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
Item 16 H. Mine Safety Disclosures
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-12.1 exhibit12_1.htm
EX-12.2 exhibit12_2.htm
EX-13.1 exhibit13_1.htm

Edenor Earnings 2013-12-31

Balance SheetIncome StatementCash Flow

20-F 1 ednform20f_2013.htm FORM 20-F 2013 ednform20f_2013.htm - Generated by SEC Publisher for SEC Filing  

 

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, 2013 Commission File number: 001-33422

Empresa Distribuidora y Comercializadora Norte S.A.
(Exact name of registrant as specified in its charter)

Distribution and Marketing Company of the North S.A.

Argentine Republic

(Translation of registrant’s name into English)

(Jurisdiction of incorporation or organization)

Avenida Del Libertador 6363

Ciudad de Buenos Aires, C1428ARG

Buenos Aires, Argentina
(Address of principal executive offices)

Leandro Montero

Tel.: +54 11 4346 5511 / Fax: +54 11 4346 5325 Avenida Del Libertador 6363 (C1428ARG)
Buenos Aires, Argentina

Chief Financial Officer

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

Title of each class:

Name of each exchange on which registered

Class B Common Shares

New York Stock Exchange, Inc.*

American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing 20 Class B Common Shares

New York Stock Exchange, Inc.

*    Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

__________

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

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 462,292,111 Class A Common Shares, 442,210,385 Class B Common Shares and 1,952,604 Class C Common Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

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
þ  Other

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 by Rule 12b-2 of the Exchange Act).  Yes No þ 

 

[BUENOSAIRES 51606_4]


 
 

 

NOTE:  NOT A MACPAC TOC!  Use F9 to update, NOT the “TOC” button.

 

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  30
Item 4A.  Unresolved Staff Comments  62
Item 5.  Operating and Financial Review and Prospects  62
Item 6.  Directors, Senior Management and Employees  104
Item 7.  Major Shareholders and Related Party Transactions  114
Item 8.  Financial Information  117
Item 9.  The Offer and Listing  123
Item 10.  Additional Information  126
Item 11.  Quantitative and Qualitative Disclosures about Market Risk  151
Item 12.  Description of Securities Other than Equity Securities  153
Item 13.  Defaults, Dividend Arrearages and Delinquencies  154
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds  154
Item 15.  Controls and Procedures  154
Item 16A.  Audit Committee Financial Expert  155
Item 16B.  Code of Ethics  155
Item 16C.  Principal Accountant Fees and Services  156
Item 16D.  Exemptions from the Listing Standards for Audit Committees  156
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers  156
Item 16F.  Change in Registrant’s Certifying Accountant  156
Item 16G.  Corporate Governance  156
Item 16H.  Mine Safety Disclosures  160
Item 17.  Financial Statements  161
Item 18.  Financial Statements  161
Item 19.  Exhibits  161
Index to Financial Statements  F-1

 

 

[BUENOSAIRES 51606_4]


 
 

 

PART I

Item 1.         Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.         Offer Statistics and Expected Timetable

Not applicable.

Item 3.         Key Information

In this annual report, except as otherwise specified, references to “we”, “us”, “our” and “the Company” are references to (i) Empresa Distribuidora y Comercializadora Norte S.A., or “Edenor”, on a standalone basis prior  to  March 1, 2011, (ii) Edenor, Empresa Distribuidora Eléctrica Regional S.A. (“Emdersa”)  and Aeseba S.A. (“Aeseba”) ,between March 1, 2011 and March 31, 2013, (iii) Edenor and Emdersa”, between March 1, 2011 and September 30, 2013, and (iv) Edenor on a standalone basis, from October 1, 2013 through the date of filing of this annual report. References to Edenor, Emdersa and/or Aeseba on standalone basis are made by naming each company as the case may be.  For more information, see “Item 4—Information on the Company—History and Development of the Company.”

FORWARD‑LOOKING STATEMENTS

This annual report includes forward‑looking statements, principally under the captions “Item 3. Key Information—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 (Revisión Tarifaria Integral or “RTI”) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;

·         general political, economic, social, demographic and business conditions in the Republic of Argentina, or Argentina”  and particularly in the geographic market we serve;

·         the impact of regulatory reform and changes in the regulatory environment in which we operate;

·         electricity shortages;

·         potential disruption or interruption of our service;

·         restrictions on the ability to exchange Pesos into foreign currencies or to transfer funds abroad;

·         the revocation or amendment of our concession by the granting authority;

·         our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;

·         fluctuations in exchange rates, including a devaluation of the Peso;

·         the impact of high rates of inflation on our costs;

·         our ability to access to financing under reasonable terms, and

·         additional matters identified in “Risk factors”.

 

 

 

1

 


 

Table of Contents

 

 

 

                                                   

Forward‑looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward‑looking statements after we file this annual report because of new information, future events or other factors.  In light of these limitations, undue reliance should not be placed on forward‑looking statements contained in this annual report.

SELECTED FINANCIAL DATA

The following tables present our summary financial data for the years ended December 31, 2013, 2012 and 2011. This information should be read in conjunction with our audited consolidated financial statements as of December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013, 2012 and 2011 (the Consolidated Financial Statementsˮ), the related notes thereto and the information under “Item 5. Operating and Financial Review and Prospectsˮ included elsewhere in this annual report. The financial data as of December 31, 2013, has been derived from our Consolidated Financial Statements.

Our 2013 consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB, and these have been approved by resolution of the Board of Directors’ meeting held on March 7, 2014.

The selected Consolidated Statement of Comprehensive Income (Loss) data for the years ended December 31, 2013 and 2012, and the selected consolidated  Statement of Financial Position data as of December 31, 2013 and 2012 have been prepared in accordance with International Financing Reporting Standards (“IFRSˮ), as issued by the International Accounting Standards  Board (IASBˮ) and have been derived from our Consolidated Financial Statements, which were audited by Price Waterhouse & Co. S.R.L. (“PwC”), member firm of PricewaterhouseCoopers network, whose report is dated March 7, 2014 and is included elsewhere herein.  See “Item 18 – Financial Statements”.

We have prepared our annual financial statements for the fiscal year ended December 31, 2013 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated March 7, 2014 on our financial statements as of and for the years ended December 31, 2013 and 2012, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern.  As discussed in Note 1 to the Consolidated Financial Statements, the delay in obtaining tariff increases, the cost adjustment recognition as requested by us in accordance with the terms of the Adjustment Agreement (as defined below) and the continuous increase in operating expenses that are necessary to maintain the level of service have significantly affected our economic and financial position and have raised substantial doubt with respect to our ability to continue as a going concern.  Management's plans in response to these matters are also described in Note 1. However, our Consolidated Financial Statements as of December 31, 2013 and for the years ended December 31, 2013, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty.  See “Item 3: Key Information—Risk Factors—Risks Relating to Our Business—Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.” As a result, there is substantial doubt with respect to our ability to continue as a going concern.” See “Item 18: Financial Statements.” 

Our Consolidated Financial Statements are included on pages F-1 through F-87 of this annual report.

