We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Metrogas S.A. | NYSE:MGS | NYSE | Ordinary Share |
| Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.50 | 0.00 | 01:00:00 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For December 31, 2007
MetroGas Inc.
(Translation of registrant's name into English)
MetroGAS S.A.
Gregorio Araoz de Lamadrid 1360
(1267) Buenos Aires, Argentina
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
METROGAS S.A.
Dated: March, 2008 By: __________________________________
Name: Eduardo Villegas
Title: Finance Director
Free translation from the original financial statements prepared in Spanish for publication in Argentina
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007 AND 2006
Free translation from the original financial statements prepared in Spanish for publication in Argentina
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007 AND 2006
INDEX
Annual Report
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Exhibits A, D, E, F, G and H
Balance Sheets
Statements of Income
Statements of Changes in Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Exhibits A, C, D, E, F, G and H
Summary of Activity
ANNUAL REPORT
To the Shareholders:
Pursuant to applicable legal provisions and to the Company's bylaws, we submit for your consideration the documentation related to the Company's financial statements for the sixteenth fiscal year, ended on December 31, 2007.
During 2007 Argentina's economy has continued consolidating after the crisis triggered in 2001, accumulating high growth rates since 2003.
A competitive exchange rate, a growth in commodities' prices and an increase in fiscal revenues were the pillars of the recovery and the stabilization of economy.
Statistics from 2007 continued showing some variables with a very positive behavior, although some signs of warning showed up.
In this way, primary surplus decreased, as regards GDP, during 2007. At the same time, consumer's prices index increased by 8.5% in 2007 while GDP growth was 8.7% during 2007. A 13% growth in investment shows a deceleration compared to the previous year when it showed a 21% increase basically because of the slower pace of expansion in the construction field.
Within an international context with some degree of uncertainty but with a sustained demand for commodities, the main challenges for 2008 are likely to be related to energetic issues, union pressure and inflation control.
2. COMPANY PROFILE
MetroGAS S.A. ("MetroGAS" or "The Company") is the largest gas distribution company in Argentina in terms of number of customers and of delivered gas volumes. MetroGAS distributes approximately 23% ( *) of the total natural gas supplied by the nine distribution companies licensed after the privatization of Gas del Estado in late 1992, and currently has over 2 million customers in its service area (Buenos Aires City and eleven municipalities in the south of Greater Buenos Aires), a densely populated area including major power plants and other industrial and commercial users.
Due to new regulations, (see Note 8.4 to the primary financial statements), the Board of Directors of MetroGAS decided to constitute MetroENERGIA S.A ("MetroENERGIA") on April 20, 2005; MetroGAS holds 95% of the Common Stock and its objective is to buy and sell natural gas and/or its transportation on its own or on behalf of or associated to third parties.
Natural gas consumption in Argentina has increased by approximately 77% since 1993. In that year consumption was approximately 21,828 MMm3 (million of cubic meters) and it increased to 38,532 MMm3 in 2007 (*). This increase is due to energy substitution by end users, low relative prices compared to other energy sources, an increased capacity of major gas pipelines and the expansion of distribution networks.
Argentina's proven gas reserves amount to 446,156 MMm3 (**), with a 9-year supply guarantee. There are 19 known sedimentary basins in the country, 10 of which are on-shore, 3 are off-shore and 6 are both on and off-shore. Production is concentrated in 5 basins: the Northwest basin; the Neuquén and Cuyo basins in central Argentina; Gulf of San Jorge and Austral basins in the south of the country. In 2007, the estimated annual production of natural gas reached 50,994 MMm3 (***) mainly coming from the Neuquén basin. Approximately 69% of all gas purchased by MetroGAS during 2007 came from the Neuquén basin and the remaining 31% from the Austral and Gulf of San Jorge basins.
(*) According to the latest available information provided by the National Gas Regulatory Authority ("ENARGAS") - December 2007.
(**) According to the latest available information provided by the Energy Secretariat- December 2006.
(***) According to the latest available information provided by the Energy Secretariat- December 2007.
3. ORGANIZATIONAL STRUCTURE
MetroGAS' current organizational structure is as shown below:
4. LICENSE CONTRACT RENEGOTIATION
The Public Emergency and Exchange Regime Reform Law No. 25,561 ("Emergency Law") from January 7, 2002, affected the legal framework in force for license contracts of utility services companies.
The main provisions of the above mentioned law that have an impact on the License duly granted to MetroGAS by the National Government and that modify express provisions of Law No. 24,076 (the "Gas Law") are the following: "pesification" of tariffs that were fixed in convertible dollars at the exchange rate specified in the Convertibility Law (Law No. 23,928), the prohibition of tariff adjustments based on any foreign index, thus not allowing the application of the international index specified in the Regulatory Framework (US Producer Price Index-PPI), and the government's unilateral decision to renegotiate the license granted to the Company in 1992.
Furthermore, the Emergency Law established the beginning of a renegotiation process of utility contracts granted by the National Executive Power ("PEN") without prejudice to the requirements that utility services companies should go on complying with all their obligations. The process began on February 12, 2002 when the PEN
issued Executive Order No. 293, through which the Ministry of Economy and Production ("ME") was entitled to carry out the renegotiation, and who, by issuing Resolution No. 20/2002, stated the conditions to be followed for such process. On February 22, 2002, the PEN issued Executive Order No. 370 appointing the members of the Committee for Public Works and Services Contracts Renegotiation ("CRC").
On July 3, 2003, by means of Executive Order No. 311/03, the "Unit for the Renegotiation and Analysis of Utility Contracts" ("UNIREN") was created, aiming at giving advice during the renegotiation process of public works and services contracts and developing a regulatory framework common to all public services. The UNIREN continues the renegotiation process developed by the previous CRC.
During 2002 and 2003, although MetroGAS strictly complied with the submittance of all information required, although the very reports made by the CRC and the UNIREN stated that the gas sector posed no difficulties as to the execution of license contracts and the compliance of conditions and obligations committed, and although licensees, among them MetroGAS, complied with the necessary conditions to continue with the process of renegotiation, it was not possible to go beyond Phase II (submittance of information) of such process.
A temporary tariff increase established by the PEN through Executive Orders No. 2,437/02 and No. 146/03 was not even implemented due to different legal proceedings.
Although there was an exchange of proposals between the parties and the National Government the process is still delayed and 2004, 2005 and 2006 went by without being possible to achieve an agreement.
The Emergency Law, which was originally to be due in December 2003, was extended consecutively by the approval of different laws, up to December 31, 2008. As a consequence, the renegotiation terms for licenses and concessions
of utility services were also extended.
During 2007, several draft copies with proposals were exchanged with the UNIREN in order to reach an agreement, but unfortunately, up to this date, it has not been possible to reach the necessary consensus that may satisfy both the interests of the National Government and the ones of the Company and its shareholders.
5. REGULATORY FRAMEWORK
The ENARGAS regulates the distribution of natural gas. Its jurisdiction is extended to transportation, sale, storage and distribution of natural gas. Within its sphere of responsibilities, according to what is expressed in the Gas Law, it includes protecting customers, paying attention to the competence in the gas supply and demand and encouraging long-term investments in the industry.
During 2007, MetroGAS continued with its best efforts to maintain a relationship with the ENARGAS so that both could comply with their corresponding responsibilities and thus result in a better service for the users.
In line with the regulatory changes that were made in the gas sector as from the issuing of Excecutive Orders No 180 and No 181 in 2004, dated on December 22, 2005, the Energy Secretariat ("ES") passed Resolution No. 2,020/05. Such resolution established a schedule to start purchasing natural gas in a direct way for General Service "P" customers and CNG stations. This process was called "gas unbundling".
The schedule stipulated that: a) users with consumptions (during the period April 2003- March 2004) equal or over 30,000m3/month and up to 150,000m3/month had to purchase gas in a direct way as from January 1, 2006,
b) users with consumptions (during that same period) equal or over 15,000m3/month and under 30,000m3/month had to purchase gas in a direct way as from March 1, 2006, c) users with consumptions (during the same period) over 9,000m3/month and under 15,000m3/month do not have a specified date yet for the purchase of gas in a direct way and d) as regards CNG stations, they had to purchase gas in a direct way as from March 1, 2006 (afterwards extended up to April 1, 2006 through Resolution No. 275/06 ).
Moreover, such Resolution excluded non-profit civil associations, labor unions, trade associations or mutual benefit associations, health institutions and private or public educational institutions from the spectrum of customers that as from the stated dates have to acquire natural gas directly from producers and/or marketers.
Additionally, Resolution No. 2,020/05 established a set of restrictions for representing CNG stations in the purchase of natural gas, in order to limit possible vertical associations among people from the gas industry and stipulated a Mechanism for Assigning Natural Gas to CNG stations, through which, CNG stations get natural gas by means of an offer and demand system within the Electronic Gas Market ("EGM").
In this context, the process of conforming MetroENERGÍA as a natural gas trading company was finished during 2005, in order to keep the biggest number of customers as possible and count on a proper tool in accordance with the new scenario where the Company has to perform.
During 2007, MetroENERGÍA, society controlled by MetroGAS and authorized by the ENARGAS to act as a natural gas trading company and/or gas transporting company, and registered as an agent of the EGM, entered into contracts for supplying natural gas with different producers in order to supply customers who have to purchase gas from third-party suppliers. In the same way, MetroENERGÍA entered into contracts for natural gas supply with large customers, electric power plants and customers from General Service "G" and from General Service "P", with consumption not only in the MetroGAS distribution area but also in the rest of the country. Actions carried out through MetroENERGÍA allowed to retain most of the industrial and commercial customers duly contemplated in the "unbundling" process, thus being able to maintain the participation of this category of customers within MetroGAS sales portfolio.
Dated February 28, 2006, the ES issued Resolution No. 275/06, which modified Resolution No. 2,020/05 and stipulated a mechanism for assigning natural gas to CNG stations. These modifications are related to: (i) the extension, up to April 1, 2006, for CNG stations to purchase gas in a direct way, (ii) the limitation, up to April 30, 2007, of the effective date of CNG bargain and sale contracts to be signed as from April 1, 2006, (iii) the obligation, of gas distribution service companies to represent CNG stations during the different sale processes when assigning natural gas to CNG stations, just for the first time that the procedure established for CNG purchase in the EGM is performed. This last obligation on the part of distribution companies was afterwards extended over the different sale processes carried out within the mentioned assignation mechanism.
Moreover, on February 14, 2006 the National Government signed an agreement made between natural gas producers and CNG stations to freeze current prices for CNG until December 31, 2006, which is going to be reviewed every other month and in effect as long as there is no increase on operative and /or salary costs. The said agreement was afterwards extended up to December 31, 2007.
During March, June and September 2006 and May 2007, auctions were carried out within the EGM so that CNG stations could purchase natural gas from producers and according to volumes assigned by the EGM.
On September 22, 2006 Energy Secretariat issued Resolution No. 1,329/06, by which the following aspects of the industry were regulated: (i) specifies the different concepts that conform natural gas global volumes that producers commit to inject into the transportation system, (ii) sets a priority regime regarding nominations and natural gas nominations' confirmation to be complied with by producers and transportation companies, contemplating a penalty for non-fulfillment of their duties, (iii) categorizes as uninterruptible the "initial minimum reserve" of CNG stations operating in February 2004, (iv) incorporates a mechanism through which natural gas distribution companies will have to register unbalanced volumes resulting from the consumption of CNG stations that are below the distribution companies' nominations; being those unbalanced volumes then invoiced by the corresponding producers to the distribution companies at CNG price, or else compensated between them in the sphere of bargain and sale agreements that they may have in force, and (v) enables natural gas distribution companies to use specific natural gas volumes included in natural gas bargain and sale agreements that users enter into in a direct way with producers, under certain conditions.
Furthermore, regarding the so called "trust charges" that natural gas distribution companies charge their industrial customers and thermoelectric generators (and CNG stations , only in the case of trust charges I) on behalf and order of Nación Fideicomisos S.A, according to the provisions that created and ruled them (among others, Law No. 26,095, EP Executive Order No 180/2004 and No. 1,216/2006, MPFIPyS Resolutions (by the Ministry of Federal Planning of Public Investment and Services) No.185/2004, No. 2,008/2006 and No. 409/2007, ENARGAS Resolution No. 3,689/2007 and ENARGAS Notes No. 6,398 /2007, No. 4,381/2007, No. 808/2007, No. 1,989/2005 and No. 3,937/2005), there are cases of MetroGAS' customers that being compelled to pay such charges have resorted to justice in order to determine such charge as unconstitutional and ask for a non-innovative precautionary measure until a solution is found. In some cases, justice has effectively granted the requested precautionary measures, compelling MetroGAS not to invoice and collect such charges. MetroGAS has been complying with this measure up to this date.
On July 6, 2007 the Secretariat of Interior Commerce from the Ministry of Economy and Production started administrative proceeding tending to impose a temporary intervention over MetroGAS. This was performed within the framework of the Law of Supply and Speculation Control No. 20,680 and assuming that the Company had performed against the law when cutting natural gas consumption to a number of industrial customers under certain terms and conditions. Finally, the Secretariat of Interior Commerce decided not to impose such temporary intervention over MetroGAS.
Should be highlighted that the decision adopted by MetroGAS in relation to the restriction of the supply of natural gas to certain natural gas supplies to industrial customers was in strict compliance with the applicable legal framework and, specifically, to the decisions in this respect adopted by the Emergency Executive Committee, called and acting pursuant to the Internal Ruling of Supply Centers approved by ENARGAS Resolution No. 716/1998 with the Energy Secretariat and ENARGAS taking part in the meetings held on 3 and 5 of July 2007 and aiming at guaranteeing natural gas supply to uninterruptible customers.
Finally, it is worth mentioning that the proliferation from certain municipalities of the Province of Buenos Aires of claims regarding levies for different concepts has continued. Moreover, in many cases there is no specific service and /or it is excessively onerous. The Regulatory framework in force and duly applicable contemplates the passthrough to tariff of any new tax or levy or any rate increase and, under certain conditions, the free use of public space concerning the laying of natural gas pipelines. Notwithstanding this, and without prejudice of the many requests presented by MetroGAS, as of the date of issuance of these financial statements the ENARGAS has not authorized any reallocation on tariffs of the payments made to the municipalities regarding this concept.
6. CORPORATE GOVERNANCE
6.1 Authorities
At MetroGAS' Meeting of Shareholders and Board Meeting, both on April 27, 2007 Mr. Jorge E. Verruno was again appointed Company President, being an independent member. Mr. Roberto Daniel Brant was appointed 1st. Vice-president and Mr. Vito Sergio Camporeale 2 nd Vice-president of the Company.
On July 6, 2007, the General Director of the Company, Mr. Roberto Daniel Brant requested a license until July 20, 2007, consequently the Board of Directors appointed Mr. Sergio Vito Camporeale in his place during such period. Moreover, dated on July 18, 2007 the Board of Directors accepted an extension to Mr. Roberto Daniel Brant's license until December 31, 2007 and his resignation to the position of Director and First Vice president of the Company. MetroGAS' Board of Directors appointed Mr. Andrés Cordero as First Vice President and acting General Director until December 31, 2007; who on December 20, 2007 was confirmed as General Director by the Board of Directors.
MetroGAS' Audit Committee is composed of three independent Directors, thus the Company complies with local and international provisions in force related to the good corporate governance.
6.2 Decision Making and Internal Control System
The Company encourages delegation of authority, thus allowing quick and efficient replies to every activity, at the same time there is a clear and explicit definition of the scopes of such delegation by setting limits of approval implemented in a systematized way, which minimize risks.
Furthermore, MetroGAS has an Internal Audit area whose mission is to guarantee the Board of Directors, the Audit Committee, the Directorate Committee and the managerial level of the Company that there are effective and efficient processes of internal control to identify and handle the business' risks.
The existence of standardized processes, administrative proceedings, fluid communications, regular issuing of reports on management planning and control, performance assessments, within the framework of policies set by the Directorate Committee, consolidate the internal control system, give reasonable certainty of achieving objectives, provide reliable financial information and ensure the compliance of regulations in force.
6.3 Sarbanes-Oxley Law
MetroGAS is registered in the New York Stock Exchange and is compelled by requirements from the Securities and Exchange Commission ("SEC"). For that reason, the Sarbanes-Oxley Law is applicable to the Company's procedures. This Law, which was passed aiming at providing reasonable reliability for accounting and financial information, requires the CEO and the Director of Administration and Finance to sign an annual certification, where they state, among other things, that they are responsible for establishing, keeping and monitoring an appropriate internal control structure, making an annual report on the effectiveness of this internal control when issuing financial statements. Furthermore, external auditors have to express an opinion about this too. MetroGAS has already complied with the sections of this law applicable as from fiscal year ended on December 31, 2002 and will have to comply with the provisions regarding opinions about internal control on the issuing of financial statements on December 31, 2007. On the other hand and in virtue of the last due date extensions, External Auditors will have to express their opinion on the issuing of financial statements on December 31, 2008.
In order to comply on due date with all requirements stated by this Law, MetroGAS has conformed a working team with personnel from the Administration and Finance area and from the Legal area, also counting on a high cooperation from the people responsible for processes of all the areas within the Company. Moreover, the Company has hired the services of Ernst & Young as a consultant to assist in the assessment of control and implementation of improvements.
The project is focused on the assessment of internal controls over the issuing of accounting information. As of this date, MetroGAS has performed the survey and documentation of processes, risks and controls, the assessment of the design and operation of controls and has implemented many remedy plans. During the next fiscal year MetroGAS will continue with the survey and documentation of new processes or of processes that had been changed, the assessment of control design of those processes, operation tests of controls and the implementation of remedy actions over all weaknesses found.
6.4 Policy of Compensation to the Board of Directors and to Managerial Staff
Compensation to the Board of Directors is fixed by an Ordinary Meeting of Shareholders.
As of December 31, 2007, the compensation policy for managerial staff consists of a monthly fixed payment and a variable payment based on the fulfillment of objectives fixed on annual basis. The compensation policy neither provides for option plans over the Company's shares nor for long-term incentives.
7. DESCRIPTION OF OPERATIONS
7.1. Commercial Policy, Company, Financial and Investment Planning
According to the economic context and provisions issued by the National Government which include the modification of the standards of MetroGAS' Regulatory Framework, the Company decides to focus its efforts on ensuring the business continuity, keeping the quality and reliability of all gas supply, complying with the License's basic rules, and finally based on the results of the renegotiation of the License Agreement, MetroGAS will define its strategy towards the future and matters such as company planning, commercial policy and development of the investment plan.
7.2 Gas purchase and transportation
In order to satisfy natural gas supply needs, the Company operates with the following suppliers: YPF, Total Austral, Wintershall Energía, Pan American Energy, and other producers from Tierra del Fuego, Neuquén and Santa Cruz.
On June 14, 2007 resolution No. 599/2007 from the Energy Secretariat was published in the Official Bulletin thus giving official approval to the "2007-2011 Agreement with Natural Gas Producers", afterwards being ratified by some natural gas producers; as a result the enforcement of such Agreement was a fact. Basically, the 2007-2011 Agreement stipulates: i) volumes to be injected at points of entry into the transportation system by natural gas producers for residential and commercial users, industries, power plants and CNG stations up to December 31, 2011 (although with different contractual terms according to the user segment), ii) parameters for graduated and particular adjustment of prices according to users' segments, and iii) mechanisms to redirect and additionally inject natural gas in order to meet the demand of the domestic market, if it were necessary and in the face of supply shortage. In virtue of 2007-2011 Agreement, natural gas producers and distributors will have to celebrate natural gas bargain and sale
agreements in accordance to provisions stipulated in such agreement. As of the present financial statement, the Company has not entered into any of these agreements because, to the best of its knowledge, all offers to enter into agreements received from natural gas producers would not respect the terms of the 2007-2011 Agreement and besides, according to contemplated volumes, would not allow MetroGAS to ensure natural gas supply to its uninterruptible customers.
