AENZA S.A.A. [AENZ] Filings

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from        to       

Commission file number 001-35991

AENZA S.A.A. 

(Exact name of Registrant as specified in its charter)

N/A
(Translation of Registrant’s name into English)

Republic of Peru
(Jurisdiction of incorporation or organization)

Av. Petit Thouars 4957
Miraflores
Lima 34, Peru
(Address of principal executive offices)

Zoila Horna Zegarra, Corporate Legal Vice President
Tel. 011-51-1-213-6565
relacion.inversionistas@aenza.com.pe
Av. Petit Thouars 4957
Miraflores
Lima 34, Peru

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards^† provided pursuant to Section 13(a) of the Exchange Act. ☐

^†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  ☒    No  ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Table of Contents

Part I. INTRODUCTION

Certain Definitions

All references to “we,” “us,” “our,” “our company,” “the group” and “AENZA” in this annual report are to AENZA S.A.A. (formerly, “Graña y Montero S.A.A.”), a publicly-held corporation (sociedad anónima abierta) organized under the laws of the Republic of Peru (“Peru”). In this annual report, we refer to our principal subsidiaries, joint operations, joint ventures and associated companies as follows: (i) in our Infrastructure segment: Red Vial 5 S.A. as “Norvial”; Carretera Andina del Sur S.A. as “Survial”; Carretera Sierra Piura S.A.C as “Canchaque”; Tren Urbano de Lima S.A. (formerly, GyM Ferrovías S.A.) as “Línea 1”; Concesionaria La Chira S.A. as “La Chira”; and UNNA Transporte S.A.C. (formerly Concar S.A.C.) as “UNNA Transporte”; (ii) in our Energy segment: UNNA Energía S.A. (formerly GMP S.A.) as “UNNA Energía”; (iii) in our Real Estate segment: Viva Negocio Inmobiliario S.A. (formerly Viva GyM S.A.) as “Viva” and Inmobiliaria Almonte S.A.C. as “Almonte”; and (iv) in our Engineering and Construction (“E&C”) segment: Cumbra Peru S.A. (formerly GyM S.A.) as “Cumbra”; Vial y Vives—DSD S.A. as “Vial y Vives—DSD”; Cumbra Ingeniería S.A. (formerly GMI S.A.) as “Cumbra Ingeniería”; Morelco S.A.S. as “Morelco”. For more information on our subsidiaries, joint operations, joint ventures or associated companies, see Notes 6A, 6B, 6C and 14 to our audited annual consolidated financial statements included in this annual report.

The term “U.S. dollar” and the symbol “US$” refer to the legal currency of the United States; the term “sol” and the symbol “S/” refer to the legal currency of Peru; the term “Chilean peso” and the symbol “CLP” refer to the legal currency of Chile; and the term “Colombian peso” and the symbol “COP” refer to the legal currency of Colombia.

Presentation of Financial Information

Our consolidated financial statements included in this annual report have been prepared in soles and in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

We manage our business in four segments: (i) Infrastructure; (ii) Energy; (iii) Real Estate and (iv)  E&C. Prior to 2021, our Energy segment was part of our Infrastructure segment; however, during the fourth quarter of 2021, we changed our segment reporting to separately report our Energy business as its own segment. The historical segment financial information included in this annual report has been adjusted accordingly. For information on our results of operations by business segment, see Note 7 to our audited annual consolidated financial statements included in this annual report. In addition, on December 27, 2021, we sold Adexus S.A. (“Adexus”), our technical services subsidiary. As a result, our financial information included in this annual report has been adjusted accordingly. Our segment data presents Adexus as a parent company operation not part of any of our four business segments. See Note 35 to our audited annual consolidated financial statements included in this annual report.

Non-IFRS Data

In this annual report, we present adjusted EBITDA and adjusted EBITDA margin, non-GAAP financial measures. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present adjusted EBITDA and adjusted EBITDA margin because we believe they provide readers with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Our management uses adjusted EBITDA and adjusted EBITDA margin, among other measures, for internal planning and performance measurement purposes. We believe that adjusted EBITDA and adjusted EBITDA margin are useful in evaluating our operating performance compared to other companies operating in our sectors because the calculation of adjusted EBITDA generally eliminates the effect of financing and income tax expenses and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. Adjusted EBITDA should not be construed as an alternative to net profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). Adjusted EBITDA and adjusted EBITDA margin, as calculated by us, may not be comparable to similarly titled measures reported by other companies.

We define adjusted EBITDA as net profit plus: financial (expense) income, net; income tax expense; and depreciation and amortization and adjusted EBITDA margin as adjusted EBITDA over revenues.

Currency Translations

Our consolidated financial statements are prepared in soles. For a description of our translation of amounts in currencies other than soles in our consolidated financial statements, see Note 2.C to our audited annual consolidated financial statements included in this annual report.

We have translated some of the soles amounts contained in this annual report into U.S. dollars and some U.S. dollars amounts contained in this annual report into soles, for convenience purposes only. Unless otherwise indicated or the context otherwise requires, the rate used to translate soles amounts to U.S. dollars and U.S. dollars amounts into soles was S/3.82 to US$1.00, which was the average sale exchange rate for December 31, 2022 reported by the Peruvian Superintendence of Banks, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs, or “SBS”). For conversions of macroeconomic indicators (particularly in “Item 5.D. Operating and Financial Review and Prospects—Trend Information” in this annual report), average annual exchange rates for the currencies of each of the countries addressed are used. The Federal Reserve Bank of New York does not report a noon buying rate for soles. The U.S. dollar equivalent information presented in this annual report is provided solely for convenience of the reader and should not be construed as implying that the soles or other currency amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.

Rounding

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.

Backlog

This annual report includes our backlog (indicative of future revenues expected to be realized in relation to signed contracts) for part of our Infrastructure segment and our E&C, and Real Estate segments. We do not include backlog in this annual report in: (i) our Infrastructure segment for our Norvial toll road concession because its revenues from the concession are derived from toll fees charged to vehicles using the highway, and, as a result, such revenues are dependent on vehicular traffic levels; and (ii) our Energy segment because: (a) our revenues from hydrocarbon extraction services are dependent on the amounts of oil and gas we produce and their market prices, which fluctuate significantly; (b) our revenues from our gas processing plant are dependent on the amount of gas we process and market prices for natural gas liquids, which fluctuate significantly; and (c) our revenues from our fuel storage terminal operation partially depend on the volume of fuel stored and dispatched. When we present backlog on a segment basis, we do not include eliminations that are included in our consolidated backlog. Backlog is not a measure defined by IFRS, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog. Backlog is not audited. We have revised historical backlog data included in this annual report to exclude the presentation of entities that are presented as discontinued operations. For our definition of backlog, see “Item 4.B. Information on the Company—Business Overview—Backlog.” See also “Item 3.D. Key Information—Risk Factors—Risks Related to our Company—Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit.”

Reserves Estimates

This annual report includes our estimates for proved reserves in Block V, where UNNA Energía provides hydrocarbon extraction services to, and Blocks III and IV, where UNNA Energía extracts hydrocarbon under license agreements with, Perupetro S.A. (“Perupetro”). These reserves estimates were prepared internally by our team of engineers and have not been audited or reviewed by any independent external engineers. For further information on these reserves estimates, see “Item 3.D. Key Information—Risks Related to Our Company—Additional Risks Related to our Infrastructure Business” and “Item 4.B. Information on the Company—Business Overview—Infrastructure—Principal Infrastructure Lines of Business—Energy—Oil and Gas Production.”

Market Information

We make estimates in this annual report regarding our competitive position and market share, as well as the market size and expected growth of the infrastructure, energy, real estate, and engineering and construction services industries in Peru and elsewhere in Latin America. We have made these estimates on the basis of our management’s knowledge and statistics and other information, which we believe to be the most recently available as of the date of this annual report, from government agencies, industry professional organizations, industry publications and other sources. While we believe these estimates to be accurate as of the date of this annual report, we have not independently verified the data from third-party sources and our internal data has not been verified by any independent source. In this annual report we present gross domestic product (“GDP”) both on a nominal and real basis. Real GDP is nominal GDP adjusted to exclude the effect of inflation. Unless otherwise indicated, references to GDP are to real GDP.

Measurements and Other Data

In this annual report, we use the following measurements:

In this annual report, we use the term “accident incidence rate” with respect to our E&C segment, which is calculated as the number of injuries multiplied by 200,000 (which reflects 40 hours worked per week in a 50-week year by 100 equivalent full-time workers) divided by the total number of hours worked by all full-time employees of our E&C segment during the relevant year.

Forward-Looking Statements

This annual report contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3.D. Key Information—Risk Factors,” which may cause our actual results, performance or achievements to differ materially from the forward-looking statements that we make.

Forward-looking statements typically are identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “project,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. Any or all of our forward-looking statements in this annual report may turn out to be inaccurate. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including, among others:

The forward-looking statements in this annual report represent our expectations and forecasts as of the date of this annual report. These statements are intended to qualify for the safe harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. [Reserved]

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Summary of Risk Factors

The following summarizes some, but not all, of the principal risks set forth below. Please carefully consider all of the information discussed in this Item 3.D “Risk Factors” in this annual report for a detailed description of these and other risks.

Risks Related to Key Developments

Risks Related to Our Company

Additional Risks Related to our Infrastructure Business

Additional Risks Related to our Energy Business

Additional Risks Related to our Engineering and Construction Business

Additional Risks Related to our Real Estate Business

Risks Related to Peru

Risks Related to Chile, Colombia and other Latin American Countries

Risks Related to our American Depositary Shares (“ADSs”)

Risks Related to Key Developments

Geopolitical conflicts could affect Latin American economies and our businesses

We are subject to geopolitical risks, including Russia’s military invasion of Ukraine and its possible escalation. This geopolitical conflict is affecting international energy prices and global inflation, which may affect aggregate demand and economic growth expectations. Global oil prices reached pre-COVID-19 levels by the end of 2020, increased in 2021 due to supply shocks and the resurgence of demand, and, more recently, rose sharply in early 2022 due to the conflict between Ukraine and Russia. The effects of this conflict and other geopolitical situations could adversely affect the economies of the countries in which we operate our businesses, especially with regards to investments and our ability to refinance our debt.

We cannot assure you that oil prices will decrease in the future (although increased oil prices would benefit revenues in our Energy segment). Substantial increases in the prices of the commodity generally, as a result of geopolitical conflicts or otherwise, result in increases in our suppliers’ operating costs and, consequently, lead to increases in the prices they charge for their products. See “Increases in the prices of energy, raw materials, equipment or wages could increase our operating costs.”

Our reputation has been adversely affected by criminal investigations and administrative proceedings relating to allegations of past corruption

Our reputation has been adversely affected by criminal investigations and administrative proceedings relating to allegations of corruption with respect to events during the period from 2004 to 2016 in connection with the construction and operation of certain infrastructure projects in Peru in which we participated with Odebrecht. Our reputation has also been adversely affected by investigations and administrative proceedings arising from our alleged participation in a “construction club” that colluded to procure government contracts during the period from 2002 to 2016. Furthermore, in May 2021, we entered into a Collaboration and Benefits Agreement with Peruvian prosecutorial authorities, by which we have acknowledged that certain of our former directors and senior managers have used the company to commit wrongdoing and, as a result, we have agreed to indemnify the Peruvian government for the resulting damages. On September 15, 2022, we signed the final Collaboration and Benefits Agreement (“Final Collaboration and Benefits Agreement”). The validity of the agreement is subject to consent (control of legality) by the Judiciary, and its specific terms and conditions are subject to confidentiality.

Our reputation is a key factor in our clients’ evaluation of whether to engage our services, key industry players’ willingness to partner with us, financial institutions’ willingness to provide us credit, and recruiting and retaining talented personnel to our company. The outcome of these investigations and proceedings, any new charges or news reports containing new allegations against the company, or other similar developments, could further damage the reputation of the company.

The outcome of investigations regarding potential corruption or other illegal acts could have a material adverse effect on our business, financial condition and results of operations

Our company and certain of our subsidiaries, and certain of our former directors and senior managers, have been charged in connection with criminal and civil investigations relating to certain of our projects in connection with our association with Odebrecht and in connection with our alleged participation in the alleged “construction club” during the period from 2004 to 2016.

In 2018, the Peruvian criminal prosecutor charged our company and our engineering and construction subsidiary, Cumbra, as criminal defendants in connection with the IIRSA South (tranche II) project concession, and the Peruvian First National Preparatory Investigation Court (Primer Juzgado de Investigación Preparatoria Nacional) included our company and Cumbra in its criminal investigation. Separately, in connection with these investigations, in December 2018, the Peruvian First National Preparatory Investigation Court also resolved to include our company and Cumbra as civilly responsible third parties in the investigations related to the IIRSA South (tranche II) project concession and Cumbra as a civilly responsible third party in the investigations related to Tranches 1 and 2 of the Lima Metro.

In December 2018, Cumbra was formally included as a civilly responsible third party, along with 11 other construction companies, in the criminal investigation conducted by a Peruvian public prosecutor with respect to an alleged “construction club” that colluded to receive public contracts. In October 2021, the prosecutor filed a motion to criminally charged Cumbra and another of our subsidiaries, UNNA Transporte, and other companies in the construction sector in Peru, as well as a former director and former senior managers of our company, with collusion and other alleged crimes.

Additionally, Peruvian prosecutors have included José Graña Miró Quesada, the former Chairman of our company, in an investigation for the crime of collusion, and Hernando Graña Acuña, a former board member of our company and former chairman of our subsidiary Cumbra, for the crime of money laundering against the Peruvian government, each in connection with the IIRSA South (tranche II) project concession, in which we participated with Odebrecht. Gonzalo Ferraro Rey, the former Chief Infrastructure Officer of our company, has also been included in an investigation for the crime of money laundering in connection with the same project. In addition, José Graña Miró Quesada and Hernando Graña Acuña, as well as Juan Manuel Lambarri, the former chief executive officer of our subsidiary Cumbra, have been charged in connection with Tranches 1 and 2 of the Lima Metro. On February 9, 2022, the Peruvian press reported that Peruvian prosecutorial authorities entered into plea agreements with José Graña Miró Quesada and Hernando Graña Acuña. On January 3, 2023, the plea agreement with José Graña Miró Quesada received judicial approval and on January 18, 2023, the plea agreement with Hernando Graña Acuña received judicial approval. These plea agreements are confidential under Peruvian law and we, therefore, do not know their content, however, they may include information related to wrongdoing or knowledge of improper behavior while José Graña Miró Quesada and Hernando Graña Acuña were at the company. We cannot assure you what they will ultimately say to government authorities, or that their statements will not adversely affect the company’s reputation.

Following internal investigations of the events covered by the criminal investigations described above, the company provided all evidence found during its internal investigation to Peruvian prosecutorial authorities within the framework of a settlement and cooperation agreement process, in line with the company’s commitment to transparency and integrity. On September 15, 2022, we signed a Final Collaboration and Benefits Agreement (Acuerdo de Colaboración Eficaz y Beneficios) with Peruvian prosecutorial authorities (the “Final Agreement on Settlement and Cooperation”), by which we acknowledged that certain former directors and former senior managers have used the company to commit wrongdoings and, as a result, we have agreed to indemnify the Peruvian government for the resulting damages. The validity of the agreement is subject to consent (control of legality) by the Judiciary, and its specific terms and conditions are subject to confidentiality. Once the agreement is approved, the Prosecutor’s Office will be obligated pursuant to the terms of the agreement, to request the complete exemption of the company from the scope of Law 30737 and its implementing regulation approved by Decreto Supremo No 096-2018-EF with respect to the projects subject to agreement.

Under the Final Collaboration and Benefits Agreement, we have agreed to pay a civil penalty of S/333,326,423.6 and US$40,724,531.00 over 12 years, subject to a statutory interest rate in Peruvian and foreign currency, and to a pledge of collateral valued at S/197.0 million as of the date of the agreement, pursuant to a trust agreement that includes shares issued by a subsidiary of AENZA, a real estate asset guarantee and a debt service guaranty account. Among other conditions, the agreement includes a restriction on participating in new public construction and road maintenance contracts for two years from the approval of the agreement. As of December 31, 2021, we recorded an estimated provision reflecting the present value of the penalty in accordance with accounting standards, which amounted to S/164.6 million and US$18.9 million (in total, S/240.1 million, or approximately US$60.1 million). As of December 31, 2022, we recorded an additional provision of S/11.4 million (approximately US$2.99 million) and recorded the whole amount in nominal value to comply with the provisions set forth in the Final Collaboration and Benefits Agreement entered into on September 15, 2022. The provision was recorded in AENZA.

According to the terms of the Collaboration and Benefits agreement, the civil penalty would cover the total contingency to Peruvian prosecutorial authorities to which the company is exposed as a result of the investigations of past projects in which the company participated with Odebrecht (other than the Chavimochic project) and investigations relating to an alleged participation in the “construction club” (excluding the separate administrative proceedings by the Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual (“INDECOPI”)).

We cannot assure you that the scope of the foregoing proceedings will not be expanded to incorporate other projects in which we have been involved, that our company will not be included in other investigations or proceedings as a criminal defendant or third party civilly responsible in Peru or elsewhere, or that other of our former or current directors and senior managers will not be included in the foregoing proceedings.

If we do not comply with applicable laws and regulations designed to combat corruption, we could become subject to fines, penalties or other regulatory sanctions, and our business could suffer

Although we are committed to conducting business in a legal and ethical manner in compliance with local and international legal requirements applicable to our business, and though we have implemented specific policies and procedures to avoid corrupt actions, there is a risk that our employees or representatives may take actions that violate applicable laws and regulations that generally prohibit the making of improper payments to government officials for the purpose of obtaining or keeping business, including laws relating to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or the U.S. Foreign Corrupt Practices Act. Further, while we have obtained Global STD ISO 37001 anti-bribery certifications for our subsidiaries, if any of our employees or representatives violate anti-corruption laws, our business, financial condition and results of operation would be adversely affected.