In accordance with the decision of the Board of Directors to divest and sell the subsidiary Aeseba as of March 31, 2013 and the subsidiaries Emdersa Holding S.A. (Emdersa Holdingˮ or “EHSA”), including Emdersa and its subsidiaries, Empresa Distribuidora de San Luis S.A. (“Edesal”), Empresa Distribuidora de La Rioja S.A. (“Edelar”), Empresa Distribuidora de Salta S.A. (“Edesa”) and Emdersa Generación Salta S.A. (“EGSSA”), as of December 31, 2011, we have classified the corresponding assets and liabilities associated to these subsidiaries in the Consolidated Financial Statements as of December 31, 2013, 2012 and 2011 as “Assets of disposal groups classified as held for sale” and “Liabilities of disposal groups classified as held for sale”. As of October 11, 2011, October 25, 2011 and May 10, 2012 the Company sold its direct and indirect stake in EGSSA (subject to a condition precedent related to Emdersa’s spin-off), Edesal and Edesa, respectively. The corresponding charges to results have been included within “Loss (profit) from discontinued operations” line item in our consolidated statements of comprehensive loss for the years ended December 31, 2012 and 2011. As of April 5, 2013, the Company sold its stake in Aeseba. The corresponding charges to results have been included within “Loss from Discontinued operations” line item in our consolidated statements of comprehensive loss for the year ended December 31, 2013.

2

 


 

Table of Contents

 

 

 

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, 2013 have been translated into U.S. Dollars at the selling exchange rate for U.S. Dollars quoted by Banco de la Nación Argentina (the “Banco Nación”) on December 31, 2013, which was  Ps. 6.521 to U.S. $1.00, unless otherwise indicated. The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate.  In January 2014, the Peso lost approximately 23% of its value with respect to the Dollar.  On April 23, 2014, the exchange rate was Ps. 8.00 to U.S.$1.00. As a result of fluctuations in the Dollar/Argentine Peso exchange rate, the exchange rate at such date may not be indicative of current or future exchange rates. See “Item 3. Key Information—Exchange Rates” and “Item 3.  Key Information—Risk Factors—Risks Relating to Argentina—Fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy, which could, in turn adversely affect our results of operations.”

 

 

3

 


 

Table of Contents

 

 

Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, any discrepancies between the totals and the sums of amounts are due to rounding.

Consolidated Statement of Comprehensive Income (Loss)*

   

 

 

 

 

 

       

 

   

2013

 

2013

 

2012

 

2011

 

     

(Figures in millions)

 

 

Continuing Operations

     

 

 

 

 

 

Revenue from sales (1)

 

U.S.$ 527.6

 

Ps. 3,440.7

 

Ps. 2,976.2

 

Ps. 2,302.0

Electric power purchases

 

(314.4)

 

(2,050.3)

 

(1,740.2)

 

(1,130.9)

Subtotal

 

213.3

 

1,390.4

 

1,236.0

 

1,171.1

Transmission and distribution expenses

 

(315.2)

 

(2,055.3)

 

(1,344.1)

 

(970.5)

Gross (loss) profit

 

(102.0)

 

(664.9)

 

(108.1)

 

200.6

       

 

 

 

 

 

Selling expenses

 

(84.1)

 

(548.3)

 

(352.9)

 

(261.9)

Administrative expenses

 

(49.8)

 

(324.8)

 

(249.4)

 

(196.6)

Other operating income

 

9.4

 

61.6

 

32.3

 

22.5

Other opertaing expense

 

(21.9)

 

(142.8)

 

(150.2)

 

(93.8)

Gain from interest in joint ventures

 

-

 

-

 

-

 

-

Gain from acquisition of companies

 

-

 

-

 

-

 

435.0

Revenue from customers contributions exempt from devolutions

 

0.1

 

0.7

 

-

 

-

Operating (loss) profit before Resolution SE 250/13 and Note 6852/13

 

(248.2)

 

(1,618.5)

 

(828.4)

 

105.8

Higher costs recognition - Resolution SE 250/13

 

449.8

 

2,933.1

 

-

 

-

Operating profit (loss)

 

201.6

 

1,314.6

 

(828.4)

 

105.8

Financial income (2)

 

44.0

 

287.1

 

75.5

 

53.5

Financial expenses (3)

 

(77.4)

 

(504.9)

 

(226.0)

 

(150.6)

Other financial expense

 

(41.9)

 

(273.1)

 

(168.1)

 

(93.5)

Net financial expense

 

(75.3)

 

(490.9)

 

(318.6)

 

(190.6)

Profit (Loss) before taxes

 

126.3

 

823.7

 

(1,147.0)

 

(84.8)

Income tax

 

6.8

 

44.1

 

116.7

 

(82.2)

Profit (Loss) for the year from continuing operations

 

133.1

 

867.8

 

(1,030.3)

 

(167.0)

(Loss) Profit from discontinued operations

 

(14.6)  

 

(95.1)

 

16.9

 

(124.4)

Profit (Loss) for the year

 

118.5

 

772.7

 

(1,013.4)

 

(291.4)

       

 

 

 

 

 

Profit (Loss) for the year attributable to:

     

 

 

 

 

 

Owners of the parent

 

118.3

 

771.7

 

(1,016.5)

 

(304.1)

Non-controlling interests

 

0.2

 

1.0

 

3.1

 

12.7

Profit (Loss) for the year

 

U.S.$ 118.5

 

Ps. 772.7

 

Ps. (1,013.4)

 

Ps. (291.4)

       

 

 

 

 

 

Profit (Loss) for the year attributable to the owners of the parent:

     

 

 

 

 

 

Continuing operations

 

133.1

 

867.9

 

(1,030.3)

 

(167.0)

Discontinued operations

 

(14.7)

 

(96.1)

 

13.8

 

(137.1)

   

118.4

 

771.8

 

(1,016.5)

 

(304.1)

       

 

 

 

 

 

 

     

 

 

 

 

 

Other comprehensive income

     

 

 

 

 

 

Items that will not be reclassified to profit or loss

     

 

 

 

 

 

       

 

 

 

 

 

       

 

 

 

 

 

Results related to benefit plans

 

(3.2)

 

(21.0)

 

7.9

 

(10.2)

Tax effect of actuarial income (losses) on benefit plans

 

1.1

 

7.3

 

(2.8)

 

3.6

Total other comprehensive loss from discontinued operations

 

-

 

-

 

(2.1)

 

(5.7)

Total other comprehensive (loss) income

 

(2.1)

 

(13.6)

 

3.0

 

(12.3)

Comprehensive income for the year attributable to:

     

 

 

 

 

 

       

 

 

 

 

 

Owners of the parent

 

116.3

 

758.1

 

(1,013.2)

 

(315.4)

4

 


 

Table of Contents

 

 

Non-controlling interest

 

0.2

 

1.0

 

2.8

 

11.7

Comprehensive income (loss) for the year

 

116.4

 

759.1

 

(1,010.4)

 

(303.7)

       

 

 

 

 

 

Comprehensive income (loss) for the year attributable to owner of the parent

     

 

 

 

 

 

Continuing operations

 

116.1

 

757.1

 

(1,025.1)

 

