Company Quick10K Filing
Edenor
20-F 2020-12-31 Filed 2021-04-26
20-F 2019-12-31 Filed 2020-04-27
20-F 2018-12-31 Filed 2019-04-30
20-F 2017-12-31 Filed 2018-04-27
20-F 2016-12-31 Filed 2017-04-28
20-F 2015-12-31 Filed 2016-04-28
20-F 2014-12-31 Filed 2015-05-12
20-F 2013-12-31 Filed 2014-04-28
20-F 2012-12-31 Filed 2013-04-30
20-F 2011-12-31 Filed 2012-04-26
20-F 2010-12-31 Filed 2011-06-14
20-F 2009-12-31 Filed 2010-06-08

EDN 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-2.5 v225803_ex2-5.htm
EX-8.1 v225803_ex8-1.htm
EX-12.1 v225803_ex12-1.htm
EX-12.2 v225803_ex12-2.htm
EX-13.1 v225803_ex13-1.htm

Edenor Earnings 2010-12-31

Balance SheetIncome StatementCash Flow

20-F 1 v225803_20f.htm Unassociated Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 20-F
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
Commission File number: 001-33422
 
Empresa Distribuidora y Comercializadora Norte S.A.
(Exact name of registrant as specified in its charter)
 
Distribution and Marketing Company of the North S.A.
Argentine Republic
(Translation of registrant’s name into English)
(Jurisdiction of incorporation or organization)
Avenida Del Libertador 6363
Ciudad de Buenos Aires, C1428ARG
Buenos Aires, Argentina
(Address of principal executive offices)

Ivana Del Rossi
Tel.: +54 11 4346 5127 / Fax: +54 11 4346 5325
Avenida Del Libertador 6363 (C1428ARG)
Buenos Aires, Argentina
Investor Relations Officer

Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class:
 
Name of each exchange on which registered
Class B Shares
 
New York Stock Exchange, Inc.*
American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing 20 Class B Shares
 
New York Stock Exchange, Inc.
*
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
  

Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 462,292,111 Class A Ordinary Shares, 442,210,385 Class B Ordinary Shares and 1,952,604 Class C Ordinary Shares
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨ No þ
 
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 þ No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:  U.S. GAAP ¨
 
International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other þ
 
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 þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes ¨ No þ


 
 

 
 
Item 1.
Identity of Directors, Senior Management and Advisors
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
22
Item 4A.
Unresolved Staff Comments
57
Item 5.
Operating and Financial Review and Prospects
57
Item 6.
Directors, Senior Management and Employees
94
Item 7.
Major Shareholders and Related Party Transactions
104
Item 8.
Financial Information
108
Item 9.
The Offer and Listing
113
Item 10.
Additional Information
116
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
134
Item 12.
Description of Securities Other than Equity Securities
135
Item 13.
Defaults, Dividend Arrearages and Delinquencies
137
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
137
Item 15.
Controls and Procedures
137
Item 16A.
Audit Committee Financial Expert
138
Item 16B.
Code of Ethics
138
Item 16C.
Principal Accountant Fees and Services
139
Item 16D.
Exemptions from the Listing Standards for Audit Committees
139
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
139
Item 16F.
Change in Registrant’s Certifying Accountant
139
Item 16G.
Corporate Governance
139
Item 17.
Financial Statements
143
Item 18.
Financial Statements
143
Item 19.
Exhibits
143
Index to Financial Statements
F-1

 
 

 

PART I
 
Item 1.          Identity of Directors, Senior Management and Advisors
 
Not applicable.
 
Item 2.          Offer Statistics and Expected Timetable
 
Not applicable.
 
Item 3.          Key Information
 
FORWARD-LOOKING STATEMENTS
 
This annual report includes forward-looking statements, principally under the captions “Item 3. Key Information—Risk factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business.  Forward-looking statements may also be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ materially from those expressed or implied in our forward-looking statements, including, among other things:
 
 
·
the outcome and timing of the integral tariff revision process we are currently undertaking with the Ente Nacional Regulador de la Electricidad (Argentine National Electricity Regulator, or the ENRE) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;
 
 
·
general political, economic, social, demographic and business conditions in Argentina and particularly in the geographic market we serve;
 
 
·
the impact of regulatory reform and changes in the regulatory environment in which we operate;
 
 
·
electricity shortages;
 
 
·
potential disruption or interruption of our service;
 
 
·
restrictions on the ability to exchange Pesos into foreign currencies or to transfer funds abroad;
 
 
·
the revocation or amendment of our concession by the granting authority;
 
 
·
our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;
 
 
·
fluctuations in exchange rates, including a devaluation of the Peso;
 
 
·
the impact of high rates of inflation on our costs;
 
 
·
the successful integration of the recently acquired businesses described under “Acquisition of EMDERSA and AESEBA” in Item 4 hereto; and
 
 
·
additional matters identified in “Risk factors.”

 
1

 
 
Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we file this annual report because of new information, future events or other factors.  In light of these limitations, undue reliance should not be placed on forward-looking statements contained in this annual report.
 
SELECTED FINANCIAL DATA
 
The following table presents selected financial and operating data.  This information should be read in conjunction with our audited financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.
 
The financial data as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 are derived from our audited financial statements, which were audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers network.  Our audited financial statements have been prepared in accordance with generally accepted accounting principles in the City of Buenos Aires, which we refer to as Argentine GAAP and which differ in certain significant respects from U.S. Generally Accepted Accounting Principles (U.S.GAAP).  Note [28] to our audited financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net (loss) income for the years then ended December 31, 2010, 2009 and 2008 and shareholders’ equity as of December 31, 2010 and 2009.
 
In this annual report, except as otherwise specified, references to “$”, “U.S. $” and “Dollars” are to U.S. Dollars, and references to “Ps. ” and “Pesos” are to Argentine Pesos.  Solely for the convenience of the reader, Peso amounts as of and for the year ended December 31, 2010 have been translated into U.S. Dollars at the buying rate for U.S. Dollars quoted by Banco de la Nación Argentina (Banco Nación) on December 31, 2010 of Ps. 3.976 to U.S. $1.00.  The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate.  See “Item 3. Key Information—Exchange Rates.”
 
Under Argentine GAAP, we generally are not required to record the effects of inflation in our financial statements.  However, because Argentina experienced a high rate of inflation in 2002, with the wholesale price index increasing by approximately 118%, we were required by Decree No. 1269/2002 and Comisión Nacional de Valores (National Securities Commission or CNV) Resolution No. 415/2002 to restate our financial statements in constant Pesos in accordance with Argentine GAAP.  On March 25, 2003, Decree No. 664/2003 rescinded the requirement that financial statements be prepared in constant currency, effective for financial periods on or after March 1, 2003.  As a result, we are not required to restate and have not restated our financial statements for inflation after February 28, 2003.  See note [2] to our audited financial statements included in this annual report.

 
2

 

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals may not sum due to rounding.
 
