the Company entered into an Agreement for the Settlement of Non-financial Obligations and Subscription of Buenos Aires Province Government Bonds, pursuant to which the Company agreed to receive an amount of 325$ 0.3 million in cash and subscribe Series B Bonds for a residual nominal value of $ 6.14 million, as settlement of the debt that atas of December 31, 2010 such Province had with the Company for the electric power supplied to low-income areas.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
Due to the fact that at the date of these financial statements the approval of the new Framework Agreement for the period of January 1, 2015 through December 31, 2018 by the Federal Government and the Government of the Province of Buenos Aires is still in process, no revenue for this concept has been recognized in fiscal year 2015
e. Penalties
i. General
As the control authority, theThe ENRE is empowered to control the quality levels of the technical product and service, the commercial service and the compliance with public safety regulations, as establishedstipulated in the Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE will be entitled to apply the penalties stipulated in the Concessionaforementioned Agreement.
AtAs of December 31, 2012, 20112015 and January 1, 2011,2014, the Company has accruedrecognized in its financial statements the penalties for resolutionsaccrued, whether imposed or not yet issued by the ENRE, relatingrelated to the control yearsperiods elapsed as atof those dates. Additionally, the Company has applied the adjustment contemplatedset forth in the temporary tariff structure as well as the adjustments established by the electricity rate schedules applied during fiscal year 2008 by Resolutions Nos. 324/08 and 628/08.
The ENRE Penalties and Discounts included in the Adjustment Agreement are adjusted as stipulated in such agreement, caption c item a-Adjustment Agreement between Edenor S.A.agreement.
With regard to the Penalties and the Federal Government, whereas the penalties imposedDiscounts subsequent to the Adjustment Agreement, are adjusted in accordance with the temporary tariff structure and the adjustments established by the electricity rate schedules subsequently applied (Resolutions 324/08 and 628/08), as established in eachof December 31, 2015 they have been estimated based on the Company’s estimate of the resolutions pursuant to which such penalties are imposed.outcome of the previously described RTI process.
Furthermore, atas of December 31, 2012,2015, the Company’sCompany Management has considered that the ENRE has mostly complied with the obligation to suspend lawsuits aimed at collecting penalties, without prejudice to maintaining an open discussion with the entity concerning the effective date of the Adjustment Agreement and, consequently, concerning the penalties included in the renegotiation and those subject to the criteria of the Transition Period.
Adjustment Agreement.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
ii. Specific situationsCompensation payable to customers
Due to the events occurred between December 20 and December 31, 2010 in Edenor’s concession area,Based on February 9, 2011, the ENRE issued Resolution No. 32/11 pursuant to which a penalty procedure was initiated due to the Company’s failure to comply with the provisions of Section 25 sub-sections a), f) and g)ENRE Resolution 1/14, the definitive amount of the Concession Agreement, Section 27compensation payable to customers by way of Law No. 24,065, and ENRE Resolution No. 905/99.
On February 9, 2011, Edenor S.A. was notified of the issuance of ENRE Resolution No. 32/11, whereby the Company was fined in the amount of $ 1.1 million and ordered to compensate those customers who had been affected by the power cuts for approximately $ 30.04 million. These amounts have been recorded in the Other current liabilities account.
Edenor S.A. filed a Direct Appeal with the Appellate Court in Contentious and Administrative Federal Matters No. I, requesting that the Resolution be declared null and void. Additionally, Edenor S.A. filed –with the same Court– a petition for the granting of a precautionary measure, aimed at suspending the application of the fine imposed until a decision on the direct appeal is issued. On March 23, 2011, the court ordered the suspension of the penalty (payment of the amounts imposed), until a decision on the precautionary measure petition filed by Edenor S.A. is rendered. Against this decision, the ENRE filed a post-judgment motion for reversal (“Recurso de Reposición”) which was rejected in all its terms. On April 28, 2011, the Court rejected the precautionary measure petition filed. Therefore, Edenor S.A. filed an extraordinary federal appeal (“Recurso Extraordinario Federal”), which –after having been made available to the ENRE- was dismissed. The Company then filed an appeal (“Recurso de Queja por apelación denegada”) with the Supreme Court requesting that the rejected extraordinary federal appeal be sustained, which as of to date has not been resolved. Furthermore, on July 8, 2011, Edenor S.A. requested that notice of the substance of the case be served on the ENRE. Having this procedural step been carried out and the service of notice been answered, the proceedings are “awaiting resolution”. On April 24, 2013, the Company was notified that such direct appeal had been denied by the Appellate Court in Contentious and Administrative Federal Matters No. 1. As of the date of this annual report, the Company, together with its legal counsel, is assessing the situation, which involves the precautionary measure and the appeal of this last resolution.
On November 15, 2012, the Company was notified by the Regulatory Authorities of ENRE Resolution No. 336/2012, pursuant to which the Area in charge of Applying and Managing the ENRE’s Regulations was instructed to immediately initiate the corresponding penalty procedure in order for the distribution companies EDENOR and EDESUR S.A. to: a) determine the customers affected by the power cuts occurreddiscounts, as a consequence of failures between October 29 and November 14, 2012; b) determine the discounts to be recognized to each of them, and; c) credit them on account of the final discounts that will result from the evaluation of the Technical Service Quality relating to the six-month control period.
In addition, it was resolved that the Company and EDESUR S.A. be ordered to compensate each small-demand residential customer (T1R) who had been affected by the power cuts occurred during the aforementioned period. Theperiod began on December 16, 2013 and ended on the date on which the service was fully restored, totaled $ 85.7 million. As of December 31, 2015, an amount of the compensation will depend$ 75.9 million of such total has been reimbursed to Customers, based on the length of the power cut, provided, however, that such power cut lasted more than 12 continuous hours. The provision recorded by the Company for penalties and compensations amounts to $ 16.7 million.consumption recorded.
iii.Discounts to customers
The Company began to credit Customer bills issued as from December 22, 2015 for the penalties included in clauses 9.2.1 and 9.2.2 of the Adjustment Agreement, as well as the adjustments thereof (Note 2.c.I.vii), for $ 152.2 million. The Company finished crediting customer bills for these amounts in the first two months of 2016. Additionally, an amount of $ 33.7 million in compensation and adjustments was made available to the customers who as of December 22, 2015 had no active service.
As of December 31, 2015, the liability for this concept amounts to $ 125.8 million, which is disclosed in the Current trade payables account.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
iv.Payment agreements
From May, 2014 through December 31, 2015, the Company entered into three payment plan agreements with the Regulatory Agency pursuant to which it agreed to pay the penalties that had been ratified by the judicial authority for a total of $ 85.7 million, plus interest for $ 84.2 million. As of the December 31, 2015, payment plan agreements Nos. 1 and 2 have been complied with in due time and proper manner. With regard to payment plan agreement No. 3, the outstanding balance amounts to $ 167.3 million, which is disclosed in the ENRE Penalties and Discounts line item of the Other payables account within current and non-current liabilities.
Furthermore, and owing to the setting of fees in favor of ENRE professionals who acted in execution proceedings, the Company entered into two payment agreements for a total of $ 18.7 million, plus interest. As of December 31, 2015, the outstanding balances of principal and interest accrued under payment agreement No. 2 amounted to $ 19.1 million and $ 0.4 million, respectively, which will be paid in 60 installments. The first payment agreement has been complied with in due time and proper manner. They are disclosed in the Other payables account within current and non-current liabilities.
f.Stabilization factor
By Note 2883 dated May 8, 2012 (reference Resolutions MEyFP 693/11 and MPFIPyS 1900/11), the SE has implemented a mechanism whose objective is to keep the amounts billed to residential customers throughout the year stable, thereby minimizing the effects of the seasonal consumption of electricity.
This methodology applies to all residential customers, regardless of whether or not they receive Government grants on electricity rates, who may opt to adhere to this stabilization system.
Average consumption is determined based on the consumption recorded in the last six two-month periods. The stabilization factor arises from the difference between the aforementioned average consumption and the consumption recorded in the current two-month period. This value will be added to or subtracted from the two-month period charges, and the result obtained will be the amount to be paid before the corresponding taxes. The adjustments that are to be made in accordance with the differences between average consumption and recorded consumption will be reflected in the bill for the last two-month period of each calendar year.
The differences that arise as a consequence of comparing the annual average consumption to the consumption of the current two-month period will be recorded at the end of each period in the trade receivables balance sheet account, crediting or debiting the account, as the case may be, if the annual average consumption is higher or lower than the consumption of the current two-month period.
In this regard, by Note No. 119,098 dated January 18, 2016, the ENRE ordered the withdrawal from the stabilization system of all the users who were included therein, starting with the first bill preparation and issuance to be made in 2016.
g. Restriction on the transfer of the Company’s common shares
The by-laws provide that Class “A” shareholders may transfer their shares only with the prior approval of the ENRE. The ENRE must communicate its decision within 90 days upon submission of the request for such approval, otherwise the transfer will be deemed approved.
Furthermore, Caja de Valores S.A. (the Public Register Office), which keeps the Share Register of the shares, is entitled (as stated in the by-laws) to reject such entries which, at its criterion, do not comply with the rules for the transfer of common shares included in (i) the Argentine Business Organizations Law, (ii) the Concession Agreement and (iii) the Company’s by-laws.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
In addition, the Class “A” shares will be pledged during the entire term of the concession as collateral to secure the performance of the obligations assumed under the Concession Agreement.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Other restrictions:
· In connection with the issuance of Corporate Notes;Notes, during the term thereof, EASA is required to be the beneficial owner and owner of record of not less than 51% of the Company’s issued, voting and outstanding shares during the term of the Corporate Notes.shares.
· In connection with the Adjustment Agreement signed with the Grantor of the Concession and ratified by Decree No. 1,957/06;Executive Order 1957/06, Section ten stipulates that from the signing of the agreement through the end of the Contractual Transition Period, the majority shareholders may not modify their ownership interest nor sell their shares.
· In connection with the restructuring of the totality of EASA’s financial debt, that ended on July 19, 2006; if EASA did not comply with its payment obligations under the new debt, its creditors could obtain an attachment order against the Company’s Class A shares held by EASA, and, consequently, the Argentine Government would be entitled, as stipulated in the concession agreement, to foreclose on the pledged shares.
g.h. Concession of the use of real property
Pursuant to the Bid Package, SEGBA granted the Company the free use of real property for periods of 3, 5 and 95 years, with or without a purchase option, based on the characteristics of each asset, and the Company would be responsible for the payment of any taxes, charges and contributions levied on such properties and for the taking out of insurance against fire, property damage and third-party liability, to SEGBA’s satisfaction.
The Company may make all kind of improvements to the properties, including new constructions, upon SEGBA’s prior authorization, which will become the grantor’s property when the concession period is over, and the Company will not be entitled to any compensation whatsoever. SEGBA may terminate the loan for use contract after demanding the performance by the Company of any pending obligation, in certain specified cases contemplatedset forth in the Bid Package. At present, as SEGBA’s residual entity has been liquidated, these presentations and controls are made to the National Agency of Public Properties (ONABE), with which the Company entered into a debt recognition and refinancing agreement for $ 4.68 million on September 25, 2009.
The form of payment stipulated in the aforementioned agreement established an advance payment of $ 1,12 million, which the Company made on September 25, 2009, and 48 installments of $ 0.10 million for the remaining balance of $ 3.5 million. The installments include compensatory interest of 18.5% per annum under the French system, and are payable as from October 2009
At December 31, 2012, 2011 and January 1, 2011, the outstanding principal amounts for this concept total $ 0.7 million, $ 1.8 million and $ 2.6 million, respectively, which have been recorded in Trade payables under Other.
h.Stabilization factor
By Note No. 2883 dated May 8, 2012 (reference Resolutions MEyFP No. 693/11 and MPFIPyS No. 1900/2011), the National Energy Secretariat has implemented a mechanism whose objective is to keep the amounts billed to residential customers throughout the year stable, thereby minimizing the effects of the seasonal consumption of electricity.
This methodology applies to all residential customers, regardless of whether or not they receive Government grants on electricity rates, who may opt to adhere to this stabilization system.
Average consumption is determined based on the consumption recorded in the last six two-months consumption periods. The stabilization factor arises from the difference between the aforementioned averageconsumption and the current two-month consumption period. This value will be added to or subtracted from the two-month consumption period charges, and the result obtained will be the amount to be paid before the corresponding taxes. The adjustments that are to be made in accordance with the differences between average consumption and recorded consumption will be reflected in the bill for the last two-month consumption period of each calendar year.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
The differences that arise as a consequence of comparing the annual average consumption to the current two-month consumption period will be recorded at the end of each period in the trade receivables balance sheet account, crediting or debiting the account, as the case may be, if the annual average consumption is higher or lower than the current two-month consumption period.
2.2EDEN S.A.
a.General
Empresa Distribuidora de Energía Norte S.A. is subject to compliance with the electric power sector regulatory framework of the Province of Buenos Aires, in accordance with the provisions of Law No. 11,769/96 (text consolidated by Decree 1868/04 and amendments introduced by Laws Nos. 13,929 and 14068) and its Regulatory Decree No. 2479/04 issued by the Government of the Province of Buenos Aires.
On May 27, 1997, a Provincial Concession Agreement was entered into by and between Empresa Distribuidora de Energía Norte S.A. and the Application Authority of Law 11,769/96, pursuant to which the Company was granted the concession of the public service of electricity distribution and sale within the concession area stipulated therein. This agreement also stipulates the terms and conditions for the provision of such service.
b.Concession
Empresa Distribuidora de Energía Norte S.A. (“EDEN S.A.”) is a company created by the Province of Buenos Aires, which privatized 100% of its capital stock in the framework of Decree No. 106/97 of the Provincial Executive Power.
The aforementioned privatization was carried out through the awarding of the concession of the exclusive right to provide the electricity distribution service for a term of ninety-five years to commence as from the takeover date. The term of the concession is divided into management periods, a first period of fifteen years and subsequent periods of ten years each. The grantor of the concession may extend the term of the concession for a maximum period of ten years.
On June 2, 1997, the Holder of the concession took over the operations of Empresa Distribuidora de Energía Norte S.A.
c.Electricity rate situation
On October 25, 2005, the Ministry of Infrastructure, Housing and Public Services (MIVySP) and EDEN signed a Protocol of Understanding pursuant to which the following was defined: a) a way to recover revenue from the concession by means of economic and financial models that contemplate a basic and objective economic and financial balance; and b) the need to carry out an overall electricity rate review, which was expected to take place in October 2007 but has never been carried out. That Protocol of Understanding was approved by Decree No. 2,862/05 and ratified by the 2006 budget law.
In accordance with the application of the revenue adjustment mechanism contemplated in the Protocol of Understanding, electricity rate increases have been granted since 2005, the last requests being those detailed below:
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
On June 1, 2011, the MIVySP issued Resolution No. 415/2011, which, approving the request for the adjustment of the electricity distribution service costs submitted by EDEN, authorized a 9% increase in EDEN’s average sale rate, to be distributed among final users to consumption recorded as from June 1, 2011.
Additionally, on November 9, 2011, EDEN made a new request to the MIVySP, which is pending approval, requesting an adjustment of rates commensurate with the increases recorded in operating costs (of approximately 17% as compared to the presentation made in December 2010), and the variation in the valuation of the assets made available for the provision of the service at June 2011 (of approximately 21% as compared to the presentation made in December 2010).
On July 20, 2012, the Infrastructure Ministry of the Province of Buenos Aires issued Resolution No. 243/2012, published in theOfficial Gazette on July 24 of the current year, which established the new electricity rate schedules applicable to the July 1-July 31, 2012 and August 1-September 30, 2012 periods, and from October 1, 2012, thereby restoring electricity rates in the concession area of Eden S.A. These electricity rate schedules were resolved with the aim of covering the increase in prices of the resources necessary to provide the service (labor, supplies and services), which have recorded a significant increase in prices.
d.Fines of the Electric Power Control Authority of the Province of Buenos Aires (“OCEBA”)
EDEN has recorded a provision for OCEBA’s penalties, applying the coefficients informed by the Provincial Energy Administration.
The balance of the provision, which amounts to $ 14.6 million and 10.33 million at December 31, 2012, and 2011 respectively has been disclosed in the Other liabilities account.
e.Obligations and restrictions arising from the privatization
In accordance with the Bidding terms and conditions, EDEN S.A. is required to comply, among others, with the following obligations:
a) Not to transfer the class “A” shares without the prior approval of the Control Authority.
b) To make the necessary investments and carry out the necessary maintenance works in order to guarantee service quality levels.
c) To refrain from granting in favor of third parties any security interest on the assets used in the provision of the public service such as mortgages, pledges or any other lien, without prejudice to EDEN’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted by the Holder of the concession over an asset at the time of its acquisition as collateral for the payment of the purchase price.
d) To pay the inspection and control tax to be fixed by the Control Authority.
3. Basis of preparation
This consolidatedThe financial Statementsstatements forthe year ended December 31, 2015 have been prepared in accordance with and in compliance with IFRS as issued by the IASB.IASB and IFRIC interpretations, incorporated by the CNV.
As mentionedThe balances as of December 31, 2014, disclosed in Note 4.1 of Exhibit I presented together with the Financial Statements as at June 30, 2012, the Company’s first IFRSthese financial statements to be prepared are those for the fiscal year ending December 31, 2012. As at December 31, 2011, the accounting standards applicable in Argentina and used in the preparation of the financial statements were the generally accepted accounting principles (Argentine GAAP).
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
In its financial statements as at December 31, 2011, the Company presented a note concerning the reconciliation between Argentine GAAP and IFRS of (1) the Company’s total equity at the date of transition (January 1, 2011), (2) the final result of operations and cash flows for the year ended December 31, 2011 and (3) total equity at December 31, 2011, indicating the main valuation adjustments between the aforementioned sets of standards.
Nevertheless, the Company decided to present additional information including a detail of each of the accounts comprising the statement of financial position at December 31, 2011 and the income statement for the year then ended under IFRS. Said detailed information was solely presented for informationcomparative purposes, and to show how each equity and income statement account would have been disclosed under IFRS.
Additionally, on May 21, 2012, the Company presented its first Interim Financial Statements as at March 31, 2012 and for the three-month period then ended in accordance with International Accounting Standard (IAS) 34. As required, such Interim Financial Statements included an exhibit with the financial information for the last annual reporting period prepared in accordance with IFRS. That information included not only the valuation aspects previously presented as part of the reconciling information in the Financial Statements of December 2011 but also additional disclosures required under IFRS.
Due to the preparation ofarise from the financial statements as of December 31,, 2012 andthat date. Certain amounts of the financial statements presented for comparative purposes have been reclassified following the disclosure criteria used for the year then ended, and as part of a process aimed at aligning accounts and other operative issues with a view to the issuance of the first annual IFRS financial statements as at December 31, 2012,for the Company has made certain changes in the classification of balances at December 31, 2011 previously presented.reporting year.
The Consolidated Financial Statementsfinancial statements are stated in thousands of Argentine pesos, unless specifically indicated otherwise.
These Consolidated Financial Statementsfinancial statements were approved for issue by the Company’sCompany Board of Directors on March 8, 2013.2016.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
4. Accounting policies
The main accounting policies used in the preparation of these consolidated financial statements are detailed below. These accounting policies have been consistently applied to all the reporting periods,years, unless indicated otherwise.
4.1 Adoption of International Financial Reporting StandardsChanges in the accounting policies
4.1.1 Application of IFRS 1
The National Securities Commission (CNV), through Resolutions Nos. 562/09 and 576/10, has established the application of Technical Resolution No. 26 of the Argentine Federation of Professional Councils in Economic Sciences (subsequently amended by Technical Resolution No. 29 of the Argentine Federation of Professional Councils in Economic Sciences), which adopts the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) (hereinafter referred to as “IFRS”), for those entities that make a public offering of their capital stock or corporate notes pursuant to Law No. 17,811, or have requested authorization for their being included in such public offering system.
The Company fully adopted the IFRS issued by the International Accounting Standards Board (IASB) as from the fiscal year commenced January 1, 2012. The adoption of these standards has caused changes in the Company’s accounting policies, which have been recognized in the consolidated financial statements for the year ended December 31, 2012 and in those for interim periods. Furthermore, the presentation of the consolidated financial statements as at December 31, 2011 was adjusted for comparative purposes as a result of IFRS adoption. This recognition and the corresponding adjustments are presented in caption 4.1.2, in accordance with thereconciliation of equity at December 31, 2011 and January 1, 2011 (date of transition to IFRS) and the reconciliation of comprehensive income and cash flows at December 31, 2011.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
The Shareholders’ Meeting that considers the consolidated financial statements as at December 31, 2012 will have to make the decision that arises from the application of that mentioned in the preceding paragraphs.
a.Mandatory exceptions provided under IFRS 1
i.The Company has applied the following mandatory exceptions to the retrospective application of IFRS in the preparation of the reconciliations of shareholders’ equity and results of operations included below
·Estimates
Estimates at December 31 and January 1, 2011 under IFRS are consistent with those made under Argentine GAAP.
·Classification and measurement of financial assets
The classification and measurement of financial assets is made in accordance with IFRS 9, which was early adopted by the Company at January 1, 2011. This standard, which provides two categories for measurement purposes: amortized cost and fair value, has been applied by the Company in accordance with the facts and circumstances existing at the date of transition.
ii.The following mandatory exceptions provided by IFRS 1 have not been applied as they are not relevant for the Company:
·Derecognition of financial assets and liabilities
·Hedge accounting
·Non-controlling interests
·Derivative instruments
b.Optional exemptions provided under IFRS 1
Certain optional exemptions from retrospective application of IFRS are permitted under IFRS 1, having the Company applied the following:
·Deemed cost
The cost of property, plant and equipment, adjusted in accordance with Argentine GAAP, has been adopted as deemed cost at the date of transition to IFRS, considering that such cost is similar to amortized cost under IFRS.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
4.1.2Reconciliation of consolidated equity at December 31 and January 1, 2011 and of the Statement of Income at December 31, 2011
The following chart shows the reconciliation of the statement of changes in equity in accordance with Argentine GAAP and Equity in accordance with IFRS:
| | | | 12.31.11 | | 01.01.11 |
| | | | | | |
Equity under Argentine GAAP | | 1,314,518 | | 1,749,915 |
Loss related to defined benefit plans | (a) | | (29,120) | | (10,136) |
Gain from purchase of companies | (b.i and ii) | | 434,959 | | - |
Loss from valuation at realizable value of assets available for sale | (c) | | (172,838) | | - |
Derecognition of transaction costs | (b.iv) | | (4,269) | | - |
Derecognition of negative goodwill amortization | (b.iii) | | (12,340) | | - |
Additional acquisition of non-controlling interests | (d) | | 3,452 | | - |
IFRIC 12 application to service concession agreements | (e) | | (12,165) | | - |
Deferred income tax | (f) | | (97,379) | | 3,548 |
Non-controlling interests | | | 6,567 | | - |
Edenor's equity under IFRS | | 1,431,385 | | 1,743,327 |
Non-controlling interests under IFRS | | | 415,801 | | - |
Equity under IFRS | | | 1,847,186 | | 1,743,327 |
The following chart shows the reconciliation of the statement of income in accordance with Argentine GAAP and of Comprehensive income in accordance with IFRS:
| | | 12.31.2011
|
Statement of income under Argentine GAAP
| | | (435,397)
|
Gain from purchase of companies
| (b.i and ii)
| | 434,959
|
Loss from valuation at realizable value of assets available for sale
| (c)
| | (172,838)
|
Derecognition of transaction costs
| (b.iv)
| | (4,269)
|
Derecognition of negative goodwill amortization
| (b.iii)
| | (12,340)
|
IFRIC 12 application to service concession agreements
| (e)
| | (12,165)
|
Deferred income tax
| (f)
| | (107,571)
|
Non-controlling interests
| | | 18,240
|
Edenor's loss for the year under IFRS
| | | (291,381)
|
Other comprehensive loss
| | | (11,337)
|
Non-controlling interests related to other comprehensive income
| | | (1,003)
|
Comprehensive loss for the year under IFRS
| | | (303,721)
|
a.Benefit plans
In accordance with Argentine GAAP, neither actuarial gains nor losses, nor past service costs pending amortization are recognized by the Company in the financial statements. In accordance with IFRS, and considering that the Company has early adopted the revised IAS 19, the actuarial gains and losses not recognized at the date of transition have been recognized by the Company in comprehensive income, whereas past service costs pending amortization at the date of transition have been recognized in retained earnings/accumulated deficit. The effect in equity is a decrease of $ 29.12 million and $ 10.14 million at December 31 and January 1, 2011, respectively. The effect in comprehensive income for the year ended December 31, 2011 is a loss of $ 18.98 million.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
b.Gain from the purchase of companies
i)Purchase negotiation
Refers to the gain recognized under IFRS, considering all the adjustments explained below, mainly by derecognizing the negative goodwill of acquired companies, plus some differences resulting from net assets acquired.
ii)Differences in the accounting basis of purchases
In accordance with Argentine GAAP, the excess of the fair value of the assets acquired and liabilities assumed in a business combination over the purchase price is recognized as negative goodwill and amortized in accordance with the straight-line method over a period equal to the weighted average of the remaining useful life of the assets identified in the acquired company that are subject to depreciation.
In accordance with IFRS, the Company has reassessed the purchase price allocation. In that connection, the following differences between Argentine GAAP and IFRS were identified:
Fair value of net assets acquired – Argentine GAAP | | | 1,276,236 |
Differences from application of IFRIC 12 | 1) | | (54,003) |
Benefit plan liability | 2) | | (15,250) |
Deferred income tax effect | 3) | | 24,238 |
Derecognition of transaction costs | 4) | | (4,269) |
Fair value of net assets acquired – IFRS | | | 1,226,952 |
1)Differences from application of IFRIC 12
In accordance with Argentine GAAP, the assets used in the framework of service concession agreements of the subsidiary EDEN (indirectly controlled company through AESEBA), whether received at the time of entering into the concession agreements or acquired by the companies during their term of duration, are classified as property, plant and equipment and are depreciated based on the useful life assigned to each specific asset, irrespective of the term of duration of the concession agreements.
In accordance with IFRS, the essential assets used in the framework of service concessions, whether received at the time of entering into the concession agreement or acquired by the companies during their term of duration, are classified as a single asset within intangible assets and are amortized on a straight-line basis throughout the estimated useful life of each of the underlying fixed assets that make up its value, without exceeding the term of the concession.
The assets that are not essential for the rendering of the distribution service are not included within the scope of IFRIC 12; therefore, those assets are carried at cost subsequently depreciated, and included within property, plant and equipment.
The effects of the recognition of IFRIC 12 in the Company’s consolidated financial statements are as follow:
·Reclassification of all the essential assets received by the Concession Agreement, and considered essential to the distribution service, into a separate intangible asset;
·Construction contracts: in accordance with Argentine GAAP, construction of infrastructure funded with customer contributions is recognized as revenue at the time the funds are received. In accordance with IFRS, in particular under the scope of IFRIC 12, such construction must be recognized as revenue from construction deferred on the remaining useful life of the Concession Agreement, considering that the operator has an obligation with the customer for providing the distribution service. Such difference gave rise to a reconciling adjustment at the acquisition date of$ 54 million, decreasing property, plant and equipment and retained earnings/accumulated deficit, and increasing the intangible asset under IFRIC 12 and deferred revenue
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
2)Benefit plan liability
In accordance with Argentine GAAP, unrecognized actuarial losses are disclosed in a note to the financial statements.
In accordance with IFRS, cumulative unrecognized actuarial losses have been recognized at the date of transition (January 1, 2011) in retained earnings/accumulated deficit. Consequently, the Company assumed at the time of acquisition an additional liability relating to the subsidiaries’ defined benefit plans. Such additional liability amounted to $ 15.25 million.
3)Deferred income tax effect
Refers to the effect in the deferred income tax of all the previously mentioned adjustments.
4)Transaction costs
In accordance with Argentine GAAP, transaction costs are part of the consideration paid. The impact of such costs resulted in a decrease of negative goodwill.
iii)Derecognition of negative goodwill amortization
In accordance with Argentine GAAP, in those business combinations in which the acquisition cost was lower than the proportion of the fair value of the incorporated net assets and liabilities, the difference was recognized as negative goodwill and is systematically recognized in profit or loss over a period equal to the weighted average of the remaining useful life of the identifiable assets of the acquired company that are subject to depreciation.
For IFRS application purposes, negative goodwill is derecognized as its recognition is not permitted.
iv)Derecognition of transaction costs
In accordance with IFRS, such costs are not part of the consideration paid and are expensed as incurred.
The chart below summarizes the effect of the differences in the consideration paid:
Consideration paid – Argentine GAAP
| | | 566,222
|
Transaction costs
| | | (4,269)
|
Consideration paid – IFRS
| | | 561,953
|
c.Loss from valuation at fair value less costs to sell of assets available for sale
Refers to the additional loss for the sale of subsidiaries as a result of the decrease in the fair value of the net assets acquired at the time of acquisition. Due to the fact that the fair value less costs to sell was similar under both standards (Argentine GAAP and IFRS), the difference arises from its base of valuation at the time of the acquisition.
In accordance with IFRS, assets held for sale are classified separately within current assets and current liabilities and are valued at the lower of carrying amount and fair value less costs to sell.
d.Additional acquisition of non-controlling interests
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Refers to the additional acquisition of non-controlling interests in subsidiaries, which, in accordance with Argentine GAAP, was recorded discounting the negative goodwill by the difference between the fair value of non-controlling interests and the consideration paid. In accordance with IFRS, such difference was recorded as Additional paid-in capital.
e.IFRIC 12 application to concession agreements
EDEN constructs part of its pieces of equipment (essential for the rendering of the distribution service) based on customer contributions under Argentine GAAP such contributions are recorded as revenues upon the payment by the customers.
Under IFRS, the construction of infrastructure with customer contributions is recognized as deferred revenue over the estimated useful life of each of the underlying fixed assets that make up its value, without exceeding the term of the concession.
f.Deferred income tax
At December 31, 2011 and January 1, 2011, this reconciling item relates to the recognition, under IFRS, of the deferred tax effect of all the previously described adjustments.
4.1.3Reconciliation of the statement of cash flows for the year ended December 31, 2011
| | | ARGENTINE GAAP | | ADJUSTMENTS ASSOCIATED WITH ASSETS AVAILABLE FOR SALE | | EFFECTS OF TRANSITION TO IFRS | | IFRS |
| | | (1) | | | (2) | | |
Net cash flows provided by operating activities | | 550,030 | | (633,056) | | 741,976 | | 658,950 |
| | | | | | | | | |
Net cash flows used in investing activities | | (975,216) | | 563,991 | | (382,808) | | (794,033) |
| | | | | | | | | |
Net cash flows used in financing activities | | (119,016) | | 97,370 | | 37,950 | | 16,304 |
| | | | | | | | | |
Financial results in cash and cash equivalents | | - | | - | | 3,281 | | 3,281 |
Cash and cash equivalents at beginning of year | | 676,843 | | - | | (430,836) | | 246,007 |
Cash and cash equivalents at end of year | | 132,641 | | | | (2,132) | | 130,509 |
Net decrease in cash and cash equivalents | | (544,202) | | 28,305 | | 425,423 | | (118,779) |
Cash and cash equivalents included in assets available for sale | | - | | 28,305 | | - | | 28,305 |
Cash and cash equivalents at end of year | | 132,641 | | 28,305 | | (2,132) | | 158,814 |
(1)Refers to the amounts included in the consolidated financial statements as at December 31, 2011 approved by the Board of Directors with certain reclassifications for IFRS disclosure purposes.
(2)Refers to debt instruments that are not considered as cash and cash equivalents under IFRS.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
4.2Changes in the accounting policy under IFRS
(a) New standards, amendments and interpretations mandatory for financial years beginning January 1, 2012 and adopted by the Company
There have been no new standards, amendments or interpretations whose application is mandatory for financial years beginning January 1, 2012 that could have a material impact on the Group.
(b) New standards, amendments and interpretations not effective and early adopted by the Company
The Company has early adopted the following IFRS or revised IFRS:
i.Revised IAS 1 “Financial statements presentation”: applicable to financial years beginning on or after July 1, 2012.
ii.Revised IAS 19 “Employee benefits”: applicable to financial years beginning on or after January 1, 2013.
iii.Revised IAS 27 “Separate financial statements”: applicable to financial years beginning on or after January 1, 2013.
iv.Revised IAS 28 “Investments in associates and joint ventures”: applicable to financial years beginning on or after January 1, 2013.
v.IFRS 9 “Financial instruments”: applicable to financial years beginning on or after January 1, 2015.
vi.IFRS 10 “Consolidated financial statements”: applicable to financial years beginning on or after January 1, 2013.
vii.IFRS 11 “Joint arrangements”: applicable to financial years beginning on or after January 1, 2013.
viii.IFRS 12 “Disclosure of interests in other entities”: applicable to financial years beginning on or after January 1, 2013.
IAS 1 was amended in June 2011. The amendment improves the consistency and clarifies the presentation of items within other comprehensive income. The main change implies the grouping of items of other comprehensive income into items that might be subsequently reclassified to profit or loss and those that will not be reclassified to profit or loss in subsequent periods.
IAS 19 was amended in June 2011. The main impact on the financial statements is as follows:
i.the corridor method is eliminated and all actuarial gains and losses are recognized in other comprehensive income when they occur;
ii.all past service costs are immediately recognized in profit or loss;
IAS 27 and IAS 28 were amended in May 2011 following the issuance of IFRS 10 and IFRS 11. The revised IAS 27 refers to the accounting for subsidiaries, joint arrangements and associates in the parent’s separate financial statements. Revised IAS 28 refers to the accounting for associates, entities over which significant influence is held and joint ventures.
IFRS 9 was issued in November 2009 and amended in October 2010 and introduces new requirements for the classification, measurement and derecognition of financial assets and liabilities.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
IFRS 9 requires that all financial assets within the scope of IAS 39 “Financial instruments – Recognition and measurement” be subsequently measured at amortized cost or fair value. Therefore, the investments in debt instruments that are maintained within a business model whose objective is to collect the contractual future cash flows, and these cash flows are solely payments of principal and interest on principal, are measured at amortized cost at year-end. The other investments in debt or equity instruments are measured at fair value at year-end.
The most significant effect of IFRS 9 concerning the classification and measurement of financial liabilities refers to the accounting for changes in the fair value of financial liabilities (designated as financial liabilities at fair value through profit or loss) as a consequence of changes in the credit risk of such liabilities. Therefore, the amount of change in the fair value of financial liabilities as a consequence of changes in the credit risk of that debt is recognized in other comprehensive income, unless such recognition would create an accounting mismatch.
IFRS 10 was issued in May 2011 and determines a single control model for the consolidation of entities of the same economic group, irrespective of the nature of the investee. This control model includes three elements:
i.power over the investee;
ii.exposure or rights to variable returns from its involvement with the investee;
iii.ability to use the power mentioned in i) to affect the investor’s returns.
IFRS 10 replaces the portion of IAS 27 that addresses the manner and opportunity at which the investor must prepare his consolidated financial statements, and fully replaces SIC-12 “Consolidation of special purpose entities”.
IFRS 11 was issued in May 2011. This standard is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and therefore accounts for its share of assets, liabilities, revenue and expenses. Joint ventures arise where the joint venture has rights to the net assets of the arrangement and therefore equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.
IFRS 12 was issued in May 2011 and applies to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The standard establishes the minimum disclosure objectives that are to be presented to comply with such objectives so as to help users of the financial statements evaluate the nature of and the risks associated with interests in other entities.
(c) New standards, amendments and interpretations not effective and not early adopted by the Company
Neither theThe Company nor its controlled companies havehas not early adopted the IFRS or revised IFRSIFRIC detailed below:
- IFRS 13 “Fair value measurement”:15 "Revenue from contracts with customers", issued in May 2014, amended in July 2015, and applicable to financial yearsannual periods beginning on or after January 1, 2013.
IFRS 13 was issued in May 20112018. It specifies how and determines a single framework for fair value measurements when fair value is required by other standards. This IFRS applies to financial and non-financial elements measured at fair value, where fair value 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.
The Board of Directors has estimated that IFRS 13revenue will be adopted inrecognized, as well as the Company’s financial statements for the annual period beginning January 1, 2013. Although it is not possible to reasonably determine the impact of the potential effect of the aforementioned standard until a detail analysis is made, it is probable that the changes will not significantly affect theadditional information disclosed in the Group’s financial statements.
There are no other standards or interpretations that are not effective in respect of which a significant effect on the Company is expected.
required to present in the financial statements. The standard provides a single, principles based five-step model to be applied to all contracts with customers. The Company is currently analyzing the impact. Nevertheless, it estimates that the application of this standard will have no significant impact on the results of its operations or its financial position.
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TableIFRS 9 "Financial instruments", amended in July 2014. It brings together all the phases of Contents
EDENOR S.A.
Notesthe IASB’s project to replace IAS 39 “Financial Instruments: recognition and measurement”. Such phases are classification and measurement, impairment and hedge accounting. This version incorporates a new expected loss impairment model and some minor changes to the Consolidated Financial Statements as at December 31, 2012, 2011classification and measurement of financial assets. The new standard replaces all the previous versions of IFRS 9 and is effective for periods beginning on or after January 1, 2011
(Continued)
4.3Consolidation
a.Subsidiaries
2018. The consolidated financial statements includeCompany has adopted the Company’s financial statements as well as thosefirst phase of its subsidiaries. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group 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 fromIFRS 9 at the date on which control is transferredof transition. With regard to the group. They are deconsolidated fromsecond and third phases, the date that control ceases.Company is currently analyzing the impact thereof.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated.-IFRS 16 – “Leases”, issued in January 2016. The International Accounting policiesStandards Board (IASB) published IFRS 16, which replaces the current guidance in IAS 17. IFRS 16 defines a lease as a contract, or part of subsidiaries have been changed where necessarya contract, that conveys the right to ensure consistency with the policies adopted by the group.
b.Business combinations
Business acquisitions are accounteduse an asset (the underlying asset) for by applying the acquisition method. Consideration for the acquisition is measured at fair value, calculating at the acquisition date the aggregatea period of the fair value of the assets transferred, the liabilities incurred or assumed and the equity instruments issued and delivered by the Companytime in exchange for control of the business acquired.
The costs associated with the acquisition are expensed when incurred. The identifiable assets acquired and liabilities assumed in the business combination are recognized at their acquisition-date fair value.
The value of goodwill represents the excess amount of the aggregate of the consideration for the acquisition, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the acquiree over the net amount of the identifiable assets acquired and the liabilities assumed, at the acquisition date.
If as a result of the assessment, the net amount of the identifiable assets acquired and the liabilities assumed exceeds the aggregate of the consideration for the acquisition, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the acquiree, such excess amount is immediately recognized in profit or loss as a bargain purchase.
If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to the acquiree's identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the acquirer shall account for the combination using those provisional values. The acquirer shall recognise any adjustments to those provisional values as a result of completing the initial accounting:
a)within twelve months of the acquisition date; and
b)from the acquisition date.consideration.
c.Changes in ownership interest in subsidiaries that do not result inUnder IFRS 16 lessees have to recognise a loss of controllease liability reflecting future lease payments and a ‘right-of-use asset’ for almost all lease contracts.