Agreements that were originally due on December 31, 2006 were kept under the same conditions, including prices, until July 31, 2007. As from August 1, 2007, on the basis of what was stipulated in the 2007-2011 Agreement and in virtue of different notes from the Sub-Secretariat of Fuels and of letters from the EGM, all volumes fixed under such Agreement were put in force in the form of supply arrangements, every time no agreements are entered into with producers.
Due to the fact that MetroGAS considers that the volumes, injection basins and transportation routes stipulated under 2007-2011 Agreement would not allow to meet the demand of uninterruptible customers, the Company has made some presentations before the ENARGAS, the Energy Secretariat and the Sub-Secretariat of Fuels aiming at setting forth such situation and requesting a solution.
As of December 31, 2007, firm transportation volumes contracted up to the City Gate of the service area of MetroGAS amounts to 23.6MMm3/day. To recover heat value, after obtaining by-products, there is 0.41 MMm3/day of firm transportation capacity contracted up to Bahía Blanca. Besides, there is 0.55 MMm3/day of firm transportation capacity contracted from Tierra del Fuego up to Santa Cruz.
7.3 Customers and Market
The Company's economic results are highly influenced by weather conditions. The demand for natural gas and, in consequence, MetroGAS' sales and profits, are considerably higher during winter time (May to September).
A summary of the Consolidated Statements of Income for the fiscal years ended December 31, 2007 and 2006 is included below in order to reflect MetroGAS' seasonal variation of sales and its level of annual profitability.
|
2007 (thousands of pesos) |
||||||||||
|
For the quarters ended on |
||||||||||
|
03-31 |
06-30 |
09-30 |
12-31 |
Total fiscal year |
||||||
|
Net sales |
198,732 |
267,948 |
278,905 |
210,268 |
955,853 |
|||||
|
Gross profit |
54,242 |
92,474 |
78,844 |
58,511 |
284,071 |
|||||
|
Operating income |
21,310 |
51,853 |
39,324 |
10,237 |
122,724 |
|||||
|
Income (loss) before income tax |
(5,620) |
35,433 |
(9,573) |
(9,007) |
(11,233) |
|||||
|
Net income (loss) |
(6,268) |
36,503 |
(7,742) |
(6,706) |
15,787 |
|||||
|
2006 (thousands of pesos) |
||||||||||
|
For the quarters ended on |
||||||||||
|
03-31 |
06-30 |
09-30 |
12-31 |
Total fiscal year |
||||||
|
Net sales |
199,304 |
228,468 |
251,139 |
194,982 |
873,893 |
|||||
|
Gross profit |
60,371 |
78,836 |
66,145 |
42,958 |
248,310 |
|||||
|
Operating income (loss) |
29,766 |
45,500 |
30,043 |
6,952 |
112,261 |
|||||
|
Income (loss) before income tax |
(23,664) |
486,541 |
(8,089) |
(9,212) |
445,576 |
|||||
|
Net income (loss) |
(24,655) |
331,616 |
(6,206) |
(8,202) |
292,553 |
|||||
As mentioned above, MetroGAS provides distribution service to over 2 million customers within its service area, approximately 65% of which are in the Autonomous City of Buenos Aires.
Sales to residential customers in 2007 and 2006 totaled 23.5 % and 20.3 % of sales volume, respectively, and approximately 44.2 % and 42.7 % of net sales.
Sales to residential customers increased 13.3%, from Ps. 373,161 thousand in 2006 to Ps. 422,632 thousand in 2007, mainly due to a 17.7% increase of the volume delivered to this category of customers, as a consequence of lower average temperatures registered during fiscal year 2007, compared to the previous fiscal year.
MetroGAS depends strongly on its sales to electric power plants to maintain a high utilization of its firm transportation capacity (Load Factor), especially during warmer months, when residential consumption is reduced. Among its customers MetroGAS has electric power plants with 44% of the total thermal power generated in the country's wholesale electricity market.
Since 1993 electric power plants have implemented an investment program that involves the replacement of generating units by new technologies called "combined cycles", which imply a much lower generation cost.
The following combined-cycle plants are operating within MetroGAS' service area: Central Térmica Buenos Aires, since 1995; Central Costanera, since 1999; Central Puerto, since 1999 and Central Dock Sud since March 2001. Moreover, MetroGAS provides transportation to the marketer that renders such service to A.E.S. Paraná that launched its combined-cycle plant to the market in November 2001; thus improving the utilization of its transportation capacity.
A strong increase in the demand for electricity which started in 2003, continued during 2007. This fact, together with a supply shortage due to the lack of new combined-cycles since 2001, led to a big dispatch from the pool of thermal generation plants of MetroGAS' area, not only of combined-cycles but also of open-cycled steam turbines.
Sales of the transportation and distribution service to electric power plants in 2007 and 2006 accounted for 43.5 % and 47.7% of delivered gas volume, respectively; showing an increase in summer and a decrease in winter during 2007, as a result of transportation being less available due to a harder winter and a higher government involvement regarding gas delivery, that limited generating electricity from natural gas.
Gas sales and sales of the transportation and distribution service to industrial and commercial customers and public entities accounted for approximately 17.6% and 16.8% of the Company's sales volume in 2007 and 2006 respectively. This increase is mainly because gas volumes delivered to this category of customers went up by 20.2% as a result of a higher level of economic activity.
During 2007 all supply contracts with industrial customers, which expired during that same year, were renewed. According to preventive measures taken in the face of winter 2007, the policy developed in 2006 was still continued; this policy includes options that allow a more operational flexibility in the face of potential supply difficulties, extending this concept to all contracts to be renewed during that year.
Allied to the objectives set for 2007, and regardless of the existing conditions of gas availability and transportation, MetroGAS has been able to continue in good terms with industrial customers as well as in the market of Small and Medium sized companies ("PYMES") and of commercial customers. As in the previous year, the general market conditions kept on generating an increase in the demand for natural gas, besides the enlargement of existing plants and the development of new businesses and projects that, except specific cases, do not represent demands for significant volumes.
The CNG market represented approximately 7.1% and 8.0 % of the Company's sales volume during 2007 and 2006, respectively.
During 2007, the deregulation of gas purchase at wellhead for CNG stations continued; it was introduced into the market through Executive Order No. 275/2006 (complementary to Executive Order No. 2020/2005). To this regard, through MetroENERGÍA, it was possible to continue with the agreements with many natural gas producers for administering their sales commitments in this segment; furthermore not only the number of producers hiring the service was increased, but also the administered volume.
7.4 Operation of the distribution system
Although the crisis broken at the end of fiscal year 2001 is still strongly conditioning the Company's operating activities, MetroGAS continues managing its resources, prioritizing the system's security and reliability.
Just like since 2002, MetroGAS was forced to keep on suspending investments on expansion of the distribution system (K factor works). However, and as a result of a severe modification of relative energy prices, as from 2002 the Company had to face an increasing supply demand, which is stabilized at present. During this year, approximately 19,900 new services were laid and the control of the construction of 52.0 Km of works financed by third parties was made.
Moreover MetroGAS has completed the third stage of the assets integrity project, being currently operative by means of an annual plan of improvements. This methodology's main objective is to secure a systematic management of the critical tangible assets corresponding to the distribution of gas and the risks associated to them along the whole cycle of their useful life. Among the main achievements it is worth mentioning the updating of all existing risk models for the evaluation of assets, the reformulation of inspection and maintenance plans of pressure regulating stations, giving priority to the activities and their execution frequency focusing on minimizing risk and completing the process of competence assessment of the operative staff.
Based on risk models previously mentioned, MetroGAS planned and implemented the replacement of 49.8 Km of low-pressure mains with their associated services.
The Company continues carrying out the Risk Based Maintenance plan (RBM or "Risk Based Maintenance"), by which it aims at minimizing risks related to the operation and reliability in pressure regulating stations. Twelve of these stations have already been adjusted during this year.
During the year the Company also carried out works to backup the distribution system, aiming at guaranteeing the reliability of gas supply.
Aiming at improving the Company's low-pressure system operation, through a quicker and stricter control of supply pressures, MetroGAS went on executing the project "Tele-control of Profiling Units in Regulating Stations". In this way, 15 new plants with distance control and 9 border net points with telemeasurement were incorporated during 2007. Therefore, 75% of the total number of stations for decreasing pressure from the Company's low-pressure system has telecontrol profiling units to control pressure.
Additionally, and being an action contemplated in the preventive maintenance plan, MetroGAS completed an inspection type DCVG (Direct Current Voltage Gradient) of 180 Km of the Company's high-pressure system, aiming at identifying potential failures in the installations. During 2007 16 definite repairs were carried out in the high- pressure system.
Regarding corrective maintenance of the system, more than 14,700 residential services and more than 16,000 meters have been replaced, among other actions intended for short-term maintenance of the distribution system.
The emergency call center registered an annual volume of approximately 59,200 claims, mainly about gas leaks, from which about 7,860 were classified by the Company as high priority. All these claims were taken care of in situ within two hours of the call and 98 % within an hour of the call being received, exceeding the ENARGAS' indicator that compels the company to take care of 95% of high priority calls within an hour of the call being received.
The coordination and execution of more than 57,600 gas supply cuts and supply reinstallation contributed to a better control of the levels of indebtedness and illicit actions.
Regarding materials and services supply, MetroGAS has continued with its effort to hold back possible cost increases , implementing, among others, different actions orientated towards optimizing existing agreements.
7.5 Capital investment
In order to mitigate the impact of the crisis on MetroGAS' financial position, the Company has optimized its capital investments, reducing them to levels that are compatible with the business continuity and the supply of a safe service in a short term. Detailed information on this issue is found in Exhibit "A" of the financial statements.
The total accumulated amount of investments made by MetroGAS during its sixteen years of operation amounts to approximately US$ 598 million.
7.6 Customer Care and Services
All working patterns followed in 2007 were the same ones as in previous years; this caused MetroGAS' activity to focus on the following goals:
In this context it is worth pointing out that there was an increase in all activities related to Customers Incorporation, with 4% growth in presented feasibility analysis and 5% in inspection requests, while incorporations showed a 4% increase compared to the previous year, amounting to 51,795 new customers.
Claims received from our customers during 2007 amounted to 25,642, this means a 13% increase compared to the claims received during 2006. As part of a process of continuous improvement, there were daily quality controls on generation, handling and resolution of claims during the whole year.
The Company continued incorporating new channels and means of collection through the telephone and Internet. In this way, automatic payment by means of IVR (Interactive Voice Response) was implemented with credit cards, 24 hours a day, 365 days a year.
Other activities performed, not only to improve customer care in general but also to optimize costs, were:
7.7 Human resources
Company headcount as of December 31, 2007
, totals 1,014 employees, from which 5 of them belong to MetroENERGÍA. MetroGAS continued prioritizing the redistribution of functions, the stability of personnel with seniority and a conservative handling of the budget.
Considering the variations in the cost of living and salary changes in the market, MetroGAS implemented an average increase of 15% to all the Company's personnel. This increase was granted in three stages during June, October and December.
Moreover, during this year a new collective agreement was signed with STIGAS union, in force from march 1, 2007 to February 28, 2009.
Regarding health plans significant efforts
were made to maintain medical service costs without deteriorating the level of professional service. Besides, the corporate health plan encourages sports activities to lead a healthy life; therefore the company offers to all employees medical advice and physical training provided by qualified people to participate in sports activities.
Within the area of communication
, we continued with breakfast meetings with the personnel, programmed visits to different locations of the Company and the practice of cascade communication .
As regards development, skills improvement and technical training, among the different activities carried out we can point out the ones regarding academic development to update the knowledge and skills of much of the staff -with high potential and listed in replacement schemes- at well-known educational institutions, as well as the ones regarding staff participation in self-development activities provided by the Company. Moreover, we focused on educating users for the launching of different technological projects and the updating of operative knowledge about new products by means of courses delivered by suppliers and producers. On the other hand, more than 20% of the participants to the Educational Continuity Program got their degree as a result of finishing their high school studies.
As regards employment, Technical and Professional Programs were re-launched, these strengthen and diversify the organization's talent and besides, different vacant job positions were filled resorting to the application of candidates within the company itself.
At the same time, as regards contribution to the community, MetroGAS continued implementing educational programs at two Technical schools, to educate big groups of public officials from the GCBA (Buenos Aires City Government) and also of registered installers
. Moreover, information on safety work activities was spread among other prestigious companies from the market by training their staff at the Technical Training Center of Llavallol.
7.8 Health, Safety and Environment
During 2007, MetroGAS' achievements surpassed the objectives proposed by the "Security Program based on Behavior" (Programa de Seguridad basado en Comportamientos) implemented in 2003. In an effort of continuous improvement, some measures were implemented in order to prevent accidents on the basis of observations made, by its own staff as well as by contractors.
During the current fiscal year MetroGAS received the First Prize on the category denominated "Performance on Security" given by BG Group ("BG"), for presenting the piece of work "Beyond zero accidents" (Más allá de cero accidentes); being in this way recognized for having worked 16.5 hours without a single accident with days loss since May 12, 2004.
Through the Insurance Department, MetroGAS negotiated in 2002 with Consolidar ART the inclusion in the agreement of a Profits Participation clause. As a consequence of the reduction in the number of accidents due to the said clause, approximately Ps. 20,000 was recovered in January 2007, being this the second consecutive period in which the company gets such recognition.
As regards the Management System of Security Health and Environment certified under ISO standards 14001 and OHSAS 18001, some activities were carried out aimed at retaining the certification obtained through internal audits and an external audit carried out by Det Norske Veritas in March. As a result of the high level of compliance, the said standards were certified by Det Norwke Veritas for the next 3 years.
Moreover, MetroGAS received a special award granted by the president of BG Group in March, as recognition of its "Security Performance".
Finally, the Argentine Congress on Work Hygiene and Security took place in April, and MetroGAS was chosen to carry out the activities regarding next year's congress, at the Technical training Center in Llavallol.
7.9 Institutional Relationship
The hardest winter for the last 50 years was registered during 2007. Taking into account the pre electoral context and such a cruel winter, the Company was highly exposed to the public opinion.
During the first "cold spell" of the year, the Company's exposure through the different means of communication grew by 220% compared to its monthly average. However, 66% of the articles about MetroGAS were neutral as regards the Company's public image.
Restraint activities to this regard lead to excellent results, as it is depicted in the public opinion survey conducted by Poliarquía Consultores within our service area. In this way, only 15.7% of the people surveyed made distributing companies responsible for the crisis. Moreover, the surveys requested to "Centro de Estudios Unión para la nueva Mayoría" up to December 2007, show 72% of positive answers regarding MetroGAS' image before the public opinion, such percentage goes far beyond the one achieved by most of the public utility services companies.
At every moment, the Company continued to have direct and fluid communication with national and municipal authorities, authorities from the business sector and the community, and with the public in general through the press, in order to avoid misunderstandings regarding such circumstances at any of the mentioned levels.
To that same purpose, the Company had a close communication with the authorities of the Government of the Autonomous City of Buenos Aires and with each of the municipalities where MetroGAS is present in order to channel and solve each of the problems that arouse, may them be specifically technical-operative or regarding rates and taxes.
On the other hand, communicational campaigns were led to avoid fraud, to heighten public consciousness on the need to prevent accidents from carbon monoxide and to avoid damages in the street.
7.10 Community Service Activities
In 2007, MetroGAS continued having an active presence in the community, in a direct way or by means of Fundación MetroGAS and its Corporate Volunteer Program.
The main objective of Fundación MetroGAS' work this year was training; not only regarding security but also the one directed to young people in connection to their insertion in the labor market.
During 2007, more than 400 fire fighters from the Federal Police were trained as regards fire fighting and confined spaces evacuation, at the Technical Training Center (CET) in Llavallol and some courses were imparted to voluntary firefighters from Lanús Este, Lanús Oeste and Villa Echangucía, and to the staff from the Secretariat of Emergencies of the Autonomous City of Buenos Aires.
As regards education, Fundación MetroGAS continued with the support programs to the technical school and its workshops on telephone assistance carried out together with Servicios de Empleo from de AMIA (AMIA's employment service); more than 100 youths attended these. The Therapeutic Orchard of the "Hospital Pedro Elizalde" was also continued and a soccer school for more than 60 deprived children run by the Parroquia Navidad de María was sponsored.
Moreover, Fundación MetroGAS kept financing the Corporate Volunteer Program, supporting its activities for the benefit of the community.
With the collaboration of the employees from the Commercial Offices the campaign to sell Christmas cards was carried out for the fifth consecutive year, to collaborate with the Damas Rosadas ONG ("non-governmental organization") that helps Materinidad Sardá and Hospital Rivadavia. During November and December 2007, such effort resulted in a record figure of approximately Ps. 69,000.-sum which is going to be spent for buying a neonatal ecographer for babies in the intensive care unit.
Finally, it was very well accepted all recovery work of industrial assets of the gas distribution network carried out by the Fundación, that made it possible to present a number of adds depicting its activities from the very start up to these days, at the Expo Argentina Oil & Gas (Argentine Oil & Gas Exposition), that took place in October 2007 at the Rural.
8. DIVIDEND POLICY
In the past, subject to the Company's results and other relevant factors, the Board of Directors of MetroGAS recommended to pay dividends, during the last quarter of each year, on a temporary basis, and in case of the Ordinary Shareholder's Meeting, the final dividend, within limits set by the Argentine Corporations Law and considering all restrictions established in the debt issue prospectus.
As from fiscal year 2002, and up to date, the Company maintains unappropriated accumulated deficit. For that reason, as from that moment there has been no distribution of dividends, and in the future, they will not be able to be distributed unless all losses from previous fiscal years are covered, in accordance to what is stipulated by the Argentine Corporations Law.
9. COMMON STOCK STRUCTURE
Common Stock as of December 31, 2007 is composed of 569,171,208 common shares classified in three different categories; Class "A", "B" and "C", each having a one peso par value and entitled to one vote per share.
|
Classes of shares |
Subscribed, registered and paid-in |
|
Thousands of Ps. |
|
|
Class "A" |
290,277 |
|
Class "B" |
221,977 |
|
Class "C" |
56,917 |
|
Common Stock as of December 31, 2007 |
569,171 |
The total number of Class "A" shares, representing 51% of the Company's Common Stock is owned by Gas Argentino, and their transferability is subject to the approval of the regulatory authority.
Class "B" shares represent 39% of the Common Stock. Of such percentage, 19% is owned by Gas Argentino since the privatization process. The remaining 20% was sold at public offering and is owned by approximately 1,150 investors.
Class "C" shares which represent 10% of the Common Stock, were assigned during the privatization process to the Employee Stock Ownership Plan (-PPP-Programa de Propiedad Participada); the beneficiaries were employees from Gas Del Estado transferred to MetroGAS, who continued working for the Company up to July 31, 1993, and who chose to participate in the above mentioned plan.