INDECOPI has initiated an administrative proceeding alleging that certain construction companies in Peru, including our subsidiary Cumbra, colluded to receive public contracts

On February 7, 2022, Cumbra and Unna Transporte were notified of Resolution 038-2021/CLC-INDECOPI, by means of which the National Directorate of Research and Promotion of Free Competition of INDECOPI decided to initiate an administrative sanctioning procedure regarding the alleged horizontal collusive practice in the modality of concerted sharing of suppliers in the market of hiring workers in the construction sector at the national level from 2011 to 2017.

On April 7, 2022, Cumbra and Unna Transporte proposed a cease-and-desist agreement for the early termination of the administrative sanctioning procedure, where they (i) accepted the alleged conduct, (ii) committed to comply with a free competition rules compliance program from 2022 to 2024; and (iii) committed to paying a compensation amounting to S/2.7 million in two installments (the first one within 60 days after the notification of the resolution approving the cessation undertaking and the second one within 12 months). By means of Resolution 054-2022/CLC-INDECOPI, dated August 19, 2022, INDECOPI approved the proposed cease-and-desist agreement and concluded the sanctioning procedure. We cannot predict the outcome of these investigations or proceedings, the timing thereof or how they may impact our business, financial condition and results of operations. We also cannot predict whether INDECOPI will bring additional investigations or proceedings in the future.

INDECOPI has initiated an administrative proceeding alleging anti-competitive practices in the labor market in the construction sector

On February 7, 2022, Cumbra and UNNA Transporte were notified pursuant to INDECOPI Resolution 038-2021/DLC-INDECOPI dated December 28, 2021, that the antitrust authority initiated a sanctioning administrative procedure for the alleged execution of a horizontal collusive practice in the form of concerted distribution of suppliers in the labor market in the construction workers industry nationwide, during the period from 2011 to 2017.

On April 7, 2022, Cumbra and UNNA Transporte submitted a proposal for a cease and desist agreement for the early termination of the administrative sanctioning procedure, in which they (i) acknowledged the alleged conduct, (ii) committed to maintain a compliance program with free competition rules during 2022, 2023 and 2024, and (iii) agreed to pay S/2.7 million in two installments (one after 60 days and the second after 12 months). Pursuant to Resolution No. 054-2022/CLC-INDECOPI dated August 19, 2022, the Commission for the Defense of Free Competition of INDECOPI approved the proposed cease and desist commitment and concluded the sanctioning procedure. As of December 31, 2022, the company estimated a provision amounting to S/1.4 million (approximately US$0.37 million) recognized as of December 31, 2022 (S/4.8 million as of December 31, 2021) related to this proceeding.

On May 9, 2023, our subsidiaries Cumbra and Unna Transporte were notified by INDECOPI, with Resolution 052-2023/CLC-INDECOPI, which formally concludes the administrative sanctioning procedure in first instance for the alleged horizontal collusive practice in the form of concerted distribution of suppliers in the market for hiring workers in the construction sector.

In this regard, by Resolution No. 054-2022/CLC-INDECOPI of August 19, 2022, the Commission for the Defense of Free Competition of INDECOPI approved the cessation of the proposed commitment. According to the established schedule, the Subsidiaries have paid the first installment corresponding to 50% of the amount of the compensation in November 2022 and the next installment, for the remaining 50%, will be paid no later than November 15, 2023; the amount thereof is duly provisioned in the financial statements. Likewise, the Subsidiaries are complying with their commitment to maintain a compliance program, with supervision of INDECOPI.

We cannot predict how the outcome of any such proceedings or how they may impact our business, financial condition and results of operations.

We were in default under certain of our debt instruments in the past, and we cannot assure you that we will not be in default under our debt instruments in the future, or that we will be able to obtain additional waivers in the event of any future defaults

In the past we have been in default on financial covenants and payment obligations under certain of our debt instruments. These defaults have been cured as of the date of this annual report either with the obtainment of waivers or through the repayment in full of these debt instruments. However, we cannot assure you that we will not breach the covenants under our debt instruments in the future and, in such event, that we would be able to obtain the required waivers from our creditors. Failure to successfully obtain waivers could force us to precipitate the sale of assets, including on unfavorable terms, to repay these debt instruments. Moreover, if we are not able to renegotiate the terms of any debt instruments in which we are in default, or repay them promptly, our ability to obtain financings, including performance guarantees or similar financings required under many of our business contracts, would be impaired, which may have a material adverse effect on our business, financial condition and results of operations.

We may not have sufficient cash or access to funding to meet our extraordinary payment obligations

We have significant extraordinary payment obligations. For example, in May 2021, we entered into a Collaboration and Benefits Agreement with Peruvian prosecutorial authorities, under which we will be required to make payments of S/333,326,423.6 and US$40,724,531.00 over 12 years. On September 15, 2022, we signed the Final Collaboration and Benefits Agreement. The validity of the agreement is subject to consent (control of legality) by the Judiciary, and its specific terms and conditions are subject to confidentiality.

On March 17, 2022, we entered into a bridge loan agreement for up to US$120 million and we have used the proceeds to repay certain of our financial and other obligations. The bridge loan is required to be repaid over a period of 18 months ending in October 2023, and is secured by a flow trust (first lien), a trust over the shares of Viva Negocio Inmobiliario S.A. (second lien), and a pledge on our shares in Unna Energía (first lien). We are currently evaluating different debt restructuring plans to refinance the bridge loan.

We cannot assure you that we will have sufficient cash from operations, any sale of assets, or access to equity or debt financing, in order to comply with payments regarding our agreements, or that following any such payments, we will have sufficient cash to continue to operate our business consistent with past practices. In addition, in relation to debt financing, interest rate increases may affect our ability to refinance at competitive rates and may have an adverse impact on results.

We may be unable to access financing that we need to operate our business on favorable terms or at all

Due to uncertainty relating to the investigations of our company, our creditors and other financial institutions have placed restrictions in the past on our ability, and the ability of other Peruvian construction companies, to acquire future credit lines, performance bonds and other financings.

Our ability to obtain financings will also depend in part upon prevailing conditions in credit and capital markets, which are beyond our control. Emerging markets have been affected by changes in U.S. monetary policy, resulting at times in a withdrawal of investments and increased volatility in the value of their currencies. If interest rates rise significantly in the United States, emerging market economies, including Peru, could find it more difficult and expensive to borrow capital and refinance existing debt. Higher interest rates globally or in Peru would in turn impact our costs of funding.

We cannot assure you that we will be able to obtain new financings in the future on favorable terms or at all. Additionally, we cannot control or predict changes in interest rates, including interest rate policies of the Central Reserve Bank of Peru and the U.S. Federal Reserve.

Also, we may encounter difficulties in obtaining performance bonds or credit support that we require to secure, among other things, bids, advance payments and performance for our projects.

The inability to procure adequate financing or credit on favorable terms or at all could have a material adverse effect on our business, financial condition and results of operation.

There is uncertainty with regard to the amount, timing and manner in which the payment for the termination of the GSP gas pipeline concession will be paid

In November 2015, we acquired a 20% interest in Gasoducto Sur Peruano S.A. (“GSP”) and obtained a 29% interest in Consorcio Constructor Ductos del Sur (“CCDS”) through its subsidiary Cumbra Peru.

On July 22, 2014, GSP signed a concession agreement with the Peruvian Government to build, operate, and maintain a natural gas pipeline to meet the demand of cities in the south of Peru (the “GSP Concession Agreement”). Additionally, GSP signed an engineering, procurement, and construction agreement with CCDS.

We made an investment of US$242.5 million in GSP and had to assume 20% of the performance bond established in the GSP Concession Agreement for US$262.5 million and 21.49% of the guarantee for a bridge loan of US$600 million. On January 24, 2017, the Peruvian Ministry of Energy and Mines (“MEM”) announced the early termination of the GSP Concession Agreement under Clause 6.7 thereof, for not having provided evidence of the financial closing within the contractual term resulting in the immediate enforcement of the performance bond.

The events described in the previous paragraph caused management to recognize an impairment from 2016 to 2019 of its total investment (US$242.5 million), as well as the account receivable resulting from the execution of the counter-guarantees granted by AENZA in favor of the entity issuing the guarantees: for US$52.5 million corresponding to the performance bond and US$129 million corresponding to the corporate guarantee on the bridge loan granted to GSP. According to the Concession Contract, the guarantees were paid on behalf of GSP, therefore, AENZA recognized the right to collect from GSP US$181.5 million, which was recorded in 2016 as accounts receivable from related parties. Likewise, Cumbra Peru recognized the value of accounts receivable from CCDS as US$73.5 million and lost profits as US$10 million, which correspond to receivables from GSP. See Note 11 to our audited annual consolidated financial statements included in this annual report for the balance of the account receivable from GSP.

On October 11, 2017, the agreement deed for the delivery of the assets of the South Peruvian gas pipeline concession between GSP and MEM was signed. The assets include the works, equipment, facilities and engineering studies provided for the execution of the project.

Upon termination of the Concession Contract, and in accordance with the provisions of Clause 20 thereof, the Peruvian State was obligated to hire an internationally recognized auditing firm to calculate the net book value of the concession assets (“VCN”), and to call up to three auctions on GSP’s assets. However, to date, the Peruvian State has failed to comply with these contractual obligations. The amount of the VCN was calculated at US$2,602 million by an independent auditing firm hired by GSP as of December 31, 2016. This figure was subsequently adjusted to US$2,110 million, as a result of variations in the balances related to the works carried out by the consortium, which in turn is reported in its audited financial statements as of December 31, 2017.

On December 21, 2018, the company asked the Peruvian Government for direct treatment and requested the payment of the VCN in favor of GSP. On October 18, 2019, the company filed an arbitration request with the International Centre for Settlement of Investment Disputes (“CIADI”). On December 27, 2019, the company withdrew the arbitration request in compliance with a preliminary collaboration and benefits agreement signed with the Attorney General´s Office and Ad-hoc Public Prosecutor’s Office on the same date (see Note 1 to our audited annual consolidated financial statements included in this annual report). Withdrawing the arbitration request before CIADI does not result in the loss of collection rights of the company against GSP and does not restrict, limit, or impede GSP from asserting its rights against the Peruvian Government.

The company and its internal and external legal advisors consider that the payment owed by the Government to GSP for the VCN are not within the withholding scope under Law 30737 that ensures the immediate payment of civil compensation in favor of the Peruvian State in cases of corruption and related crimes, since this payment does not include any profit margin and/or does not correspond to the sale of assets related to the project, but to a reimbursement for the investment made by the concessionaire.

As of December 4, 2017, GSP entered into a bankruptcy proceeding before INDECOPI. GSP has claims recognized by INDECOPI of US$0.4 million and US$169.3 million, the latter held in trust in favor of GSP’s creditors. It also has indirectly recognized claims for US$11.8 million. On the other hand, the claim of Cumbra is indirectly recognized in INDECOPI through Consorcio Constructor Ductos del Sur for an amount of US$88.7 million. As of the date of this report, GSP is in the process of liquidation and AENZA is chairing the Board of Creditors.

On April 11, 2023, a liquidation agreement (the “Liquidation Agreement”) was approved, which delimits the framework for the liquidator’s work. The Liquidation Agreement includes the granting of powers to the liquidator with respect to representation, administrative, contractual and other relevant powers that allow him to comply with the obligations for which he was appointed, as well as the actions he is allowed to take in order to recover GSP’s assets and in accordance with the mechanisms set forth in the General Law of the Insolvency System.

On April 13, 2023, and under the powers granted to him by the Liquidation Agreement, the Liquidator requested that the MEM initiate the direct treatment procedure stipulated in the Concession Contract. For more information regarding the amounts recognized, see Note 11 to our audited annual consolidated financial statements included in this annual report.

As of December 31, 2022, the net value of the accounts receivable from GSP is approximately US$142.4 million (equivalent to S/542.3 million) compared to US$161.9 million (equivalent to S/643.9 million) as of December 31, 2021, which comprises the recognition in the following entities of the Corporation: i) AENZA holds US$63.9 million (equivalent to S/243. 2 million), discounted to present value net of impairment and the effect of the exchange difference, compared to US$81.1 million (equivalent to S/322.6 million) as of December 31, 2021; and ii) Cumbra holds US$78.6 million (equivalent to S/299.2 million) discounted to present value net of the effect of the exchange difference compared to US$80.8 million (equivalent to S/321.3 million) as of December 31, 2021.

The company’s management maintains the recovery estimate at 8 years, applying a discount rate of 5.85%, compared to recovery term of 8 years with a discount rate of 2.73% as of December 31, 2021. These estimates generated during 2022 a present value effect of approximately S/72.2 million, compared to S/32.8 million during 2021, which has been recognized in the consolidated statement of income under the caption “Financial income and expenses - loss from present value”, see Note 26.B to our audited annual consolidated financial statements included in this annual report.

Based on management’s assessment and in conjunction with the opinion of the internal legal department and external legal counsel, the estimate of recoverability, impairment allowances and the net recognized value of the account receivable from GSP as of December 31, 2021 and 2022 is reasonable and sufficient as of the reporting date of the Corporation’s consolidated financial statements, see also Notes 5.A.iv and 11 to our audited annual consolidated financial statements included in this annual report.

Risks Related to Our Company

Global economic conditions could adversely affect our financial performance

Global economic conditions, in particular fluctuations in commodity prices and financing costs, may impact our clients’ investment decisions. Should our clients choose to postpone or suspend new investments or delay or cancel the execution of existing projects as a result of global economic conditions, demand for our products and services would decline, which may result in a decline in revenues and in under-utilization of our capacity. Our business may be impacted by adverse economic developments even after economic conditions have improved because of the lag time between when investments decisions are made and when the projects are executed. Furthermore, financial difficulties suffered by our clients, joint operation partners, subcontractors or suppliers due to global economic conditions could result in payment delays or defaults or increase our costs or adversely impact our project execution. Accordingly, a global economic downturn could have a material adverse effect on our financial performance.

Interest rates have risen across markets and have impacted our ability to refinance our debt. Economic forecasts expect that the U.S. Federal Reserve Fund Rate will end above 5.0% by year-end. This could increase our financing costs and limit our ability to obtain financing in a timely manner and on acceptable terms. In addition, we are experiencing high levels of inflation in each country where we operate. During the last twelve months, Peru has raised interest rates from 5.0% to 7.75%, Colombia has raised interest rates from 6.0% to 13.25% and Chile has raised interest rates from 7.0% to 11.25%. Current global economic conditions could adversely affect our financial performance.

We face significant competition in each of our markets

Each of the markets in which we operate is competitive. We compete on the basis of, among other factors, price, performance, product and service quality, skill and execution capability, client relations, reputation and brand, and health, safety and environmental record. We face significant competition from both local and international players. Some of these competitors may have greater resources than us or may have specialized expertise in certain sectors. In addition, a portion of our business is derived from open bidding processes which can be highly competitive. Certain of our markets are highly fragmented with a large number of companies competing for market share. Our competitors may be more inclined to take greater or unusual risks or accept terms and conditions in a contract that we might not deem acceptable. Moreover, we cannot assure you that we will not face new competition from industry players entering or expanding their operations in our markets. If we are unable to compete effectively, our ability to continue to grow our business or maintain our market share would be affected. In addition, because one of the factors on which we generally compete is price, increased competition could impact our operating margins. Accordingly, our business and financial performance could be adversely affected by competition in our markets.

A major change in government policies could affect our business

Our business is significantly affected by national, regional and municipal government policies and regulations in the countries where we operate, including with respect to infrastructure concessions or similar contracts to the private sector, public spending in infrastructure investment and government housing subsidies, among others. Any adverse change in government policies with respect to these matters could result in a material adverse effect on our business and financial performance.

Social conflicts may disrupt infrastructure projects and ongoing operations

Despite Peru’s economic growth over the last decades, high levels of poverty and unemployment and social and political tensions continue to be pervasive problems in the country. Peru has, from time to time, experienced social and political turmoil, including riots, nationwide protests, strikes and street demonstrations. In recent years, certain regions experienced strikes and protests related mainly to the environmental impact of mining activities, which resulted in commercial disruptions. These protests may lead to the suspension of mining projects, such as occurred at Las Bambas mining project during the second half of 2021. Social conflicts may disrupt, delay or suspend infrastructure projects in the future, which could have a material adverse effect on our business, financial performance and our concessional infrastructure.

Recently in Peru, high inflation and a political crisis are causing civil unrest and rioting, including strikes and the blockade of main roads, which has affected business operations in certain regions of the country. On December 7, 2022, Peru’s former President Pedro Castillo illegally announced the dissolution of Congress and was arrested. Dina Boluarte, Castillo’s first vice president, was sworn in as president the same day to serve until July 2026. After Pedro Castillo’s vacancy in December 2022, several riots and road blockades took place, mainly in the southern regions of Peru. In addition, amidst ongoing protests, the new government has made a series of proposals to Congress to approve early elections, however, Congress has not obtained sufficient votes to accelerate the presidential elections. Since December 2022, the number of demonstrations and their intensity has decreased significantly. Scarce tumults in Puno are still ongoing. If this situation continues or intensifies, it could have an adverse effect on our business and financial performance.

In addition, in October 2019, Chile suffered from widespread social unrest and vandalism that has had a significant economic and political impact on the country. As a result, the Chilean congress convened a plebiscite in March 2020, which was rescheduled to October 25, 2020 as a result of the COVID-19 pandemic, in which Chilean congressmen voted to amend the Chilean Constitution. The new Chilean Constitution was drafted by a political body whose members were elected in May 2021. In September 2022, a plebiscite rejected the new text of the Chilean Constitution. Nevertheless, the Chilean Congress approved a new process to amend the Constitution to be held during 2023. This process may result in further social unrest and protest, and could also result in substantial structural changes in Chile that could adversely impact the private sector, including our operations in the country.