(173.6)

Discontinued operations

 

0.2

 

1.0

 

11.9

 

(141.8)

   

U.S.$ 116.3

 

Ps. 758.1

 

Ps. (1,013.2)

 

Ps. (315.4)

Basic and diluted earnings (loss) per share attributable to the owners of the parent:

     

 

 

 

 

 

Basic and diluted earnings (loss) per share from continuing operations

 

0.154

 

1.004

 

(1.149)

 

(0.186)

Basic and diluted (loss) earnings per share from discontinued operations

 

(0.017)

 

(0.111)

 

0.015

 

(0.153)

Basic and diluted earnings (loss) per ADS attributable to the owners of the parent: (4)

     

 

 

 

 

 

Basic and diluted earnings (loss) per ADS from continuing operations

 

3.080

 

20.086

 

(22.971)

 

(3.723)

Basic and diluted (loss) earnings per ADS from discontinued operations

 

(0.341)

 

(2.225)

 

0.308

 

(3.057)

(*)      Certain amounts of the presented financial data for comparative purposes (2012 and 2011) have been reclassified (with regard to the consolidated financial statements as of such dates) following the disclosure criteria used for the consolidated financial statements as of December 31, 2013, mainly due to discontinued operations.

 

(1)       Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charges determined by the Resolution 347/12

(2)       Includes interest on cash equivalents at December 31, 2013 and 2012 for Ps. 2.9 million and Ps. 32.6 million, respectively, and net interest for Ps.197.5 million relating to the CMM and the PUREE.

(3)       Net of interest capitalized at December 31, 2013, 2012 and 2011 for Ps. 24.5 million ,Ps. 25.4 million and Ps. 16.1 million respectively.

 

(4)       Each ADS represents 20 Class B common shares.

 

Consolidated Statement of Financial Position

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

2013

 

2012

 

2011

 

 

 

(Figures in millions)

 

 

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

795.8

 

5,189.3

 

4,344.6

 

3,995.3

Intangible assets

-

 

-

 

845.8

 

793.0

Interest in joint ventures

0.1

 

0.4

 

0.4

 

0.4

Trade receivables

-

 

-

 

2.0

 

45.7

Other receivables

30.6

 

199.4

 

195.0

 

50.3

Total non-current assets

U.S.$ 826.5

 

Ps. 5,389.1

 

Ps. 5,387.8

 

Ps. 4,884.70

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Assets under construction

-

 

-

 

84.5

 

45.5

Inventories

12.9

 

83.9

 

85.0

 

45.3

Trade receivables

123.2

 

803.1

 

889.4

 

534.7

Derivative financial instruments

-

 

-

 

-

 

1.3

Other receivables

80.1

 

522.1

 

127.2

 

76.3

Financial assets at fair value through profit or loss

33.2

 

216.4

 

3.4

 

2.1

Cash and cash equivalents

37.3

 

243.5

 

71.1

 

130.5

Total current assets

U.S.$ 286.6

 

Ps. 1,869.0

 

Ps. 1,260.6

 

Ps. 835.7

Assets of disposal group classified as held for sale

-  

 

-

 

223.4

 

1,291.1

TOTAL ASSETS

U.S.$ 1,113.1

 

Ps. 7,258.1

 

Ps. 6,871.8

 

Ps. 7,011.5

 

 

 

 

 

 

 

 

5

 


 

Table of Contents

 

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital and reserves attributable to the owners

 

 

 

 

 

 

 

Share capital

U.S.$ 137.6

 

Ps. 897.0

 

Ps. 897.0

 

897.0

Adjustment to share capital

61.0

 

397.7

 

397.7

 

986.1

Additional paid-in capital

0.5

 

3.5

 

3.5

 

21.8

Treasury stock

1.4

 

9.4

 

9.4

 

9.4

Adjustment to treasury stock

1.6

 

10.3

 

10.3

 

10.3

Other comprehensive loss

(4.3)

 

(28.3)

 

(14.7)

 

64.0

Retained earnings/Accumulated deficit

(17.4)

 

(113.4)

 

(885.1)

 

(557.3)

Equity attributable to the owners

180.4

 

1,176.2

 

418.1

 

1,431.4

Non-controlling interest

0.0

 

-

 

71.1

 

415.8

TOTAL EQUITY

180.4

 

1,176.2

 

489.2

 

1,847.2

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Trade payables

33.9

 

220.8

 

155.3

 

87.7

Deferred revenue

5.2

 

33.7

 

264.4

 

174.8

Other payables (1)

144.9

 

944.7

 

1,894.8

 

1,373.7

Borrowings

200.9

 

1,309.9

 

1,350.7

 

1,189.9

Salaries and social security taxes payable

4.0

 

26.0

 

17.5

 

23.6

Benefit plans

15.7

 

102.7

 

97.4

 

83.5

Provisions

12.7

 

83.1

 

80.0

 

66.1

Tax liabilities

0.7

 

4.4

 

10.0

 

17.7

Deferred tax liability

11.3

 

73.4

 

230.4

 

348.7

Total non-current liabilities

U.S.$ 429.3

 

Ps. 2,798.7

 

Ps. 4,100.5

 

Ps. 3,365.7

Current liabilities

 

 

 

 

 

 

 

Trade payables

380.5

 

2,481.3

 

1,208.7

 

623.7

Borrowings

6.2

 

40.6

 

103.1

 

59.0

Derivative Financial Instruments

-

 

-

 

-

 

-

Salaries and social security taxes payable

64.5

 

420.9

 

383.6

 

275.8

Benefit plans

-

 

-

 

15.0

 

11.3

Tax liabilities

28.0

 

182.5

 

253.6

 

147.7

Other payables

22.6

 

147.2

 

150.4

 

128.6

Provisions

1.6

 

10.7

 

10.5

 

10.3

Total current liabilities

U.S.$ 503.5

 

Ps. 3,283.1

 

Ps. 2,124.9

 

Ps. 1,256.4

Liabilities of disposal group classified as held for sale

0.0

 

-

 

157.3

 

542.2

TOTAL LIABILITIES

U.S.$ 932.8

 

Ps. 6,081.8

 

Ps. 6,382.7

 

Ps. 5,164.3

TOTAL LIABILITIES AND EQUITY

U.S.$ 1,113.2

 

Ps. 7,258.1

 

Ps. 6,871.9

 

Ps. 7,011.5

 

(1)       Includes the amounts collected through the Program for the Rational Use of Electricity Power (PUREE) (net of the Ps. 1,661.1 million compensated pursuant to Resolution 250/2013 and Note 6852/2013, which as of December 31, 2013, 2012 and 2011 amounted to Ps. 108.6 million, Ps. 1,352  million and Ps. 928.7 million, respectively, included under current and non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA according to Resolution SS.EE. 1037/07.