Dated December 7, 2005, Gas Argentino entered into an agreement to restructure its financial debt with all of its creditors, funds administered by Ashmore ("Fondos Ashmore") and by Marathon ("Fondos Marathon"), by means of which Gas Argentino will cancel all of its liabilities related to such debt in exchange for issuing and/or transferring, by the current shareholders of Gas Argentino, ordinary shares of the said company representing 30% of its Common Stock post-issuing to Fondos Ashmore and transferring 3.65% and 15.35% of MetroGAS' Common Stock, owned by Gas Argentino, to Fondos Ashmore and Fondos Marathon, respectively.
Such agreement is, among other conditions, subject to the approval of the ENARGAS and of the Secretary of Interior Commerce with prior agreement of the National Antitrust Committee (Comisión Nacional para la Defensa de la Competencia-"CNDC").
Through Resolution No. 1/097 from September 14, 2007, the ENARGAS approved the transference of shares. The Company is awaiting the resolution by the CNDC and the subsequent approval by the Secretary of Interior Commerce to make such transaction.
10. INCOME ALLOCATION PROPOSAL
The Company's Board of Directors proposes to approve as the Board of Directors' fees the amount of Ps. 687 thousand, which were allocated to the result of fiscal year 2007.
Moreover, the Company's Board of Directors proposes that the Shareholders' Meeting keeps in unappropriated retained earnings the net income for fiscal year ended December 31, 2007, that amounted to Ps. 15,787 thousand in order to partially absorb the unappropiated accumulated deficit that the Company has as of December 31, 2007.
11. ACKNOWLEDGEMENT
The Board of Directors would like to express its deepest appreciation to MetroGAS' personnel for their co-operation in their daily tasks, as well as to its customers, suppliers and creditors for their support and for their confidence in MetroGAS.
Autonomous City of Buenos Aires, Mach 6, 2008.
Andrés Cordero
Vice-President
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
MetroGAS S.A.
We have audited the accompanying balance sheets of MetroGAS S.A. at December 31, 2007 and 2006, and the related statements of income, of changes in shareholders' equity and of cash flows for each of the two years in the period ended December 31, 2007. We have also audited the accompanying consolidated balance sheet of MetroGAS S.A. and its subsidiary at December 31, 2007 and 2006, and the related consolidated statements of income and of cash flows for the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MetroGAS S.A. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in Argentina.
Autonomous City of Buenos Aires, Argentina
March 6, 2008
|
PRICE WATERHOUSE & CO. S.R.L.
By (Partner) |
Carlos N. Martinez
METROGAS S.A.
Legal address: Gregorio Aráoz de Lamadrid 1360 - Autonomous City of Buenos Aires
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007 AND 2006
Fiscal years No. 16 and 15 commenced January 1, 2007 and 2006
Principal activity: Provision of natural gas distribution services
Registration with the Public Registry of Commerce:
By-laws: December 1, 1992
Last amendment: July 29, 2005
Duration of Company: Until December 1, 2091
Parent company: Gas Argentino S.A.
Legal address: Gregorio Aráoz de Lamadrid 1360 - Autonomous City of Buenos Aires
Principal activity: Investment
Percentage of votes held by the parent company: 70%
Composition and changes in Common Stock as of December 31, 2007
Composition
|
Classes of shares |
Subscribed, registered and paid-in |
|
Outstanding: |
Thousands of Ps. |
|
Ordinary certified shares of Ps. 1 par value and 1 vote each: |
|
|
Class "A" |
290,277 |
|
Class "B" |
221,977 |
|
Class "C" |
56,917 |
|
Common Stock as of December 31, 2007 |
569,171 |
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2007 AND 2006
Changes in Common Stock
|
Subscribed, registered and paid-in |
|
|
Thousands of Ps. |
|
|
Common Stock as per charter of November 24, 1992 registered with the Public Registry of Commerce on December 1, 1992 under No. 11,670, Corporations Book 112, Volume A. |
12 |
|
Common Stock increase approved by the Shareholders' Meeting held on December 28, 1992 and registered with the Public Registry of Commerce on April 19, 1993 under No. 3,030, Corporations Book 112, Volume A. |
388,212 |
|
Common Stock increase approved by the Shareholders' Meeting held on June 29, 1994 and registered with the Public Registry of Commerce on September 20, 1994 under No. 9,566, Corporations Book 115, Volume A. |
124,306 |
|
Capitalization of the Adjustment to Common Stock approved by the Shareholders' Meeting held on March 12, 1997 and registered with the Public Registry of Commerce on June 17, 1997 under No. 6,244, Corporations Book 121, Volume A. |
56,641 |
|
Common Stock as of December 31, 2007 |
569,171 |
METROGAS S.A.
CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 2007 AND 2006
METROGAS S.A.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
METROGAS S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - CONSOLIDATION BASES
As a consequence of the constitution of MetroENERGÍA S.A. ("MetroENERGÍA") on April 20, 2005, registered in the Public Registry of Commerce on May 16, 2005, a company in which MetroGAS S.A. ("MetroGAS" or the "Company") holds 95% of the Common Stock (Note 8.5 to the primary financial statements), the Company has consolidated its balance sheets line by line as of December 31, 2007 and 2006 as well as its statements of income and cash flows for the year ended on December 31, 2007 and 2006 with the financial statements of the controlled company, following the procedure established in the Technical Resolution No. 21 of the Argentine Federation of Professional Councils in Economic Sciences ("FACPCE"), approved by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires ("CPCECABA").
The consolidated financial statements includes assets, liabilities and results of the following controlled company:
|
|
Percentage participation on |
|
|
Issuing company |
Capital |
Votes |
|
|
|
|
NOTE 2 - ACCOUNTING STANDARDS
Below are the most relevant accounting standards used by the Company to prepare its consolidated financial statements, which were applied consistently with those for the previous year.
2.1. Preparation and presentation of consolidated financial statements
The consolidated financial statements are stated in Argentine pesos and were prepared in accordance with accounting disclosure and valuation standards contained in the technical pronouncements issued by the FACPCE approved by the CPCECABA and in accordance with the resolutions of the National Securities Commission ("CNV").
Within the framework of the statement of consents made on July 8, 2004 by FACPCE and CPCECABA - which states that in the parties' opinion it would be important to unify technical standards - on August 10, 2005 CPCECABA issued Resolution CD 93/05, through which it adopted the accounting standards approved by FACPCE including amendments thereto as at April 1, 2005.
The adoption of the mentioned standards came into effect for the fiscal years or periods corresponding to fiscal years started as from January 1, 2006. Also, the CNV has adopted the mentioned standards with certain amendments, establishing its applicability for fiscal years started as from January 1, 2006, too.
Modifications introduced by the process of unification of accounting standards have not generated significant effects on the consolidated financial statements of the Company.
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
2.2. Accounting estimates
The preparation of consolidated financial statements at a given date requires that management make estimates and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at the date of issue of the consolidated financial statements, as well as income and expenses recorded during the year. Management makes estimates to calculate, at a given moment, for example, the allowance for doubtful accounts, depreciation, the recoverable value of assets, the income tax charge and the contingency provision. Actual future results might differ from estimates and evaluations made at the date of preparation of these consolidated financial statements.
2.3. Recognition of the effects of inflation
The consolidated financial statements have been prepared in constant currency, reflecting the overall effects of inflation through August 31, 1995. Between that date and December 31, 2001, restatement of the consolidated financial statements was discontinued due to the existence of a period of monetary stability. Between January 1, 2002 and March 1, 2003, the effects of inflation were recognized to reflect the inflation recorded during that period. As from that date, restatement of consolidated financial statements has been discontinued. This criterion is not in accordance with prevailing professional accounting standards, under which consolidated financial statements must be restated until September 30, 2003. The effect of the mentioned professional accounting standards deviation is not significant over the consolidated financial statements as of December 31, 2007 and 2006.
The rate used for restatement of items was the internal wholesale price index ("IPM") published by the National Institute of Statistic and Census.
2.4. Comparative information
Balances as of December 31, 2006 and for the year ended December 31, 2006 disclosed in these consolidated financial statements for comparative purposes, result from the financial statements as of such date.
Certain amounts in the consolidated financial statements for the year ended on December 31, 2006 were reclassified for presentation on a comparative basis with those for the current year-end.
2.5. Valuation criteria
a) Cash and deposits in banks
Have been recorded at its nominal value.
b) Foreign currency assets and liabilities
Foreign currency assets and liabilities were valued at year-end exchange rates.
c) Short-term investments
National Government Bonds ("BODEN") were valued at their market value at the end of the year.
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
Units in common investment funds were valued at their market value at the end of the year.
Saving accounts and fixed term deposits were valued at their nominal value plus interest accrued at the end of the year.
d) Trade receivables and accounts payable
Trade receivables and accounts payable were valued at their nominal value incorporating financial results accrued through year-end, where applicable. The values thus obtained do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued at their spot price at the time of the transaction plus interest and implicit financial components accrued at the internal rate of return determined at each moment.
Trade receivables include accrued services pending billing at year-end.
The line headed PURE corresponds to the Program for the Rational Use of Energy, comprising the recognition of incentives and additional charges for excess consumption. The balance for this item included in trade receivables corresponds to bonuses for consumption and/or additional charges for excess consumption pending billing, while the amount recorded under accounts payable corresponds to additional charges for consumption, to be deposited in the Trust Fund indicated by ENARGAS.
The line headed Transportation Trust Fund within accounts payable corresponds to the collected amounts, pending of deposit.
Additionally to his own behalf, the controlled company, MetroENERGÍA, trades, on behalf of producers and/or third buying parties, natural gas, receiving a fee included under the line headed Sales in the Statements of Income. Trade receivables and accounts payable generated in this way have been valuated following the general criterion above mentioned.
Trade receivables are shown net of the allowance for doubtful accounts, which is based on management's collection estimates.
e) Financial debt
Financial debts resulting from the financial debt restructuring process, corresponding to Negotiable Obligations Series 1 and 2 were valued based on the amounts payables discounted using the market interest rate that reflects at the initial moment of the transaction the evaluation over the time value of the money and the specific risks of the debt.
Financial debts not included in the financial debt restructuring process, corresponding to Negotiable Obligations Series A and B were valued at nominal value plus financial results accrued at the end of the year. Values thus obtained do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued at the sums received, net of transaction costs, plus financial results accrued at the internal rate of return estimated at that time.
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
f) Other receivables and payables
Sundry receivables and payables were valued at their nominal value incorporating financial results accrued at year-end, except for the amounts to be recovered through tariffs included in long term Other receivables which were valued on the basis of the best possible estimation of the sums to be received discounted using the rate that reflects the time value of the money and the specific risks of the receivables; and for the deferred income tax which was valued at their nominal value.
Values thus obtained incorporating financial results accrued through year-end do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued on the basis of the best estimation possible of the sum to receive and to pay, respectively, discounted using a rate that reflects the value time of the money and the specific risks of the transaction considered at the moment of its incorporation to the assets and liabilities, respectively.
The value registered in Other receivables does not exceed its respective recoverable value.
g) Inventories
Warehouse materials were valued at their year-end replacement cost. The value thus obtained, net of the allowance for obsolescence, is less than the respective recoverable value estimated at the end of each year.
h) Fixed assets
For assets received at the time of granting of the License, the global transfer value defined in the Transfer Agreement arising as an offsetting item of contributions made and transferred liabilities restated following the guidelines indicated in Note 2.3. to consolidated financial statements has been considered as original value of fixed assets.
Based on special work performed by independent experts, the global original value mentioned above was appropriated among the various categories of items making up that value, assigning as useful life the remaining years of service estimated by the Company on the basis of type of item, current status, and renewal and maintenance plans.
Assets incorporated to net worth after granting of the License were valued at restated acquisition cost, following the guidelines indicated in Note 2.3. to consolidated financial statements except in the case of distribution networks built by third parties (various associations and cooperatives) which, as established by ENARGAS, are valued at amounts equivalent to certain cubic meters of gas.
Fixed assets are depreciated by the straight-line method, using annual rates sufficient to extinguish their values by the end of their estimated useful lives. Depreciation was computed based on the amount of these assets adjusted for inflation following the guidelines indicated in Note 2.3.
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
The Company capitalizes the portion of operating costs attributable to planning, execution and control of investments in fixed assets. The amounts capitalized during the years ended December 31, 2007 and 2006 amounted to Ps. 2,276 thousand and to Ps. 3,139 thousand respectively.
Gas in pipelines is valued at acquisition cost restated following the guidelines indicated in Note 2.3. to consolidated financial statements.
Net value of fixed assets does not exceed its economic utilization value at the end of the year.
i) Income tax
The Company and its controlled company recognized the income tax charge by the deferred tax liability method, recognizing temporary differences between accounting and tax assets and liabilities measurements.
Deferred tax asset is mainly generated by tax loss carry forward. Deferred tax liability is mainly generated by: i) temporary differences between the accounting valuation and the tax value of fixed assets, mainly due to different depreciation criteria and the treatment of financial results (interest and exchange differences) capitalized under those items and ii) discount of financial debt, valued at their nominal value in accordance with tax purposes.
To determine deferred assets and liabilities, the tax rate in force at the date of issuance of these consolidated financial statements has been applied to the temporary differences identified and tax loss carry forwards.
The following table shows changes and breakdown of deferred tax assets and liabilities:
Deferred assets
|
Estimated loss carry forward |
Trade receivables |
Other liabilities |
Other receivables |
Other |
Valuation allowance |
Total |
|
|
|
Thousand of Ps. |
||||||
|
Balances as of December 31, 2006 |
151,040 |
11,725 |
15,439 |
5,124 |
202 |
(151,040) |
32,490 |
|
Movements of the year |
(121,183) |
2,042 |
1,862 |
4,419 |
(22) |
121,183 |
8,301 |
|
Balances as of December 31, 2007 |
29,857 |
13,767 |
17,301 |
9,543 |
180 |
(29,857) |
40,791 |
Deferred liabilities
|
Fixed assets |
Financial debt |
Other |
Total |
||||
|
|
Thousands of Ps. |
||||||
|
Balances as of December 31, 2006 |
(10,088) |
(29,355) |
57 |
(39,386) |
|||
|
Movements of the year |
1,377 |
3,666 |
219 |
5,262 |
|||
|
Balances as of December 31, 2007 |
(8,711) |
(25,689) |
276 |
(34,124) |
|||
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
Deferred income tax assets generated by the tax loss carry forward recorded by the Company amount to Ps. 29,857 thousand at the end of the year and Ps. 151,040 thousand at the beginning of the year. That tax loss carry forward can be offset against profits for future years, expiring in 2009.
The realization of deferred tax assets, including the mentioned tax loss carry forward, depends on the future generation of taxable profits in those years in which temporary differences become deductible. To determine the realization of assets, the Company considers the projection of future taxable profits based on its best estimation.
Based on management's estimates, MetroGAS recorded a valuation allowance on deferred income tax assets amounting to Ps. 29,857 thousand at the end of the year and Ps. 151,040 thousand at the beginning of the year.
Net deferred assets at the end of the year derived from the information included in the preceding tables amount to Ps. 6,667 thousand. Net deferred liabilities amount to Ps. 6,896 thousand at the beginning of the year.
Below is the reconciliation between income tax expensed and the amount resulting from the application of the corresponding tax rate to the accounting profit before income tax:
Below is the reconciliation between income tax expensed and the income tax determined for fiscal purpose:
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
The Company, in accordance with the new accounting standards, has decided not to recognize the deferred tax liability caused by inflation adjustment on fixed assets to the effects of the calculation of the deferred tax. Had the deferred tax liability been recognized in this item, its value would amount to Ps. 291 million at the end of the year and Ps. 307 million, at nominal values, at the beginning of the year. The difference of Ps. 16 million would have impacted in the result of the year.
j) Minimum notional income tax
The Company calculates minimum notional income tax by applying the current 1% rate on computable assets at the end of the year. This tax complements income tax. The Company's tax obligation for each year will agree with the higher of the two taxes. If in a fiscal year, however, minimum notional income tax obligation exceeds income tax liability, the surplus will be computable as a down payment of income tax through the next ten years.
The Company has recognized minimum notional income tax accrued during the year and paid in previous years as a credit, since it estimates that it could be claimed as payment on account of income tax in future years. That credit is shown under Other non-current receivables and could be computable as a down payment of income tax expiring between the years 2012 and 2017.
k) Severance pay
Severance payments made to employees are expensed as incurred.
l) Balances with related parties
Balances with related parties mainly generated by commercial operations and sundry services were valued based on conditions agreed between the parties.
m) Contingency provisions
Set up to cover labor or commercial contingencies and sundry risks that could give rise to liabilities to the Company. In estimating the amounts and probability of occurrence the opinion of the Company's legal counsel has been taken into account.
Insurance coverage taken out by the Company has also been considered. At the date of issuance of these consolidated financial statements, management considers that there are no elements to determine other contingencies that could have a negative impact on the consolidated financial statements.
n) Shareholders' equity accounts
Movements in shareholders' equity accounts were restated following the guidelines detailed in Note 2.3. to the consolidated financial statements.
The "Common Stock" account has been stated at historical nominal value. The difference between the amount stated in uniform currency and historical nominal value was shown in the "Adjustment to Common Stock" account making up the shareholders' equity.
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
o) Revenue recognition
The Company recognizes sales revenue based on gas deliveries to customers, including estimated gas volumes delivered pending billing at the end of each year.
Volumes delivered were determined based on gas volumes purchased and other data.
p) Statements of income accounts
Statements of income accounts are shown at nominal value, except depreciations of fixed assets that are restated following the guidelines indicated in Note 2.3. to consolidated financial statements.
2.6. Basic and diluted income per share
Basic and diluted income per share is calculated based on weighted average shares at December 31, 2007 and 2006, respectively, amounting to 569,171,208. As the Company does not hold preferred shares or debt convertible into shares, both indicators are equivalent.
2.7. Information by segment
The Company mainly operates in providing gas distribution services and, through MetroENERGÍA, in buying and selling natural gas and/or its transportation on its own, on behalf of or associated to third parties.
Details regarding certain information classified by segment of business, in accordance with the guidelines of Technical Resolution No. 18 of the FACPCE are as follows:
NOTE 2 - ACCOUNTING STANDARDS (Contd.)
Sales operations from MetroGAS to MetroENERGÍA were valued according to tariffs applied by MetroGAS to its commercial operations with third parties under the legislation in force.
In turn, there is a Professional Service Agreement between MetroGAS and MetroENERGÍA for the provision of administrative, accounting, tax, financial, legal and all other services related to the normal development of MetroENERGÍA's operations. This agreement was valued under reasonable market conditions for this type of services.
NOTE 3 - ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS
Details regarding the significant amounts included in the accompanying consolidated financial statements are as follows:
NOTE 3 - ANALYSIS OF THE MAIN ACCOUNTS OF THE CONSOLIDATED FINANCIAL STATEMENTS (Contd.)
NOTE 4 - DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES
The due dates of investments, receivables and payables are as follows:
NOTE 4 - DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES (Contd.)
Investments bearing interest according to the following detail: 1) "BODEN" at an annual rate of 4.00% and 1.06% as of December 31, 2007 and December 31, 2006 respectively 2) fixed term deposits at an annual average rate of 9.50% as of December 31, 2006 and; 3) common investment funds with an average annual yield of 9.29% and 6.73% as of December 31, 2007 and December 31, 2006, respectively.
Pursuant to the terms of the License, in the case of invoices for services not paid when due, the Company is entitled to collect interest on overdue amounts at a rate equivalent to 150% of the 30-day interest rate in local currency, charged by Banco de la Nación Argentina, from the due date through the date of payment. As these are overdue receivables, and following standards of prudence, the Company recognizes this income at the time of actual collection.