Transactions with non-controlling interests that do not result inThis is a losssignificant change compared to IAS 17 under which lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 contains an optional exemption for certain short-term leases and leases of control are accountedlow-value assets; however, this exemption can only be applied by lessees. The new standard is effective for as equity transactions. The difference between the fair value of the consideration paidpublic companies for the shares acquired and the recorded value of the subsidiary’s net assets is recorded in equity.
d.Disposal of subsidiaries
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atperiods beginning on or after December 31, 2012, 2011 and January 1, 2011
(Continued)
When the Company ceases to have control in a subsidiary, any retained investment is measured at fair value at the date that control is lost, recognizing the change in the recorded value in the statement of comprehensive income. The fair value is the cost on initial recognition of the investment held, being recorded as an associate, joint venture or financial asset, as applicable.
e.Interests in joint ventures
15, 2018. The Company has early adoptedis currently analyzing the application of IFRS 11 as from January 1, 2011, the main concepts of which are as follow:
i.A joint arrangement takes place among two or more parties when they have joint control: joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
ii.A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Such parties are called joint ventures.
iii.A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. These parties are called joint operators.
The Company accounts for its investment in joint ventures in accordance with the equity method. Under this method, the interest is initially recognized at cost and subsequently adjusted by recognizing the Company’s share in the profit or loss obtained by the joint venture, after acquisition date. The Company recognizes in profit or loss its share of the joint venture’s profit or loss and in other comprehensive income its share of the joint venture’s other comprehensive income.
When the Company carries out transactions in the joint ventures, the generated profit and losses are eliminated in accordance with the percentage interest held by the Company in the joint venture.
The accounting policies of joint ventures have been modified, if applicable, to guarantee consistency with the policies adopted by the Company.impact.
4.4Revenue recognition
a.Revenue from sales
Revenue is measured at the fair value of the consideration collected or to be collected, taking into account the estimated amount of any discount, thus determining the net amounts.
Revenue is recognized when the revenue earning process has been completed, the amount of revenue may be reliably measured and it is probable that the economic benefits associated with the transaction will flow to the Company.
Revenue from the electricity provided by the Company to low-income areas and shantytowns is recognized to the extent that the Framework Agreement has been renewed for the period in which the service was rendered.
Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charge regarding with the Resolution 347/12 (Note 2.c.V).
The Company also recognizes revenue from other concepts included in distribution services, such as new connections, reconnections, rights of use on poles, transportation of electricity to other distribution companies, etc.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Revenue from CMM (Cost Monitoring Mechanism) amounts are recognized in the accounting to the extent that they have been approved by the ENRE (Note 2).
The aforementioned revenue from operations was recognized when all of the following conditions were met:
1.the entity transferred to the buyer the significant risks and rewards;
2.the amount of revenue was measured reliably;
3.it is probable that the economic benefits associated with the transaction will flow to the entity;
4.the costs incurred or to be incurred, in respect of the transaction, were measured reliably.
b.Revenue from construction
The construction of the infrastructure necessary for the subsidiary EDEN S.A. to distribute electricity is considered a service rendered to the concession authority and the corresponding revenue is reflected at cost within the sales account.
Different asset construction agreements have been instrumented where the buyer only has limited influence in the design of the construction. In IFRIC 12 application framework, IAS 18 is applied to recognize revenue from such construction agreements.In accordance with this standard, revenue from the transfer of infrastructure must be recognized at the time of the exchange of the assets, in which the risks and rewards are transferred to the buyer. Therefore, unfinished works are included within the Assets under Construction account. EDEN does not recognize a margin for the type of constructions, except in the case of construction works with customer contributions.
c.Interest income
Interest income is recognized by applying the effective interest rate method. Interest income is recorded in the accounting on a time basis by reference to the principal amount outstanding and the applicable effective rate.
Interest income is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the transaction can be measured reliably.
4.5Segment information
Operating segments reporting is consistent with the internal reports revised by the Executive Committee, which is the maximum authority for making decisions concerning operating issues. The Executive Committee is responsible for assigning resources and assessing the performance of the entity’s operating segments, and has been identified as the body which carries out the Company’s strategic decisions
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
4.6Assets and liabilities of disposal groups classified as held for sale
The subsidiaries’ assets and liabilities that have been made available for sale are classified as Assets available for sale and Associated liabilities when the carrying amount will be mainly recovered through a sale transaction, and this transaction is regarded as highly probable.
These assets are valued at the lower of the carrying amount and fair value less costs to sell.
The amounts recognized in profit or loss corresponding to discontinued operations have been included in a single line item of the Company’s consolidated statement of comprehensive loss called "Discontinued operations".
4.7Effects of the changes in foreign currency exchange rates
a.Functional and presentation currency
The information included in the financial statements of each of the entities comprising the group is measured using the latter’s functional currency, which is the currency of the main economic environment in which the entity operates. The consolidated financial statements are presented in pesos (legal currency in Argentina for all the companies domiciled therein), which is also the presentation currency of the group.
b.Transactions and balances
Foreign currency denominated transactions are translated into the functional and presentation currency using the rates of exchange prevailing at the date of the transactions or revaluation, when the concepts thereof are restated. Gains and losses generated by foreign currency exchange differences resulting from each transaction and from the translation of monetary items valued in foreign currency at the end of the year are recognized in the statement of income, except for the amounts that are capitalized.
The foreign currency exchange rates used are: the bid price for monetary assets, the offer price for monetary liabilities, the average exchange rate at the end of the year for balances with related parties and the specific exchange rate for foreign currency denominated transactions.
c.The group’s companies
None of the companies comprising the group has a functional currency different from the Argentine peso. Accordingly, no foreign currency translation effects exist.
4.84.2 Property, plant and equipment
The total value of property, plant and equipment transferred by SEGBA on September 1, 1992 was allocated to individual assets accounts on the basis of engineering studies conducted by the Company.
The value of property, plant and equipment was determined based on the price effectively paid by EASA for the acquisition of 51% of the Company’s capital stock.
SEGBA neither prepared separate financial statements nor maintained financial information or records with respect to its distribution operations or the operations in which the assets transferred to EDENOR were used. Accordingly, it was not possible to determine the historical cost of transferred assets.
Additions subsequent to such date have been valued at acquisition cost, net of the related accumulated depreciation. Depreciation has been calculated by applying the straight-line method over the remaining useful life ofthe assets, which was determined on the basis of the above-mentioned engineering studies. Furthermore, in order to improve the disclosure of the account, the Company has made certain changes in the classification of property, plant and equipment based on each technical process.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
In accordance with the provisions of IAS 23, borrowing costs in relation to any given asset are to be capitalized when such asset is in the process of production, construction, assembly or completion, and such processes, due to their nature, take long periods of time; those processes are not interrupted; the period of production, construction, assembly or completion does not exceed the technically required period; the necessary activities to put the asset in condition to be used or sold are not substantially complete; and the asset is not in condition so as to be used in the production or start upstartup of other assets, depending on the purpose pursued with its production, construction, assembly or completion.
Subsequent costs (major maintenance and reconstruction costs) are either included in the value of the assets or recognized as a separate asset, only if it is probable that the future benefits associated with the assets will flow to the Company, being it possible as well that the costs of the assets may be measured reliably and the investment will improve the condition of the asset beyond its original state. The other maintenance and repair expenses are recognized in profit or loss in the year in which they are incurred.
Impairment test
The Company analyzes the recoverability of its non-current assets on a periodical basis or when events or changes in circumstances indicate that the recoverable amount of assets, which is measured as the value in use at the end of the year, may be impaired. When the carrying amount of an asset is greater than its estimated recoverable amount, the asset’s carrying amount is immediately reduced up to its recoverable amount.
The value in use is determined based on projected and discounted cash flows, using discount rates that reflect the time value of money and the specific risks of the assets considered.
Cash flows are prepared on the basis of estimates concerning the future performance of certain variables that are sensitive to the determination of the recoverable amount, among which the following can be noted: (i) nature, opportunity and modality of electricity rate increases and cost adjustment recognition; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred, and; (iv) macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates.
The future increase in electricity rates used by the Company to assess the recoverability of its long-lived assets as at December 31, 2012 is based on the rights to which the Company is entitled, as stipulated in the Concession Agreement and the agreements described in Note 2. Furthermore, the actions taken to maintain and guarantee the provision of the public service, the presentations made before regulatory authorities, the status quo of the discussions that are being held with government representatives, the announcements made by government officials concerning possible changes in the sector’s revenues to restore the economic and financial equation, and certain measures recently adopted, such as the new charge described in Note 2.c.V, have also been considered. In light of the aforementioned, the Company’s Management estimates that it is reasonable to expect that new increases in revenues will be obtained as from 2013.
In spite of the current economic and financial situation described in Note 1, the Company has made its projections under the assumption that the electricity rates will be improved according to the circumstances. However, the Company may not ensure that the future performance of the variables used to make its projections will be in line with what it has estimated. Therefore, significant differences may arise in relation to the estimates used and assessments made at the date of preparation of these consolidated financial statements.
In order to contemplate the estimation risk contained in the projections of the aforementioned variables, the Company has considered three different probability-weighted scenarios. Although in all of them an acceptable agreement with the Government resulting in gradual tariff increases is assumed, the Company has considered different timing and magnitude of expected DAV increases. The three scenarios can be classified into pessimistic, optimistic and intermediate depending on the opportunity of the application and magnitude of the expected CMMadjustments. The Company has assigned for these three scenarios the following percentages of probability of occurrence based mainly on the experience with past delays in the tariff renegotiation process, the current economic and financial situation and the need to maintain the public service in operation: pessimistic scenario: 20%, optimistic scenario: 30%, and intermediate scenario: 50%.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
Based on that which has been mentioned above, the Company determined that the valuation of property, plant and equipment does not exceed their recoverable amount at December 31, 2012.
Finally, and in accordance with the concession agreement, the Company may not pledge the assets used in the provision of the public service nor grant any other security interest thereon in favor of third parties, without prejudice to the Company’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted over an asset at the time of its acquisition and/or construction as collateral for payment of the purchase and/or installation price.
The residual value and the remaining useful lives of the assets are reviewed and adjusted, if appropriate, at the end of each fiscal year (reporting period).
Land is not depreciated.
These depreciation methods are used to allocate the difference between cost and residual value during the estimated useful life of the assets.
Facilities in service: between 30 and 50 years
Furniture, tools and equipment: between 5 and 20 years
Construction in process is valued based on the degree of completion. Construction in processcompletion and is recorded at cost less any impairment loss, if applicable. Cost includes expenses attributable to the construction, including capitalized borrowing costs in accordance with IFRS and the Company’s accounting policies, when they are part of the cost incurred for the purposes of acquisition, construction or production of property, plant and equipment which require considerable time until they are in condition to be used. Borrowing costs are no longer capitalized when the asset has been substantially finished or its development has been suspended. These assets begin to be depreciated when they are in economic condition to be used.
Gains and losses from the sale of property, plant and equipment are calculated by comparing the price collected with the carrying amount of the asset, and are recognized within Other operating expense or Other operating income in the consolidated statement of comprehensive loss.income.
The Company considers three different probability-weighted scenarios and analyzes the recoverability of its long-lived assets as described in Critical accounting estimates and judgments (Note 6.c).
The valuation of property, plant and equipment, taken as a whole, does not exceed its recoverable value, which is measured as the value in use as of the end of each year (Note 6.c).
4.94.3 Intangible assets
EDEN’s concession agreement
IFRIC 12 “Service Concession Arrangements” provides guidelines to account for public service concession arrangements to a private operator. This interpretation applies if:
·the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them and at what price; and
·the grantor controls through the ownership, beneficial entitlement or otherwise, any significant residual interestInterests in the infrastructure at the end of the term of the arrangement.
If the above-mentioned conditions are simultaneously met, an intangible asset is recognized to the extent that the operator receives a right to charge users of the public service, provided, however, that these rights are contingent on the degree of use of the service.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
These intangible assets are initially recognized at cost, which is regarded as the fair value of the consideration delivered, plus other direct costs directly attributable to the operation. Concessions have a finite useful life and are subsequently measured at cost less accumulated amortization, which is determined by applying the straight-line method the estimated useful life of each asset, without exceeding the term of the concession.
The Company has applied the intangible asset method established in IFRIC 12 for EDEN’s concession agreement. No financial asset has been recognized in relation to the concession agreements due to the fact that the agreements signed do not stipulate minimum guaranteed payments.
The guidelines of IFRIC 12 do not apply to Edenor’s concession agreement. The Company considers that in substance the grantors do not have the characteristic features of control over infrastructures as defined in IFRIC 12.
4.10Impairment of non-financial asset
Assets that have an indefinite useful life, such as goodwill, are not subject to amortization and are tested annually for impairment.
Assets subject to depreciation are reviewed for impairment losses whenever an event or change in circumstances indicates that the carrying amount may not be recovered. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For purposes of assessing impairment losses, assets are grouped at the lowest level at which independent cash flows can be identified (cash generating units).
Non-financial assets, other than goodwill, that suffered an impairment loss are reviewed for possible reversal of the impairment at each reporting date.
4.11 Financial assetsjoint ventures
The Company has early adopted the application of IFRS 9.11 as from January 1, 2011, the main concepts of which are as follow:
i.A joint arrangement takes place among two or more parties when they have joint control: joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
ii.A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Such parties are called joint venturers.
iii.A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. These parties are called joint operators.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The Company accounts for its investment in joint ventures in accordance with the equity method. Under this method, the interest is initially recognized at cost and subsequently adjusted by recognizing the Company’s share in the profit or loss obtained by the joint venture, after acquisition date. The Company recognizes in profit or loss its share of the joint venture’s profit or loss and in other comprehensive income its share of the joint venture’s other comprehensive income.
When the Company carries out transactions in the joint ventures, the income and losses are eliminated in accordance with the percentage interest held by the Company in the jointly controlled entity.
The accounting policies of joint ventures have been modified, if applicable, to ensure consistency with the policies adopted by the Company.
Furthermore, taking into account that the interests in joint ventures are not regarded as significant balances, the disclosure requirements of IFRS 12 have not been made.
4.11.14.4Revenue recognition
i.Revenue from sales
Revenue is measured at the fair value of the consideration collected or to be collected, taking into account the estimated amount of any discount, thus determining the net amounts.
Revenue from the electricity provided by the Company to low-income areas and shantytowns is recognized to the extent that the Framework Agreement has been renewed for the period in which the service was rendered.
Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes both the electricity supplied, whether billed or unbilled at the end of each year, which has been valued on the basis of applicable tariffs, and the charges resulting from the application of Resolution 347/12 (Note 2.c.VII).
The Company also recognizes revenue from other concepts included in distribution services, such as new connections, reconnections, rights of use on poles, transportation of electricity to other distribution companies, etc.
The aforementioned revenue from operations was recognized when all of the following conditions were met:
1.the entity transferred to the buyer the significant risks and rewards;
2.the amount of revenue was measured reliably;
3.it is probable that the economic benefits associated with the transaction will flow to the entity;
4.the costs incurred or to be incurred, in respect of the transaction, were measured reliably.
ii.Interest income
Interest income is recognized by applying the effective interest rate method. Interest income is recorded in the accounting on a time basis by reference to the principal amount outstanding and the applicable effective rate.
Interest income is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the transaction can be measured reliably.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
4.5Effects of the changes in foreign currency exchange rates
a.Functional and presentation currency
The information included in the financial statements is measured using the Company’s functional currency, which is the currency of the main economic environment in which the entity operates. The financial statements are measured in pesos (legal currency in Argentina), which is also the presentation currency.
b.Transactions and balances
Foreign currency denominated transactions and balances are translated into the functional and presentation currency using the rates of exchange prevailing at the date of the transactions or revaluation, respectively. The gains and losses generated by foreign currency exchange differences resulting from each transaction and from the translation of monetary items valued in foreign currency at the end of the year are recognized in the statement of income, except for the amounts that are capitalized.
The foreign currency exchange rates used are: the bid price for monetary assets, the offer price for monetary liabilities, the average exchange rate at the end of the year for balances with related parties and the specific exchange rate for foreign currency denominated transactions.
4.6Trade and other receivables
a.Trade receivables
The receivables arising from services billed to customers but not collected as well as those arising from services rendered but unbilled at the closing date of each financial year are recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
The receivables from electricity supplied to low-income areas and shantytowns are recognized, also in line with revenue, when the Framework Agreement has been renewed for the period in which the service was provided.
The amounts thus determined are net of an allowance for the impairment of receivables. Any debt arising from the bills for electricity consumption that remain unpaid 13 working days after their due dates for small-demand (tariff 1) customers and 7 working days after due date for medium and large-demand (tariff 2 and 3) customers is considered a delinquent balance. The uncollectibility rate is determined per customer category based on the historical comparison of collections made and delinquent balances of each customer group.
Additionally, and faced with temporary and/or exceptional situations, the Company Management may redefine the amount of the allowance, specifying and supporting the criteria used in all the cases.
b.Other receivables
Other receivables are initially recognized at fair value (generally the original billing/settlement amount) and subsequently measured at amortized cost, using the effective interest rate method, and when significant, adjusted by the time value of money. The Company records impairment allowances when there is objective evidence that the Company will not be able to collect all the amounts owed to it in accordance with the original terms of the receivables.
The MMC amounts receivable, as well as the related income, are recognized to the extent that they have been approved by the ENRE and recognized by the SE by means of a Note or Resolution.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
4.7Inventories
Inventories are valued at the lower of acquisition cost and net realizable value.
They are valued based on the purchase price, import duties (if applicable), and other taxes (that are not subsequently recovered by tax authorities), and other costs directly attributable to the acquisition of those assets.
Cost is determined by applying the weighted average cost method.
The Company has classified inventories into current and non-current depending on whether they will be used for maintenance or capital expenditures and on the period in which they are expected to be used. The non-current portion of inventories is disclosed in the “Property, plant and equipment” account.
The valuation of inventories, taken as a whole, does not exceed their recoverable value at the end of each year.
4.8Financial assets
The Company has adopted phase 1 of IFRS 9 as from the date of transition.
4.8.1 Classification
The Company classifies financial assets into the following categories: those measured at amortized cost and those subsequently measured at fair value. This classification depends on whether the financial asset is an investment in a debt or an equity instrument. In order for a financial asset to be measured at amortized cost, the two conditions described below must be met. All other financial assets are measured at fair value. IFRS 9 requires that all investments in equity instruments be measured at fair value.
a. Financial assets at amortized cost
Financial assets are measured at amortized cost if the following conditions are met:
i. the objective of the Company’s business model is to hold the assets to collect the contractual cash flows; and
ii. the contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on principal.
b. Financial assets at fair value
If any of the above-detailed conditions is not met, financial assets are measured at fair value through profit or loss.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
All investments in equity and public instruments are measured at fair value. For those investments that are not held for trading, the Company may irrevocably elect at the time of their initial recognition to present the changes in the fair value in other comprehensive income. The Company’s decision was to recognize the changes in fair value in profit or loss.
4.11.2EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
4.8.2 Recognition and measurement
The regular way purchase or sale of financial assets is recognized on the trade date, i.e. the date on which the Company agrees to acquire or sell the asset. Financial assets are derecognized when the rights to receive the cash flows from the investments have expired or been transferred and the Company has transferred substantially all the risks and rewards of the ownership of the assets.
Financial assets are initially recognized at their fair value plus, in the case of financial assets not measured at fair value through profit or loss, transaction costs that are directly attributable to the acquisition thereof.
The gains or losses generated by investments in debt instruments that are subsequently measured at fair value and are not part of a hedging transaction are recognized in financial incomeprofit or financial loss. Those generated by investments in debt instruments that are subsequently measured at amortized cost and are not part of a hedging transaction are recognized in financial incomeprofit or financial loss when the financial asset is derecognized or impaired and by means of the amortization process using the effective interest rate method.
The Company subsequently measures all the investments in equity instruments at fair value. When it elects to present the changes in fair value in other comprehensive income, such changes cannot be reclassified to profit or loss. Dividends arising from these investments are recognized in profit or loss to the extent that they represent a return on the investment.
The Company reclassifies financial assets if and only if its business model to manage financial assets is changed.
4.11.34.8.3 Impairment of financial assets
At the end of each reporting period, the Company assesses whether there is objective evidence that the value of a financial asset or group of financial assets measured at amortized cost is impaired. The value of a financial asset or group of financial assets is impaired, and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.measured.
Impairment tests may include evidence that the debtors or group of debtors are undergoing significant financial difficulties, have defaulted on interest or principal payments or made them after they had come due, the probability that they will enter bankruptcy or other financial reorganization, and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in payment terms or in the economic conditions that correlate with defaults.
TheIn the case of financial assets measured at amortized cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the impairment loss is recognized in the consolidated statement of income.
4.11.44.8.4 Offsetting of financial instruments
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, 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.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
4.124.9 Derivative financial instruments
DerivativesDerivative financial instruments are initially recognized at fair value on the date on which the derivativerespective contract is signed. Subsequently to the initial recognition, they are remeasured at their fair value. The method for recognizing the resulting loss or gain depends on whether the derivative has been designated as a hedging instrument and, if that is the case, on the nature of the item being hedged. The Company has not designated any derivative as a hedging instrument, therefore, atAs of December 31, 20122015 and 20112014, the economic impact of these transactions resulted in a loss that has beenare recorded in the Financial expensesOther financial expense account of the consolidated statementStatement of comprehensive income.
“Derivative financial instruments” have been valued in accordance with the provisions of IFRS 9.
Furthermore,On September 2015, with the changesaim of hedging the currency risk associated with the payment of the next interest coupon, the Company entered into futures contracts to buy US dollars for a nominal value of USD 10 million, at the average rate of exchange of ARS 10.829 per US dollar, expiring in April 2016.
Those contracts are secured for a value of $ 16.5 million, disclosed in the fair value“Other Receivables” account.
As of December 31, 2015, the economic impact of these financial instruments -Corporate Notes Swap- have beentransactions resulted in a gain of $ 27.2 million, which is recorded by the Company in the Changes inOther financial results account of the Fair ValueStatement of Financial Instruments line item, in other financial results.
The changes in the fair value of these financial instruments forward and futures contracts- have been recorded by the Company in the Changes in the Fair Value of Financial Instruments line item, in other financial results. At December 31, 2011 and January 1, 2011, the aforementioned transactions have been fully settled.Comprehensive Income.
4.13Inventories
Inventories are valued at the lower of acquisition cost and net realizable value.
Given the fact that the Company’s inventories are not assets intended for sale, they are valued based on the purchase price, import duties (if applicable), and other taxes (that are not subsequently recovered by tax authorities), transport, warehouse and other costs directly attributable to the acquisition of those assets.
Cost is determined by applying the first in first out (FIFO) valuation method.
The Company has classified inventories into current and non-current depending on whether they will be used for maintenance or capital expenditures and on the period in which they are expected to be used. The non-current portion of inventories has been disclosed in the “Property, plant and equipment” account.
The valuation of inventories, taken as a whole, does not exceed their recuperable value at the end of each year.
4.14Assets under construction
Assets under construction refers to the works carried out by EDEN S.A. that have not been finished at the closing date of the financial statements or do not comply with IFRS requirements to be derecognized from assets and recognized as revenue.
Assets under construction include design, supply, direct labor and other indirectly-related construction costs.
4.15Trade and other receivables
a.Trade receivables
The receivables arising from services billed to customers but not collected as well as those arising from services rendered but unbilled at the closing date of each financial year are recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Services rendered but unbilled at January 1,2011, arising from the retroactive increase deriving from the application of the electricity rate schedule resulting from the Temporary Tariff Regime (RTT) have been valued on the basis of the best estimate of the amount to be collected, discounted at a representative annual nominal rate, which reasonably reflected market assessments of the time value of money and risks specific to the receivable at the time of initial recognition.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
The amounts thus determined:
i.are net of an allowance for the impairment of receivables.
ii.consider the effects of that which is described in Note 2.
CMM receivables are recognized, as the related revenue, to the extent that they have been approved by the ENRE; receivables from electricity provided to low-income areas and shantytowns are recognized, also in line with revenue, when the Framework Agreement has been renewed for the period accrued.
At the date of these financial statements, CMM balances are the best estimate of the amounts receivable.
The Company has recorded an allowance for doubtful accounts to adjust the valuation of trade receivables up to their estimated recoverable amount. Depending on the receivables portfolio, the allowance is recorded based on an individual recoverability analysis (accounts receivable in litigation) or on the historical series of collections for services billed through the end of each period and collections subsequent thereto.
b.Other receivables
Other receivables are initially recognized at fair value (generally the original billing/settlement amount) and subsequently measured at amortized cost, using the effective interest rate method, and when significant, adjusted by the time value of the money. The Company records impairment allowances when there is objective evidence that the Company will not be able to collect all the amounts owed to it in accordance with the original terms of the receivables.
4.164.10 Cash and cash equivalents
In the consolidated statement of cash flows, cashCash and cash equivalents include cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less from their acquisition date.date, with significant low risk of change in value.
· Cash and banks in local currency:at nominal value.
· Cash and banks in foreign currency: at the exchange rates in effect at the end of each theyear.
· Time deposits, which include the portion of interest income accrued through the end of eachthe year.
· Money market funds, which have been valued at the prevailing market price at the end of each theyear. Those that do not qualify as cash equivalents are disclosed in the Financial assets account at fair value through profit or loss.
4.11Equity
Changes in this account have been accounted for in accordance with the corresponding legal or statutory regulations and the decisions adopted by the shareholders’ meetings.
a.Share capital
Share capital represents issued capital, which is comprised of the contributions committed and/or made by the shareholders, represented by shares, including outstanding shares at nominal value.
b.Treasury stock
The Treasury stock account represents the nominal value of the Company’s own shares acquired by the Company.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
4.17c.Other comprehensive loss
Represents recognition, at the end of the year, of the actuarial losses associated with the Company’s employee benefit plans.
d.Retained earnings
Retained earnings are comprised of profits or accumulated losses with no specific appropriation. When positive, they may be distributed, if so decided by the Shareholders’ Meeting, to the extent that they are not subject to legal restrictions. Retained earnings are comprised of previous year results that have not been distributed, amounts transferred from other comprehensive income and prior year adjustments due to the application of accounting standards.
4.12 Trade payables and other liabilitiespayables
a. Trade payables
Trade payables are payment obligations with suppliers for the purchase of goods and services in the ordinary course of business. Trade payables are classified as current liabilities if payments fall due within one year or in a shorter period of time. Otherwise, they are classified as non-current liabilities.
Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
b. Customer depositsguarantees
Customer depositsguarantees are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.
In accordance with the Concession Agreement, the Company is allowed to receive customer depositsguarantees in the following cases:
i.When the power supply is requested and the user is unable to provide evidence of his legal ownership of the premises;
ii.When service has been suspended more than once in one-year period;
iii.When the power supply is reconnected and the Company is able to verify the illegal use of the service (fraud).
iv.When the customer is undergoing liquidated bankruptcy or reorganization proceedings.
The Company has decided not to request customer depositsguarantees from residential tariff customers.
Customer depositsguarantees may be either paid in cash or through the customer’s bill and accrue monthly interest at a specific rate of Banco de la Nación Argentina for each customer.customer category.
When the conditions for which the Company is allowed to receive customer depositsguarantees no longer exist, the customer’s account is credited for the principal amount plus any interest accrued thereon, are credited to the customer’s account after deducting, if appropriate, any amounts receivable which the Company may has with the customer.
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EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
c. Customer contributions
Subject to reimbursement:
Refundable:The Company receives assets or facilities (or the cash necessary to acquire or built them) from certain customers for services to be provided, based on individual agreements and the provisions of ENRE Resolution No. 215/2012. These contributions are initially recognized as trade payables at fair value with a contra-account in Property, plant and equipment, and subsequently measured at amortized cost using the effective interest rate method.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
d. Other liabilitiespayables
The other liabilities recorded in Other liabilitiesPayables, including the Loans for consumption (Mutuums) with CAMMESA (Note 2.c.VIII), the Payment agreement with the ENRE (Note 2.e).iv) and the advances for the execution of works, are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method.cost.
The recorded liabilities represent, mainly, PUREE obligations andfor the debts with the FOCEDE (Note 2.c.VI), the debts with the FOTAE, the penalties accrued, whether imposed or not yet issued by the ENRE which(Note 2.e), the Company’s Management estimates will be paidPUREE-related debts, and other provisions are the best estimate of the settlement value of the present obligation in the future.framework of IAS 37 provisions at the date of these financial statements.
The balances corresponding toof ENRE Penalties and Discounts are adjusted in accordance with the regulatory framework applicable thereto.
The balances regarding PUREE representthereto and are based on the best estimationCompany’s estimate of the necessary cash flowoutcome of the RTI process described in Note 2, whereas the balances of the loans for consumption (mutuums) are adjusted by a rate equivalent to set off the present obligationmonthly average yield obtained by CAMMESA from its short-term investments.
4.18Deferred revenue
Edenor - Not subject to reimbursement:
The Company receives assets or facilities (or the cash necessary to acquire or built them) from certain customers for services to be provided, based on individual agreements. In accordance with IFRS, the assets received are recognized by the Company as Property, plant and equipment with a contra-account in deferred revenue, the accrual of which depends on the nature of the identifiable services, in accordance with the following:
·Customer connection to the network: revenue is accrued until the completion of such connection;
·Continuous provision of the electric power supply service: throughout the useful life of the asset or the term for the provision of the service, whichever the lower.
Eden
Upon completion, the construction works carried out by EDEN S.A. within the framework of IFRIC 12, that are financed with customer funds and/or an amount added to the electricity rate and/or PUREE, are recognized as intangible assets and amortized over the useful life of each of them. The reward for having received a construction work to be operated is recognized within the Deferred revenue account. This deferred revenue is accrued in the same manner as the intangible asset is amortized.
4.194.13 Borrowings
Borrowings are initially recognized at fair value, net of direct costs incurred in the transaction. Subsequently, they are measured at amortized cost; any difference between the funds obtained (net of direct costs incurred in the transaction) and the amount to be paid at maturity is recognized in profit or loss during the term of the borrowings using the effective interest rate method.
4.14Deferred revenue
Non-refundable customer contributions:The commissions paidCompany receives assets or facilities (or the cash necessary to obtain lines of creditacquire or built them) from certain customers for services to be provided, based on individual agreements. In accordance with IFRIC 18, the assets received are recognized by the Company as direct costs incurredProperty, plant and equipment with a contra-account in deferred revenue, the transaction provided that it is probable that either part or allaccrual of which depends on the nature of the line of credit will be used. In this case,identifiable services, in accordance with the recognition of commissions in profit or lossfollowing:
·Customer connection to the network: revenue is deferredaccrued until such funds are used.connection is completed;
·Continuous provision of the electric power supply service: throughout the shorter of the useful life of the asset and the term for the provision of the service.
4.15Employee benefits
Benefit plans
The Company operates various benefit plans. Usually, benefit plans establish the amount of the benefit the employee will receive at the time of retirement, generally based on one or more factors such as age, years of service and salary.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
The liability recognized in the statement of financial position in respect of benefit plans is the present value of the benefit plan obligation at the closing date of the year, together with the adjustments for past service costs and actuarial gains or losses. The benefit plan obligation is calculated annually by independent actuaries in accordance with the projected unit credit method. The present value of the benefit plan obligation is determined by discounting the estimated future cash outflows using actuarial assumptions about demographic and financial variables that affect the determination of the amount of such benefits. The benefit plans are not funded.
The group’s accounting policy for benefit plans is as follow:
4.20a. Borrowing costs
BorrowingPast service costs directly attributableare recognized immediately in profit or loss, unless the changes to the acquisition, construction or production of qualifying assets, whichbenefit plan are those assets that takeconditional on the employees remaining in service for a substantialspecified period of time to get ready for their intended use or sale,(the vesting period). In this case, past service costs are capitalized as part ofamortized on a straight-line basis over the cost of such assets until such time as they are in condition to be used or sold.vesting period.
All other borrowing costsb.Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized as an expensein other comprehensive income in the period in which they are incurred.arise.
4.214.16 Income tax and tax on minimum presumed income
a. Current and deferredDeferred income tax
The tax expense for the year is comprised of the current tax and the deferred tax. Incomeincome tax is recognized in profit or loss, except to the extent that the tax relates to items recognized in other comprehensive income or directly in equity in which case, the income tax is also recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculateddepending on the basis of the tax laws enacted at the date of these financial statements. Management periodically evaluates the positions taken in tax returns with respect to situations initems from which the applicable tax regulation is subject to interpretation and, if necessary, records provisions on the basis of the amount expected to be paid to the tax authorities.it originates.
The deferred tax is recognized, in accordance with the liability method, on the temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the consolidated statement of financial position. However, no deferred tax liability is recognized if such difference arises from the initial recognition of goodwill, or from the initial recognition of an asset or liability other than in a business combination, which at the time of the transaction affected neither the accounting nor the taxable profit.
The deferred tax is determined using the tax rate that is in effect at the date of the financial statements and is expected to apply when the deferred tax assets are realized or the deferred tax liabilities are settled.
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 settleentity. Deferred tax assets and liabilities on a net basis. Current and deferred tax assets and liabilities have not been discounted.are stated at their undiscounted value.
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.
b. Tax on minimum presumed income
The Company determines the tax on minimum presumed income by applying the current rate of 1% on the Company’sits taxable assets at year-end. The tax on minimum presumed income and the income tax complement each other. The Company’s tax obligation for each year will be equal to the higher of these taxes. However, should the tax on minimum presumed income exceed income tax in any given fiscal year, such excess may be computed as a payment on account of any excess of income tax over the tax on minimum presumed income that may arise in any of the ten subsequent fiscal years.
Minimum presumed income tax assets and liabilities have not been discounted.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
The Company has recognized the minimum presumed income tax accrued in the year and paid in previous years as a receivable, as it estimates that in future fiscal years it may be computed as a payment on account of the income tax.
4.22Employee benefits
Benefit plans4.17Assignments of use
The Company operates various benefit plans. Usually, benefit plans establish the amountassignments of use in which a significant portion of the benefitrisks and rewards of ownership is retained by the employee will receive atassignor are classified as operating. At present, the timeCompany only has assignment of retirement, generally based on one or more factors suchuse contracts that are classified as age, years of service and salary.operating.
The liability recognized in the consolidated statement of financial position in respect of benefit plans is the present value of the benefit plan obligation at the closing date of the year, together with the adjustments for actuarial losses. The benefit plan obligation is calculated annually by independent actuaries in accordance with the projected unit credit method. The present value of the benefit obligation is determined by discounting the estimated future cash outflows using the interest rate of high quality corporate bonds denominated in the same currency in which the benefits will be paid and whose maturity terms are similar to those of the corresponding obligations.
The group’s accounting policy for benefit plans is as follow:
a. Past service costsAs assignee
The payments with respect to operating assignments of use are immediately recognized as operating expenses in profit or loss.the statement of comprehensive income on a straight-line basis throughout the term of the assignment.
b. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income in the period in which they arise.As assignor
At December 31, 2012, 2011 and January 1, 2011,The assignments of use in which the Company does not have any assets relatedtransfer substantially all the risks and rewards of the ownership of the asset are classified as operating assignments of use.
The collections with respect to operating assignments of use are recognized as income in the employee benefits plan.
statement of comprehensive income on a straight-line basis throughout the term of the assignment.
4.234.18 Provisions and contingencies
Provisions have been recognized in those cases in which the Company is faced with a present obligation, whether legal or constructive, that has arisen as a result of a past event, whose settlement is expected to result in an outflow of resources, and the amount thereof can be estimated reliably.
The amount recognized as provisions was the best estimate of the expenditure required to settle the present obligation, at the end of the reporting period,year, taking into account the corresponding risks and uncertainties. When a provision is measured using the estimated cash flow to settle the present obligation, the carrying amount represents the present value of such cash flow. This present value is obtained by applying a pre-tax discount rate that reflects market conditions, the time value of money and the specific risks of the obligation.
The provisions included in liabilities have been recorded to face contingent situations that could result in future payment obligations. To estimate the amount of provisions and the likelihood of an outflow of resources, the opinion of the Company legal advisors has been taken into account.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
4.24Leases
Those leases in which a significant portion of the risks and rewards deriving from ownership are kept by the lessor are classified as operating leases. At present, the Company only has lease agreements that are classified as operating leases.
a.As lessee
Operating lease payments are recognized as operating expenses in the Statement of Income on a straight-line basis throughout the term of the lease.
b.As lessor
Those leases in which the Company does not transfer substantially all the risks and rewards inherent to the ownership of the asset are classified as operating leases.
Operating lease collections are recognized as income in the consolidated statement of comprehensive loss on a straight-line basis throughout the term of the lease.
4.254.19 Balances with related parties
Receivables and liabilitiespayables with related parties are initially recognized at fair value and subsequently measured at amortized cost in accordance with the terms agreed upon by the parties involved.
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4.26EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
4.20 Equity Higher costs recognition
Changes in this accountThe recognition of higher costs (Note 2.c.VI) not transferred to the tariff, as well as the recognition established by SE Resolution 32/15 fall within the scope of IAS 20 inasmuch as they imply a compensation to cover the expenses and afford the investments associated with the normal provision of the public service, object of the concession.
Their recognition is made at fair value when there is reasonable assurance that they will be collected and the conditions attached thereto have been accounted for in accordancecomplied with, the corresponding legal or statutory regulations and the decisions adopted by the shareholders’ meetings.
a.Share capital
Share capital represents issued capital, which is comprisedi.e. provision of the contributions committed and/or made by the shareholders, represented by shares, including outstanding shares at nominal value.
b.Adjustment to capital
In accordance with Argentine GAAP and the requirements of control authorities, this subject reflects the effects of inflation over the “Share Capital”, when it was required, which remains at nominal value.
c.Treasury stock
The Treasury stock account represents the nominal value of the Company’s own shares acquired by the Company.
d.Adjustment to treasury stock
In accordance with Argentine GAAP and the requirements of control authorities, this subject reflects the effects of inflation over the “Treasury Stock” , when it was required, which remains at nominal value.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
e.Additional paid-in capital
Refers to the share premium of the outstanding share capital and to the acquisition of additional non-controlling interestsservice in subsidiaries generated by the difference between the fair value of non-controlling interests and the consideration paid.
f.Legal reserve
In accordance with the provisions of the Argentine Business Organizations Law No. 19,550, not less than five percent (5%) of the profits arising from the statement of income for the year must be allocated to the legal reserve, until it equals twenty percent (20%) of share capital.
g.Retained earnings
Retained earnings are comprised of profits or accumulated losses with no specific appropriation. When positive, they may be distributed, if so decided by the Shareholders’ Meeting, to the extent that they are not subject to legal restrictions. Retained earnings are comprised of previous year results that have not been distributed, amounts transferred from other comprehensive income and prior year adjustments due to the application of accounting standards.
In the case of accumulated losses to be absorbed at the end of the year, the following appropriation order must be followed by the Shareholders’ Meeting when considering such absorption:
i.Legal reserve
ii.Additional paid-in capital, merger premiumsrecognition established in SE Resolution 32/15, and treasury stock negotiation premiums, if exists
iii.Adjustment to Treasury Stock
iv.Treasury Stock
v.Adjustment to capital
vi.Share capital
h.Distribution of dividends
The distribution of dividends to the Company’s shareholders is recognized as a liability in the consolidated financial statements for the year in which dividend distribution is approved by the Shareholders’ Meeting. Additionally, the ENRE’s approval is necessaryand the SE’s recognition, by means of a Note or Resolution, in the case of the recognition of higher costs (Note 2.c.VI).
As for the distributionincome deriving from the funds to which SE Resolution No. 745/05 (Note 2.c.VI) refers, it is recognized on the basis of dividends byamounts billed.
Such concepts have been disclosed in the Company.“Recognition of income on account of the RTI – Resolution 32/15” and “Higher Costs Recognition - SE Resolution 250/13 and subsequent Notes” line items of the Statement of Comprehensive Income as of December 31, 2015 and 2014, recognizing the related tax effects. There have been no unfulfilled conditions or any other related contingencies.
5. Financial risk management
3.
4.
5.
5.1 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 currency risk, cash flows interest rate risk, fair value interest rate risk and price risk), credit risk and liquidity risk.