Additionally, on June 16, 2022 Colombia elected the left-wing candidate Gustavo Petro as President. In his victory speech, Petro stated that his government will seek unity and develop a capitalist model. Despite a strong Constitutional Court, an independent central bank, and a strong private sector, the result of these elections could lead to civil unrest, including a national strike and anti-government protests such as those experienced during 2021, and cause our Colombian operations to be adversely impacted by changing economic, political and social conditions in Colombia and by the new government’s response to such conditions. Developments around major reforms in health, pension, and labor, as well as the result of the proposal to suspend the granting of new oil exploration contracts will be key factors influencing the behavior of the economy and financial markets.

New projects may require the prior approval of local indigenous communities

The legislative branches of Colombia, Chile and Peru have enacted legislation in accordance with the International Labor Organization Convention No. 169 (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo) that establishes prior non-binding consultation procedures (procedimiento de consulta previa) with respect to indigenous communities.

Under these laws the government must carry out non-binding consultation procedures with local indigenous communities, whose rights may be directly affected by new legislative or administrative measures, including the granting of certain permits or new concessions or similar contracts, such as for mining, energy and oil and gas projects. Local indigenous communities do not have a veto right; and therefore, upon completion of this prior consultation procedure, the government retains the discretion to approve or reject the applicable legislative or administrative measure. However, we cannot assure you that these consultation procedures will not negatively influence a decision by government to grant us a permit, concession or consent and, therefore, adversely affect new projects and concessions, or cause or incite confrontation if the government’s decision is perceived to be adverse to the communities’ opinion. Accordingly, our business and financial performance may be materially and adversely affected.

Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit

The amount of our backlog is not necessarily indicative of future revenues or profits related to the performance of the related contracts. Our backlog amount is subject to revision over time and our ability to realize revenues from our backlog is subject to a number of uncertainties. Cancellations, scope adjustments or deferrals may occur, from time to time, with respect to contracts reflected in our backlog and could reduce the amount of our backlog and the revenue and profits that we actually earn. Contracts may also remain in our backlog for an extended period of time and poor performance could also impact our profit from the contracts in our backlog. In addition, our backlog is expressed in U.S. dollars based on period-end exchange rates while a significant portion of our contracts are payable in soles or other local currencies. As a result, any depreciation of local currency would diminish the amount of revenues eventually earned relative to backlog.

Our backlog may decline in the future. We cannot assure you that we will be able to obtain sufficient contracts in the future in number and magnitude in order to increase our backlog. Additionally, the number of new contracts that we obtain can fluctuate significantly from period to period due to factors that are beyond our control.

Moreover, the ratio of our historical backlog to revenues earned in subsequent years is volatile and substantially affected by a number of factors, some of which are outside our control, including levels of contract scope adjustments and our ability to enter into new contracts (which are substantially influenced by general macroeconomic conditions), delays and cancellations, foreign exchange rate movements and our ability to increase the scale of our operations to expand the amount of work we carry out beyond that previously contracted. Accordingly, historical correlations between backlog and revenues may not recur in future periods.

Our success depends on key personnel

Our success depends, to a significant degree, upon the performance of our senior management, Board of Directors and other key personnel. Members of our management team are not subject to non-competition agreements with us. We cannot assure you that we will be successful in retaining our current senior management or members of our Board of Directors, nor can we assure you that, in such event, we would be able to find suitable replacements. In addition, the success of our business depends on our ongoing ability to attract, train and retain qualified engineers and other personnel. In recent years, the availability in Peru of qualified personnel who have the necessary expertise and experience has been lower than demand and, therefore, competition for human resources has become intense. We cannot assure that we will be able to hire and retain the number of qualified personnel required to meet the needs of, or to grow, our business. If we are unable to attract, train and retain the qualified personnel that we require at reasonable cost, our business and financial performance could be adversely affected.

Our success depends, to a large extent, on our reputation for the quality, reliability, timely delivery and safety of our products and services

We believe our track record and reputation are key factors in our clients’ evaluation of whether to engage our services and purchase our products, encouraging key industry players to partner with us, and recruiting and retaining talented personnel to our company. Our reputation is based, to a large extent, on the quality, reliability, timeliness and safety of our products and services. If our products do not meet expected standards or we fail to meet our deadlines, our relationship with our clients and partners could suffer, the reputation of our company could be adversely affected, we may not be invited to new bidding processes and our ability to capture new business could be severely diminished.

The nature of our business exposes us to potential liability claims and contract disputes

We may be subject to a variety of legal or administrative proceedings, liability claims or contract disputes. The government, clients and other third parties may present claims against us for injury or damage caused, directly or indirectly, by our operations, for example for alleged failures in our E&C segment, the operation of our infrastructure concessions (such as our toll roads or the Lima Metro), and real estate developments we sell. Although we have a range of insurance coverage policies and have adopted risk management and risk avoidance programs designed to reduce potential liabilities, a catastrophic event resulting from the services we have performed or products we have provided could result in significant professional or product liability, warranty or other claims against us as well as reputational harm, especially if public safety is impacted. We may in the future be named as a defendant in legal proceedings where our clients or third parties may make a claim for damages or other remedies with respect to our projects or other matters. Any liability not covered by our insurance, or in excess of our insurance limits, could result in a significant loss for us, which may affect our financial performance.

We may not be able to recover on claims against clients for payment

If a client fails to pay our invoices on time or defaults in making its payments to us, we could incur significant losses. We occasionally bring claims against clients for delayed payments, additional costs that exceed the contract price or for amounts not included in the original contract price, including change orders. These types of claims can occur due to matters such as owner-caused delays or changes from the initial project scope, and, occasionally, these claims may be disputed through lengthy proceedings. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. Moreover, we have recently encountered difficulties collecting on claims, even following successful arbitration awards, particularly against the government. A failure to promptly recover on these types of claims and change orders could have a material adverse effect on our financial performance.

We are susceptible to operational risks that could affect our business and financial performance

Our business is subject to numerous industry-specific operational risks, including natural disasters, adverse weather conditions, operator errors or other accidents, such as spillovers in the energy business, mechanical and technical failures, explosions and other events and accidents, many of which are beyond our control. Such occurrences could result in injury or loss of life, severe damage to and destruction of property and equipment, business interruption, pollution and other environmental damage, clean-up responsibilities, regulatory requirements, investigations and penalties, potential liability claims and contractual disputes. In addition, such occurrences could materially impact our reputation. Although we maintain comprehensive insurance covering our assets and operations at levels that our management believes to be adequate, our insurance coverage will not be sufficient in all circumstances or to protect against all hazards. The occurrence of such an operational risk could have a material adverse effect on our business and financial performance.

Deterioration in our safety record could adversely affect our business and financial performance

Our ability to retain existing clients and attract new business is dependent on our ability to safely operate our business. Existing and potential clients consider the safety record of their services providers to be of high importance in their decision to award service contracts. Some of our activities, in particular in our E&C segment, can be high risk by their nature. If one or more accidents were to occur at a site, the affected client may terminate or cancel our contract and may be less likely to continue to use our services. Although our track record on safety matters is consistent with industry standards, we cannot assure you that we will not experience accidents in the future, causing our safety record to deteriorate. Accidents may be more likely as we continue to grow, particularly if we are required to hire less experienced employees due to shortages of skilled labor. Moreover, often times we do not perform these activities by ourselves and accidents can happen due to errors committed by partners and subcontractors over whom we have no control. Because many of our clients require us to report our safety metrics to them as part of the bidding process and because a substantial part of our client base is comprised of major companies with high safety standards, a general deterioration in our safety record could have a material adverse impact on our business including our ability to bid for new contracts.

Any safety incidents or deterioration in our safety record could adversely impact our ability to attract and retain qualified employees. In addition, we could also be subject to liability for damages as a result of accidents and could incur penalties or fines for violations of applicable safety laws and regulations.

Increases in the prices of energy, raw materials, equipment or wages could increase our operating costs

Our business requires significant purchases of energy, raw materials and components, including, among others, large quantities of fuel, cement and steel, as well as purchases or leases of equipment. Certain supplies used in our operations are susceptible to significant fluctuations in prices, over which we may have little control. The prices of some of these supplies are affected to a significant extent by the prices of commodities, such as oil and iron. Global oil prices decreased in 2018, increased in 2019, declined significantly in 2020 as a result of the COVID-19 pandemic but reached pre-COVID-19 levels by the end of 2020, increased in 2021 due to supply shocks and the resurgence of demand, and, more recently, rose sharply in early 2022 due to the conflict between Ukraine and Russia.

We cannot assure you that oil prices will decrease in the future (although increased oil prices would benefit revenues in our Energy segment). Substantial increases in the prices of such commodities generally result in increases in our suppliers’ operating costs and, consequently, lead to increases in the prices they charge for their products. Moreover, we do not have long-term contracts for the supply of our key inputs, and, as a result, if prices increase significantly or if we are required to find alternative suppliers, our costs to procure these inputs may increase significantly. In addition, growing demand for labor, especially when coupled with shortages of qualified employees in the countries where we operate, may result in significant wage inflation. To the extent that we are unable to pass along to our clients increases in the prices of our key supplies or increases in the wages that we must pay, our operating margins could be materially adversely impacted.

If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected

We may join with other companies to form joint operations or other strategic alliances to compete for a specific concession or contract, including with partners that contribute expertise in a specific field. Because a consortium or alliance can often offer stronger combined qualifications than a company on a stand-alone basis, these arrangements can be important to the success of a particular bid. If we are unable to enter into consortia or other strategic alliances, our ability to compete for new business may be adversely affected.

Our consortia and other strategic alliances may be affected by disputes with, or the unsatisfactory performance by, our partners

Although we have a thorough partner selection process, consortia and other strategic alliances that we enter into as part of our business, including arrangements where operating control may be shared with unaffiliated third parties, may involve risks not otherwise present when we operate independently, including: sharing approval rights over major decisions; responsibility for our partners’ unpaid obligations or liabilities; ensuring ethical and compliance behavior; our partners’ capacity to contribute with their share of project capital expenditures and inconsistencies in our and our partners’ economic or business interests or goals. Any disputes between us and our partners may result in delays, litigation or operational impasses. We may also incur liabilities as a result of action taken by or against our partners. In addition, if we participate in consortia or other strategic alliances where we are not the controlling party, we may have limited control over operational, financial and other management decisions and actions and the success of the consortium or other strategic alliance will depend largely on the performance of our partners. These risks could adversely affect our ability to transact the business of such consortium or other strategic alliance and could result in the termination of the applicable concession or contract. Under these circumstances, we may be required to make additional investments and provide additional services to ensure adequate performance and delivery. These additional obligations could result in reduced profits or, in some cases, increased liabilities or significant losses for us. In addition, failure by a partner to comply with applicable laws or regulations could negatively impact our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. As a result, our business, reputation and financial performance could be adversely affected by disputes involving our consortia or other strategic alliances.

We are dependent upon third parties to complete many of our contractual obligations

We rely on third-party suppliers to provide a significant amount of the materials and equipment used in our businesses. A portion of the work performed under our infrastructure concessions and, to a lesser extent, other contracts is performed by third-party subcontractors. As a result, the timely completion and quality of our projects may depend on factors beyond our control, including the quality and timeliness of the delivery of materials supplied for use in the project and the technical skills of subcontractors hired for the project. If we are unable to find qualified suppliers or hire qualified subcontractors, our ability to meet our contractual obligations could be impaired. In addition, if the amount we are required to pay for supplies, equipment or subcontractors exceeds what we have estimated, we may suffer losses under our contract. If a supplier or a subcontractor fails to provide supplies, equipment or services as required under a negotiated arrangement for any reason, or provides supplies, equipment or services that are not of an acceptable quality, we may be required to source those supplies, equipment or services on a delayed basis or at a higher price than anticipated, which could impact our financial performance. In addition, faulty materials or equipment could result in claims against us for failure to meet contractual specifications, and failure by suppliers or subcontractors to comply with applicable laws and regulations could negatively impact our reputation and our business and, in the case of government contracts, could result in fines, suspension or even debarment from participating in bidding processes. These risks may be intensified during economic downturns if these suppliers or subcontractors experience financial difficulties. As a result, our business and financial performance may be adversely affected by our dependence on third-party providers.

Failure to comply with, or changes in, laws or regulations could have a material adverse effect on our business and financial performance

We operate in highly regulated industries. Our business and financial performance depends on our ability and the ability of our clients, suppliers, subcontractors and partners to comply on a timely and efficient basis with extensive national, regional and municipal laws and regulations relating to, among other matters, environmental, health and safety, building and zoning, labor, tax and other matters. The cost of complying with these laws and regulations can be substantial. In addition, compliance with these laws and regulations can cause scheduling delays. Although we believe we are in compliance with applicable laws and regulations in all material respects, including our concessions or similar contractual obligations, we cannot assure you we have been or will be at all times in full compliance. Failure by us or our clients, suppliers, subcontractors or partners to comply with these laws and regulations, or our concessions or similar contractual obligations, could result in a range of adverse consequences for our business, including subjecting us to significant fines, civil liabilities and criminal sanctions, requiring us to comply with costly restorative orders, the shutdown of operations, and revocation of permits and termination of concessions or similar contracts. In addition, we cannot assure you that future changes to existing laws and regulations, or stricter interpretation or enforcement of existing laws and regulations, will not impair our ability to comply with such laws and regulations, increase our compliance costs or impair our ability to perform our obligations with our clients, suppliers, subcontractors or partners as agreed.

We may be held liable for environmental damage caused by our operations

The nature of certain of our operations requires us to assume risks of causing environmental and other damages. We may be held liable for the environmental damage we cause, including the incidental consequences of human exposure to hazardous substances or other environmental damage. We may be subject to clean up costs or penalties in the event of certain discharges into the environment and/or environmental contamination and damage. Our environmental liability insurance may not be sufficient or may not apply to certain types of environmental damage. Any substantial liability for environmental damage could have a material adverse effect on our financial performance.

We are exposed to the risk of increasing environmental legislation and the broader impacts of climate change

With an increasing global focus and public sensitivity to environmental sustainability and environmental regulation becoming more stringent, our business could be subject to increasing environmental responsibility and liability. For example, the countries in which we operate are considering implementing, or have implemented, schemes relating to the regulation of carbon emissions. As a result, there is a risk that the consumer demand for some of the energy sources supplied by our company may gradually reduce in the long term. The nature and extent of future regulation in the various jurisdictions in which our operations are situated is uncertain but is expected to become more complex and stringent.

It is difficult to assess the impact of any such changes on our company. These schemes may result in increased costs to our operations that may not be able to be passed onto our customers and may have an adverse impact on prospects for growth of some businesses. To the extent such regimes (such as carbon emissions schemes or other carbon emissions regulations) become applicable to our operations (and the costs of such regulations are not able to be fully passed on to consumers), our financial performance may be impacted due to costs applied to carbon emissions and increased compliance costs.

Standards are set by these laws and regulations regarding certain aspects of environmental quality and reporting, provide for penalties and other liabilities for the violation of such standards, and establish, in certain circumstances, obligations to remediate and rehabilitate current and former facilities and locations where our operations are, or were, conducted. These laws and regulations may have a detrimental impact on the financial performance of our operations through increased compliance costs or otherwise. Any breach of these obligations, or even incidents relating to the environment that do not amount to a breach, could adversely affect our results of operations and our reputation and expose us to claims for financial compensation or adverse regulatory consequences.

Climate change may increase the frequency and severity of severe weather conditions and may change existing weather patterns in ways that are difficult to anticipate, which could result in more frequent and severe disruptions to our business and the markets in which we operate. In addition, customers’ requirements for our services may vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, customers’ demand for our services could increase or decrease depending on the duration and magnitude of changing weather conditions, which could adversely affect our business, results of operations and cash flows.

Additionally, changes in temperature and precipitation patterns associated with climate change may increase the energy consumption our infrastructure or cause service disruption due to extreme temperature waves, floods or extreme weather events. In addition, these changes may cause increases in the price of electricity due to, for example, reduction in hydraulic generation as a result of recurrent droughts. Further, as a result of global commitments to tackle climate change, new carbon dioxide taxes may be imposed and could affect, directly or indirectly, the company, and may have a negative impact on our results of operations.

Our ability to achieve our environmental, social and governance goals are subject to risks, many of which are outside of our control, and our reputation could be harmed if we fail to meet such goals

Companies across all industries are facing increasing scrutiny from stakeholders related to environmental, social and governance (“ESG”) matters, including practices and disclosures related to environmental stewardship; social responsibility; diversity, equity and inclusion; and workplace rights. Our ability to achieve our ESG goals and objectives and to accurately and transparently report our progress presents numerous operational, financial, legal and other risks. If we are unable to meet our ESG goals or evolving stakeholder expectations and industry standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, our reputation, and therefore our ability to conduct business in each of the countries we operate, could be negatively impacted.

In addition, in recent years, investor advocacy groups and certain institutional investors have placed increasing importance on ESG matters. If, as a result of their assessment of our ESG practices, certain investors are unsatisfied with our actions or progress, they may reconsider their investment in our company.

We may not be able to effectively protect ourselves against financial market risks

Our operations are exposed to financial market risks, such as risks related to exchange rates, commodity prices and interest rates. Fluctuations in currency, commodity prices or interest rates could adversely affect our financial performance. We cannot assure you that derivative financial instruments, if any, will protect us from the adverse effects of financial market risks. While hedging transactions are intended to reduce market risks, such transactions may expose us to other risks, such as counterparty risk. We may not be able to adequately protect ourselves against financial market risks and may not ultimately achieve an economic benefit from our hedging strategy.

The loss of a key client in some of our lines of business may affect our business and financial performance

In some of our lines of business, such as our Infrastructure segment or our Colombian operations, a substantial amount of the revenue we receive is concentrated among a limited number of clients, including the Peruvian government. If one or more of these major clients fail or delay in paying our fees, or if there is a significant reduction or cancellation of business by one or more of these major clients, our business and financial performance may be adversely affected. If we are not able to capture new clients to replace the loss of business from existing key clients, our financial performance may be adversely affected.