Payables do not accrue interest, except for the Financial debts, which are set forth in Note 9 to the primary financial statements and Taxes payable in relation to the Occupancy of public space levy and Study, revision and inspection of works in public spaces levy payment facilitation plans (Note 15.4 to primary financial statements).
NOTE 5 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES
Gas Argentino S.A. ("Gas Argentino"), as owner of 70% of the Company's Common Stock, is the controlling shareholder of MetroGAS.
MetroGAS carries out certain transactions with the shareholders of Gas Argentino or their affiliates. As of December 31, 2007, the shareholders of Gas Argentino are BG Inversiones Argentinas S.A. ("BG") (54.67%) and YPF Inversora Energética S.A. ("YPF") (45.33%).
These consolidated financial statements include the following transactions with related companies:
NOTE 5 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES (Contd.)
Significant transactions with related companies are as follows:
NOTE 5 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES (Contd.)
The outstanding balances as of December 31, 2007 and 2006 from transactions with related companies are as follows:
EXHIBIT A
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
FIXED ASSETS
EXHIBIT D
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
CURRENT INVESTMENTS
EXHIBIT E
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
ALLOWANCES
EXHIBIT F
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
OPERATING COST
EXHIBIT G
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
FOREIGN CURRENCY ASSETS AND LIABILITIES
EXHIBIT H
METROGAS S.A.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
EXPENSES INCURRED
METROGAS S.A.
BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006
METROGAS S.A.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
METROGAS S.A.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
METROGAS S.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
NOTE 1 - THE COMPANY'S BUSINESS
MetroGAS S.A. (the "Company" or "MetroGAS"), a gas distribution company, was incorporated on November 24, 1992 and began operations on December 29, 1992, when the privatization of Gas del Estado S.E. ("GdE") (an Argentine Government-owned enterprise) was completed.
Through Executive Decree No. 2,459/92 dated December 21, 1992, the Argentine Government granted MetroGAS an exclusive license to provide the public service of natural gas distribution in the area of the Federal Capital and southern and eastern Greater Buenos Aires, by operating the assets allocated to the Company by GdE for a 35-year period from the Takeover Date (December 28, 1992). This period can be extended for an additional 10-year period under certain conditions.
MetroGAS' controlling shareholder is Gas Argentino S.A. ("Gas Argentino") who holds 70% of the Common Stock of the Company. The 20%, which was originally owned by the National Government, was offered in public offering as described in Note 10 and the remaining 10% is under the Employee Stock Ownership Plan ("Programa de Propiedad Participada" or "PPP") (Note 13).
As further described in Note 2, Note 8 and Note 14, the conditions under which the Company develops its activity and its regulatory framework have been significantly modified.
NOTE 2 - EMERGENCY LAW - IMPACTS ON THE COMPANY'S BUSINESS
2.1 General Considerations
Since December 2001 the Government adopted a number of measures in order to face up to the crisis the country was undergoing, which implied a deep change in the economic model effective so far.
The most important mentioned measures were: (i) the implementation of a floating rate of exchange that resulted in a significant devaluation during the first months of 2002, (ii) the pesification of certain assets and liabilities in foreign currency deposited in the country, and (iii) the pesification of public services prices and tariffs.
2.2. License renegotiation process
As part of the mentioned measures, on January 9, 2002, was enacted Law No. 25,561 Public Emergency Law ("Emergency Law"), rule that was complemented with other Laws, decrees and regulations issued by different Government organism. This group of rules have implied for MetroGAS a substantial change in terms of the License and its relation with the National Government, modifying the program of tariff reward accorded in the Law No. 24.076 (or "Gas Act") and its complementary regulations.
NOTE 2 - EMERGENCY LAW - IMPACTS ON THE COMPANY'S BUSINES (Contd.)
The Emergency Law authorized the Government to renegotiate public utility licenses taking into account the following: (a) the impact of the tariffs on the competitiveness of the economy, (b) the quality of services and the contractually required investment programs, (c) the interest of users as well as service access conditions, (d) the safety of the systems involved, and (e) company profitability. The evolution of tariffs renegotiation with the Government is described in Note 8.
2.3. Contracts denominated in US dollars or containing dollar adjustment clauses
The Emergency Law contains provisions governing contracts between private parties existing as of its effective date, which provide for payment in foreign currencies or contain foreign currency adjustment clauses. In this regard, it provides for conversion into pesos of all obligations at an exchange rate of Ps. 1 per US$ 1.
Should the result be too burdensome for one of the parties and should the parties fail to agree to modifications of such obligations, the matter may be referred to the courts in order to settle an equitable result. Obligations arising after the passing of the Emergency Law may not be subject to adjustment clauses.
At the time the Emergency Law became effective, the Company was party to a number of such contracts, the most relevant of which were for the purchase of natural gas, and essential to serve Company customers. Under the provisions established in the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices, and the renegotiation of most of the contracts with the Company's gas suppliers, and subject to the permanent compliance of the National Government with all the obligations it has assumed, gas producers whose contracts have been renegotiated have committed themselves to suspending actions and/or procedures brought against the Gas Distributors for claims resulting from the abovementioned law. As from August 1, 2007, when Resolution No. 599/2007 became effective, this suspension is considered a final waiver.
2.4. Financial debt restructuring process
Due to the significant adverse changes occurred in Argentina ending year 2001, on March 25, 2002 MetroGAS announced the suspension of principal and interest payments on all of its financial indebtedness.
After negotiations held during these years, on November 9, 2005, the Company announced the commencement of a solicitation of consents to restructure its unsecured financial indebtedness pursuant to an APE Under Argentine law.
On May 12, 2006, the Company concluded the financial debt restructuring process, performing the effective exchange of the bonds. The evolution of the renegotiation carried out by the Company with its financial creditors is described in Note 9.
NOTE 3 - ACCOUNTING STANDARDS
Below are the most relevant accounting standards used by the Company to prepare its financial statements, which were applied consistently with those for the previous year.
3.1. Preparation and presentation of financial statements
The financial statements are stated in Argentine pesos and were prepared in accordance with accounting disclosure and valuation standards contained in the technical pronouncements issued by the FACPCE approved by the CPCECABA and in accordance with the resolutions issued by the CNV.
Within the framework of the statement of consents made on July 8, 2004 by FACPCE and CPCECABA - which states that in the parties' opinion it would be important to unify technical standards - on August 10, 2005 CPCECABA issued Resolution CD 93/05, through which it adopted the accounting standards approved by FACPCE including amendments thereto as at April 1, 2005.
The adoption of the mentioned standards came into effect for the fiscal years or periods corresponding to fiscal years started as from January 1, 2006. Also, the CNV has adopted the mentioned standards with certain amendments, establishing its applicability for fiscal years started as from January 1, 2006, too.
Modifications introduced by the process of unification of accounting standards have not generated significant effects on the financial statements of the Company.
3.2. Accounting estimates
The preparation of financial statements at a given date requires that management make estimates and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at the date of issue of the financial statements, as well as income and expenses recorded during the year. Management makes estimates to calculate, at a given moment, for example, the allowance for doubtful accounts, depreciation, the recoverable value of assets, the income tax charge and contingency provision. Actual future results might differ from estimates and evaluations made at the date of preparation of these financial statements.
3.3. Recognition of the effects of inflation
The financial statements have been prepared in constant currency, reflecting the overall effects of inflation through August 31, 1995. Between that date and December 31, 2001, restatement of the financial statements was discontinued due to the existence of a period of monetary stability. Between January 1, 2002 and March 1, 2003, the effects of inflation were recognized to reflect the inflation recorded during that period. As from that date, restatement of financial statements has been discontinued. This criterion is not in accordance with prevailing professional accounting standards, under which financial statements must be restated until September 30, 2003. The effect of the mentioned professional accounting standards deviation is not significant over the consolidated financial statements as of December 31, 2007 and 2006.
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
The rate used for restatement of items was the IPM published by the National Institute of Statistic and Census.
3.4. Comparative information
Balances as of December 31, 2006 and for the year ended December 31, 2006 disclosed in these financial statements for comparative purposes, result from the financial statements as of such date.
Certain amounts in the financial statements for the year ended on December 31, 2006 were reclassified for presentation on a comparative basis with those for the current year.
3.5. Valuation criteria
a) Cash and deposits in banks
Have been recorded at its nominal value.
b) Foreign currency assets and liabilities
Foreign currency assets and liabilities were valued at year-end exchange rates.
c) Short-term investments
National Government Bonds ("BODEN") were valued at their market value at the end of the year.
Units in common investment funds were valued at their market value at the end of the year.
Saving accounts deposits and fixed term deposits were valued at their nominal value plus interest accrued at the end of the year.
d) Trade receivables and accounts payable
Trade receivables and accounts payable were valued at their nominal value incorporating financial results accrued through year-end, where applicable. The values thus obtained do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued at their spot price at the time of the transaction plus interest and implicit financial components accrued at the internal rate of return determined at each moment.
Trade receivables include accrued services pending billing at year-end.
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
The line headed PURE corresponds to the Program for the Rational Use of Energy, comprising the recognition of incentives and additional charges for excess consumption. The balance for this item included in trade receivables corresponds to bonuses for consumption and/or additional charges for excess consumption pending billing, while the amount recorded under accounts payable corresponds to additional charges for consumption, to be deposited in the Trust Fund indicated by ENARGAS.
The line headed Transportation Trust Fund within accounts payable corresponds to the collected amounts, pending of deposit.
Trade receivables are shown net of the allowance for doubtful accounts, which is based on management's collection estimates.
e) Financial debt
Financial debts resulting from the financial debt restructuring process, corresponding to Negotiable Obligations Series 1 and 2 were valued based on the amounts payables discounted using the market interest rate that reflects at the initial moment of the transaction the evaluation over the time value of the money and the specifics risks of the debt.
Financial debts not included in the financial debt restructuring process, corresponding to Negotiable Obligations Series A and B were valued at nominal value plus financial results accrued at the end of the year. Values thus obtained do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued at the sums received, net of transaction costs, plus financial results accrued at the internal rate of return estimated at that time.
f) Other receivables and payables
Sundry receivables and payables were valued at their nominal value incorporating financial results accrued through year-end, except for the amounts to be recovered through tariffs included in long term Other receivables which were valued on the basis of the best possible estimation of the sums to be received discounted using the rate that reflects the time value of the money and the specific risks of the receivables; and for the deferred income tax which was valued at their nominal value.
Values thus obtained incorporating financial results accrued through year-end do not significantly differ from those that would have been obtained had current accounting standards been applied, which establish that they must be valued on the basis of the best estimation possible of the sum to receive and to pay, respectively, discounted using a rate that reflects the value time of the money and the specific risks of the transaction considered at the moment of its incorporation to the assets and liabilities, respectively.
The value registered in Other receivables does not exceed its respective recoverable value.
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
g) Inventories
Warehouse materials were valued at their year-end replacement cost. The value thus obtained, net of the allowance for obsolescence, is less than the respective recoverable value estimated at the end of each year.
h) Non-current investments
The permanent investment in the controlled company MetroENERGÍA has been valuated according to the equity method based on the financial statements as of December 31, 2007 and 2006 issued by the company.
The accounting standards used by MetroENERGÍA for preparing its financial statements are the same used by MetroGAS.
The value thus obtained is less than the respective recoverable value estimated at the end of the year.
i) Fixed assets
For assets received at the time of granting of the License, the global transfer value defined in the Transfer Agreement arising as an offsetting item of contributions made and transferred liabilities restated following the guidelines indicated in Note 3.3. has been considered as original value of fixed assets.
Based on special work performed by independent experts, the global original value mentioned above was appropriated among the various categories of items making up that value, assigning as useful life the remaining years of service estimated by the Company on the basis of type of item, current status, and renewal and maintenance plans.
Assets incorporated to net worth after granting of the License were valued at restated acquisition cost, following the guidelines indicated in Note 3.3., except in the case of distribution networks built by third parties (various associations and cooperatives) which, as established by ENARGAS, are valued at amounts equivalent to certain cubic meters of gas.
Fixed assets are depreciated by the straight-line method, using annual rates sufficient to extinguish their values by the end of their estimated useful lives. Depreciation was computed based on the amount of these assets adjusted for inflation following the guidelines indicated in Note 3.3..
The Company capitalizes the portion of operating costs attributable to planning, execution and control of investments in fixed assets. The amounts capitalized during the years ended December 31, 2007 and 2006 amounted to Ps. 2,276 thousand and to Ps. 3,139 thousand, respectively.
Gas in pipelines is valued at acquisition cost restated following the guidelines indicated in Note 3.3..
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
Net value of fixed assets does not exceed its economic utilization value at the end of the year.
j) Income tax
The Company recognized the income tax charge by the deferred tax liability method, recognizing temporary differences between accounting and tax assets and liabilities measurements.
Deferred tax asset is mainly generated by tax loss carry forward. Deferred tax liability is mainly generated by: i) temporary differences between the accounting valuation and the tax value of fixed assets, mainly due to different depreciation criteria and the treatment of financial results (interest and exchange differences) capitalized under those items and ii) discount of financial debt, valued at their nominal value accordingly tax purposes.
To determine deferred assets and liabilities, the tax rate in force at the date of issuance of these financial statements has been applied to the temporary differences identified and tax loss carry forwards.
The following table shows changes and breakdown of deferred tax assets and liabilities:
Deferred assets
|
Estimated loss carry forward |
Trade receivables |
Other liabilities |
Other receivables |
Other |
Valuation allowance |
Total |
|
|
|
Thousand of Ps. |
||||||
|
Balances as of December 31, 2006 |
151,040 |
11,725 |
15,439 |
5,124 |
202 |
(151,040) |
32,490 |
|
Movements of the year |
(121,183) |
1,706 |
1,862 |
4,419 |
(203) |
121,183 |
7,784 |
|
Balances as of December 31, 2007 |
29,857 |
13,431 |
17,301 |
9,543 |
(1) |
(29,857) |
40,274 |
Deferred liabilities
|
Fixed assets |
Financial debt |
Other |
Total |
||||
|
|
Thousands of Ps. |
||||||
|
Balances as of December 31, 2006 |
(10,088) |
(29,355) |
57 |
(39,386) |
|||
|
Movements of the year |
1,377 |
3,666 |
219 |
5,262 |
|||
|
Balances as of December 31, 2007 |
(8,711) |
(25,689) |
276 |
(34,124) |
|||
Deferred income tax assets generated by the tax loss carry forward recorded by the Company amount to Ps. 29,857 thousand at the end of the year and Ps. 151,040 thousand at the beginning of the year. That tax loss carry forward can be offset against profits for future years, expiring in 2009.
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
The realization of deferred tax assets, including the mentioned tax loss carry forward, depends on the future generation of taxable profits in those years in which temporary differences become deductible. To determine the realization of assets, the Company considers the projection of future taxable profits based on its best estimation.
Based on management's estimates, MetroGAS recorded a valuation allowance on deferred income tax assets amounting to Ps. 29,857 thousand at the end of the year and Ps. 151,040 thousand at the beginning of the year.
Net deferred assets at the end of the year derived from the information included in the preceding tables amount to Ps. 6,150 thousand and net deferred liabilities amounting to Ps. 6,896 at the beginning of the year.
Below is the reconciliation between income tax expensed and the amount resulting from the application of the corresponding tax rate to the accounting profit before income tax:
Below is the reconciliation between income tax expensed and the income tax determined for fiscal purpose:
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
The Company, in accordance with the new accounting standards, has decided not to recognize the deferred tax liability caused by inflation adjustment on fixed assets to the effects of the calculation of the deferred tax. Had the deferred tax liabilities been recognized in this item, this value would amount to Ps. 291 million at end of the year and Ps. 307 million, at nominal values, at the beginning of the year. The difference of Ps. 16 million would have impacted in the result of the year.
k) Minimum notional income tax
The Company calculates minimum notional income tax by applying the current 1% rate on computable assets at the end of the year. This tax complements income tax. The Company's tax obligation for each year will agree with the higher of the two taxes. If in a fiscal year, however, minimum notional income tax obligation exceeds income tax liability, the surplus will be computable as a down payment of income tax through the next ten years.
The Company has recognized minimum notional income tax accrued during the year and paid in previous years as a credit, since it estimates that it could be claimed as payment on account of income tax in future years. That credit is shown under Other non-current receivables and could be computable as a down payment of income tax expiring between the years 2012 and 2017.
l) Severance pay
Severance payments made to employees are expensed as incurred.
m) Balances with related parties
Balances with related parties mainly generated by commercial operations and sundry services were valued based on conditions agreed between the parties.
n) Contingency provision
Set up to cover labor or commercial contingencies and sundry risks that could give rise to liabilities to the Company. In estimating the amounts and probability of occurrence the opinion of the Company's legal counsel has been taken into account.
Insurance coverage taken out by the Company has also been considered. At the date of issuance of these financial statements, management considers that there are no elements to determine other contingencies that could have a negative impact on the financial statements.
o) Shareholders' equity accounts
Movements in shareholders' equity accounts were restated following the guidelines detailed in Note 3.3..
The "Common Stock" account has been stated at historical nominal value. The difference between the amount stated in uniform currency and historical nominal value was shown in the "Adjustment to Common Stock" account making up the shareholders' equity.
NOTE 3 - ACCOUNTING STANDARDS (Contd.)
p) Revenue recognition
The Company recognizes sales revenue based on gas deliveries to customers, including estimated gas volumes delivered pending billing at the end of each year.
Volumes delivered were determined based on gas volumes purchased and other data.
q) Statements of income accounts
Statements of income accounts are shown at nominal value, except depreciations of fixed assets that are restated following the guidelines indicated in Note 3.3..
3.6. Basic and diluted income per share
Basic and diluted income per share is calculated based on weighted average shares at December 31, 2007 and 2006, respectively, amounting to 569,171,208. As the Company does not hold preferred shares or debt convertible into shares, both indicators are equivalent.
3.7. Information by segment
The Company mainly operates in providing gas distribution services and, through MetroENERGÍA, in buying and selling natural gas and/or its transportation on its own, on behalf of or associated to third parties.
Details regarding certain information classified by segment of bussines, in accordance with the guidelines of Technical Resolution No. 18 of the FACPCE are disclosured in Note 2.7 to the consolidated financial statement.
NOTE 4 - ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
Details regarding the significant amounts included in the accompanying financial statements are as follows:
NOTE 4 - ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
NOTE 5 - DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES
The due dates of investments, receivables and payables are as follows:
NOTE 5 - DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES
(Contd.)
Investments bearing interest according to the following detail: 1) "BODEN" at an annual rate of 4.00% and 1.06% as of December 31, 2007 and December 31, 2006 respectively 2) fixed term deposits at an annual average rate of 9.50% as of December 31, 2006 and; 3) common investment funds with an average annual yield of 6.73% as of December 31, 2006.
Pursuant to the terms of the License, in the case of invoices for services not paid when due, the Company is entitled to collect interest on overdue amounts at a rate equivalent to 150% of the 30-day interest rate in local currency, charged by Banco de la Nación Argentina, from the due date through the date of payment. As these are overdue receivables, and following standards of prudence, the Company recognizes this income at the time of actual collection.
Payables do not accrue interest, except for the Financial debts, which are set forth in Note 9 to the primary financial statements and Taxes payable in relation to the Occupancy of public space levy and Study, revision and inspection of works in public spaces levy payment facilitation plans (Note 15.4 to primary financial statements).
NOTE 6 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES
Gas Argentino S.A. ("Gas Argentino"), as owner of 70% of the Company's Common Stock, is the controlling shareholder of MetroGAS.