The management of the financial risk is part of the Company’s overall policies, which focus on the unpredictability of the financial markets and seek to minimize potential adverse effects on its financial performance. Financial risks are the risks derived from the financial instruments to which the Company is exposed during or at the end of each year. The Company uses derivative instruments to hedge exposure to certain economic risks whenever itdeems appropriate in accordance with its internal risk management policy. The Company does not apply hedge accounting.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Risk management is controlled by the Finance and Control Department, which identifies, evaluates and hedges financial risks. Risk management policies and systems are periodically reviewed so that they can reflect the changes in the market’s conditions and the Company’s activities.
This section includes a description of the main risks and uncertainties that could have a material adverse effect on the Company’s strategy, performance, results of operations and financial position.
a. Market risks
i. Currency risk
Currency risk is the risk of fluctuation in the fair value or future cash flows of a financial instrument due to changes in foreign currency exchange rates. The Company’s exposure to currency risk relates to the collection of its revenue in pesos, in conformity with regulated electricity rates that are not indexed in relation to the US dollar, whereas a significant portion of its existing financial liabilities is denominated in US dollars. Therefore, the Company is exposed to the risk of a loss resulting from a devaluation of the peso. The Company partially hedgesmay hedge its currency risk by enteringtrying to enter into currency forwards.futures. Nevertheless, it continues to experience a considerable exposure toat the US dollar. Furthermore, the Company has carried out transactions with derivativedate of issuance of these financial instruments with the aim of hedging the exchange rate of the cash flowsstatements, it will have to pay in the next interest payment dates of its corporate notes. Although it may also enter into other hedging contracts to hedge all or part of its remaining exposure, the Company has not been able to hedge all its exposure to the US dollar under such terms as it may consider viable.
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EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
If the Company continuescontinued to be unable to effectively hedge all or a significant part of its exposure to currency risk, any devaluation of the peso could significantly increase its debt service burden, which, in turn, could have a substantial adverse effect on its financial and cash position (including its ability to repay its Corporate Notes) and the results of its operations. The exchange raterates used atas of December 31, 2012 is2015 and 2014 are $ 4.91813.04 and $ 8.56 per US dollar, atUSD, respectively.
As of December 31, 2011 is $ 4.306 per US dollar2015 and January 1, 2011 is $ 3.976 per US dollar.2014, the Company’s balances in foreign currency are as follow:
| | | Currency | | Amount in foreign currency | | Exchange rate (1) | | Total
12.31.2015 | | Total
12.31.2014 |
| | | | | | |
ASSETS | | | | | | | | | | |
NON-CURRENT ASSETS | | | | | | | | | | |
Other receivables | | USD | | - | | 12.940 | | - | | 2,807 |
TOTAL NON-CURRENT ASSETS | | | | - | | | | - | | 2,807 |
CURRENT ASSETS | | | | | | | | | | |
Other receivables | | USD | | 865 | | 12.940 | | 11,193 | | - |
Financial assets at fair value through profit or loss | | USD | | - | | 12.940 | | - | | 26,002 |
Cash and cash equivalents | | USD | | 820 | | 12.940 | | 10,607 | | 6,392 |
| | | EUR | | 13 | | 14.068 | | 181 | | 148 |
TOTAL CURRENT ASSETS | | | | 1,698 | | | | 21,981 | | 32,542 |
TOTAL ASSETS | | | | 1,698 | | | | 21,981 | | 35,349 |
| | | | | | | | | | | |
LIABILITIES | | | | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | | |
Borrowings | | USD | | 179,532 | | 13.040 | | 2,341,098 | | 1,598,442 |
Related parties | | USD | | 9,193 | | 13.040 | | 119,877 | | - |
TOTAL NON-CURRENT LIABILITIES | | | | 188,725 | | | | 2,460,975 | | 1,598,442 |
CURRENT LIABILITIES | | | | | | | | | | |
Trade payables | | USD | | 14,256 | | 13.040 | | 185,900 | | 76,502 |
| | | EUR | | 849 | | 14.210 | | 12,063 | | 20,053 |
| | | CHF | | 30 | | 13.084 | | 397 | | 262 |
| | | NOK | | 68 | | 1.488 | | 101 | | 79 |
Borrowings | | USD | | 3,580 | | 13.040 | | 46,688 | | 33,961 |
Related parties | | USD | | 162 | | 13.040 | | 2,110 | | - |
TOTAL CURRENT LIABILITIES | | | | 18,945 | | | | 247,259 | | 130,857 |
TOTAL LIABILITIES | | | | 207,670 | | | | 2,708,234 | | 1,729,299 |
(1)The Exchange rates used are those of Banco Nación in effect as of December 31, 2015 for US Dollars (USD), Euros (EUR), Swiss Francs (CHF) and Norwegian Krones (NOK).
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The table below shows the Company’s exposure to currency risk resulting from the financial assets and liabilities denominated in a currency other than the Company’s functional currency.
| | | 12.31.12 | | 31.12.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Net position Assets/(Liabilities) | | | | | | | | | | |
US dollar | | (1,382,015) | | (1,187,779) | | (502,730) | | (2,673,873) | | (1,673,704) |
Euro | | (607) | | (70) | | (780) | | (11,882) | | (19,905) |
Norwegian krone | | (61) | | (701) | | - | | (101) | | (79) |
Swiss franc | | (1,145) | | - | | (653) | | (397) | | (262) |
Total | | (1,383,828) | | (1,188,550) | | (504,163) | | (2,686,253) | | (1,693,950) |
The Company estimates that a 10% devaluation of the Argentine peso with respect to US dollar,each foreign currency, with all the other variables remaining constant, would give rise to the following decrease in the results of operations for the year:
| | | 12.31.12 | | 31.12.11 | | 01.01.11 |
Net position Assets/(Liabilities) | | | | | | |
US dollar | | (138,202) | | (118,778) | | (50,273) |
Euro | | (61) | | (7) | | (78) |
Norwegian krone | | (6) | | (70) | | - |
Swiss franc | | (114) | | - | | (65) |
Decrease in the results of operations for the year | | (138,383) | | (118,855) | | (50,416) |
| | | 12.31.15 | | 12.31.14 |
Net position Assets/(Liabilities) | | | | |
US dollar | | (267,387) | | (167,370) |
Euro | | (1,188) | | (1,991) |
Norwegian krone | | (10) | | (8) |
Swiss franc | | (40) | | (26) |
Decrease in the results of operations for the year | | (268,625) | | (169,395) |
ii. Price risk
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
The Company’s investments in listed equity instruments with or without quotation are susceptible to market price risk arising from the uncertainties concerning the future value of these instruments. Due to the low significance of the investments in equity instruments in relation to the net Asset/Liability position, the Company is not significantly exposed to the referred to instruments price risk.
Furthermore, the Company is not exposed to the commodities price risk.
iii. Interest rate risk
Interest rate risk is the risk of fluctuation in the fair value or cash flows of an instrument due to changes in market interest rates. The Company’s exposure to interest rate risk arises mainly from its long-term debt obligations.
Indebtedness at floating rates exposes the Company to interest rate risk on its cash flows. Indebtedness at fixed rates exposes the Company to interest rate risk on the fair value of its liabilities. AtAs of December 31, 2012,20112015 and January 1, 2011 approximately 96.76 %, 96,65 % and 95,67 %2014 100% of the loans respectively, were obtained at fixed interest rates. The remaining loans were agreed at floating interest rates, and were denominated in pesos. The Company’s policy is to keep the higher percentage of its indebtedness in instruments that accrue interest at fixed rates.
The Company analyzes its exposure to interest rate risk in a dynamic manner. Several scenarios are simulated taking into account the positions with respect to refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit or loss of a specific change in interest rates. In each simulation, the same interest rate fluctuation is used for all the currencies. Scenarios are only simulated for liabilities that represent the most relevant interest-bearing positions.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The table below shows the breakdown of the Company’s loans according to interest rate and the currency in which they are denominated:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Fixed rate: | | | | | | | | | | |
Argentine peso | | 25,179 | | 8,132 | | - | | - | | - |
US dollar | | 1,381,549 | | 1,198,934 | | 1,035,113 | | 2,509,773 | | 1,632,403 |
Subtotal loans at fixed rates | | 1,406,728 | | 1,207,066 | | 1,035,113 | | 2,509,773 | | 1,632,403 |
Floating rate: | | | | | | | |
Argentine peso | | 47,115 | | 41,841 | | 42,037 | |
US dollar | | - | | - | | 4,818 | |
Subtotal loans at floating rates | | 47,115 | | 41,841 | | 46,855 | |
Total loans | | 1,453,843 | | 1,248,907 | | 1,081,968 | |
Based on the simulations performed, with all the other variables remaining constant, a 10% increase in floating interest rates would give rise
Due to the following decrease infact that the resultstotality of operations for the year:loans accrue interest at a fixed rate, and, also, that none of the Company’s indebtedness is valued at fair value, there is no interest rate sensitivity impact.
| | | 12.31.12 | | 12.31.11 |
Floating rate: | | | | |
Argentine peso | | 391 | | 583 |
Decrease in the results of operations for the year | | 391 | | 583 |
b. Credit risk
Credit risk is the risk of a financial loss as a consequence of a counterparty’s failure to comply with the obligations assumed in a financial instrument or commercial contract. The Company’s exposure to credit risk results from its operating (particularly from its commercial receivables) and financial activities, including deposits in financial entities and other instruments.
Credit risk arises from cash and cash equivalents, deposits with banks and financial entities and derivative financial instruments, as well as from credit exposure to customers, included in outstanding balances of accounts receivable and committed transactions.
With regard to Banksbanks and Financial Entities,financial entities, only those with high credit quality are accepted.
With regard to customers, if no independent credit risk ratings are available, the Finance Department evaluates the customers’ credit quality, financialpast experience and cashposition and independent credit risk ratings. other factors.
Individual credit limits are then established in accordance with the limits set by the Company CEO, on the basis of the internal or external ratings approved by the Finance and Control Department.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
At the end of each reporting period,year-end, the Company analyzes whether the recording of an impairment is necessary. AtAs of December 31, 2012, 20112015 and January 1, 2011,2014, delinquent accounts receivabletrade receivables totaled approximately $ 134.22 million, $ 98.59209.3 million and $ 71.90229.3 million, respectively. AtAs of December 31, 20122015 and 2011,2014, the financial statements included allowances for $ 63.27 million, $ 57.6279.3 million and $ 29.2684.6 million, respectively. The inability to collect the other revenue and the non-regulated revenueaccounts receivable in the future could have an adverse effect on the Company’s results of operations and its financial position, which, in turn, could have an adverse effect on the Company’s ability to repay loans, including payment of the Corporate Notes.
The balances of the bills for electricity consumption that remain unpaid 13 and 7 working days after the bills’ due dates for small-demand (tariff 1) and medium and large-demand (tariff 2 and 3) customers, respectively are considered delinquent trade receivables. Additionally, the amounts related to the Framework Agreement are not considered within delinquent balances.
The Company’s maximum exposure to credit risk is based on the book value of each financial asset in the consolidated financial statements, after deducting the corresponding allowances.
In accordance with its policy,
EDENOR S.A.
Notes to the Company places its cashFinancial Statements as of December 31, 2015 and cash equivalents, investments and other financial instruments with various highly-rated financial entities, thus mitigating the amount of exposure to credit risk. The Group manages its exposure to credit risk by reducing its individual deposits to clearly defined limits.2014(continued)
The Group has not experienced any significant loss in those accounts. The maximum exposure to credit risk is represented by the book value of cash and cash equivalents and short-term investments in the Statement of financial position.
The Company’s exposure to credit risk arising from cash and cash equivalents is established in Note 17.
c. Liquidity risk
The Company monitors the risk of a deficit in cash flows on a periodical basis. The Finance Department supervises the updated projections of the Company’s liquidity requirements in order to ensure that there is enough cash to meet its operational needs, permanently maintaining sufficient margin for undrawn credit lines so that the Company does not fail to comply with the indebtedness limits or covenants, if applicable, of any line of credit. Such projections give consideration to the Company’s debt financing plans, compliance with covenants, with internal balance sheet financial ratios objectives and, if applicable, with external regulations and legal requirements, such as, restrictions on the use of foreign currency.
Cash surpluses held by the operating entitiesCompany and the balances in excess of the amounts required to manage working capital are invested in Money Market Funds and/or time deposits that accrue interest, currency deposits and securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient margin as determined in the aforementioned projections. AtAs of December 31, 2012,20112015 and January 1, 2011,2014, the Company’s current investmentsfinancial assets at fair value amount to $ 3.42 million,$ 2.13 million1.6 billion and $ 430.84,254.4 million, respectively, which are expected to generate immediate cash inflows to manage the liquidity risk.
The table below includes an analysis of the Company’s non-derivative financial assets and liabilities and net-settled derivative financial instruments, which have been classified into maturity groupings based on the remaining period atbetween the consolidated statementclosing date of financial position date tothe fiscal year and the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
| | | Less than 3 months | | From 3 months to 1 year | | From 1 to 2 years | | From 2 to 5 years | | More than 5 years | | Total | | Less than 3 months | | From 3 months to 1 year | | From 1 to 2 years | | From 2 to 5 years | | More than 5 years | | Total |
At January 1, 2011 | | | | | | | | | | | | | |
Trade payables and other liabilities | | 344,110 | | 38,937 | | 25,551 | | 25,433 | | - | | 434,031 | |
As of December 31, 2015 | | | | | | | | | | | | | |
Trade and other payables | | | 4,322,334 | | 304,771 | | 134,943 | | 90,023 | | - | | 4,852,071 |
Borrowings | | | - | | 256,959 | | 439,325 | | 710,250 | | 2,655,238 | | 4,061,772 |
Total | | | 4,322,334 | | 561,730 | | 574,268 | | 800,273 | | 2,655,238 | | 8,913,843 |
| | | | | | | | | | | | | | |
As of December 31, 2014 | | | | | | | | | | | | | |
Trade and other payables | | | 3,278,287 | | 120,587 | | 129,233 | | 207,515 | | - | | 3,735,622 |
Borrowings | | 8,427 | | 137,157 | | 139,444 | | 344,190 | | 1,848,701 | | 2,477,919 | | - | | 102,202 | | 102,202 | | 406,315 | | 1,775,152 | | 2,385,871 |
Derivative financial instruments | | 7,253 | | - | | - | | - | | - | | 7,253 | | - | | 5,895 | | - | | - | | - | | 5,895 |
Total | | 359,790 | | 176,094 | | 164,995 | | 369,623 | | 1,848,701 | | 2,919,203 | | 3,278,287 | | 228,684 | | 231,435 | | 613,830 | | 1,775,152 | | 6,127,388 |
| | | | | | | | | | | | | | |
At December 31, 2011 | | | | | | | | | | | | | |
Trade payables and other liabilities | | 601,730 | | 86,714 | | 27,172 | | 27,172 | | - | | 742,788 | |
Borrowings | | 8,028 | | 140,537 | | 132,181 | | 359,059 | | 1,881,523 | | 2,521,327 | |
Total | | 609,758 | | 227,251 | | 159,353 | | 386,231 | | 1,881,523 | | 3,264,115 | |
| | | | | | | | | | | | | | |
At December 31, 2012 | | | | | | | | | | | | | |
Trade payables and other liabilities | | 1,284,255 | | 23,436 | | 29,795 | | 29,795 | | - | | 1,367,281 | |
Borrowings | | 6,405 | | 142,907 | | 142,124 | | 532,051 | | 1,891,407 | | 2,714,894 | |
Total | | 1,290,660 | | 166,343 | | 171,919 | | 561,846 | | 1,891,407 | | 4,082,175 | |
As described in Note 1, should the conditions existing at the date of these consolidated financial statements continue, the Board of Directors believes that cash flows and operating results for the next year, and financial ratios, will be negatively impacted. Furthermore, in that note it is also stated that, given the fact that the realization of the projected measures to revert the negative trend manifested in the current fiscal year depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases, the Board of Directors has raised substantial doubt about the ability of the Company to continue as a going concern.
5.2Management of derivative financial instruments
The Company has carried out transactions with derivative financial instruments with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.
c.Corporate Notes – Cash flowsSWAP
In November 2010, the Company carried out a transaction with a derivative financial instrument with JP Morgan Chase Bank NA with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions.
This instrument provides an economic and financial hedge of the amounts in foreign currency that the Company must pay on the interest payment dates of its financial debt, arising from the Class 9 Fixed Rate Corporate Notes for up to USD 230.301, million, falling due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012, in the event of fluctuations in foreign currency exchange rates.
Additionally, in April 2011, the Company carried out a transaction with a derivative financial instrument with Deutsche Bank S.A. with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions arising from the new issue of Class 9 fixed rate corporate notes for up to USD 69.699 million (Note 19), payable on October 25, 2011, April 25, 2012 and October 25, 2012.
At December 31, 2012, the economic impact of these transactions resulted in a loss of $ 2.21 million, which has been recorded in the Financial expenses account of the Consolidated Statement of Comprehensive Loss.
d.Forward and Future Contracts
During the years ended December 31, 2012 and 2011, the Company entered into forward and futures contracts with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
At December 31, 2011, the aforementioned transactions were fully settled. As of December 31, 2012 the Company did not enter into forward and future contracts.
5.35.2 Concentration risk factors
a.Related to customers
The Company’s receivables derive primarily from the sale of electric power.electricity.
No single customer accounted for more than 10% of sales for the years ended December 31, 2012, December 312015 and January 1, 2011.2014. The collectibility of trade receivables balances related to the Framework Agreement, which amount to $ 25.44 million, $ 25.6073.1 million and $ 33.0575.8 million atas of December 31, 2012, December 31, 20112015 and January 1, 2011,2014, respectively, as disclosed in Note 2 – Framework Agreement -,(Framework Agreement), is subject to compliance with the terms of such agreement.
b.Related to employees who are union members
The Bid Package sets forthOn June 8, 2015, an agreement was entered into by the responsibilitiesMinistry of both SEGBALabor, Employment and the Company in relation to the personnel transferred by SEGBA through Resolution No. 26/92 of the Energy Secretariat. According to the Bid Package, SEGBA will be fully liable for any labor and social security obligations accrued or originated in events occurred before the take-over date, as well as for any other obligations deriving from lawsuits in process at such date.
During 2005, two new collective bargaining agreements were signed withSocial Security, EDESUR S.A., theSindicato de Luz y Fuerza de la Capital Federal (Electric Light and Power Labor Union of the City of Buenos Aires) andUnion), theAsociación dedel Personal Superior de Empresas de Energía (Association of SupervisionSupervisory Personnel of Energy Companies), and the Company, pursuant to which expired on December 31, 2007 and October 31, 2007, respectively. These agreements were approved by the Ministry of Labor and Social Security on November 17, 2006 and October 5, 2006, respectively.following was established:
At December 31, 2012, December 31, 2011·A salary increase, until April 30, 2016, of 16% from May 1, 2015 and Januaryof a non-cumulative 11.8% from September 1, 2011, approximately 80% of the Company’s employees and the operating employees of the others contractors were union members. Although the relationship with the aforementioned unions is currently stable, the Company may not ensure that there will be no work disruptions or strikes in the future, which could have a material adverse effect on the Company’s business and revenue.Without prejudice thereto, the Company has entered into a salary agreement, which is described in Note 45.
At the date of issuance of these consolidated financial statements, meetings aimed at negotiating the renewal terms of both collective bargaining agreements are being held with the above-mentioned unions.
By Resolution ST No. 1906 dated November 27, 2012, published in theOfficial Gazette on December 7, 2012, the Secretariat of Labor, under the authority of the Ministry of Labor, Employment and Social Security, established that as from January 1, 2013 the Company, as well as other companies of the Electric Power Sector, will be required to pay to those employees who are represented by theSindicato de Luz y Fuerza de Capital Federal(Electric Light and Power Labor Union of the City of Buenos Aires) an amount of $2,410 that will be regarded as a salary item. This amount will set-off and absorb, as from January 1, 2013, the amount (included in the salary but not subject to social security charges nor considered for the payment of the mid and year-end bonus) of $ 2,000 which the Company paid during 2012 to its employees. Without prejudice thereto, the aforementioned Resolution established, on a one-time and exceptional basis, that such amount (included in the salary but not subject to social security charges nor considered for the payment of the mid and year-end bonus), be considered for the payment of the year-end bonus and the additional 2012 BAE concept.2015.
In light of the Company’s economic and financial situation and the projections·An 11.9% increase, for the year 2013,period May-October 2016, to be calculated on the Company’s Boardsalaries of Directors, in the meeting held on December 11, 2012, unanimously resolved to challenge Resolution No. 1906 of the Secretariat of Labor, and, without prejudice thereto, to request that the ENRE authorize recognition of such higher costs in the Company’s distribution rate in accordance with the provisions of sections 46 and 42 of Law 24,065, which expressly authorize rate adjustments in order for the electricity rate to reflect any change in the concession holder’s costs which is not under the control of the holder of the concession. Such request was officially made on December 28, 2012, and on January 24, 2013, the Regulatory Authority, through Note ENREApril 2016.106836, notified Edenor that the request had been rejected without prejudice to the treatment that will be finally given to the request to modify the electricity rate schedule.Such note was contested by Edenor on February 7, 2013.
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EDENOR S.A.
NotesThe aforementioned Resolution applies also to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011contractors whose employees are included in the collective bargaining agreements of the above-mentioned union/association
(Continued)
5.45.3 Capital risk management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital.
Consistent with others in the industry, the Company monitors its capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total liabilities (current and non-current) less cash and cash equivalents. Total capital is calculated as equity attributable to the owners as shown in the consolidated statement of financial position plus net debt.
AtAs of December 31, 2012, 20112015 and January 1, 2011,2014, gearing ratios were as follow:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Total liabilities | | 6,312,152 | | 5,164,407 | | 3,183,957 | | 11,455,876 | | 8,245,068 |
Less: cash and cash equivalents | | (71,108) | | (130,509) | | (246,007) | | (128,952) | | (179,080) |
Net debt | | 6,241,044 | | 5,033,898 | | 2,937,950 | | 11,326,924 | | 8,065,988 |
Total Equity | | | 1,525,053 | | 385,001 |
Total capital attributable to owners | | 6,659,225 | | 6,465,283 | | 4,681,277 | | 12,851,977 | | 8,450,989 |
Gearing ratio | | 93.72% | | 77.86% | | 62.76% | | 88.13% | | 95.44% |
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
5.55.4 Fair value estimate
The Company classifies the measurements of financial instruments at fair value using a fair value hierarchy that reflects the relevance of the variables used to carry out such measurements. The fair value hierarchy has the following levels:
· Level 1:1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
· Level 2:2: inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from the prices).
· Level 3:3: inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
The table below shows the Company’s financial assets and liabilities measured at fair value atas of December 31, 2012, 20112015 and January 1, 2011:
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
| | | LEVEL 1 | | LEVEL 2 | | LEVEL 3 | | TOTAL |
At December 31, 2015 | | | | | | | | |
Assets | | | | | | | | |
| | | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Money market funds | | 93,488 | | - | | - | | 93,488 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | 370,161 | | - | | - | | 370,161 |
Money market funds | | 1,213,840 | | - | | - | | 1,213,840 |
Derivative financial instruments | | - | | 197 | | - | | 197 |
Total assets | | 1,677,489 | | 197 | | - | | 1,677,686 |
| | | | | | | | | |
At December 31, 2014 | | | | | | | | |
Assets | | | | | | | | |
Cash and cash equivalents | | | | | | | | |
Money market funds | | 135,537 | | - | | - | | 135,537 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | 21,150 | | - | | - | | 21,150 |
Money market funds | | 233,297 | | - | | - | | 233,297 |
Total assets | | 389,984 | | - | | - | | 389,984 |
| | | | | | | | | |
Liabilities | | | | | | | | |
Derivative financial instruments | | - | | 5,895 | | - | | 5,895 |
Total liabilities | | - | | 5,895 | | - | | 5,895 |
| | | LEVEL 1 | | LEVEL 2 | | LEVEL 3 | | TOTAL |
| | | | | | | | | |
At January 1, 2011 | | | | | | | | |
Assets and liabilities | | | | | | | | |
Cash and cash equivalents - Money market funds | | 219,873 | | - | | - | | 219,873 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | 315,267 | | - | | - | | 315,267 |
Corporate notes | | 115,569 | | | | | | 115,569 |
Derivative financial instruments | | - | | (7,253) | | - | | (7,253) |
Total assets and liabilities at January 1, 2011 | | 650,709 | | (7,253) | | - | | 643,456 |
At December 31, 2011 | | | | | | | | |
Assets and liabilities | | | | | | | | |
Derivative financial instruments | | - | | 1,316 | | | | 1,316 |
Cash and cash equivalents - Money market funds | | 58,903 | | - | | - | | 58,903 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | 2,132 | | - | | - | | 2,132 |
Total assets and liabilities at December 31, 2011 | | 61,035 | | 1,316 | | - | | 62,351 |
At December 31, 2012 | | | | | | | | |
Assets and liabilities | | | | | | | | |
Cash and cash equivalents - Money market funds | | 50,954 | | - | | - | | 50,954 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | 3,415 | | - | | - | | 3,415 |
Total assets and liabilities at December 31, 2012 | | 54,369 | | - | | - | | 54,369 |
The value of the financial instruments tradednegotiated in active markets is based on the market quoted market prices aton the date of the consolidated statement of financial position. A market is regarded asconsidered active ifwhen the quoted prices are regularly available fromthrough a stock exchange, dealer/broker, industry group,sector-specific institution or regulatory agency,body, and those prices representreflect regular and current and regularly occurring market transactions between parties on an arm’s length transaction.that act in conditions of mutual independence. The quoted market quotation price used for the financial assets held by the Company is the current offer price. These instruments are included in level 1. The instruments included in level 1 comprise mainly money market funds, government bonds and corporate notes.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The fair value of financial instruments that are not tradednegotiated in active markets is determined by using valuation techniques. These valuation techniques make maximummaximize the use of market observable market inputs ifinformation, when available, and rely as little as possible on specific estimates of the Company’s specific estimates.Company. If all the significant variables to determineestablish the fair value of a financial instrument are observable,can be observed, the instrument is included in level 2. These derivative financial instruments arise from the variation between the market prices at year-end or sale thereof and the time of negotiation. The market value used is obtained from the “Report on US Dollar futures – ROFEX” issued by Banco Finansur.
If one or more variables used to determine the fair value are not observablecannot be observed in the market, the financial instrument is included in level 3.
There are no financial instruments that are to be included in level 3.
F-55
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
6. Critical accounting estimates and judgments
Critical accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events, which the Company Management deems to be reasonable under the circumstances.
The preparation of the financial statements requires the Company management to make estimates and assessments concerning the future.future, exercise critical judgments and make assumptions that affect the application of the accounting policies and the reported amounts of assets and liabilities and revenues and expenses.
These estimates and judgments are permanently evaluated and are based upon past experience and other factors that are reasonable under the existing circumstances. Future actual results may differ from the estimates used and assessments made at the date of preparation of these consolidated financial statements.
The estimates that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities within the next fiscal year are detailed below:
a. Allowances for the impairment of receivables
The Company is exposed to impairment losses of receivables. Management estimates the final collectability of accounts receivable.
The allowance for the impairment of accounts receivable is evaluatedassessed based on the delinquent balance, which comprises all such debt arising from the bills for electricity consumption that remain unpaid 13 working days after their due dates for small-demand (tariff 1) customers and 7 working days after due date for medium and large-demand (tariff 2 and 3) customers. The Company Management records an allowance applying to the delinquent balances of each customer category an uncollectibility rate that is determined according to each customer category based on the historical levelcomparison of collections for services billed throughmade.
Additionally, and faced with temporary and/or exceptional situations, the end of each year and collections subsequent thereto. Additionally,Company Management records an allowance based on an individual analysismay redefine the amount of the recoverability of receivable accountsallowance, specifying and supporting the criteria used in litigation and of those customers included inall the Framework Agreement.
cases.
b. Revenue recognition
Revenue is recognized on an accrual basis upon delivery to customers, which includes the estimated amount of unbilled distribution of electricity at the end of each year. We consider our accounting policy for the recognition of estimated revenue critical because it depends on the amount of electricity effectively delivered to customers which is valued on the basis of applicable tariffs. Unbilled revenue is classified as current trade receivables.
c. Impairment of long-lived assets
Long-term assets, including identifiable intangibleLong-lived assets are tested for impairment at the lowest disaggregation level at which independent cash flows can be identified (cash generating units, or CGU).
The Company’s subsidiaries constitute a cash generating unit
EDENOR S.A.
Notes to the Financial Statements as they have a concession area for the distribution of electricity. Consequently, each subsidiary represents the lowest asset disaggregation level that generates independent cash flows.December 31, 2015 and 2014(continued)
Recoverability analysis
The Company analyzes the recoverability of its non-currentlong-lived assets on a periodical basis or when events or changes in circumstances indicate that the recoverable amount of assets, which is measured as the higher of value in use and fair value less costs to sell at the end of the year, may be impaired.
Due to the implementation of ENRE Resolution No. 1/16, which established an increase in income as from February 1, the projections concerning the recoverability of property, plant and equipment made by the Company, have been updated.
The value in use is determined based on projected and discounted cash flows, using discount rates that reflect the time value of money and the specific risks of the assets considered.
Cash flows are prepared on the basis of estimates concerning the future performance of certain variables that are sensitive to the determination of the recoverable amount, among which the following can be noted: (i) nature, opportunity and modality of electricity rate increases andand/or cost adjustment recognition in accordance with the agreements described in Note 2;recognition; (ii) demand for electricity projections; (iii) evolution of the costs to be incurred, and;incurred; (iv) investment needs in accordance with the service quality levels required by the regulatory authority, and (v) macroeconomic variables, such as growth rates, inflation rates and foreign currency exchange rates.
TableThe future increase in electricity rates used by the Company to assess the recoverability of Contents
EDENOR S.A.
Notes to the Consolidated Financial Statementsits long-lived assets as atof December 31, 2012, 20112015 is based on the rights to which the Company is entitled, as stipulated in the Concession Agreement and January 1, 2011
(Continued)
In spitethe agreements described in Note 2 to these financial statements. Furthermore, the actions taken to maintain and guarantee the provision of the currentpublic service, the presentations made before regulatory authorities, the status quo of the discussions that are being held with government representatives, the announcements made by government officials concerning possible changes in the sector’s revenues to restore the economic and financial situation, which isequation, and certain adopted measures, such as those described in Note 1,Notes 2.c.III, V and VI to these financial statements, have also been considered. The Company Management estimates that it is reasonable to expect that new increases in revenues will be obtained as from 2017 as a result of the carrying out during 2016 of the RTI.
The Company has made its projections under the assumption that theit will obtain better electricity rates, will be improved accordingin addition to the circumstances.adjustments on account of the VAD provided for by Resolution 7/2016. However, due to the complexity of the RTI process the Company Management may not ensure that the future performance of the variables used to make its projections will be in line with what it has estimated. Therefore, significant differences may arise in relation to the estimates used and assessments made asestimated at the date of preparation of the consolidatedthese financial statements.
In order to contemplate the estimation risk contained in the projectionprojections of the aforementioned variables, the Company has considered three different probability-weighted scenarios. Although in all of them it is estimated that the Company will succeed in reaching an acceptable agreement with the Argentine National Government resulting in a gradual tariff increases is assumed,increase, the Company has considered different timing and magnitude of expectedan increase in the VAD increases. (Distribution Added Value).
The three scenarios consider VADthat have been considered are the following:
a) Scenario called Pessimistic scenario: in this scenario, the Company assumes modest electricity rate increases as from 2017 as a result of the ITR process since 2013. These three scenarios can be classified into base, intermediate and pessimistic cash flows depending on the opportunitygradual implementation of the applicationRTI. A five-year term payment plan is established for the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and magnitudeloans for consumption), including interest, is paid in 4 years. Probability of occurrence assigned 20%.
b) Scenario called Intermediate scenario: in this case, the Company assumes reasonable electricity rate increases as from 2017 as a result of the expected CMM. gradual implementation of the RTI. A five-year term payment plan is established for the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and loans for consumption), including interest, is paid in 10 years with funds deriving from a specific charge included in electricity bills. Probability of occurrence assigned 65%.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
c) Scenario called Optimistic scenario: in this case, the Company assumes increases in its remuneration, in addition to the ones recognized in the Intermediate scenario, as from 2017 as a result of the gradual implementation of the RTI. A five-year term payment plan is established for the penalties owed to customers, whereas those owed to the ENRE are waived. The debt with CAMMESA (for energy and loans for consumption) is waived as part of the Concession Agreement renegotiation process. Probability of occurrence assigned 15%.
The Company has assigned forto these three scenarios the followingpreviously described percentages of probability of occurrence based primarilymainly on experience and considering the experiencepresent economic and financial situation, the status quo of the conversations that are being held with past delaysthe Federal Government and the need to maintain the public service, object of the concession, in operation.
In all the scenarios a discount rate (WACC) in pesos has been used for each year of the projection. For the first 5 years, the average of these rates is 31%.
Sensitivity analysis:
The main factors that could result in impairment charges in future periods are: i) a distortion in the tariff renegotiation process: optimistic scenario: 30%, intermediate scenario: 50%,nature, opportunity and pessimistic scenario: 20%.
Based on that which hasmodality of the electricity rate increases and recognition of cost adjustments, ii) the development of the costs to be incurred, and iii) the investment needs in accordance with the service quality levels required by the regulatory authority in the RTI, among other factors. These factors have been mentioned above,taken into account in the aforementioned weight of scenarios. Due to the inherent uncertainty involved in these assumptions, the Company determinedestimates that the valuationany sensitivity analysis that considers changes in any of property, plant and equipment does not exceed their recoverable amount at December 31, 2012.them considered individually could lead to distorting conclusions.
d. Current and deferred income tax/ Tax on minimum presumed incometax
In orderA degree of judgment is required to determine the income tax provision it is necessary to make estimates inasmuch as the Company will haveManagement has to evaluate, on an ongoing basis, the positions taken in tax returns in respect of those situations in which the applicable tax legislationregulation is subject to interpretation. Wheneverinterpretation and, whenever necessary, the Company is required to make provisions based on the amount expected to be paid to the tax authorities.
When the final taxable resulttax outcome of these matters differs from the amounts initially recognized, in the provision as a consequence of estimates, such differences will affectimpact on both the income tax and the determination of deferred tax assets and liabilities.provisions in the period in which such determination is made.
Were the final taxable result to differ by 10% from estimates made, the Company would need to:
·Increase the net deferred tax liability by $ 11.41 million, if the difference were unfavorable; or
·Decrease the net deferred tax liability by $ 11.41 million, if the difference were fav0rable.
A significant degree of judgment is required to determine the income tax provision. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for eventual tax claims based on estimates of whether additional taxes will be due in the future. When the final tax outcome of these matters differs from the amounts initially recognized, such differences will impact on current and deferred income tax assets and liabilities in the period in which such determination is made.
Deferred tax assets are reviewed at each reporting date and reduced in accordance with the low probability that the sufficient taxable base will be available to allow for the total or partial recovery of these assets. Deferred tax assets and liabilities are not discounted. In assessing the realization of deferred tax assets, management considers that it is likely that a portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income in the periods in which these temporary differences become deductible. To make this assessment, the Company Management takes into consideration the scheduled reversal of deferred tax liabilities, the projections of future taxable income and tax planning strategies.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
e.Going concern
These consolidated financial statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of the adjustments or reclassifications, if there were any, that might be necessary to make if the situation described in Note 1 is not resolved.
f. Benefit plans
The liability recognized by the Company is the best estimate of the present value of the cash flows representing the benefit plan obligation at the closing date of the year together with the adjustments for past service costs and actuarial losses. Cash flows are discounted using a rate that contemplates actuarial assumptions about demographic and financial conditions that affect the interest ratedetermination of high-quality corporate bonds denominated in the same currency in which the benefits will be paid.benefit plans. Such estimate is based on actuarial calculations made by independent professionals in accordance with the projected unit credit method.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
g.f. ENRE Penaltiespenalties and Discounts- PUREEdiscounts
We consider ourThe Company considers its applicable accounting policy for the recognition of ENRE Penaltiespenalties and Discountsdiscounts critical because it depends on the penalizablespenalizable events, which are valued on the basis of management best estimate at the date of these financial statements, of the expenditure required to settle the present obligation.obligation at the date of these financial statements. The balances corresponding toof ENRE Penaltiespenalties and Discountsdiscounts are adjusted in accordance with the regulatory framework applicable thereto.
The balances corresponding tothereto and have been estimated based on the Program for the Rational Use of Electric Power (PUREE) are the bestCompany’s estimate at the date of these financial statements, of the expenditure required to settle the present obligation.
h.Allocationoutcome of the purchase priceRTI process described in business combinationsNote 2.
The Company accounts for business combinations by applying the acquisition method, which requires that identifiable assets acquired and liabilities assumed be recorded at their respective fair value at acquisition date. The determination of the fair values of identifiable assets acquired and liabilities assumed requires Management to make estimates and use valuation techniques, including the use of independent appraisers, when the market value is not easily available. The excess of the acquisition cost over the fair value of the net identifiable assets acquired is allocated to goodwill.
The valuation assumptions underlying each of these valuation methods are based on the current available information, including discount rates, estimated cash flows, market risk rates and other.
The purchase price allocation is subject to changes during the twelve-month period subsequent to the acquisition date, with the adjustments reflected prospectively. At present, there are no balances related to purchase accounting subject to change. We consider our accounting policy for the valuation of acquisitions critical because the judgments made to determine the estimated fair value and expected useful lives assigned to each class of assets and liabilities acquired may impact the value of the asset or liability, including the impact on deferred taxes, the respective amortization periods and ultimately net income (loss). Therefore, the use of other valuation methods, as well as other assumptions underlying these valuation methods, could impact the determination of our financial position and results of operations.
If the fair value of the net identifiable assets acquired is higher than their acquisition cost, Management must reassessed whether all acquired assets and all liabilities assumed have been properly identified before recognizing a bargain purchase in order to ensure that the measurements properly reflect the consideration of all the available information as from acquisition date.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Once the Company is certain that measurements are appropriate, the resulting gain must be recognized in the acquisition date. The gain is attributed to the acquiring entity.
i.g. Assets available for sale
As a consequence of that mentioned in Note 1, and with the aim of mitigating unfavorable financial and economic aspects, the Company considered the disposition of certain subsidiaries. In this context, it has decided to sell certain subsidiaries with the consequent loss of control. In accordance with IFRS, when the following criteria are met (even if the entity retains a non-controlling interest in its former subsidiary after the sale), the Company will classify all the associated assets and liabilities as available for sale:
iv.Its carrying amount will be recovered mainly through a sale transaction, rather than by its continued use.
v.It must be available, in its current conditions, for immediate sale, subject exclusively to the usual terms for the sale of this subsidiary.
vi.Its sale must be highly probable, for which purpose Management must be committed to a plan to sell, and an active programme to locate a buyer and complete such plan must have been initiated. Moreover, the sale of the subsidiary must be actively negotiated at a sales price reasonable in relation to its present fair value. Furthermore, it must be expected that the sale will comply with the conditions to be recognized as a completed sale within a year of classification as held for sale (unless the delay is caused by events or circumstances that are not under the entity’s control, and sufficient evidence exists that the entity is still committed to its plan to sell the subsidiary), and the actions required to complete the plan indicate that it is unlikely that the plan will be significantly changed or withdrawn.
The assets and liabilities associated to those subsidiaries that the Company intends to sell, which comply with the aforementioned conditions, were reclassified in a single line item within current assets and current liabilities, denominated “Assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”, respectively. In addition, these assets and liabilities have been valued at the lower of carrying amount or fair value less costs to sell, recognizing a loss when the first value is higher than the second.