 

 

 

6

 


 

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Consolidated Cash Flow

2013

 

2013

 

2012

 

2011

     

(Figures in millions)

   

 

             

Profit (Loss) for the year

U.S.$ 118.5

 

Ps. 772.8

 

Ps. (1,013.4)

 

Ps. (291.3)

Adjustments to reconcile net profit (loss) to net cash flows provided by operating activities:

           

 

Depreciation of property, plant and equipment

32.5

 

212.1

 

192.6

 

184.8

Loss on disposals of property, plant and equipment

0.2

 

1.2

 

1.8

 

1.8

Loss on interest in joint ventures

(0.0)

 

(0.0)

 

(0.0)

 

(0.0)

Net Gain from the repurchase of Corporate Notes

(13.6)

 

(88.9)

 

-

 

(6.5)

Accrued interest, net of interest capitalized

30.1

 

196.6

 

182.6

 

95.3

Exchange differences

56.1

 

365.8

 

192.9

 

100.5

Income tax

(6.8)

 

(44.1)

 

(116.7)

 

82.2

Allowance for the impairment of trade and other receivables, net of recovery

5.2

 

33.7

 

54.4

 

13.2

Provision for contingencies

5.5

 

36.0

 

24.8

 

16.6

Adjustment to present value of other receivables

(0.4)

 

(2.4)

 

2.2

 

(1.2)

Changes in fair value of financial assets

(2.5)

 

(16.1)

 

(39.1)

 

(14.8)

Gain for acquisition of societies

-

 

-

 

-

 

(435.0)

Accrual of benefit plans

3.5

 

22.5

 

20.4

 

9.9

Higher costs recognition - Resolution SE 250/13 and Note SE 685/13

(449.8)

 

(2,933.1)

 

-

 

-

Discontinued operations

25.9

 

168.7

 

287.8

 

349.8

Changes in operating assets and liabilities:

           

 

Net increase in trade receivables

(7.4)

 

(48.5)

 

(306.0)

 

(63.6)

Net increase in other receivables

(17.2)

 

(111.9)

 

(15.3)

 

(44.0)

Increase in inventories

(6.5)

 

(42.7)

 

(18.3)

 

(10.5)

Increase in assets under construction

-

 

-

 

-

 

(8.6)

Increase in trade payables

186.0

 

1,212.7

 

207.7

 

195.6

Increase in salaries and social security taxes payable

14.6

 

95.3

 

88.8

 

63.7

Decrease in benefit plans

(1.2)

 

(7.9)

 

(4.0)

 

(2.7)

(Decrease) / Increase in tax liabilities

(6.9)

 

(44.9)

 

43.4

 

(19.2)

(Decrease) / Increase in deferred revenue

(0.1)

 

(0.7)

 

16.9

 

17.5

Increase in other payables

40.2

 

262.1

 

40.9

 

120.2

Net decrease in provisions

(3.9)

 

(25.3)

 

(12.1)

 

(11.0)

Funds obtained from the program for the rational use of electric power (PUREE) (Res SE No. 1037/07)

75.4

 

491.9

 

410.7

 

338.0

Subtotal before Cammesa financing

77.4

 

505.0

 

242.8

 

680.6

Net Increase for funds obtained - Cammesa financing

165.5

 

1,079.2

 

295.7

 

10.1

Net cash flows provided by operating activities

242.9

 

1,584.2

 

538.5

 

690.7

 

2013

 

2013

 

2012

 

2011

Cash flows from investing activities

           

 

Net (payment for) collection of purchase / sale of financial assets at fair value

(14.9)

 

(97.4)

 

37.8

 

443.5

Acquisitions of property, plant and equipment

(159.5)

 

(1,039.9)

 

(537.9)

 

(434.7)

Payment for adquisition of companies

-

 

-

 

-

 

(442.9)

Payment for adquisition of additional non-controlling interests

-

 

-

 

-

 

(6.4)

Loans granted

   

-

 

(0.5)

 

(39.7)

Collection of financial receivables with related companies

0.3

 

2.1

 

142.4

 

90.6

Collection of receivables from sale of subsidiaries - SIESA

   

2.9  

 

-

 

-

Collection for sales of discontinued operations

   

-  

     

126.7

Incorporation of Cash and Cash equivalents in acquired companies

-

 

-

 

-

 

119.0

Discontinued operations

(19.0)

 

(124.2)

 

(232.1)

 

(610.9)

Net cash flows used in investing activities

(192.7)

 

(1,256.6)

 

(590.4)

 

(754.8)

             

 

Cash flow from financing activities

           

 

Loans taken

-

 

-

 

0.8

 

298.2

Payment of principal and interest on loans

(31.1)

 

(202.5)

 

(165.4)

 

(380.4)

Discontinued operations

3.9

 

25.4

 

136.8

 

55.9

Net cash flows used in financing activities

(27.2)

 

(177.1)

 

(27.8)

 

(26.3)

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Net increase / (decrease) in cash and cash equivalents

23.1

 

150.5

 

(79.7)

 

(90.4)

               

Cash and cash equivalents at beginning of year in the statement of financial position …

U.S.$ 10.9

 

Ps. 71.1

 

Ps. 130.5

 

Ps. 246.0

Cash and cash equivalents at beginning of year included in assets of disposal group classified as held for sale

1.7

 

11.2

 

28.3

 

-

Exchange Differences in cash and cash equivalents

1.6

 

10.7

 

3.2

 

3.3

Net increase / (decrease) in cash and cash equivalents

23.1

 

150.5

 

(79.7)

 

(90.5)

Cash and cash equivalents at year end

U.S.$ 37.3

 

Ps. 243.5

 

Ps. 82.3

 

Ps. 158.8

             

 

Cash and cash equivalents at year end in the statement of financial position

37.3

 

243.5

 

71.1

 

130.5

Cash and cash equivalents at year end included in assets of disposal group classified as held for sale

-

 

-

 

11.2

 

28.3

Cash and cash equivalents at year end

U.S.$ 37.3

 

Ps. 243.5

 

Ps. 82.3

 

Ps. 158.8

             

 

             

 

Supplemental cash flows information

           

 

Non-cash operating, investing and financing activities

           

 

 

(0.5)

 

(3.5)

 

(6.4)

 

4.1

 

(254.7)

 

(1,661.1)

 

-

 

-

 

(176.7)

 

(1,152.3)

 

-

 

-

Decrease in Cammesa payable for purchase of electricity (Res SE 250/13 and Note 6852/13)

(51.3)

 

(334.3)

 

-

 

-

Decrease in financial assets at fair value from subsidiary sale

25.3

 

165.1

 

-

 

-

Increase in financial assets at fair value from repurchase of Corporate Notes

3.2

 

21.0

 

(8.0)

 

10.2

Increase of benefit plans from actuarial losses exposed in other comprehensive income

           

-  

Increase of other debts with related companies from Emdersa Holding S.A. shares purchases

8.1

 

52.8

 

-

 

-

Increase of other receivables for collection of corporate notes with related companies

(6.8)

 

(44.6)

 

-

 

-

Net increase of trade receivables from assets of disposal group classified as held for sale

(7.5)

 

(48.9)

 

-

 

-

Acquisition of property, plant and equipment through increased debt FOTAE

             

Acquired Companies

             

Cash and Cash equivalents

-

 

-

 

-

 

119.0

Property, plant and equipment

-

 

-

 

-

 

1,881.4

Inventories

-

 

-

 

-

 