MetroGAS carries out certain transactions with the shareholders of Gas Argentino or their affiliates. As of December 31, 2007, the shareholders of Gas Argentino are BG Inversiones Argentinas S.A. ("BG") (54.67%) and YPF Inversora Energética S.A. ("YPF") (45.33%).
MetroGAS holds 95% of the Common Stock of MetroENERGÍA and is therefore the controlling shareholder. The remaining shareholders are BG Argentina S.A. and YPF Inversora Energética S.A., holding 2.73% and 2.27% of MetroENERGÍA Common Stock respectively. MetroGAS renders certain services to MetroENERGÍA.
These financial statements include the following transactions with related companies:
NOTE 6 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES (Contd.)
Significant transactions with related companies are as follows:
NOTE 6 - TRANSACTIONS AND BALANCES WITH RELATED COMPANIES (Contd.)
The outstanding balances as of December 31, 2007 and 2006 from transactions with related companies are as follows:
NOTE 7 - RESTRICTED ASSETS
A substantial portion of the assets transferred to MetroGAS by GdE has been defined in the License as "Essential Assets" for the performance of licensed service. The Company is obliged to segregate and maintain them, together with any future improvements, in accordance with certain standards defined in the License.
The Company must not, for any reason, dispose of, encumber, lease, sublease or loan Essential Assets for purposes other than providing licensed service without prior authorization from the ENARGAS. Any extensions and improvements that the Company may make to the gas distribution system after the Takeover Date may only be encumbered to collateralize loans maturing after a period of one year and used to finance new extensions of and improvements to the distribution network.
Upon expiration of the License, the Company will be obliged to transfer to the Government, or its designee, the Essential Assets listed in the updated inventory as of the expiration date, free of any debt, encumbrance or attachment.
As a general rule, upon expiration of the License, the Company will be entitled to collect the lesser of the following two amounts:
a) The value of the Company's property, plant and equipment determined on the basis of the price paid by Gas Argentino, and the original cost of subsequent investments carried in US Dollars and adjusted by the Producer Price Index ("PPI"), net of the accumulated depreciation.
b) The proceeds of a new competitive bidding, net of costs and taxes paid by the successful bidder (Note 8.1.).
NOTE 8 - REGULATORY FRAMEWORK
The natural gas distribution system is regulated by the Gas Act, which, together with Executive Order No. 1,738/92, other regulatory decrees, the specific bidding rules ("Pliego"), the Transfer Agreement and the License establishes the Regulatory Framework for the Company's business.
The License, the Transfer Agreement and regulations promulgated pursuant to the Gas Act contain requirements regarding quality of service, capital expenditures, restrictions on transfer and encumbrance of assets, restrictions on cross ownership among gas production, transportation and distribution companies and restrictions on transfers of Common Stock of MetroGAS.
The Gas Act and the License establish ENARGAS as the regulatory entity to administer and enforce the Gas Act and applicable regulations. ENARGAS' jurisdiction extends to transportation, marketing, storage and distribution of natural gas. Its mandate, as stated in the Gas Act, includes the protection of consumers, the fostering of competition in the supply of and demand for gas, and the encouragement of long-term investment in the gas industry.
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
Tariffs for gas distribution services were established in the License and are regulated by the ENARGAS.
8.1. Distribution License
Upon expiration of the original 35-year term, MetroGAS may apply to ENARGAS for a renewal of the License for an additional ten-year term. ENARGAS is required at that time to evaluate the Company's performance and make a recommendation to the Government. MetroGAS would be entitled to such ten-year extension of its License unless ENARGAS can prove that MetroGAS is not in substantial compliance with all its obligations stated in the Gas Act and its regulations and in the License.
At the end of the 35-year or 45-year term, as the case may be, the Gas Act requires that a new competitive bidding be held for the License, in which MetroGAS would have the option, if it has complied with its obligations, to match the best bid offered to the Government by any third party.
As a general rule, upon termination of the License, MetroGAS will be entitled to receive the lower of the value of specified assets of MetroGAS or the proceeds paid by the successful bidder in a new competitive bidding process (Note 7).
MetroGAS has various obligations under the Gas Act, including the obligation to comply with all reasonable requests for service within its service area. A request for service is not considered reasonable if it would be uneconomic for a distribution company to undertake the requested extension of service. MetroGAS also has the obligation to operate and maintain its facilities in a safe manner. Such obligation may require certain investments for the replacement or improvement of facilities as set forth in the License.
The License details further obligations of MetroGAS, which include the obligation to provide distribution service, to maintain continuous service, to operate the system in a prudent manner, to maintain the distribution network, to carry out mandatory investment program, to keep certain accounting records and to provide periodic reports to ENARGAS.
The License may be revoked by the Argentine Government upon the recommendation of ENARGAS under the following circumstances:
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
The License stipulates that the Company cannot assume the debts of Gas Argentino or grant loans to encumber assets, to secure debt of, or grant any other benefit to creditors of, Gas Argentino.
8.2. US PPI semi-annual adjustment
ENARGAS through Resolution No. 1,477 adjusted MetroGAS' tariffs as from January 1, 2000 without including adjustments to reflect changes in the US PPI, which would have resulted in a 3.78% increase in the transportation and distribution components of the tariffs as of that date. This was due to the fact that in negotiations with ENARGAS and the Government, the distribution and transportation companies agreed to defer the collection of the amounts related to the US PPI adjustment corresponding to the year 2000. Moreover, ENARGAS established, through the same resolution, the methodology to recover the accrued revenues corresponding to the application of the US PPI adjustment to the first semester of 2000 during the ten months beginning July 1, 2000.
On July 17, 2000, the gas distribution and transportation companies, ENARGAS and the Government agreed to pass through to the tariffs, as from July 1, 2000: a) the US PPI adjustment deferred for the first six months of 2000; and b) an increase in the tariffs to reflect the US PPI increase (3.78%). Additionally, they agreed to defer the billing of the amounts related to the US PPI adjustments corresponding to the period from July 1, 2000 through September 30, 2002. The deferred amounts were guaranteed by the Government and therefore the corresponding accrued revenues would be recovered through the tariffs as from July 1, 2002 to June 30, 2004.
On August 4, 2000, Executive Order No. 669 was issued by the Government, confirming the terms of this agreement.
With reference to proceedings brought by the Ombudsman, on August 29, 2000 MetroGAS was notified of a court order, suspending Decree No. 669, referring mainly to the unconstitutionality of the tariff adjustment according to a mechanism of indexation based on a foreign index within the applicability of the Convertibility Law. Accordingly, ENARGAS informed the Company that the tariffs should be reduced to exclude the US PPI adjustment. MetroGAS, as well as most gas distribution and transportation companies, appealed this ruling and the corresponding ENARGAS resolution.
Additionally, ENARGAS and the Government also appealed the court order. On October 5, 2001 the Chamber of Appeals rejected this appeal. The Government and several gas companies have appealed the decision before the Supreme Court of Justice of Argentina. It is not possible to predict when the Court will rule on this matter. The resolution of the main issue of the debate is still pending. Notice has been served upon the various licensees to participate in that matter.
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
As a result of the measures adopted, mentioned in Note 2, the National Government issued the Emergency Law, which, among other provisions, and specifically as regards contracts for public works and services, made clauses providing for adjustments in dollars or other foreign currency ineffective, as well as indexation clauses based on the price indexes of other countries and any other indexation mechanisms, in addition to fixing a one peso to one dollar rate for tariffs and ordering renegotiation of utility contracts, passing US PPI on to tariffs, as rightfully claimed by the Company, becomes impracticable. Both a transfer to the tariffs of the US PPI as well as the possibility of recovery through the National Government, which endorsed the related credits, are contingent on future events that are beyond the Company's control.
In view of the above mentioned scenario, the net effect of income accrued during 2001 and 2000 in connection with the deferral of US PPI adjustments has been reversed in the financial statements as of December 31, 2001 in the "Extraordinary Loss" item.
The reversal should not be understood as a waiver of rights arising out of the Regulatory Framework that governs the Company's activities or as an abandonment of any of the actions filed by the Company so far.
On February 1, 2002, ENARGAS, according to the Emergency Law, approved tariffs without including the US PPI adjustment. Consequently, MetroGAS has filed an administrative action, claiming the PPI adjustment for the years 2000 and 2001, which resolution as of the date of issuance of these financial statements is pending.
8.3. Tariff renegotiation
On February 12, 2002, the Government issued Executive Order No. 293, which entrusted the Economy Ministry ("EM") with the renegotiation of public utility licenses and created a Committee for the Renegotiation of Contracts for Public Works and Services ("CRC").
On July 3, 2003, by means of Executive Order No. 311/03, the "Unit for the Renegotiation and Analysis of Utility Contracts" ("UNIREN") was created, aiming at giving advice during the renegotiation process of public works and services contracts and developing a regulatory framework common to all public services. The UNIREN continues the renegotiation process developed by the previous CRC.
During 2002 and 2003, although MetroGAS strictly complied with the submittance of all information required, although the very reports made by the CRC and the UNIREN stated that the gas sector posed no difficulties as to the execution of license contracts and the compliance of conditions and obligations committed, and although licensees, among them MetroGAS, complied with the necessary conditions to continue with the process of renegotiation, it was not possible to go beyond Phase II (submittance of information) of such process.
A temporary tariff increase established by the PEN through Executive Orders No. 2,437/02 and No. 146/03 was not even implemented due to different legal proceedings.
Although there was an exchange of proposals between the parties and the National Government the process is still delayed and 2004, 2005 and 2006 went by without being possible to achieve an agreement.
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
The Emergency Law, which was originally to be due in December 2003, was extended consecutively by the approval of different laws, up to December 31, 2008. As a consequence, the renegotiation terms for licenses and concessions of utility services were also extended.
During 2007, several draft copies with proposals were exchanged with the UNIREN in order to reach an agreement, but unfortunately, up to this date, it has not been possible to reach the necessary consensus that may satisfy both the interests of the National Government and the ones of the Company and its shareholders.
As of the date of issuance of these financial statements it is neither possible to predict the result of the renegotiation process nor to establish the final implications that the above-mentioned rules will have on the Company's operations and results.
8.4. Changes in Regulation
In mid-February 2004 the Executive Power issued two Executive Orders which provisions have influence on the Company's operating activities and its economic and financial performance. Executive Order No. 180/04 established an investment scheme for basic gas infrastructure works and created an Electronic Gas Market ("EGM") to coordinate transactions associated to gas purchase at the Spot market and to secondary gas transportation and distribution markets. Executive Order No. 181/04 enabled the energy authorities to enter into agreements with gas producers to determine an adjustment in the price of gas purchased by gas distributors and the implementation of applicable mechanisms to users who purchase their own gas directly as distributors would no longer be able to supply them. Furthermore, the Order divided "residential" customers in three categories according to consumption.
Later on a set of resolutions and provisions was issued to regulate the abovementioned executive orders. The main provisions refer to: i) suspension of the exportation of surpluses of natural gas useful for internal supply, ii) development of a Rationalization Program for the Exportation of Natural Gas and Use of Transportation Capacity, iii) ratification of the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices at Points of Entry into the Transportation System, through which the Company has restructured all of its natural gas purchase contracts, iv) prizes for reduced consumption below defined thresholds and the application of additional charges to certain customers that exceed them, established by the Program for the Rational Use of Energy ("PURE"), suspended from September to April of each year, v) creation and constitution of a Trust System through a Trust Fund, vi) approval of a useful cut-off mechanism to ensure supply to non interruptible customers and vii) approval of the Implementation Agreement of the Electronic Gas Market between the Buenos Aires Stock Exchange and the Energy Secretariat throw which EGM started functioning.
Dated on December 22, 2005, the Energy Secretariat ("ES") passed Resolution No. 2,020/05. Such resolution established a schedule to start purchasing natural gas in a direct way for General Service "P" customers and CNG stations. This process was called "gas unbundling".
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
The schedule stipulated that: a) users with consumptions (during the period April 2003- March 2004) equal or over 30,000m3/month and up to 150,000m3/month had to purchase gas in a direct way as from January 1, 2006, b) users with consumptions (during the same period) equal or over 15,000m3/month and under 30,000m3/month had to purchase gas in a direct way as from March 1, 2006, c) users with consumptions (during the same period) over 9,000m3/month and under 15,000m3/month do not have a specified date yet for the purchase of gas in a direct way and d) as regards CNG stations, they had to purchase gas in a direct way as from March 1, 2006 (extended until April 1, 2006 through Resolution No. 275/06).
Moreover, such Resolution excluded non-profit civil associations, labor unions, trade associations or mutual benefit associations, health institutions and private or public educational institutions from the spectrum of customers that as from the stated dates have to acquire natural gas directly from producers and/or marketers.
Aditionally, Resolution No. 2,020/05 established a set of restrictions for representing CNG stations in the purchase of natural gas, in order to limit possible vertical associations among people from the gas industry and stipulated a Mechanism for Assigning Natural Gas to CNG stations, through which, CNG stations get natural gas by means of an offer and demand system within the EGM.
In this context, the process of conforming MetroENERGÍA as a natural gas trading company was finished during 2005, in order to keep the biggest number of customers as possible and count on a proper tool in accordance with the new scenario where the Company has to perform.
Dated February 28, 2006, the Energy Secretariat issued Resolution No. 275/06, which modifies Resolution No. 2,020/05. These modifications are related to: (i) the extension, up to April 1, 2006, for CNG stations to purchase gas in a direct way, (ii) the limitation, up to April 30, 2006, of the effective date of CNG bargain and sale contracts to be signed as from April 1, 2006, (iii) the obligation, of the gas distributing service companies to represent CNG stations regarding their natural gas purchases, just for the first time that realize the procedure established for CNG purchase in the EGM. This obligation applicable to gas distribution companies was extended to any purchase made under such procedure.
On March 14, 2006 the National Government signed an agreement with natural gas producers and CNG stations to freeze prices for CNG until December 31, 2006. This agreement will be bimonthly reviewed and will be in effect as long as there are no increases on operative and /or salary costs. The mentioned agreement was later extended until December 31, 2007.
In March, June, September 2006 and May 2007, the procedures established for CNG purchase in the EGM were carried out. As a result, volumes of gas that CNG had to acquired directly from gas producers were established.
NOTE 8 - REGULATORY FRAMEWORK (Contd.)
On September 22, 2006 Energy Secretariat issued Resolution No. 1,329/06, by which the following aspects of the industry were regulated: (i) specifies the different concepts that conform natural gas global volumes that producers commit to inject into the transportation system, (ii) sets a priority regime regarding nominations and natural gas nominations' confirmation to be complied with by producers and transportation companies, contemplating a penalty for non-fulfillment of their duties, (iii) categorizes as uninterruptible the "initial minimum reserve" of CNG stations operating in February 2004, (iv) incorporates a mechanism through which natural gas distribution companies will have to register unbalanced volumes resulting from the consumption of CNG stations that are below the distribution companies' nominations; being those unbalanced volumes then invoiced by the corresponding producers to the distribution companies at CNG price, or else compensated between them in the sphere of bargain and sale agreements that they may have in force, and (v) enables natural gas distribution companies to use specific natural gas volumes included in natural gas bargain and sale agreements that users enter into in a direct way with producers, under certain conditions.
Moreover, regarding the so called "trust charges" that natural gas distribution companies charge their industrial customers and thermoelectric generators (and CNG stations , only in the case of trust charges I) on behalf and order of Nación Fideicomisos S.A, according to the provisions that created and ruled them (among others, Law No. 26,095, EP Executive Order No 180/2004 and No. 1,216/2006, MPFIPyS Resolutions (by the Ministry of Federal Planning of Public Investment and Services) No.185/2004, No. 2,008/2006 and No. 409/2007, ENARGAS Resolution No. 3,689/2007 and ENARGAS Notes No. 6,398 /2007, No. 4,381/2007, No. 808/2007, No. 1,989/2005 and No. 3,937/2005), there are cases of MetroGAS' customers that being compelled to pay such charges have resorted to justice in order to determine such charge as unconstitutional and ask for a non-innovative precautionary measure until a solution is found. In some cases, justice has effectively granted the requested precautionary measures, compelling MetroGAS not to invoice and collect such charges. MetroGAS has been complying with this measure up to this date.
NOTE 9 - FINANCIAL DEBT
The following table sets forth the conditions of the Company's Financial Debt as of December 31, 2007 and 2006:
|
December 31, |
||||||
|
2007 |
2006 |
|||||
|
Thousands of Ps. |
Interest Rate |
Maturity |
Thousands of Ps. |
Interest Rate |
Maturity |
|
|
Negotiable Obligations |
||||||
|
Series A |
252 |
9,875% |
01/04/2003 |
2.431 |
9,875% |
01/04/2003 |
|
Series B |
3.858 |
7,375% |
27/09/2002 |
12.364 |
7,375% |
27/09/2002 |
|
Interest payable |
1.699 |
- |
|
5.496 |
- |
|
|
Current financial debt |
5.809 |
|
|
20.291 |
|
|
|
Negotiable Obligations |
||||||
|
Series 1 |
663.953 |
8% (1) |
31/12/2014 (4) |
670.105 |
8% (1) |
31/12/2014 (4) |
|
Series 2 Class A |
19.696 |
4% (2) |
31/12/2014 (5) |
19.151 |
3% (2) |
31/12/2014 (5) |
|
Series 2 Class B |
120.745 |
2,8% (3) |
31/12/2014 (5) |
105.301 |
1,8% (3) |
31/12/2014 (5) |
|
Actual value discount |
(73.396) |
- |
|
(83.871) |
- |
|
|
Non current financial debt |
730.998 |
|
|
710.686 |
|
|
NOTE 9 - FINANCIAL DEBT (Contd.)
1998 Global Program:
At the Extraordinary Shareholders' Meeting held on December 22, 1998 the Shareholders approved the creation of a Global Program for issuing unsecured non-convertible Negotiable Bonds, for an amount of up to US$ 600 million (or the equivalent in other currencies or currency combinations) over a five-year term as from the date of authorization of the Program by the CNV. On October 15, 2004, Extraordinary Shareholders Meeting approved the five years extension of the Global program since August 19, 2004, that was authorized by CNV on March 31, 2005.
Under the mentioned Global Program, the following Negotiable Obligations were placed and issued (i) Series A, on March 27, 2000, by the amount of US$ 100 million, maturing in 2003, bearing interest at the rate of 9.875% per annum, (ii). Series B, on September 27, 2000, by the amount of Euros 110 million maturing in 2002, bearing interest at the rate of 7.375% per annum and (iii) Series C, on May 7, 2001, by the amount of US$ 130 million, maturing in May 2004 and bearing interest at LIBOR plus a margin ranging from 2.625% to 3.25%.
On March 25, 2002, MetroGAS announced the suspension of principal and interest payments on all of its financial indebtedness due to the fact that the Emergency Law, together with implementing regulations, altered fundamental parameters of the Company's license, including the suspension of the tariff adjustment formula and the redenomination of the tariff into pesos, and also the announcement of the devaluation of the peso.
On November 9, 2005, the Company announced the commencement of a solicitation of consents to restructure its unsecured financial indebtedness pursuant to an APE under Argentine law.
MetroGAS' proposal consisted in an invitation to subscribe the APE and basically offered three options to their financial creditors:
NOTE 9 - FINANCIAL DEBT (Contd.)