Measurement on fair value less costs to sell implies assumptions that are determined based on current available information, such as offers if any and market conditions.
j.Contingencies and provisions for lawsuits
The Company is a party to several complaints, lawsuits and other legal proceedings, including customer claims, in which a third party is seeking payment for alleged damages, reimbursement for losses or compensation. The Company’s potential liability with respect to such claims, lawsuits and legal proceedings may not be accurately estimated. The Company Management, with the assistance of its legal advisors (attorneys), periodically analyzes the status of each significant lawsuitmatter and evaluates the Company’s potential financial exposure. If the loss deriving from a complaint or legal proceeding is considered probable and the amount can be reasonably estimated, a provision is recorded.
Provisions for contingent losses represent a reasonable estimate of the losses that will be incurred, based on the information available to Management at the date of the financial statements preparation, taking into account the Company’s litigation and settlement strategies. These estimates are mainly made with the help of legal advisors. However, if the Management’s estimates proved wrong, the current provisions could be inadequate and result in a charge to profits that could have a material adversesignificant effect on the statements of financial position, comprehensive income, changes in equity and cash flows.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
7. InterestsInterest in subsidiaries and joint venturesventure
Percentage interest held | | | Equity attributable to the owners |
in capital stock and votes | | | 12.31.15 | 12.31.14 |
SACME | 50.00% | | 433 | 432 |
a)Information on subsidiaries
The data showing the Company’s consolidated controlling interest at December 31, 2012 are as follow:
Directly controlled companies | Percentage interest held in capital stock and possible votes | Controlled/Indirectly and jointly controlled companies | Percentage interest held in capital stock and possible votes | Non-controlling percentage interest in capital stock and possible votes |
| 12.31.12 | | 12.31.12 |
AESEBA | 99.99 | Empresa Distribuidora de Energía Norte S.A. (EDEN S.A.) | 90.00 | 10.00 |
The subsidiaries’ accounting policies have been changed, if applicable, in order to ensure consistency with the policies adopted by the Company.
The investment in AESEBA has been incorporated on a line-by-line basis in accordance with the general consolidation method established by IFRS 10.
b)Summarized financial information on subsidiaries with significant non-controlling interest
EDEN S.A.
i.Condensed statements of financial position
EDEN S.A. | | | |
| | 12.31.12 | | 12.31.11 |
Non-current assets | 880,267 | | 828,922 |
Current assets | 329,713 | | 246,438 |
Toral assets | 1,209,979 | | 1,075,360 |
| | | | |
Non-current liabilities | 186,601 | | 138,596 |
Current liabilities | 550,398 | | 423,601 |
Total liabilities | 736,999 | | 562,197 |
| | | | |
Equity | 472,980 | | 513,163 |
Equity attributable to the owners | 472,980 | | 513,163 |
Cash paid dividends to non-controlling interests | - | | 1,950 |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
ii.Condensed statement of comprehensive income
| | 12.31.12 | | 12.31.11 |
Revenue from sales / construction | 857,873 | | 591,147 |
Operating costs | (787,054) | | (490,475) |
Net financial expense | (22,584) | | (21,904) |
Income tax | (16,247) | | (30,387) |
Income for the year | 31,988 | | 48,381 |
Other comprehensive income | (2,103) | | (2,286) |
Comprehensive gain for the year | 29,885 | | 46,095 |
iii.Condensed statement of Cash Flows
| | 12.31.12 | | 12.31.11 |
Net cash flows provided by operating activities | 93,033 | | 91,759 |
Net cash flows used in investing activities | (93,675) | | (57,718) |
Net cash flows provided by financing activities | (48,885) | | (113,102) |
Net increase in cash and cash equivalents | (49,527) | | (79,061) |
| | | | |
Cash and cash equivalents at beginning of year | 31,908 | | 111,693 |
Cash and cash equivalents at the end of year | (17,619) | | 32,632 |
Decrease of cash and cash equivalent | 49,527 | | 79,061 |
c)Interest in joint ventures
Percentage interest held | | | Equity attributable to the owners |
in capital stock and possible votes | | | 12.31.12 | 12.31.11 | 01.01.11 |
SACME | 50.00% | | 422 | 419 | 415 |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
8. Segment information
The Company’s business activities focus primarily on the distribution and sale of electricity carried out by Edenor S.A. or its subsidiaries. Based on the geographical distribution of its customers, the Company has identified the following operating segments:
AESEBA: Through its subsidiary, it renders electric power distribution and sale services in the northern and northwestern areas of the Province of Buenos Aires.
EMDERSA: Through its subsidiaries, it renders electric power distribution and sale services in the Provinces of San Luis, La Rioja and Salta.
EDENOR: It has the exclusive right to render electric power distribution and sales services to all users connected to the electricity distribution network within the concession area, which is comprised of the following: In the Federal Capital: the area encompassing Dock "D", unnamed street, path of the future Autopista Costera (coastline highway), extension of Pueyrredón Ave., Pueyrredón Ave., Córdoba Ave., Ferrocarril San Martín railway tracks, General San Martín Ave., Zamudio, Tinogasta, General San Martín Ave., General Paz Ave. and Río de La Plata river. In the Province of Buenos Aires the area includes the following districts: Belén de Escobar, General Las Heras, General Rodríguez, former General Sarmiento (which at present comprises San Miguel, Malvinas Argentinas and José C. Paz), La Matanza, Marcos Paz, Merlo, Moreno, former Morón (which at present comprises Morón, Hurlingham and Ituzaingó), Pilar, San Fernando, San Isidro, San Martín, Tigre, Tres de Febrero and Vicente López.
The information on each operating segment identified by the Company for the year ended December 31, 2011 and 2012 is as follow:
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
At December 31, 2011 | | Emdersa | | Aeseba | | Edenor | | Eliminations | | As per segment information | | Discontinued operations | | As per consolidated statement of comprehensive loss |
| | | | | | | | | | | | | | | |
Revenue from sales | | 764,276 | | 503,772 | | 2,302,045 | | - | | 3,570,093 | | (764,276) | | 2,805,817 |
Revenue from construction | | - | | 87,374 | | - | | - | | 87,374 | | - | | 87,374 |
Electric power purchases | | (264,511) | | (194,568) | | (1,130,890) | | - | | (1,589,969) | | 264,511 | | (1,325,458) |
Cost of construction | | - | | (87,374) | | - | | - | | (87,374) | | - | | (87,374) |
Sub total | | 499,765 | | 309,204 | | 1,171,155 | | - | | 1,980,124 | | (499,765) | | 1,480,359 |
Transmission and distribution expenses (1) | | (168,652) | | (131,288) | | (970,501) | | - | | (1,270,441) | | 175,616 | | (1,094,825) |
Gross profit | | 331,113 | | 177,916 | | 200,654 | | - | | 709,683 | | (324,149) | | 385,534 |
Selling expenses (1) | | (97,313) | | (49,916) | | (261,948) | | - | | (409,177) | | 98,865 | | (310,312) |
Administrative expenses (1) | | (99,122) | | (29,111) | | (196,602) | | - | | (324,835) | | 100,519 | | (224,316) |
Other operating income | | 2,768 | | 8,680 | | 22,499 | | (3,278) | | 30,669 | | (2,768) | | 27,901 |
Other operating expense | | (5,314) | | (5,596) | | (52,562) | | 3,278 | | (60,194) | | 5,314 | | (54,880) |
Gain from acquisition of companies | | - | | - | | 434,959 | | - | | 434,959 | | - | | 434,959 |
Gain from interest in joint ventures | | 924 | | - | | 48,935 | | (48,931) | | 928 | | (924) | | 4 |
Impairment of assets available for sale | | - | | - | | (218,340) | | (29,527) | | (247,867) | | 247,867 | | - |
Operating profit (loss) | | 133,056 | | 101,973 | | (22,405) | | (78,458) | | 134,166 | | 124,724 | | 258,890 |
Financial income | | 118 | | 3,919 | | 85,847 | | (24,285) | | 65,599 | | (10,031) | | 55,568 |
Financial expenses and other financial results (1) | | (73,598) | | (26,488) | | (285,322) | | 24,281 | | (361,127) | | 47,790 | | (313,337) |
Net financial expense | | (73,480) | | (22,569) | | (199,475) | | (4) | | (295,528) | | 37,759 | | (257,769) |
Profit (Loss) before taxes | | 59,576 | | 79,404 | | (221,880) | | (78,462) | | (161,362) | | 162,483 | | 1,121 |
Income tax | | (17,455) | | (30,387) | | (82,177) | | - | | (130,019) | | (22,952) | | (152,971) |
Profit (Loss) from continuing operations | | 42,121 | | 49,017 | | (304,057) | | (78,462) | | (291,381) | | 139,531 | | (151,850) |
Loss from discontinued operations | | - | | - | | - | | - | | | | (139,531) | | (139,531) |
Profit (Loss) for the year | | 42,121 | | 49,017 | | (304,057) | | (78,462) | | (291,381) | | - | | (291,381) |
Non-controlling interests | | (6,851) | | (5,478) | | - | | (347) | | (12,676) | | - | | (12,676) |
Profit (Loss) for the year attributable to the owners of the parent | | 35,270 | | 43,539 | | (304,057) | | (78,809) | | (304,057) | | - | | (304,057) |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Note (1) | | Emdersa | | Aeseba | | Edenor | | Eliminations | | As per segment information | | Discontinued operations | | As per consolidated statement of comprehensive loss |
| | | | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | (44,327) | | (3,101) | | (184,792) | | - | | (232,220) | | 44,327 | | (187,893) |
Amortization of intangible assets | | - | | (20,093) | | - | | - | | (20,093) | | - | | (20,093) |
| | | | | | | | | | | | | | | |
Financial expenses - Interest | | (60,853) | | (16,210) | | (148,925) | | 36,058 | | (189,930) | | 25,334 | | (164,596) |
At December 31, 2011, the Company decided to discontinue EMDERSA operating segment.
Statement of Financial Position at 12.31.2011 | | Edenor | | Aeseba | | Discontinued operations | | Eliminations | | As per consolidated statement of financial position | | | | |
| | | | | | | | | | | | | | | |
Assets | | 5,585,499 | | 1,092,461 | | - | | (957,445) | | 5,720,515 | | | | |
Assets of disposal groups classified as held for sale | | - | | - | | 1,291,078 | | - | | 1,291,078 | | | | |
Liabilities | | 4,154,114 | | 571,427 | | - | | (103,339) | | 4,622,202 | | | | |
Liabilities of disposal groups classified as held for sale | | - | | - | | 709,076 | | (166,871) | | 542,205 | | | | |
| | | | | | | | | | | | | | | |
Non-controlling interests | | - | | 50,302 | | 365,471 | | 28 | | 415,801 | | | | |
Equity | | 1,431,385 | | 470,732 | | - | | (470,732) | | 1,431,385 | | | | |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
At December 31, 2012 | | Emdersa | | Emdersa H. | | Aeseba | | Edenor S.A. | | Eliminations | | As per segment information | | Discontinued operations | | As per consolidated statement of comprehensive loss |
| | | | | | | | | | | | | | | | | |
Revenue from sales | | 426,317 | | - | | 749,852 | | 2,977,146 | | (1,742) | | 4,151,573 | | (426,317) | | 3,725,256 |
Revenue from construction | | - | | - | | 117,615 | | - | | - | | 117,615 | | - | | 117,615 |
Electric power purchases | | (201,037) | | - | | (321,989) | | (1,740,231) | | - | | (2,263,257) | | 201,037 | | (2,062,220) |
Cost of construction | | - | | - | | (117,615) | | - | | - | | (117,615) | | - | | (117,615) |
Subtotal | | 225,280 | | - | | 427,863 | | 1,236,915 | | (1,742) | | 1,888,316 | | (225,280) | | 1,663,036 |
Transmission and distribution expenses (1) | | (175,438) | | - | | (225,956) | | (1,344,730) | | 614 | | (1,745,510) | | 175,438 | | (1,570,072) |
Gross profit | | 49,842 | | - | | 201,907 | | (107,815) | | (1,128) | | 142,806 | | (49,842) | | 92,964 |
Selling expenses (1) | | (57,607) | | - | | (78,429) | | (352,938) | | 964 | | (488,010) | | 57,607 | | (430,403) |
Administrative expenses (1) | | (47,130) | | (195) | | (47,159) | | (249,201) | | 151 | | (343,534) | | 47,130 | | (296,404) |
Other operating income | | 52,259 | | - | | 1,683 | | 32,351 | | (698) | | 85,595 | | (52,259) | | 33,336 |
Other operating expense | | (636) | | 64 | | (9,660) | | (103,125) | | (66) | | (113,423) | | 636 | | (112,787) |
Gain from acquisition of companies | | - | | - | | - | | - | | - | | - | | - | | - |
Gain from interest in joint ventures | | - | | - | | - | | 30,321 | | (30,318) | | 3 | | - | | 3 |
Impairment of assets available for sale | | (15,748) | | - | | - | | - | | - | | (15,748) | | 15,748 | | - |
Operating profit (loss) | | (19,020) | | (131) | | 68,342 | | (750,407) | | (31,095) | | (732,311) | | 19,020 | | (713,291) |
| | | | | | | | | | | | | | | | | |
Financial income | | 5,296 | | 4,384 | | 5,130 | | 83,173 | | (6,678) | | 91,305 | | (5,296) | | 86,009 |
Financial expenses (1) | | (42,713) | | - | | (26,178) | | (277,350) | | 6,680 | | (339,561) | | 42,713 | | (296,848) |
Other financial results | | (5,008) | | (2,723) | | 1,484 | | (166,236) | | 777 | | (171,706) | | 5,008 | | (166,698) |
Net financial expense | | (42,425) | | 1,661 | | (19,564) | | (360,413) | | 779 | | (419,962) | | 42,425 | | (377,537) |
Profit (Loss) before taxes | | (61,445) | | 1,530 | | 48,778 | | (1,110,820) | | (30,316) | | (1,152,273) | | 61,445 | | (1,090,828) |
| | | | | | | | | | | | | | | | | |
Income tax | | 39,078 | | - | | (16,938) | | 116,717 | | - | | 138,857 | | (39,078) | | 99,779 |
| | | | | | | | | | | | | | | | | |
Profit (Loss) from continuing operations | | - | | 1,530 | | 31,840 | | (994,103) | | (30,316) | | (1,013,416) | | - | | (991,049) |
Loss from discontinued operations | | (22,367) | | - | | - | | (22,367) | | - | | (44,734) | | 22,367 | | (22,367) |
| | | | | | | | | | | | | | | | | |
Profit (Loss) for the year | | (22,367) | | 1,530 | | 31,840 | | (1,016,470) | | (30,316) | | (1,058,150) | | 22,367 | | (1,013,416) |
Non-controlling interests | | 6,518 | | - | | (3,050) | | - | | (4) | | 3,464 | | (6,518) | | (3,054) |
Profit (Loss) for the year attributable to the owners of the parent | | (15,849) | | 1,530 | | 28,790 | | (1,016,470) | | (30,320) | | (1,054,686) | | 15,849 | | (1,016,470) |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
Note(1) | | Emdersa | | Emdersa H. | | Aeseba | | Edenor S.A. | | Eliminations | | As per segment information | | Discontinued operations | | As per consolidated statement of comprehensive loss |
| | | | | | | | | | | | | | | | | |
Depreciation of property, plant and equipment | | (43,659) | | (43,659) | | - | | (5,317) | | (192,554) | | (285,189) | | 43,659 | | (241,530) |
Amortization of intangible assets | | (2,130) | | (2,130) | | - | | (24,891) | | - | | (29,151) | | 2,130 | | (27,021) |
| | | | | | | | | | | | | | | | | |
Financial expenses - Interest | | (18,891) | | (18,891) | | - | | (14,103) | | (229,753) | | (281,638) | | 18,891 | | (262,747) |
At December 31, 2011, the Company decided to discontinue EMDERSA operating segment.
Statement of Financial Position at 12.31.2012 | | Emdersa H. | | Aeseba | | Edenor | | Eliminations | | As per consolidated statement of financial position |
| | | | | | | | | | | |
Assets | | 19 | | 1,229,242 | | 5,903,295 | | (554,514) | | 6,578,042 |
Assets of disposal groups classified as held for sale | | 41,518 | | - | | - | | 181,880 | | 223,398 |
Liabilities | | 16 | | 709,474 | | 5,485,114 | | (39,719) | | 6,154,885 |
Liabilities of disposal groups classified as held for sale | | - | | - | | - | | 157,267 | | 157,267 |
| | | | | | | | | | | |
Non-controlling interests | | - | | 47,299 | | - | | 23,808 | | 71,107 |
Equity | | 41,521 | | 472,469 | | 418,181 | | (513,990) | | 418,181 |
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
9.Contingencies and lawsuits
The Company has contingent liabilities and is a party to lawsuits that arise from the ordinary course of business. Based on the opinion of its legal advisors, the Company Management estimates that the outcome of the current contingencies and lawsuits will not exceed the amounts of the recorded provisions nor will be significant with respect to the Company’s financial position or the results of its operations.
Furthermore, it is worth mentioning that there exist contingent obligations and labor, civil and commercial complaints filed against the Company relatingrelated to legal actions for individual non-significant amounts for which nevertheless, a positionprovision, which as of December 31, 2015 amounts to $ 90.5330.1 million, has been recorded.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
The most significant legal actions in which the Company is a party involved are detailed below:
a. Edenor
Legal action brought by the National Ombudsman
Purpose:presentation against the resolutions by which the new electricity rate schedule went into effect as from 10/01/08 and the application of the Program for the Rational Use of Electric Power (PUREE).
Procedural stage of the proceedings: on 12/07/09, the Company filed an appeal (“Queja por Recurso denegado”) to the Federal Supreme Court requesting that the extraordinary appeal rejected by the Appellate Court be sustained. The appeal is currently being analyzed by the Supreme Court.
Amount: undetermined
Conclusion:no provision has been recorded for these claims in these financial statements as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.
Legal action brought by Consumidores Libres Coop.Ltda. de provisión de servicios de acción comunitaria
Purpose:
a) That all the last resolutions concerning electricity rates issued by the ENRE and the National Energy SecretariatSE be declared null and unconstitutional, and, in consequence whereof, that the amounts billed by virtue of these resolutions be refunded.
b) That all the defendants be under the obligation to carry out the Tariff Structure Review (RTI).RTI.
c) That the resolutions issued by the Energy SecretariatSE that extend the transition period of the Adjustment Agreement be declared null and unconstitutional.
d) That the defendants be ordered to carry out the sale process, through an international public bidding, of the class "A" shares, due to the fact that the Management Period of the Concession Agreement is considered over.
e) That the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional.
f) That the resolutions that extend the management periods contemplatedstipulated in the Concession Agreement be declared null and unconstitutional.
h)g) Subsidiarily, should the main claim be rejected, that the defendants be ordered to bill all customers on a bimonthly basis.
Amount: undetermined
Procedural stage of the proceedings: The Company answered the complaint rejecting all its terms and requesting that a summons be served upon CAMMESA as a third-party defendant. The Court hearing the caseapproved sustained the request and CAMMESA answered the service of notice in due time and proper manner. The Federal Government has answered the complaint filed against it within the term granted for such purpose.
Tablepurpose, filing a motion to dismiss for lack of Contents
standing to be sued.EDENOR S.A.
Notes At present no resolution has been issued modifying the procedural stage of the proceedings; however, the records have been made available to the Consolidated Financial Statements as at December 31, 2012, 2011Prosecutor, and Januaryafter they were returned the defendant submitted the report required by section 4, sub-section 1 2011of Law No. 26,854
(Continued)
Conclusion:no provision has been recorded for these claims in these financial statements as the Company’s management,Company believes, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments for them to support its position.be considered unfounded. It is estimated that this legal action will not be terminated in 2016.
b.Legal action brought by Consumidores Financieros Asociación civil para su defensa
Purpose:
1)Reimbursement of the VAT percentage paid on the illegally “widened” taxable basis due to the incorporation of a concept (National Fund of Electricity - FNEE)(FNEE) on which no VAT had been paid by the defendants when CAMMESA (the company in charge of the regulation and operation of the wholesale electricity market)MEM) invoiced them the electricity purchased for distribution purposes.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
2)Reimbursement of part of the administrative surcharge on “second due date”, in those cases in which payment was made within the time period authorized for such second deadline (14 days) but without distinguishing the effective day of payment.
3)Application of the “borrowing rate” in case of customer delay in complying with payment obligation, in accordance with the provisions of Law No. 26,361.
Amount: undetermined
Procedural stage of the proceedings:On 04/22/10,April 22, 2010, the Company answered the complaint and filed a motion to dismiss for lack of standing, (“excepción de falta de legitimación”), requesting, at such opportunity, that a summons be served upon the Federal Government, the AFIP and the ENRE as third-party defendants. These pleadings were made available toNotice of this was served upon the plaintiff. Although the plaintiff’s opposition to the requested summons had not yet been resolved, the proceedings were brought to trial, in response to which EDENOREdenor S.A. filed a motion for reversal with a supplementary appeal. As of to date,The Court hearing the proceedings are “awaiting resolution”,case granted the motion filed by Edenor S.A. and ordered that the Federal Government, the AFIP and the ENRE be summoned as a step prior to open the trial to testimony and other evidence.third-party defendants, which is currently taking place.
Conclusion:no provision has been recorded for these claims in these financial statements as the Company’s management,Company believes, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments for them to support its position.be considered unfounded. It is estimated that the proceedings will not be terminated in 2016
Legal action brought by Unión de Usuarios y Consumidores
Purpose:
a) that clause 4.6 and related clauses of Appendix I of the Adjustment Agreement be revoked, inasmuch as they establish that the rate increase will be retroactive;
b) that Resolution No. 51/07 of the ENRE be nullified inasmuch as it authorizes the retroactive increase of rates in favor of the Company.
c) that the Company be ordered to reimburse customers all the amounts paid as retroactive rate increase for the period of November 1, 2005 through January 31, 2007.
d) that the reimbursement be implemented through a credit in favor of customers.
Amount: undetermined
Procedural stage of the proceedings:By resolution issued on 06/01/11, the Court of Appeals in Contentious and Administrative Federal Matters No. V, supporting the Company‘s arguments, ordered that the lower court decision be nullified as to the merits of the case. Against such decision, the Unión de Usuarios y Consumidores filed an extraordinary federal appeal (“Recurso Extraordinario Federal”) which was granted on 11/03/11. The proceedings have been taken to the Supreme Court.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011c.
(Continued)
Conclusion:no provision has been recorded for these claims in these financial statements as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.
Legal action brought by the Company (“EDENOREdenor S.A. VS RESOLUTION NO.vs ENRE Resolution No. 32/11 OF THE ENRE”11”)
Purpose:
By this action, the Company challenges such resolution, which – within the framework The judicial annulment of the power cuts occurred between December 20 and December 31, 2010 –ENRE Resolution that established the following:
- That the Company be fined in the amount of 750$ 750,000 due to its failure to comply with the obligations arising from Section 25)25, sub-sections a, f and g, of the Concession Agreement and Section 27 of Law No. 24,065.
- That the Company be fined in the amount of 375$ 375,000 due to its failure to comply with the obligations arising from Section 25 of the Concession Agreement and ENRE Resolution No. 905/1999 of the ENRE.1999.
- That Company customers be paid as compensation for the power cuts suffered the following amounts: $ 180 to each small-demand residential customer (T1R) who suffered power cuts that lasted more than 12 continuous hours, $ 350 to those who suffered power cuts that lasted more than 24 continuous hours, and $ 450 to those who suffered power cuts that lasted more than 48 continuous hours. The resolution stated that such compensation did not include damages to customer facilities and/or appliances, which were to be dealt with in accordance with a specific procedure.
Amount: not specified in the complaint.$ 22.4 million.
Procedural stage of the proceedings:on 07/08/11,On July 8, 2011, the Company requested that notice of the substance of the case be served onupon the ENRE, which has effectively taken place. The proceedings are “awaiting resolution” since the date on which the ENRE answered the notice served. Furthermore, on 10/28/11,October 28, 2011, the Company filed an appeal (“recurso de queja por apelación denegada”) to the Federal Supreme Court requesting thatconcerning the rejected extraordinary federal appeal be sustained.provisional relief sought and not granted. On April 24, 2013, the Company was notified of Division I’s decision dated March 21, 2013, pursuant to which the appeal filed by Edenor S.A. was declared formally inadmissible. On May 3, 2013, the Company filed an ordinary appeal to the Supreme Court. Additionally, on May 13, 2013, an extraordinary appeal was also filed to the same Court. On November 7, 2014, it was notified to the Company that Division I had rejected the ordinary appeal but partially granted the extraordinary appeal, considering for the granting thereof the federal nature of the regulations being challenged and rejecting it in relation to the arbitrariness raised by Edenor S.A. Therefore, and within the procedural term granted for such directpurpose, the Company filed an appeal had been denied byrequesting that the Appellate Court in Contentious and Administrative Federal Matters No. 1.extraordinary appeal dismissed be sustained. As of the date of this annual report, the Company, together with its legal counsel, is assessing the situation, which involves the precautionary measure and the appeal ofno decision has yet been issued on this last resolution.regard.
Conclusion:At the end of the year ended December 31, 2012, the provision recorded in relation to the aforementioned compensations amounts to $ 30,4 million, including principal amount and accrued interest (Note 2.e). It is estimated that this case will not come to an end during 2013.
Legal action brought by the Company (“EDENOR S.A. VS RESOLUTION ENRE No. 336/12”)
Purpose:
By this action, the Company challenges the ENRE’s resolution pursuant to which:
- the Company is to determine the customers affected by the power cuts occurred as a consequence of failures between October 29 and November 14, 2012;
- the Company is to determine the discounts to be recognized to each of the customers identified in accordance with the preceding caption;
- the Company is to credit such discounts on account of the final discounts that will result from the evaluation of the Technical Service Quality relating to the six-month control period;
- the Company is to compensate each small-demand residential customer (T1R) who has been affected by the power cuts occurred during the aforementioned period. The amount of the compensation will depend on the length of the power cut, provided, however, that such power cut lasted more than 12 continuous hours.
Amount: not specified in the complaint.
Procedural stage of the proceedings: This resolution has been contested by the Company.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
Conclusion:AtAs of the closing date of the year ended December 31, 2012,2014, the provision recorded in relation toby the aforementioned penaltiesCompany for principal and compensationsinterest accrued amounts to $ 16.7 million (Note 2.1.e).34.9 million. It is estimated that this case will not come to an end during 2013.legal action may be terminated in 2016.
d.Legal action brought byASOCIACIÓN DE DEFENSA DE DERECHOS DE USUARIOS Y CONSUMIDORES – ADDUC
Purpose: that the Company be ordered to reduce or mitigate the default or late payment interest rates charged to customers who pay their bills after the first due date, inasmuch as they violate section 31 of Law No. 24,240, ordering both the non application of pacts or accords that stipulate the interest rates that are being applied to the users of electricity –their unconstitutional nature– as well as the reimbursement of interest amounts illegally collected from users of the service from 08/15/08August 15, 2008 through the date on which the defendant complies with the order to reduce interest. It is also requested that the value added tax (VAT) and any other taxes charged on the portion of the surcharge illegally collected be reimbursed.
Amount: undetermined
Procedural stage of the proceedings: On 11/11/November 11, 2011, the Company answered the complaint and filed a motion to dismiss for both lack of standing (“excepción de falta de legitimación activa”)to sue and the fact that the claims at issue were being litigated in another lawsuit, (“excepción de litispendencia”),currently in process, requesting at such opportunity,as well that a summons be served upon the ENRE as a third-party defendant. TheseNotice of these pleadings were made available towas served upon the plaintiff. Prior to rendering a decision on the motion to dismiss, for the fact that the claims at issue were being litigated in another lawsuit (“excepción de litispendencia”), the Court ordered that the Court in Contentious and Administrative Federal Matters No. 2 – Clerk’s Office No. 3 provide it with the proceedings “Consumidores Financieros Asociación Civil vs EDESUR and Other defendants, for breach of contract”. At the date of issuance of these financial statements, the Court has received the requested file. On April 8, 2014, the Court in Civil and Commercial Federal Matters No. 9 – Clerk’s Office No. 17 admitted the motion to dismiss due to the fact that the claims at issue were being litigated in another lawsuit, and ordered that the proceedings be sent to Federal Court No. 2 – Clerk’s Office No. 3 to be dealt with thereat, thus joining them to the case entitled “consumidores financieros vs Edesur and other defendants, for breach of contract”. Apart from the fact that the proceedings have been received in the court that currently hears the case, brought for BREACH OF CONTRACT”.which continues in process, no significant events have occurred.
Conclusion:therefore,no provision has been recorded for these claimsIt is estimated that this action will not be terminated in these financial statements as the Company’s management, based on both that which has been previously mentioned and the opinion of its legal advisors, believes that there exist solid arguments to support its position.2016.
Payment agreement with Municipality of Morenoe.Legal action brought by the Company (“Edenor S.A. VS FEDERAL GOVERNMENT – MINISTRY OF FEDERAL PLANNING / PROCEEDING FOR THE DETERMINATION OF A CLAIM AND MOTION TO LITIGATE WITHOUT LIABILITY FOR COURT FEES OR COSTS”)
On June 28, 2013, the Company instituted these proceedings for the recognizance of a claim and the related leave to proceed without liability for court fees or costs, both pending in the Federal Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 11 – Clerk’s Office No. 22.
Purpose of the main proceedings: To sue for breach of contract due to the Federal Government’s failure to perform in accordance with the terms of the “Memorandum of Understanding concerning the Renegotiation of the Concession Agreement” entered into with Edenor in 2006, and for damages caused as a result of such breach.
EDENOR S.A.
Notes to the Financial Statements as of December 31, 2015 and 2014(continued)
Procedural stage of the proceedings: On November 22, 2013, the Company amended the complaint so as to extend it and claim more damages as a consequence of the Federal Government’s omission to perform the obligations under the aforementioned “Adjustment Agreement”. On February 3, 2015, the court hearing the case ordered that notice of the complaint be served to be answered within the time limit prescribed by law, which was answered by the Federal Government in due time and in proper manner. Subsequently, Edenor S.A. reported as new event, under the terms of Section 365 of the Federal Code of Civil and Commercial Procedure, the issuance by the SE of Resolution 32/15. After notice was served, the court rejected the treatment thereof as an “event”, holding the Company liable for costs. The Company filed an appeal, which was admitted “with a postponed effect” (i.e. the Appellate Court will grant or reject the appeal when deciding on the granting or rejection of the appeal against final judgment). On October 31,16, 2015, the Attorney General’s Office requested to borrow the records for a term of 20 days, which were returned on December 1, 2015, in order to control the work done by the state’s attorneys. On December 4, 2015, the Company requested the suspension of the procedural time-limits under the terms of section 157 of the Federal Code of Civil and Commercial Procedure, in accordance with the provisions of SE Resolution 32/15, notice of which has been served upon the defendant. On February 16, 2016, the Company reiterated the request due to the revocation of SE Resolution 32/15.
The motion to litigate without liability for court fees or costs, which was filed on July 2, 2013, is at present at the discovery period.
Additionally, and in the same action, in February 2014, the Company applied for the immediate granting of a provisional remedy in order to maintain an efficient and safe service, requesting that until judgment is passed on the merits of the case, the Federal Government be compelled to provide the Company with economic assistance, whether by means of a temporary rate adjustment or through government grants. After notice was served upon and answered by the Federal Government – Ministry of Federal Planning, on May 27, 2014, the court hearing the case rejected the provisional remedy sought by the Company, decision which was confirmed by Division V of the Appellate Court and notified to Edenor S.A. on December 19, 2014.
Conclusion:It is estimated that this action will not be terminated in 2016.
f.Administrative proceedings DJ/36/14 initiated by the Federal Administration of Public Revenue
Purpose:To accuse the Company of and have it fined for the filing of an inaccurate Minimum Presumed Income Tax return for fiscal period 2011.
Amount: $ 5,464,418.71
Status: In May, 2012, the Company andfiled the Municipality of Moreno entered into aoriginal minimum presumed income tax return for fiscal period 2011 with no assessed tax amount in the understanding that the payment plan agreement for the settlement of the balance owed, consistingtax for fiscal period 2011 when the Company’s cumulative income tax losses carry forward amounted to $ 258 million, violated recognized constitutional guarantees and reflected its lack of one payment of 600capacity in relation to be madethe taxes levied on income, such as the Minimum Presumed Income Tax (IGMP). This situation was duly informed to the AFIP.
At the same time, in November 2012accordance with the remaining balance being paid in 36 monthly and consecutive installments plus interest, to be calculated on the basisterms of the lending rate applied by Banco de la Nación Argentina for 30-day deposits.
Petition against AFIP - DGI
The Company has filed a petition for declaratory relief against AFIP – DGI pursuant to Section 322 of the Federal Code of Civil and Commercial Procedural Code in order to obtain assuranceProcedure, the Company filed a declaratory judgment action with the Federal Court against the Federal Government – Federal Administration of Public Revenue - General Tax Bureau, with the aim of obtaining a declaratory judgment as to the application ofwhether or not the minimum presumed income tax based onrelated to fiscal period 2011 applied in the decisionsense resolved by the Supreme Court in the “Hermitage” passedcase on June 15, 2010.
In this established precedent,case, the Supreme Court had declared that this tax was unconstitutional sinceas it may be unreasonable under certain circumstances and since it breaches the capacity to pay principle.
As at December 31, 2012 and 2011, the Company held a provision for the minimum presumed income tax for the fiscal years mentioned and for the proportional tax estimated for this period for a total amount of $ 34.15 million and $ 40.8 million, respectively, including compensatory interest.
b.Subsidiary - EDENwas deemed confiscatory.
ADMINISTRATIVE CLAIM (ACCION DE REPETICION) – TAX ON MINIMUM PRESUMED INCOME
Purpose: To claim reimbursementSubsequently, the Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 7 rejected the action requested by the Public AdministrationCompany, decision which was ratified by the Court of Public Revenues (AFIP),Appeals.
Faced with this situation, and in order to avoid possible attachments or prohibitions to dispose of property that could affect the normal development of its activities for the provision of the excess amounts paid by AESEBA aspublic service, the Company decided to rectify the Minimum Presumed Income Tax Return for fiscal periods 1998 through 2003.
F-70period 2011 and adhere to the easy payment plan implemented by AFIP General Resolution 3451.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
Amount: $ 25 thousand.On November 19, 2015, by means of administrative proceedings DJ/36/14 initiated by the AFIP, the Company is accused of and fined for the filing of an inaccurate Minimum Presumed Income Tax Return for fiscal period 2011.
Procedural stage ofOn December 30, 2015, the proceedings: The subsidiary company lodged two special appeals (Recurso de reconsideración) against the AFIP’s resolutions claming not only the approval of the amounts not approved byCompany filed a post-judgement motion for reversal with the tax authorities but alsoauthority, requesting that interestthe administrative proceedings be calculated asrevoked, the fine imposed be annulled and the respective records be filed.
As is evident from the filing date ofpreceding paragraphs, it was not the administrative claim. To date, these appeals have not yetCompany’s intention to cause any harm whatsoever to the national treasury, particularly considering that a rectifying tax return has been resolved.filed.
In August 2011, the AFIP corrected interest calculation and on 08/17/11 made payment for the period 1998 through 2001. The appeal concerning fiscal years 2002 and 2003 is still pending resolution.
Conclusion: Due to the above-mentioned, no provision has been recorded for this claim in these consolidated financial statements.Financial Statements as the Company believes, based on that which has been previously mentioned, that there exist solid arguments for it to be considered unfounded.
MANAGEMENT OPERATOR, INCOME TAX, DEDUCTIONS, FOREIGN BENEFICIARIES
Purpose:g. assessment procedureLegal action brought by the Federal AdministrationCompany (Study, Review and Inspection of Works in Public Revenues (“AFIP”Spaces Fees “TERI”) aimed at verifying the calculation of income tax and withholdings to foreign beneficiaries for fiscal periods 1998 and 1999.
WithinIn December 2015, the framework of this inspection, the AFIP noted a delay in the registration with the National Institute of Intellectual Property (INPI) of the technical assistance, know-how and operation agreement entered into on 06/02/97 by the Subsidiary Company and CEA Americas Operating Company (afterwards PSEG Americas Operating Company). As a consequence of the delay, the AFIP questioned the deduction of the amounts paid under the agreement on income tax returns for periods 1997, 1998 and 1999. Additionally, the AFIP questioned the presumed net income rate applied by the Subsidiary Company on such amounts.
Amount: undetermined
Procedural stage of the proceedings: on 04/28/09, the Subsidiary Company decided to adhere to the Tax and Social Security Contributions Regularization Plan set forth by Law No. 26,476/08, regulated by General Resolution No. 2,537/09, thereby abandoning the appeals filed with the Federal Tax Court.City of Buenos Aires Court in Contentious and Tax-Related Matters, a petition for declaratory judgment, together with a petition for the granting of a precautionary measure, in order to obtain a favorable judgment that would put an end to the controversy, declaring the unlawfulness of the Government of the City of Buenos Aires’s claim concerning compliance by Edenor S.A. with the payment of the TERI. The precautionary measure requested, if granted, would stop the executory proceedings in process and eliminate the possibility that an attachment be levied on the Company’s assets. It must be pointed out that as of the date of the filing of the petition, the Company has received assessment and demand for payment notices from the Government of the City of Buenos Aires for a total amount of $ 28.8 million for such concept.
Conclusion: DueIn the Company’s opinion, these fees are not applicable in accordance with federal regulations, the case law and the procedural status of judicial decisions. Therefore, the Management of the Company as well as its external legal advisors believe that there exist good reasons to support the above-mentioned, no provisionCompany’s position and have this tax claim rejected by a court of law. Therefore, the probability of an outflow of resources on account of such contingency has been recorded for these claims in these consolidated financial statements.regarded as low.