Labor unrest could adversely affect our financial performance

All of our manual laborers and a portion of our employees are members of labor unions. Our practice is generally to extend benefits we offer our unionized employees to non-unionized employees. In our E&C segment, collective bargaining agreements are negotiated at two levels, on an annual basis between the Peruvian National Federation of Civil Construction and the Peruvian Chamber of Construction, without our direct involvement, and on a per project basis directly between the unions and us in accordance with such annual agreement.

We also have collective agreements with our employees in certain of our business segments, which are also negotiated periodically. Although we consider that our relationship with unions is currently positive, we cannot assure you that we will not experience work slowdowns, work stoppages, strikes or other labor disputes in the future, situations that could result in the interruption or delay of our operations. Such interruptions or delays could have an adverse impact on our business, including on the cost of our projects and our ability to make timely delivery. Moreover, our operations may also be affected by labor unrest in the workforces of our clients, suppliers, sub-contractors or partners.

The proceeds from our insurance policies may not be sufficient and we may not be insured against all risks

We maintain insurance coverage both as a corporate risk management strategy and in order to satisfy the requirements under certain regulations and contracts. We cannot assure you that proceeds from our insurance policies, however, will be sufficient to cover the damages resulting from any event covered by such policies. Certain risks are not covered under the terms of our insurance policies, such as interruption of operations. In such event, we may incur significant expenses to rebuild our facilities, repair or replace our equipment, or cover other damages. In addition, if any of our third-party insurers fail, abruptly cancel our coverage or otherwise cannot satisfy their insurance requirements to us, then our overall risk exposure and operational expenses could be increased. Moreover, we may not be able to renew our insurance policies on favorable terms, or at all. Although in the past we have been generally able to cover our insurance needs, we cannot assure you that we will be able to secure all necessary insurance in the future.

An increase in import duties and controls, supply shocks, or other restrictions on our obtaining instruments and equipment, may have a material adverse effect on our financial performance

Our future success depends in part on our ability to select and purchase high quality mechanical instruments and equipment at attractive prices. While we have historically been able to do so, such instruments and equipment may become subject to higher import taxes than currently apply. We cannot assure you that there will not be further increases in import taxes, changes in laws related to imports or the imposition of quotas by countries from which we import mechanical instruments and equipment, any of which could have a material adverse effect on our business. Additionally, particularly with the COVID-19 pandemic, supply shocks, including delays at ports has affected the cost, timely delivery and availability of certain machinery and spare parts, which may have an adverse effect on our business.

Furthermore, our and certain of our subsidiaries’ ability to pay our instrument or equipment suppliers from abroad could be affected by possible failure to obtain, on a timely basis, authorization from the Ministry of Justice pursuant to Law 30737 to make such payments. Law 30737 requires that companies such as our company and certain of our subsidiaries that have been partners of companies that have been, or whose officers or representatives have been, convicted of, or have admitted to, corruption, money-laundering or similar crimes, submit money transfers abroad to the Peruvian Ministry of Justice for pre-approval. We cannot assure you that any such approvals will be granted in a timely manner or at all, and such restrictions may limit our ability to purchase necessary instruments and equipment.

Debarment from participating in government bidding processes could have an adverse impact on our business and financial performance

As a result of the ongoing investigations against our company, UNNA Transporte and Cumbra, will temporarily face debarment from participating in government bidding processes or entering into new contracts with the Peruvian government for two years after the homologation process. We cannot assure you that other subsidiaries will not face similar debarment sanctions in the future.

Approximately 0.1%, 5.4%, and 7.3% of our E&C revenues for 2020, 2021 and 2022, respectively, came from public-sector contracts in Peru. As of December 31, 2022, 30.0% of our backlog is comprised of contracts with the public sector. As a result, if we are debarred from participating in government bidding processes, our business and financial performance could be affected. To extent that economic conditions reduce private sector investments, being debarred from contracting with the Peruvian or other governments could further impact our company.

We may not be able to successfully expand outside of Peru

One of our long-term strategies has been to continue to expand our operations outside of Peru, particularly in Chile, Colombia and Brazil. We cannot assure you that we will be able to replicate our success in Peru in other countries. Our international expansion is subject to additional challenges, including: our ability to assimilate cultural differences and practices; our limited familiarity with local laws, regulators and contractors; our ability to attract and manage foreign personnel; the absence of a local workforce formed in our corporate values and familiar with our operations; competition in foreign markets, including from industry players with significantly greater local experience and reputation; and other risks specific to these countries. Moreover, we may not be able to make equity investments when needed by our foreign operations, due to restrictions imposed by Law 30737 on our ability to transfer funds abroad without pre-approval of the Peruvian Ministry of Justice.

Many countries in Latin America have suffered significant economic, political and social crises in the past, and these events may occur again in the future. If we are unable to overcome these challenges, we may not be able to successfully expand internationally.

We may not be able to make successful acquisitions

In the past, part of our long-term strategy was to evaluate strategic acquisition opportunities to expand our operations and geographic footprint, especially in Chile, Colombia and Brazil. We may not be able to identify appropriate acquisition opportunities, or, if we do, we may overpay for these acquisitions or may not otherwise be able to negotiate terms and conditions that are acceptable to us. We may also face difficulties obtaining financing to pay for acquisitions. Law 30737 currently requires that payments we make abroad be submitted to the Peruvian Ministry of Justice for pre-approval, and we cannot assure you that any such approvals will be granted in a timely manner or at all.

In addition, we may not be able to obtain regulatory approvals, including antitrust approvals, required to consummate acquisitions. Furthermore, even if we are able to successfully consummate an acquisition, we may encounter challenges in integrating the acquired business effectively and profitably into our operations. The integration of an acquisition involves a number of factors that may affect our operations, including diversion of management’s attention, difficulties in retaining personnel and entry into unfamiliar markets. Acquired businesses may not achieve the levels of productivity anticipated or otherwise perform as expected. Acquisitions may bring us into businesses we have not previously conducted and expose us to additional business risks that are different from those we have traditionally experienced, including new geographic, market, operating and financial risks. Moreover, acquisitions involve special risks, including the potential assumption of unanticipated liabilities and contingencies. Even if such liabilities are assumed by the sellers, we may have difficulties enforcing our rights, contractual or otherwise. We cannot assure you that future acquisitions will meet our strategic objectives.

Our IT security measures may be breached or compromised and we may sustain system outages

Security breaches, whether intentional or unintentional, may threaten the confidentiality, integrity or availability of our information resources and may allow unauthorized access to our systems, disrupt our digital operations, corrupt data, or allow persons to misappropriate confidential data. Any breach of our network security measures could cause interruptions in our services or operations, damage our reputation and harm our ability to operate our business. This may result in client or supplier dissatisfaction and a loss of business. Our security measures may be inadequate to prevent security breaches, and we may be required to expend significant capital and other resources to protect against the threat of security breaches and to alleviate problems caused by breaches as well as by any unplanned unavailability of our IT systems caused by other reasons, which may adversely affect our business and financial performance.

Additional Risks Related to our Infrastructure Business

Our return on our investment in our concessions may not meet estimated returns

Our return on any investment in a concession is based on the terms and conditions of the concession, its duration and the amount of capital invested as well as the amount of revenues collected, debt service costs, payment of penalties and other factors. For example, traffic volume at toll roads may be affected by a number of factors beyond our control, including security conditions; general economic conditions; demographic changes; fuel prices; reduction in commercial or industrial activities in the regions served by the roads; changes in laws regarding toll payments, including related to the effects of the COVID-19 pandemic; and natural disasters. Although some of our concessions allow for adjustments based on economic conditions, certain concessions provide that adjustment requests be approved only if certain limited events specified in our concession contracts have occurred. If a request of adjustment is not granted, our financial performance could be affected. Given these factors and the possibility that governmental authorities could implement policies that affect our contractual return on investment in a way that we did not anticipate, we cannot assure you that our return on any investment under any concession will meet our estimates.

Governmental entities may prematurely terminate our concessions and similar contracts under various circumstances, some of which are beyond our control

Our ability to continue operating our concessions and similar public-sector contracts depends on governmental authorities, which may terminate the concession or contract pursuant to the provisions set forth therein or in accordance with applicable legislation, including the failure to comply with any contractual terms (including the concessionaire’s default on debt) or applicable law, including after giving effect to changes in laws (including any changes related to the effects of the COVID-19 pandemic). Moreover, the relevant governmental authority may terminate and/or repossess a concession at any time, if, in accordance with applicable law, the governmental authority determines that it is in the public interest to do so. The relevant governmental authority may also assume the operation of a concession in certain emergency situations, such as war, public disturbance or threat to national security. In addition, in the case of force majeure, the relevant governmental authority may require us to implement certain changes to our operations. If the government terminates any of our concessions, under Peruvian law, it is generally required to compensate us for the amount of our unrecovered investment, unless the concession is revoked pursuant to applicable law or the terms of the concession which would imply a serious breach of the concession’s terms by us. Such compensation process is likely to be time consuming and the amount paid to us may not fully compensate us. We cannot assure you that we would receive such compensation on a timely basis or in an amount equivalent to the value of our investment in a concession plus lost profits.

We are exposed to risks related to the operation and maintenance of our concessions and similar contracts

The operation and maintenance requirements under our concessions could encounter delays or cause us to exceed our budgeted costs for such projects, which could limit our ability to realize the expected return on these projects, increase our operating or capital expenses and adversely affect our business and financial performance. In addition, our operations may be adversely affected by interruptions or failures in the technology and infrastructure systems that we use to support our operations, including toll road collection and traffic measurement systems. The Lima Metro in particular may be susceptible to outages due to power loss, telecommunications failures and similar events. The failure of any of our technology systems may cause disruptions in our operations, adversely affecting our profitability. While we have business continuity plans in place to reduce the adverse impact of information technology system failures on our operations, we cannot assure you that these plans will be effective. Furthermore, accidents and natural disasters may also disrupt the construction, operation or maintenance of our projects and concessions, which could adversely affect our business and financial performance.

We may not be successful in obtaining new concessions

The market for infrastructure concessions in the Latin America region is competitive. We compete with Peruvian and foreign companies for infrastructure concessions, some of whom may have greater financial and other resources or particular expertise pertinent to a specific concession. Additionally, our public-sector clients may face budget deficits that may prohibit the development of infrastructure concessions, which could affect our business. We may also not be able to obtain additional concessions if the government decides not to award new concessions, due to budget constraints or policy changes or because alternative financing mechanisms are used. Recently, the awarding of concessions and the use of public-private associations in Peru have stalled, due in part to concerns related to the corruption scandal surrounding Odebrecht and its potential effect on government officials in the country. In addition, we are temporarily unable to bid for or participate in new public procurement contracts due to the Collaboration and Benefits agreement that we executed with Peruvian prosecutorial authorities. Our inability to bid for or obtain new concessions may adversely affect our business and financial performance.

Additional Risks Related to our Energy Business

A substantial or sustained decline in oil prices would adversely affect our financial performance

The revenue of our energy business depends upon prevailing prices for oil. Historically, oil prices and markets have been volatile and are likely to continue to be volatile in the future. Moreover, global oil prices have fluctuated significantly in recent years, with the average Brent crude prices increasing to US$66.00 per barrel in 2019. The price of oil dropped precipitously due in part to the COVID-19 pandemic as well as to disputes between OPEC members, to US$18.83 as of April 30, 2020. The price of oil recovered slowly during 2020 and early 2021, reaching US$48.93 as of December 31, 2020 and US$72.39 as of December 31, 2021. On March 31, 2022, the price of oil reached US$104.64 per barrel. As of December 31, 2022, the price of oil was US$77.02 per barrel.

Oil is a commodity and its price is subject to wide fluctuations in response to relatively minor changes in supply and demand for oil, market uncertainty, and a variety of additional factors beyond our control. Those factors include, among others: global demand and supply; political developments in producing regions; weather conditions; governmental regulations; international conflicts and acts of terrorism; the price and availability of alternative sources of energy; and overall local and global economic conditions. Moreover, lower oil prices may not only decrease our revenues on a per unit basis but may also reduce the amount of oil we can produce economically, if any, and, as such, may have a negative impact on the reserves of the fields in which we operate. As result, our financial performance could be materially and adversely affected by declines in oil prices.

Our reserves estimates depend on many assumptions that may turn out to be inaccurate and are not subject to review by independent reserve auditors

The process of estimating oil and gas reserves is complex, although the fields where we produce oil and gas are mature (Block III for approximately 100 years, Block IV for approximately 95 years and Block V for over 50 years). In order to prepare our reserves estimates presented in this annual report, we must project production rates and timing of development expenditures as well as analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil prices, drilling and operating expenses, capital expenditures, taxes, and availability of funds. Therefore, estimates of reserves are inherently imprecise. Moreover, our reserve estimates included in this annual report have been prepared internally by our team of engineers and have not been audited or reviewed by independent engineers. Future real production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable reserves will most likely vary from the estimates presented in this annual report, and those variances may be material. Any significant variance could materially affect the estimated reserves of the fields in which we operate.

Our license, service and operation contracts with Perupetro and Petroperu have expiration dates

We operate and extract oil and natural gas from Blocks III and IV under 30-year license agreements with Perupetro, which expire in April 2045. Additionally, we operate and extract oil and natural gas from Block V under a 30-year hydrocarbon extraction service contract with Perupetro, which was extended for an additional 10-year term and expires in October 2023. Our operations in Block I expired on December 26, 2021. The concession of Terminales del Peru for the operation of the north and central fuel terminals for PetroPeru have 20-year terms, providing storage. We cannot assure you that we will maintain these operations after the expiration of the contracts, on similar terms or at all, or that we will be able to cease the operation of such assets on favorable terms for the company.

We may not be able to finance our mandatory capital expenditure requirements in connection with our oil and gas operations and storage and distribution business

We operate and extract oil from Blocks III and IV under two license agreements with Perupetro. Pursuant to the license agreements, we have assumed mandatory investment commitments of 560 wells on both blocks. If we are not able to fulfill our mandatory capital expenditures under our license agreements, our business and financial performance could be adversely affected. See “Item 4.B. Information on the Company—Business Overview—Energy.”

Additionally, we operate five fuel terminals in the northern and central regions of Peru with mandatory capital expenditure requirements. If we are not able to fulfill our mandatory capital expenditures under our contracts or if the recognition of investments is delayed, our business performance could be adversely affected.

Additional Risks Related to our Real Estate Business

We are exposed to risks associated with the development of real estate

Our real estate business is subject to the risks that generally affect the real estate industry, such as availability and prices of suitable land, environmental and zoning regulations, interruptions in supply and volatility of the prices of construction materials and equipment, and changes in the demand for real estate. Our real estate business is specifically affected by the following risks: macroeconomic conditions in Peru that may impact the growth of the real estate sector as a whole, particularly in the residential market, including an increase in unemployment or a decrease in wage levels; an increase in prevailing interest rates or lack of available credit; changes in government subsidies for affordable housing; unfavorable real estate market conditions, such as an oversupply of residential units or scarcity of suitable land in particular areas; the level of customer interest in our new projects or the sales price per unit necessary to sell the unit may be lower than expected; customer perception of the security, convenience and attractiveness of our projects and the areas in which they are located; cost overruns, many of which may be beyond our control, that exceed our estimates and affect our profit margins, including the price of labor, land, insurance, taxes and public charges; the construction and sale of units may not be completed on schedule; bankruptcy or significant financial difficulties of large industry players, which cause a loss of confidence in the industry; limitations when contracting with government entities; and restrictions on real estate development imposed by local, regional and national authorities which may render restrictive laws and regulations. To a lesser extent, the real estate business has also been negatively impacted by modifications by the government to a program (Bono de Buen Pagador) that encourages social interest housing sales and access to credit. Any of the above events may have a material adverse effect on our business and financial performance.

Real estate prices may decline

Real estate prices in Peru have generally risen over the last decade, supported by a higher demand for housing and an increase in the cost of construction materials. Although real estate prices are expected to continue to rise in the coming years due to a shortage of housing, they are not expected to grow at the same rate as in the past, and we cannot assure you that they will rise at all. In particular, real estate prices in Peru may decline due to political conflict, a rise in interest rates and lack of subsidies from the government. If real estate prices decline significantly, our business and financial performance could be materially and adversely affected.

Our business may be adversely affected if we are not able to obtain the necessary licenses and/or authorizations for our developments on a timely basis

Real estate development requires obtaining certain licenses, authorizations and registrations. In Peru, municipal authorities are responsible for issuing most of the licenses that are required during the development stage, including zoning, demolition, construction and conformity (conformidad de obra) licenses, among others. As of December 31, 2022, we have approximately six real estate projects in various stages of development. For some of these projects, we have not yet initiated administrative proceedings with the appropriate authorities, or such proceedings are pending approval. A denial or an extended delay in issuing licenses, authorizations or registrations, or an extended delay by municipal authorities in approving licensing procedures, may render land unsuitable for development, delay the completion of planned projects, increase our costs or otherwise negatively impact the pricing of projects and adversely affect our business and financial performance.

The current political situation in Peru, and the economic uncertainty that may result, could adversely affect the ability or willingness of prospective buyers to purchase real estate properties. The scarcity of financing, an increase in interest rates or an increase in the security required by financial institutions as collateral may adversely affect the ability or willingness of prospective buyers to purchase our real estate properties. In most cases, the purchasers of our residential or commercial properties finance at least part of the purchase price with mortgage loans. On the other hand, in 2020, 2021 and 2022, approximately 91%, 92% and 92% respectively, of our residential units were sold to purchasers who received government subsidies to finance the purchase of homes. An increase in interest rates, whether as a result of market conditions or government action, may cause a decrease in the demand for our residential and commercial properties and for land development. An increase in interest rates could also increase our own financing costs, which may, in turn, increase the sale price of our projects and adversely affect our business and financial performance.