   
2010
   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(in millions, except for per share and per ADS data)
 
Statement of operations data
                                   
Argentine GAAP
                                   
Net sales
  U.S. $ 546.7     Ps. 2,173.6     Ps. 2,077.9     Ps. 2,000.2     Ps. 1,981.9     Ps. 1,378.3  
Electric power purchases
    (269.1 )     (1,069.7 )     (1,003.4 )     (934.7 )     (889.9 )     (799.1 )
Gross margin
    277.6       1,103.9       1,074.5       1,065.5       1,092.0       579.3  
Transmission and distribution expenses
    (160.0 )     (636.3 )     (548.6 )     (497.9 )     (417.6 )     (362.1 )
Selling expenses
    (48.9 )     (194.2 )     (159.0 )     (126.0 )     (120.6 )     (87.9 )
Administrative expenses
    (45.0 )     (178.9 )     (144.0 )     (138.7 )     (124.7 )     (93.3 )
Subtotal
    23.8       94.5       222.9       302.9       429.2       35.9  
Other (expenses) income , net
    (2.5 )     (9.8 )     23.3       (29.8 )     1.0       (22.9 )
Financial income (expenses) and holding gains (losses):
                                               
Generated by assets:
                                               
Exchange difference
    1.9       7.4       21.4       8.1       (0.9 )     2.6  
Interest
    7.1       28.4       16.2       9.8       13.4       13.9  
Holding results
    (3.7 )     (14.7 )     37.6       (7.3 )     0.1       0.1  
Taxes on financial transactions(1)
    (4.0 )     (16.0 )     (13.4 )                  
Generated by liabilities:
                                               
Financial expenses
    (3.1 )     (12.5 )     (11.7 )     (10.0 )     (21.0 )     (25.4 )
Exchange difference
    (10.1 )     (40.3 )     (99.1 )     (92.7 )     (29.9 )     (13.3 )
Interest
    (23.0 )     (91.3 )     (87.7 )     (95.3 )     (74.5 )     (101.3 )
Taxes on financial transactions(1)
    (5.3 )     (21.1 )     (19.2 )                  
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables(2)
    2.9       11.6       3.4       13.5       (29.6 )      
Gain on extinguishment of former debt(3)
                                  179.2  
Adjustment to present value of notes(4)
    (1.1 )     (4.2 )     (5.2 )     (8.5 )     (21.5 )     57.1  
(Loss) Gain from the purchase of notes(5)
    (1.8 )     (7.1 )     81.5       93.5       (10.2 )      
Adjustment to present value of purchased notes(4)
                            (8.6 )      
(Loss) Income before taxes
    (18.9 )     (75.2 )     170.0       184.3       247.4       125.9  
Income tax(6)
    0.3       1.1       (79.3 )     (61.2 )     (125.0 )     167.2  
Net (loss) income
  U.S. $ (18. 6)   Ps. (74.0 )   Ps. 90.6     Ps. 123.1     Ps. 122.5     Ps. 293.1  
Net (loss) income per ordinary share – basic and diluted
    (0.021 )     (0.082 )     0.101       0.137       0.135       0.352  
Dividends declared per ordinary share(7)
                                   
Net (loss) income per ADS(8) — basic and diluted
    (0.411 )     (1.633 )     2.02       2.716       2.702        
Number of shares outstanding
    897,042,600       897,042,600       897,042,600       897,042,600       906,455,100       831,610,200  
                                                 
U.S. GAAP
                                               
Net sales/service revenues
  U.S. $ 566.8     Ps. 2,253.7     Ps. 2,163.3     Ps. 2,059.0     Ps. 1,937.0     Ps. 1,403.5  
Electric power purchases
    (269.0 )     (1,069.7 )     (1,003.4 )     (934.7 )     (889.9 )     (799.1 )
Transmission and distribution expenses
    (184.1 )     (731.8 )     (624.0 )     (577.0 )     (477.5 )     (450.3 )
Gross margin
    113.7       452.1       535.9       547.3       569.6       154.1  
Operating expenses, net
    (93.7 )     (372.4 )     (294.7 )     (296.6 )     (207.5 )     (194.1 )
Net operating income (loss)
    20.0       79.7       241.3       250.7       362.1       40.0  
Financial (expense), net and holding gains
    (33.9 )     (134.7 )     (75.0 )     82.0       (46.5 )     (133.3 )
Net income (loss) before income taxes
    (13.8 )     (54.9 )     166.3       332.7       315.7       (173.3 )
Income tax
    4.8       19.9       (93.2 )     (68.2 )     (99.9 )     128.0  
Net (loss) income for the year
    (9.0 )     (35.7 )     73.1       264.5       215.8       (45.3 )
Net (loss) income per ordinary share – basic and diluted(7)
    0.010       0.040       0.081       0.295       0.238       (0.054 )
Net (loss) income  per ADS(8) — basic and diluted
    0.20       0.80       1.62       5.90       4.761        
 

(1)
 For the years ended December 31, 2008, 2007 and 2006, taxes on financial transactions were included in administrative expenses.  For the years ended December 31, 2009 and 2010, taxes on financial transactions were included as a separate line item under financial income (expenses) and holding gains (losses) generated by assets and liabilities.
(2)
Reflects the adjustment to present value of the retroactive portion of the tariff increase that is being invoiced in 55 consecutive monthly installments, starting in February 2007, and the adjustment to present value of Ps. 38.4 million due under the payment plan agreement with the Province of Buenos Aires that is being invoiced in 18 installments, starting in January 2007.  As of December 31, 2010, no amounts were due under the payment plan agreement with the Province of Buenos Aires.  As of December 31, 2009 and 2008, Ps. 2.3 million was due under the payment plan agreement with the Province of Buenos Aires and Ps. 21.4 million, Ps. 69.2 million and Ps. 118.8 million of the retroactive tariff increase had not been invoiced in 2010, 2009 and 2008, respectively.  In accordance with Argentine GAAP, we account for these long term receivables at their net present value, which we calculate at a discount rate that reasonably reflects the market evaluation of the time value of money and specific risks, net of issuance expenses, for the retroactive tariff increase, recording the resulting non-cash charge as an adjustment to present value of this receivable.  See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Framework Agreement (Shantytowns).”

 
3

 

 (3)
Our debt restructuring generated a one-time gain of Ps. 179.2 million in the year ended December 31, 2006, reflecting the recognition of a Ps. 55.3 million waiver of principal amount on our financial debt, a Ps. 75 million waiver of accrued interest on our financial debt and a Ps. 65.7 million waiver of penalties related to the non-payment of our financial debt, which more than offset Ps. 16.8 million in related restructuring costs.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt” for a description of the restructuring notes.
(4)
We record our financial debt in our balance sheet at fair value reflecting our management’s best estimate of the amounts expected to be paid at each year end, calculated at a discount rate that reasonably reflects the market evaluation of the time value of money and specific risks, net of issuance expenses, for the years ended December 31, 2010, 2009, 2008, 2007 and 2006.
(5)
In 2007, we repurchased U.S. $43.7 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and redeemed and repurchased  U.S. $240 million principal amount of our outstanding Discount Notes due 2014. In addition, in the years ended December 31, 2008, 2009 and 2010, we repurchased U.S. $32.5 million, U.S. $32.2 million and U.S. $15.3 million principal amount of our outstanding Fixed Rate Par Notes due 2016, respectively, and U.S. $17.5 million, U.S. $53.8 million and U.S. $123.9 million principal amount of our outstanding Senior Notes due 2017, respectively.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”
(6)
In 2006, our income tax result reflects the reversal of net deferred tax assets, primarily due to the fact that, as a consequence of the ratification of the Adjustment Agreement in January 2007 and the renegotiation of our financial debt in April 2006, we generated taxable income that allowed us to offset a significant portion of the tax loss carryforwards we generated in 2002.
(7)
We have not declared or paid any dividends since August 14, 2001.
(8)
Each ADS represents 20 Class B ordinary shares.