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EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
(Continued)
10.9. Property, plant and equipment
| | Lands and buildings | | Substations | | High, medium and low voltage lines | | Transforming chamber, platforms and meters | | Furniture, tools, vehicles, equipment and comunications | | Constructions in progress | | Supplies and spare parts | | Total |
At 01.01.11 | | | | | | | | | | | | | | | | |
Cost | | 107,072 | | 1,139,156 | | 3,256,514 | | 1,406,110 | | 380,072 | | 307,398 | | 23,249 | | 6,619,571 |
Accumulated depreciation | | (24,079) | | (392,709) | | (1,618,749) | | (556,931) | | (314,773) | | - | | - | | (2,907,241) |
Net amount | | 82,993 | | 746,447 | | 1,637,765 | | 849,179 | | 65,299 | | 307,398 | | 23,249 | | 3,712,330 |
| | | | | | | | | | | | | | | | |
Additions from business combinations | | 37,070 | | 113,669 | | 639,530 | | 87,585 | | 150,331 | | 81,891 | | 10,849 | | 1,120,925 |
Additions | | 2,684 | | 5,559 | | 12,304 | | 489 | | 5,806 | | 563,281 | | 13,426 | | 603,549 |
Disposals (1) | | (444) | | (139) | | (1,307) | | (41) | | (157) | | (1,633) | | (5,857) | | (9,578) |
Transfers | | 59 | | 15,294 | | 109,429 | | 19,378 | | 17,191 | | (151,765) | | (9,586) | | - |
Depreciation for the year (2) | | (5,654) | | (36,333) | | (104,291) | | (56,603) | | (29,339) | | - | | - | | (232,220) |
Assets classified as available for sale | | (22,012) | | (130,940) | | (739,875) | | (99,765) | | (142,732) | | (55,540) | | (8,832) | | (1,199,696) |
Net amount 12.31.11 | | 94,696 | | 713,557 | | 1,553,555 | | 800,222 | | 66,399 | | 743,632 | | 23,249 | | 3,995,310 |
| | | | | | | | | | | | | | | | | |
At 12.31.11 | | | | | | | | | | | | | | | | |
Cost | | 127,383 | | 1,139,227 | | 3,254,200 | | 1,406,224 | | 432,272 | | 743,632 | | 23,249 | | 7,126,187 |
Accumulated depreciation | | (32,687) | | (425,670) | | (1,700,645) | | (606,002) | | (365,873) | | - | | - | | (3,130,877) |
Net amount | | 94,696 | | 713,557 | | 1,553,555 | | 800,222 | | 66,399 | | 743,632 | | 23,249 | | 3,995,310 |
| | | | | | | | | | | | | | | | |
Additions | | 110 | | - | | - | | - | | 7,060 | | 537,547 | | 4,329 | | 549,046 |
Disposals | | (320) | | - | | (1,268) | | (98) | | (200) | | - | | - | | (1,886) |
Transfers | | 16,255 | | 103,340 | | 236,606 | | 243,161 | | 86,174 | | (688,242) | | 2,706 | | - |
Depreciation for the year | | (5,394) | | (40,626) | | (84,364) | | (52,232) | | (12,854) | | (2,401) | | - | | (197,871) |
Net amount 12.31.12 | | 105,347 | | 776,271 | | 1,704,529 | | 991,053 | | 146,579 | | 590,536 | | 30,284 | | 4,344,599 |
| | | | | | | | | | | | | | | | | |
At 12.31.12 | | | | | | | | | | | | | | | | |
Cost | | 143,408 | | 1,242,566 | | 3,488,557 | | 1,649,273 | | 523,893 | | 590,536 | | 30,284 | | 7,668,517 |
Accumulated depreciation | | (38,061) | | (466,295) | | (1,784,028) | | (658,220) | | (377,314) | | - | | - | | (3,323,918) |
Net amount | | 105,347 | | 776,271 | | 1,704,529 | | 991,053 | | 146,579 | | 590,536 | | 30,284 | | 4,344,599 |
| | Lands and buildings | | Substations | | High, medium and low voltage lines | | Meters and Transformer chambers and platforms | | Tools, Furniture, vehicles, equipment, communications and advances to suppliers | | Construction in process | | Supplies and spare parts | | Total |
At 12.31.14 | | | | | | | | | | | | | | | | |
Cost | | 162,192 | | 1,444,310 | | 4,086,201 | | 1,953,167 | | 632,114 | | 1,960,435 | | 136,188 | | 10,374,607 |
Accumulated depreciation | | (44,821) | | (536,338) | | (1,962,744) | | (773,126) | | (405,096) | | - | | - | | (3,722,125) |
Net amount | | 117,371 | | 907,972 | | 2,123,457 | | 1,180,041 | | 227,018 | | 1,960,435 | | 136,188 | | 6,652,482 |
| | | | | | | | | | | | | | | | | |
Additions | | - | | - | | 9,599 | | - | | 621,357 | | 1,834,857 | | 52,414 | | 2,518,227 |
Disposals | | - | | - | | (3,398) | | (115) | | - | | - | | - | | (3,513) |
Transfers | | 40,189 | | 230,026 | | 733,053 | | 279,138 | | 773 | | (1,283,179) | | - | | - |
Depreciation for the year | | (11,555) | | (40,402) | | (107,959) | | (66,349) | | (55,142) | | - | | - | | (281,407) |
Net amount 12.31.15 | | 146,005 | | 1,097,596 | | 2,754,752 | | 1,392,715 | | 794,006 | | 2,512,113 | | 188,602 | | 8,885,789 |
| | | | | | | | | | | | | | | | | |
At 12.31.15 | | | | | | | | | | | | | | | | |
Cost | | 202,381 | | 1,674,336 | | 4,809,485 | | 2,232,104 | | 1,254,245 | | 2,512,113 | | 188,602 | | 12,873,266 |
Accumulated depreciation | | (56,376) | | (576,740) | | (2,054,733) | | (839,389) | | (460,239) | | - | | - | | (3,987,477) |
Net amount | | 146,005 | | 1,097,596 | | 2,754,752 | | 1,392,715 | | 794,006 | | 2,512,113 | | 188,602 | | 8,885,789 |
(1) Includes $ 7.7 million relating to the net disposal of the assets available for sale.
(2) Includes $ 44.3 million relating to the year’s depreciation of the assets available for sale.
· During the yearsyear ended December 31, 2012 and 2011,2015, direct costs capitalized amounted to $ 107.54 million and $ 76.89271.6 million.
· Financial costs capitalized for the yearsyear ended December 31, 2012 and 2011,2015 amounted to $ 25.40 million and $ 16.13255.9 million.
Table of Contents
EDENOR S.A.
Notes to the Consolidated Financial Statements as atof December 31, 2012, 20112015 and January 1, 20112014(continued)
| | Lands and buildings | | Substations | | High, medium and low voltage lines | | Meters and Transformer chambers and platforms | | Tools, Furniture, vehicles, equipment, communications and advances to suppliers | | Construction in process | | Supplies and spare parts | | Total |
At 12.31.13 | | | | | | | | | | | | | | | | |
Cost | | 133,155 | | 1,367,062 | | 3,778,595 | | 1,769,798 | | 538,668 | | 1,042,590 | | 50,577 | | 8,680,445 |
Accumulated depreciation | | (37,052) | | (501,649) | | (1,872,408) | | (713,878) | | (366,151) | | - | | - | | (3,491,138) |
Net amount | | 96,103 | | 865,413 | | 1,906,187 | | 1,055,920 | | 172,517 | | 1,042,590 | | 50,577 | | 5,189,307 |
| | | | | | | | | | | | | | | | | |
Additions | | - | | - | | - | | - | | 12,666 | | 1,603,496 | | 85,611 | | 1,701,773 |
Disposals | | - | | (62) | | (622) | | (273) | | (2) | | - | | - | | (959) |
Transfers | | 29,037 | | 81,682 | | 310,166 | | 183,893 | | 80,873 | | (685,651) | | - | | - |
Depreciation for the year | | (7,769) | | (39,061) | | (92,274) | | (59,499) | | (39,036) | | - | | - | | (237,639) |
Net amount 12.31.14 | | 117,371 | | 907,972 | | 2,123,457 | | 1,180,041 | | 227,018 | | 1,960,435 | | 136,188 | | 6,652,482 |
| | | | | | | | | | | | | | | | | |
At 12.31.14 | | | | | | | | | | | | | | | | |
Cost | | 162,192 | | 1,444,310 | | 4,086,201 | | 1,953,167 | | 632,114 | | 1,960,435 | | 136,188 | | 10,374,607 |
Accumulated depreciation | | (44,821) | | (536,338) | | (1,962,744) | | (773,126) | | (405,096) | | - | | - | | (3,722,125) |
Net amount | | 117,371 | | 907,972 | | 2,123,457 | | 1,180,041 | | 227,018 | | 1,960,435 | | 136,188 | | 6,652,482 |
·(Continued)During the year ended December 31, 2014, direct costs capitalized amounted to $ 156 million.
·Financial costs capitalized for the year ended December 31, 2014 amounted to $ 123.9 million.
11.Intangible assets
| | Contract right from the concessions | | Total |
At 01.01.11 | | | | |
Cost | | - | | - |
Accumulated amortization | | - | | - |
Net amount | | - | | - |
| | | | |
Additions from business combinations | | 760,479 | | 760,479 |
Additions | | 63,366 | | 63,366 |
Disposals | | (10,737) | | (10,737) |
Amortization | | (20,093) | | (20,093) |
Net amount 12.31.11 | | 793,015 | | 793,015 |
| | | | | |
At 12.31.11 | | | | |
Cost | | 1,072,089 | | 1,072,089 |
Accumulated amortization | | (279,074) | | (279,074) |
Net amount | | 793,015 | | 793,015 |
| | | | | |
Additions | | 85,686 | | 85,686 |
Disposals | | (7,962) | | (7,962) |
Amortization | | (24,891) | | (24,891) |
Net amount 12.31.12 | | 52,833 | | 52,833 |
| | | | | |
At 12.31.12 | | | | |
Cost | | 1,146,241 | | 1,146,241 |
Accumulated amortization | | (300,393) | | (300,393) |
Net amount | | 845,848 | | 845,848 |
The subsidiary EDEN is the holderAcquisition of the concession for the provision of the public service of electric power distribution and sale in the northern area of the Province of Buenos Aires. As stipulated in the concession agreement, the concession authority controls the services to be provided and their prices, and maintains a significant interest in the infrastructure at the end of the concession period. Due to the fact that the concession agreement grants EDEN the right to charge users for the electricity distributed, the Company recognizes an intangible asset.real property:
The resulting intangible assetOn October 7, 2015, the Company Board of Directors approved the acquisition of a real property with the aim of concentrating centralized functions and reducing rental costs and the risk of future increases, for a total amount of $ 439.2 million, which, as of December 31, 2015, is amortized onfully paid.
As security for the amount paid, the Company has received a straight-line basis throughoutsurety bond from the estimated useful life of each of the underlying fixed assets that make up its value, without exceeding the term of the concession.seller.
12.Assets under constructionDisclosed in the Additions line of the Furniture, tools, vehicles, equipment, communication and advances to suppliers column.
Detailed below are the main construction works financed with funds from, the Company´s own funds, Program for the Rational Use of Electric Power (PUREE), Electric Power Control Authority of the Province of Buenos Aires (OCEBA) and FREBA.
| | | Construction works with the Company´s own funds | | Construction works with PUREE funds | | Construction works with OCEBA funds | | Construction works with FREBA funds | | Total |
At January 1, 2011 | | - | | - | | - | | - | | - |
Balances at beginning of period | | 29,967 | | 4,985 | | 2,283 | | - | | 37,235 |
Additions | | 30,499 | | 10,056 | | 2,063 | | - | | 42,618 |
Transfers | | (24,281) | | (10,045) | | (23) | | - | | (34,349) |
At December 31, 2011 | | 36,185 | | 4,996 | | 4,323 | | - | | 45,504 |
Additions | | 53,243 | | 10,711 | | 1,726 | | 50,234 | | 115,914 |
Transfers | | (26,747) | | (2,008) | | (1,977) | | (46,220) | | (76,952) |
At December 31, 2012 | | 62,681 | | 13,699 | | 4,072 | | 4,014 | | 84,466 |
Table of Contents
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
13.10. Financial instruments13.1 10.1Financial instruments by category
| | | Financial assets at amortized cost | | Financial assets at fair value through profit or loss | | Non-financial assets | | Total |
At December 31, 2012 | | | | | | | | |
Assets | | | | | | | | |
Trade receivables | | 891,425 | | - | | 45,688 | | 937,113 |
Other receivables | | 113,500 | | - | | 92,569 | | 206,069 |
Cash and cash equivalents | | | | | | | | - |
Cash and Banks | | 18,697 | | - | | - | | 18,697 |
Checks to be deposited | | 976 | | - | | - | | 976 |
Time deposits | | 481 | | - | | - | | 481 |
Money market funds | | - | | 50,954 | | - | | 50,954 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | - | | 3,415 | | - | | 3,415 |
Total | | 1,025,079 | | 54,369 | | 138,257 | | 1,217,705 |
| | | | | | | | | |
At December 31, 2011 | | | | | | | | |
Assets | | | | | | | | |
Trade receivables | | 534,732 | | - | | 45,725 | | 580,457 |
Other receivables | | 25,364 | | - | | 101,164 | | 126,528 |
Derivative financial instruments | | - | | 1,316 | | - | | 1,316 |
Cash and cash equivalents | | | | | | | | |
Cash and Banks | | 22,818 | | - | | - | | 22,818 |
Checks to be deposited | | 277 | | - | | - | | 277 |
Time deposits | | 48,511 | | - | | - | | 48,511 |
Money market funds | | - | | 58,903 | | - | | 58,903 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | - | | 2,132 | | - | | 2,132 |
Total | | 631,702 | | 62,351 | | 146,889 | | 840,942 |
| | | | | | | | | |
At January 1, 2011 | | | | | | | | |
Assets | | | | | | | | |
Trade receivables | | 421,193 | | - | | 45,531 | | 466,724 |
Other receivables | | 29,767 | | - | | 28,798 | | 58,565 |
Cash and cash equivalents | | | | | | | | |
Cash and Banks | | 8,016 | | - | | - | | 8,016 |
Checks to be deposited | | 595 | | - | | - | | 595 |
Time deposits | | 17,523 | | - | | - | | 17,523 |
Money market funds | | - | | 219,873 | | - | | 219,873 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | - | | 315,267 | | - | | 315,267 |
Corporate notes | | - | | 115,569 | | - | | 115,569 |
Total | | 477,094 | | 650,709 | | 74,329 | | 1,202,132 |
F-74
| | | Financial assets at amortized cost | | Financial assets at fair value through profit or loss | | Non-financial assets | | Total |
As of December 31, 2015 | | | | | | | | |
Assets | | | | | | | | |
Trade receivables | | 963,005 | | - | | - | | 963,005 |
Other receivables | | 842,716 | | 43,219 | | 347,702 | | 1,233,637 |
Cash and cash equivalents | | | | | | - | | |
Cash and Banks | | 35,145 | | - | | - | | 35,145 |
Checks to be deposited | | 319 | | - | | - | | 319 |
Time deposits | | - | | - | | - | | - |
Money market funds | | - | | 93,488 | | - | | 93,488 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | - | | 370,161 | | - | | 370,161 |
Derivative financial instruments | | - | | 197 | | - | | 197 |
Money market funds | | - | | 1,213,840 | | - | | 1,213,840 |
Total | | 1,841,185 | | 1,720,905 | | 347,702 | | 3,909,792 |
| | | | | | | | | |
| | | | | | | | | |
As of December 31, 2014 | | | | | | | | |
Assets | | | | | | | | |
Trade receivables | | 882,949 | | - | | - | | 882,949 |
Other receivables | | 110,212 | | 38,396 | | 350,934 | | 499,542 |
Cash and cash equivalents | | | | | | | | |
Cash and Banks | | 38,390 | | - | | - | | 38,390 |
Checks to be deposited | | 301 | | - | | - | | 301 |
Time deposits | | - | | 4,852 | | - | | 4,852 |
Money market funds | | - | | 135,537 | | - | | 135,537 |
Financial assets at fair value through profit or loss: | | | | | | | | |
Government bonds | | - | | 21,150 | | - | | 21,150 |
Government bonds - AESEBA trust | | - | | - | | - | | - |
Money market funds | | - | | 233,297 | | - | | 233,297 |
Total | | 1,031,852 | | 433,232 | | 350,934 | | 1,816,018 |
F-54
Table of Contents
| | | Financial liabilities at amortized cost | | Financial liabilities at fair value through profit or loss | | Non-financial liabilities | | Total |
As of December 31, 2015 | | | | | | | | |
Liabilities | | | | | | | | |
Trade and other payables | | 5,045,959 | | - | | 2,197,986 | | 7,243,945 |
Borrowings | | 2,509,773 | | - | | - | | 2,509,773 |
Total | | 7,555,732 | | - | | 2,197,986 | | 9,753,718 |
| | | | | | | | | |
As of December 31, 2014 | | | | | | | | |
Liabilities | | | | | | | | |
Trade and other payables | | 3,724,971 | | - | | 1,637,708 | | 5,362,679 |
Borrowings | | 1,632,403 | | - | | - | | 1,632,403 |
Derivative financial instruments | | - | | 5,895 | | - | | 5,895 |
Total | | 5,357,374 | | 5,895 | | 1,637,708 | | 7,000,977 |
| | | Financial liabilities at amortized cost | | Financial liabilities at fair value through profit or loss | | Subtotal financial liabilities | | Non-financial liabilities | | Total |
At December 31, 2012 | | | | | | | | | | |
Liabilities | | | | | | | | | | |
Trade payables and other liabilities | | 1,359,623 | | - | | 1,359,623 | | 2,029,381 | | 3,389,004 |
Borrowings | | 1,453,843 | | - | | 1,453,843 | | - | | 1,453,843 |
Total | | 2,813,466 | | - | | 2,813,466 | | 2,029,381 | | 4,842,847 |
| | | | | | | | | | | |
At December 31, 2011 | | | | | | | | | | |
Liabilities | | | | | | | | | | |
Trade payables and other liabilities | | 742,788 | | - | | 742,788 | | 1,470,890 | | 2,213,678 |
Borrowings | | 1,248,907 | | - | | 1,248,907 | | - | | 1,248,907 |
Total | | 1,991,695 | | - | | 1,991,695 | | 1,470,890 | | 3,462,585 |
| | | | | | | | | | | |
At January 1, 2011 | | | | | | | | | | |
Liabilities | | | | | | | | | | |
Trade payables and other liabilities | | 434,031 | | - | | 434,031 | | 984,518 | | 1,418,549 |
Borrowings | | 1,081,968 | | - | | 1,081,968 | | - | | 1,081,968 |
Derivative financial instruments | | - | | 7,253 | | 7,253 | | - | | 7,253 |
Total | | 1,515,999 | | 7,253 | | 1,523,252 | | 984,518 | | 2,507,770 |
Financial instruments categories have been determined based on IFRS 9.
The income, expenses, gains and losses resulting from each category of financial instruments are as follow:
| | | Financial assets at amortized cost | | Financial assets at fair value through profit or loss | | Total | | Financial assets at amortized cost | | Financial assets at fair value through profit or loss | | Total |
At December 31, 2012 | | | | | | | |
As of December 31, 2015 | | | | | | | |
Interest income | | 56,362 | | 29,647 | | 86,009 | | 96.225 | | - | | 96.225 |
Exchange differences | | 16,277 | | - | | 16,277 | | 14.326 | | 5.745 | | 20.071 |
Bank fees and expenses | | (58,845) | | - | | (58,845) | | (20.117) | | - | | (20.117) |
Gain from financial instruments at fair value | | - | | 39,053 | | 39,053 | |
Adjustment to present value of retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | | 421 | | - | | 421 | |
Changes in fair value of financial assets | | | - | | 350.543 | | 350.543 |
Adjustment to present value | | | 3.984 | | 1.403 | | 5.387 |
Total | | 14,215 | | 68,700 | | 82,915 | | 94.418 | | 357.691 | | 452.109 |
| | | | | | | | | | | | | |
At December 31, 2011 | | | | | | | |
As of December 31, 2014 | | | | | | | |
Interest income | | 33,222 | | 22,346 | | 55,568 | | 235.534 | | - | | 235.534 |
Exchange differences | | 18,074 | | - | | 18,074 | | 17.432 | | 8.082 | | 25.514 |
Bank fees and expenses | | (37,692) | | - | | (37,692) | | (15.509) | | - | | (15.509) |
Gain from financial instruments at fair value | | - | | 13,296 | | 13,296 | |
Adjustment to present value of retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | | 1,170 | | - | | 1,170 | |
Changes in fair value of financial assets | | | - | | 71.029 | | 71.029 |
Adjustment to present value | | | 8.282 | | (154) | | 8.128 |
Total | | 14,774 | | 35,642 | | 50,416 | | 245.739 | | 78.957 | | 324.696 |
| | | | | | | | |
As of December 31, 2013 | | | | | | | |
Interest income | | | 287.068 | | - | | 287.068 |
Exchange differences | | | 29.410 | | - | | 29.410 |
Bank fees and expenses | | | (10.313) | | - | | (10.313) |
Changes in fair value of financial assets | | | - | | 16.097 | | 16.097 |
Adjustment to present value | | | 2.378 | | - | | 2.378 |
Other | | | - | | 58 | | 58 |
Total | | | 308.543 | | 16.155 | | 324.698 |
F-55
| | | Financial liabilities at amortized cost | | Financial liabilities at fair value through profit or loss | | Non-financial instruments | | Total |
As of December 31, 2015 | | | | | | | | |
Interest expense | | (429.899) | | - | | - | | (429.899) |
Other financial results | | (22.880) | | - | | - | | (22.880) |
Exchange differences | | (914.844) | | - | | - | | (914.844) |
Total | | (1.367.623) | | - | | - | | (1.367.623) |
| | | | | | | | | |
As of December 31, 2014 | | | | | | | | |
Interest expense | | (576.504) | | - | | - | | (576.504) |
Other financial results | | (20.224) | | - | | - | | (20.224) |
Exchange differences | | (453.410) | | - | | - | | (453.410) |
Net gain from the repurchase of Corporate Notes | | 44.388 | | - | | - | | 44.388 |
Total | | (1.005.750) | | - | | - | | (1.005.750) |
As of December 31, 2013 | | | | | | | | |
Interest expense | | (481.184) | | - | | (13.357) | | (494.541) |
Other financial results | | (14.763) | | - | | - | | (14.763) |
Bank fees and expenses | | - | | - | | - | | - |
Exchange differences | | (395.169) | | - | | - | | (395.169) |
Net gain from the repurchase of Corporate Notes | | 88.879 | | - | | - | | 88.879 |
Total | | (802.237) | | - | | (13.357) | | (815.594) |
| | | Financial liabilities at amortized cost | | Financial liabilities at fair value through profit or loss | | Non-financial instruments | | Total |
At December 31, 2012 | | | | | | | | |
Interest expense | | (225,258) | | - | | (11,920) | | (237,178) |
Other financial results | | (12,085) | | - | | - | | (12,085) |
Bank fees and expenses | | (825) | | - | | - | | (825) |
Exchange differences | | (210,364) | | - | | - | | (210,364) |
Total | | (448,532) | | - | | (11,920) | | (460,452) |
| | | | | | | | | |
At December 31, 2011 | | | | | | | | |
Interest expense | | (162,095) | | - | | (2,501) | | (164,596) |
Bank fees and expenses | | (13,835) | | - | | - | | (13,835) |
Exchange differences | | (120,896) | | - | | - | | (120,896) |
Gain from the purchase of financial debt | | 6,546 | | - | | - | | 6,546 |
Other financial results | | (15,404) | | - | | - | | (15,404) |
Total | | (305,684) | | - | | (2,501) | | (308,185) |
Table of Contents
13.210.2Credit quality of trade receivablesfinancial assets
The credit quality of financial assets that are neither past due nor impaired may be assessed based on external credit ratings or historical information.
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Customers with no external credit rating (1): | | | | | | |
Group 1 (i) | | 621,425 | | 345,866 | | 339,428 |
Group 2 (ii) | | 211,190 | | 64,191 | | 66,902 |
Group 3 (iii) | | 54,091 | | 157,226 | | 46,231 |
Group 4 (iv) | | 50,407 | | 13,174 | | 14,163 |
Total trade receivables | | 937,113 | | 580,457 | | 466,724 |
(1) Balances do not include the allowance for the impairment of trade receivables | | |
| | | | | | | |
(i) Relates to customers with debt to become due. | | | | |
(ii) Relates to customers with up to 3 months past due debt. | | | | |
(iii) Relates to customers with 3 to 12 months past due debt. | | | | |
(iv) Relates to customers with more than 12 months past due debt. | | | |
13.3Financial assets at fair value through profit or lossinformation:
| | | 12.31.2012 | | 12.31.2011 | | 01.01.2011 |
Government bonds | | 3,415 | | 2,132 | | 315,267 |
Corporate notes | | - | | - | | 115,569 |
| | | 3,415 | | 2,132 | | 430,836 |
| | | 12.31.15 | | 12.31.14 |
Customers with no external credit rating: | | | | |
Group 1 (i) | | 432,295 | | 359,024 |
Group 2 (ii) | | 216,248 | | 179,364 |
Group 3 (iii) | | 314,462 | | 91,525 |
Group 4 (iv) | | - | | 253,036 |
Total trade receivables | | 963,005 | | 882,949 |
| | | | | |
(i) Relates to customers with debt to become due. | | |
(ii) Relates to customers with up to 3 months past due debt. | | |
(iii) Relates to customers with 3 to 12 months past due debt. | | |
(iv) Relates to customers with more than 12 months past due debt. | |
At the Statement of financial position date, the maximum exposure to credit risk is the carrying amount of these financial assets.
14.11. Other receivables
| | Note | | 12.31.15 | | 12.31.14 |
Non-current: | | | | | |
| | | | - | | - |
Minimum national income tax | | | 74,056 | | 168,588 |
Tax credits | | | - | | 2,089 |
Financial credit | | | 72,656 | | 71,192 |
Related parties | 33.d | | 7,065 | | 7,366 |
Total Non-current | | | 153,777 | | 249,235 |
| | | | | | |
Current: | | | | | |
Prepaid expenses | | | 3,473 | | 3,198 |
Credit form Income recognition on account of the RTI - SE Resolution 32/15 | 2 | | 650,938 | | - |
Value added tax | | | 248,364 | | 167,207 |
Advances to suppliers | | | 20,762 | | 8,070 |
Advances to personnel | | | 1,047 | | 1,782 |
Security deposits | | | 6,933 | | 2,424 |
Financial credit | | | 16,362 | | 6,658 |
Receivable with FOCEDE (1) | | | 49,536 | | - |
Receivables from electric activities | | | 65,694 | | 48,581 |
Related parties | 33.d | | 7,076 | | 753 |
Guarantee deposits on derivative financial instruments | 16,555 | | 15,322 |
Allowance for the impairment of other receivables | | | 10,482 | | 11,900 |
Judicial deposits | | | 390 | | 1,059 |
Other | | | (17,752) | | (16,647) |
Total Current | | | 1,079,860 | | 250,307 |
(1)As of December 31, 2015, the net position held by the Company with the FOCEDE is comprised of the following:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current | | | | | | |
Prepaid expenses | | 1,260 | | 1,140 | | 1,199 |
Tax on minimum presumed income | | 26,201 | | 30,743 | | 12,283 |
Tax credits | | 11,697 | | 1,714 | | 3,693 |
Financial receivable with SIESA (Note 40) | | 12,993 | | - | | - |
Receivable with EDEN S.A. class "C" shareholders | | 17,263 | | 15,417 | | - |
Other | | 1,077 | | 1,249 | | 1,321 |
Total non-current | | 70,491 | | 50,263 | | 18,496 |
| | | | | | | |
Current | | | | | | |
Prepaid expenses | | 1,893 | | 2,986 | | 4,625 |
Advances to suppliers | | 47,410 | | 39,163 | | 4,415 |
Advances to personnel | | 3,666 | | 4,627 | | 6,276 |
Guarantee deposits | | 1,074 | | - | | - |
Receivables from activities other than the main activity | | 27,521 | | 20,405 | | 23,321 |
Financial receivable with SIESA (Note 40) | | 2,516 | | - | | - |
Credit with FOCEDE (Res. 347/12) | | 3,789 | | - | | - |
Note receivable with EDESUR S.A. | | 3,529 | | 2,846 | | - |
Judicial deposits | | 4,216 | | 5,859 | | 4,418 |
Related parties (Note 30) | | 52,292 | | 8,282 | | 4,169 |
Allowance for the impairment of other receivables | | (16,011) | | (12,253) | | (12,799) |
Other | | 3,683 | | 4,350 | | 5,644 |
Total current | | 135,578 | | 76,265 | | 40,069 |
| | 12.31.15 |
Fixed charge Res. 347/12 collected from customers and not transferred | | (7,204) |
Funds received in excess of that transferred to FOCEDE from fixed charge Res. 347/12 | | 191,722 |
Outstanding receivables from extraordinary Investment Plan | | 18,281 |
Provision for FOCEDE expenses | | (153,263) |
| | 49,536 |
The carrying amount of the Company’s other financial receivables approximates their fair value. The other non-current receivables are measured at amortized cost, which does not differ significantly from their fair value.
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The aging analysis of these other receivables is as follows:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Unexpired | | | 49,536 | | - |
Past due | | 24,028 | | 15,003 | | 30,045 | | 63,281 | | 25,980 |
Up to 3 months | | 55,048 | | 37,508 | | 25,157 | | 929,022 | | 17,270 |
From 3 to 6 months | | 1,534 | | 851 | | 582 | | 11,380 | | 177,238 |
More than 6 months | | 125,459 | | 73,166 | | 2,781 | |
From 6 to 9 months | | | 5,366 | | 6,476 |
From 9 to 12 months | | | 21,275 | | 23,343 |
More than 12 months | | | 153,777 | | 249,235 |
Total other receivables | | 206,069 | | 126,528 | | 58,565 | | 1,233,637 | | 499,542 |
The evolutionroll forward of the allowance for the impairment of other receivables is as follow:follows:
| | | 12.31.12 | | 12.31.11 |
Balance at beginning of year | | 12,253 | | 12,799 |
Incorporation for acquisition of subsidiaries | | - | | 4,358 |
Increase | | 4,095 | | 1,495 |
Increase related parties | | - | | |
Uses | | (337) | | (6,399) |
Balance at end of year | | 16,011 | | 12,253 |
| | | 12.31.15 | | 12.31.14 |
Balance at beginning of year | | 16,647 | | 20,412 |
Increase | | 1,105 | | 2,845 |
Decrease | | - | | (4,771) |
Recovery | | - | | (1,839) |
Balance at end of the year | | 17,752 | | 16,647 |
At the consolidated statement of financial position date, the maximum exposure to credit risk is the carrying amount of each class of other receivables.
The carrying amount of the Company’s other receivables is denominated in the following currencies:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Argentine pesos | | 141,283 | | 109,105 | | 53,918 | | 1,222,444 | | 496,735 |
US dollars | | 64,514 | | 16,446 | | 4,063 | | 11,193 | | 2,807 |
Euros | | 272 | | 977 | | 584 | |
| | | 206,069 | | 126,528 | | 58,565 | |
Total other receivables | | | 1,233,637 | | 499,542 |
15.12. Trade receivables
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current: | | | | | | |
Receivables from Cost Monitoring Mechanism and others | | 45,688 | | 45,725 | | 45,531 |
Bonds for the cancellation of debts of the Province of Bs. As. | | 2,042 | | - | | - |
Total non-current | | 47,730 | | 45,725 | | 45,531 |
| | | | | | | |
Current: | | | | | | |
Sales of electricity - Billed (1) | | 564,338 | | 344,116 | | 216,749 |
Sales of electricity – Unbilled | | 325,623 | | 196,598 | | 149,046 |
Retroactive tariff increase arising from the application of the new electricity rate schedule | | - | | - | | 20,272 |
Framework Agreement | | 25,438 | | 25,662 | | 33,047 |
National Fund of Electricity | | 2,984 | | 3,353 | | 3,437 |
Bonds for the cancellation of debts of the Province of Bs. As. | | 4,095 | | - | | 8,743 |
Specific fee payable for the expansion of the network, transportation and others | | 9,933 | | 6,512 | | 4,477 |
In litigation | | 20,237 | | 16,109 | | 14,681 |
Allowance for the impairment of trade receivables | | (63,265) | | (57,618) | | (29,259) |
Total current | | 889,383 | | 534,732 | | 421,193 |
| | | 12.31.15 | | 12.31.14 |
Current: | | | | |
Sales of electricity - Billed (1) | | 709,568 | | 641,920 |
Sales of electricity – Unbilled | | 216,012 | | 207,653 |
Framework Agreement | | 73,097 | | 75,815 |
National Fund of Electricity | | - | | 3,428 |
Fee payable for the expansion of the transportation and others | | 20,842 | | 16,851 |
Receivables in litigation | | 22,847 | | 21,844 |
Allowance for the impairment of trade receivables | | (79,361) | | (84,562) |
Total Current | | 963,005 | | 882,949 |
(1) Net of Stabilization factor (Note 2.h)stabilization factor.
The carrying amount of the Company’s trade receivables approximates their fair value.
At December 31, 2012, 2011 and January 1, 2011, trade receivables that were past due but for which no allowance had been recorded amounted to $ 252.42 million, $ 176.97 million and $ 98.04 million, respectively. These balances relate to independent customers for whom there is no recent history of default. F-58
The ageingaging analysis of these trade receivables is as follows:
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| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Past due | | 315,688 | | 216,973 | | 127,296 | | 530,710 | | 523,925 |
Up to 3 months | | 573,396 | | 317,306 | | 292,923 | | 432,295 | | 359,024 |
From 3 to 6 months | | 162 | | 246 | | 488 | |
More than 6 months | | 47,867 | | 45,932 | | 46,017 | |
Total trade receivables | | 937,113 | | 580,457 | | 466,724 | | 963,005 | | 882,949 |
The roll forward of the allowance for the impairment of trade receivables is as follow:follows:
| | | 12.31.12 | | 12.31.11 |
Balance at beginning of year | | 57,618 | | 29,259 |
Additions from business combinations | | - | | 26,400 |
Increase | | 14,425 | | 9,313 |
Uses | | (8,778) | | (7,354) |
Balance at end of year | | 63,265 | | 57,618 |
| | | 12.31.15 | | 12.31.14 |
Balance at beginning of year | | 84,562 | | 73,185 |
Increase | | 22,979 | | 18,686 |
Decrease | | (28,180) | | (7,309) |
Balance at end of the year | | 79,361 | | 84,562 |
At the consolidated statement of financial position date, the maximum exposure to credit risk is the carrying amount of each class of othertrade receivables.
The carrying amount of the Company’s trade receivables is denominated in the following currencies:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Argentine pesos | | 937,113 | | 580,457 | | 466,724 |
| | | 937,113 | | 580,457 | | 466,724 |
| | | 12.31.15 | | 12.31.14 |
Argentine pesos | | 963,005 | | 882,949 |
Total other receivables | | 963,005 | | 882,949 |
Sensitivity analysis:
5% increase in the uncollectibility rate estimate
| | 12.31.15 |
Contingencies | | 82,539 |
change | | 2,917 |
5% decrease in the uncollectibility rate estimate
| | 12.31.15 |
Contingencies | | 76,706 |
change | | (2,917) |
13.Financial assets at fair value through profit or loss
| | | 12.31.15 | | 12.31.14 |
Non-current | | | | |
Government bonds | | 23,567 | | - |
Total Non-current | | 23,567 | | - |
| | | 12.31.15 | | 12.31.14 |
Current | | | | |
Government bonds | | 346,594 | | 21,150 |
Money market funds | | 1,213,840 | | 233,297 |
Total current | | 1,560,434 | | 254,447 |
14. Inventories
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Current | | | | | |
Supplies and spare-parts | | 85,002 | | 45,325 | | 12,407 | | 120,512 | | 61,561 |
Advance to suppliers | | | 14,355 | | 12,409 |
Total inventories | | 85,002 | | 45,325 | | 12,407 | | 134,867 | | 73,970 |
17.15. Cash and cash equivalents
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Cash and Banks | | 19,673 | | 23,095 | | 8,611 | |
Cash and banks | | | 35,464 | | 38,691 |
Time deposits | | 481 | | 48,511 | | 17,523 | | - | | 4,852 |
Money market funds | | 50,954 | | 58,903 | | 219,873 | | 93,488 | | 135,537 |
Total cash and cash equivalents | | 71,108 | | 130,509 | | 246,007 | | 128,952 | | 179,080 |
18.Discontinued operations
As a consequence of that mentioned in note 39 to these Consolidated Financial Statements, the interest held by the subsidiary EMDERSA Holding in its subsidiary EMDERSA has been classified as “Assets of disposal groups classified as held for sale”, due to the Company Management’s decision to discontinue the related operations.
These assets must be valued at the lower of the book value and fair value less costs to sell. At December 31, 2012, these assets have been valued at their fair value less costs to sell, which is lower than their book value.
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The detail of assets classified as held for sale is as follows:
| | 12.31.12 | | 12.31.11 |
| | | | |
Emdersa Holding's equity | 41,522 | | 263,183 |
Percentage interest held | 99.99% | | 99.99% |
Value on equity method: | 41,518 | | 263,157 |
| | | | |
| | | | |
Assets of disposal groups classified as held for sale at Net Realizable Value (NRV): | 41,518 | | 216,531 |
| | | | |
| | | | |
Change in Net Realizable Value: | | | |
Realization of assets of disposal groups classified as held for sale | (152,646) | | |
Gain on Net Realizable Value | (22,367) | | |
Net change | (175,013) | | |
19.16. Share capital and additional paid-in capital
| | | Number of shares (1) | | Share capital (2) | | Additional paid-in capital | | Total |
At January 1, 2011 | | 906,455,100 | | 1,902,944 | | 18,317 | | 1,921,261 |
Additional purchase of non-controlling interests | | - | | - | | 3,452 | | 3,452 |
At December 31, 2011 | | 906,455,100 | | 1,902,944 | | 21,769 | | 1,924,713 |
Absorption of accumulated losses - Shareholders' Meeting of 04/27/2012 (Note 41) | | - | | (588,426) | | (18,317) | | (606,743) |
At December 31, 2012 | | 906,455,100 | | 1,314,518 | | 3,452 | | 1,317,970 |
(1)Includes 9,412,500 treasury sharesAs of December 31, 2012, 2011 and January 1, 2011.
(2)Includes the nominal value of capital and treasury stock and the adjustment for inflation value of both concepts (see Note 4.26).
At December 31, 2012 and 2011,2015, the Company’s share capital amounts to 906,455,100 shares, represented bydivided into 462,292,111 common, book-entry Class A shares with a par value of one peso each and the right to one vote per share; 442,210,385 common, book-entry Class B shares with a par value of one peso each and the right to one vote per share; and 1,952,604 common, book-entry Class C shares with a par value of one peso each and the right to one vote per share. Each
Listing of the Company’s shares
The Company’s shares are listed on the Buenos Aires Stock Exchange and every share maintainsare part of the same voting rights, i.e. one vote per share. There are no preferredMerval Index.
Furthermore, on August 5, 2009 the SEC (Securities and Exchange Commission) of the United States of America authorized the Company to trade ADSs (American Depositary Shares), each representing 20 common shares of any kind, dividends and/or preferences in the eventCompany. As from October 9, 2009 the Company’s ADSs are traded on the NYSE (New York Stock Exchange).
The listing of liquidation, privileged participation rights, pricesADSs on the NYSE is part of the Company’s strategic plan to increase both its liquidity and dates, or unusual voting rights. Moreover, there are no significant termsthe volume of contracts allowing for eitherits shares.
Acquisition of the issuance of additionalCompany’s own shares or any commitment of a similar nature.
During fiscal year 2008, the Company acquired 9,412,500 Class B treasury shares with a nominal value of 1 peso. The amount disbursed to acquire these shares totaled $ 6.46.13 million, which was deducted from inappropriateunappropriated retained earnings of the equity attributable to the owners of the Company at that date.
At the date of these consolidated financial statements, these shares are held as “treasury stock”. The Company is entitled to reissue these shares at a future date.
On March 3, 2011,November 18, 2014, the Company held the General Annual Meeting which resolved by majority of votes to extend for another 3 years the term for holding the treasury shares acquired within the framework of section 68 of Law No. 17,811 (text consolidated by Decree No. 677/01). All the shares issued have been fully paid-in.
The Company’s Employee Stock Ownership Program
At the time of the privatization of SEGBA (the Company’s predecessor), the Argentine Government assigned the Company’s Class C shares, representing 10% of the Company’s outstanding capital stock, for the creation of an Employee Stock Ownership Program (ESOP) in compliance with the provisions of Law No. 23,696 and its regulatory decrees. Through this program, certain eligible employees (including former SEGBA employees who had been transferred to the Company) were entitled to receive a specified number of Class C shares, to be calculated on the basis of a formula that took into consideration a number of factors including employee salary, position and seniority. In order to implement the ESOP, a general transfer agreement, a voting trust agreement and a trust agreement were signed.