We may experience difficulties in finding desirable land and increases in the price of land may increase our cost of sales and decrease our earnings

The continued growth of our real estate business depends in large part on our ability to continue to acquire land at a reasonable cost, free of liens and encumbrances and in locations suitable for development. As more developers enter or expand their operations in the Peruvian real estate sector, land prices could rise significantly and suitable land could become scarce or overpriced due to increased demand or decreased supply. A resulting rise in land prices may increase our cost of sales and decrease our earnings. We may not be able to acquire suitable land at reasonable prices in the future, which may have a negative impact on our financial performance.

Changing market conditions may adversely affect our ability to sell home inventories in our land and at expected prices

There is a lag between the time we acquire land and the time that we can bring the developed properties to market. Lag time varies by sector and on a project-by-project basis. As a result, we face the risk that demand for real estate may decline or that other developments may occur during this period that affect market conditions, and that we will not be able to dispose of developed properties or undeveloped land at expected prices or profit margins or within anticipated time frames or at all. Significant expenditures associated with investments in real estate, such as maintenance costs, architectural fees in high-end projects, construction costs and debt payments, cannot generally be reduced if changes in market conditions cause a decrease in expected revenues from our properties. Moreover, the market value of home inventories and undeveloped land can fluctuate significantly because of changing market conditions. As a result of these and other factors beyond our control, we may be forced to sell properties or land at a loss or for prices that generate lower profit margins than we anticipate.

Additionally, the Peruvian government has adopted the Nuevo Crédito MiVivienda and Techo Propio programs, among others, which promote access to affordable housing in Peru by providing government subsidies to individuals for the purchase of homes. If these subsidies are reduced or eliminated, we may not be able to sell our expected home inventories at expected prices and our revenues and backlogs could be affected.

Determinations by INDECOPI may adversely affect our ability to enforce binding contracts

In resolving consumer protection complaints in the real estate sector, INDECOPI has made determinations against real estate developers resulting in the modification of contractual provisions applicable to purchasers. Some purchasers of real estate properties have taken advantage of these INDECOPI determinations and filed complaints against developers before INDECOPI and/or made public claims through the media seeking to obtain compensation for alleged deficiencies in housing construction as well as the modification of the terms of their contracts, which may have a negative impact on our real estate business. Although we have a small number of such complaints in INDECOPI, an increase in consumer complaints and consumer protective measures, particularly those resulting in the modification of contractual terms, may affect our ability to enforce our contracts under their original terms if we are not able to counter such claims, which in turn may have a negative impact on our real estate business.

Additional Risks Related to our Engineering and Construction Business

We are vulnerable to the cyclical nature of the end-markets we serve

Demand for our engineering and construction services is dependent on conditions in the end-markets we serve, which include, among others, the mining, power, oil and gas, transportation, real estate and other infrastructure sectors in Peru, as well as the mining sector in Chile and the energy sector in Colombia. Consequently, our engineering and construction business is closely linked to the performance and growth of these sectors, and it is exposed to many of the risks faced by our clients operating in these sectors, over which we have no control. These industries tend to be cyclical in nature and, as a result, although downturns can impact our entire company, our engineering and construction business has historically been subject to periods of very high and low demand.

Factors that can affect these sectors include, among others, macroeconomic conditions, climate conditions, the level of private and public investment, the availability of credit, changes in laws and regulations, and political and social stability. Mining and oil and gas sectors, in particular, are also driven by worldwide demand for the underlying commodities, including, among others, silver, gold, copper, oil and gas, which can be affected by such other factors as global economic conditions and geopolitical affairs.

A decline in prices for minerals, oil and gas has had in the past, and could have in the future, a significant impact on our clients’ exploration and production activities and, as a result, on their demand for our engineering and construction services. Many of these sectors were adversely affected by the COVID-19 pandemic and governments’ extraordinary measures to limit the spread of the virus. Adverse developments in the end-markets served by our engineering and construction business could have a material adverse effect on our financial performance.

Decreases in capital investments by our clients may adversely affect the demand for our services

Our engineering and construction business is directly affected by changes in private-sector and, to a lesser extent, public-sector investments for large-scale infrastructure projects. In addition, our engineering and construction business is directly affected by the availability and cost of financings for these projects. In the markets where we operate, investments and financings for large-scale projects have historically been influenced by macroeconomic and other factors which are beyond our control, including in the case of public-sector investment or government spending levels. As a result, we cannot assure you that clients will not choose to limit or not undertake new projects or delay, suspend or cancel existing projects.

In 2020, Peru experienced a decrease in the growth rate of 16.2% in private and public investments compared to an increase of 35.0% in 2021 and 0.9% in 2022. Reductions in anticipated capital investments or available financing for large-scale projects could have a material adverse effect on our financial performance.

Our revenues may fluctuate based on project cycles, which we may not control

The substantial majority of the revenues from our engineering and construction business is generated from project awards, the timing of which may be unpredictable and outside of our control, especially considering the highly competitive bidding processes and complex and lengthy negotiations they involve. These processes can be impacted by a wide variety of outside factors including governmental approvals, financing contingencies and overall market and economic conditions. Moreover, because a significant portion of our revenues is generated from largescale projects, our results of operations can fluctuate quarterly or yearly depending on whether and when project awards occur and the commencement and progress of work under awarded contracts. As a result, we are subject to the risk that revenues may not be derived from awarded projects as quickly as anticipated.

Our business may be adversely affected if we incorrectly estimate the costs of our projects

We conduct our engineering and construction business under various types of contractual arrangements where costs are estimated in advance. In some of our contracts (i.e., lump-sum, unit price and EPC), we bear the risk of some or all unanticipated cost overruns, including those due to inflation or certain unforeseen events. Risks under contracts which could result in cost overruns include: difficulties in performance of our subcontractors, suppliers, or other third parties; changes in laws and regulations or difficulties in obtaining permits or other approvals; unanticipated technical problems; unforeseen increases in the cost of inputs, components, equipment, labor, or the inability to obtain these on a timely basis; delays caused by weather conditions; incorrect assumptions related to productivity or scheduling estimates; and project modifications that create unanticipated costs or delays. These risks tend to be exacerbated for longer term contracts since there is increased risk that the circumstances under which we based our original bid could change. In many of our contracts, we may not be able to obtain compensation for additional work performed or expenses incurred. Our failure to estimate accurately the resources and time required to complete a project could adversely affect our profitability. Even under our cost-plus contracts, our inability to complete projects within the estimated budget could affect our relationship with our clients and negatively impact awards of future contracts. As a result, if we incorrectly estimate the costs of our projects, our business and financial performance could be adversely affected.

We may be unable to deliver our services in a timely manner

The success of our engineering and construction business depends on our ability to meet the standards and schedules required by our clients. Significant delays that prevent us from providing our services on agreed time frames could adversely affect our client relations and reputation. Delays may occur for a number of reasons, including: the COVID-19 pandemic and government measures to curb the spread of the virus; our inability to adequately foresee the needs of our clients; delays caused by our joint operation partners, subcontractors or suppliers; insufficient production capacity; equipment failure; shortage of qualified workers; changes to applicable regulations; and natural disasters. Failure to finish construction by the contractual completion date set forth in the contract could result in costs that reduce our projected profit margins, including a requirement to pay daily penalties and damages. If we are unable to meet deadlines, either due to internal problems or as a result of events over which we have no control, we may lose the trust of our clients and, therefore, experience a decrease in the demand for our services. In such event, our business and financial performance could be adversely affected.

Equipment that we need, including spare parts and components required for project development, may become unavailable or difficult to procure, inhibiting our ability to maintain full availability of existing facilities and also our ability to complete development projects on scope, schedule and budget

Equipment and spare parts may become unavailable or difficult to procure on terms consistent with those that we have budgeted for. For example, some jurisdictions in which we operate have experienced supply chain challenges resulting from bottlenecks caused by, among other things, increases in demand and challenges involved with ramping up to meet this demand.

While supply chain disruptions that occurred globally in 2021 did not materially impact our business or operations, supply chains could be further disrupted in the future by factors outside of our control. This could include (1) a reduction in the supply or availability of the commodities required to produce the parts and components that we need to maintain existing projects and develop new projects from our development pipeline, (2) lockdowns and workforce disruptions caused by the ongoing COVID-19 pandemic, (3) the potential physical effects of climate change, such as increased frequency and severity of storms, precipitation, floods and other climatic events and their impact on transportation networks and manufacturing centers, and (4) economic sanctions or embargoes, including those relating to human rights concerns in jurisdictions that produce key materials, components or parts.

Any material delays in procuring equipment or significant cost increases could adversely impact our business and financial condition.

We may not be able to obtain compensation for additional work or expenses incurred as a result of client-requested change orders

Clients often determine, after commencement of the project, to change various elements of the project. Some of our contracts may also require that clients provide us with design or engineering information or with equipment or materials or land rights to be used on the project. In some cases, the client may provide us with deficient design or engineering information or equipment or materials or may provide the information or equipment or materials or land rights to us later than required by the project schedule.

Our project contracts generally require the client to compensate us for additional work or expenses incurred due to client requested change orders or failure of the client to provide us with specified design or engineering information or equipment or materials or land. Under these circumstances, we generally negotiate with the client with respect to the amount of additional time required to make these changes and the compensation to be paid to us.

We are subject to the risk that we are unable to obtain, through negotiation, arbitration, litigation or otherwise, adequate amounts to compensate us for the additional work or expenses incurred by us due to client-requested change orders or failure by the client to timely provide required items. A failure to obtain adequate compensation for these matters could require us to record an adjustment to amounts of revenue and gross profit that were recognized in prior periods. Any such adjustments, if substantial, could have a material adverse effect on our financial performance.

We may have difficulty obtaining performance bonds that we require in the normal course of our operations

In our engineering and construction business, it is industry practice for customers to require performance bonds or other forms of credit support to secure, among other things, bids, advance payments and performance. We cannot assure you that in the future we will not encounter difficulties in obtaining such performance bonds or credit support. The Peruvian market for these types of credit instruments is small; moreover, under Peruvian banking regulations, lenders are required to impose limits on the amount of credit they extend to a group of affiliated companies. Failure to provide performance bonds or credit support on terms required by clients may result in our inability to compete for or win new projects.

Moreover, under certain contracts, we may be obligated to maintain performance bonds during the course of litigation, significantly increasing the costs incurred as a result of a dispute. This also may expose us to the risk that a client may enforce the performance bond without regard to the merits of its claim which, in turn, may debilitate our negotiating position with the client and consequently impair our ability to favorably resolve the dispute. The enforcement of a performance bond by any of our clients may affect our ability to obtain new performance bonds for new projects.

Our use of the percentage-of-completion method of accounting for our Engineering and Construction segment could result in a reduction of previously recorded profits

Revenue from (E&C) contracts is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance; the Company’s performance creates or improves an asset that the customer controls as the asset is created or improved; and the Company’s performance does not create an asset with an alternative use to which the Company fulfills its obligations, as there is a continuing transfer of control of the deliverable to the customer in accordance with the terms of those contracts. For these reasons, the Corporation accounts for revenue over time by measuring progress toward complete satisfaction of its performance obligations under each contract.

The Company uses the output method to measure the physical percentage of completion based on performance analysis of projects performed by the Company’s experts. AENZA believes that this method represents the transfer of control of goods or services to clients on a periodic basis of project performance which provides an accurate representation of the transfer of services to the client, as it reflects an enforceable right of payment by the Company for work performed to date.

The Company assesses whether changes in rights and obligations in a contract modification are enforceable when one or more of the following conditions are met: a) the contract, applicable law or other evidence provides a legal basis for the modification; b) the additional costs were caused by unforeseen circumstances at the date of execution of the contract and not as a result of deficiencies incurred by the Company’s performance; c) the costs related to the modification are identifiable and considered reasonable in light of the work performed; or d) the evidence supporting the modification is objective and verifiable. When one or more of the above conditions are met, the Company considers the changes in rights and obligations in the contract modification to be enforceable.

The nature of some contracts, such as cost plus fee contracts, unit price contracts or similar contracts give rise to variable consideration that may include reimbursable costs, incentives and penalties. The Company estimates the change in the transaction price resulting from variable consideration when the transaction price has not yet been approved by the customer, in accordance with the requirements of IFRS 15. To include variable consideration related to a contract modification in the estimated transaction price, the Company must conclude that it is “highly probable” that a significant revenue reversal will not occur. The Company determines the likelihood of revenue reversal occurring (and, therefore, whether such price will be recovered) based on an analysis of whether any of the following factors are present: i) contractual entitlement; ii) past practice with the customer; iii) specific discussions or preliminary negotiations with the customer; or iv) verbal approval by the customer. If, as a result of such analysis, the Company concludes that it is “highly probable” that there will not be a significant reversal of the amount of revenue recognized, it recognizes the variable consideration related to the contract modification. When the benefit of the contract cannot be reliably estimated, the associated revenue is recognized to the extent that the costs incurred are recoverable. Revenue is invoiced upon receipt of customer approval. When it is probable that total contract costs will exceed the related revenue, the expected loss is recognized immediately.

The Company estimates the amount of revenue to be recognized as variable consideration using judgmental judgments and estimates to determine the most probable value, based on which is expected to best predict the amount of consideration to which the Company will be entitled.

While management believes that the estimates made are reasonable and made in accordance with the above methodology, given the uncertainties associated with these types of contracts and inherent in the nature of some of the industries in which we operate, it is possible for actual costs to vary from estimates previously made, including due to changes in facts and circumstances, which may result in reductions or reversals of previously recorded profits.

Risks Related to Peru

Economic, social and political developments in Peru could adversely affect our business and financial performance

The substantial majority of our operations are conducted in Peru and depend on economic and political developments in the country. As a result, our business may be materially and adversely affected by economic downturns, currency depreciation, inflation, interest rate fluctuation, government policies, regulation, taxation, social instability, political unrest, drug trafficking, terrorism and other developments in or affecting the country, over which we have no control. In the past, Peru has experienced periods of severe economic recession, large currency devaluation and high inflation. We cannot assure you that Peru will not experience similar adverse economic developments in the future. In addition, Peru has experienced periods of political instability that has included a succession of regimes with differing economic policies and programs. Previous governments have imposed controls on prices, exchange rates, local and foreign investments and international trade, restricted the ability of companies to dismiss employees, expropriated private-sector assets and prohibited the remittance of profits to foreign investors. We cannot assure you that the Peruvian government will continue to pursue open-market policies that stimulate economic growth and social stability and that the risk of expropriation of the concessions where we operate will not materialize.

Moreover, investigations against former or current government officials relating to bribery payments made by Odebrecht have, and may continue to, result in political uncertainty in Peru. In March 2018, President Pedro Pablo Kuczynski presented his resignation, due to allegations of corruption for vote-buying in connection with the impeachment proceeding against him, and his first vice president, Martín Vizcarra, was sworn in as acting president. In September 2019, the executive branch, invoking article 134 of the constitution, dissolved Congress and called for new legislative elections which were held in January 2020. Following these elections, the Peruvian executive and legislative branches have been at odds over several important economic and social measures, including initiatives to address the economic and social impact of the COVID-19 pandemic on Peru. In November 2020, Congress impeached and removed from power Mr. Vizcarra and appointed Manuel Merino as President, who in turn resigned five days after his appointment as was replaced by Francisco Sagasti. Criminal investigations have been initiated against former presidents Alejandro Toledo, Ollanta Humala, Alan García, Pedro Pablo Kuczynski and Martín Vizcarra. On April 17, 2019, former President Alan García committed suicide as prosecutors were preparing to detain him over matters relating to criminal investigations. Several corruption scandals regarding authorities at municipal, regional and national government levels are also ongoing, and former government officials have been detained. These corruption investigations resulted in lower investments in large projects.

Peru’s general elections to elect the president and all congressional members for 2021-2026 were held on April 11, 2021. As a result, the candidates for president, Mr. José Pedro Castillo Terrones and Mrs. Keiko Sofia Fujimori Higuchi obtained the highest number of votes but no outright majority, giving place to a ballotage presidential run-off that was held on June 6, 2021, with Mr. Castillo resulting elected as the new President.

On December 7, 2022, Peru’s former President Pedro Castillo illegally announced the dissolution of Congress, among other measures such as the intervention of the Prosecutor’s Office, the Judicial System and the Constitutional Court, and was arrested. Dina Boluarte, Castillo’s first vice president, was sworn in as president the same day to serve until July 2026. After Pedro Castillo’s vacancy in December 2022, several riots and road blockades took place, mainly in the southern regions of Peru. In addition, amidst ongoing protests, the new government has made a series of proposals to Congress to approve early elections, however, Congress has not obtained sufficient votes to accelerate the presidential elections.

We cannot assure you whether the Peruvian government will continue to pursue business-friendly and open-market economic policies that stimulate economic growth and stability. Moreover, we cannot assure you that measures negatively impacting private investment, such as higher taxation or exchange controls, will not be implemented.

Uncertainty derived from the current political situation may cause clients to postpone investment decisions or may disrupt Peruvian markets which, in turn, could have a significant negative effect on our business. The political instability caused by these events could also affect macroeconomic conditions in the country, including currency volatility, as well as have a negative effect on our business.

Fluctuations in the value of Peruvian sol could adversely affect financial performance

Fluctuations in the value of the sol relative to the U.S. dollar could adversely affect Peru’s economy. In addition, fluctuations in the value of the sol to the U.S. dollar can materially adversely affect our results of operations.

In 2020, 36.1% and 47.4% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 49.3% and 29.5% of our costs of sales were denominated in soles and U.S. dollars, respectively. In 2021, 40.0% and 42.6% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 61.4% and 18.8% of our costs of sales were denominated in soles and U.S. dollars, respectively.

In 2022, 39.3% and 43.8% of our revenues were denominated in soles and U.S. dollars, respectively, whereas 55.8% and 25.9% of our costs of sales were denominated in soles and U.S. dollars, respectively. In the past the exchange rate between the sol and the U.S. dollar has fluctuated significantly. We cannot assure you that the value of sol against other currencies will not fluctuate significantly in the future, which could adversely affect the Peruvian economy and our business, financial condition, and results of operations.