4.3

Trade receivables

-

 

-

 

-

 

255.3

Other receivables

-

 

-

 

-

 

84.6

Trade payables

-

 

-

 

-

 

(257.8)

Borrowings

-

 

-

 

-

 

(450.0)

Deferred tax liability

-

 

-

 

-

 

(78.8)

Other liabilities

-

 

-

 

-

 

(331.0)

Net Assets

-

 

-

 

-

 

1,227.0

Non-controlling interests

-

 

-

 

-

 

(230.0)

Net assets acquired

-

 

-

 

-

 

997.0

Bargain Purchase

-

 

-

 

-

 

435.0

Cash Paid

-

 

-

 

-

 

(562.0)

Cash and cash equivalents in acquired companies

-

 

-

 

-

 

119.0

Net Cash Flow for acquisition of companies

           

(442.9)  

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Year ended December 31,

 

2013

2012

2011

2010

2009

Operating data

         

Energy sales (in GWh):

21,674

20,760

20,098

19,292

18,220

Residential

9,114

8,662

8,139

7,796

7,344

Small Commercial

1,780

1,688

1,601

1,543

1,470

Medium Commercial

1,828

1,717

1,700

1,634

1,565

Industrial

3,458

3,335

3,442

3,378

3,204

Wheeling System(1)

4,374

4,261

4,156

3,891

3,622

Others:

 

Public Lighting

683

668

656

654

644

Shantytowns

417

409

384

377

351

Others (2)

20

20

20

20

20

Customers (in thousands) (3)

2,773

2,726

2,699

2,662

2,605

Energy Losses (%)

13.0%

13.3%

12.6%

12.5%

11.9%

MWh sold per employee

 6,023.9

7,088.0

7,188.1

7,123.9

6,936.1

Customers per employee

771 

931

965

971

978

 

(1) Wheeling system charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.

(2) Represents energy consumed internally by us and our facilities.

(3) We define a customer as one meter. We may supply more than one consumer through a single meter. In particular, because we measure our energy sales to each shantytown collectively using a single meter, each shantytown is counted as a single customer.

 

 

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EXCHANGE RATES

From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank of Argentina (Banco Central de la República Argentina, the “Central Bank”) was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar (the “Convertibility Regime”).  On January 6, 2002, the Argentine Congress enacted the Public Emergency Law No. 25,561 (the “Public Emergency Law”), formally putting an end to the Convertibility Regime  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, 2015.  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, although the government has the power to intervene by buying and selling foreign currency for its own account, a practice in which it engages on a regular basis.

The following table sets forth the annual high, low, average and period-end exchange rates for U.S. Dollars for the periods indicated, expressed in Pesos per U.S. Dollar at the purchasing exchange rate and not adjusted for inflation.  When preparing our financial statements, we utilize the selling exchange rates for U.S. Dollars quoted by the Banco Nación to translate our U.S. Dollar denominated assets and liabilities into Pesos.  The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.

 

Low

High

Average

Period End

 

(Pesos per U.S. Dollar)

Year ended December 31,

 

 

 

 

2009

3.45

3.85

3.73(1)

3.80

2010

3.79

3.99

3.91(1)

3.98

2011

3.97

4.30

4.13(1)

4.30

2012

4.30

4.92

4.55(1)

4.92

2013

4.93

6.52

5.48(1)

6.52

 

 

 

 

 

 

 

 

 

 

 

Month

 

 

 

 

October 2013

5.80(2)

5.91(2)

5.85

5.91

November 2013

5.93(2)

6.14(2)

6.02

6.14

December 2013

6.16(2)

6.52(2)

6.32

6.52

January 2014

6.55(2)

8.02(2)

7.12

8.01

February 2014

7.76(2)

8.01(2)

7.85

7.87

March 2014

7.86(2)

8.01(2)

7.93

8.00

April 2014(3)

8.00(4)

8.00(4)

8.00

8.00

 

 

 

 

 

_____________________

Source: Banco Nación

(1)           Represents the average of the exchange rates on the last day of each month during the period.

(2)           Average of the lowest and highest daily rates in the month

(3)           Represents the corresponding exchange rates from April 1 through April 23, 2014.

(4)           Represents the average of the lowest and highest daily rates from April 1 through April 23, 2014.

 

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RISK FACTORS  

Risks Related to Argentina

Overview

We are a stock corporation (sociedad anónima) incorporated under the laws of the Republic of Argentina and substantially all of our revenues are earned in Argentina and substantially all of our operations, facilities, and customers are located in Argentina.  Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic, regulatory, political and financial conditions prevailing in Argentina, including growth, inflation rates, currency exchange rates, interest rates, and other local, regional and international events and conditions that may affect Argentina in any manner.  For example, slower economic growth or economic recession could lead to a decreased demand for electricity in our concession area or to a decline in the purchasing power of our customers, which, in turn, could lead to a decrease in collection rates from our customers or increased energy losses due to illegal use of our service.  Actions of the Argentine government 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.  For example, during the Argentine economic crisis of  2001, the Argentine government froze electricity distribution margins and caused the pesification of our tariffs, which had a materially adverse effect on our business and financial condition and led us to suspend payments on our financial debt at the time. We cannot assure you that the Argentine government will not adopt other policies that could adversely affect the Argentine economy or our business, financial condition or results of operations. In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations or cause the market value of our ADSs and Class B common shares to decline.

A global financial crisis and unfavorable credit and market conditions may negatively affect our liquidity, customers, business, and results of operations

The effects of a global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina.  The effect of this economic crisis on our customers and on us cannot be predicted.  Weak economic conditions could lead to reduced demand or lower prices for energy, which could have a negative effect on our revenues.  Economic factors such as unemployment, inflation and the availability of credit could also have a material adverse effect on demand for energy and, therefore, on our financial condition and operating results.  The financial and economic situation may also have a negative impact on third parties with whom we do, or may do, business.  In addition, our ability to access credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions (see “Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth”).  For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.

The Argentine economy remains vulnerable and any significant decline could adversely affect our financial condition  

Sustainable economic growth in Argentina is dependent on a variety of factors, including international demand for Argentine exports, the stability and competitiveness of the Argentine Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable rate of inflation.

The Argentine economy remains vulnerable, as reflected by the following economic conditions:

·         GDP growth has declined and employment is beginning to show some signals of weakness;

·         inflation has accelerated recently and threatens to continue at those levels;

·         investment as a percentage of GDP remains too low to sustain the growth rate of recent years;

·         the availability of long-term credit is scarce, while international financing remains limited;

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·         the regulatory environment continues to be uncertain;

·         in the climate created by the above conditions, demand for  foreign currency has grown, generating a capital flight effect to which the Argentine government has responded with regulations and currency exchange and transfer restrictions, and it is widely reported that in other countries where the Peso is traded, the Peso/U.S. Dollar exchange rate differs substantially from the official exchange rate in Argentina; and

·         previous GDP performance has depended to some extent on high commodity prices which, despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine government.