 
4

 

   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(in millions)
 
Balance sheet data
                                   
Argentine GAAP
                                   
Current assets:
                                   
Cash and banks
  U.S. $ 2.2     Ps. 8.6     Ps. 8.7     Ps. 6.1     Ps. 3.5     Ps. 0.5  
Investments
    168.1       668.2       219.7       121.0       97.7       32.2  
Trade receivables
    105.9       421.2       389.2       400.5       346.0       270.9  
Other receivables
    10.9       43.4       61.1       42.8       26.0       30.2  
Supplies
    3.1       12.4       14.9       16.7       23.2       13.6  
Total current assets
  U.S. $ 290.2     Ps. 1,153.8     Ps. 693.6     Ps. 587.1     Ps. 496.3     Ps. 347.5  
Non-current assets:
                                               
Trade receivables
    11.5       45.5       87.0       111.4       100.3        
Other receivables
    30.0       119.2       88.8       99.5       144.1       256.5  
Investments in other companies
    0.1       0.4       0.4       0.4       0.4       0.4  
Investments
                      67.2              
Supplies
    5.8       23.2       18.6       12.8       13.8       4.9  
Property, plant and equipment
    927.9       3,689.5       3,482.4       3,256.3       3,092.7       2,925.4  
Total non-current assets
  U.S. $ 975.3     Ps. 3,877.9     Ps. 3,677.2     Ps. 3,547.6     Ps. 3,351.3     Ps. 3,187.2  
Total assets
  U.S. $ 1,265.5     Ps. 5,031.7     Ps. 4,370.7     Ps. 4,134.6     Ps. 3,847.6     Ps. 3,534.7  
Current liabilities:
                                               
Trade account payable
    95.2       378.5       347.8       339.3       316.2       267.6  
Loans
    13.6       54.1       83.0       27.2       29.3       2.0  
Salaries and social security taxes
    45.4       180.4       118.4       94.8       59.9       51.4  
Taxes
    27.9       111.1       140.3       111.0       84.6       62.2  
Other liabilities
    1.1       4.5       8.0       10.5       9.7       26.4  
Accrued litigation
    14.5       57.8       62.8       52.8       39.9       25.9  
Total current liabilities
  U.S. $ 197.8     Ps. 786.5     Ps. 760.3     Ps. 635.6     Ps. 539.6     Ps. 435.6  
Non-current liabilities:
                                               
Trade account payable
    12.8       51.0       46.9       40.2       35.5       31.3  
Loans
    260.3       1,035.1       707.5       913.1       949.1       1,095.5  
Salaries and social security taxes
    12.7       50.6       43.7       40.1       24.7       20.3  
Taxes
    2.3       9.0       9.4       0       0       0  
Other liabilities(1)
    247.6       984.5       610.8       369.0       281.4       241.1  
Accrued litigation
    1.7       6.8       10.1       45.1       42.8       40.6  
Total non-current liabilities
    537.5       2,137.1       1,428.3       1,407.5       1,333.5       1,428.7  
Total liabilities
  U.S. $ 735.3     Ps. 2,923.6     Ps. 2,188.5     Ps. 2,043.1     Ps. 1,873.0     Ps. 1,864.3  
Shareholders’ equity
    530.2       2,108.2       2,182.2       2,091.6       1,974.6       1,670.4  
Total liabilities and shareholders’ equity
  U.S. $ 1,265.5     Ps. 5,031.7     Ps. 4,370.7     Ps. 4,134.6     Ps. 3,847.6     Ps. 3,534.7  
                                                 
U.S. GAAP
                                               
Current assets
  U.S. $ 290.6     Ps. 1,155.4     Ps. 703.3     Ps. 666.7     Ps. 536.7     Ps. 547.0  
Property, plant and equipment, net
    944.3       3,754.6       3,552.4       3,331.2       3,175.7       3,016.4  
Other non-current assets
    69.1       274.6       260.4       258.4       346.6       201.5  
Total assets
  U.S. $ 1,304.0     Ps. 5,184.6     Ps. 4,516.1     Ps. 4,256.3     Ps. 4,059.0     Ps. 3,764.9  
Current liabilities
  U.S. $ 205.8     Ps. 818.1     Ps. 790.9     Ps. 707.5     Ps. 573.7     Ps. 470.0  
Non-current liabilities
    653.5       2,598.5       1,923.8       1,821.6       2,018.2       2,225.1  
Total liabilities
    859.3       3,416.6       2,714.7       2,529.1       2,591.9       2,695.1  
Shareholders’ equity
    444.7       1,768.0       1,801.4       1,727.2       1,467.1       1,069.8  
Total liabilities and shareholders’ equity
  U.S. $ 1,304.0     Ps. 5,184.6     Ps. 4,516.1     Ps. 4,256.3     Ps. 4,059.0     Ps. 3,764.9  
 

(1)
Includes the amounts collected through the PUREE, which as of December 31, 2010, 2009 and 2008 amounted to Ps. 529.1 million, Ps. 233.3 million and Ps. 33.5 million, respectively.  Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA in order to reimburse Edenor for the amounts it is owed under CMM increases not yet reflected in the distribution margin.

 
5

 

   
2010
   
2009
   
2008
   
2007
   
2006
 
   
(in millions)
 
Cash flow data
                                   
Argentine GAAP
                                   
Operating activities:
                                   
Net (loss) income
  U.S. $ (18.6 )   Ps. (74.0 )   Ps. 90.6     Ps. 123.1     Ps. 122.5     Ps. 293.1  
Adjustment to reconcile net (loss) income to net cash flows provided by (used in) operating activities:
                                               
Depreciation of property, plant and equipment
    44.9       178.4       175.4       170.3       174.4       179.0  
Retirement of property, plant and equipment
    0.3       1.1       2.8       1.9       1.1       0.7  
Gain from the sale of real property
    (1.3 )     (5.3 )                        
Gain on extinguishment of former debt
                                  (179.2 )
                                                 
Gain from investments in affiliated parties
                            (0.1 )     (0.1 )
(Gain) Loss from investments
    (14.0 )     (55.7 )     26.4       (4.3 )     (8.5 )      
Adjustment to present value of notes
    1.1       4.2       5.2       8.5       21.5       (57.1 )
Loss (Gain) from the purchase and redemption of notes
    1.8       7.1       (81.5 )     (93.5 )     10.2        
Adjustment to present value of the repurchased and redeemed notes
                            8.6        
Exchange differences, interest and penalties on loans
    12.5       49.5       178.6       232.7       69.5       49.1  
Supplies recovered from third parties
                                  (5.8 )
Increase in trade receivables due to the unbilled portion of the retroactive tariff increase
                            (171.3 )      
Recovery of the accrual for tax contingencies
                (35.6 )                  
Income tax
    (0.3 )     (1.1 )     79.3       61.2       125.0       (167.2 )
Allowance for doubtful accounts
    4.1       16.3       13.5       17.1              
Reversal of the allowance for doubtful accounts
                (27.0 )     (24.0 )            
Allowance for other doubtful accounts
    1.2       4.9       3.3       1.7              
Adjustment to net present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and of the Payment Plan Agreement with the Province of Buenos Aires
    (2.9 )     (11.6 )     (3.4 )     (13.5 )     29.6        
Changes in operating assets and liabilities:
                                               
Decrease (Increase) in trade receivables (net of the unbilled portion of the retroactive tariff increase)
    0.1       0.2       48.1       (49.5 )     (36.9 )     (39.0 )
Net (increase) decrease in other receivables
    (0.1 )     (0.3 )     5.3       (33.4 )     (8.4 )     (23.1 )
(Increase) decrease in supplies
    (0.6 )     (2.2 )     (3.9 )     7.4       (18.4 )     1.4  
Increase in trade accounts payable
    8.8       34.9       15.2       27.8       52.7       67.1  
Increase in salaries and social security taxes
    17.4       69.0       27.2       50.3       12.9       25.2  
(Decrease) increase in taxes
    (11.5 )     (45.8 )     (56.9 )     26.4       22.5       (5.7 )
Increase in other liabilities
    18.7       74.5       39.3       78.1       17.7       91.7  
Increase in funds obtained from the Program for the Rational Use of Electric Power (PUREE)(1)
    74.4       295.8       199.8                    
Net (decrease) increase in accrued litigation
    (2.1 )     (8.2 )     10.6       15.1       16.2       9.5  
Financial interest paid, net of interest capitalized
    (16.3 )     (64.9 )     (76.8 )     (62.7 )     (25.5 )     (26.7 )
Financial and commercial interest collected
    15.1       60.2       32.2       6.9       11.6       2.2  
Net cash flow provided by operating activities
    132.5       526.9       668.0       547.5       427.2       215.0  
Investing activities:
                                               