On April 12, 2006 MetroGAS announced the acceptance of tenders of approximately 95% of the total outstanding financial debt pursuant to its restructuring offer. The Company also announced its intention to restructure such indebtedness pursuant to an out-of-court restructuring in order to complete the process faster and more effectively.
Furthermore, at that date, the Company's Board of Directors approved the issuance and solicitation of consents for the public offering of Series 1 Notes for an amount of up to US$ 250 million, Series 2 Class A Notes for up to US$ 10 million, and Series 2 Class B Notes for up to Euros 40 million, which will be given in exchange to current bondholders.
On May 12, 2006, the Company concluded the financial debt restructuring process, performing the effective exchange of the bonds. Consequently, it issued in exchange for its Existing Debt Series 1 Notes amounting to US$ 236,285,638 in principal amount, Series 2 Notes Class A amounting to US$ 6,254,764 in principal amount and Series 2 Class B amounting to Euros 26,070,450 in principal amount. Additionally the Company made payments amounting to US$105,608,445, for cash options received along with US$ 19,090,494 and Euros 469,268 to pay accrued interest on Series 1 notes and Series 2 notes through December 30, 2005.
The offering of the Series 1 and 2 was made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
The restructuring of the financial debt generated a gain of Ps. 388,748 thousand which, net of the income tax effect represented a net gain of Ps. 252,686 thousand, mainly generated by a reduction in the principal amount of the existing debt as some bondholders elected the cash option, as well as the reduction in accrued interests net from costs related to the transaction.
MetroGAS, and its subsidiaries, must comply with a series of restrictions under the Company's new debt obligations, which, among others, include the following:
NOTE 9 - FINANCIAL DEBT (Contd.)
Pursuant to the excess cash provision mentioned on the first bullet, the Company calculated the respective amount for the periods begun on April 1st and finished on September 30, 2007 and 2006. No excess cash was computed as a result.
As of December 31, 2007, the Company carried out market purchases amounting to acumulative principal amount of the Series 1 Notes of US$ 25.4 million, US$ 8.0 million of which correspond to the year ended on December 31, 2007.
NOTE 10 - COMMON STOCK
As of December 31, 2007, the Company's Common Stock totaled Ps. 569,171 thousand, all of which is fully subscribed, paid-in and registered.
|
Class of Shares |
Thousands of Ps. |
|
|
Ordinary certified shares of Ps. 1 par value and 1 vote each: |
||
|
Class "A" |
290,277 |
|
|
Class "B" |
221,977 |
|
|
Class "C" |
56,917 |
|
|
Common Stock as of December 31, 2007 |
569,171 |
|
The Shareholders at the Extraordinary Shareholders' Meeting held on March 12, 1997 approved the most recent capital increase resulting in total Common Stock of Ps. 569,171 thousand. This increase was authorized by the CNV on April 8, 1997 and by the Buenos Aires Stock Exchange on April 10, 1997 and was registered with the Public Registry of Commerce on June 17, 1997 under No. 6,244, Corporations Book 121, Volume A.
Gas Argentino owns 70% of the Company's Common Stock, 20% of the Company's Common Stock was distributed in an initial public offering as specified below and 10% of the Company's Common Stock is hold by the Employee Stock Ownership Plan (Programa de Propiedad Participada or "PPP") (Note 13).
In accordance with the Transfer Agreement, the Government sold through an initial public offering the 20% of the Company's Common Stock it held, represented by 102,506,059 Class "B" Shares. At the date of these financial statements this Common Stock is property of private investors.
NOTE 10 - COMMON STOCK (Contd.)
On November 2, 1994, the CNV, pursuant to Resolution No. 10,706, authorized to public offering all the Company's outstanding shares at such date. The Class "B" Shares offered in the United States are represented by American Depositary Shares ("ADSs") and were registered with the SEC. The Class "B" Shares and the ADSs were approved for listing on the BCBA and the New York Stock Exchange ("NYSE"), respectively.
The Company is required to keep in effect the authorization to offer the Company's Common Stock to the public and the authorization for the shares to be listed on the Argentine Republic's authorized securities markets for a minimum period of fifteen years as of the respective dates on which such authorizations were granted.
After the first five years following the transfer date, any decrease, redemption or distribution of the Company's shareholders' equity will require prior authorization by ENARGAS.
NOTE 11 - RESTRICTIONS ON THE DISTRIBUTION OF PROFITS
In accordance with the Argentine Corporations Law, the Company's by-laws and Resolution No. 434/03 of the CNV, 5% of the Company's net income for the year plus (less) prior year adjustments must be transferred to the Company's Legal Reserve, until it reaches 20% of the subscribed capital including the adjustments to Common Stock.
Dividend distribution in cash will depend on the Company's indebtedness ratio until the Company has redeemed, repaid or purchased at least US$ 75 million principal amount of the Series 1 Notes.
NOTE 12 - LIMITATION ON THE TRANSFERABILITY OF GAS ARGENTINO SHARES
The Pliego stipulates that Gas Argentino, as controlling shareholder of MetroGAS, may sell part of its shares in the Company, provided it retains 51% of MetroGAS' equity.
In addition, the Company's by-laws provide that ENARGAS' approval must be obtained prior to the transfer of the Class "A" shares (representing 51% of Common Stock). The Pliego states that such prior approval will be granted three years after the Takeover Date provided that:
NOTE 12 - LIMITATION ON THE TRANSFERABILITY OF GAS ARGENTINO SHARES (Contd.)
Shareholders of Gas Argentino are subject to the same restrictions as those set forth in the preceding paragraph.
Dated December 7, 2005, Gas Argentino entered into an agreement to restructure its financial debt with all of its creditors, funds administered by Ashmore ("Fondos Ashmore") and by Marathon ("Fondos Marathon"), by means of which Gas Argentino will cancel all of its liabilities related to such debt in exchange for issuing and/or transferring, by the current shareholders of Gas Argentino, Common Stock of the said company representing 30% of its Common Stock post-issuing to Fondos Ashmore and transferring 3.65% and 15.35% of MetroGAS' Common Stock, owned by Gas Argentino, to Fondos Ashmore and Fondos Marathon, respectively.
Such agreement is, among other conditions, subject to the approval of the ENARGAS and of the Secretary of Interior Commerce with prior agreement of the National Antitrust Committee (Comisión Nacional para la Defensa de la Competencia-"CNDC").
Through Resolution No. 1/097 from September 14, 2007, the ENARGAS approved the transference of shares. The Company is awaiting the resolution by the CNDC and the subsequent approval by the Secretary of Interior Commerce to make such transaction.
NOTE 13 - EMPLOYEE STOCK OWNERSHIP PLAN
Executive Decree No. 1,189/92 of the Government, which provided for the creation of the Company, establishes that 10% of the Common Stock represented by Class "C" shares is to be included in the PPP, as required under Chapter III of Law No. 23,696. The transfer of the Class "C" Shares was approved on February 16, 1994 by Executive Order No. 265/94. The Class "C" shares are held by a trustee for the benefit of GdE employees transferred to MetroGAS who remained employed by MetroGAS on July 31, 1993 and who elected to participate in the PPP.
In addition, the Company's by-laws provide for the issuance of profit sharing bonuses as defined in Article 230 of Law No. 19,550 in favor of all regular employees so as to distribute 0.5% of the net income of each year among the beneficiaries of this program. The accrued amounts will be deductible as expense in the income statements of each year, since unappropriated retained earnings exist.
Participants in the PPP purchased their shares from the Government for Ps. 1.10 per share, either by paying cash for them or by applying dividends on such shares and 50% of their profit sharing bonus to the purchase price. The trustee will retain custody of the Class "C" shares until they are fully paid.
Once the Class "C" shares are fully paid, they may be converted at the request of the holders thereof into freely transferable Class "B" shares. The decision to convert Class "C" Shares to Class "B" Shares must be taken by the Class "C" shareholders, acting as a single class. While the PPP is in effect, neither the by-laws of the Company nor the proportions of the various shareholdings may be changed until the requirements set forth in the PPP are fully complied with.
NOTE 14 - LONG-TERM CONTRACTS
In order to assure itself of sufficient gas supply and transportation capacity to enable it to provide the licensed service, MetroGAS entered into long-term contracts for the purchase of gas and gas transportation services. In order to obtain access to technical expertise required providing its licensed service, MetroGAS entered into the long-term Technical Assistance Agreement referred to below.
14.1. Gas supply
In order to meet gas supply requirements, the Company operates with the following suppliers: YPF, Total Austral, Wintershall Energía, Pan American Energy and other producers in Tierra del Fuego, Neuquén and Santa Cruz.
On June 14, 2007, Resolution No. 599/07 of the Energy Secretariat was published in the Official Bulletin through which was homologated the proposed draft of the "Agreement with Natural Gas Producers 2007-2011", then executed by certain natural gas producers, triggering its enforceability. Basically, the Agreement 2007-2011: i) set forth the volumes to be injected in the points of entry to the transportation system by the natural gas producers for residential and commercial consumers, industries, power plants and CNG supply stations until December 31, 2011 (although with different contractual terms depending the type of consumer), (ii) indicates certain price adjustment parameters depending the type of consumer, and (iii) establishes the mechanisms of natural gas re-routing and additional injections to guarantee the supply of the domestic market in case of shortages. By virtue of said Agreement, the natural gas producers and natural gas distributors should execute gas purchase agreements including its terms and conditions. At the date of issuance of these financial statements, MetroGAS did not execute any of these agreements given the fact that it is our understanding that the offers received from the natural gas producers neither comply with the terms and conditions of the "Agreement with Natural Gas Producers 2007-2011" nor would allow MetroGAS to guarantee the supply of natural gas to its non interruptible consumers, considering the volumes included in said offers.
Contracts that originally due on December 31, 2006 were kept in the same conditions, including prices, until July 31, 2007. As from August 1, 2007, the natural gas producers are supplying natural gas to MetroGAS in the volumes set forth under the Agreement with Natural Gas Producers 2007-2011 and based on several notes issued by the Sub-secretary of fuels and EGM, as delivery arrangements considering that those contracts with gas producers do not exists.
Due to MetroGAS understanding that the volumes, basins of injection and routes of transportation foreseen in the Agreement 2007-2011 would prevent the normal supplying of the non interruptible demand, the Company has carried out presentations to the ENARGAS, the ES and the Fuel Sub secretariat tending to raise this situation and to request its remediation.
NOTE 14 - LONG-TERM CONTRACTS (Contd.)
Based on these renegotiations, the gas supply contracted as of December 31, 2007 is the following:
Daily average volumes for the years
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
MMCM/d (1) |
0.9 |
0.5 |
0.4 |
|||||
|
MMCF/d (2) |
|
|
33.1 |
|
16.5 |
|
13.2 |
|
According to the above-mentioned long-term contracts, the minimum volumes and amounts of natural gas purchases that MetroGAS is obligated to pay for regardless of whether or not they are taken ("take-or-pay amounts") are also set forth in the table below:
Daily average volumes for the years
|
2008 |
2009 |
2010 |
||||||
|
MMCM/d (1) |
0.8 |
0.4 |
0.3 |
|||||
|
MMCF/d (2) |
29.8 |
14.8 |
11.9 |
|||||
|
Amounts committed/year (3) |
|
|
13.1 |
|
6.5 |
|
5.2 |
|
(1) Million cubic meters per day. In order to estimate the volumes, it was considered only contracts in force and not the Energy Secretariat Resolution No 599/07.
(2) Million cubic feet per day.
(3) Million pesos. We have considered prices established in the last tariff chart approved by the ENARGAS applicable since July 2005 and effective as of December 31, 2007.
The gas supply contracts also entitle MetroGAS to certain reductions of its take-or-pay amounts in the event that demand from power plants in the Company's service area falls below certain volumes of gas per day or in the event of any direct purchase of gas from a supplier or intermediaries and of transportation services for the purchased gas (which bypasses MetroGAS network). The Company considers it unlikely that its take or pay commitments for gas supplies will lead to significant liabilities for gas not taken as of December 31, 2007.
14.2. Gas transportation
MetroGAS has entered into a number of transportation contracts, with expiration dates ranging between 2008 and 2021, with Transportadora de Gas del Sur S.A. ("TGS"), Transportadora de Gas del Norte S.A. ("TGN") and other companies, which provide for firm transportation capacity of 24.6 MMCM per day, considering contracts in force as of December 31, 2007.
The estimated annual valuation of firm transportation under these contracts is, as follows:
NOTE 14 - LONG-TERM CONTRACTS (Contd.)
The contracts entered into by MetroGAS with gas transportation companies could be subject to modifications due to Emergency Law provisions applicable to utility services contracts, which include natural gas transportation. As of the date of issuance of these financial statements it is not possible to assess the impact of these modifications.
14.3 Transportation and distribution commitments
The contracts entered into with power plants include clauses to cede transportation during the winter period; these clauses allow MetroGAS to restrict the transportation and distribution service for a determinate volume to supply its non-interruptible demand.
In case MetroGAS is obligated to restrict the transportation and distribution service for a higher volume than the established in each contract, mainly due to a higher firm demand, those contracts establish penalties to pay to power plants due to these restrictions.
During year 2007, the Company renewed the contract with one power plant, stablishing that the fine to be paid cannot surpass 30% of the invoicing amount and the remaining will be compensated in additional service days split in two equal parts during the following years.
14.4. Technical assistance agreement
Under this agreement, BG International Limited, a member of BG holding, provides technical assistance to the Company in exchange for the payment of an annual technical assistance fee equal to the greater of US$ 3,000 thousand or 7% of the amount obtained after subtracting US$ 3,000 thousand from the income before income tax and before financing results. The original contract was in force for a term of eight years from the Takeover Date. The parties, agreed to renew the contract for an additional eight-year term beginning December 28, 2000. The terms and conditions of the original agreement were not changed.
The Emergency Law (Note 2) establishes the conversion into pesos of all liabilities emerging from private contracts in effect at the time the Emergency Law became effective which were denominated in foreign currency or contained a foreign currency adjustment clause at the exchange rate Ps. 1 = US$ 1 (or at equivalent rates for other currencies). The CER is to be applicable to such contracts. The Technical Assistance Agreement has been modified accordingly.
The modifications mentioned above, include a provisional clause, requiring the Company to pay an annual fee equal to the greater of Ps. 360 thousand, adjusted by CER or, 7% of Company Net Profits ("fee on profits") provided financial debt restructuring has been achieve. The agreement establishes that from the fiscal year in which the fee on profits may be higher than Ps. 3,000 thousand adjusted by CER and provided financial debt restructuring has been achieved, the abovementioned clause will have no further effect and the Company shall pay, besides the fee, an additional amount equivalent to the ordinary management fee of Ps. 3,000 thousand annually less payments made in accordance with the provisional clause, adjusted by CER from March 1, 2002. This amount will be paid in 36 monthly consecutive settlements. This settlements are being paid since this year. The accrued expenses resulting from this contract are disclosed in the Technical operator's fees line in Exhibit H. Transactions and balances with BG International Limited derived from this contract are described in Note 6.
NOTE 14 - LONG-TERM CONTRACTS (Contd.)
During the present year the fee on profits has been accrued due to it is over Ps. 3,000 thousand as of December 31, 2007 and since the financial debt restructuring has been achieved.
NOTE 15 - FISCAL AND LEGAL MATTERS
15.1. Turnover Tax - Transfer to tariff
On March 20, 1998, the Company requested ENARGAS to transfer to tariff the cost variations derived from the increase in turnover tax in the jurisdiction of the Autonomous City of Buenos Aires. On July 14, 2000 ENARGAS issued Resolution No. 1,787 rejecting MetroGAS' claim. On August 23, 2000 the Company filed an administrative recourse, which was rejected by the ENARGAS on November 15, 2000, leading the Company to file the administrative recourse provided by article 100 of the Proceedings Law. At the date of issuance of these financial statements, the claim made by MetroGAS is pending resolution by ENARGAS.
However, on October 11, 2002 MetroGAS requested ENARGAS a rate adjustment pursuant to the article 46, Law 24,076.
15.2. Stamp Tax
15.2.1 Stamp Tax - Provinces of Neuquén and Rio Negro
Due to several claims from the tax authorities against MetroGAS for the collection of the stamp tax on contracts for offers with tacit acceptance, MetroGAS, the other distributors, producers and transportation companies, which had received similar claims, have filed a declaratory action with the CSJN.
On April 15, 2004, the CSJN declared in one of the proceeding that offers with tacit acceptance, which are the subject matter of this litigation, cannot be taxed. Therefore, all the proceedings, including MetroGAS' ones, were declared abstract.
15.2.2 Stamp Tax - Province of Buenos Aires
On October 12, 2006 MetroGAS was notified of Resolution No. 746/06, pursuant to which the Tax Bureau of the Province of Buenos Aires made a Stamp Tax assessment over different agreements.
On November 3, 2006 MetroGAS answered said assessment providing its defense. On December 5, 2006 MetroGAS was notified of Resolution No. 1467/06, pursuant to which the Tax Bureau determined the alleged tax difference amounting to Ps. 110,492, plus accrued interest. On January 2, 2007 MetroGAS filed a Motion of Appeal before the Tax Court of the Province of Buenos Aires, which a the date hereof remains unsolved.
On May 18, 2007 MetroGAS took notice of a new Stamp Tax claim of the Tax Bureau against MetroGAS, through which it claims the payment of an alleged tax debt assessed as of November 30, 2006 for the amount of Ps. 235,895.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
Pursuant to the aforementioned, MetroGAS registered an allowance for an amount of Ps. 354 thousand to cover this contingency.
15.3. Income Tax - Bad debt deduction
On November 5, 2002, the Federal Tax Authority ("AFIP") informed MetroGAS of the ex-officio ruling that disallowed bad debt deductions on the company's income tax returns for fiscal years 1996 and 1997 and established a tax adjustment for those years of Ps. 854 thousand and Ps. 1,585 thousand, respectively.
The AFIP rejected the bad debt deduction, which was determined by the Company based on the following indicators:
- Disappearance of the debtor as evidenced by the change of the name in which the relevant account was maintained.
- Removal of the meter from the location of customers, which owed MetroGAS less than Ps. 1,000.
AFIP's main argument to challenge the deduction is based on the fact that MetroGAS should have started legal actions to collect those debts. On November 26, 2002, MetroGAS appealed the AFIP's determination to the Tax Court. Likewise, In adittion to this, AFIP levied attachments on some of the company's fixed assets. As of December 31, 2007, the residual accounting value amounted to Ps. 16.6 million.
Subsequently, on December 3, 2002, Executive Order No. 2,442/02 was published, replacing Article No.136 of the income tax regulations applicable to years ended after the publication date (year 2002). One of its main objectives was to rule on the requirements that not very significant defaulted payments should meet to enable their deduction as bad debts. The following requirements are established: debts remained unpaid for at least 180 days, notice of non-payment has been served on the debtor and the debtor's service has been disconnected or terminated. Furthermore, the amount should not exceed that established by AFIP.
On March 7, 2003 General Resolution No. 1,457 of AFIP was published, establishing the amount in Ps. 1,500. And on June 18, 2004 General Resolution No. 1693, which increased the deduction amount to Ps. 5,000, was published.