In addition, although Peruvian law currently imposes no restrictions on the ability to convert soles to foreign currency, in the past, Peru imposed exchange controls, including controls affecting the remittance of dividends to foreign investors. We cannot assure you that exchange controls in Peru will not be implemented in the future. The imposition of exchange controls could have an adverse effect on the economy and on your ability to receive dividends from us as a holder of ADSs.

Inflation could adversely affect our financial performance

In the past, Peru has suffered through periods of hyperinflation, which have materially undermined the Peruvian economy and the government’s ability to create conditions that support economic growth. A return to a high inflation environment would also undermine Peru’s foreign competitiveness, with negative effects on the level of economic activity and employment.

As a result of reforms initiated in the 1990s, Peruvian inflation decreased significantly from four-digit inflation during the 1980s. The Peruvian economy experienced annual inflation of 2.0% in 2020, as measured by the Peruvian Consumer Price Index (Indice de Precios al Consumidor del Peru). Nonetheless, in 2021 the inflation rate rose to 6.4% and 8.5% in 2022, a 30-year peak, due mostly to global supply chain issues and the recovery of global demand in relation to the COVID-19 pandemic.

If Peru experiences substantial inflation in the future, our costs of sales and administrative expenses could increase which could affect our operating margins. Inflationary pressures may lead to governmental intervention in the economy, including the introduction of government policies that may adversely affect the overall performance of the Peruvian economy. For example, in response to increased inflation, the Peruvian Central Bank, which sets the Peruvian basic interest rate, may increase or decrease the basic interest rate in an attempt to control inflation or foster economic growth.

Changes in tax laws may increase our tax burden and, as a result, negatively affect our financial performance

The Peruvian Congress and government regularly implement changes to tax laws that may increase our tax burden. These changes may include modifications in our tax rates and, on occasions, the enactment of temporary taxes that in some cases have become permanent taxes. The effects of any tax reforms that could be proposed in the future and any other changes that result from the enactment of additional reforms have not been, and cannot be, quantified. However, any changes to our tax regime may result in increases in our overall costs and/or our overall compliance costs, which could negatively affect our financial performance.

Earthquakes, severe weather and other natural disasters could adversely affect our business and financial performance

Peru is located in an area that experiences seismic activity and occasionally is affected by earthquakes. For example, in 2007, an earthquake with a magnitude of 7.9 on the Richter scale struck the central coast of Peru, severally damaging the region south of Lima. Such conditions may result in physical damage to our properties and equipment, closure of one or more of our project sites and infrastructure concessions, inadequate work forces in our markets and temporary disruptions in the supply of construction materials. In addition, Peru has also experienced adverse climate conditions (due to climate change or otherwise) and adverse weather patterns, such as El Niño, an oceanic and atmospheric phenomenon that causes a warming of temperatures in the Pacific Ocean, resulting in heavy rains off the coast of Peru and potentially flooding in certain areas of Peru, on the one hand, and simultaneous draughts in the southern Andean region of the country, on the other hand.

In the beginning of 2023, Peru has experienced intense rainfall and weather conditions resulting in overflow risk, mudslides and floods. Most recently, on March 15, 2022, heavy rainfall led to floods and landslides in the town of Retamas, La Libertad, which caused the destruction of many homes and caused several deaths. In addition, the National Service of Meteorology and Hydrology of Peru (Servicio Nacional de Meteorología e Hidrología del Perú) and the National Study of the El Niño Phenomenon (Estudio Nacional del Fenómeno El Niño), maintained a state of alert as it expects El Niño conditions to continue until at least July 2023. Poor weather conditions can have significant adverse effects on our engineering and construction activities as well as on our operation and maintenance of infrastructure assets business. Any of these factors may materially adversely affect the Peruvian economy and our business and financial performance.

A resurgence of terrorism in Peru could adversely affect the Peruvian economy and, as a result, our business and results of operations

In the past, Peru experienced severe terrorist activity that reached its peak of violence against the government and private sector in the late 1980s and early 1990s. In the mid-1990s, terrorist groups suffered significant defeats, including the arrest of leaders, resulting in considerable limitations in their activities. Despite the suppression of terrorist activity, we cannot assure you that a resurgence of terrorism in Peru, or other organized criminal activity, including drug trafficking, will not occur, or if there is such a resurgence, it will not disrupt the economy of Peru and our business.

The Peruvian economy could be affected by adverse economic developments in regional or global markets

Financial and securities markets in Peru are influenced, to varying degrees, by economic and market conditions in regional or global markets. Although economic conditions vary from country to country, investors’ perceptions of events occurring in one country may adversely affect cash flows and securities from issuers in other countries, including Peru. Changes in social, political, regulatory and economic conditions in large economies or in laws and policies governing foreign trade or affecting global financing conditions could create uncertainty in the international markets and could have a negative impact on emerging market economies, including the Peruvian economy, which in turn could have a negative impact on our operations. Since mid-March of 2020, the ongoing COVID-19 pandemic has disrupted economic activity and caused a global recession. The worsening of current global conditions or a new economic or financial crisis could affect Peru’s economy and, consequently, materially adversely affect our business and financial performance.

Risks Related to Chile, Colombia and other Latin American Countries

We face risks related to our operations outside of Peru

Latin American economic, political and social conditions may adversely affect our business. In 2022, the Latin America region underwent political and governmental shifts towards anti-capitalist political agendas. In the countries where we operate (Peru, Colombia and Chile), the changes of government have generated greater uncertainty about their economic and social stability. Our financial performance may be significantly affected not only by general economic, political and social conditions in Peru but also in other markets where we operate or intend to operate, including Chile and Colombia. During 2020, 2021 and 2022 approximately 18.2%, 18.9% and 17.8%, respectively, of our revenues on a consolidated basis derived from operations outside of Peru. The change in the legal framework of the countries where we operate could adversely affect our business and financial performance. These countries have suffered significant economic, political and social crises in the past, and these events may occur again in the future. We cannot predict whether changes in current administrations will result in changes in governmental policy and whether such changes will affect our business. Instability in the region has been caused by many different factors, including: significant governmental influence over local economies, substantial fluctuations in economic growth, high levels of inflation, changes in currency values, exchange controls or restrictions on expatriation of earnings, high domestic interest rates, wage and price controls, changes in governmental economic or tax policies such as including retroactive changes, imposition of trade barriers such as import duties on information technology equipment, electricity rationing, liquidity of domestic capital and lending markets, unexpected changes in regulation, expropriations, and high levels of organized crime, terrorism and social conflicts as well as overall political, social and economic instability. Moreover, macroeconomic conditions in these countries are highly influenced by global commodity prices, including the price of copper for Chile and the price of oil and gas for Colombia.

In addition, beginning in October 2019, Chile has suffered from widespread social unrest and vandalism that has had a significant economic and political impact on the country. The protests began over the government’s announcement of an increase in subway fares in Santiago and quickly grew into broader unrest over economic inequality, including claims about transportation costs, funding for education, health care costs and pension amounts, among others. The Chilean government imposed a state of emergency and nighttime curfews in Santiago and other cities; however, protests and violence continued. The Chilean government took a series of social and economic measures to tackle the issues at the heart of the unrest and the Chilean congress convened a plebiscite initially to be held in March 2020, which was rescheduled to October 25, 2020 as a result of the COVID-19 pandemic, to determine whether constitutional amendments should be implemented. By democratic majority, the Chilean constituents to the plebiscite voted to amend the Chilean Constitution. A new Chilean Constitution was drafted by a constitutional convention whose members were elected in May 2021 and subsequently rejected by a national plebiscite held in September 2022. Following the plebiscite’s rejection, the Chilean congress approved a second constitutional process which is expected to be submitted for ratification in December 2023. The new constitution may contain changes that generate uncertainty and potential instability. In addition, in December 2021, Mr. Gabriel Boric Font was elected as the new President of Chile and took office in March 2022. We cannot assure you that the newly-elected Chilean government will continue to pursue business-friendly and open-market economic policies that stimulate economic growth and stability.

Beginning in November 2019 and more recently in 2021, Colombia has experienced civic unrest, including a national strike and anti-government protests. Demonstrators in the country, protesting for several reasons, including opposing certain economic and political reforms proposed by the administration of President Duque (including those intended to address the negative effects on the Colombian economy caused by the COVID-19 pandemic), public corruption, and the implementation of the peace agreement between Colombia and the guerrilla Fuerzas Armadas Revolucionarias de Colombia (FARC). In addition, protestors have demanded reforms related to pensions, access to education, environmental protection and inequality, among others. We cannot predict the policies that will be adopted by the Colombian government and whether those policies would have a negative impact on the Colombian economy or our business and financial performance. Our Colombian operations could be adversely impacted by rapidly changing economic, political and social conditions in Colombia and by the Colombian government’s response to such conditions. On June 16, 2022 Colombia elected the left-wing candidate Gustavo Petro as President. Gustavo Petro has announced plans to increase government intervention, reduce oil production and impose higher taxes on oil companies; measures that could adversely affect the economy and potentially impact our business and financial performance.

Risks Related to our ADSs

We have identified material weaknesses in the information technology general controls (“ITGCs”) related to our information technology (“IT”) systems and in the design and implement process-level control activities related to the recognition of revenue and costs within our engineering and construction segment with regards to compliance with IFRS 15 – Revenue Recognition (IFRS 15) , and if we cannot maintain effective internal controls or provide reliable financial and other information in the future, investors may lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs

Based on the assessment of our internal control over financial reporting as of December 31, 2022, as required by Section 404 of the U.S. Sarbanes Oxley Act of 2002 (“SOX”), management has concluded that, as of such date, our internal control over financial reporting was not effective at the reasonable assurance level due to control deficiencies that constituted two material weaknesses. The material weakness consisted of deficiencies in the operational effectiveness of controls over SOX compliance related to i) our ITGCs related to our IT systems; and ii) the design and implementation of process-level control activities related to the recognition of revenue and costs within our engineering and construction segment with regards to compliance with IFRS 15 – Revenue Recognition (IFRS 15).

The revenue-related control deficiencies resulted in immaterial misstatements to revenue, cost of sales, deferred revenue, work in progress, accounts receivable and accounts payable that have been corrected in our consolidated financial statements as of and for the years ended December 31, 2021, and 2020. However, these control deficiencies created a reasonable possibility that a material misstatement to our annual consolidated financial statements would not be prevented or detected on a timely basis. Therefore, management concluded that the deficiencies represent material weaknesses in our internal control over financial reporting and our internal control over financial reporting was not effective as of December 31, 2022. For more information, see “Item 15. Controls and Procedures.” A “material weakness” is a deficiency, or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement in financial statements will not be prevented or detected in a timely basis.

We are in the process of implementing measures to address these material weaknesses. We may not be able to remediate these identified material weaknesses. Moreover, we may in the future discover other areas of our internal controls that have material weaknesses or that need improvement, particularly with respect to businesses that we acquire.

Any failure to maintain an effective internal control over financial reporting, or implement required new or improved controls, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our consolidated financial statements, which could result in a decrease in the value of our ADSs.

The market price of our ADSs may fluctuate significantly, and you could lose all or part of your investment

Volatility in the market price of our ADSs may prevent you from being able to sell your ADSs at or above the price you paid for them. The market price and liquidity of the market for our ADSs may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, among others: actual or anticipated changes in our results of operations, quarterly fluctuations, or failure to meet expectations of financial market analysts and investors; the impact of corruption allegations and investigations; investor perceptions of our prospects or our industries; operating performance of companies comparable to us and increased competition in our industries; new laws or regulations or new interpretations of laws and regulations applicable to our business; general economic trends in Peru; catastrophic events, such as earthquakes and other natural disasters; and developments and perceptions of risks in Peru and in other countries.

Substantial sales of ADSs or common shares could cause the price of our ADSs or common shares to decrease

Significant shareholders hold a large number of our common shares. These securities are eligible for sale. The market price of our ADSs could decline significantly if we or our significant shareholders sell securities in our company or the market perceives that we or our significant shareholders intend to do so.

We may raise additional capital in the future through the issuance of equity securities, which may result in dilution of the interests of our shareholders

We may need to raise additional capital and may opt for obtaining such capital through the public or private placement of common shares, debt securities or debt securities convertible into our common shares. In such event we may seek to obtain financing through the exclusion of the preemptive rights of our shareholders, which may dilute the percentage interests of investors in our common shares.

On November 2, 2020, the general shareholders’ meeting of the company approved a financial plan that included (i) the issuance by the company of convertible bonds in an amount up to US$90 million and (ii) the issuance of corporate bonds in an amount up to US$350 million. On August 13, 2021, AENZA issued bonds convertible into common shares. The total principal amount of the convertible bonds was US$89.9 million. The bonds mature in February 2024, bear interest at a rate of 8%, and are payable quarterly. Pursuant to the terms and conditions of the convertible bonds, they may be converted into shares as of the sixth month from the date of issuance. In accordance with the terms and conditions of the convertible bonds, holders of convertible bonds in a principal amount equivalent to US$11 million exercised their conversion rights and on February 28, 2022 we issued 37,801,073 new common shares (equivalent to 11,000 convertible bonds). Additionally, on March 31, 2022, holders of convertible bonds, in a principal amount equivalent to US$79 million exercised their conversion rights and we issued for an additional 287,261,051 new common shares (equivalent to 78,970 convertible bonds). After these conversions, the convertible bonds have been fully cancelled.

Holders of ADSs may be unable to exercise voting rights with respect to our common shares underlying the ADSs at our shareholders’ meetings

As a holder of ADSs representing common shares being held by the depositary in your name, you may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. Holders of our common shares will receive notice of shareholders’ meetings through publication of a notice 25 days in advance, in accordance with Peruvian law, in the official gazette in Peru, a Peruvian newspaper of general circulation and the website of the Peruvian Securities Commission, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders will not receive notice directly from us. Instead, pursuant to the deposit agreement, we will notify the depositary, who will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which voting instructions may be given. To exercise their voting rights, ADS holders must instruct the depositary how to exercise the voting rights for the common shares which underlie their ADSs. Due to these additional procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of our common shares.

Holders of ADSs also may not receive voting materials in time to instruct the depositary to vote the common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADS or for the manner of carrying out such instructions, unless such failure can be attributed to gross negligence, bad faith or willful misconduct on the part of the depositary or its agents. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the underlying common shares are not voted as requested.

Our shareholders’ ability to receive cash dividends may be limited

Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in soles into U.S. dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

Additionally, under the terms of the agreement with the Prosecutor’s Office and with the Attorney General’s Office, we cannot distribute dividends until 40% of the civil penalty is paid.

Holders of ADSs may be unable to exercise preemptive or accretion rights with respect to the common shares underlying their ADSs

Under Peruvian corporate law, if we issue new common shares as part of a capital increase, unless otherwise agreed to by holders of 40% of our subscribed voting common shares and, provided that such capital increase does not favor, directly or indirectly, certain shareholders to the detriment of others, our shareholders will generally have the right to subscribe to a proportional number of common shares of the class held by them to maintain their existing ownership percentage, which is known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed common shares at the end of a preemptive rights offering, on a pro rata basis, which is known as accretion rights. You may not be able to exercise the preemptive or accretion rights relating to common shares underlying your ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the common shares relating to these preemptive and accretion rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, you may receive only the net proceeds from the sale of your preemptive and accretion rights by the depositary or, if the preemptive and accretion rights cannot be sold, they will be allowed to lapse. As a result, U.S. holders of our ADSs may suffer dilution of their interest in our company upon future capital increases.

We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement without the prior consent of the ADS holders

We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement without the prior consent of the ADS holders. Any change related to an increase in deposits or charges for book-entry securities services or any modification that might hinder the rights of the ADS holders will be effective within 30 days after the ADS holders have received notice of such change or modification and such holders will have no right to any compensation whatsoever.

Peru has different corporate disclosure and accounting standards than those you may be familiar with in the United States

Financial reporting and securities disclosure requirements in Peru differ in certain significant respects from those required in the United States. There are also material differences among IFRS, Peruvian GAAP and U.S. GAAP. Accordingly, the information about us available to you will not be the same as the information available to holders of shares issued by a U.S. company. In addition, the Peruvian Securities Market Law, which governs open or publicly listed companies, such as us, imposes disclosure requirements that are more limited than those in the U.S. in certain important respects. Although Peruvian law imposes restrictions on insider trading and price manipulation, applicable Peruvian laws are different from those in the United States, and the Peruvian securities markets are not as highly regulated and supervised as the U.S. securities markets.

Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the New York Stock Exchange, which may limit the protections afforded to investors

We are a foreign private issuer within the meaning of the New York Stock Exchange (“NYSE”) corporate governance standards. Under NYSE rules, a foreign private issuer may elect to comply with the practices of its home country and not to comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Peruvian practices concerning corporate governance and intend to continue to do so. Accordingly, holders of our ADSs will not have the same protections afforded to shareholders of companies that are subject to all NYSE corporate governance requirements.

For example, the NYSE listing standards provide that the Board of Directors of a U.S. listed company must have a majority of independent directors at the time our company ceases to be a “controlled company.” Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of independent members on its Board of Directors. The listing standards for the NYSE also require that U.S. listed companies, at the time they cease to be “controlled companies,” have a nominating/corporate governance committee and a compensation committee (in addition to an audit committee). Each of these committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Under Peruvian law, a Peruvian company may, but is not required to, form special governance committees, which may be composed partially or entirely of non-independent directors. In addition, NYSE rules require the independent non-executive directors of U.S. listed companies to meet on a regular basis without management being present. There is no similar requirement under Peruvian law.

The NYSE’s listing standards also require U.S. listed companies to adopt and disclose corporate governance guidelines. In July 2002, the Peruvian Securities Commission and a committee comprised of regulatory agencies and associations prepared and published a list of suggested non-mandatory corporate governance guidelines called the “Principles of Good Governance for Peruvian Companies.” Although we have implemented these measures, we are not legally required to comply with the corporate governance guidelines, only disclose whether or not we are in compliance.