As in the recent past, Argentina’s economy may be adversely affected if political and social pressures inhibit the implementation by the Argentine government of policies designed to control inflation, generate growth and enhance consumer and investor confidence, or if policies implemented by the Argentine government that are designed to achieve these goals are not successful. These events could materially adversely affect our financial condition and results of operations, or cause the market value of our ADSs and our Class B common shares to decline.

We cannot assure you that a decline in economic growth, increased economic instability or the expansion of economic policies and measures taken by the Argentine government to control inflation or address other macroeconomic developments that affect private sector enterprises such as us, all developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs and our Class B common shares.

The impact of inflation in Argentina on our costs could have a material adverse effect on our results of operations

Inflation has, in the past, materially undermined the Argentine economy and the Argentine government’s ability to create conditions that permit growth. In recent years, Argentina has confronted inflationary pressure, evidenced by significantly higher fuel, energy and food prices, among other factors.  According to data published by the Instituto Nacional de Estadística y Censos (National Statistics and Census Institute or “INDEC”), the rate of inflation reached 9.5% in 2011, 10.8% in 2012 and 10.6% in 2013. The Argentine government has implemented programs to control inflation and monitor prices for essential goods and services, including freezing the prices of supermarket products, and price support arrangements agreed between the Argentine government and private sector companies in several industries and markets.

A high inflation environment would undermine Argentina’s foreign competitiveness by diluting the effects of the Argentine Peso devaluation, negatively impact the level of economic activity and employment and undermine confidence in Argentina’s banking system, which could further limit the availability of domestic and international credit to businesses. In turn, a portion of the Argentine debt is adjusted by the Coeficiente de Estabilización de Referencia (Stabilization Coefficient, or “CER”), a currency index, that is strongly related to inflation. Therefore, any significant increase in inflation would cause an increase in the Argentine external debt and consequently in Argentina’s financial obligations, which could exacerbate the stress on the Argentine economy.  A continuing high inflation environment could undermine our results of operations as a result of a delay in our ability to, or our inability to, adjust our tariffs accordingly; it could adversely affect our ability to finance the working capital needs of our businesses on favorable terms; and it could adversely affect our results of operations and cause the market value of our ADSs and Class B common shares to decline.

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 (the “CPI”), which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Since then, the credibility of the CPI, as well as other indexes published by the INDEC has been affected. As a result of the uncertainty relating to the accuracy of INDEC indices, the inflation rate of Argentina and the other rates calculated by INDEC could be higher than as indicated in official reports.

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On November 23, 2010, the Argentine government began consulting with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system.  During the first quarter of 2011, a team from the IMF started working in conjunction with the INDEC to create such an index.  Notwithstanding the foregoing, reports published by the IMF state that its staff also uses alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, and such measures have shown inflation rates that are considerably higher than those issued by the INDEC since 2007.  Consequently, the IMF called on Argentina to adopt remedial measures to address the quality of its official data.  In its meeting held on February 1, 2013, the Executive Board of the IMF found that Argentina’s progress in implementing remedial measures since September 2012 had not been sufficient.  As a result, the IMF issued a declaration of censure against Argentina in connection with the breach of its related obligations to the IMF under the Articles of Agreement and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay.

In order to address the quality of official data, a new price index was put in place on February 13, 2014. The new price index represents the first national indicator to measure changes in prices of final consumption by households. While the previous price index only measured inflation in the urban sprawl of the City of Buenos Aires, the new price index is calculated by measuring prices on goods across the entire urban population of the 24 provinces of Argentina. Pursuant to these calculations, the new consumer price index rose by 10% during the first quarter of 2014. The IMF has declared that it will review later in 2014 Argentina’s reports on progress in revising its inflation and gross domestic product statistics.

Any further required correction or restatement of the INDEC indices could result in a decrease in confidence in Argentina’s economy, which could, in turn, have an adverse effect on our ability to access international capital markets to finance our operations and growth, and which could, in turn, adversely affect our results of operations and financial condition 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. Holdout creditors that declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan. These lawsuits generally assert that Argentina has failed to make timely payments of interest and/or principal on their bonds, and seek judgments for the face value of and/or accrued interest on those bonds.  Judgments have been issued in several proceedings but to date judgment creditors have not succeeded in having those judgments enforced. In at least one case, plaintiffs have asserted that allowing Argentina to make payments under its newly issued bonds and remain in default on its pre-2002 bonds violates the pari passu clause in the original bonds and entitles the plaintiffs to enjoin such payments. The U.S. Court of Appeals for the Second Circuit has ruled in that case that the ranking clause in bonds issued by Argentina prevents Argentina from making such payments unless it makes pro rata payments in respect of defaulted debt that ranks pari passu with the performing bonds.  On August 23, 2013, the United States Second Circuit Court of Appeals ruled in favor of the plaintiffs. On November 18, 2013, the Second Circuit Court of Appeals denied Argentina’s petition for rehearing.

On April 30, 2010, Argentina launched a new debt exchange directed 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 pursuing legal actions against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.

In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Banco Central de la República Argentina ( the Argentine Central Bank, or the “Central Bank”) in an amount equal to approximately U.S. $6.5 billion. Even though preliminary negotiations have taken place close to the date of this annual report, no agreement has been reached in this respect and, as of the date of this annual report, the Argentine government had not yet cancelled such debt. If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or unavailable, which could adversely affect economic growth in Argentina and Argentina’s public finances.

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In addition, foreign shareholders of several Argentine companies have filed claims before the International Centre for Settlement of Investment Disputes (the “ICSID”) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, certain plaintiffs have prevailed against Argentina in such proceedings, including most recently, British Gas whose US$ 185 million award was upheld by the United States Supreme Court. In October 2013, the Argentine government entered into settlement agreements with certain claimants worth U.S.$677 million, to be satisfied with the delivery of newly issued sovereign bonds. Argentina’s past default and its failure to completely restructure 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. An example of this is the Libertad Frigate case, in which a commercial court in Accra, Ghana, granted an order (which has been overturned) to detain an Argentine ship which had entered the Accra port on a routine trip.  In addition, various creditors have organized themselves into associations to engage in lobbying and public relations efforts concerning Argentina’s default on its public indebtedness. Over the years, such groups have unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has adopted such legislation, we can make no assurance that legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect. 

As a result of Argentina’s 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, which could adversely affect our results of operations and financial condition and cause the market value of our ADSs and our Class B common shares to decline.

Fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy, which could, in turn adversely affect our results of operations

The devaluation of the Argentine Peso could have a negative impact on the financial condition of many Argentine businesses, including us.  Such situation could negatively impact the ability of Argentine businesses to honor their foreign currency-denominated debt, lead to very high inflation, significantly reduce real wages, jeopardize the stability of businesses whose success depends on domestic market demand, including public utilities and the financial industry, and adversely affect the Argentine government’s ability to honor its foreign debt obligations. On January 2014, the peso lost approximately 23% of its value with respect to the US Dollar.  If the Argentine Peso devalues further, the negative effects on the Argentine economy could have adverse consequences to our businesses, our results of operations and the market value of our ADSs, including as measured in U.S. Dollars.