Dated February 16, 2007 Division C of the Prosecuting Court notified MetroGAS its sentence from December 7, 2006 through which this Court accepted as an indicator of the impossibility to collect the removal of gas meters from delayed customers and rejected the one connected to the disappearance of the debtor. In both cases, and considering the nature of this matter and the amounts at issue, and in face of an excusable mistake, the Prosecuting Court annulled the fine applied to MetroGAS. AFIP desisted the appeallation recourse against the decision of the Prosecuting Court that reversed the AFIP's determination respect to removing of the meter from the location of customers, which owed MetroGAS less than Ps. 1,000.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
The Prosecuting Court ordered D.G.I., carry out the reassessment of income taxes and compensatory interests in agreement with the criterion that it is established. On August 8, 2007 the D.G.I. notified the reassessment to MetroGAS. Such reassessment did not consider the AFIP General Instruction No. 2/07, issued on March 15, 2007, which allowed the deduction of the credits of up to Ps. 1,500, by non-competitive markets' utilities companies. MetroGAS carried our different filings before the Prosecuting Court requesting a new reassessment considering the abovementioned General Instruction.
Up to the date of these financial statements, the Prosecuting Court did not issue any decision in this regard. Once the reassessment becomes definitive, the parties may appeal before the Chamber of Appeals within the term set forth to such effect. Pursuant to the abovementioned and once the final reassessment carried out by the D.G.I becomes definitive, the Company will appeal against the Court of Appeals, for which it will have to pay the claimed taxes and then, provided a favourable judicial decision is issued, request the reimbursement of the paid amount. Consequently, to cover this contingency, the Company registered a provision for an estimated amount of Ps. 5,882 thousand until the definitive reassessment will be issued by the DGI.
15.4. Study, revision and inspection of works in public spaces levy, and occupancy of public space levy
15.4.1 Study, revision and inspection of works in public spaces levy
In 1997, MetroGAS and several other public service companies entered into an agreement for the coordination of work in public spaces ("Streets Work Agreement" or "SWA") with the government of the Autonomous City of Buenos Aires ("GCABA"). Pursuant to such agreement, the Company agreed to pay the GCABA Ps. 0.5 million per year, to compensate for street work inspection costs.
From 2000 onwards, the GCABA included in its budget a study, revision and inspection of works in public spaces levy applicable (among others) to gas pipelines. Although the SWA was explicitly mentioned as a precedent, the tax amounts were unilaterally increased by the GCABA.
On January 26, 2001, ENARGAS informed MetroGAS that, in the case of the study, revision and inspection of works in public spaces levy, the Company would have to demonstrate the impact of the changes on consumer prices, whereas, in the case of the occupancy of public space levy, MetroGAS would have to challenge the validity of the new tax, both through administrative proceedings and judicial action. ENARGAS also informed the GCABA that all changes in taxation would be dealt as a pass-through cost and would have to be absorbed by the consumers of the jurisdiction in which these changes were introduced.
As from 2001 MetroGAS has received, from the GCABA, notifications demanding the payment of the study, revision and inspection of works in public spaces levy. Metrogas presented the pertaining administrative appeal against each of the claims made by the GCABA, which were duly rejected, thus having no other administrative appeal to proceed by, legal actions were filed in order to collect the claimed amounts.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
During 2007 MetroGAS has executed an agreement whit the GCABA entering into a payment plan in order to cancell the debt corresponding to the period included between February 1, 2000 and December 31, 2006.
The regulatory framework of the gas industry, specifically Art. 41 of the Law No. 24,076 and Art. 9.6.2 of Decree No. 2,255/92, define that the variations of costs originated in changes in the taxes must be reflected in the tariffs. This concept is reinforced by the Supreme Court of Justice of the Nation in cases in which the validity of the Occupancy of public space levy was contested, as it is exposed in point 15.4.2.
MetroGAS considers that an acquired right exists that recognizes the transfer to tariffs of the amounts that eventually must pay for the Study, revision and inspection of works in public spaces levy and for that reason this concept has been recorded as Other non-current credits amounting to Ps. 36,595 thousand (Note 4.f)).
15.4.2 Occupancy of public space levy
15.4.2.1 Government of the Autonomous City of Buenos Aires
In 1998, the GCABA created an occupancy of public space levy, applicable (among others) to gas pipelines, which was included in the city's annual budgets. That levy has been objected by several public service companies.
As from 2003 the GCABA has demanded MetroGAS the payment of the occupancy of public space levy. MetroGAS duly presented hierarchical appeals before the administrative office against such demands.
On September 22, 2004 the GCABA notified MetroGAS of the rejection of those administrative appeals duly presented, therefore ending the administrative proceedings and making it possible to file legal actions to collect the requested amounts. On February 28, 2005 it was filed before the lower court of the Government of the Autonomous City of Buenos Aires, an action under administrative law with precautionary measures against the decision taken by the GCABA on September 22, 2004.
On February 2, 2005, a note with copy to ENARGAS and UNIREN was sent to the Energy Secretariat requesting immediate treatment of the transferring of the tax to the tariff. In April 2005, the General Department of Legal Affairs of the Ministry of Economy, pronounced itself in favor of the reallocation of tariffs, sending the file to the ENARGAS so as to have a final resolution on this matter.
During 2005, after the notification of the payment received, MetroGAS has executed an agreement whit the GCABA, entering into a payment plan in order to cancell the debt corresponding to the period included between January 1, 1998 and December 31, 2004. As of the date, the Company is paying the installments on a regular basis both, the payment plan and the quarterly ones.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
On March 6, 2006 MetroGAS presented a note before the ENARGAS reporting its adherence to the said payment facilitation plans and requesting once again the reallocation on tariffs, this note was reaffirmed by note presented before the ENARGAS dated March 29, 2006. Dated April 28, 2006 the ENARGAS was requested a quick sentence. Dated July 11, 2006 the request for the reallocation on tariffs was repeated, sending the payment slips from the payment facilitation plan's second and third paid installments.
On November 28, 2006 the ENARGAS requested the submittance of all information and documentation in order to evaluate the impact, resulting from the transfer to tariffs, on customers within the Autonomous City of Buenos Aires. Dated December 1, 2006 MetroGAS presented a note before the ENARGAS with the information and documentation background attached to the file during the whole six years that those administrative proceeding took, including the one requested in the Note. On January 30, 2007 MetroGAS presented a note before the ENARGAS requesting to report if, before taking a decision and in spite of considering that the information and documentation submitted by the company at the first presentation met the stipulations imposed by the legal regulation in order to meet the requirements that would accept the right mentioned under the terms of Sect. No 41 of the Law No 24,076 and Sect. No 9.6.2 of the Distribution License Basic Rules, it was necessary for that Regulatory Authority to count on information and/or proof of documents in addition to the ones already submitted by MetroGAS.
15.4.2.2 Municipality of Esteban Echeverría
Through Resolution No 113/05, dated February 7, 2005, the Municipality of Esteban Echeverría claimed for $ 6,575 thousand (incidental expenses included) concerning the right to occupancy of public spaces corresponding to the period from 2000 to 2004. Dated February 18, 2005 MetroGAS rejected the imposition of such rate on the grounds of what is stipulated by federal standards which are hierarchically superior to the ones included in Municipal ordinances.
On March 28, 2005 the Mayor notified MetroGAS that the arguments set forth by the company were rejected (Executive Order No 465/2005). Against such Executive Order, MetroGAS filed an Appeal for Reconsideration, which was rejected on August 17, 2005, thus ending the administrative proceedings and making it possible to file legal actions to collect the requested amounts.
On March 10, 2006 MetroGAS and the Municipality signed a letter of intention in order to reach an agreement regarding the indebted amounts. On March 30, 2006 the first quarter installment from 2006 was paid and as from that date all the period's installments were regularly paid.
In May 2006 the transfer to tariffs was requested to the ENARGAS and in July of the same year a quick response was demanded.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
On June 30, 2006 a formal letter was received where the Municipality notified MetroGAS of its debt up to December 31, 2005, and offered two payment plan alternatives. Dated July 10, 2006 a copy of such letter was sent to the ENARGAS so that they could inform the course of action to be taken regarding the payment plans offered and once again the transfer to tariffs was requested.
On December 19, 2006 knowing that the Municipality was about to start legal actions to collect the indebted amount and in order to avoid any setback in the rendering of its service, MetroGAS adhered to a plan of facilities of payment that consists of paying the amounts claimed from the period 2000 to 2005 in four installments. Up to date MetroGAS finished paying the installments under said plan and the corresponding to the year 2006 and is paying those ones corresponding to 2007.
15.4.2.3 Municipality of Almirante Brown
The Municipality of Almirante Brown claimed to MetroGAS the payment of the Right of Occupancy and Use of Public Spaces corresponding to fiscal years 2004, 2005 and 2006 considering as taxable base a deemed gas pipeline extension, which resulted higher than the actual one. MetroGAS rejected such claim and informed the actual gas pipeline extension within the jurisdiction of the Municipality for purposes of the re-assessment of the claim.
In April 2007 the Municipality and MetroGAS executed an agreement to formalize MetroGAS' entering into a payment plan which installments have been completely canceled as of December 31, 2007 by MetroGAS.
15.4.2.4 Municipality of Ezeiza
On September 3, 2007 the Municipality of Ezeiza requested to MetroGAS the payment of the Right of Occupancy and Use of Public Spaces corresponding to periods 2000-2006.
On October 9, 2007 MetroGAS and the Municipality executed an agreement through which MetroGAS entered into a payment plan.
MetroGAS has recorded these concepts under the heading Other non current receivables for Ps. 46,799 thousand, Ps. 6,202 thousand, Ps. 3,282 thousand and Ps. 829 thousand for the above mentioned rate corresponding to the Autonomous City of Buenos Aires, the Municipality of Esteban Echeverría, the Municipality of Almirante Brown and the Municipality of Ezeiza, respectively as MetroGAS considers it has an acquired right to be recognized the reallocation on tariffs of paid amounts regarding the rate of Occupation of Public Spaces every time it is so stipulated by the gas industry regulatory framework. Law No 24,076 (Sect 41) and Executive Order No 2,255/92 (Sect 9.6.2) establish that variations of costs resulting from tax changes shall impact on tariffs.
This criterion is also backed up by rulings of the Nation's Supreme Court of Justice that in the cases Gas Natural Ban c/ Municipalidad de Campana y Litoral Gas c/ Municipalidad de Villa Constitución s/ acción meramente declarativa, pronounced that Sect 9.6.2 of Executive Order No 2,255/92 established that costs variations resulting from changes in tax standards, shall be reallocated to tariffs according to what is stipulated in Sect 41 of Law No 24,076.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
Pursuant to what has been expressed and according to what is stipulated by the legislation in force and the resolution issued by the Department of Legal Affairs of the Ministry of Economy, MetroGAS considers that said credit is recoverable.
15.5. Turnover tax (Province of Buenos Aires)
During 1994, the Province of Buenos Aires agreed with the Argentine Government that the Province would not impose gross revenue taxes on sales of natural gas at a rate in excess of 3.5% of the invoice prices of those sales. Notwithstanding the above, the Province imposed gross revenue taxes on sales of natural gas at a higher rate and instructed us to include gross revenue taxes at the higher rate in our invoices to our customers and to remit the taxes so collected to the Province. MetroGAS declined to follow those instructions, citing the agreement between the Province and the Argentine government described above.
On December 22, 2005, through Resolution No. 907/05, the Revenue Department of the Province of Buenos Aires requested the payment of amounts corresponding to the period from 2001 to 2003, that would have been received from customers, if the mentioned rate increase had been applied in the invoices (actually amount approximately Ps. 10 million, including interests and fines). Such Resolution was appealed on January 16, 2006, before the Fiscal Court of the Province of Buenos Aires.
On September 27, 2006 the "Comisión Federal de Impuestos" (Federal Tax Commission) through its judgment No. 112/2006 ratified the criterion followed by the Company and rejected a motion of revision filed by the Province of Buenos Aires within a file that analyzes a situation identical to MetroGAS'. Against such judgment, the Province of Buenos Aires filed and extraordinary motion of revision against the same Federal Tax Commission to be decided by the Federal Supreme Court of Justice. Said extraordinary motion was granted and up to date the same is pending of definitive decision by the Federal Supreme Court of Justice.
On March 3, 2008, through Resolutions No.95/08, 96/08 and 97/08, the Revenue Department of the Province of Buenos Aires requested the payment of amounts corresponding to the period from January 2004 to October 2005 of the above mentioned rate increase, and for difference in the income and expenses rate. Those amounts approximately Ps. 20 million, including interests and fines.
In the event that MetroGAS is finally compelled to pay for such amounts, it will request a reallocation of such rate increase to the tariffs paid by customers in compliance with the terms of the License.
15.6. Rates and charges
Through resolution No. 2778/03, the ENARGAS stated that MetroGAS had collected excessive rates and charges from its customers amounting to Ps. 3.8 million and stipulated a fine for Ps. 0.5 million. The Company duly filed an appeal for reconsideration with a subsidy appeal against the mentioned Resolution and against the interest rate applied on the fine.
NOTE 15 - FISCAL AND LEGAL MATTERS (Contd.)
As of December 31, 2007 the total amount demanded by the ENARGAS amounted to Ps.19,116 thousand, including interests and fines, which has been recorded as a provision.
15.7. Executives proceedings
At the time of these financial statements, the Company maintains certain executive proceedings started by holders of Negotiable Obligations, which are pending resolution.
Certain bondholders have filed attachments on MetroGAS' current accounts and collections, amounting to Ps. 8,835 thousand as of December 31, 2007.
15.8. Others
At the date of issuance of these financial statements, there are disagreements between the Company and the regulatory authorities as to the interpretation of various legal matters. In management's opinion, the final resolution of these disagreements will not have material impact on the Company's financial statements as of December 31, 2007.
|
Andrés Cordero |
|
Vice-President
|
METROGAS S.A.
EXHIBIT A
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
FIXED ASSETS
METROGAS S.A.
EXHIBIT C
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
NON-CURRENT INVESTMENTS
METROGAS S.A.
EXHIBIT D
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
CURRENT INVESTMENTS
METROGAS S.A.
EXHIBIT E
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
ALLOWANCES
METROGAS S.A.
EXHIBIT F
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
OPERATING COST
METROGAS S.A.
EXHIBIT G
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND 2006
FOREIGN CURRENCY ASSETS AND LIABILITIES
METROGAS S.A.
EXHIBIT H
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
EXPENSES INCURRED
Basis of Presentation
The consolidated financial statements are stated in Argentine pesos and were prepared in accordance with accounting disclosure and valuation standards contained in the technical pronouncements issued by the Argentine Federation of Professional Councils in Economic Sciences ("FACPCE") approved by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires ("CPCECABA") and in accordance with the resolutions of the National Securities Commission ("CNV").
The consolidated financial statements have been prepared in constant currency, reflecting the overall effects of inflation through August 31, 1995. Between that date and December 31, 2001, restatement of the financial statements was discontinued due to the existence of a period of monetary stability. Between January 1, 2002 and March 1, 2003, the effects of inflation were recognized to reflect the inflation recorded during that period. As from that date, restatement of consolidated financial statements has been discontinued. The rate used for restatement of items was the internal wholesale price index published by the National Institute of Statistic and Census.
The Company has consolidated line by line its balance sheet as of December 31, 2007 and 2006, as well as its statements of income and cash flow for the year ended as of December 31, 2007 and 2006 with the financial statements of its controlled company (MetroENERGÍA S.A.) in compliance with Technical Resolution No. 21 issued by FACPCE, approved by the CPCECABA.
Within the framework of the statement of consents made on July 8, 2004 by FACPCE and CPCECABA - which states that in the parties' opinion it would be important to unify technical standards - on August 10, 2005 CPCECABA issued Resolution CD 93/05, through which it adopted the accounting standards approved by FACPCE including amendments thereto as at April 1, 2005.
The adoption of the mentioned standards came into effect for the fiscal years or periods corresponding to fiscal years started as from January 1, 2006.
Also, the CNV has adopted the mentioned standards with certain amendments, establishing its applicability for fiscal years started as from January 1, 2006, too.
Modifications introduced by the process of unification of accounting standards have not generated significant effects on the consolidated financial statements of the Company.
The Argentine Economic Scenario and its impact on the Company
As from the passing of the Emergency Law and its subsequent decrees, MetroGAS' activity has been significantly affected. Among the measures adopted the most important are the devaluation registered during the first months of year 2002, the pesification of certain assets and liabilities in foreign currency deposited in the country, the consequent increase of internal prices and the pesification of prices and tariffs of public services.
Moreover, such law contains provisions governing contracts between private parties existing as of its effective date, which provide for payment in foreign currencies or contain foreign currency adjustment clauses. In this regard, it provides for conversion into pesos of all obligations at an exchange rate of Ps. 1 per US$ 1.
At the time the Emergency Law became effective, the Company was party to a number of such contracts, the most relevant of which were for the purchase of natural gas, and essential to serve Company customers. Under the provisions established in the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices, mentioned in Note 14, and the renegotiation of most of the contracts with the Company's gas suppliers, and subject to the permanent compliance of the National Government with all the obligations it has assumed, gas producers whose contracts have been renegotiated have committed themselves to suspending actions and/or procedures brought against the Gas Distributors for claims resulting from the abovementioned law. As from August 1, 2007, when Resolution No. 599/2007 became effective, this suspension is considered a final waiver.
Moreover, the provisions of the Emergency Law modify standards of the Regulatory Framework applicable to the transportation and distribution of natural gas, mainly those which establish that the tariffs are calculated in U.S. dollars and stated in pesos and that are adjustable according to international indexes.
The situations previously described, have been considered by the Company's Management when calculating significant accounting estimates included in these consolidated financial statements, including those related to the recoverable value of non current assets. For that purpose, the Company's Management periodically elaborates economic-financial projections from alternative scenarios based on macroeconomic, financial, market and regulatory assumptions. As a consequence of the situations described above, such projections have considered modifications to the tariffs and adjustments to the operative costs of the Company in order to restore its economic-financial equation. Actual future results could differ from those estimates.
In Notes 2 and 8 to primary financial statements, there is a detailed description of the economic context, the impacts of the Emergency Law and its ruling decrees and the uncertainties generated about the future results of the Company.
On July 6, 2007 the Secretariat of Interior Commerce from the Ministry of Economy and Production started administrative proceeding tending to impose a temporary intervention over MetroGAS. This was performed within the framework of the Law of Supply and Speculation Control No. 20,680 and assuming that the Company had performed against the law when cutting natural gas consumption to a number of industrial customers under certain terms and conditions. Finally, the Secretariat of Interior Commerce decided not to impose such temporary intervention over MetroGAS.
Should be highlighted that the decision adopted by MetroGAS in relation to the restriction of the supply of natural gas to certain natural gas supplies to industrial customers was in strict compliance with the applicable legal framework and, specifically, to the decisions in this respect adopted by the Emergency Executive Committee, called and acting pursuant to the Internal Ruling of Supply Centers approved by ENARGAS Resolution No. 716/1998 with the Energy Secretariat and ENARGAS taking part in the meetings held on 3 and 5 of July 2007 and aiming at guaranteeing natural gas supply to uninterruptible customers.
On July 6, 2007, the General Director of the Company, Mr. Roberto Daniel Brant requested a license until July 20, 2007, consequently the Board of Directors appointed Mr. Sergio Vito Camporeale in his place during such period. Moreover, dated on July 18, 2007 the Board of Directors accepted an extension to Mr. Roberto Daniel Brant's license until December 31, 2007 and his resignation to the position of Director and First Vice president of the Company. MetroGAS' Board of Directors appointed Mr. Andrés Cordero as First Vice President and acting General Director until December 31, 2007; who on December 20, 2007 was confirmed as General Director by the Board of Directors.
General Considerations
MetroGAS' sales and earnings are highly sensitive to weather conditions in Argentina. Demand for natural gas and, consequently, MetroGAS' sales and earnings, are significantly higher during the winter months (May to September), due to larger gas volumes sold and the tariff mix affecting revenues and gross profit.