Minority shareholders in Peru are not afforded equivalent protections as minority shareholders in other jurisdictions and investors may face difficulties in commencing judicial and arbitration proceedings against our company or the controlling shareholder

Our company is organized and existing under the laws of Peru. Accordingly, investors may face difficulties in serving process on our company, officers and directors or significant shareholders in the United States of certain other jurisdictions, and in enforcing decisions granted by courts located in other jurisdictions against our company, our officers and directors or significant shareholders that are based on securities laws of jurisdictions other than Peru.

In Peru, there are no proceedings to file class action suits or shareholder derivative actions with respect to issues arising between minority shareholders and an issuer, its controlling shareholders or directors and officers. Furthermore, the procedural requirements to file actions by shareholders differ from those of other jurisdictions, such as in the United States. As a result, it may be more difficult for our minority shareholders to enforce their rights against us, our directors, officers or significant shareholders as compared to the shareholders of a U.S. company. The deposit agreement provides that the depositary has no obligation to commence or become involved in any judicial proceedings and any other legal actions relating to the ADSs or the deposit agreement, either on behalf of the ADS holders or on behalf of any other person.

Judgments of Peruvian courts with respect to our common shares will be payable only in soles

If proceedings are brought in the courts of Peru seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than soles. Under Peruvian exchange control limitations, an obligation in Peru to pay amounts denominated in a currency other than soles may be satisfied in Peruvian currency only at the exchange rate, as determined by the Peruvian Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not afford non-Peruvian investors with full compensation for any claim arising out of or related to our obligations under the ADSs.

If securities or industry analysts publish unfavorable research about our business or if they cease to follow our business, the price and trading volume of the ADSs could decline

The trading market for the ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades the ADSs or publishes unfavorable research about our business, the price of the ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for the ADSs could decrease, which could cause the price and trading volume of the ADSs to decline.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

AENZA, formerly known as Graña y Montero S.A.A., is a leading Peruvian conglomerate with operations in the infrastructure, energy, real estate and engineering and construction sectors, with a diversified and difficult-to-replicate portfolio of best-in-class assets and an attractive growth strategy. Our core growth strategy is centered around the expansion of our concession platform, which is the current concessionaire for the Lima Metro, the largest mass-transit rail system in Peru, operates three toll roads and a wastewater treatment plant. Also, we have more than 22 years of experience providing services to maintain and operate infrastructure projects, currently operating and maintaining 1,592.8 km of Peruvian roads and highways.

Moreover, we are one of the main oil and gas producers and operators in Peru with long-term contracts. Additionally, we operate three producing oil fields and five multiple fuel storage facilities under long-term government contracts, and we own a gas processing plant. Through our Energy segment, we accounted for 8% of the oil production, 1.5% of the liquefied petroleum gas (“LPG”) production and 19% of the fuel dispatch within Peru during 2022, according to the Ministry of Energy and Mines of Peru (“MINEM”).

Furthermore, we own Cumbra, the largest construction company in Peru in terms of revenues according to Construcción Latinoamericana, with more than 89 years of operations and a long-standing track record for operational excellence. We have completed some of the most complex and large-scale infrastructure projects in Peru. We believe we are an integral part of Peru’s ongoing transformation with projects that contribute to the overall economic development of the country and our expertise, track record, scale and operational capabilities in Peru position us to take advantage of the country’s long-term favorable economic conditions and growth opportunities. We are also a niche leader in the real estate sector, focusing primarily on the affordable housing market.

With a permanent presence in Peru, Chile and Colombia, we are strategically located in Latin American countries with among the highest sustained growth rates in the region. We are well-positioned to capitalize on the significant infrastructure deficit and other business opportunities in Latin America.

Our Board of Directors is fully committed with the highest standards of ethics and transparency. The diversity of its members, including Peruvian, Chilean, Brazilian and Spanish citizens, is a sign of the issuer’s strategic interest in international growth. Likewise, our management, led by our CEO Andre Mastrobuono and our corporate vice president Dennis Fernandez, brings experience from across South America that is highly relevant to the development of our business, including the transformation and turnaround of companies undergoing restructuring processes. This management team has implemented a new corporate structure organized by processes, focusing on risk management and synergy generation within the framework of a culture of accountability. We safeguard the health and safety of our workforce and all the persons participating in our operations and services.

The history of the company dates back to 1933, and the company has been listed on the Lima Stock Exchange since 1997 and on the New York Stock Exchange since 2013:

AENZA is a publicly-held corporation (sociedad anónima abierta) organized under the laws of Peru. Our principal executive office is located at Avenida Petit Thuars 4957, Miraflores, Lima, Peru, and our main telephone number is +511-213-6565. Our website address is www.aenza.com.pe. Information contained on, or accessible through, our website is not incorporated in this annual report, and you should not consider any such information part of this annual report. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

For information on our organizational structure, see “Item 4.C. Information on the Company–Organizational Structure.”

For information on our capital expenditures and divestitures, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures.”

B. Business Overview

Overview

We have a diversified portfolio of business units that includes a leading infrastructure management and development platform in Peru, one of the top oil and gas companies in Peru, a leading position in the affordable housing market in Peru and the largest engineering and construction company in Peru with permanent presence in Colombia and Chile.

The tables below show our backlog, revenues, adjusted EBITDA and loss for the year from 2020 to 2022.

During 2022, we generated revenues of S/4,405.1 million (US$1,153.2 million), adjusted EBITDA of S/173.3 million (US$45.4 million), and loss of the year of S/362.1 million (US$94.8 million).

Our Strengths

We believe our company’s strengths provide us with significant competitive advantages. Our principal strengths include the following:

Leading Presence with a Strong Legacy

We are a leader in the infrastructure sector in Peru, with a diversified and difficult-to-replicate portfolio of best-in-class assets and an attractive growth strategy. Our concession platform is the concessionaire for the Lima Metro, the largest mass-transit rail system in Peru, and operates three toll roads and a waste water treatment plant. Also, we have more than 22 years of experience providing services to maintain and operate infrastructure projects, currently operating and maintaining 1,592.8 km of Peruvian roads and highways.

On the energy side, we are one of the largest oil and gas producers and operators in Peru with long-term contracts. We operate three producing oil fields and five multiple fuel storage facilities under long-term government contracts, and we own a gas processing plant. Through our Energy segment, we accounted for 8% of the oil production, 1.5% of the LPG production and 19% of the fuel dispatch within Peru during 2022, according to MINEM.

We are also the largest construction company in Peru, with more than 89 years of operations and a long-standing track record for operational excellence. We have completed some of the most complex and large-scale infrastructure projects in the country, and we believe we are an integral part of Peru’s ongoing transformation with projects that contribute to the overall economic development of the country. We believe our expertise, track record, scale and operational capabilities in Peru position us to take advantage of the country’s long-term favorable economic conditions and growth opportunities. We are also a niche leader in the real estate sector, focusing primarily on the affordable housing market.

Resilient Cash Flow Generation from High-Quality Asset

Our assets have proven to be consistent, generating positive and stable results over the years. Indeed, Lima Metro’s revenues do not depend on demand as our revenues consist of a quarterly fee that we receive from the Ministry of Transport and Communications based on the kilometers travelled per train and adjusted for inflation. This concession still has 19 years left and generated dividends of US$12.1 million in 2022 and an adjusted EBITDA US$27.8 million in 2022, with limited capital expenditures of US$12.1 million.

Moreover, under our Norvial concession, we operate and maintain part of the only major highway that connects Lima to the north of Peru. Norvial’s revenues have proven to be stable as the toll rate is adjusted in accordance with a contractual formula that considers the sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. Furthermore, traffic is resilient as the road is highly transited both by heavy vehicles, primarily for the purpose of transporting goods, and by passenger vehicles. Finally, Norvial charges toll fees in both directions, unlike other toll roads in Peru.

Our energy platform is one of the largest oil and gas producers and operators in Peru with long-term contracts. On the extraction side, we see limited demand risk given oil deficit in Peru and the fact that for the two most relevant blocks (III and IV) UNNA Energia sells the oil to Petroperu (Quasi-Government entity – BB+ by Fitch Rating), a solid off-taker backing expected cash flow. Moreover, our activities are focused on proved reserves development and production and are conducted in mature oil fields, which have been producing oil for over 100 years in the case of Block I, over 95 years in the case of Block III, over 95 years in the case of Block IV, and over 50 years in the case of Block V. As such, we believe our activities in these fields bear limited exploration risk.

Well-Positioned in Strategic Locations

With a presence in Peru, Chile and Colombia, we are strategically located in Latin American countries known for their business-friendly policies, with relative macroeconomic stability and among the highest sustained growth rates in the region. We are well-positioned to capitalize upon the significant infrastructure deficit and other business opportunities in Latin America.

Best-in-class Corporate Governance

Our Board of Directors is fully committed to the highest standards of ethics and transparency. The diversity of its members, including Peruvian, Chilean, Brazilian and Spanish citizens, is a sign of the company’s strategic interest in international growth. Likewise, our management, led by our CEO Andre Mastrobuono and our corporate vice president Dennis Fernandez, has implemented a new corporate structure organized by processes, focusing on risk management and synergy generation within the framework of a culture of accountability. Our board includes representatives from our largest shareholders, three independent directors and a female member for the first time in our history. In addition to its plenary sessions, our board is organized into four committees: the Audit and Compliance Committee, the Talent Committee, the Finance, Risks, and Investments Committee, and the Environmental, Social and Governance Committee. This organization allows for comprehensive corporate oversight.

Highly Experienced Management, Talented Engineers and Skilled Workforce

Our management team, led by our CEO Andre Mastrobuono and our corporate vice president Dennis Fernandez, brings experience from across South America that is highly relevant to the development of our business, including the transformation and turnaround of companies in restructuring processes. Our CEO has demonstrated experience turning around companies across the region in the infrastructure, oil and gas, real estate and other industries. He has overseen several companies undergoing transformations and has successfully led their restructuring processes.

Our management team has implemented a new corporate structure organized by processes, focusing on risk management and synergy generation within the framework of a culture of accountability. In addition, we motivate our management through performance-based compensation, which align their interests with those of our shareholders. Through our efforts to attract, train and retain our workforce, we have built a talented team of employees, including more than 1,500 engineers. We also have access to a network of approximately 43,000 manual laborers throughout Peru that can supplement our workforce when required by our construction pipeline. Thanks to our extensive and talented team, we have the capability and scale to undertake large and complex projects in Peru and elsewhere.

We safeguard the health and safety of our collaborators and of all the persons participating in our operations and services. To that end, we provide safe work conditions, we manage risks in a timely manner, and we promote a culture of prevention, starting from the leadership and commitment of our senior management. In 2022, we had an accident incidence rate of 0.17%, calculated over 200,000 hours worked.

Significant Backlog

Our backlog amounted to S/5,327.6 million (US$1,394.7 million) as of December 31, 2022. We believe that our backlog, which as of December 31, 2022 represented approximately 1.2x of our related 2022 revenues, provides visibility as to our potential for growth in the coming years, although backlog may not always be an accurate indicator of future revenues. See “Item 3.D. Key Information—Risk Factors—Risks Related to our Company—Our backlog and our ratio of historical backlog to revenues may not be reliable indicators of future revenues or profit.” Moreover, we believe our backlog is strategically targeted to our key end-markets such as mining, infrastructure, power, energy and real estate. Approximately 52.9% of our backlog across our segments as of December 31, 2022 is comprised of contracts with the private sector. Furthermore, we continuously evaluate bidding on contracts arising from the significant ongoing private and public investments in Latin America.

Our Strategies

Our overall strategy is to strengthen our business units, with the goal of becoming one of the leading Latin American infrastructure development platforms. We recognize that Peru, as well as the rest of Latin America, faces a significant infrastructure deficit that limits the overall growth of the region. We believe that Latin American governments also recognize this deficiency and will seek to invest heavily in this sector over the next years, a situation we expect will provide important growth opportunities for our company.

Considering the high entry barriers that the infrastructure business entails, the company´s plan is to build on top of its leadership as an infrastructure company in Peru, expanding its business to nearby countries like Chile, Colombia, and Brazil, through new concessions and public-private partnerships (“PPPs”), while also considering the possibility of inorganic growth through the acquisition of concessions and PPPs from third parties. To achieve this, we intend to participate in new tenders and acquisitions in Peru and other countries in the region, including Chile, Colombia and Brazil, with the goal of creating one of the largest regional platforms for the development of infrastructure projects.

In addition, as part of our strategy for the next years, we will also enhance our other business units. Our Real Estate business will seek to grow in the affordable housing sector. Our E&C segment will work to consolidate its position in Chile and Colombia and continue to strengthen its focus in Peru, while we explore options for a strategic partnership. In our Energy business we will continue to deliver refined hydrocarbons from the terminals that we operate, and we will seek to advance production from Blocks III and IV and our gas plant in Talara.

Our strategy for the next years is to focus on the following initiatives:

Infrastructure

We are an important toll road concessionaire in Peru, operating three toll roads. Moreover, we are the concessionaire for the Lima Metro, the largest mass-transit rail system in Peru, and a wastewater treatment plant. Also, we provide services to maintain and operate different infrastructure projects.

The table below sets forth selected financial information for our Infrastructure business segment. This segment includes Norvial, Survial, Canchaque, UNNA Transporte, Line 1 of the Lima Metro, La Chira and Via Expresa Sur.

Our strategy for our infrastructure segment is to leverage our leadership position as an infrastructure company in Peru and to expand our business into nearby countries such as Chile, Colombia, and Brazil. We look to grow both organically and inorganically via the acquisition of existing assets across the region to become a leading concession development platform in the region. Considering the significant infrastructure deficit in Latin America and the high entry barriers to the infrastructure business, our acquired know-how and the synergy between the concessions and our in-house operating and maintenance company (including providing construction services to other subsidiaries, negotiating energy contracts with suppliers, and UNNA Transporte providing services to other concessions) positions us to take advantage of opportunities and expand our current geographical footprint. The following table shows selected information about our current concessions and long-term contracts as of December 31, 2022.

Principal Infrastructure Lines of Business

Toll Roads

Peru’s economic development is underpinned by a strong government commitment to infrastructure investment, with a particular focus on improving the country’s road system through the award of new concessions to the private sector. We believe this commitment offers significant opportunities to our Infrastructure segment. The following map shows the location of the Norvial road in Peru.

Our Infrastructure segment currently has three toll road concessions through our subsidiaries Norvial, Survial and Canchaque. All three toll roads are currently in operation, and we have the authorizations, permits and licenses necessary to fulfill our obligations under each concession, including releases of rights of way. All of our toll road concessions have utilized the construction services of our E&C segment and the roads are currently operated and maintained by our subsidiary UNNA Transporte. The table below sets forth selected financial information relating to our toll roads.

The charts below set forth the breakdown of our revenues, profit of the year, and adjusted EBITDA from our toll road concessions for 2022.

Norvial

Under our Norvial concession, we operate and maintain part of the only major highway that connects Lima to the northwest of Peru. This 183-km road, known as Red Vial 5, runs from the cities of Ancón to Pativilca and has three toll stations. The concession was awarded to Norvial in 2003 for a 25-year term. In June 2018, the company transferred economic rights over 48.8% of the share capital of Norvial to Inversiones en Autopistas S.A. by transferring its Class B shares. Our company continues to possess 67% of voting rights of Norvial and an economic interest of 18.2% of Norvial’s share capital. JJC Contratistas Generales S.A. owns 16.80% and Inversiones en Infraestructura Peru SAC owns 16.20%.

Norvial’s revenue derives from the collection of tolls. For the Norvial toll road, the toll rate is set out in the Norvial concession agreement and adjusted in accordance with a contractual formula that takes into account the sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. We are required to transfer 5.5% of our monthly toll revenue to the Peruvian Ministry of Transport and Communications and pay a 1% regulatory fee to the Peruvian Supervisory Agency for Investment in Public Transportation Infrastructure.

Our obligations under the concession include expanding the already existing road by, among other things, adding two additional lanes. The first stage of construction was completed in 2008, and the second stage commenced in the second quarter of 2014 and was completed by the end of 2019. The capital investment for the second stage was US$88.6 million (S/322.7 million).

Unlike other toll roads in Peru, Norvial charges toll fees in both directions. Our road is highly transited both by heavy vehicles, primarily for the purpose of transporting goods, and also by passenger vehicles, which typically use the road to access tourist destinations. In June 2018, we signed an investment agreement with BCI Peru to monetize future dividends of Norvial. The amount of the transaction was US$42.3 million, the proceeds of which were applied to the reduction of indebtedness related to GSP. In May 2020, the Peruvian Congress suspended the payment of tolls on roads during the initial period of COVID-19 quarantine. Although the Peruvian Constitutional Court struck down the statute effective June 30, 2020, we have yet to collect compensation for tolls which were suspended during that period. The following table sets forth average daily traffic volume and average toll fees charged for vehicle equivalents in respect to the Norvial toll road concession for 2020, 2021 and 2022.

Survial

Under our Survial concession, we operate and maintain a 758 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road that runs up to the Peruvian-Brazilian border. The road has five toll stations and three weigh stations. The concession was awarded to Survial in 2007 for a 25-year term. We own 99.9% of Survial. The following map shows the location of the road in Peru.

Our obligations under the concession include the construction of the road, which was completed in 2010.

Our revenue from this concession consists of an annual fee paid to Survial by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of maintenance required due to road damages. In 2020, 2021 and 2022, the fee amounted to US$16.2 million (S/58.6 million), US$8.5 million (S/34.1 million), and US$20.2 million (S/77.0 million), respectively. Our revenue in this concession does not depend on traffic volume.