Additions of property, plant and equipment
    (97.8 )     (388.8 )     (404.2 )     (325.4 )     (336.9 )     (179.7 )
Collection of property, plant and equipment sold
    1.9       7.4                          
Net cash flow used in investing activities
    (95.9 )     (381.3 )     (404.2 )     (325.4 )     (336.9 )     (179.7 )
Financing activities:
                                               
Decrease (increase) in current and non-current investments
                13.6       (67.9 )            
Net increase (decrease) in loans
    76.2       302.9       (175.5 )     (122.9 )     (203.6 )     (310.8 )
Capital increase
                            181.8        
Treasury shares purchased
                      (6.1 )            
Net cash flows provided by (used in) financing activities
    76.2       302.9       (161.8 )     (197.0 )     (21.8 )     (310.8 )
Cash variations:
                                               
Cash and cash equivalents at beginning of year
  U.S. $ 57.4     Ps. 228.4     Ps. 126.4     Ps. 101.2     Ps. 32.7     Ps. 308.1  
Cash and cash equivalents at end of the year
    170.2       676.8       228.4       126.4       101.2       32.7  
Net increase (decrease) in cash and cash equivalents
    112.8       448.5       102.0       25.2       68.5       (275.5 )
 

(1)
For the year ended December 31, 2008, funds obtained from the Program for the Rational Use of Electric Power (PUREE) were included under “Increase in other liabilities”.

 
6

 
 
   
Year ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
                               
Operating data
                             
Energy sales (in GWh):
                             
Residential
    7,796       7,344       7,545       7,148       6,250  
Small commercial
    1,543       1,470       1,530       1,485       1,433  
Medium commercial
    1,634       1,565       1,597       1,552       1,446  
Industrial
    3,378       3,204       3,277       3,628       3,364  
Wheeling system(1)
    3,891       3,622       3,700       3,111       3,211  
Others:
                                       
Public lighting
    654       644       644       643       650  
Shantytowns
    377       351       304       301       261  
Others(2)
    20       20       19       18       18  
Customers (in thousands)(3)
    2,662       2,605       2,537       2,490       2,445  
Energy losses (%)
    12.5 %     11.9 %     10.8 %     11.6 %     11.1 %
MWh sold per employee
    7,123.9       6,936.1       7,392.8       7,230.6       6,736.6  
Customers per employee
    971       978       997       998       982  
 

(1)
Wheeling charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2)
Represents energy consumed internally by our company and our facilities.
(3)
We define a customer as one meter.  We may supply more than one consumer through a single meter.  In particular, because we measure our energy sales to each shantytown collectively using a single meter, each shantytown is counted as a single customer.
 
 
7

 

EXCHANGE RATES
 
From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar.  On January 6, 2002, the Argentine Congress enacted the Public Emergency Law, formally putting an end to the regime of the Convertibility Law and abandoning over ten years of U.S. Dollar-Peso parity.  The Public Emergency Law grants the executive branch of the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market.  The Public Emergency law has been extended until December 31, 2011.  For a brief period following the end of the Convertibility Regime, the Public Emergency Law established a temporary dual exchange rate system.  Since February 2002, the Peso has been allowed to float freely against other currencies.
 
The following table sets forth the annual high, low, average and period-end exchange rates for U.S. Dollars for the periods indicated, expressed in Pesos per U.S. Dollar at the purchasing exchange rate and not adjusted for inflation.  When preparing our financial statements, we utilize the selling exchange rates for U.S. Dollars quoted by Banco Nación to translate our U.S. Dollar denominated assets and liabilities into Pesos.  The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.
 
   
Low
   
High
   
Average
   
Period End
 
   
(Pesos per U.S. Dollar)
 
Year ended December 31,
                       
2006
    3.03       3.11       3.07 (1)     3.06  
2007
    3.06       3.18       3.12 (1)     3.15  
2008
    3.01       3.47       3.16 (1)     3.45  
2009
    3.45       3.88       3.73 (1)     3.80  
2010
    3.79       3.99       3.91 (1)     3.98  
                                 
Month
                               
November 2010
    3.96       3.99       3.97 (2)     3.99  
December 2010
    3.97       3.98       3.98 (2)     3.98  
January 2011
    3.97       4.01       3.98 (2)     4.01  
February 2011
    4.01       4.03       4.02 (2)     4.03  
March 2011
    4.03       4.05       4.04 (2)     4.05  
April 2011
    4.05       4.09       4.07 (2)     4.08  
May 2011
    4.08       4.09       4.08 (2)     4.09  
June 2011(3)
    4.09       4.09       4.09 (4)     4.09  


Source : Banco Nación
(1)
Represents the average of the exchange rates on the last day of each month during the period.
(2)
Average of the lowest and highest daily rates in the month.
(3)
Represents the corresponding exchange rates from June 1 through June 9, 2011.
(4)
Represents the average of the lowest and highest daily rates from June 1 through June 9, 2011.

 
8

 

RISK FACTORS
Risks Related to Argentina
 
Overview
 
We are a limited liability corporation (sociedad anónima) incorporated under the laws of the Republic of Argentina and all of our revenues are earned in Argentina and all of our operations, facilities, and customers are located in Argentina.  Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing in Argentina.  For example, lower economic growth or economic recession could lead to lower demand for electricity in our concession area or a decline in purchasing power of our customers, which, in turn, could lead to lower collections from our clients or growth in energy losses due to illegal use of our service.  Argentine government actions concerning the economy, including decisions with respect to inflation, interest rates, price controls, foreign exchange controls and taxes, have had and could continue to have a material adverse effect on private sector entities, including us.  To address Argentina’s economic crisis in 2001 and 2002, for example, the Argentine government took measures, such as the freeze of electricity distribution margins and pesification of our tariffs, which had a severe effect on our financial condition and led us to suspend payments on our financial debt.  We cannot provide any assurance whether the Argentine government will adopt other policies that could adversely affect the economy or our business.  In addition, we cannot provide any assurance that future economic, social and political developments in Argentina, over which we have no control, will not impair our business, financial condition or results of operations.
 
The global financial crisis and unfavorable credit and market conditions that commenced in 2007 have affected and could continue to negatively affect the Argentine economy and may negatively affect our liquidity, customers, business, and results of operations
 
The ongoing effects of the global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina.  The effect of this economic crisis on our customers and on us cannot be predicted.  Weak economic conditions could lead to reduced demand for energy, which could have a negative effect on our revenues.  In addition, our ability to access the credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions.  For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs to decline.
 
Argentina’s economic recovery since the 2001 economic crisis may not be sustainable in light of current economic conditions, and any significant decline could adversely affect our financial condition
 
During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis.  Although the economy has recovered significantly since the 2001 crisis, uncertainty remains as to the sustainability of economic growth and stability.  After the slowdown in Argentina’s economy in 2009, which started in the last quarter of 2008 and continued into much of 2009 (impacted by the largest global crisis in decades and negative domestic factors), 2010 experienced a growth of about 8.3%, according to preliminary official public estimates.  However, uncertainty about the sustainability of this growth rate remains.  Sustainable economic growth is dependent on a variety of factors, including international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable and relatively low rate of inflation.
 
The Argentine economy remains fragile, as reflected by the following economic conditions:
 
 
 
·
unemployment remains high;
 
 
·
the availability of long-term credit is scarce;
 
 
·
investment as a percentage of GDP remains too low to sustain the growth rate of recent years;

 
9

 
 
 
·
the Argentine government’s fiscal surplus shows a steady decline, with risk of becoming a fiscal deficit in the near term;
 
 
·
Argentina’s public debt remains high and international financing is limited;
 
 
·
inflation has accelerated recently and may rise to levels that threaten economic stability;
 
 
·
the regulatory environment continues to be uncertain;
 
 
·
the recovery has depended to some extent on high commodity prices, which despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine government; and
 
 
·
the trade surplus (and the fiscal surplus, to a lesser extent) depends largely on the production of grains and soybeans, such that risk is magnified by the possibility of a new major drought affecting the crop (as in the 2008-2009 campaign).
 