Pursuant to the general transfer agreement, participating employees were allowed to defer payment of the Class C shares over time. As security for the payment of the deferred purchase price, the Class C shares were pledged in favor of the Argentine government. This pledge was released on April 27, 2007 upon full payment to the Argentine Government of the deferred purchase price of all Class C shares. Additionally, inaccordance with the terms of the original trust agreement, the Class C shares were held in trust by Banco de la Nación Argentina, acting as trustee, for the benefit of the ESOP participating employees and the Argentine Government. Furthermore, in accordance with the voting trust agreement, all political rights of participating employees (including the right to vote at the Company’s ordinary and extraordinary shareholders’ meetings) were to be jointly exercised until full payment of the deferred purchase price and release of the pledge in favor of the Argentine Government. On April 27, 2007, ESOP participating employees fully paid the deferred purchase price to the Argentine Government, accordingly, the pledge was released and the voting trust agreement was terminated.
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In accordance with the regulations applicable to the ESOP, participating employees who retired before full payment of the deferred purchase price to the Argentine Government was made, were required to transfer their shares to the Guarantee and Repurchase Fund (Fondo de Garantía y Recompra) at a price to be calculated in accordance with a formula established in the general transfer agreement. At the date of payment of the deferred purchase price, the Guarantee and Repurchase Fund had not fully paid the amounts due to former ESOP participating employees for the transfer of their Class C shares.
A number of former employees of both SEGBA and the Company have brought legal actions against the Guarantee and Repurchase Fund, the Argentine Government and, in few cases, against the Company, in cases in relation to the administration of the Employee Stock Ownership Program. The plaintiffs who are former employees of SEGBA were not deemed eligible by the corresponding authorities to participate in the Employee Stock Ownership Program at the time of its creation. This decision is being disputed by the plaintiffs who are therefore seeking compensation. The plaintiffs who are former employees of the Company are claiming payment for the unpaid amounts owed to them by the Guarantee and Repurchase Fund either due to non-payment of the transfer of their shares upon retirement in favor of the Guarantee and Repurchase Fund or incorrect calculation of amounts paid to them by the Guarantee and Repurchase Fund. In several of these claims, the plaintiffs have obtained attachment orders or prohibitory injunctions against the Guarantee and Repurchase Fund on Class C shares and the amounts deposited in such Fund. Due to the fact that the resolution of these legal proceedings is still pending, the Federal Government has instructed Banco de la Nación Argentina to create a Contingency Fund so that a portion of the proceeds of the offering of the Employee Stock Ownership Program Class C shares be kept during the course of the legal actions.
No provision has been recorded in these consolidated financial statements in connection with the legal actions brought against the Company as the Company’s management believes that EDENOR S.A. is not responsible for the above-mentioned claims.
In accordance with the agreements, laws and decrees that govern the Employee Stock Ownership Program, the Class C shares may only be held by personnel of the Company, therefore before the public offering of the Class C shares that had been separated from the Program, such shares were converted into Class B shares and sold. In conformity with the by-laws, the political rights previously attributable to Class C shares are at present jointly exercised with those attributable to Class B shares and the holders of the remaining Class C shares will vote jointly as a single class with the holders of Class B shares when electing directors and supervisory committee members. At December 31, 2012,2011 and January, 1, 2011, 1,952,604 Class C shares, representing 0.22% of the Company’s share capital are outstanding.
Section 206 – Argentine Business Organizations Law
The negative results recorded by the Company at December 31, 2012 consume 100% of the reserves and more than 50% of capital. Section 206 of the Argentine Business Organizations Law establishes the mandatory reduction of a company’s capital stock when this situation occurs. Therefore, the Company’s shareholders are currently analyzing alternatives, in accordance with regulation effective, to resolve this situation.
20.17. Allocation of profits
Restrictions on the distribution of dividends
i. In accordance with the provisions of Law No. 19,550, the General Annual Meeting held on April 27, 201229, 2014 resolved that the lossprofit for the year ended December 31, 2011 must2013 be absorbed by the Retained Earnings account.
ii. In accordance with the provisions of Law No. 25,063, passed in December 1998, dividends to be distributed, whether in cash or in kind, in excess of accumulated taxable profits at the fiscal year-end immediately preceding the date of payment or distribution, shall be subject to a final 35% income tax withholding, except for those dividends distributed to shareholders who are residents of countries benefiting from conventions for the avoidance of double taxation who will be subject to a lower tax rate.
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iii. Additionally, as indicated in Note 2, and in accordance with the Adjustment Agreement entered into between Edenor S.A. and the Federal Government, there are certain restrictions on the distribution of dividends by the Company and the ENRE’s approval for any distribution is necessary.
iv. In accordance with the provisions of Argentine Business Organizations Law No. 19,550, not less than five percent (5%) of the net profit arising from the statement of income for the year must be allocated to the legal reserve, until it equals twenty percent (20%) of the share capital. No charge has been recorded for this concept in the current year.year being reported.
v. Recording of the legal reserve for up to the amount absorbed, as resolved by the General Annual Meeting held on April 27, 2012 (Note 41).2012.
vi.MEyM Resolution No. 7/16, issued after the closing date of the year being reported, provides that the Company shall not distribute dividends in accordance with clause 7.4 of the Adjustment Agreement.
18.Trade payables
| | | 12.31.15 | | 12.31.14 |
Non-current | | | | |
Suppliers | | - | | 364 |
Customer guarantees | | 67,509 | | 60,743 |
Customer contributions | | 105,757 | | 118,298 |
Funding contributions - substations | | 51,700 | | 51,700 |
Total Non-current | | 224,966 | | 231,105 |
| | | | | |
Current | | | | |
Payables for purchase of electricity - CAMMESA | | 2,714,263 | | 2,257,059 |
Provision for unbilled electricity purchases - CAMMESA | | 646,183 | | 305,890 |
Suppliers | | 817,891 | | 570,434 |
Customer contributions | | 147,775 | | 148,076 |
Discounts to customers (Note 2.e.iii) | | 125,809 | | - |
Funding contributions - substations | | 23,506 | | 18,432 |
Total Current | | 4,475,427 | | 3,299,891 |
The fair values of non-current customer contributions as of December 31, 2015 and 2014 amount to $ 127.1 million and $ 109.9 million, respectively. The fair values are determined based on estimated discounted cash flows in accordance with a market rate for this type of transactions. This fair value is classified as level 2.
The carrying amount of the rest of the financial liabilities included in the Company’s trade payables approximates their fair value.
21.19. TradeOther payables
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current | | | | | | |
Customer deposits | | 57,785 | | 53,477 | | 49,129 |
Customer contributions | | 95,723 | | 33,338 | | - |
Payables for purchase | | 1,805 | | 867 | | 1,855 |
Total non-current | | 155,313 | | 87,682 | | 50,984 |
| | | | | | | |
Current | | | | | | |
Payables for purchase of electricity - CAMMESA | | 421,398 | | 138,112 | | 115,598 |
Payables for purchase | | 329,509 | | 270,585 | | 106,028 |
Provision for unbilled electricity purchases - CAMMESA | | 259,762 | | 134,151 | | 111,860 |
Related parties | | 14,257 | | 4,065 | | 8 |
Customer contributions | | 68,237 | | 45,954 | | 33,965 |
Funding contributions substations | | 53,286 | | - | | - |
Other | | 42,083 | | 30,806 | | 9,654 |
Total current | | 1,188,532 | | 623,673 | | 377,113 |
| | | 12.31.15 | | 12.31.14 |
Non-current | | | | |
Loans (mutuum) with CAMMESA | | 1,099,760 | | 506,753 |
ENRE penalties and discounts | | 1,004,043 | | 1,032,193 |
Liability with FOTAE | | 155,752 | | 105,641 |
Payment agreements with ENRE (Note 2.e).iv) | | 132,323 | | - |
Total Non-current | | 2,391,878 | | 1,644,587 |
| | | | | |
Current | | | | |
Program for the rational use of electric power (1) | | - | | 17,522 |
ENRE penalties and discounts | | 62,720 | | 70,589 |
Liability with FOCEDE (2) | | - | | 85,386 |
Related parties (Note 33.c) | | 3,447 | | 2,706 |
Advances for works to be performed | | 31,462 | | 10,650 |
Payment agreements with ENRE (Note 2.e).iv) | | 54,006 | | - |
Other | | 39 | | 243 |
Total Current | | 151,674 | | 187,096 |
(1)As of December 31, 2014, the net position held by the Company with the FOCEDE is comprised of the following:
| | 12.31.14 |
Fixed charge Resolution 347/12 charged to customers and not transferred | | 6,105 |
Funds received in excess of the amount transferred to the FOCEDE for fixed charge Resolution 347/12 | | 74,713 |
Receivable from funds pending collection for Extraordinary Investment Plan | | (93,133) |
Provision for FOCEDE expenses | | 97,701 |
| | 85,386 |
The carrying amount of Tradethe Company’s other financial payables approximates their fair value.
22.Other liabilities
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current | | | | | | |
Program for the rational use of electric power (Note 2.c.III) | | 1,277,761 | | 867,087 | | 529,097 |
ENRE penalties and discounts | | 617,011 | | 506,602 | | 455,421 |
Total non-current | | 1,894,772 | | 1,373,689 | | 984,518 |
| | | | | | | |
Current | | | | | | |
Program for the rational use of electric power (Res.MIVSPBA N° 252/07) | | 74,693 | | 61,566 | | - |
ENRE penalties and discounts | | 45,031 | | 35,636 | | - |
Advance payments received for EDELAR’s sale agreement | | 7,377 | | 6,455 | | - |
Related parties | | 2,382 | | 15,597 | | 1,392 |
Payables with FOCEDE (Res. 347/12) | | 3,789 | | - | | - |
Dividends payable | | 7,509 | | 1,211 | | - |
Other | | 9,606 | | 8,169 | | 4,542 |
Total current | | 150,387 | | 128,634 | | 5,934 |
| | | | | | | |
The carrying amount of other liabilities approximates fair value.
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23.20. Deferred revenue
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current: | | | | | | |
Related to IFRIC 12 | | 230,061 | | 157,338 | | - |
Customer contribution non refundable | | 34,366 | | 17,458 | | - |
Total Non-current | | 264,427 | | 174,796 | | - |
| | | | | | | |
| | | 12.31.15 | | 12.31.14 |
Non-current | | | | |
Nonrefundable customer contributions | | 153,816 | | 109,089 |
Total Non-current | | 153,816 | | 109,089 |
| | | | | |
| | | 12.31.15 | | 12.31.14 |
Current | | | | |
Nonrefundable customer contributions | | 764 | | 764 |
Total Current | | 764 | | 764 |
21. Borrowings
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Non-current | | | | | | | | | | |
Financial loans | | 5,424 | | 6,890 | | - | |
Corporate notes | | 1,345,276 | | 1,182,992 | | 1,035,113 | |
Corporate notes (1) | | | 2,341,098 | | 1,598,442 |
Related parties (Note 33.e) | | | 119,877 | | - |
Total non-current | | 1,350,700 | | 1,189,882 | | 1,035,113 | | 2,460,975 | | 1,598,442 |
| | | | | | | | | | | |
Current | | | | | | | | | | |
Financial loans | | 31,371 | | 6,871 | | - | |
Interest | | 35,107 | | 28,869 | | 21,237 | | 46,688 | | 33,961 |
Corporate notes | | 11,665 | | 23,285 | | 25,618 | |
Overdrafts | | 25,000 | | - | | - | |
Related parties (Note 33.e) | | | 2,110 | | - |
Total current | | 103,143 | | 59,025 | | 46,855 | | 48,798 | | 33,961 |
(1)Net of debt repurchase and issuance expenses.
The maturities of the Company’s borrowings and itstheir exposure to interest rates are as follow:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Fixed rate | | | | | | |
Less than 1 year | | 61,028 | | 35,740 | | - |
From 1 to 2 years | | 424 | | - | | 37,467 |
From 2 to 3 years | | - | | - | | - |
From 3 to 4 years | | - | | - | | - |
From 4 to 5 years | | - | | - | | - |
More than 5 years | | 1,345,276 | | 1,171,326 | | 997,646 |
| | | 1,406,728 | | 1,207,066 | | 1,035,113 |
Floating rate | | | | | | |
Less than 1 year | | 42,115 | | 23,285 | | 46,855 |
From 1 to 2 years | | 5,000 | | 15,111 | | - |
From 2 to 3 years | | - | | 3,445 | | - |
From 3 to 4 years | | - | | - | | - |
From 4 to 5 years | | - | | - | | - |
More than 5 years | | - | | - | | - |
| | | 47,115 | | 41,841 | | 46,855 |
| | | 1,453,843 | | 1,248,907 | | 1,081,968 |
| | | 12.31.15 | | 12.31.14 |
Fixed rate | | | | |
Less than 1 year | | 48,798 | | 33,961 |
From 2 to 4 years | | 192,470 | | 126,213 |
More than 4 years | | 2,268,505 | | 1,472,229 |
| | | 2,509,773 | | 1,632,403 |
The carryingAs of December 31, 2015 and 2014, the fair values of the Company’s non-current borrowings (Corporate Notes) amount approximately to $ 2.3 billion and $ 1.1 billion, respectively. Such values were calculated on the basis of current borrowings approximatesthe estimated market price of the Company’s corporate notes at the end of each year. This fair value due to their short-term maturity.is classified as level 1.
At December 31, 2012, 2011 and January 1, 2011,On February 2, 2016, the fairCompany has repurchased at market prices the “class 9, fixed rate par Corporate Notes” due 2022 for a nominal value of non-current borrowings amounts to $ 1,220.22 million, $ 1,061.08 million and $ 905.44 million, respectively.USD 0.3 million.
The Company’s borrowings are denominated in the following currencies:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Argentine pesos | | 72,294 | | 49,973 | | 42,037 | | - | | - |
US dollars | | 1,381,549 | | 1,198,934 | | 1,039,931 | | 2,509,773 | | 1,632,403 |
| | | 1,453,843 | | 1,248,907 | | 1,081,968 | | 2,509,773 | | 1,632,403 |
Table of Contents
The roll forward of the Company’s borrowings during the year was as follows:
Balance at 01.01.201112.31.2012 |
| 1,081,9681,350,532
|
Principal borrowed
| | 298,190
|
Principal repaid | | (252,542)(424)
|
Interest paid | | (127,891)(155,251)
|
Repurchase of Corporate Notes | | (91,638) |
Gain from the repurchase of Corporate Notes | | (52,848) |
Exchange difference and interest accrued | | 249,182490,814
|
Cost capitalized | | 91,218 |
Balance at 12.31.201112.31.2013 |
| 1,248,9071,632,403
|
Principal borrowed
| | 95,751
|
Principal repaid
| | (177,530)
|
Interest paid | | (32,733)(172,923)
|
Exchange difference and interest accrued | | 319,448961,519
|
Costs capitalized | | 88,774 |
Balance at 12.31.201212.31.2014 |
| 1,453,8432,509,773
|
The main features of the Company and each of its subsidiaries’ borrowings are detailed below:
THE COMPANY’S BORROWINGS
Corporate notes programs
The Company is included in a Corporate Notes program, the relevant information of which is detailed below:
Debt issued in United States dollars
| | | | | | | | | Million of USD | | Million of $ | | | | | | | | Million of USD | Million of $ |
Corporate Notes | | Class | | Rate | | Year of Maturity | | Debt structure at 01-01-11 | | Debt purchase in 2011 | | Issuance
4-26-11 | | Debt structure at 12-31-11 | | Debt structure at 12-31-12 | | At 12-31-12 | | Class | | Rate | | Year of Maturity | | Debt structure at 01.01.15 | | Debt repurchase | | Debt structure at 12.31.15 | | At 12.31.15 |
Floating Rate Par Note | | A | | LIBO + 2 | | 2019 | | 12.66 | | (12.66) | | - | | - | | - | | - | |
Fixed Rate Par Note | | 7 | | 10.50 | | 2017 | | 24.76 | | - | | - | | 24.76 | | 24.76 | | 121.77 | |
Fixed Rate Par Note | | | 7 | | 10.5 | | 2017 | | 14.76 | | - | | 14.76 | | 192.47 |
Fixed Rate Par Note (1) | | 9 | | 9.75 | | 2022 | | 219.18 | | (41.45) | | 69.70 | | 247.43 | | 247.43 | | 1,222.51 | | 9 | | 9.75 | | 2022 | | 172.17 | | - | | 172.17 | | 2,268.51 |
Total | | | | | | | | 256.60 | | (54.11) | | 69.70 | | 272.19 | | 272.19 | | 1,344.28 | | | | | | | | 186.93 | | - | | 186.93 | | 2,460.98 |
| | | | | | | | | Million of USD | Million of $ |
Corporate Notes | | Class | | Rate | | Year of Maturity | | Debt structure at 01.01.14 | | Debt repurchase (2) | | Debt structure at 12.31.14 | | At 12.31.14 |
Fixed Rate Par Note | | 7 | | 10.5 | | 2017 | | 14.76 | | - | | 14.76 | | 126.21 |
Fixed Rate Par Note (1) | | 9 | | 9.75 | | 2022 | | 186.12 | | (13.95) | | 172.17 | | 1,472.23 |
Total | | | | | | | | 200.88 | | (13.95) | | 186.93 | | 1,598.44 |
(1) Net of issuance expenses.
Debt issued(2)Includes collection, through the trust, of proceeds from subsidiary sales and collection of financial receivables with related companies. On March 27, 2014, the repurchased Corporate Notes that the Company held in Argentine pesosits portfolio were written off.
Corporate Notes | | Debt Structure (Million of $) |
| | Class | | Rate | | Year of Maturity | | At 12.31.12 |
Floating Rate Par Note | | 8 | | BADLAR +
6,75 | | 2013 | | 11.66 |
Total | | | | | | | | 11.66 |
The Company used the net proceeds from the sale of the Corporate Notes in these offerings to refinance part of its short-term indebtedness, finance its capital expenditures plan and increase working capital.
The main covenants are the following:
i. Negative Covenants
The terms and conditions of the Corporate Notes include a seriesnumber of negative covenants that limit the Company’s actions with regard to, among others, the following:
- encumbrance or authorization to encumber its property or assets;
- incurrence of indebtedness, in certain specified cases;
- sale of the Company’s assets related to its main business;
- carrying out of transactions with shareholders or related companies;
- making certain payments (including, among others, dividends, purchases of Edenor’s common shares or payments on subordinated debt).
Table of Contents
ii. Suspension of Covenants:
Certain negative covenants stipulated in the terms and conditions of the Corporate Notes will be suspended or adjustedadapted if:
The-The Company’s long-term debt rating is raised to Investment Grade, or the
- The Company’s Level of Indebtedness calculated on the shareholders' equity is equal to or lower than 2.5.
If the Company subsequently losses its Investment Grade rating or its Level of Indebtedness is higher than 2.5, as applicable, the suspended negative covenants will be once again in effect.
However, the reinstatement of the covenants will not affect those acts which the Company may have performed during the suspension of such covenants.
EDENOR’S FINANCIAL LOANS
In August 2011, the Company took out a financial loan from Banco Ciudad for a principal amount of $ 5.8 million accruing interest at an annual rate of 14.8% and falling due on February 6, 2012. Interest is paid on a monthly basis as from August 31, 2011. At the closing date of issuance of these consolidated financial statements, the Company entered into an Addendum with Banco Ciudad pursuant to which the maturity date of the aforementioned loan is extended to February 2014.
Additionally, in March and June 2011, the Company took out loans from Banco de la Provincia de Buenos Aires for a total principal amount of $ 22 million accruing interest at an annual rate of 14% and falling due in March 2012, May 2012 and June 2014. Interest is paid on a monthly basis.
At December 31, 2012 and 2011, the outstanding balance under the aforementioned loans amounts to $ 1.17 million and $ 13.86 million respectively.
AESEBA’S FINANCIAL LOANS
Loans
On March 4, 2011, EDEN S.A. made an early repayment of the balance outstanding at that date under the financial loan granted by Standard Bank Argentina S.A. and HSBC Argentina S.A. Such repayment was made with the Distribution Company’s own funds and the proceeds of a loan in local currency for $ 80 million granted at that date to EDEN S.A. by the Company. As stipulated in the original loan agreement, the loan accrues interest at an annual nominal rate of 16% with both principal and interest falling due on April 30, 2011.
On April 29, 2011, EDEN S.A. agreed with the Company to extend the maturity date of the loan to April 30, 2012, having paid at that time interest accrued through April 30, 2011 for $ 2 million. Additionally, the new agreement stipulates that interest will be paid semi-annually in arrears, with the first installment falling due on October 31, 2011.
Furthermore, on November 3, 2011, EDEN S.A. entered into an agreement with the Company for the granting of a USD 3.1 million one-year term loan to be applied to the settlement of the debt with the management operator. As stipulated in the agreement, the loan accrues compensatory interest at an annual nominal rate of 8.5% payable quarterly, with principal falling due at maturity.
On February 10, 2012, EDEN entered into an agreement with Banco Nación Argentina for the granting of a $ 60 million two-year term loan. The loan accrues compensatory interest at the Badlar rate plus 400 basis points, with principal and interest payments falling due on a monthly basis. Such amount was applied to the repayment of the financial loan granted by Edenor.
On June 22, 2012, Empresa Distribuidora de Energía Norte S.A. entered into an overdraft agreement with Banco Santander Rio, the main aspects of which are as follow: (i) the Bank will grant financial assistance for a maximum amount of up to $ 35 million to be provided by means of three applications under the overdraft agreement; (ii) the funds will be mainly used to refinance working capital; (iii) the final maturity of the funds will be as follow: two applications for $ 5 million each, on July 23, 2012 and August 21, 2012, respectively; the remaining application, for an amount of $ 25 million, will fall due on February 27, 2013; (iv) the funds will accrue compensatory interest at an annual nominal rate (ANR) of 16.50%; 16.75% and 21.75% respectively, which will be fixed during the term of each application under the overdraft agreement; (v) Empresa Distribuidora de Energía Norte S.A. will pay late payment/default interest at an annual nominal rate equivalent to 50% of the applicable interest rate if it does not pay amounts when due or fails to comply with any of its payment obligations.
On April 13, 2012, EDEN Shareholders’ Meeting approved: (i) the creation of a short-term debt securities program of up to $200,000,000 (or its equivalent in other currencies) outstanding at any time, in the form of unsecured, subordinated or not, with or without limited recourse, and with or without third-partyguarantee short-term (simple, non-convertible into shares) corporate notes, promissory notes and/or short-term securities, under the special system of short-term debt securities established in the CNV’s Regulations, (ii) the issuance, in the framework of the Program, of unsecured, subordinated or not, with or without limited recourse, and with or without third-party guarantee short-term (simple, non-convertible into shares) corporate notes for up to the maximum amount of the Program outstanding at any time, to be issued in one or more classes and/or series and denominated in pesos and/or in any other currency, and (iii) the consideration of the application for the registration of the company in the special registry for the issuance and public offering, to qualified investors only, of short-term debt securities.
On June 26, 2012, the CNV informed about the registration of the application made by the Subsidiary Company in accordance with that mentioned in the preceding paragraph. As of the date of these Financial Statements, the Program’s approval is in process.
25.22. Salaries and social security taxes
a)a.Salaries and social security taxes payable
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Non-current | | | | | | | | | | |
Early retirements payable | | 1,983 | | 5,526 | | 6,845 | | 6,324 | | 3,116 |
Seniority-based bonus | | 15,477 | | 18,065 | | 12,432 | | 73,715 | | 59,742 |
Total non-current | | 17,460 | | 23,591 | | 19,277 | | 80,039 | | 62,858 |
| | | | | | | | | | | |
Current | | | | | | | | | | |
Salaries payable and provisions | | 327,568 | | 260,007 | | 160,616 | | 639,293 | | 543,564 |
Social security taxes payable | | 53,018 | | 10,536 | | 13,651 | |
Social security payable | | | 89,331 | | 64,899 |
Early retirements payable | | 3,721 | | 5,246 | | 6,165 | | 4,507 | | 2,186 |
Total current | | 384,307 | | 275,789 | | 180,432 | | 733,131 | | 610,649 |
b)b.Salaries and social security taxes expensescharged to profit or loss
| | | 12.31.12 | | 12.31.11 | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Salaries | | 663,434 | | 480,948 | | 1.791.286 | | 1.414.922 | | 892.679 |
Social security taxes | | 220,352 | | 189,448 | | 696.611 | | 449.464 | | 227.276 |
Total salaries and social security taxes | | 883,786 | | 670,396 | | 2.487.897 | | 1.864.386 | | 1.119.955 |
Early retirements payable correspond to individual optional agreements. After employees reach a specific age, the Company may offer them this option. The related accrued liability represents future payment obligations which atas of December 31, 2012, 20112015 and January 1, 2011,2014 amount to $ 3.72 million, $ 5.254.5 million and $ 6.172.2 million (current) and $ 1.98 million, $ 5.536.3 million and $ 6.853.1 million (non-current), respectively.
AThe seniority-based bonus included in collective bargaining agreements in effect consists of a bonus to be granted to employeespersonnel with a certain numberamount of years of service, as stipulated in collective bargaining agreements in effect.service. As of December 31, 2012, 20112015 and January 1° 2011,2014, the accrual for such bonuses amountedliabilities related to these obligations amount to $ 15.48 million, $ 18.0773.7 million and $ 12.4359.7 million, respectively.
AtAs of December 31, 2012, 20112015 and January 1,2011,2014, the number of contracted employees amounts to 2,966, 2,8364.696 and 2,687,4,314, respectively.
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26.23. Benefit plans
BenefitThe defined benefit plans grantsgranted to Company employees which certain ageconsist of a bonus for all the employees who have the necessary years of service and in conditionhave made the required contributions to be retiredretire under ordinary pension plan.retirement plans.
The amounts and conditions vary in accordance with the collective bargaining agreement and for employees who are not union members.
| | | 12.31.12 | | 12.31.11 | | 01.01.11 | | 12.31.15 | | 12.31.14 |
Non-current | | 97,436 | | 83,503 | | 41,492 | | 204,386 | | 150,355 |
Current | | 14,968 | | 11,326 | | - | | 28,291 | | 10,566 |
Total Benefit plans | | 112,404 | | 94,829 | | 41,492 | | 232,677 | | 160,921 |
The detail of the benefit plan obligations atas of December 31, 20122015 and 20112014 is as follows:
| | | 12.31.12 | | 12.31.11 | | 12.31.15 | | 12.31.14 |
Benefit payment obligations at beginning of year (1) | | 94,829 | | 73,155 | 160,921 | | 102,691 |
Current service cost | | 5,134 | | 3,211 | | 29,241 | | 8,080 |
Interest cost | | 25,892 | | 12,436 | | 60,013 | | 43,345 |
Actuarial losses | | (4,701) | | 13,764 | | 3,678 | | 17,823 |
Benefits paid to participating employees | | (8,750) | | (7,737) | | (21,176) | | (11,018) |
Benefit payment obligations at end of year | | 112,404 | | 94,829 | |
Benefit payment obligations at year end | | | 232,677 | | 160,921 |
(1)Include $ 31.67 million related to EDEN S.A. business combination.
The breakdownAs of the benefit obligations by segments is as follow:
Segment information: | | | | |
EDENOR | | 67,104 | | 58,666 |
AESEBA | | 45,300 | | 36,163 |
| | | 112,404 | | 94,829 |
At December 31, 2012, 20112015 and January 1, 2011,2014, the Company does not have any assets related to thepost-retirement benefit plans or post-retirement benefits.plans.
The detail of the charge recognized in the consolidated statement of comprehensive lossincome is as follows:
| | | 12.31.12 | | 12.31.11 |
Cost | | 5,134 | | 3,211 |
Interest | | 25,892 | | 12,436 |
| | | 31,026 | | 15,647 |
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Cost | | 29.241 | | 8.080 | | 3.678 |
Interest | | 60.013 | | 43.345 | | 18.862 |
Actuarial results - Other comprehensive loss | | 3.678 | | 17.823 | | 20.951 |
| | | 92.932 | | 69.248 | | 43.491 |
The main actuarial assumptions used by the Company were the following:
| | | 12.31.12 | | 12.31.11 | | 12.31.15 | | 12.31.14 |
Discount rate | | 6% | | 6% | | 6% | | 6% |
Salary increase | | 2% | | 2% | | 2% | | 2% |
Inflation | | 22% | | 29% | | 32% | | 32% |
The following information shows the effect of a 1% variation in theannual 6% real discount rate is reasonable considering the market rates for the projection atArgentine government bonds as of December 31, 20122010. The IRR of Argentine government bonds has been significantly influenced, since mid-2011, by the global macroeconomic context, and 2011:the probability of default thereon is expected to be higher than the credit risk of large corporations. Subsequently, the rates increased due to a significant increase of the risk of default, unrelated to the risk of well-established firms whose risk of default on their obligations has not changed in such proportion.
Sensitivity analysis:
| | | Changes in assumptions | | Increase in assumptions | | Decrease in assumptions |
Discount rate | | 1% | | 6.75% | | 5.93% |
Salary growth rate | | 1% | | 6.28% | | 5.56% |
| | 12.31.2015 |
Discount Rate: 5% | | |
Obligation | | 251,671 |
Variation | | 18,994 |
| | 8.16% |
| | |
Discount Rate: 7% | | |
Obligation | | 216,358 |
Variation | | (16,319) |
| | (7.01%) |
| | |
Salary Increase : 1% | | |
Obligation | | 217,340 |
Variation | | (15,337) |
| | (6.59%) |
| | |
Salary Increase: 3% | | |
Obligation | | 250,224 |
Variation | | 17,547 |
| | 7.54% |
The expected payments of benefits are as follow:
| | Less than 1 year | | From 1 to 2 years | | From 2 to 3 years | | From 3 to 4 years | | More than 4 years |
At December 31, 2015 | | | | | | | | | | |
Benefit payment obligations | | 28,291 | | 10,824 | | 16,533 | | 16,446 | | 119,878 |
Estimates based on actuarial techniques imply the use of statistical tools, such as the so-called demographic tables used in the actuarial valuation of Edenor S.A.the Company active personnel.
F-67
In order to determine the mortality of Edenorthe Company active personnel, the “Group“1971 Group Annuity Mortality of the year 1971”Mortality” table has been used. In general, a mortality table shows for each age group the probability that a personin any such age group will die before reaching a predetermined age. Male and female mortality tables are elaborated separately inasmuch as men and women’s mortality rates are substantially different.
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In order to estimate total and permanent disability due to any cause, 80% of the “1985 Pension Disability Study” table has been used.
In order to estimate the probability that Edenor S.A.the Company active personnel will leave the Company or stay therein, the “ESA 77” table has been used.
Liabilities related to the above-mentioned benefit plans have been determined contemplating all the rights accrued by the beneficiaries of the plans through the closing date of the year ended December 31, 2012.2015.
These benefits do not apply to key management personnel.
27.24. Income tax and tax on minimum presumed income / Deferred tax
The analysis of deferred tax assets and liabilities is as follows:
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Deferred tax assets: | | | | | | |
Deferred tax assets to be recovered in more than 12 months | | 366,307 | | 131,421 | | 172,147 |
Deferred tax assets to be recovered in less than 12 months | | 7,044 | | 6,205 | | 18,562 |
| | | 373,351 | | 137,626 | | 190,709 |
Deferred tax liabilities: | | | | | | |
Deferred tax liabilities to be recovered in more than 12 months | | (590,145) | | (471,129) | | (436,502) |
Deferred tax liabilities to be recovered in less than 12 months | | (13,617) | | (15,246) | | (4,486) |
| | | (603,762) | | (486,375) | | (440,988) |
| 12.31.14 | | Charged to profit and loss | | Charged to other comprenhensive income | | 12.31.15 |
Deferred tax assets | | | | | | | |
Tax loss carryforward | - | | - | | - | | - |
Inventories | 197 | | 112 | | - | | 309 |
Derivative financial instruments | 2,063 | | (2,063) | | - | | - |
Trade receivables and other receivables | 26,851 | | 15,961 | | - | | 42,812 |
Trade payables and other payables | 347,324 | | (13,982) | | - | | 333,342 |
Salaries and social security taxes payable | 20,935 | | (2,012) | | - | | 18,923 |
Benefit plans | 56,323 | | 23,827 | | 1,287 | | 81,437 |
Tax liabilities | 13,893 | | 572 | | - | | 14,465 |
Provisions | 47,657 | | 67,865 | | - | | 115,522 |
Deferred tax asset | 515,243 | | 90,280 | | 1,287 | | 606,810 |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | |
Property, plant and equipment | (417,006) | | (88,522) | | - | | (505,528) |
Trade receivables and other receivables | - | | (1,482) | | - | | (1,482) |
Trade payables and other payables | - | | (403) | | - | | (403) |
Financial assets at fair value through profit or loss | - | | (39,608) | | - | | (39,608) |
Borrowings | (11,070) | | 1,329 | | - | | (9,741) |
Deferred tax liability | (428,076) | | (128,686) | | - | | (556,762) |
| | | | | | | | |
Net deferred tax (liabilities) assets | 87,167 | | (38,406) | | 1,287 | | 50,048 |
| 12.31.13 | | Charged to profit and loss | | Charged to other comprenhensive income | | 12.31.14 |
Deferred tax assets | | | | | | | |
Tax loss carryforward | - | | - | | - | | - |
Intangible assets | - | | - | | - | | - |
Inventories | 92 | | 105 | | - | | 197 |
Derivative financial instruments | - | | 2,063 | | - | | 2,063 |
Trade receivables and other receivables | 26,244 | | 607 | | - | | 26,851 |
Trade payables and other payables | 223,966 | | 123,358 | | - | | 347,324 |
Salaries and social security taxes payable | 4,318 | | 16,617 | | - | | 20,935 |
Benefit plans | 35,942 | | 14,143 | | 6,238 | | 56,323 |
Tax liabilities | 15,725 | | (1,832) | | - | | 13,893 |
Provisions | 32,826 | | 14,831 | | - | | 47,657 |
Tax loss carryforward | - | | - | | - | | - |
Deferred tax asset | 339,113 | | 169,892 | | 6,238 | | 515,243 |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Property, plant and equipment | (398,953) | | (18,053) | | - | | (417,006) |
Financial assets at fair value through profit or loss | (1,231) | | 1,231 | | - | | - |
Borrowings | (12,356) | | 1,286 | | - | | (11,070) |
Deferred tax liability | (412,540) | | (15,536) | | - | | (428,076) |
| | | | | | | |
Net deferred tax (liabilities) assets | (73,427) | | 154,356 | | 6,238 | | 87,167 |
| 12.31.15 | | 12.31.14 |
Deferred tax assets: | | | |
To be recover in less than 12 moths | 311,207 | | 91,079 |
To be recover in more than 12 moths | 295,602 | | 424,164 |
Deferred tax asset | 606,809 | | 515,243 |
| | | |
Deferred tax liabilities: | | | |
To be recover in less than 12 moths | (135,879) | | (22,004) |
To be recover in more than 12 moths | (420,882) | | (406,072) |
Deferred tax liability | (556,761) | | (428,076) |
| | | |
Net deferred tax assets (liabilities) | 50,048 | | 87,167 |
The rollforwardincome tax expense for the year includes two effects: (i) the current tax for the year payable in accordance with the tax legislation applicable to the Company; (ii) the effect of applying the deferred tax method which recognizes the effect of the temporary differences arising from the valuation of assets and liabilities considered at December 31, 2012for accounting and 2011, respectively, is detailed below:tax purposes.
| | 12.31.15 | | 12.31.14 | | 12.31.13 |
Deferred tax | | (38.406) | | 154.356 | | (44.116) |
Current tax | | (145.324) | | - | | (105.535) |
Income tax expense | | (183.730) | | 154.356 | | (149.651) |
Balance at January 1, 2011
| | (250,279)
|
Charged to the statement of comprehensive loss
| | (114,147)
|
Charged to other comprehensive loss
| | 10,192
|
Effect for acquisition of subsidiaries net of subsidiaries classified as held for sale
| | 5,485
|
Balance at December 31, 2011
| | (348,749)
|
Charged to the statement of comprehensive loss
| | 119,984
|
Charged to other comprehensive loss
| | (1,646)
|
Balance at December 31, 2012
| | (230,411)
|
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Profit (Loss) before taxes | | 1.326.173 | | (934.072) | | 823.751 |
Applicable tax rate | | 35% | | 35% | | 35% |
(Loss) Gain Profit at the tax rate | | (464.161) | | 326.925 | | 288.313 |
| | | | | | | |
Gain from interest in joint ventures | | - | | 2 | | (2) |
Non-taxable income / Non-deductible loss | | 44.595 | | - | | - |
Difference between provision and tax return | | (42.332) | | 10.521 | | - |
Discontinued operations | | - | | - | | (56.456) |
Other | | - | | (25) | | 4.338 |
Subtotal | | (461.898) | | 337.423 | | 236.193 |
| | | | | | | |
Unrecognized net deferred tax assets/liabilities | | 282.399 | | (183.067) | | (385.844) |
Expiration of tax loss-carryforwards | | (4.231) | | - | | - |
Income tax expense | | (183.730) | | 154.356 | | (149.651) |
| | | | | | |
Continuing operations | | (183.730) | | 154.356 | | (44.116) |
Discontinued operations | | - | | - | | (105.535) |
25.Tax liabilities
Deferred tax liabilities: | | Total | | Property, plant and equipment and Other |
Balance at January 1, 2011 | | 440,988 | | 440,988 |
Charged to the statement of comprehensive loss | | 45,387 | | 45,387 |
Balance at December 31, 2011 | | 486,375 | | 486,375 |
Charged to the statement of comprehensive loss | | 117,387 | | 117,387 |
Balance at December 31, 2012 | | 603,762 | | 603,762 |
Deferred tax assets: | | Total | | Accrued provisions and provisions for impairment | | Tax losses carryforward | | Other |
Balance at January 1, 2011 | | 190,709 | | 178,681 | | 11,586 | | 442 |
Business combinations | | 5,485 | | 5,485 | | - | | - |
Charged to the statement of comprehensive loss | | (68,760) | | (56,770) | | (11,586) | | (404) |
Charged to other comprehensive loss | | 10,192 | | 10,192 | | - | | - |
Balance at December 31, 2011 | | 137,626 | | 137,588 | | - | | 38 |
Charged to the statement of comprehensive loss | | 237,371 | | 237,356 | | - | | 15 |
Charged to other comprehensive loss | | (1,646) | | (1,646) | | - | | - |
Balance at December 31, 2012 | | 373,351 | | 373,298 | | - | | 53 |
| | 12.31.15 | | 12.31.14 |
Non-current | | | | |
Tax regularization plan | | 1,922 | | 3,164 |
Total Non-current | | 1,922 | | 3,164 |
| | | | |
Current | | | | |
Income tax provision net (1) | | 16,332 | | - |
Tax on minimum national income tax payable, net | | - | | 14,730 |
Provincial, municipal and federal contributions and taxes | | 67,999 |
Tax withholdings | | 32,750 | | 34,625 |
SUSS (Social Security System) withholdings | | - | | 1,485 |
Municipal taxes | | 44,983 | | 39,870 |
Tax regularization plan | | 1,877 | | 1,774 |
Total Current | | 169,747 | | 160,483 |
(1)As of December 31, 2015, the Company generated positive tax results, which allowed for the recognition in the period of accrued tax losses carry forward.