On the other hand, a significant appreciation of the Argentine Peso against the U.S. Dollar also presents risks for the Argentine economy, including the possibility of a reduction in exports (as a consequence of the loss of external competitiveness). Any such increase could also have a negative effect on economic growth and employment, reduce the Argentine public sector’s revenues from tax collection in real terms, and have a material adverse effect on our business, our results of operations and the market value of our ADSs as a result of the weakening of the Argentine economy in general. 

 

 

Certain measures that may be taken by the Argentine government may adversely affect the Argentine economy and, as a result, our business and results of operations

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During recent years, the Argentine government has increased its direct intervention in the economy, including through the implementation of expropriation and nationalization measures, price controls and exchange controls. 

In November 2008, the Argentine government enacted Law No. 26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the AFJPs”) (see “The nationalization of Argentina’s private pension funds caused an adverse effect in the Argentine capital markets and increased the Argentine government’s interest in certain stock exchange listed companies, such that the Argentine government became a significant shareholder of such companies”). More recently, beginning in April 2012, the Argentine government provided for the nationalization of YPF S.A. and imposed major changes to the system under which oil companies operate, principally through the enactment of Law No. 26,741 and Decree No. 1277/2012.   In February 2014, the Argentine government and Repsol announced that they had reached agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares. Such compensation totals US$ 5billion, payable by delivery of Argentine sovereign bonds with various maturities. Additionally, on December 19, 2012, the Argentine government issued Decree No. 2552/2012 which, in its article 2, ordered the expropriation of the “Predio Rural de Palermo”. However, on January 4, 2013, the Federal Civil and Commercial Chamber granted an injunction that has temporarily blocked the application of Decree No. 2,552/2012. We cannot assure you that these or other measures that may be adopted by the Argentine government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, etc., will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations and the market value of our shares and ADSs.

Exchange controls and restrictions on capital inflows and outflows may continue to limit the availability of international credit and could threaten the financial system and lead to renewed political and social tensions, adversely affecting the Argentine economy, and, as a result, our business

In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad. After 2002, these restrictions, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad to pay principal and interest on debt obligations, were substantially eased through 2007. Since the last quarter of 2011, however, new regulation made foreign exchange transactions subject to the prior approval of the Argentine tax authorities.  Through a combination of foreign exchange and tax regulations, the Argentine authorities have significantly curtailed access to foreign exchange by individuals and private-sector entities. 

Since 2011, the Argentine government has adopted exchange controls such as requiring an authorization of tax authorities to access the foreign currency exchange market and introduced  measures that have imposed limits on access to the foreign exchange market to retail transactions. It is widely reported that the peso/U.S. Dollar exchange rate in the unofficial market substantially differs from the official foreign exchange rate. See “Exchange Rates” and “Item 10Exchange Controls.”  In addition to the foreign exchange restrictions, in June 2005 the Argentine government adopted various rules and regulations that established new restrictive controls on capital inflows into the country, including a requirement that, for certain funds remitted into Argentina, an amount equal to 30% of the funds must be deposited into an account with a local financial institution as a U.S. Dollar deposit for a one-year period without any accrual of interest, benefit or other use as collateral for any transaction. 

The Argentine government could impose further exchange controls, transfer restrictions or restrictions on the movement of capital and/or take other measures in response to capital flight or a significant depreciation of the Peso, which could limit our ability to access the international capital markets and impair our ability to make interest or principal payments abroad or payments.  Such measures could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth, which, in turn, could adversely affect our business and results of operations and the market value of our shares and ADSs.  In addition, the Argentine government or the Central Bank may reenact certain restrictions on the transfers of funds abroad, impairing our ability to make dividend payments to holders of the ADSs, which may adversely affect the market value of our ADSs.  As of the date of this annual report, however, the transfer of funds abroad to pay dividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting. Notwithstanding the foregoing, as of the date of this annual report, in light of applicable regulations the financial situation of the Company does not permit the payment of dividends.

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The nationalization of Argentina’s private pension funds caused an adverse effect in the Argentine capital markets and increased the Argentine government’s interest in certain stock exchange listed companies, such that the Argentine government became a significant shareholder of such companies

Prior to 2009, a significant portion of the local demand for securities of Argentine companies came from Argentine private pension funds. In response to the global economic crisis, in December 2008, by means of Argentine Law No. 26,425, the Argentine Congress unified the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (the National Social Security Agency, or “ANSES”), eliminating the pension and retirement system previously administered by private managers. In accordance with the new law, private pension managers transferred all of the assets administered by them under the pension and retirement system to the ANSES. With the nationalization of Argentina’s private pension funds, the Argentine government became a significant shareholder in many of the country’s public companies. In April 2011, the Argentine government lifted certain restrictions pursuant to which ANSES was prevented from exercising more than 5% of its voting rights in any stock exchange listed company (regardless of the equity interest held by ANSES in such companies). ANSES has publicly stated that it intends to exercise its voting rights in excess of such 5% limit in order to appoint directors in different stock exchange listed companies in which it holds an interest exceeding 5%. ANSES’s interests may differ from those of other investors and, consequently, those investors may understand that ANSES’s actions might have an adverse effect on such companies. As of the date of this annual report, ANSES owns 26.8% of the capital stock of Edenor.

 

The Argentine government has stated its intention to exert a stronger influence on the operation of stock exchange listed companies. We cannot assure you that these or other similar actions taken by the Argentine government will not have an adverse effect on the Argentine economy and consequently on our financial condition and results of operations.

The Argentine economy could be adversely affected by economic developments in other markets and by more general “contagion” effects

Argentine financial and securities markets are influenced, to varying degrees, by economic and financial conditions in other markets and Argentina’s economy is vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008. For example, the recent challenges faced in 2011 and 2012 by the European Union to stabilize certain of its member economies had international implications affecting the stability of global financial markets, which hindered economies worldwide and negatively affected the Argentine economy, and in turn, our business and results of operations. Although economic conditions can vary from country to country, investors’ perception of the events occurring in other countries have in the past substantially affected, and may continue to substantially affect capital flows to other countries and the value of securities in other countries, including Argentina.  The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.

 

In addition, international investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors, Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have material adverse effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations, and the market value of our ADSs.

Argentina’s economy is vulnerable to external shocks that could be caused by significant economic difficulties of its major regional trading partners

Argentina’s economy is vulnerable to adverse developments affecting its principal trading partners. A significant decline in the economic growth of any of Argentina’s major trading partners, such as Brazil, China or the United States, could have a material adverse impact on Argentina’s balance of trade and adversely affect Argentina’s economic growth. Recent economic slowdowns, especially in Brazil and China, have led to declines in Argentine exports.  Declining demand for Argentine exports, or a decline in the international market prices for those products, could have a material adverse effect on Argentina’s economic growth.

The actions taken by the Argentine government to reduce imports may affect our ability to purchase significant capital goods

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The Argentine government has recently adopted some initiatives designed to limit the import of goods in order to prevent further deterioration of the Argentine balance of trade. The restriction of imports may limit our ability to purchase capital goods that are necessary for our operations, which may, in turn, adversely affect our business, financial condition and results of operations.