As in the recent past, Argentina’s economy may suffer if political and social pressures inhibit the implementation by the Argentine government of policies designed to maintain price stability, generate growth and enhance consumer and investor confidence. This, in turn, could lead to lower demand for our services as well as lower collection rates from clients and growth in energy losses due to illegal use of our services, which could materially adversely affect our financial condition and results of operations.  Furthermore, as it has done in the past, the Argentine government could respond to a lack of economic growth or stability by adopting measures that affect private sector enterprises, including the tariff restrictions imposed on public utility companies such as several of our subsidiaries.
 
We cannot provide any assurance that a decline in economic growth or increased economic instability, developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs and Class B common shares.
 
A return to a high inflation environment may have adverse effects on the Argentine economy, which could, in turn, have a material adverse effect on our results of operations
 
According to data published by the National Statistics and Census Institute (Instituto Nacional de Estadística y Censos, or INDEC), the rate of inflation  reached 10.9% in 2010, 7.7% in 2009 and 7.2% in 2008. Over the course of the past several years, the Argentine government has implemented several programs to control inflation and monitor prices for most relevant goods and services.  These government actions included price support arrangements agreed to by the Argentine government and private sector companies in several industries and markets.
 
Uncertainty surrounding future inflation and the current economic situation could slow economic recovery.  In the past, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that permit growth.  A return to a high inflation environment would also undermine Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation, with the same negative effects on the level of economic activity.  In turn, a portion of the Argentine debt is adjusted by the Stabilization Coefficient (Coeficiente de Estabilización de Referencia, or CER Index), a currency index that is strongly related to inflation.  Therefore, any significant increase in inflation would cause an increase in the external debt and consequently in Argentina’s financial obligations, which could further exacerbate the stress on the Argentine economy.  A high inflation environment could also temporarily undermine our results of operations as a result of a lag in cost adjustments, and we may be unable to adjust our tariffs accordingly.  In addition, a return to high inflation would undermine the confidence in Argentina’s banking system in general, which would further limit the availability of domestic and international credit to businesses, which could adversely affect our ability to finance our working capital needs on favorable terms, and adversely affect our results of operations.

 
10

 
 
The credibility of several Argentine economic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets
 
In January 2007, INDEC modified its methodology used to calculate the consumer price index (CPI), which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households.  Further, at the time that INDEC adopted this change in methodology, the Argentine government also replaced several key personnel at INDEC.  The alleged governmental interference prompted complaints from the technical staff at INDEC, which, in turn, has led to the initiation of several judicial investigations involving members of the Argentine government and aimed at determining whether there was a breach of classified statistical information relating to the collection of data used in the calculation of the CPI.  These events have affected the credibility of the CPI index published by INDEC, as well as other indexes published by INDEC that require the CPI for their own calculation, including the poverty index, the unemployment index as well as the calculation of the GDP, among others.  If these investigations result in a finding that the methodologies used to calculate the CPI or other INDEC indexes derived from the CPI were manipulated by the Argentine government, or if it is determined that it is necessary to correct the CPI and the other INDEC indexes derived from the CPI as a result of the methodology used by INDEC, there could be a significant decrease in confidence in the Argentine economy.  With credit to emerging market nations already tenuous as a result of the global economic crisis, our ability to access credit and capital markets to finance our operations and growth in the future could be further limited by the uncertainty relating to the accuracy of the economic indices in question which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.
 
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth
 
In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001.  The Argentine government announced that as a result of this restructuring, it had approximately U.S. $129.2 billion in total gross public debt as of December 31, 2005.  Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, have filed legal actions against Argentina to collect on the defaulted bonds.  Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future.
 
On January 3, 2006, Argentina repaid in full its debt of approximately U.S. $9.8 billion with the International Monetary Fund.
 
In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately U.S. $6.5 billion.  However, as of the date of this annual report, the National Government has not yet cancelled such debt.  In late 2010, President Cristina Fernández de Kirchner announced a new round of negotiations with the Paris Club to cancel such debt, which then totaled approximately U.S. $8.0 billion, without the intervention of the IMF.  The Minister of Economy and Public Finance, Amado Boudou, is currently carrying out the related negotiations and the terms of a final agreement are not yet known.  If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available, which could adversely affect economic growth in Argentina and Argentina’s public finances.
 
Certain groups of holders that did not participate in the 2005 restructuring have filed claims against Argentina and it is possible that new claims will be filed in the future.  In addition, foreign shareholders of several Argentine companies have filed claims before the ICSID (International Centre for Settlement of Investment Disputes) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party.  Since May 2005, the ICSID tribunals have issued several awards against Argentina.  Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently firm, which decisions required that the Argentine government pay U.S. $133.2 million, U.S. $165.2 million and U.S. $105 million, respectively.  As of the date of this annual report, Argentina has not yet paid the amounts referred to above.

 
11

 
 
On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment.  As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers.  The creditors who did not participate in the 2005 or 2010 exchange offers may continue with legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.
 
Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets.  Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations.  Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina.  In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness.  Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets.  Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.
 
As a result of Argentina’s default and the events that have followed it, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations.  Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth.
 
Significant fluctuations in the value of the Peso against the U.S. Dollar may adversely affect the Argentine economy, which could, in turn adversely affect our results of operations
 
Despite the positive effects the depreciation of the Peso in 2002 had on the export-oriented sectors of the Argentine economy, the depreciation has also had a far-reaching negative impact on a range of businesses and on individuals’ financial positions.  The devaluation of the Peso had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, led to very high inflation initially, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, including public utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations.  If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our businesses, our results of operations.
 
Similarly, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy, including, for example, a reduction in exports.  This could have a negative effect on economic growth and employment and reduce the Argentine public sector’s revenues by reducing tax collection in real terms, all of which could have a material adverse effect on our business as a result of the weakening of the Argentine economy in general.
 
Government measures to address social unrest may adversely affect the Argentine economy and thereby affect our business and results of operations.
 
During the economic crisis in 2001 and 2002, Argentina experienced social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations.  Despite the economic recovery and relative stability since 2002, social and political tensions and high levels of poverty and unemployment continue.  Future government policies to preempt, or respond to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights and shareholders’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws, regulations and policies affecting foreign trade and investment.  These policies could destabilize the country, both socially and politically, and adversely and materially affect the Argentine economy.

 
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In March 2008, the Argentine Ministry of Economy and Production announced the adoption of new taxes on exports of a number of agricultural products.  The taxes were to be calculated at incremental rates as the price for the exported products increase, and represented a significant increase in taxes on exports by the agricultural sector in Argentina.  The adoption of these taxes met significant opposition from various political and economic groups with ties to the Argentine agricultural sector, including strikes by agricultural producers around the country, roadblocks to prevent the circulation of agricultural goods within Argentina and massive demonstrations in the City of Buenos Aires and other major Argentine cities.  Although these measures did not pass the Argentine congress, we cannot make assurances that the Argentine government will not seek to reintroduce the export taxes or adopt other measures affecting this or other sectors of the economy (including the electricity sector) to compensate for the lost revenues associated with these taxes.  These uncertainties could lead to further social unrest that could adversely affect the Argentine economy.  In addition, economic distress may lead to lower demand for energy, lower collections from our clients, as well as growth of energy losses due to illegal use of our services.  We may also experience increased damages to our networks as a result of protesters or illicit activity, which may increase as a result of the decline in economic conditions, all of which, in turn may have a material adverse effect on our financial condition and results of operations.
 