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Table of Contents
The detailincome tax liability is comprised of the income tax charge is disclosed below:
| | | 12.31.2012 | | 12.31.2011 |
Current tax | | 4,602 | | 40,266 |
Deferred tax | | (119,985) | | 114,147 |
Difference between provision and tax return | | 15,604 | | (1,442) |
Income tax | | (99,779) | | 152,971 |
The reconciliation between income tax as charged to the results of operations and the amount that would result from applying the tax rate in effect to the results of operations before taxes, is as follows:
| | | 12.31.2012 | | 12.31.2011 |
Loss before income tax | | (1,090,828) | | 1,121 |
Subtotal | | (1,090,828) | | 1,121 |
Applicable tax rate | | 35% | | 35% |
(Loss) Profit at the tax rate | | (381,790) | | 392 |
Tax effects of: | | | | |
Unrecognized losses carryforward | | 262,059 | | 149,011 |
Permanent diferences | | 4,348 | | 5,010 |
Difference between provision and tax return | | 15,604 | | (1,442) |
Income tax | | (99,779) | | 152,971 |
Tax losses carryforward in effect and not recognized in the financial statements, in accordance with that mentioned in Note 1, are as follow:
Tax loss carryforward | | Amount | | Rate 35% | | Year of expiration |
Generated in fiscal year 2008 | | 70 | | 25 | | 2013 |
Generated in fiscal year 2009 | | 12,134 | | 4,247 | | 2014 |
Generated in fiscal year 2010 | | 25,048 | | 8,767 | | 2015 |
Generated in fiscal year 2011 | | 262,997 | | 92,049 | | 2016 |
Generated in fiscal year 2012 | | 932,712 | | 326,449 | | 2017 |
Total tax loss carryfoward al December 31, 2012 | | 1,232,961 | | 431,537 | | |
Additionally, at December 31, 2012, the minimum presumed income tax receivable of $ 26.2 million have been disclosed in other non-current receivables.
The detail of the aforementioned receivable is as follows.following:
Minimum presumed income tax receivable | | Amount | | Year of expiration |
Generated in fiscal year 2010 | | 17,330 | | 2020 |
Generated in fiscal year 2011 | | 34,683 | | 2021 |
Generated in fiscal year 2012 | | 35,805 | | 2022 |
| | | 87,818 | | |
| | 12.31.2015 |
Income tax provision | | 425,555 |
Tax loss carryforward | | (280,231) |
Income tax provision net of tax loss carryfoward |
| 145,324 |
Minimum presumed income tax credit | | (66,714) |
Unrestricted tax credit | | (43,510) |
Tax withholdings | | (18,768) |
Income tax provision net | | 16,332 |
28.26. Taxes liabilities
| | | 12.31.12 | | 12.31.11 | | 01.01.11 |
Non-current: | | | | | | |
Tax regularization plan Law No. 26,476 | | 9,971 | | 17,652 | | 8,979 |
Total Non-current | | 9,971 | | 17,652 | | 8,979 |
| | | | | | | |
Current: | | | | | | |
Provincial, municipal and federal contributions and taxes | | 88,720 | | 44,130 | | 32,024 |
VAT payable | | 21,204 | | 14,196 | | 30,901 |
Income tax and tax on minimum presumed income (net of advances and payments on account) | | 4,525 | | 19,093 | | - |
Withholdings taxes | | 35,873 | | 20,358 | | 9,798 |
Municipal taxes | | 40,462 | | 36,855 | | 27,159 |
Tax regularization plan Law No. 26,476 | | 2,825 | | 1,415 | | 1,364 |
Other | | 8,937 | | 11,676 | | 9,834 |
Total Current | | 202,546 | | 147,723 | | 111,080 |
| | | | | | | |
TableAssignments of Contents
29.Leases use
· As lesseeassignee
The features that these lease contractsassignments of use have in common are that lease payments (installments) are established as fixed amounts; there are neither purchase option clauses nor renewal term clauses (except for the leaseassignment of use contract of the Energy Handling and TransformationTransformer Center that has an automatic renewal clause for the term thereof); and there are prohibitions such as: transferring or sub-leasing the building, changing its use and/or making any kind of modifications thereto. All operating leaseassignment of use contracts have cancelable terms and leaseassignment periods of 2 to 13 years.
Among them the following can be mentioned: commercial offices, two warehouses, the headquarters building (comprised of administration, commercial and technical offices), the Energy Handling and TransformationTransformer Center (two buildings and a plot of land located within the perimeter of Central Nuevo Puerto and Puerto Nuevo) and Las Heras substation.
AtAs of December 31, 2012, 20112015 and January 1, 2011,2014, future minimum payments with respect to operating leasesassignments of use are as follow:
| | 12.31.12 | | 12.31.11 | | 01.01.11 |
2011 | | - | | - | | 6,748 |
2012 | | - | | 12,101 | | 8,659 |
2013 | | 16,653 | | 9,483 | | 8,470 |
2014 | | 17,006 | | 9,087 | | 8,406 |
2015 | | 9,657 | | 3,127 | | 2,900 |
2016 | | 4,943 | | 147 | | 147 |
2017 | | 4,753 | | 147 | | - |
2018 | | 147 | | - | | - |
Total minimum future payments | | 53,159 | | 34,092 | | 35,330 |
| | 12.31.15 | | 12.31.14 |
2015 | | - | | 26,123 |
2016 | | 47,897 | | 19,864 |
2017 | | 19,464 | | 15,740 |
2018 | | 6,321 | | 5,698 |
2019 | | 4,310 | | 4,310 |
2020 | | 147 | | 147 |
2021 | | 147 | | - |
Total future minimum lease payments | 78,286 | | 71,883 |
Total rental expenses for all operating leasesassignments of use for the years ended December 31, 20112015, 2014 and 20122013 are as follow:
| | | 12.31.12 | | 12.31.11 |
Total lease expenses | | 14,687 | | 11,751 |
| | |
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Total lease expenses | | 38.569 | | 31.043 | | 19.786 |
| | | |
· As lessorassignor
The Company has entered into operating leaseassignment of use contracts with certain cable television companies granting them the right to use the poles of the Company’s network. Most of these lease contracts include automatic renewal clauses.
AtAs of December 31, 2012, 20112015 and January 1, 2011,2014, future minimum lease collections with respect to operating leasesassignments of use are as follow:
| | 12.31.12 | | 12.31.11 | | 01.01.11 |
2011 | | - | | - | | 20,898 |
2012 | | - | | 26,836 | | 1,924 |
2013 | | 42,817 | | 24,383 | | 89 |
2014 | | 3,299 | | 22 | | 20 |
2015 | | 146 | | - | | - |
2016 | | - | | - | | - |
2017 | | - | | - | | - |
2018 | | - | | - | | - |
Total future minimum lease collections | | 46,262 | | 51,241 | | 22,931 |
| | | | |
| | 12.31.15 | | 12.31.14 |
2015 | | 90,522 | | 72,922 |
2016 | | 84,949 | | 5,481 |
2017 | | 251 | | 200 |
2018 | | - | | 157 |
2019 | | - | | - |
2020 | | - | | - |
2021 | | - | | - |
Total future minimum lease collections | 175,722 | | 78,760 |
Table of Contents
Total rental income for allfrom operating leasesassignments of use for the years ended December 31, 20112015; 2014 and 20122013 is as follows:
| | | 12.31.12 | | 12.31.11 |
Total lease income | | 34,762 | | 22,511 |
| | |
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Total lease income | | 76.417 | | 57.463 | | 41.538 |
The information contained in this note relates exclusively to Edenor S.A. as the effect of the Subsidiaries is not significant.
30.27. Provisions
| | | Non-current liabilities | | Current liabilities |
| | | Contingencies | | Contingencies |
Balances at beginning of year 01.01.11 | | 6,816 | | 57,832 |
Balances incorporates for acquisitions of companies | | 2,751 | | 17,169 |
Increases | | 4,490 | | 3,604 |
Decreases | | (1,454) | | (14,720) |
Reclassifications | | 53,541 | | (53,541) |
Balances at end of year 31.12.11 | | 66,144 | | 10,344 |
Increases | | 13,700 | | 12,742 |
Increases related companies | | - | | - |
Decreases | | - | | (12,418) |
Reclassifications | | 175 | | (175) |
Balances at end of year 31.12.12 | | 80,019 | | 10,493 |
| | | | | |
| | Non-current liabilities | Current liabilities |
| | Contingencies | | Contingencies |
At 12.31.13 | | 83,121 | | 10,667 |
| | | | |
Increases | | 34,860 | | 40,557 |
Decreases | | (5,886) | | (27,156) |
At 12.31.14 | | 112,095 | | 24,068 |
| | | | |
Increases | | 147,478 | | 78,971 |
Decreases | | - | | (32,550) |
At 12.31.15 | | 259,573 | | 70,489 |
| | | | |
28. Revenue from sales
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Sales of electricity (1) | | 3.720.442 | | 3.536.147 | | 3.393.759 |
Right of use on poles | | 76.417 | | 57.463 | | 41.538 |
Connection charges | | 4.195 | | 3.929 | | 4.218 |
Reconnection charges | | 1.108 | | 837 | | 1.176 |
Total Revenue from sales | | 3.802.162 | | 3.598.376 | | 3.440.691 |
(1)Includes revenue from the application of Resolution 347/12 for $ 535.5 million, $ 508.1 million and $ 525.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.
| | | 12.31.12 | | 12.31.11 |
Sales of Electricity | | 3,679,264 | | 2,771,226 |
Right of use on poles | | 39,012 | | 26,604 |
Connection charges | | 4,951 | | 5,631 |
Reconnection charges | | 2,029 | | 2,356 |
| | | 3,725,256 | | 2,805,817 |
32.29. Expenses by nature
The detail of expenses by nature (including those relating to discontinued operations) is as follows:
| | | 12.31.12 | | 12.31.11 |
Financial income | | | | |
Late payment charges | | 29,130 | | 31,269 |
Interest | | 56,879 | | 24,299 |
Total financial income | | 86,009 | | 55,568 |
| | | | |
Financial expenses | | | | |
Financial interest (1) | | (160,757) | | (156,958) |
Fiscal interest | | (11,920) | | (2,501) |
Commercial interest | | (64,501) | | (5,137) |
Bank fees and expenses | | (59,670) | | (51,527) |
Total financial expenses | | (296,848) | | (216,123) |
| | | | |
Other financial results | | | | |
Exchange differences | | (194,087) | | (102,822) |
Adjustment to present value of retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | | 421 | | 1,170 |
Changes in fair value of financial instruments | | 39,053 | | 13,296 |
Gain from the purchase of financial debt | | - | | 6,546 |
Other financial results | | (12,085) | | (15,404) |
Total other financial results | | (166,698) | | (97,214) |
Total net financial expense | | (377,537) | | (257,769) |
Description | | Transmission and distribution expenses | | Selling expenses | | Administrative expenses | | Total |
Salaries and social security taxes | | 1,859,710 | | 299,835 | | 328,352 | | 2,487,897 |
Pension plans | | 65,379 | | 12,332 | | 11,543 | | 89,254 |
Communications expenses | | 13,729 | | 58,735 | | 3,422 | | 75,886 |
Allowance for the impairment of trade and other receivables | - | | 24,084 | | - | | 24,084 |
Supplies consumption | | 211,448 | | - | | 23,040 | | 234,488 |
Leases and insurance | | 510 | | - | | 58,194 | | 58,704 |
Security service | | 43,738 | | 839 | | 24,060 | | 68,637 |
Fees and remuneration for services | | 463,159 | | 329,497 | | 213,816 | | 1,006,472 |
Public relations and marketing | | - | | - | | 10,185 | | 10,185 |
Advertising and sponsorship | | - | | - | | 5,247 | | 5,247 |
Reimbursements to personnel | | 1,189 | | 214 | | 834 | | 2,237 |
Depreciation of property, plants andequipments | 236,758 | | 34,771 | | 9,878 | | 281,407 |
Directors and Supervisory Committeemembers’ fees | - | | - | | 3,652 | | 3,652 |
ENRE penalties | | 257,282 | | 24,371 | | - | | 281,653 |
Taxes and charges | | - | | 47,901 | | 10,047 | | 57,948 |
Other | | 762 | | 227 | | 3,821 | | 4,810 |
At 12.31.15 | | 3,153,664 | | 832,806 | | 706,091 | | 4,692,561 |
The expenses included in the chart above are net of the Company’s own expenses capitalized in property, plant and equipment atas of December 31, 20122015 for $ 107.54271.6 million.
F-73
F-90
Description | | Transmission and distribution expenses | | Selling expenses | | Administrative expenses | | Total |
Salaries and social security taxes | | 1,373,247 | | 249,037 | | 242,102 | | 1,864,386 |
Pension plans | | 37,878 | | 6,869 | | 6,678 | | 51,425 |
Communications expenses | | 13,207 | | 39,088 | | 2,920 | | 55,215 |
Allowance for the impairment of trade and other receivables | - | | 21,531 | | - | | 21,531 |
Supplies consumption | | 205,853 | | - | | 13,117 | | 218,970 |
Leases and insurance | | 7,871 | | - | | 35,193 | | 43,064 |
Security service | | 28,874 | | 201 | | 15,122 | | 44,197 |
Fees and remuneration for services | | 714,258 | | 262,845 | | 148,134 | | 1,125,237 |
Public relations and marketing | | - | | - | | 5,719 | | 5,719 |
Advertising and sponsorship | | - | | - | | 2,946 | | 2,946 |
Reimbursements to personnel | | 1,164 | | 309 | | 1,514 | | 2,987 |
Depreciation of property, plants andequipments | 208,483 | | 18,377 | | 10,779 | | 237,639 |
Directors and Supervisory Committeemembers’ fees | - | | - | | 2,947 | | 2,947 |
ENRE penalties | | 233,855 | | 18,360 | | - | | 252,215 |
Taxes and charges | | - | | 41,170 | | 7,658 | | 48,828 |
Other | | 372 | | 122 | | 1,933 | | 2,427 |
At 12.31.14 | | 2,825,062 | | 657,909 | | 496,762 | | 3,979,733 |
Table of Contents
| | 12.31.11 |
Description | | Transmission and distribution expenses | | Selling expenses | | Administrative expenses | | Total |
Salaries and social security taxes | | 462,747 | | 110,273 | | 97,376 | | 670,396 |
Pension plan | | 10,801 | | 2,574 | | 2,272 | | 15,647 |
Communication expenses | | 6,714 | | 16,579 | | 4,401 | | 27,694 |
Allowance for doubtful accounts | | - | | 10,808 | | - | | 10,808 |
Supplies consumption | | 57,225 | | 1,152 | | 3,288 | | 61,665 |
Rent and insurance | | 4,124 | | 527 | | 14,545 | | 19,196 |
Security services | | 8,159 | | 2,281 | | 3,803 | | 14,243 |
Fees and remuneration for services | | 249,525 | | 129,261 | | 62,680 | | 441,466 |
Maintenance expenses | | 11,583 | | - | | 4,086 | | 15,669 |
Public relations and marketing | | - | | - | | 11,212 | | 11,212 |
Advertising and sponsorship | | - | | 392 | | 5,857 | | 6,249 |
Reimbursement to personnel | | 1,507 | | 314 | | 1,059 | | 2,880 |
Depreciation of property, plant and equipment | | 183,159 | | 1,997 | | 2,737 | | 187,893 |
Amortization of intangible assets | | 20,093 | | - | | - | | 20,093 |
Directors and Supervisory Committee members’ fees | | - | | - | | 4,868 | | 4,868 |
ENRE penalties | | 74,753 | | 6,305 | | - | | 81,058 |
Taxes and charges | | - | | 26,992 | | 2,101 | | 29,093 |
Other | | 4,435 | | 857 | | 4,031 | | 9,323 |
Total at 12.31.2011 | | 1,094,825 | | 310,312 | | 224,316 | | 1,629,453 |
| | | | | | | | | |
The expenses included in the chart above are net of the Company’s own expenses capitalized in property, plant and equipment as of December 31, 2014 for $ 156 million.
The expenses included in the chart above are net of the Company’s own expenses capitalized in property, plant and equipment atas of December 31, 20112013 for $ 76.89124.2 million.
F-74
33.30. Other operating income / (expense)expense, net
| | | 12.31.12 | | 12.31.11 | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Other operating income | | | | | | | | | | |
Services provided to third parties | | 15,866 | | 14,898 | | 53.621 | | 33.305 | | 21.700 |
Commissions on municipal taxes collection | | 6,650 | | 5,387 | | 14.775 | | 12.040 | | 8.638 |
Other net income with Related Companies | | 2,790 | | 352 | | 6.188 | | 5.020 | | 3.857 |
Recovery of tax credits | | 5,112 | | 6,606 | |
Recovery of allowance of trade receivables and other receivables | | | - | | 1.839 | | 4.318 |
Not refundable advance payments received for subsidiaries sale agreements | | | - | | - | | 8.868 |
Income from non-reimbursable customer
contributions | | | 764 | | 764 | | 700 |
Others | | 2,918 | | 658 | | 4.613 | | 205 | | 14.199 |
Total other operating income | | 33,336 | | 27,901 | | 79.961 | | 53.173 | | 62.280 |
| | | | | | | | | | | |
Other operating expense | | | | | | | | | | |
Net expense from technical services | | (10,598) | | (5,148) | | (12.900) | | (16.236) | | (15.541) |
Gratifications for services | | | (43.192) | | (24.985) | | (15.876) |
Cost for services provided to third parties | | (13,688) | | (8,013) | | (52.421) | | (25.265) | | (9.035) |
Voluntary Retirements - Bonuses | | (10,126) | | (10,897) | |
Severance paid | | (4,819) | | (5,844) | | (11.801) | | (8.202) | | (4.924) |
Impairment of other receivables (Note 40) | | (37,266) | | - | |
Debit and Credit Tax | | | (85.138) | | (64.720) | | (55.548) |
Other expenses - FOCEDE | | | (59.563) | | (97.701) | | - |
Provision for contingencies | | (26,442) | | (8,094) | | (226.449) | | (75.417) | | (36.033) |
Disposals of property, plant and equipment | | (1,886) | | (1,878) | | (3.513) | | (959) | | (1.230) |
Disposals of intangible assets | | (7,962) | | (10,737) | |
Transaction costs | | - | | (4,269) | |
Related parties (Note 33.b) | | | (679) | | (1.230) | | (1.069) |
Other | | | (6.851) | | (3.963) | | (3.521) |
Total other operating expense | | (112,787) | | (54,880) | | (502.507) | | (318.678) | | (142.777) |
Table of Contents
34.31. Net financial expense
| | | 12.31.12 | | 12.31.11 | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Financial income | | | | | | | | | | |
Late payment charges | | 29,130 | | 31,269 | |
Interest | | 56,879 | | 24,299 | |
Commercial interest | | | 46.109 | | 43.265 | | 45.383 |
Financial interest | | | 50.116 | | 192.269 | | 230.838 |
Total financial income | | 86,009 | | 55,568 | | 96.225 | | 235.534 | | 276.221 |
| | | | | | | | | | |
Financial expenses | | | | | | | | | | |
Financial interest (1) | | (160,757) | | (156,958) | |
Interest and other (1) | | | (233.769) | | (111.356) | | (155.388) |
Fiscal interest | | (11,920) | | (2,501) | | (3.652) | | (5.477) | | (13.357) |
Commercial interest | | (64,501) | | (5,137) | | (192.478) | | (459.671) | | (325.796) |
Bank fees and expenses | | (59,670) | | (51,527) | | (20.117) | | (15.509) | | (10.313) |
Total financial expenses | | (296,848) | | (216,123) | | (450.016) | | (592.013) | | (504.854) |
| | | | | | | | | | |
Other financial results | | | | | | | | | | |
Exchange differences | | (194,087) | | (102,822) | | (894.773) | | (427.896) | | (365.759) |
Adjustment to present value of retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables | | 421 | | 1,170 | |
Changes in fair value of financial instruments | | 39,053 | | 13,296 | |
Gain from the purchase of financial debt | | - | | 6,546 | |
Other financial results | | (12,085) | | (15,404) | |
Total other financial results | | (166,698) | | (97,214) | |
Adjustment to present value of receivables | | | 5.387 | | 8.128 | | 2.378 |
Changes in fair value of financial assets (2) | | | 350.543 | | 71.029 | | 26.944 |
Net gain from the repurchase of
Corporate Notes | | | - | | 44.388 | | 88.879 |
Other financial expense | | | (22.880) | | (20.224) | | (14.705) |
Total other financial expense | | | (561.723) | | (324.575) | | (262.263) |
Total net financial expense | | (377,537) | | (257,769) | | (915.514) | | (681.054) | | (490.896) |
(1) Net of financial costsinterest capitalized for the years endedas of December 31, 20122015, 2014 and 2011, amounted to2013 for $ 107.54255.9 million, $ 123.9 million and $ 76.8924.5 respectively.
(2)Includes changes in the fair value of financial assets on cash equivalents as of December 31, 2015, 2014 and 2013 for $ 26.9 million, $ 17.6 million and $ 10.6 million, respectively.
(3)Net of the profit recorded due to the agreement with CAMMESA described in Note 2.c.IX).
F-75
32. Gain (losses)Basic and diluted earnings (loss) per share
Basic
The basic lossesearnings (loss) per share are computedcalculated by dividing the result attributable to the holders of the Company’s equity instruments by the weighted average number of common shares outstanding atas of December 31, 20122015 and 2011,2014, excluding treasurycommon shares acquiredpurchased by the Company (Notes 4.26 and 19).
Dilutedheld as treasury shares.
Diluted lossesThe basic earnings (loss) per share is calculated by adjustingcoincide with the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. There are no lossesdiluted earnings (loss) per share, dilution,inasmuch as the Company has issued neither preferred shares nor corporate notes convertible into common shares.
| | | 12.31.12 | | 12.31.11 |
| | | Continuing operations | | Discontinued operations | | Continuing operations | | Discontinued operations |
Loss for the year attributable to the parent | | (1,000,621) | | (15,849) | | (157,675) | | (146,382) |
Weighted average number of thousands common shares outstanding | | 897,043 | | 897,043 | | 897,043 | | 897,043 |
Basic and diluted (loss) gain per share – in pesos | | (1.12) | | (0.02) | | (0.17) | | (0.16) |
| | | | | | | | | |
| | | 12.31.15 | | 12.31.14 | | | 12.31.13 |
| | | Continuing operations | | Continuing operations | | | Continuing operations | | Discontinued operations |
Profit (Loss) for the year attributable to the owners of the Company | | 1.142.443 | | (779.716) | | | 867.867 | | (96.128) |
Weighted average number of common shares outstanding | | 897.043 | | 897.043 | | | 897.043 | | 897.043 |
Basic and diluted earnings (loss) per share – in pesos | | 1,27 | | (0,87) | | | 0,97 | | (0,11) |
The Company has not issued any stock option.
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36.33. Transactions among related partiesRelated-party transactions
· TransactionsThe following transactions were carried out amongwith related parties:
a.Income
Company | | Concept | | 12.31.15 | | 12.31.14 | | 12.31.13 |
| | | | | | | | |
CYCSA | | Other income | | 6.188 | | 5.018 | | 3.857 |
PYSSA | | Advertising on EDENOR bill | | - | | 2 | | - |
PESA | | Interest | | - | | - | | 11.606 |
| | | | 6.188 | | 5.020 | | 15.463 |
b.Expense
Company | | Concept | | 12.31.15 | | 12.31.14 | | 12.31.13 |
| | | | | | | | |
EASA | | Technical advisory services on financial matters | | (22.791) | | (20.134) | | (13.599) |
SACME | | Operation and oversight of the electric power transmission system | | (27.331) | | (19.605) | | (14.745) |
Salaverri, Dellatorre, Burgio y Wetzler Malbran | | Legal fees | | (679) | | (1.230) | | (1.069) |
PYSSA | | Financial and granting of loan services to customers | | (89) | | (90) | | (95) |
PISA | | Interest Corporate Notes 2022 | | (2.110) | | - | | - |
| | | | (53.000) | | (41.059) | | (29.508) |
c.Key management personnel’s remuneration
| | | 12.31.15 | | 12.31.14 | | 12.31.13 |
Salaries | | 70.545 | | 54.853 | | 40.539 |
| | 70.545 | | 54.853 | | 40.539 |
·The balances with related parties are as follow:
a.Income
EDENOR | | | | | | |
| | | | | | | |
Companies | | Description | | 12.31.12 | | 12.31.11 |
CYCSA | | Other income | | 2,790 | | 352 |
PYSSA | | Interest | | - | | 25 |
PESA | | Interest | | 5,572 | | - |
| | | | | 8,362 | | 377 |
b.d.Expense Receivables and payables
EDENOR | | | | | | |
| | | | | | | |
Companies | | Description | | 12.31.12 | | 12.31.11 |
EASA | | Technical advisory services on financial matters | | (11,325) | | (10,300) |
SACME | | Implementation of operative system | | (10,883) | | (8,009) |
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio | | Legal fees | | (685) | | (3,534) |
PYSSA | | Financial and granting of loan services to customers | | (74) | | (90) |
PESA | | Financing expenses and costs | | - | | (1,760) |
| | | | | (22,967) | | (23,693) |
| | 12.31.15 | | 12.31.14 |
Other receivables - Non current | | | | |
SACME | | 7,065 | | 7,366 |
| | 7,065 | | 7,366 |
| | | | |
Other receivables - Current | | | | |
CYCSA | | 6,406 | | 86 |
SACME | | 662 | | 667 |
PYSSA | | 8 | | - |
| | 7,076 | | 753 |
| | 12.31.15 | | 12.31.14 |
Other payables | | | | |
SACME | | (3,447) | | (2,706) |
| | (3,447) | | (2,706) |
EDEN | | | | | | |
| | | | | | | |
Companies | | Description | | 12.31.12 | | 12.31.11 |
EASA | | Financing expenses and costs | | (15,461) | | (10,969) |
EASA | | Exchange difference on commercial debts | | (790) | | - |
CTG | | Electric power purchase | | (2,495) | | (307) |
CPB | | Electric power purchase | | (13,689) | | (1,109) |
| | | | | (32,435) | | (12,385) |
·e.Balances carried out among related parties are as follow:
c.Financial assets at fair value, receivables and payablesBorrowings
EDENOR | | | | | | |
| | | | | | |
Companies | | 12.31.12 | | 12.31.11 | | 01.01.11 |
| | | | | | | |
Financial assets at fair value | | | | | | |
Transener S.A. | | - | | - | | 17,527 |
| | | - | | - | | 17,527 |
| | | | | | | |
Other receivables | | | | | | |
SACME | | 9,007 | | 8,068 | | 4,168 |
PESA (Note 40) | | 43,285 | | 179 | | - |
PYSSA | | - | | 35 | | 1 |
| | | 52,292 | | 8,282 | | 4,169 |
| | 12.31.15 | | 12.31.14 |
Borrowings - Non current | | | | |
PISA | | (119,877) | | - |
| | (119,877) | | - |
| | | | |
Borrowings - Current | | | | |
PISA | | (2,110) | | - |
| | (2,110) | | - |
Companies | | 12.31.12 | | 12.31.11 | | 01.01.11 |
| | | | | | | |
Trade payables | | | | | | |
EASA | | - | | (1,080) | | - |
PYSSA | | - | | (8) | | (8) |
| | | - | | (1,088) | | (8) |
| | | | | | | |
Other liabilities | | | | | | |
SACME | | (2,375) | | (1,317) | | (1,392) |
PESA | | (7) | | (9,252) | | - |
| | | (2,382) | | (10,569) | | (1,392) |
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EDEN | | | | | | |
| | | | | | |
Companies | | 12.31.12 | | 12.31.11 | | 01.01.11 |
| | | | | | | |
Trade payables | | | | | | |
POWERCO | | (873) | | (5) | | - |
EASA | | (11,178) | | (2,561) | | - |
CTG | | (488) | | (343) | | - |
CPB | | (1,718) | | (68) | | - |
| | | (14,257) | | (2,977) | | - |
AESEBA | | | | | | |
| | | | | | |
Companies | | 12.31.12 | | 12.31.11 | | 01.01.11 |
| | | | | | | |
Other liabilities - Dividends | | | | | | |
PISA | | - | | (5,028) | | - |
| | | - | | (5,028) | | - |
d.Key management personnel’s remuneration
| | 12.31.12 | | 12.31.11 | | 01.01.11 |
| | | | | | |
Salaries | | 32,648 | | 29,128 | | 21,618 |
| | | 32,648 | | 29,128 | | 21,618 |
OtherThe other receivables with related parties are not secured and do not accrue interest. No allowances have been recorded for these concepts in any of the periods covered by these financial statements.
·The main agreements entered into with related parties in 2015 are as follow:detailed below:
(a) Agreement with Comunicaciones y Consumos S.A.
During 2007 and 2008, the Company and Comunicaciones y Consumos S.A. (CYCSA) entered into agreements pursuant to which the Company granted CYCSA the exclusive right to provide telecommunications services to the Company customers through the use of the Company’s network in accordance with the provisions of Decree No.Executive Order 764/2000 of the Federal Government, which contemplates the integration of voice, data and image transmission services through the existing infrastructure of electricity distribution companies such as the Company’s network, as well as the right to use the poles and towers of overhead lines under certain conditions. Additionally, the Company has the right to use part of the optical fiber capacity. In accordance with the terms of the agreement, CYCSA will be responsible for all maintenance expenses and expenses related to the adapting of the Company’s network for the rendering of such telecommunications services. The term of the agreement, which was originally ten years to commence from the date on which CYCSA were granted theCYCSA’s license to render telecommunications services were approved, was subsequently extended to 20 years by virtue of an addendum to the agreement. In consideration of the use of the network, CYCSA grants the Company 2% of the annual charges collected from customers, before taxes, as well as 10% of the profits obtained from provision of services.
(b) Agreement with Préstamos y Servicios S.A.SACME
The agreement grants Préstamos y Servicios S.A. (PYSSA)In the exclusive right to conduct its direct and marketing services through the useframework of the Company’s mailing services. The agreement established that its term was subject to the authorizationregulation of the National Regulatory Authority forArgentine electric power sector established by Law 24,065 and SEE Resolution No. 61/92, and after the Distributionawarding of Electricity, which approved this through Resolution ENRE No. 381/2007.the distribution areas of the city and metropolitan area of Buenos Aires to Edenor S.A. and Edesur S.A., the bidding terms and conditions of the privatization provided that both companies were required to organize SACME to operate the electric power supervision and control center of the transmission and sub-transmission system that feeds the market areas transferred to those companies. For such purpose, on September 18, 1992 SACME was organized by Edenor S.A. and Edesur S.A.
The activities relatedpurpose of this company is to manage, supervise and control the aforementioned agreement have been temporarily suspendedoperation of both the electric power generation, transmission and sub-transmission system in the Company’s offices.City of Buenos Aires and the BuenosAires metropolitan area and the interconnections with the Argentine Interconnection System (SADI), to represent Distribution Companies in the operational management before CAMMESA, and, in general, to carry out the necessary actions for the proper development of its activities.
The share capital of SACME is divided into 12,000 common, registered non-endorsable shares, of which 6,000 class I shares are owned by Edenor S.A. and 6,000 class II shares are owned by Edesur S.A.
The operating costs borne by the Company during 2015 amounted to $ 27.3 million.
(c) Agreement with Electricidad Argentina S.A.EASA.
The agreement stipulates the provision to the Company of technical advisory services on financial matters as from September 19, 2005 for a term of five years which has beento commence as from September 19, 2015. The term of the agreement will be extended for another 5 years until 2015.if so agreed by the parties. In consideration of these services, the Company pays EASA an annual amount of USD 2.5 million. Any of the parties may terminate the agreement at any time by giving 60 days’ notice, without having to comply with any further obligations or paying any indemnification to the other party.
TableThe ultimate controlling company of Contents
(d) Loan with subsidiaries and related companies (Section 33 Law No. 19,550)
Loan with Pampa Energía S.A.
On March 4, 2011, the Company and Pampa EnergíaEdenor S.A. entered into an agreement pursuant to which the Company would receive a USD 5 million two-year term loan at an annual rate of 5%. The loan was used to finance several investments that the Company intended to make in accordance with its business plan. This loan was repaid on November 3, 2011.
Loan with subsidiariesis PESA.
On April 29, 2011, the Company entered into an agreement with EDEN, EDESAL, EDELAR and EDESA for the refinancing of the loans granted to them at the time of acquisition with the purpose of allowing for the restructuring of their financial loans, for $ 80 million in the case of EDEN, $ 31.178 million in the case of EDELAR, $ 131.320 million in the case of EDESA and $ 37.503 million in the case of EDESAL, at an annual nominal rate of 16% on each of them, with interest falling due semiannually on October 31, 2011 and April 30, 2012. The one-year term loans fall due on April 30, 2012. The financing conditions are in accordance with those usually obtained in the market for this type of transactions.
At December 31, 2012, the Company recorded an allowance of $ 37.266 million for the total amount of the loan granted to EDELAR, as it considers it unlikely that such subsidiary, considering its current cash flows, will comply with payment when due.
With the exception of the previously mentioned loan to EDELAR, at the date of issuance of these Financial Statements, the other loans have been totally repaid by the Subsidiaries.
Furthermore, on November 3, 2011, the Company granted a loan to EDEN for USD 3.1 million at an annual nominal rate of 8.50% and final maturity on November 2, 2012.
During November 2012, the Company granted loans to EMDERSA for a total amount of $ 0.60 million that fall due on May 31, 2013 and November 20, 2013, and accrue at an annual rate of 16%.
37.Transactions with non-controlling interest
In the June-December 2011 period, in successive market transactions, the Company acquired 2,951,000, 281,294 and 15,000 common shares of EMDERSA, representing 1.25%, 0.12% and 0.0064% of that company’s capital stock and votes, respectively. In this manner, the Company has increased its interest in EMDERSA to 78.56%. The Company derecognized $ 9.86 million of non-controlling interest and recorded an increase in equity attributed to the owners of the parent of $ 3.45 million.
| | | 12.31.12 | | 12.31.11 |
Carrying amount of non-controlling interest acquired | | - | | 9,861 |
Consideration paid to non-controlling interest | | - | | (6,409) |
Defect of consideration paid recognised in parent´s equity | | - | | 3,452 |
| | | | | |
38.Business combinations
Acquisition of EMDERSA and AESEBA
On March 4, 2011, the Company’s Board of Directors approved an offer from its indirect controlling company Pampa Energía S.A. (“Pampa”), pursuant to which the Company was offered the possibility of acquiring certain electricity distribution assets, which Pampa was entitled to acquire (either directly or through one or more subsidiaries), from Grupo AEI in accordance with an agreement entered into on January 19, 2011 by and between Pampa, party of the first part, and AEI Utilities, S.L., a limited company (sociedad limitada) organized under the laws of Spain ("AEIU"), AEI Servicios Argentina S.A., a corporation (sociedad anónima) organized under the laws of Argentina, and AEI, a company organized under the laws of the Cayman Islands, parties of the second part.
As a consequence of the acceptance by the Company of said offer, Edenor S.A. was appointed by Pampa as the acquiring party under the PESA-AEI Agreement. Therefore, on March 4, 2011, the Company acquired from AEIU (i) 182,224,095 common shares of EMDERSA S.A. (“Emdersa”), representing 77.19% of Emdersa’s capital stock and votes (“Emdersa Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”) representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% ofEDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by the Company for the aforementioned assets amounted to USD 90,000 thousand for Emdersa’s Shares and the Residual Shares acquired from AEIU and to USD 49,998 thousand for AESEBA’s Shares acquired from AEIU.
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Emdersa holds: (i) 99.99% of EDESAL’s capital stock and votes, (ii) 90% of the capital stock and votes of Empresa Distribuidora de Electricidad de Salta S.A. ("EDESA"), (iii) 99.98% of EGSSA’s capital stock and votes, and (iv) 99.99% of EDELAR’s capital stock and votes. EDESA holds 99.99% of ESED’s capital stock and votes. Furthermore, AESEBA in turn holds 90% of the capital stock and votes of Empresa Distribuidora de Energía Norte, S.A. ("EDEN"), which provides electricity distribution services in the northern and central parts of the Province of Buenos Aires.
Within the framework of the offer made by Pampa and accepted by the Company, the parties have additionally agreed that if within the 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, the Company sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).
In order to evaluate the above described transaction, the Company engaged the services of the investment bank Citigroup Global Markets Inc. (“Citigroup”) to render a fairness opinion to the Company’s Board of Directors, concerning the fairness of the price that would have to be paid for Emdersa’s shares, the Residual shares and AESEBA’s shares. The opinion of the Company’s Audit Committee was also requested. Both Citigroup and the Company’s Audit Committee rendered their opinion, prior to the acquisition, stating that the informed values were adequate and within the market’s parameters.
In compliance with current regulations, the Company has formally consulted the National Securities Commission about the steps to be followed with regard to the public offering for the acquisition of Emdersa’s shares that the Company is required to make to Emdersa’s minority shareholders due to the change in that company’s control and in accordance with the provisions of theCapital Markets Law and the National Securities Commission’s regulations. The aforementioned consultation was made due to the fact that the authorization and carrying out of the public acquisition offering that for the same reasons is to be carried out by AEIU at a price of USD 0.68 per Emdersa’s common share, is still pending. Therefore, the situation generated by the potential coexistence of two public offerings should, in the Company’s opinion, be clarified.
The Company has fully assumed its obligation to carry out the public acquisition offering it is required to make due to the new change in Emdersa’s control, which will be carried out at the same price per Emdersa’s common share that the Company paid to AEIU, i.e. USD 0.49 per Emdersa’s common share, in the manner and time period established by the control authority. The carrying out of said public acquisition offering was approved by the Company’s Board of Directors on March 4, 2011, and constitutes an irrevocable commitment with Emdersa’s shareholders.
Furthermore, the Company has initiated the proceedings aimed at obtaining authorization from the corresponding control authorities
Finally, within the framework of the reported transaction for the acquisition of shares, the change in control of the acquired companies constitutes grounds for calling the loans taken out by their subsidiaries due. Therefore, on March 4, 2011, the Company granted to them a series of loans at an annual interest rate of 16% and final maturity on April 30, 2011 in order for them to be in a better position to negotiate the restructuring. The loans have been distributed in the following manner: i) EDEN 80,000; ii) EDELAR 31,178; iii) EDESA 131,320 and iv) EDESAL 37,503, which was repaid on October 25, 2011.
The purpose of companies acquired is to engage in the distribution and sale of electricity within specific concession areas. The Company decided to acquired this group of assets because the seller had started a process for divesting its net assets in the region. Consequently, it sold this group of assets at market values which were lower than their respective fair value.
The acquisitions have been recorded in accordance with the purchase method on the basis of the fair value measurements of the acquired assets and liabilities.
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The consideration paid, the amount of the net acquired assets recognized at acquisition date and the generated gain are as follow:
| $
|
Consideration:
| |
Cash
| (561,953)
|
Consideration transferred
| (561,953)
|
Fair value of net assets acquired
| 996,912
|
Gain burgain purchase
| 434,959
|
In addition, under NIIF the excess of the fair value of the net assets acquired, including those recognized in the reassessment of the purchase price allocation, over the consideration paid and the non-controlling interest has been considered as a gain in bargain purchase, because the seller had started a process for divesting its net assets in the region and, consequently, it sold them at values lower than their respective fair value.
This gain from acquisition of companies is included in the consolidated statement of comprehensive loss.