Additional revenues of the concession are generated from the execution of additional works, work we perform as a result of catastrophic events and emergency maintenance. These revenues are billed when approval is received from the grantor and/or the regulator of the work in progress. In 2020, 2021 and 2022, the additional revenues amounted to US$0.6 million (S/2.1 million), US$0.3 million (S/1.0 million) and US$0.02 million (S/0.1 million), respectively.

Canchaque

Under our Canchaque concession, we operate and maintain a 77 km road from the towns of Buenos Aires to Canchaque, in Peru. The road has one toll station. The concession was awarded to Canchaque in 2006 for a 15-year term, and operations commenced in 2010. We own 99.96% of Canchaque. Our obligations under the concession include the construction of the road, which was completed in 2009. Our revenue from this concession consists of an annual fee paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which fee can vary depending on the amount of road maintenance required due to road wear and tear. In 2020, 2021 and 2022, the fee amounted to US$1.3 million (S/4.9 million), US$1.3 million (S/5.2 million), and US$1.4 million (S/5.2 million), respectively. Our revenue in this concession does not depend on traffic volume.

Additional revenues of the concession are generated from the execution of additional works, work we perform as a result of catastrophic events and emergency maintenance. These revenues are billed when approval is received from the grantor and/or the regulator of the work in progress. In 2020, 2021 and 2022, the additional revenues amounted to US$0.6 million (S/2.3 million), US$3.6 million (S/14.5 million) and US$0.03 million (S/0.1 million), respectively.

Mass Transit

In 2011, we were awarded a 30-year concession for the operation of Line 1 of the Lima Metro, Peru’s only urban railway system. The concession was awarded to our subsidiary Línea 1, in which we hold a 75% ownership interest, with the other 25% being held by Ferrovías Participaciones S.A. Our obligations under the contract include: (i) the operation and maintenance of the five trains provided by the government; (ii) the acquisition of 19 new trains on behalf of the Peruvian government, which will be the legal owner of such trains; (iii) the operation and maintenance of the 19 new trains (24 trains in the aggregate); and (iv) the design and construction of the railway maintenance and repair yard, which was built by our E&C segment. The construction of the second stretch of Line 1 was completed in July 2014, and started operations on July 25, 2014.

We entered into the fourth addendum to the Lima Metro concession contract on July 11, 2016, in order to expand the transportation capacity of Line 1. In accordance with the fourth addendum, the expansion project involves: (i) the purchase of 20 new trains with five-car from Alstom; (ii) the purchase of 39 new cars from Alstom, to be coupled with the 19 existing Alstom trains and the 20 new Alstom trains, resulting in a consolidated fleet of 39 Alstom trains with a six-car configuration; and (iii) the expansion and improvement of the existing infrastructure, including revamping and improvement of five stations, improvements in the electrical systems, a new access route to the maintenance workshop and new switches on the main track. The construction of the expansion of the infrastructure was carried out by our E&C segment and completed by the end of 2018, with the additional trains and rail cars delivered by the end of 2019.

The map below shows the route of Line 1.

During 2022, Línea 1 spent a total of S/46.3 million (US$12.1 million) in capital expenditures in connection with the Lima Metro.

Our revenue from this concession consists of a quarterly fee that we receive from the Ministry of Transport and Communications based on the kilometers travelled per train and adjusted for inflation, with the fee per kilometer, the number of trains required to be in operation and the number of kilometers that we are required to travel established by the terms of the concession. Our revenues do not depend on passenger traffic volume.

As of December 31, 2022, we operated 44 trains (including four backup trains), which we expect to enable us to travel 4,811,779.65 kilometers per year. The average frequency of the trains is 3 to 10 minutes, depending on the schedule and the price per kilometer traveled is, for our original 24 trains, S/96.84, and for our 20 newer trains, S/63.25.

Pursuant to the concession, we must comply with certain requirements in the operation of the trains. According to the concession, at least 95% of our trains must be running and available for use and not less than 85% of our trains that are available for use must arrive to destination on scheduled time. The table below shows our monthly average results during 2022.

Water Treatment

In 2010, we were awarded a 25-year concession for the construction, operation and maintenance of La Chira wastewater treatment plant in the south of Lima. The project is aimed at addressing Lima’s environmental problems caused by sewage discharged directly into the sea. We hold a 50% share in this concession and our partner Acciona Agua holds the remaining 50%. The plant began operations in June 2016.

La Chira’s total investment in the concession was S/250 million (US$74.4 million). La Chira is entitled to collect (i) an annual payment for the investment made in the construction of the project for an amount of S/24.2 million (approximately US$7.1 million), and (ii) and annual payment for the operation and maintenance of the project for an amount of S/8.5 million in 2022. These fees are paid by Sedapal S.A., the public utility company responsible for the supervision of the water service in Lima, for a period of 25 years. We funded our construction costs related to La Chira through the sale of government certificates to financial institutions, and, as a result, will not receive future cash flows from item (i). See “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Factors Affecting Our Results of Operations—Infrastructure.” A joint operation in which our E&C segment participated in the construction of the wastewater treatment plant.

Operation and Maintenance of Infrastructure Assets

We began providing our operation and maintenance of infrastructure assets services in 1994 when we were awarded the concession for the Arequipa Matarani highway in southern Peru. With this experience, in 2003, we began providing operation and maintenance services to Norvial. In 2007, the Peruvian government-initiated Proyecto Peru, a program aimed at maintaining roads not under concession to ensure their longevity. Proyecto Peru allowed us to develop new business opportunities providing maintenance services to more than 4,000 km of public roads in Peru.

Our revenue in the operation and maintenance of infrastructure assets is generated either from fees we charge to Norvial, Survial, Canchaque, Chinchaypujio and the Line 1 to operate and maintain our concessions or from government payments through maintenance service contracts we have been awarded. As depicted in the chart below, we operate and maintain 1,592.8 km of Peruvian roads and highways, including our own highway concessions, in addition to the Line 1.

Operation and Maintenance of Infrastructure Assets

Total 1,592.8 KM

The below map illustrates the roads in Peru for which we currently provide operation and maintenance services.

We provide the following road operation and maintenance services:

We also administer toll stations and weighing stations, offer road patrolling services, operate assistance call centers and provide emergency medical services.

The operation and maintenance services we provide to the Lima Metro aim to preserve the mass transit system through ongoing maintenance, including cleaning of the trains and stations and providing train operators, among other services.

With respect to operation and maintenance contracts with the Peruvian government, we obtain new contracts through public bidding. With respect to contracts with our Infrastructure segment, we participate in direct negotiation. Contract length typically ranges from three to five years.

Competition

Our ability to grow through successful bids for new infrastructure concessions or other long-term contracts could be affected as a result of competition. We view our competition as including both Peruvian and international infrastructure concession operators including joint operations with partners with specialized expertise in the relevant sector. Competition varies on a case-by-case basis, depending on the main purpose of the concession.

Energy

We operate three producing oil fields and five multiple fuel storage facilities under long-term government contracts, and we own a gas processing plant.

The table below sets forth selected financial information for our Energy segment.

Our strategy is to develop the oil reserves of Block III and IV, to consolidate our storage business, and to look for new opportunities in the natural gas business. Through our Energy segment, we have participated with 8% of the oil production, 1.5% of the liquefied petroleum gas (LPG) production and 19% of the fuel dispatch within Peru during 2022, according to the Ministry of Energy and Mines of Peru (MINEM).

The following table shows selected information for our Energy business as of December 31, 2022.

We currently operate three energy businesses within our Energy segment:

In addition, we are a 50% partner in Oil Tanking Andina Services S.A.C. (“OTAS”). This subsidiary operates a fuel terminal named Terminal Marino Pisco Camisea under a contract subscribed with Pluspetrol to operate an export terminal for gasoline, diesel, propane and butane. Additionally, through OTAS, we are also a 25% partner in Logística Químicos del Sur S.A. (“LQS”), which operates the Terminal de Químicos de Matarani and which dispatched 57,508 tonnes of sodium hydrosulfide for international mining companies in 2022.

The pie charts below set forth the breakdown of our revenues, net income before minority interest and adjusted EBITDA from our Energy segment for 2022.

Oil and Gas Production

We have been operating and extracting oil from four mature fields (Blocks I, III, IV and V) located in the provinces of Talara and Paita in northern Peru. Two of these fields, Blocks I and V, have been operated under service contracts under which we provide hydrocarbon extraction services to Perupetro. Hydrocarbons extracted from these two blocks belong to Perupetro, which in turn pays us, once a month, a variable fee per barrel of extracted hydrocarbons. This extraction fee is based on a basket of international crude prices and the level of production. The service contract of Block I expired on December 26, 2021 and the Block V contract will expire on October 2023. The other two fields, Blocks III and IV, are operated under long-term license contracts with Perupetro. The hydrocarbons extracted are owned by our subsidiary UNNA Energía, who sells the oil to Petroperu based on the average prices of three international crude oil prices: Fortis, Suez Blend and Oman Blend crudes. UNNA Energía pays royalties, to Perupetro, calculated in accordance with a contractual formula that accounts for price, volume, income and expenses of each block. Our activities are focused on proved reserves development and production and are conducted in mature oil fields, which have been producing oil for over 100 years in the case of Block I, over 95 years in the case of Block III, over 95 years in the case of Block IV, and over 50 years in the case of Block V. We believe our activities in these fields bear limited exploration risk.

The following table shows selected information about our fields.

Block I:

We operated and extracted oil and natural gas from Block I under a 30-year hydrocarbon extraction service contract with Perupetro, which was extended for an additional 10-year term and expired on December 26, 2021. Average daily production during 2021 was 537 barrels of crude oil. We operated 205 wells using various oil extraction systems and operated a network of production batteries and pipelines to collect, measure and deliver oil in a control point close to the Talara refinery. The field is located in the province of Talara, department of Piura, in northern Peru, approximately five miles from the Talara refinery, the second largest refinery in the country. Block I is the oldest oil producing field in Peru and has been producing oil since around 1890. Perupetro has signed an agreement with Petroperu which has taken over the operation of this field.

Block III:

We operate and extract oil and natural gas from Block III under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2022 was 627 barrels of crude oil. We operate 172 wells using various oil extraction systems and operate a network of production batteries and pipelines to collect, measure and deliver oil in a control point close to the Talara refinery, which purchases the oil according to a contract based on an average price of three international crude oil prices: Fortis Blend, Suez Blend and Oman crudes, as adjusted by certain factors. The field is located between the provinces of Talara and Paita, department of Piura, in northern Peru, approximately 43 miles from the Talara refinery. Our principal capital expenditure commitment under this agreement consists of (i) the Exploitation Phase (years 2-11): Drill 23 development wells per year (230 wells); and (ii) Exploitation Phase 2 (years 12-26): Drill at least 10% of the locations of proved undeveloped reserves identified in the reserves report submitted yearly to Ministry of Energy and Mines. In 2022, we started the first drilling campaign (out of ten campaigns) and completed nineteen of the twenty-three wells with a capital expenditure of US$18.6 million. The estimated average capital expenditure per well is US$1 million.

Block IV:

We operate and extract oil and natural gas from Block IV under a 30-year license agreement with Perupetro, which expires in April 2045. Average daily production during 2022 was 2,331 barrels of crude oil. We operate 359 wells using various oil extraction systems and operate a network of production batteries and two pipelines to collect, measure and deliver oil in a control point close to the Talara refinery, which purchases the oil according to a contract based on an average price of three international crude oil prices: Fortis Blend, Suez Blend and Oman crudes, adjusted for costs related to hydrocarbon transportation. The field is located in the province of Talara, department of Piura, in northern Peru, approximately 21 miles from the Talara refinery. Our principal capital expenditure commitment under this agreement consists of (i) the Exploitation Phase (years 2-11): Drill 33 development wells per year (330 wells); and (ii) Exploitation Phase 2 (years 12-26): Drill at least 10% of the locations of proved undeveloped reserves identified in the reserves report submitted yearly to the Ministry of Energy and Mines. As of December 31, 2022 we have drilled 181 development wells and two exploratory wells at a cost of US$113.4 million. The estimated average capital expenditure per well is US$0.643 million. On February 28, 2022, we started the fifth drilling campaign. On October 12, 2022, we started the sixth drilling campaign and so far have completed 16 wells (out of 33 wells per year).

Block V:

We operate and extract oil and natural gas from Block V under a 30-year hydrocarbon extraction service contract with Perupetro, which was extended for an additional 10-year term and expires in October 2023. Average daily production during 2022 in this field was 105 barrels of crude oil. We operate 46 wells in this field using various oil extraction systems. The Block V field is located in the province of Los Órganos, department of Piura, Peru, close to the border with Ecuador. Block V has been producing oil since the 1950s.

The map below shows the geographic location of our oil producing blocks in northern Peru.

For Block V, we are entitled to a variable fee paid by Perupetro, which is based on the level of production of each field and a price formula that is based on an average price of three international crude oil prices: Fortis blend, Suez blend and Oman crudes, and a discount over this price of approximately of 72% per barrel. For Block III and Block IV, we pay royalties to Perupetro based on an average price of three international crude oil prices, Fortis blend, Suez blend and Oman crudes, as well as the production and the incomes and expenses of each block. The royalties paid to Perupetro were US$10.08 per barrel during 2020, US$24.00 per barrel during 2021, and US$45.05 per barrel during 2022.

During 2020, 2021 and 2022, we received an average revenue (for all blocks) of US$41.22, US$68.73, and US$93.24 respectively, per barrel of extracted oil, which was equivalent to approximately 91.29%, 91.2%, and 92.14% respectively, of average Brent crude oil prices in the same years. We are not committed to provide a fixed volume of oil or natural gas under our four contracts.

We produce natural gas as a byproduct of the production of crude oil (an average of 5.5 MMcf per day during 2022). In Block IV, a certain volume of natural gas extracted is used as fuel and the excess is sent to our Pariñas plant to be processed and commercialized as liquid and dry gas. In June 2022, we started our contract with Lima Gas to compress and sell compressed natural gas (CNG) (average of 0.89 MMcf per day). In Block V, we reinject the natural gas produced back into the wells. In Block III, we use part of the produced gas as fuel to operate well equipment (pumping units) and we are looking for a market to sell the excess. In this regard, we have signed an agreement with Gasnorp to start delivering natural gas in 2023. Our revenues for the sale of natural gas (liquid and dry gas) were US$4.6 million in 2022 in our Exploration & Production unit.

Estimated Proved Reserves:

The following table sets forth estimated proved crude oil and natural gas reserves in Blocks III, IV and V as of December 31, 2022. We have only included estimates of proved and have not included any estimates of probable and possible reserves.

Proved reserves are those quantities of oil and natural gas which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. To achieve reasonable certainty, we employed methodologies that have been demonstrated to yield results with consistency and repeatability. The methodologies and economic data used in the estimation of the proved reserves in the fields include, but are not limited to, well logs, geologic maps and available down hole and production data, seismic data, and well test data.

Reserve amounts were based on the 12-month unweighted arithmetic average of the first-day-of-the-month Brent crude price for each month in the period January through December 2021, which, pursuant to our contractual agreements, resulted in average oil and gas prices of US$100.25 per barrel and US$6.40 MMcf, respectively, that for the purpose of reserve amount estimation were assumed to remain constant.

Proved undeveloped reserves in the fields as of December 31, 2022 were 17,885.3 Mboe, consisting of 15,776.0 MBbl of crude oil and 2,109.3 Mboe (12,655.7 MMcf) of natural gas. We estimate that during 2022, proved undeveloped reserves decreased by 5,322.3 Mboe of crude oil, mainly as a result of a decrease of natural gas considering the volume of natural gas available pursuant to the agreement between UNNA Energia and Gasnorp contracted from August 2022 to August 2025.

In 2022, approximately 5,500 Mboe of proved undeveloped reserves were converted into proved developed reserves, consisting of 1,977MBbl of crude oil and 494 Mboe (2,965 MMcf) of natural gas due to due to drilling campaigns in Block III and Block IV.

Capital expenditures made during 2022, for both drilling activities and workovers, to convert undeveloped reserves to proved developed reserves, amounted to approximately US$46.1 million (S/176.1 million).

The principal changes in proved undeveloped reserves during 2022 were:

For changes in proved developed and undeveloped reserves from December 31, 2021 to December 31, 2022, see supplementary data (unaudited) annexed to our audited annual consolidated financial statements included in this annual report.

Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process:

The reserves estimates shown in this annual report have been prepared internally by our engineers in accordance with the definitions and guidelines of the SEC. Our reserves are estimated at the property level and compiled by our engineering staff. Our engineering staff interacts with our internal staff of operations engineers and geoscience professionals and with accounting employees to obtain the necessary data for the reserves estimation process. Our reservoir engineers and geoscience professionals have worked to ensure the integrity, accuracy and timeliness of the data, methods and assumptions used in the preparation of the reserves estimates. Mr. Javier Portuguez is our Reservoir Engineer. The reserves estimate report was submitted to our Committee of Reserves, which is formed by Mr. Ivan Miranda (Exploration and Production Technical Manager), Mr. Jose Pisconte Lomas (Chief of Geology), and Mr. Manuel Gomez (Chief of Reservoir Engineering). Mr. Portuguez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 29 years of experience, developed as a production and reservoir engineer at Mercantile and Interoil Peru. Mr. Gomez holds a Petroleum Engineering degree from Universidad Nacional de Ingeniería in Lima, Peru and has 15 years of experience, most of it as drilling, completion, stimulation, and reservoir engineer. Mr. Pisconte Lomas, holds a Geologist Engineering degree and a Regional Geology Master’s degree from Universidad Nacional Mayor de San Marcos and has 30 years of experience in the oil industry. Mr. Miranda holds a degree in Petroleum Engineering from Universidad Nacional de Ingeniería in Lima and a Petroleum Engineering Master’s degree from Texas A&M University of Texas—USA, and has 38 years of experience in the oil industry developed at PetroPeru, Unipetro ABC, and UNNA Energía.

Production, Revenues, Prices and Costs:

The following table sets forth information regarding our production, revenues, prices and production costs for 2020, 2021, and 2022.