Exchange controls, transfer restrictions and other policies of the Argentine government have limited and can be expected to continue to limit the availability of international and local credit or otherwise adversely affect our business
 
In 2001 and the first half of 2002, Argentina experienced a massive withdrawal of deposits from the Argentine financial system in a short period of time, which precipitated a liquidity crisis within the Argentine financial system and prompted the Argentine government to impose exchange controls and restrictions on the ability of depositors to withdraw their deposits.  Some of these restrictions have been substantially eased.  However, in June 2005 the Argentine government adopted various other rules and regulations that established restrictive controls on capital inflows.  Among the 2005 restrictions is a requirement that for certain funds remitted into Argentina an amount equal to 30% of the funds be deposited into an account with a local financial institution as a U.S. Dollar deposit for one year without such deposit accruing interest, yielding any other kind of benefit or being posted as collateral for any transaction. See “Exchange Rates—Exchange Controls.”  In the event of a future shock, the Argentine government could impose further exchange controls or restrictions on the movement of capital and take other measures that could limit our ability to access international capital markets, impair our ability to make interest or principal payments abroad or adversely affect our business and results of operations.
 
In recent years a significant portion of the local demand for debt of Argentine companies has come from the private Argentine pension funds.  In response to the global economic crisis, in December 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the National Social Security Agency (Administración Nacional de la Seguridad Social, or ANSES) and eliminating the retirement savings system previously administered by private pension funds.  In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES.  It is difficult to evaluate the real impact of this measure, but after these changes the demand for local debt in Argentina has been negatively affected.  A significant decrease in the demand for local debt could have an adverse impact on our ability to raise capital to refinance our indebtedness or finance capital expenditures, which could adversely affect the market value of our ADSs and Class B common shares.
 
The Argentine economy could be adversely affected by economic developments in other global markets
 
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets.  Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including Argentina.  The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.  In addition, Argentina continues to be affected by events in the economies of its major regional partners, including, for example, currency devaluations caused by the global economic crisis.

 
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Furthermore, the Argentine economy may be affected by events in developed economies which are trading partners or that impact the global economy.  Economic conditions and credit availability in Argentina were affected by an economic and banking crisis originated in the United States in 2008 and 2009.  When the crisis began, major financial institutions suffered considerable losses, investor confidence in the global financial system was shaken and various financial institutions required government bailouts or ceased operations altogether.  Moreover, in recent years several European Union members have been obliged to reduce their public expenditures due to their high indebtedness rates, which has negatively impacted the Euro zone’s economy.  Also, Japan has announced that it will cut fiscal expenditures.
 
After acknowledging difficulties to meet payment of its public debt, the accounts of Greece were put under the supervision of the European Union.  Mainly due to fears of contagion and to the drastic decline in Greece’s public debt ratings, the European Union, together with the International Monetary Fund, designed a plan of aid for Greece involving the supply of approximately 110 billion Euros.  This contribution was granted based on the adjustment plan approved by the European Union for Greece, which included pay cuts for civil servants, pensions and retirement reductions, and significant increases in taxes. This led to widespread rioting in the streets.
 
Spain, Portugal, Germany and the UK similarly have made adjustments in all areas to prevent further deterioration of their accounts. More recently, Ireland has adopted similar measures.
 
Notwithstanding these measures, it is unclear what consequences there would be in the global financial system if any of the major global financial institutions became insolvent, or what effects such a situation might have on the rest of the financial system.  The current global economic condition may have significant long-term effects on Latin America and Argentina, mainly reflected in the lack of access to international credit, reduced demand for Argentine exports, and significant reductions in foreign direct investment.
 
The realization of any or all of these risk factors, as well as events that may arise in the main regional partners, including members of Mercosur, could have a material adverse effect on the Argentine economy and, indirectly, on our operations, business, and results.
 
Risks Relating to the Electricity Distribution Sector
 
The Argentine government has intervened in the electricity sector in the past, and is likely to continue intervening
 
To address the Argentine economic crisis in 2001 and 2002, the Argentine government adopted the Public Emergency Law and other resolutions, which made a number of material changes to the regulatory framework applicable to the electricity sector.  These changes, which severely affected electricity distribution companies, included the freezing of distribution margins, the revocation of adjustment and inflation indexation mechanisms and a limitation on charging our customers the increases of certain regulatory charges.  In addition, a new price-setting mechanism was introduced in the wholesale electricity market, which had a significant impact on electricity generators and has led to significant price mismatches between participants in our market.  The Argentine government continues to intervene in this sector, including granting temporary margin increases, proposing a new social tariff regime for residents of poverty-stricken areas, creating specific charges to raise funds that are transferred to government-managed trust funds that finance investments in distribution infrastructure and mandating investments for the construction of new generation plants and the expansion of existing transmission and distribution networks.  We cannot make assurances that these or other measures that may be adopted by the Argentine government will not have a material adverse effect on our business and results of operations or that the Argentine government will not adopt emergency legislation similar to the Public Emergency Law, or other similar resolutions, in the future that may further increase our regulatory obligations, including increased taxes, unfavorable alterations to our tariff structures and other regulatory obligations, compliance with which would increase our costs and have a direct negative impact on our results of operations.

 
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Electricity distributors were severely affected by the emergency measures adopted during the economic crisis, many of which remain in effect
 
Distribution tariffs include a regulated margin that is intended to cover the costs of distribution and provide an adequate return over the distributor’s asset base.  Under the Convertibility regime, distribution tariffs were calculated in U.S. Dollars and distribution margins were adjusted periodically to reflect variations in U.S. inflation indexes.  Pursuant to the Public Emergency Law, in January 2002 the Argentine government froze all distribution margins, revoked all margin adjustment provisions in distribution concessions and converted distribution tariffs into Pesos at a rate of Ps. 1.00 per U.S. $ 1.00.  These measures, coupled with the effect of high inflation and the devaluation of the Peso, led to a decline in distribution revenues in real terms and an increase of distribution costs in real terms, which could no longer be recovered through adjustments to the distribution margin.  This situation, in turn, led many public utility companies, including us and other important distribution companies, to suspend payments on their financial debt (which continued to be denominated in U.S. Dollars despite the pesification of revenues), which effectively prevented these companies from obtaining further financing in the domestic or international credit markets and making additional investments.  Although the Argentine government has recently granted temporary relief to some distribution companies, including an increase in distribution margins and a temporary cost adjustment mechanism, distribution companies are currently involved in discussions with regulators on additional, permanent measures needed to adapt the current tariff scheme to the post-crisis situation of this sector.  We cannot make assurances that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for us by the economic crisis and its aftermath. If we become unable to cover the costs of distribution or receive an adequate return on our asset on our base, our results of operations may be adversely affected.
 
Electricity demand has grown significantly in recent periods and may be affected by recent or future tariff increases, which could lead distribution companies, such as us, to record lower revenues
 
During the 2001 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumers to pay their electricity bills.  Despite the decline in the electricity demand registered in 2009, in the years following the economic crisis of 2001 electricity demand experienced significant growth, increasing an estimated average of approximately 5.1% per annum from 2003 through 2010.  This increase in demand reflects the relative low cost, in real terms, of electricity to consumers due to the freeze of distribution margins and the elimination of the inflation adjustment provisions in distribution concessions coupled with the devaluation of the Peso and inflation.  The executive branch of the Argentine government granted temporary increases in distribution margins, and we are currently negotiating further increases and adjustments to our tariff schemes with the Argentine government.  Increases in electricity distribution margins, which increase the cost of electricity to residential customers, may have a negative effect on demand, and we cannot make any assurances that these increases or any future increases in the relative cost of electricity (including increases on tariffs for residential users) will not have a material adverse effect on electricity demand or a decline in collections from customers which, in turn, may lead electricity distribution companies, such as us, to record lower revenues and results of operations than currently anticipated, and may have a material adverse effect on the market value of our ADSs and Class B common shares.