On March 21, 2006 the ENARGAS by means of Resolution No. 3,462 approved, on a temporary basis, the tariff chart applicable as from July 1, 2005 and until these date.
The abovementioned tariff charts contain the values of the price of gas at wellhead that results from the Agreement for the implementation of the schedule for the normalization of gas prices at points of entry into the transportation system, signed between the Energy Secretariat and natural gas producers.
According to changes in regulations (see Note 8.4 to the primary financial statementsthe Board of Directors of MetroGAS decided to constitute MetroENERGÍA S.A. ("MetroENERGÍA") ), on April 20, 2005; MetroGAS holds 95 % of the Common Stock and whose purpose is to buy and sell natural gas and/or its transportation on its own, on behalf of or associated to third parties.
Analysis of Operations for the years ended December 31, 2007 and 2006
The Company's sales increased 9.4% during the year ended December 31, 2007, and operating cost increased 7.4% compared to previous year, thus producing an increase in gross profit of Ps. 35,761 thousand, amounting to Ps. 284,071 thousand during the year ended December 31, 2007 compared to Ps. 248,310 thousand in the previous year.
During the year ended December 31, 2007 an operating income of Ps. 122,724 thousand was recorded compared to an operating income of Ps. 112,261 thousand recorded in the previous year.
During the year ended December 31, 2007 a financial and holding loss of Ps. 114,302 thousand was recorded compared to a gain of Ps. 332,282 thousand recorded in the previous year. Such variation in financial and holding results was mainly due to the gain registered as consequence of the restructuring of financial debt finished in May 2006 and the discount of long term financial debt result, partially offset by reduction of the annual charge of interests by financial operations and the lower negative result of the fluctuation of the exchange rate.
The Company's net income for the year ended December 31, 2007 amounted to Ps. 15,787 thousand compared to a net income of Ps. 292,553 thousand for the previous year.
Operating results and financial position
Sales
The Company's consolidated sales during the year ended December 31, 2007 increased by 9.4%, amounting to Ps. 955,853 thousand compared to Ps. 873,893 thousand in the previous year.
Sales increase during the year ended December 31, 2007 was mainly originated by MetroENERGÍA's sales increase amounting to Ps. 30,131 thousand, by MetroGAS'gas sales amounting to Ps. 28,379 thousand, principally to residential customers, and by MetroGAS'Other Sales amounting to Ps. 23,973 thousand corresponding to winter assistance to other gas distribution companies and the resale of transportation capacity.
It is important to point out that 53.3% of MetroENERGÍA's operations were carried out by trading gas on their own behalf and 46.7% by trading gas on behalf of third parties receiving a fee which is included under the line headed Sales of the Statement of Income.
Sales to residential customers increased by 13.3% from Ps. 373.161 thousand during the year ended December 31, 2006 to Ps. 422,632 thousand during the year ended December 31, 2007 due to the increase of 17.7% in gas volumes delivered to this customer category as the result of lower average temperatures registered during 2007, compared to the previous year.
MetroGAS's sales with gas to industrial, commercial and governmental customers increased by 19.4% from Ps. 79,299 thousand during the year ended December 31, 2006 to Ps. 94,675 thousand in this year mainly due to the increase of 20.2% in gas volumes delivered to this customer category as the result of higher economic activity.
Since April 2006, as a consequence of the "unbundling", MetroGAS's started given only the transportation and distribution service to CNG stations and for that reason did not sell gas to this customer category during the year 2007.
Transportation and distribution services to power plants increased by 1.1% from Ps. 82,875 thousand during the year ended December 31, 2006 to Ps. 83,778 thousand during the year ended December 31, 2007, due to the increase on average prices, partially offset by 7.3% decrease in gas volumes delivered to this customer category.
On the other hand, sales of transportation and distribution service to industrial, commercial and governmental customers decrease 2.1% from Ps. 62,260 thousand during the year ended December 31, 2006, to Ps. 60,975 thousand in this year, due to the 0.7% decrease in the volumes delivered.
Processed natural gas sales decrease 22.9% from Ps. 38,760 thousand recorded during the year ended December 31, 2006, to Ps. 29,881 thousand registered in the year 2007 as consequence of the 29.4% decrease in volumes to be processed due to the hard winter that took place this year.
MetroENERGÍA's sales on its own behalf increased 23.7% from Ps. 130,802 thousand during the year ended December, 2006, to Ps. 161,843 thousand during the year ended December 31, 2007, mainly as a consequence of an increase in volumes delivered to power plants and industries. Gas volumes delivered by MetroENERGÍA corresponding to sales on their own behalf amounting to 836,1 MMm3 (million of cubic meters) during the year ended December 31, 2007, compared to 736,4 MMm3 during the year 2006.
Commission for operations on behalf of third parties carried out by MetroENERGÌA, decreased from Ps. 8,381 thousand during the year ended December 31, 2006 to Ps. 7,471 thousand during the year 2007, as consequence of the decrease in the selling commission rates.
The following chart shows the consolidated Company's sales by customer category for the year ended December 31, 2007 and 2006, expressed in thousands of pesos:
|
|
For the year ended December 31, 2007 |
|
% of Sales |
|
For the year ended December 31, 2006 |
|
% of Sales |
|
MetroGAS |
|
|
|
|
|
|
|
|
Gas sales: |
|
|
|
|
|
|
|
|
Residential |
422,632 |
44.2 |
373,161 |
42.7 |
|||
|
Industrial, Commercial and Governmental |
94,675 |
9.9 |
79,299 |
9.1 |
|||
|
Compressed Natural Gas |
- |
- |
36,468 |
4.2 |
|||
|
Subtotal |
517,307 |
|
54.1 |
|
488,928 |
|
56.0 |
|
|
|
|
|
|
|
|
|
|
Transportation and Distribution Services |
|
|
|
|
|
|
|
|
Power Plants |
83,778 |
|
8.8 |
|
82,875 |
|
9.5 |
|
Industrial, Commercial and Governmental |
60,975 |
|
6.4 |
|
62,260 |
|
7.1 |
|
Compressed Natural Gas |
41,200 |
|
4.3 |
|
32,462 |
|
3.7 |
|
Subtotal |
185,953 |
|
19.5 |
|
177,597 |
|
20.3 |
|
Processed Natural Gas |
29,881 |
|
3.1 |
|
38,760 |
|
4.4 |
|
Other Gas Sales and Transportation and Distribution Services |
53,398 |
|
5.6 |
|
29,425 |
|
3.3 |
|
MetroENERGÍA |
|
|
|
|
|
|
|
|
Sales on own behalf |
161,843 |
16.9 |
130,802 |
15.0 |
|||
|
Selling commission |
7,471 |
0.8 |
8,381 |
1.0 |
|||
|
Total of Sales |
955,853 |
|
100.0 |
|
873,893 |
|
100.0 |
The following chart shows the Company's natural gas sales and transportation and distribution services by customer category for the year ended December 31, 2007 and 2006, expressed in million of cubic meters:
|
For the year ended December 31, 2007 |
% of Sales |
For the year ended December 31, 2006 |
% of Sales |
||||
|
Gas sales: |
|||||||
|
Residential |
2,037.0 |
23.5 |
1,730.8 |
20.3 |
|||
|
Industrial, Commercial and Governmental |
568.5 |
|
6.6 |
|
473.1 |
|
5.6 |
|
Compressed Natural Gas |
- |
|
- |
|
158.3 |
|
1.9 |
|
Subtotal |
2,605.5 |
|
30.1 |
|
2,362.2 |
|
27.8 |
|
Transportation and Distribution Services |
|
|
|
|
|
|
|
|
Power Plants |
3,771.2 |
43.5 |
4,068.2 |
47.7 |
|||
|
Industrial, Commercial and Governmental |
950.7 |
11.0 |
957.4 |
11.2 |
|||
|
Compressed Natural Gas |
613.8 |
7.1 |
516.4 |
6.1 |
|||
|
Subtotal |
5,335.7 |
61.6 |
5,542.0 |
65.0 |
|||
|
Processed Natural Gas |
150.1 |
|
1.7 |
|
212.7 |
|
2.5 |
|
Other Gas Sales and Transportation and Distribution Services |
577.5 |
|
6.6 |
|
406.5 |
|
4.7 |
|
Total delivered volume by MetroGAS |
8,668.8 |
100.0 |
8,523.4 |
100.0 |
|||
|
|
|
|
|
|
|
|
|
|
Total delivered volume by MetroENERGÍA on own behalf |
836.1 |
100.0 |
736.4 |
100.0 |
Operating costs
Operating costs totaled Ps. 671,782 thousand during the year ended December 31, 2007 representing a 7.4% increase compared to Ps. 625,583 thousand recorded in the previous year. This variation was mainly due to the increase in gas purchases and transportation cost, payroll and social contributions, and fixed assets maintenance.
Gas purchases of natural gas and processed natural gas increased 8.1% from Ps. 284,974 thousand during the year ended December 31, 2006 to Ps. 308,179 during this year mainly due to the increase in volumes purchased. During the year ended December 31, 2007, 3,232.4 million of cubic meters were acquired by MetroGAS and 836.1 million of cubic meters were acquired by MetroENERGÍA representing an increase of 9.9% compared to the gas volumes purchased in the year 2006. This variation was mainly due to the higher volume delivered mainly to residential, industrial and commercial customers.
Gas transportation costs increased from Ps. 200,725 thousand during the year ended December 31, 2006 to Ps. 200,688 thousand during the year 2007 as consequence of the increase in daily contracted capacity since June 2006. Gas transportation tariffs have not been increased since January 2002 when the Emergency Law became effective.
During the year ended December 30, 2007 and 2006, the Company capitalized Ps. 2,276 thousand and Ps. 3,139 thousand, respectively, corresponding to the portion of operating costs attributable to the planning, execution and control of investments in fixed assets.
The following chart shows the Company's operating costs by type of expense for the year ended December 31, 2007 and 2006, expressed in thousands of pesos:
|
For the year ended December 31, 2007 |
% of Total Operating Costs |
For the year ended December 31, 2006 |
% of Total Operating Costs |
||||
|
|
|
|
|
|
|
|
|
|
Gas purchases of natural gas and processed natural gas |
308,179 |
45.9 |
284,974 |
45.5 |
|||
|
Gas transportation |
206,888 |
30.8 |
200,725 |
32.1 |
|||
|
Depreciation of fixed assets |
64,566 |
9.6 |
63,062 |
10.1 |
|||
|
Payroll and social contributions |
33,614 |
|
5.0 |
|
29,255 |
|
4.7 |
|
Fixed assets maintenance |
14,402 |
2.1 |
11,882 |
1.9 |
|||
|
Technical operator's fees |
10.201 |
1.5 |
7,737 |
1.2 |
|||
|
Sundry materials |
3,600 |
0.5 |
2,685 |
0.4 |
|||
|
Fees for sundry services |
6,446 |
1.1 |
4,933 |
0.8 |
|||
|
Other operating expenses |
26,162 |
3.9 |
23,469 |
3.8 |
|||
|
Capitalization of operating costs in fixed assets |
(2,276) |
(0.3) |
(3,139) |
(0.5) |
|||
|
Total |
671,782 |
100.0 |
625,583 |
100.0 |
Administrative expenses
Administrative expenses increased by 31.1% from Ps. 62.470 thousand during the year ended December 31, 2006 to Ps. 81,918 thousand during the year 2007. This increase was mainly due to higher contingency provision, payroll and social contributions, taxes, rates and contributions, and professional services fees.
Selling expenses
Selling expenses increased 7.9% from Ps. 73,579 thousand during the year ended December 31, 2006 to Ps. 79,429 thousand during the year 2007, mainly due to the increase in payroll and social contributions, and taxes, rates and contributions.
Financing and holding results
During the year ended December 31, 2007 a financial and holding loss of Ps. 114,302 thousand was recorded compared to a gain of Ps. 332,282 thousand recorded in previous year. Such variation in financial and holding results was mainly due to the gain registered as consequence of the restructuring of financial debt finished in May 2006 and the discount of long term financial debt result, partially offset by reduction of the annual charge of interests by financial operations and the lower negative result of the fluctuation of the exchange rate.
Other income, net
Other income net, for the year ended December 31, 2007 totaled a gain of Ps. 3,157 thousand compared to a gain of Ps. 1,398 thousand recorded in the previous year, due to provisions recovered during the present year 2007.
Income tax
During the year ended December 31, 2007, the Company registered Ps. 4,554 thousand as gain for income tax compared with Ps. 153,023 thousand charge registered in the previous year. Such variation was mainly due to the gain resulting of financial debt restructuring finished in May 2006.
Net cash flows provided by operating activities
Net cash flows provided by operating activities were Ps. 118,334 thousand during the year ended December 31, 2007 while during the previous year were provided by Ps. 170,237 thousand. Such decrease in net cash flows provided by operating activities was mainly due to higher cash flows required by working capital.
Net cash flows used in investing activities
Net cash flows used in investing activities totaled Ps. 62,944 thousand during the year ended December 31, 2007, due to higher fixed assets additions, compared to Ps. 48,915 thousand used during the previous year.
Net cash flows used in financing activities
Net cash flows used in financing activities totaled Ps. 98,707 thousand during the year ended December 31, 2007, compared to Ps. 572,619 thousand used during the previous year. Such variation was mainly due to the cash payment of financial debt and interests cash payments during the process of financial debt restructuring finished in May 2006.
Liquidity and capital resources
Financing
As of December 31, 2007, the total indebtedness of the Company was Ps. 736,807 thousand.
At the Extraordinary Shareholders' Meeting held on December 22, 1998 the Shareholders approved the creation of a Global Program for issuing unsecured non-convertible Negotiable Bonds, for an amount of up to US$ 600 million (or the equivalent in other currencies or currency combinations) over a five-year term as from the date of authorization of the Program by the CNV. On October 15, 2004, Extraordinary Shareholders Meeting approved the five years extension of the Global program since August 19, 2004, that was authorized by CNV on March 31, 2005.
Under the mentioned Global Program, the following Negotiable Obligations were placed and issued (i) Series A, on March 27, 2000, by the amount of US$ 100 million, maturing in 2003, bearing interest at the rate of 9.875% per annum, (ii) Series B, on September 27, 2000, by the amount of Euros 110 million maturing in 2002, bearing interest at the rate of 7.375% per annum and (iii) Series C, on May 7, 2001, by the amount of US$ 130 million, maturing in May 2004 and bearing interest at LIBOR plus a margin ranging from 2.625% to 3.25%.
On March 25, 2002, MetroGAS announced the suspension of principal and interest payments on all of its financial indebtedness due to the fact that the Emergency Law, together with implementing regulations, altered fundamental parameters of the Company's license, including the suspension of the tariff adjustment formula and the redenomination of the tariff into pesos, and also the announcement of the devaluation of the peso.
On November 9, 2005, the Company announced the commencement of a solicitation of consents to restructure its unsecured financial indebtedness pursuant to an APE under Argentine law.
On April 12, 2006 MetroGAS announced the acceptance of tenders of approximately 95% of the total outstanding financial debt pursuant to its restructuring offer. The Company also announced its intention to restructure such indebtedness pursuant to an out-of-court restructuring in order to complete the process faster and more effectively.
Furthermore, at that date, the Company's Board of Directors approved the issuance and solicitation of consents for the public offering of Series 1 Notes for an amount of up to US$ 250 million, Series 2 Class A Notes for up to US$ 10 million, and Series 2 Class B Notes for up to Euros 40 million, which will be given in exchange to current bondholders.
On May 12, 2006, the Company concluded the financial debt restructuring process, performing the effective exchange of the bonds. Consequently, it issued in exchange for its Existing Debt Series 1 Notes amounting to US$ 236,285,638 in principal amount, Series 2 Notes Class A amounting to US$ 6,254,764 in principal amount and Series 2 Class B amounting to Euros 26,070,450 in principal amount. Additionally the Company made payments amounting to US$ 105,608,445 for the cash options received, along with US$ 19,090,494 and Euros 469,268 to pay accrued interest on Series 1 notes and Series 2 notes through December 30, 2005.
The offering of the Series 1 and 2 was made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
MetroGAS, and its subsidiaries, must comply with a series of restrictions under the Company's new debt obligations (Note 9 to the primary financial statements).
Comparative consolidated balance sheets
In order to appraise the development of the Company's activities, the chart below sets forth comparative consolidated balance sheet information from the Company's consolidated financial statements as of December 31, 2007, 2006 and 2005 (due to the incorporation of the controlled company MetroENERGÍA S.A., registered in the Public Registry of Commerce on May 16, 2005) and the financial statements as of December 31, 2004 and 2003, in constant Argentine pesos as of March 1, 2003.
Comparative consolidated statements of income
The chart below contains a summary of the consolidated statement of income for the year ended December 31, 2007, 2006 and 2005, and the statements of income for the year ended December 31, 2004 and 2003, in constant Argentine pesos as of March 1, 2003.
Comparative statistical data
The chart below shows a summary of operating data for the year ended December 31, 2007, 2006, 2005, 2004 and 2003.
Comparative ratios
The chart below contains certain financial ratios as of December 31, 2007, 2006, 2005, 2004 and 2003.
Other information
The chart below contains information regarding the price per share of the Company's common shares and its ADSs:
|
|
|
Share Price on the Buenos Aires Stock Exchange (1) |
ADSs Price on the New York Stock Exchange (1) |
|
|
|
Ps. |
US$ |
|
December |
2003 |
1.98 |
6.44 |
|
December |
2004 |
1.30 |
4.26 |
|
December |
2005 |
1.30 |
4.09 |
|
January |
2006 |
1.31 |
4.14 |
|
February |
2006 |
1.23 |
4.03 |
|
March |
2006 |
1.27 |
4.06 |
|
April |
2006 |
1.20 |
3.92 |
|
May |
2006 |
1.02 |
3.34 |
|
June |
2006 |
1.04 |
3.33 |
|
July |
2006 |
1.06 |
3.45 |
|
August |
2006 |
1.04 |
3.40 |
|
September |
2006 |
1.02 |
3.26 |
|
October |
2006 |
1.07 |
3.45 |
|
November |
2006 |
1.12 |
3.80 |
|
December |
2006 |
1.19 |
4.07 |
|
January |
2007 |
1.59 |
5.25 |
|
February |
2007 |
1.45 |
4.81 |
|
March |
2007 |
1.32 |
4.42 |
|
April |
2007 |
1.40 |
4.85 |
|
May |
2007 |
1.45 |
4.80 |
|
June |
2007 |
1.68 |
5.43 |
|
July |
2007 |
1.76 |
5.46 |
|
August |
2007 |
1.50 |
4.75 |
|
September |
2007 |
1.48 |
4.50 |
|
October |
2007 |
1.72 |
5.35 |
|
November |
2007 |
1.44 |
4.50 |
|
December |
2007 |
1.42 |
4.45 |
(1) Prices on the last business day of the month.
Outlook
Based on the economic context and the provisions issued by the National Government, which include the modification of MetroGAS' Regulatory Framework, the Company will continue concentrating its efforts towards ensuring business continuity, maintaining the quality of gas supplies and meeting the Basic License Rules. Finally, and depending on the outcome of the renegotiation of the License define its future strategy.
Autonomous City of Buenos Aires, March 6, 2008.
|
Andrés Cordero |
|
Vice-President
|
1 Year Metrogas Chart |
1 Month Metrogas Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
Hot Features
Premium