The fair value of the assets acquired and liabilities assumed, recognized at the date of acquisition, as well as the fair value of the non-controlling interest are as follow:
| Fair
value
|
Cash and cash equivalents
| 119,042
|
Property, plant and equipment
| 1,120,925
|
Intangible assets
| 760,479
|
Inventories
| 4,256
|
Trade receivables
| 255,260
|
Other receivables
| 84,649
|
Trade payables
| (257,770)
|
Borrowings
| (450,018)
|
Deferred tax liability
| (78,845)
|
Other liabilities
| (331,026)
|
Net assets
| 1,226,952
|
Non-controlling interests
| (230,040)
|
Net assets acquired
| 996,912
|
The breakdown of cash and cash equivalents applied to the acquisition was the following:
Consideration paid – Argentine GAAP
| (566,222)
|
Transaction costs (See Note 30)
| 4,269
|
Consideration paid – IFRS
| (561,953)
|
Cash and cash equivalents in acquired companies
| 119,042
|
Net cash outflow for acquisition of companies
| (442,911)
|
Proforma (unaudited):
The amounts of EMDERSA and AESEBA´s revenues and earning included in EDENOR´s Consolidated Statements of Operations for the year ended December 31, 2011, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2011, or January 1, 2010, are as follows:
| 12.31.11
|
Net Sales / Services revenues
| 3,279,157
|
Net loss
| (354,879)
|
39.Spin-off Process - EMDERSA
The Extraordinary Shareholders’ Meeting of EMDERSA held on December 16, 2011, which was resumed on January 13, 2012 after a recess, approved the corporate reorganization consisting of the spin-off of EMDERSA’s following assets, together with any other rights, assets, liabilities or contingencies related to such assets (the Spin-off),: (a) the ownership of the shares held by EMDERSA in Empresa Distribuidora San Luis S.A. (EDESAL), together with all the rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to EDESAL’s business activity, for the setting up of a newcompany named EDESAL Holding S.A. (EDESALH); (b) the ownership of the shares held by EMDERSA in Empresa Distribuidora de Electricidad de Salta S.A. (EDESA), together with all the rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to EDESA’s business activity, for the setting up of a new company named EDESA Holding S.A. (EDESAH); and (c) the ownership of the shares held by EMDERSA in Empresa Generación Salta S.A. (EGSSA), together with all the rights and obligations relating to or arising from such shareholding, as well as any right, obligation or contingency related to EGSSA’s business activity, for the setting up of a new company named EGSSA Holding S.A. (EGSSAH).
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The Spin-off has been approved by the National Securities Commission and registered with the Regulatory Agency of Corporations, together with the registration of the three new companies. On November 8, 2012, the new companies were authorized by the National Securities Commission to go public and obtained admission to the Buenos Aires Stock Exchange listing.
40.Disposal group classified as held for sale
Company sale agreements and Companies available for sale:
The Company’s Board of Directors approved at different times the offer letters received for the carrying out of the following transactions:
v.From Rovella Carranza S.A., for the acquisition of the Company’s direct and indirect stake in Edesal (EDESAL Sale).
vi.From Andes Energía Argentina S.A., to buy a purchase option for the acquisition of the Company’s direct and indirect stake in Edelar (EDELAR Offer).
vii.From Salta Inversiones Eléctricas S.A. (SIESA), for the acquisition of the Company’s direct and indirect stake in Edesa (EDESA Sale)
viii.From Pampa Energía S.A. for the acquisition of the Company’s direct and indirect stake in EGSSA (EGSSA Sale).
Additionally, in order for these transactions to be carried out, the Company was required to cause Emdersa to complete its partial spin-off process, which would result in the creation of three new investment companies, EDESAL Holding (holder of 99.99% of EDESAL’s capital stock and votes), EDESA Holding (holder of 90% of EDESA’s capital stock and votes) and EGGSA Holding (holder of 99.99% of EGGSA’s capital stock and votes).
At December 31, 2011, the valuation of these investments at their fair value less costs to sell, and the result of EDESAL sale resulted in a loss of $ 247.87 million, which is set off by the profit made during the same fiscal year, as disclosed in Note 38. The aforementioned loss arises from the process of divesting net assets initiated by the Company; consequently the market value recognized was lower than the fair value.
EDESAL sale
On September 16, 2011, the Board of Directors approved the offer for the acquisition of Edesal by Rovella Carranza S.A. for a total and final price of USD 26.698 million that was paid in two payments. The first of them, for USD 4.005 million was made within the three days of the acceptance of the offer, and the remaining balance, i.e. an amount of USD 22.694 million was collected by the Company on October 25, 2011.
Furthermore, as stipulated in the Offer Letter, on that date EDESAL repaid the financial loan granted by the Company to EDESAL for an amount of 37,503, plus interest accrued through the settlement date.
At that time the Company transferred 24.80% of EMDERSA’s shares and 0.01% of EDESAL’s shares to Rovella Carranza S.A. which set up a collateral trust, comprised by the parties and Deutsche Bank S.A. to ensure compliance with the parties’ obligations.
From the date of final payment and during the term of the trust, EDESAL’s management was in charge of a board of directors appointed by EMDERSA, in accordance with the buyer’s proposal, which is comprised of 5 directors, four (4) of whom were elected by the buyer and one (1) of whom was elected by the seller, and equal number of alternate directors, four (4) of whom were elected by the buyer and one (1) of whom was elected by the seller.
As security for the compliance with the obligations undertaken, the Company has provided a performance bond in favor of Banco Itaú Argentina S.A. and Standard Bank Argentina S.A. for the total amount of 60,000 thousand as principal plus compensatory interest at an annual nominal rate of up to 16% ascollateral for EDESAL’s payment obligations with respect to these banks. The performance bond was enforceable if any of the following conditions precedent (whichever takes place first) occur:
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1. That at September 16, 2013, EMDERSA’s spin-off has not been carried out; or
2. That during the term of the trust the Company fails to comply with certain obligations concerning EDESAL’s joint management.
Given the fact that neither of these two conditions occurred, the performance bond was not enforced.
At December 31, 2012, as a consequence of the above-described transaction and EMDERSA’ spin-off resolution, the Company no longer holds any direct or indirect interest in EDESAL HOLDING S.A. or EDESAL.
EDELAR offer
The offer from Andes Energía Argentina S.A. received by the Company in fiscal year 2011 implied a proposal to buy a purchase option for a price of USD 1.5 million to buy, if EMDERSA’s spin-off was completed within the term of 2 years, 78.44% of the Company’s direct and indirect stake in EDELAR for USD 20.29 million, to be paid in two payments. The purchase option was paid by the buyer on September 16, 2011.
Subsequently, the Company’s Board of Directors approved proposals from Andes Energía Argentina S.A. to extend the term until which the buyer could exercise the option, with the Company maintaining the right to freely sell or assign to any third party or cause the sale or assignment of some or all the shares that are the object of the transaction and/or the rights on such shares. In the event that a sale to a third party is made, Andes Energía Argentina S.A.’s option may not be exercised, there being no outstanding payment or any responsibility of any kind for the Company or Andes Energía Argentina S.A.
At December 31, 2012, Andes Energía Argentina S.A.’s purchase option has expired. The Company is currently negotiating with the buyer the terms under which such problem may be solved.
In this regard, and considering both that the Company maintains its decision to sell this asset and that it has received other expressions of interest in connection thereto, which are currently being analyzed although no specific offers have yet been received, such asset continues to be classified as assets available for sale.
At the end of the year being reported, the Company has recorded the assets related to EDELAR at their estimated recoverable value. Consequently, it has recorded a loss of $ 64.8 million in the Loss from discontinued operations line item due to the valuation at fair value less costs to sell (which is estimated to be similar to the asset’s book value) and $ 37.3 million in the Other expense line item, in the understanding that the result of the recoverability analysis of the receivable is part of the controlling company’s own result.
EDESA sale
At December 31, 2011, this investment has been classified as Disposal group and associated liabilities classified as held for sale within assets and has been valued at fair value less costs to sell, which is lower than its book value.
For purposes of determining the fair value less costs to sell, the Company used the incurred acquisition value.
On April 23, 2012, the Company’s Board of Directors accepted the offer made by Salta Inversiones Eléctricas S.A. (“SIESA”) to Edenor S.A. and its subsidiary EMDERSA Holding, for the acquisition of shares representing: (i) 78.44% of the capital stock and voting rights of EDESA Holding, a corporation in the process of formation as a result of the spin-off process of EMDERSA currently underway, upon the conclusion of which will become the holder of 90% of the capital stock and voting rights of EDESA, which in turn owns 99.99% of ESED’s capital stock and voting rights, and (ii) the remaining 0.01% of ESED.
The transaction was carried out on May 10, 2012 at the offered price payable through the delivery of Argentina’s sovereign debt bonds (Boden 2012) for a value equivalent to $ 100.5 million. Such price was partially cancelled through the payment of $ 83.8 million, with a sixth of the agreed-upon price remaining outstanding, whose payment SIESA is required to make in five annual and consecutive installments in US dollars, with the first of them falling due on May 5, 2013, at a LIBOR + 2% p.a. interest rate. Payments relating to the price will be made (i) in immediately and freely available US dollars through transfer to a bank account specified by the seller, or, alternatively and at the seller’s exclusive option (that may be exercised in respect of each of the payments), (ii) through the delivery to the seller of an amount of Argentina’s sovereign debt bonds.
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As part of the aforementioned transaction, EDESA fully repaid the loan granted by the Company for a total principal amount of 131,300, plus interest accrued, and the buyer released EMDERSA from all liability for the collateral granted by the latter to EDESA in connection with the syndicated loan held by this company with various banks. By virtue of this transaction, EMDERSA Holding (“EHSA”), a directly controlled company of Edenor S.A., transferred to SIESA the shares representing 28.93% of EMDERSA’s capital stock and votes, whereas the Company transferred to that company 0.01% of ESED’s capital stock and votes.
As a consequence of this transaction, on May 9, 2012, the Company obtained from EHSA an $83.88 million loan falling due on May 9, 2013 and accruing interest as from the date of disbursement at an annual nominal rate of 16%, payable together with principal. Early repayment permitted. This loan was repaid by means of the capital reduction process carried out by EHSA, which is described in note 42.
Due to that which has been previously mentioned, and as a consequence of this transaction, the Company no longer holds any direct or indirect interest in EDESA and has recorded during the year 2012 a profit of $ 21.6 million in the discontinued operations line item of the Statement of Comprehensive loss.
As agreed by the parties in EDESA sale agreement, SIESA and EHSA, as trustors and beneficiaries, and Deutsche Bank S.A. (“DB”) as trustee, set up a collateral trust to which they transferred their shareholdings representing EMDERSA’s capital stock and votes, with SIESA transferring the 28.93% received with the closing of the transaction, and EHSA the remaining 24.84% of the shares.
Upon the conclusion of EMDERSA’s spin-off process, the shares representing 78.44% of the capital stock and votes of EDESA Holding, holder of 90% of EDESA’s shares and votes, were issued, and DB, the trustee, transferred to EHSA the totality of EMDERSA’s shares that had been transferred by SIESA and EHSA to the trust, with SIESA holding 78.44% of EDESA Holding S.A.’s capital stock and votes.
EGSSA sale
On October 11, 2011, the Company’s Board of Directors approved the offer received from its controlling shareholder Pampa Energía S.A. (PESA), for the acquisition through a conditioned purchase and sale transaction of 78.44% of the shares and votes of an investment company to be organized, which will be the holder of 99.99% of the shares and votes of EMDERSA Generación Salta S.A. (“EGSSA”) together with 0.01% of EGSSA’s capital stock held by the Company.
The condition precedent of the purchase and sale transaction was the carrying out of EMDERSA’s spin-off in the maximum term of 24 months as from the date of acceptance of the offer, which has been complied with as disclosed in Note 39.
The total and final agreed-upon price for this transaction amounts to USD 10.85 million to be paid in two payments, the first of them for an amount of USD 2.17 million was made on October 31, 2011 as partial payment of the price, and the remaining balance, i.e. an amount of USD 8.68 million will have to be paid in October 2013. The latter amount will accrue interest at an annual rate of 9.75%, payable semi-annually.
Furthermore, the offer implied the repayment by PESA of the financial loan granted by the Company to EGSSA for an amount of USD 4.17 million, plus interest accrued through the settlement date, which took place on October 31, 2011.
Having EMDERSA’s spin-off process been concluded (Note 39), on November 22, 2012, 78.44% of the capital stock and votes of EGSSA Holding S.A were transferred in favor of Pampa Energía S.A.
At December 31, 2012, as a consequence of the aforementioned transaction, the Company no longer holds any direct or indirect interest in EGSSA.
Classification of assets of disposal groups classified as held for sale and liabilities of disposal groups classified as held for sale:
In the framework of that described under “The Company’s economic and financial situation” in Note 1, the Company’s Management has decided to divest from the companies comprising EMDERSA and EMDERSA HOLDING, and has begun to take the necessary steps for the sale thereof, classifying them as Assets available for sale and Associated liabilities and discontinuing their activity at December 31, 2011.
The indicated Assets and Liabilities are part of the EMDERSA business segment and have been valued at their fair value less costs to sell, which is lower than their equity value.
The respective charges to profit or loss have been included in the Loss from discontinued operations line item in the Company’s Consolidated Statement of Comprehensive loss.
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In order to determine the fair value less costs to sell, the Company used the values of the offers received for EDELAR and EGSSA and the acquisition values for the other companies.
The main types of assets and liabilities are:
| | | 12.31.12 | | 12.31.11 | |
Property, plant and equipment and intangible assets | | 100,197 | | 1,021,929 | (*) |
Inventories | | 1,148 | | 5,340 | |
Trade and other receivables | | 74,026 | | 223,157 | |
Deferred tax asset | | 36,873 | | 12,347 | |
Cash and cash equivalents | | 11,154 | | 28,305 | |
Total assets available for sale | | 223,398 | | 1,291,078 | |
| | | | | | |
Trade payables | | 126,335 | | 214,198 | |
Borrowings | | 4,623 | | 185,264 | |
Salaries and social security taxes payable | | 10,012 | | 37,617 | |
Taxes | | 6,073 | | 22,117 | |
Deferred tax liability | | - | | 62,228 | |
Other liabilities | | 914 | | 921 | |
Provisions | | 9,310 | | 19,860 | |
Total liabilities associated with assets available for sale | | 157,267 | | 542,205 | |
(*) The breakdown of the account is as follows: | | | |
Property, plant and equipment and intangible assets as per Exhibit: | 115,945 | | 1,199,696 |
Impairment from valuation at net fair value less costs to sell: | (15,748) | | (177,767) |
Total Property, plants and equipment
and intangible assets account: | 100,197 | | 1,021,929 |
The financial statements related to discontinued operations are disclosed below:
a.Statement of comprehensive loss
| | | 12.31.12 | | 12.31.11 |
Revenue from sales | | 426,317 | | 764,276 |
Cost of sales | | (201,037) | | (264,511) |
Gross profit | | 225,280 | | 499,765 |
Transmission and distribution expenses | | (175,438) | | (168,652) |
Selling expenses | | (57,607) | | (97,313) |
Administrative expenses | | (47,130) | | (99,122) |
Other operating income | | 52,259 | | 2,768 |
Other operating expense | | (636) | | (5,314) |
Gain from interest in joint ventures | | - | | 924 |
Operating loss | | (3,272) | | 133,056 |
| | | | | |
Financial income | | 5,296 | | 118 |
Financial expenses | | (42,713) | | (35,676) |
Other financial expense | | (5,008) | | (12,114) |
Net financial expense | | (42,425) | | (47,672) |
Loss before taxes | | (45,697) | | 85,384 |
| | | | | |
Income tax and tax on minimum presumed income | | 39,078 | | (17,455) |
Loss after taxes | | (6,619) | | 67,929 |
| | | | | |
Loss recognized on the re-measurement of assets of disposal group | | (15,748) | | (177,727) |
Disposal loss from assets classified as held for sale | | - | | (70,140) |
Tax effect | | - | | 40,407 |
Loss for the year | | (22,367) | | (139,531) |
| | | | | |
Loss for the year attributable to: | | | | |
Owners of the parent | | (15,849) | | (146,382) |
Non-controlling interests | | (6,518) | | 6,851 |
| | | (22,367) | | (139,531) |
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| | | 12.31.12 | | 12.31.11 |
Other comprehensive loss | | | | |
Items that will not be reclassified to profit or loss | | | | |
Actuarial gains and losses related to defined benefit plans | | - | | (5,220) |
Income tax related to items that will not be reclassified to profit or loss | | - | | 1,827 |
Other comprehensive loss for the year | | - | | (3,393) |
Comprehensive loss for the year | | (22,367) | | (142,924) |
| | | | | |
Comprehensive loss for the year attributable to: | | | | |
Owners of the parent | | (15,849) | | (149,001) |
Non-controlling interests | | (6,518) | | 6,077 |
| | | (22,367) | | (142,924) |
b.Statement of cash flows
| | | 12.31.12 | | 12.31.11 |
Net cash flows provided by operating activities | | 246,227 | | 202,348 |
| | | | | |
Net cash flows used in investing activities | | (200,839) | | (279,940) |
| | | | | |
Net cash flows used in financing activities | | (39,920) | | 98,547 |
| | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | 5,468 | | 20,955 |
| | | | | |
Cash and cash equivalents at beginning of year | | 5,686 | | 7,350 |
Change in cash and cash equivalents | | 5,468 | | 20,955 |
Cash and cash equivalents at end of year | | 11,154 | | 28,305 |
41.Ordinary and Extraordinary Shareholders’ Meeting
The General Annual Meeting held on April 27, 2012 approved, among other items of the agenda, the Financial Statements as at December 31, 2011 as well as the actions taken by the Board of Directors and the Supervisory Committee. Furthermore, it resolved that the Accumulated Deficit of 670,751 be absorbed by the Legal Reserve, the Additional Paid-in Capital and the Adjustment to Capital for 64,008, 18,317 and 588,426, respectively.
42.EHSA – Capital reduction
The Shareholders’ Meeting of EHSA held on August 21, 2012 approved such company’s reduction of capital for $ 98 million, representing 98,083,563 common shares with a nominal value of $ 1 per share. This capital reduction process has been approved by the Regulatory Agency of Corporations (Inspección General de Justicia de la Ciudad Autónoma de Buenos Aires).
As a consequence of this process, the $ 83.88 million loan that the Company had with EHSA at June 30, 2012 was repaid.
Moreover, on December 10, 2012 the Sharaholders’ Meeting of EHSA approved a second reduction of capital for $ 56.11 million, representing 56,108,232 common shares with a nominal value of $ 1 per share. At the date of issuance of these Consolidated Financial Statements, the aforementioned capital reduction process is pending approval by the Regulatory Agency of Corporations.
The aforementioned transactions did not generate results for the Company.
43.34. Trust for the Management of Electric Power Transmission Works (FOTAE)
Due to the constant increase recorded in the demand for electricity as a result of the economic recovery, the Energy Secretariat,SE, through Resolution 1875 dated December 5, 2005, established that the interconnection works through an underground power cable at TWO HUNDRED AND TWENTY KILOVOLTStwo hundred and twenty kilovolts (220 kV) between COSTANERACostanera and PUERTO NUEVOPuerto Nuevo Transformer Stations with MALAVERMalaver Transformer Station were necessary. These works require not only the execution of expansion works but also new layout-designs of the high-voltage subsystems of Edenor S.A. and Edesur S.A.’s networks. In addition, it established that a fraction of the electricity rate increase granted to distribution companies throughby ENRE Resolution No. 51/07 (as mentioned in Note 2.c.I), willwould be used to finance up to 30% of the total execution cost of these works, with the remaining 70% of the total cost of the works being absorbed by the MEM’s demand. Fund inflows and outflows relatingrelated to the aforementioned expansion works are managed by the WORKS TRUST FUND ENERGY SECRETARIAT RESOLUTION No.Works Trust Fund SE Resolution 1/2003,03, which will act as the link among CAMMESA, (the company in charge of the regulation and operation of the wholesale electricity market), the Contracting Distribution Companies and the companies that would have been awarded the contracts for the provision of engineering services, supplies and main pieces of equipment as well as those for the execution of the works and provision of minor supplies.
At December 31, 2012, theThe amount transferred to CAMMESA by the Company as from the commencement date of the project, through contributions in cash, supplies and services totalstotaled $ 45.8 million. The adjusting entry of these funds has been recognized by the Company as construction in process within Property, plant and equipment.
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In accordance with the agreements entered into on August 16, 2007 by and between the Company and the National Energy SecretariatSE and on December 18, 2008 by and between the Company and Banco de Inversión y Comercio Exterior, in its capacity as Trustee of the Trust for the Management of Electric Power Transmission Works (FOTAE), the Company is responsible for the development of all the stages of the project, regardless of the oversight tasks to be performed by the Works Commission Energy SecretariatSE Resolution No. 1/03. The agreement stipulates that the Company will be in charge of the operation and the planned and reactive maintenance of the facilities comprising the expansion works, being entitled to receive as remuneration for the tasks and obligations undertaken 2% of the cost of major equipment and 3% of all the costs necessary for the carrying out of civil engineering and electromechanical assembly works relatingrelated to the MALAVER-COLEGIALESMalaver-Colegiales and MALAVER-COSTANERAMalaver-Costanera electrical transmission lines, the expansion of Malaver Substation and the remaining expansion works of Puerto Nuevo Substation.
In January 2013, part ofThe works were developed in different stages, and the works of the “Interconnection at two hundred and twenty kilovolts (220 KV) between Costanera Transformer Station and Malaver Transformer Station” project was inaugurated. It is estimated that the works will be completely finished during 2013.
At the date of these financial statements, it has not been defined if ownership of the aforementioned works will be assigned to the Company inasmuch as the National Energy Secretariat has not yet defined who the remainderman will be, in the framework of the aforementioned Agreement entered into on December 18, 2008.
In summary, at the date of these financial statements:
1)The Company, as agreed, has made contributions to CAMMESA for an amount of $ 45.8 million.
2)Up to date, the Company has complied with its responsibility with regard to the development of all the stageseach of the project,them, as well as with the operation and the planned and reactive maintenance of the facilities comprising the expansion works. Nevertheless,The final conclusion of the works occurred in fiscal year 2014.
Furthermore, on January 15, 2015, CAMMESA not only informed the Company of the amounts disbursed by the BICE and CAMMESA for the execution of the aforementioned works, but also requested that the Company carry out the pertinent actions to comply with the provisions of Resolution 1875/05. Consequently, the Company has notbegun to carry out actions aimed at coordinating and reaching agreement, with the different parties involved, on the steps to be followed to have this process finalized.
As of December 31, 2015, the Company recognized as facilities in service in the accounting any amountProperty, plant and equipment account its participation in the works for an estimated value of $ 141.8 million, including financial charges, $ 155.8 million of which have not yet been contributed, a debt which is disclosed in the Other payables account of non-current liabilities.
35.Assets and liabilities of disposal group classified as held for sale and discontinued operations
Sale of EMDERSA/EDELAR
On September 17, 2013, the Company Board of Directors approved the sending to Energía Riojana S.A. (ERSA) and the Government of the Province of La Rioja of an irrevocable offer for (i) the sale of the indirect stake held by the Company in EMDERSA, the parent company of EDELAR, and (ii) the assignment for valuable consideration of certain receivables which the Company has with EMDERSA and EDELAR. On October 4, 2013, the Company received the acceptance of the Offer by ERSA and the Government of the Province of La Rioja in its capacity as controlling shareholder of the buyer. The transaction was closed and effectively carried out on October 30, 2013. The price agreed upon in the aforementioned agreement amounts to $ 75.2 million and is payable in 120 monthly and consecutive installments, with a grace period of 24 months, to commence from the closing date of the transaction, for the tasks performed uppayment of the first installment.
Furthermore, on August 5, 2013 the Company was notified of ENRE Resolution 216/2013, whereby the Regulatory agency declared that the procedure required by Section 32 of Law No. 24,065 with respect to now as it is waitingthe purchase of EMDERSA, AESEBA and their respective subsidiaries made by the Company in March 2011 had been complied with, formally authorizing the acquisition thereof.
The transaction was closed on October 30, 2013 together with the holding of the Ordinary Shareholders’ Meeting that appointed new authorities and approved the actions taken by the outgoing Directors and Supervisory Committee members.
Sale of AESEBA/EDEN’s assets
In February 2013 the Company received offers from two investment groups for the calculation basis thereofacquisition of the total number of shares of AESEBA, the parent company of EDEN. On February 27, 2013, the Company Board of Directors unanimously approved the acceptance of the Offer Letter sent by Servicios Eléctricos Norte BA S.L. (the “Buyer”) for the acquisition of the shares representing 100% of AESEBA’s capital stock and voting rights. The price offered by the buyer is payable through the delivery of Edenor debt securities for an amount equivalent, considering their quoted price at the date of the acceptance, to approximately USD 85 million of nominal value. Such price was fixed in Bonar 2013 sovereign debt bonds or similar bonds (“the Debt Securities”) for a value equivalent to $ 334.3 million at the closing of the transaction, considering the market value of such government bonds at that time.
In this regard, a Trust was set up in March 2013 by the Settlor (the Buyer), the Trustee (Equity Trust Company from Uruguay) and the Company.
At the closing date of the transaction, which took place on April 5, 2013, the buyer deposited in the Trust cash and Debt Securities for the equivalent of $ 262 million pesos, considering the market value of those government bonds at the closing date, and, prior to December 31, 2013, the buyer will be required to deposit in the Trust Debt Securities for the equivalent of 8.5 million of nominal value divided by the average price of purchase thereof. At the closing of the transaction, the Company received the rights as beneficiary under the Trust. With the proceeds of the liquidation of the bonds received the Trust will purchase Edenor Class 9 and Class 7 Corporate Notes due in 2022 and 2017, respectively.
In this manner, as of December 31, 2013, the Company divested the AESEBA segment, which resulted in a loss of $ 96.5 million, included within the loss from discontinued operations, after tax-related effects and without considering the results of the repurchase of Corporate Notes, which were recognized by the Company when such transaction took place. At December 31, 2013, and due to the repurchases of the Company’s own debt made by the Trust, the Company recorded a gain of $ 71.7 million included in the “Other financial expense” line item of the Statement of Comprehensive (Loss) Income.
The Trust has purchased the totality of Edenor Corporate Notes due in 2017 and 2022 indicated in the respective trust agreement for USD 10 million and USD 68 million of nominal value, respectively. On March 27, 2014, these Corporate Notes were written off.
Due to the repurchases of the Company’s own debt made by the Trust, as of December 31, 2014, the Company recorded a gain of $ 44.4 million, which has been included in the “Other financial expense” line item of the Statement of Comprehensive (Loss) Income.
Additionally, on April 5, 2014, the Trust was terminated and liquidated.
EGSSA SALE
On October 11, 2011, the Company Board of Directors approved the offer received from its controlling shareholder Pampa Energía S.A. (PESA), for the acquisition through a conditioned purchaseand sale transaction of 78.44% of the shares and votes of an investment company to be reliably determined.
Furthermore, the Company is awaiting the Energy Secretariat’s definition concerning whoorganized, which will be the designated ownerholder of 99.99% of the worksshares and votes of EMDERSA Generación Salta S.A. (“EGSSA”) together with 0.01% of EGSSA’s capital stock held by the Company.
The total and final agreed-upon price for this transaction amounts to USD 10.85 million to be paid in two payments, the first of them for an amount of USD 2.2 million was made on October 31, 2011 as wellpartial payment of the price, and the remaining balance, i.e. an amount of USD 8.7 million was paid on October 4, 2013 by an equivalent of $ 53.3 million as principal and interest.
The aforementioned payment was made in cash for $ 0.5 million and through the valuation thereof. Based on such definitions,delivery of the Company will make the necessary adjustmentsCompany’s Class 9 Corporate Notes due 2022 for a nominal value of USD 10 million.
Discontinued operations
The financial statements related to the recordings made up to now and describeddiscontinued operations included in this note.financial statement are disclosed below:
a.Statements of comprehensive loss
| | 12.31.15 | | 12.31.14 | | 12.31.13 |
Revenue for services | - | | - | | 399.619 |
Revenue from construction | - | | - | | 9.028 |
Cost of sales | - | | - | | (164.241) |
Cost of construction | - | | - | | (9.028) |
Gross profit | - | | - | | 235.378 |
Transmission and distribution expenses | - | | - | | (104.392) |
Selling expenses | - | | - | | (56.439) |
Administrative expenses | - | | - | | (36.855) |
Other operating income | - | | - | | 1.865 |
Other operating expense | - | | - | | (2.600) |
Operating profit | - | | - | | 36.957 |
| | | | | | |
Financial income | - | | - | | 14.803 |
Financial expenses | - | | - | | (28.576) |
Other financial results | - | | - | | (7.473) |
Net financial expense | - | | - | | (21.246) |
Profit before taxes | - | | - | | 15.711 |
| | | | | | |
Income tax and minimum national income tax | - | | - | | (7.136) |
Profit after taxes | - | | - | | 8.575 |
| | | | | | |
Loss on subsidiary sale | - | | - | | (185.959) |
Loss from assets made available for sale | - | | - | | (7.146) |
Tax effect | - | | - | | 89.422 |
Loss for the year | - | | - | | (95.108) |
| | | | | | |
Gain (loss) for the year attributable to: | | | | | |
Owners of the parent | - | | - | | (96.128) |
Non-controlling interests | - | | - | | 1.020 |
| | - | | - | | (95.108) |
44.36.Merger process – EMDERSA HOLDING S.A.
On December 20, 2013, the Company Extraordinary Shareholders’ Meeting approved the merger of Emdersa Holding S.A. (as the acquired company, which will be dissolved without liquidation) with and into Edenor S.A. (as the acquiring and surviving company), as well as all the documentation and information required for such purpose by the applicable regulations. The effective reorganization date for legal, accounting and tax purposes is retroactive to October 1, 2013. At the date of issuance of these financial statements, the administrative approval thereof by theInspección General de Justicia (Argentine governmental regulatory agency of corporations) is in process.
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37.Electric works arrangement - Agreement for the supply of electric power to Mitre and Sarmiento railway lines
In September 2013, the Company and the Interior and Transport Ministry entered into a supply and financial contribution arrangement pursuant to which the Federal Government will finance the necessary electric works aimed at adequately meeting the greater power requirements of the Mitre and Sarmiento railway lines.
The total cost of the works amounts to $ 114.3 million. The Federal Government will bear the costs of the so called “exclusive facilities”, which amount to $ 59.9 million, whereas the costs of the remaining works will be financed by the Federal Government and reimbursed by the Company.
The financed amount of $ 54.4 million will be reimbursed by the Company in seventy-two monthly and consecutive installments, as from the first month immediately following the date on which the Works are authorized and brought into service.
During the fiscal year being reported, the Company received disbursements for $ 9.9 million, related to installment 5. As of December 31, 2015, the Company recorded $ 57.2 million as Non-current deferred revenue and $ 51.9 million as Non-current trade payables – Customer contributions.
38. Construction workworks - San Miguel and San Martín Transformer Centers
The Company carried out construction works of a 7.3 km-long electrical transmission line consisting of four 13.2 kV lines in trefoil formation to link Rotonda Substation with San Miguel Transformer Center, owned by ENARSA, necessary for the provision of electric power generation services; and a 6.2 km-long electrical transmission line consisting of a 13.2 kV line in trefoil formation to link Rotonda Substation with San Martín Transformer Center, owned by ENARSA.
Negotiations are being held concerningThe works, whose ownership was assigned to the assignment to Edenor S.A.Company, were carried out by the Company with the contributions made by ENARSA. As of the ownership of the works, which were financed by ENARSA, when the respective agreements are signed. At December 31, 2012,2015, the Company continues to recognize liabilities for this concept in the deferredDeferred revenue account. The recordings made until now and described in this note will be adjusted based on the previously mentioned definitions.
account.The recognized amount is $ 32.1 million.
39.Agreement for the execution of works - La Matanza District
F-103In April 2015, the Company and La Matanza District entered into an agreement for the execution of works aimed at improving the electricity service. The amount of the agreement totals $ 103.75 million, including applicable taxes and charges.
It was agreed that after the completion of each work and upon the presentation of the respective invoices, the new facilities will be assigned free of charge in order for the Company to proceed with the start-up of the facilities and the subsequent operation and maintenance thereof
The Public Works Secretariat of the Ministry of Federal Planning, Public Investments and Services agrees to provide financial assistance to La Matanza District, on the basis of an arrangement signed between the parties, for the total amount of the agreement.
As of December 31, 2015, the Company recorded $ 16.9 million as non-current deferred revenue.
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45.40.Safekeeping of documentation
On August 14, 2014, the CNV issued General Resolution No. 629 which introduced changes to its regulations concerning the safekeeping and preservation of corporate books, accounting books and commercial documentation. In this regard, it is informed that for safekeeping purposes the Company has sent its workpapers and non-sensitive information, whose periods for retention have not expired, to the warehouses of the firm Iron Mountain Argentina S.A., located at:
-1245 Azara St. – City of Buenos Aires
-2163 Don Pedro de Mendoza Av. – City of Buenos Aires
-2482 Amancio Alcorta Av. – City of Buenos Aires
-Tucumán St. on the corner of El Zonda, Carlos Spegazzini City, Ezeiza, Province of Buenos Aires
The detail of the documentation stored outside the Company’s offices for safekeeping purposes, as well as the documentation referred to in section 5 sub-section a.3) of Caption I of Chapter V of Title II of the REGULATIONS (Technical Rule 2013, as amended) is available at the Company’s registered office.
41. Events after the reporting period
Offer for the acquisition of EDENExtraordinary bonus granted to employees
In 2013,
On January 18, 2016, the Company received offers fromentered into two investment groups for the acquisition of all of the shares of AESEBA, the controlling company of EDEN. On February 27, 2013, the Company's Board of Directors unanimously approved the acceptance of the offer letter sent by Servicios Eléctricos Norte BA S.L. (the "Purchaser") for the acquisition of AESEBA's shares representing 100% of its capital stock and voting rights. The price offered by the Purchaser is payable through the delivery of Edenor's debt securities for an amount equivalent, at the closing date of the transaction, to approximately U.S. $80 million of face value of such securities. Such delivery is secured by the Purchaser's contribution to trust (the "Management Trust") of Ps. 326 million in Argentina's public debt securities, valued at the closing date of the transaction.
Furthermore, in order to implement this transaction, on March 19, 2013, the aforementioned Management Trust was set up by and among Purchaser (as settlor), Equity Trust Company (Uruguay) S.A. (as trustee) and the Company.
At the closing date of the transaction (April 5, 2013), the Trust received as contributions Argentina's public debt securities for a face value amount equivalent to Ps.262 million considering the market value of each bond at the closing date, and including the guarantee the Company had received at the time of the acceptance of the offer. Moreover, the Purchaser is required to complete contributions on or prior to December 31, 2013, of Argentina´s sovereign bonds for an amount equivalent to approximately Ps. 64 million, taking into account the market value at the closing date. As a result of the liquidation of said securities that are contributed to the Management Trustee, the Company's Class 7 and/or Class 9 Corporate Notes, maturing in 2022 and 2017, respectively, will be purchased.
At the closing date of this transaction, the Company has divested the AESEBA segment resulting in a loss for 2013 of about Ps. 194,3 million (a Ps. 104,9 million loss after income tax effect). The repurchase of the Edenor´s Corporate Bonds will be recognized at the time the purchase transactions are executed.
At December 31, 2012, the recording in the accounting of the Company's interest in AESEBA remained unchanged, given that at the end of the year such interest did not meet the criteria necessary to be classified and valued as "assets held for sale" in accordanceagreements, one with the international financial reporting standards for discontinued operations.
As of the date of this annual report, the Trust purchased U.S.$ 17.3 million of face value of our Notes due 2022 in the open market.
Salary agreement
On February 26, 2013, the Company, the Ministry of Labor, the Economic Policy and Development Planning Secretariat of the Economy Ministry, the Management Coordination and Control Under-Secretariat of the Federal Planning Ministry, the Sindicato de Luz y Fuerza (Electric Lightde Capital Federal and Power Labor Union)another one with theAsociación del Personal Superior de Empresas de Energía, pursuant to which the Company agreed to grant, on a voluntary and other companiesone-time basis, to all the employees who are subject to the collective bargaining agreements of the electric power sector entered into a salary agreement for a termaforementioned union/association an extraordinary bonus of eighteen months which establishes an 18% increase as from$ 5,000 to be paid in two installments of $ 2,000 and $ 3,000 on January 2013, a 5% non-cumulative increase as from June 201321 and a 7% cumulative increase as from January 2014.March 21, 2016, respectively.
General Ordinary and Extraordinary Shareholders’ Meeting: Approval of Financial Statements and Mandatory Stock Reduction
On April 25, 2013, the general ordinary and extraordinary shareholders’ meeting approved the annual individual financial statements and the annual consolidated financial statements of Edenor, corresponding to the fiscal year ended December 31, 2012. In addition, the shareholders’ meeting resolved to reduce Edenor’s capital stock pursuant to Article 206The payment of the Argentine Corporations Law, which mandates a mandatory capital stock reduction when a company’s losses at any given year exceed 100% of the company’s reserves and more than 50% of its capital stock, and, therefore, the shareholders’ meeting decidedaforementioned bonus was extended to reduce the number of shares maintaining the proportionality of the holdings. As a consequence of the mandatory capital stock reduction, the losses shall be offset against (i) the totality of the following line items: share premium (prima de emisión) and capital stock adjustment (ajuste sobre el capital social), plus (ii) 10% of the capital stock.
all Company employees.
42.Financial Statements translation into English language
These financial statements are the English translation of those originally prepared by the Company in Spanish and presented in accordance with accounting principles generally accepted in Argentina. The effects of the differences between the accounting principles generally accepted in Argentina and the accounting principles generally accepted in the countries in which the financial statements are to be used have not been quantified. Accordingly, the accompanying financial statements are not intended to present the financial position, statements of comprehensive income, changes in equity or cash flows in accordance with accounting principles generally accepted in the countries of users of the financial statements, other than Argentina.
Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (EdenorS.A.)
TableManagement’s Report on Internal Control Over Financial Reporting
Edenor S.A.’s Management is responsible for establishing and maintaining adequate internal control over financial reporting for Edenor S.A. as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of Contentsfinancial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“IFRS”). Internal control over financial reporting includes those policies and procedures that:
· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Edenor S.A.;
· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that receipts and expenditures of Edenor S.A. are being made only in accordance with authorizations of Management and directors of Edenor S.A.; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Edenor S.A.’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.
Management conducted an evaluation of the effectiveness of Edenor S.A.’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Based on such evaluation, Management concluded that the Edenor S.A.’s internal control over financial reporting was effective as of December 31, 2015. The effectiveness of Edenor S.A.’s internal control over financial reporting as of December 31, 2015 has been audited by Price Waterhouse & Co S.R.L., an independent registered public accounting firm, as stated in their report which accompanies this report.
Ricardo Torres | | Leandro Montero |
Chief Executive Officer | | Chief Financial Officer |
Buenos Aires, Argentina
March 8, 2016
F.
F-83
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Empresa Distribuidora y Comercializadora Norte
Sociedad Anónima (Edenor S.A.)
In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of comprehensive loss,income (loss), of changes in equity and of cash flows present fairly, in all material respects, the financial position of Empresa Distribuidora y Comercializadora Norte Sociedad Anónima (Edenor S.A.) (hereinafter, Edenor S.A.) and its subsidiaries atas of December 31, 20122015 and 2011,2014, and the results of theirits operations and theirits cash flows for each of the twothree years in the period ended December 31, 20122015 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, 2012,2015, 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 inthe accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item15 to the Form 20-F.Reporting. 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 in 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.
The accompanying consolidated financial statements have been prepared assuming thatWithout qualifying our opinion, we draw the Company will continue as a going concern. As discussedattention to the situation explained in NotesNote 1 and 2 c. I to the financial statements the delay in obtaining tariff increases and the cost adjustments recognition (“MMC”), requested in the presentations made until now by the Company in accordance with the terms of the Adjustment Agreement (“Acta Acuerdo”) and the continuous increase in operating expenses that are necessaryrelation to maintain the level of the service, significantly affected the economic and financial positionsituation of the Company and raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.Edenor S.A.
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.
Table of Contents
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.
Autonomous City of Buenos Aires, April 30, 2013.March 8, 2016.
/s/ PRICE WATERHOUSE & CO. S.R.L. |
|
Andrés Suarez (Partner) |
F-106F-85