 
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Energy shortages may act as a brake on growing demand for electricity and disrupt distribution companies’ ability to deliver electricity to their customers, which could result in customer claims and material penalties imposed on these companies
 
In recent years, the condition of the Argentine electricity market has provided little incentive to generators to further invest in increasing their generation capacity, which would require material long-term financial commitments.  As a result, Argentine electricity generators are currently operating at near full capacity and could be required to ration supply in order to meet a national energy demand that exceeds the current generation capacity.  In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.  In an attempt to address this situation, in September 2006 the Argentine government adopted measures requiring large industrial users to limit their energy consumption to their “base demand” (equal to their demand in 2005) and to secure any additional energy needs in excess of their base demand from sources other than the national grid.  Large users that do not comply with these measures can be subject to penalties imposed by the Argentine government.  These measures, however, have not led to a significant reduction in demand by these users, despite requests from, and penalties imposed by, the Argentine government.  As a result, electricity generators may not to be able to guarantee the supply of electricity to distribution companies, which, in turn, could prevent these companies, including our company, from experiencing continued growth in their businesses and could lead to failures to provide electricity to customers.  Under Argentine law, distribution companies are responsible to their customers for any disruption in the supply of electricity.  As a result, distribution companies may face customer claims and fines and penalties for disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages constitute force majeure.  To date, the Argentine authorities have not been called upon to decide under which conditions energy shortages may constitute force majeure.  In the past, however, the Argentine authorities have recognized the existence of force majeure only in limited circumstances, such as internal malfunctions at the customer’s facilities, extraordinary meteorological events (such as major storms) and third party work in public thoroughfares.  We cannot make assurances that we will not experience a lack of energy supply that could adversely affect our business, financial condition and results of operations.
 
Risks Relating to Our Business
 
Our business and prospects depend on our ability to negotiate further improvements to our tariff structure, including increases in our distribution margin
 
We are currently engaged in an integral tariff revision process (Revisión Tarifaria Integral, or RTI) with the ENRE, as required by the Adjustment Agreement.  The goal of the RTI is to achieve a comprehensive revision of our tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our cost base, to provide us with an adequate return on our asset base.  Although we believe the RTI will result in a new tariff structure, we cannot make assurances that the RTI will conclude in a timely manner or at all, or that the new tariff structure will effectively cover all of our costs or provide us with an adequate return on our asset base.  Moreover, the RTI could result in the adoption of an entirely new regulatory framework for our business, with additional terms and restrictions on our operations and the imposition of mandatory investments.  We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed on our operations.  If we are not successful in achieving a satisfactory renegotiation of our tariff structure, our business, financial condition and results of operations may be adversely affected, and the value of our Class B common shares and ADSs may decline.
 
We may not be able to adjust our tariffs to reflect increases in our distribution costs in a timely manner, or at all, which may have a material adverse effect on our results of operations
 
The Adjustment Agreement currently contemplates a cost adjustment mechanism for the transition period during which the RTI is being conducted.  This mechanism, known as the Cost Monitoring Mechanism (CMM), requires the ENRE to review our actual distribution costs every six months (in May and November of each year) and adjust our distribution margins to reflect variations of 5% or more in our distribution cost base.  We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more.  Any adjustments, however, are subject to the ENRE’s assessment of variations in our costs, and we cannot guarantee that the ENRE will approve adjustments that are sufficient to cover our actual incremental costs.  In the past, even when the ENRE has approved adjustments to our tariffs, there has been a lag between when we actually experience increases in our distribution costs and when we receive increased revenues following the corresponding adjustments to our distribution margins pursuant to the CMM.  Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot make assurances that we will receive similar adjustments in the future. As of the date of this annual report we have requested seven increases under the CMM beginning in May 2008 that are still being reviewed by the ENRE. Under the terms of the Adjustment Agreement, these seven increases should have been approved in May 2008, November 2008, May 2009, November 2009, May 2010, November 2010 and May 2011.  If we are not able to recover all of these incremental costs and all such future cost increases or there is a significant lag time between when we incur the incremental costs and when we receive increased revenues, we may experience a material decline in our results of operations, which may have a material adverse effect on the value of our ADSs and Class B common shares.

 
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We may fail to realize the anticipated benefits of our acquisition of EMDERSA and AESEBA, and the integration of EMDERSA and AESEBA with our operations may present significant challenges.
 
           In March 2011, we acquired EMDERSA and AESEBA and several related companies, which are now our subsidiaries. The success of these acquisitions will depend in part on our ability to realize the anticipated growth opportunities and cost savings from combining our business with EMDERSA’s and AESEBA’s businesses.  We may face significant challenges in consolidating our operations, integrating our organizations, and streamlining procedures in a timely and efficient manner while retaining key personnel from these companies. The integration of EMDERSA and AESEBA will be costly, complex and time consuming and will require substantial management attention. These costs could be greater than we currently anticipate, which could reduce our profitability. The integration of these businesses could also disrupt the operation of our and their existing businesses, or result in additional administrative procedures or regulatory oversight. It could also adversely affect our and their ability to maintain relationships with customers, suppliers, employees and others with whom we have business dealings.
 
Our acquisition of EMDERSA and AESEBA is subject to approval by the Argentine Antitrust Commission and by ENRE
 
Our acquisition of EMDERSA and AESEBA is subject to approval by the Argentine Antitrust Commission and by ENRE.  Although we have submitted all required documentation to the Argentine Antitrust Commission and to ENRE, we cannot assure you that the Argentine Antitrust Commission or ENRE will authorize the acquisitions and, therefore, the acquisitions may be revoked if any of the approvals is not granted.
 
Our tariff adjustments may be subject to challenge by Argentine consumer and other groups
 
In November 2006, two Argentine consumer associations, Civil Association for Equality and Justice (Asociación Civil por la Igualdad y la Justicia, or ACIJ) and Consumers’ Cooperative for Community Action (Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria), brought an action against us and the Argentine government before a federal administrative court seeking to block the ratification of the adjustment of our tariffs on the grounds that the approval mechanism was unconstitutional.  Because the court dismissed these claims and ruled in our favor, in April 2008, the ACIJ filed another complaint challenging the procedures utilized by the Argentine congress in approving these adjustments.
 
In January 2009, the Public Ombudsman (defensor del pueblo) filed a complaint opposing the October 2008 adjustment to our tariffs, and naming us as a third-party defendant.  On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim.  We and the Argentine government have appealed the injunction several times, the resolution of which is still pending as of the date of this annual report.  See “Business—Legal Proceedings—Proceedings Challenging the Renegotiation of our Concession—Preliminary Injunction of the Public Ombudsman.”
 
In addition, in December 2009, another Argentine consumer association, Unión de Usuarios y Consumidores, brought an action against us and the Argentine government seeking to annul certain retroactive tariff increases.  In November 2010, the relevant court upheld the claim.  We appealed the court’s order and requested that it be stayed pending a decision on the appeal.  In December 2010, the court stayed its order pending a decision on the appeal.  On June 1, 2011, the Administrative Court of Appeals (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V) overturned the judgment of the lower administrative court.  The Argentine consumer association may file an extraordinary appeal (“Recurso Extraordinario Federal”) to have the case tried by the Argentine Supreme Court.  As of the date of this annual report, to Edenor’s knowledge, the Argentine consumer association has not filed such extraordinary appeal.

 
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We cannot make assurances regarding how these complaints will be resolved (nor, in the action brought by Unión de Usuarios y Consumidores in December 2009, whether the plaintiff may decide to file an extraordinary appeal as described above) nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our distribution tariffs.  If these legal challenges are successful and prevent us from implementing tariff adjustments granted by the Argentine government, we could face a decline in collections from distribution customers, and a decline in our results of operations.
 
We have been, and may continue to be, subject to fines and penalties that could have a material adverse effect on our results of operations
 
We operate in a highly regulated environment and have been and in the future may continue to be subject to significant fines and penalties by regulatory authorities, including for reasons outside our control, such as service disruptions attributable to problems at generation facilities or in the transmission network that result in a lack of electricity supply.  After 2001, the amount of fines and penalties imposed on our company has increased significantly, which we believe is mainly due to the economic and political environment in Argentina following the recent economic crisis.  Although the Argentine government has agreed to forgive a significant portion of our accrued fines and penalties pursuant to the Adjustment Agreement and to allow us to repay the remaining balance over time, this forgiveness and repayment plan is subject to a number of conditions, including compliance with quality of service standards, reporting obligations and required capital investments.  As of December 31, 2010, our accrued fines and penalties totaled Ps. 455.4 million (taking into account our adjustment to fines and penalties following the ratification of the Adjustment Agreement).  If we fail to comply with any of these requirements, the Argentine government may seek to obtain payment of these fines and penalties by our company.  In addition, we cannot make assurances that we will not incur material fines in the future, which could have a material adverse effect on our results of operations.
 
If we are unable to control our energy losses, our results of operations could be adversely affected
 
Our concession does not allow us to pass through to our customers the cost of additional energy purchased to cover any energy losses that exceed the loss factor contemplated by our concession, which is, on average, 10%.  As a result, if we experience energy losses in excess of those contemplated by our concession, we may record lower operating profits than we anticipate.  Prior to the economic crisis in 2001, we had been able to reduce the high level of energy losses experienced at the time of the privatization to the levels contemplated (and reimbursed) under our concession.  However, during the economic crisis, our level of energy losses, particularly our non-technical losses, started to grow again, in part as a result of the increase in poverty levels and, with it, the number of delinquent accounts and fraud. Our energy losses amounted to 12.5% in 2010.  We cannot make assurances that our energy losses will not grow in future periods, which may lead us to have lower margins and could adversely affect our results of operations and financial condition.
 
The Argentine government could foreclose its pledge over our Class A shares under certain circumstances, which could have a material adverse effect on our business and financial condition
 
Pursuant to our concession and the provisions of the Adjustment Agreement, the Argentine government has the right to foreclose its pledge over our Class A shares and sell these shares to a third party buyer if:
 
 
·
the fines and penalties we incur in any given year exceed 20% of our gross energy sales, net of taxes (which corresponds to our energy sales);
 
 
·
we repeatedly and materially breach our concession and do not remedy these breaches upon the request of the ENRE;
 
 
·
our controlling shareholder, EASA, creates any lien or encumbrance over our Class A shares (other than the existing pledge in favor of the Argentine government);
 
 
·
we or EASA obstruct the sale of Class A shares at the end of any management period under our concession;
 
 
·
EASA fails to obtain the ENRE’s approval in connection with the disposition of our Class A shares;
 
 
·
our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A shares without the ENRE’s approval; or

 
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·
our shareholders or former shareholders do not desist from its ICSID claims against the Argentine government following completion of the RTI and the approval of a new tariff regime.
 
In 2010, the fines and penalties imposed on us by the ENRE amounted to Ps. 80.0 million, which represented 3.6% of our energy sales.  See “Item 4. Information on the Company —Our Concession—Fines and Penalties.”
 
If the Argentine government were to foreclose its pledge over our Class A Shares, pending the sale of those shares, the Argentine government would also have the right to exercise the voting rights associated with the shares.  In addition, the foreclosure by the Argentine government of the pledge on our Class A shares may be deemed to constitute a change of control under the terms of our restructured debt, our Senior Notes issued in October 2007, and our Senior Notes issued in October 2010, which would require us to offer to repurchase all such debt at its nominal value.  We cannot make assurances that we will have sufficient funds or access to financing to effect such repurchases.  If the Argentine government forecloses its pledge over our Class A shares, our results of operations and financial condition could be significantly affected and the market value of our ADSs and Class B common shares could be affected too.
 
Default by the Argentine government could lead to termination of the concession, and have a material adverse effect on our business and financial condition
 
If the Argentine government breaches its obligations in such a way that we cannot comply with our obligation under the concession or in such a way that the distribution service is materially affected, we can request the termination of the concession, after giving the Argentine government 90 days’ prior notice. Upon termination of the concession, all our assets used to provide electricity service would be transferred to a new state-owned company to be created by the Argentine government, whose shares would be sold in an international public bidding procedure. The amount obtained in such bidding would be paid to us, net of the payment of any debt owed by us to the Argentine government, plus compensation established as a percentage of the bidding price, ranging from 10% to 30% depending on the management period in which the sale occurs. Any such default could have a material adverse effect on our business and financial condition .
 
We employ a largely unionized labor force and could be subject to an organized labor action
 
As of December 31, 2010, approximately 81% of our employees were union members and we have had an agreement in place with the two unions representing our employees since 1995.  Although our relations with unions are currently stable, we cannot make assurances that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues, especially in light of the social tensions generated in Argentina by the economic crisis.  We cannot make assurances that we will be able to negotiate salary agreements on the same terms as those currently in effect, or that we will not be subject to strikes or work stoppages before or during the negotiation process.  If we are unable to negotiate salary agreements or if we are subject to strikes or work stoppages, our results of operations, financial condition.
 
We might incur material labor liabilities in connection with our outsourcing
 
We have outsourced a number of activities related to our business to third party contractors in order to maintain a flexible cost base that allows us both to maintain a lower cost base and respond more quickly to changes in our market.  We had approximately 2,682 third-party employees under contract with our company as of December 31, 2010.  Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services under certain circumstances.  If we are not able to prevail in any of these proceedings, we might be forced to incur material labor liabilities, which may have an adverse effect on our results of operations.

 
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We currently are not able to effectively hedge our currency risk in full and, as a result, a devaluation of the Peso may have a material adverse effect on our results of operations and financial condition
 
Our revenues are collected in Pesos pursuant to tariffs that are not indexed to the U.S. Dollar, while a significant portion of our existing financial indebtedness is denominated in U.S. Dollars, which exposes us to the risk of loss from devaluation of the Peso.  We currently seek to hedge this risk in part by converting a portion of our excess cash denominated in Pesos into U.S. Dollars and investing those funds outside Argentina, as permitted by applicable Argentine Central Bank regulations and entering in currency forward contracts, but we continue to have substantial exposure to the U.S. Dollar.  We cannot make assurances that the Argentine government will continue to allow us to access the market to acquire U.S. Dollars in the manner we have done so to date.  Although we may also seek to enter into further hedging transactions to cover all or a part of our remaining exposure, we have not been able to hedge all of our exposure to the U.S. Dollar on terms we consider viable for our company.  If we continue to be unable to effectively hedge all or a significant portion of our currency risk exposure, a devaluation of the Peso may significantly increase our debt service burden, which, in turn, may have a material adverse effect on our financial condition and results of operations.
 
Our insurance may not be sufficient to cover certain losses. As of December 31, 2010, our physical assets were insured for up to U.S. $665.5 million.  However, we do not carry insurance coverage for losses caused by our network or business interruption, including loss of our concession.  Although we believe that our insurance coverage is commensurate with standards for the international electricity distribution industry, no assurance can be given of the existence or sufficiency of risk coverage for any particular risk or loss.  If an accident or other event occurs that is not covered by our current insurance policies, we may experience material losses or have to disburse significant amounts from our own funds, which may have a material adverse effect on our results of operations and financial condition.
 
A substantial number of our assets are not subject to attachment or foreclosure
 
A substantial number of our assets are essential to the public service we provide.  Under Argentine law, as interpreted by the Argentine courts, assets which are essential to the provision of a public service are not subject to attachment, whether as a guarantee for an ongoing legal action or to allow for the enforcement of a