 

Recently approved Argentine judicial reforms, as well as challenges thereto, have generated uncertainty with respect to future administrative and judicial proceedings involving the Argentine government

Law No. 26,854, which regulates injunctions in cases in which the Argentine government is a party or has intervened, was promulgated on April 30, 2013 as part of a judicial reform bill approved by the Argentine Congress.  Among the principal changes proposed in the judicial reform bill are a time limitation on injunctions imposed in proceedings brought against the Argentine government and the creation of three new chambers of Casación  (which hear appeals) prior to the intervention of the Supreme Court of Justice of Argentina. In addition, Law No. 26,855, which became effective on May 27, 2013, modified the structure and functions of the Argentine Consejo de la Magistratura (judicial council), which is in charge of appointing judges, of presenting charges against them, and of suspending or deposing them. However, several legal challenges have been brought against these laws, leading to rulings which for the time being have prevented them from entering into full effect.

Although it is not possible to predict the degree to which the reforms, if and when the same become effective, might affect future administrative and/or judicial proceedings, potential future claims by us against the Argentine government could be affected by these new laws.

 

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 of 2001 and 2002, the Argentine government adopted the Public Emergency Law and other regulations, which made a number of material changes to the regulatory framework applicable to the electricity sector.  These changes severely affected electricity generation, distribution and transmission companies and included the freezing of distribution nominal margins, the revocation of adjustment and inflation indexation mechanisms for tariffs, a limitation on the ability of electricity distribution companies to pass on to the consumer increases in costs due to regulatory charges and the introduction of a new price-setting mechanism in the wholesale electricity market (the “WEM”) which had a significant impact on electricity generators and caused substantial price differences within the market.  The Argentine government has continued to intervene in this sector by, for example, granting temporary nominal 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 generation and distribution infrastructure and mandating investments for the construction of new generation plants and the expansion of existing transmission and distribution networks. 

Furthermore, on November 15, 2011, the Secretariat of Energy (“SE”) issued Note 8,752, which provided that any approval by the provincial governments of increases to the electricity tariffs applicable to end-users as of November 1, 2011 will trigger a proportionate decrease in the federal subsidy available to that end-user in connection with the purchase of electricity. Since the issuance of Note 8,752, certain provincial governments have initiated legal proceedings to challenge the jurisdiction of the SE to issue Note 8,752, particularly because of the potential chilling effect that this regulation may have on the ability of the provincial governments to increase electricity tariffs. As of the date of this annual report, at least one unfavorable ruling against the argentine government has been rendered.These proceedings have not been resolved as of the date of this annual report. In addition to the foregoing, several provincial governments have recently enacted new regulations in order to charge electricity end-users amounts corresponding to the cuts in the federal subsidy.

On November 27, 2012, the SE issued Resolution 2016, which approved the seasonal WEM prices – subsidized and not subsidized − for the period from November 2012 through April 2013. The seasonal price format was modified, concluding in a single purchase price without considering any demand nor time segmentation and taking into account the structure of the demand as of October 2012 as the base. Subsequently, in June 2013, the SE adopted Resolution 408/13, which maintains both the single price and the criteria for raising subsidies during the winter season, with a reduction of the single price only for those months and a subsequent reversion of prices in October 2013.  The Argentine government has also announced an analysis of new measures that would change the current regulatory framework of the energy sector. On March 26, 2013, the SE issued Resolution 95, which introduced a new scheme for the remuneration for the electricity generation sector and several modifications to the organization of the WEM, including the suspension of the administration of new contracts, or the renewal of existing contracts, in the term market of the WEM.

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We cannot assure you 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 on the market value of our shares and ADSs 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 and cause the market value of our ADSs and Class B common shares to decline.

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), effectively preventing these companies from obtaining further financing in the domestic or international credit markets and making additional investments. Although the Argentine government has granted temporary and partial relief to some distribution companies, including a limited increase in distribution margins, a temporary cost adjustment mechanism which was not fully implemented and the ability to apply certain additional charges, distribution companies are currently involved in discussions with the regulatory and government authorities on additional, permanent measures needed to adapt the current tariff scheme to the post-crisis situation of this sector.  We cannot assure you that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for us by the economic crisis and its aftermath. Our inability to cover the costs of distribution or to receive an adequate return on our asset base may further adversely affect our financial condition and results of operations..

Electricity demand may be affected by tariff increases, which could lead distribution companies, such as us, to record lower revenues

During the 2001 and 2002 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumers to pay their electricity bills. In the years following the 2001 and 2002 economic crisis electricity demand experienced significant growth, increasing as an estimated average of approximately 4.8% per annum from 2003 through 2013. This increase in electricity demand since 2003, reflects the relative low cost, in real terms, of electricity to consumers due to the freezing of distribution margins, subsidies in the energy purchase price and the elimination of the inflation adjustment provisions in distribution concessions, coupled with the devaluation of the Peso and inflation.  The Executive Branch of the Argentine government granted temporary increases in transmission and distribution margins, and transmission and distribution companies are currently negotiating further increases and adjustments to their tariff schemes with the Argentine government.  Although the increases in electricity transmission and distribution margins, which increased the cost of electricity to residential customers, have not had a significant negative effect on demand, we cannot make any assurances that these increases or any future increases in the relative cost of electricity will not have a material adverse effect on electricity demand or a decline in collections from customers. Further, in November 2011, the Argentine government announced a cut in subsidies (which had no impact on our value added for distribution (“VAD”)) for electricity granted to certain customers that are presumed to be in a position to afford the cost without such subsidies. In this respect, we cannot assure you that these measures or any future measures (including increases on tariffs for residential users) will not lead electricity companies, like us, to record lower revenues and results of operations than currently anticipated, which may, in turn, have a material adverse effect on the market value of our ADSs.

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If we experience continued energy shortages in the face of growing demand for electricity, our ability to deliver electricity to our customers could be adversely affected, which could result in customer claims, material penalties, government intervention and decreased results of operations

In recent years, the condition of the Argentine electricity market has provided little incentive to generators and distributors to further invest in increasing their generation and distribution capacity, respectively, which would require material long-term financial commitments.  As a result, the Argentine electricity market is currently operating at near full capacity and both generators and distributors may not be able to guarantee the supply of electricity to their customers, which could lead to a decline in growth of such companies. During December 2013, an increase in demand for electricity resulted in energy shortages and blackouts in Buenos Aires and other cities around Argentina.  Under Argentine law, distribution companies, such as us, are responsible to their customers for any disruption in the supply of electricity. As a result, we could face customer claims and fines and penalties for service disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages 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 taken a restrictive view of force majeure and 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.  Additionally, disruptions in the supply of electricity could expose us to intervention by the Argentine government, which warned of such possibility during the blackouts of December 2013. Such claims, fines, penalties or government intervention could have a materially adverse effect on our financial condition and results of operations, and cause the market value of our ADSs and Class B common shares to decline.  See also “A potential nationalization or expropriation of 51% of our capital stock, represented by the Class A shares,  may limit the capacity of the Class B common shares to participate in the board of directors.”

Risks Relating to Our Business

Failure or delay to negotiate further improvements to our tariff structure, including increases in our distribution margin, and/or to have our tariffs adjusted to reflect increases in our distribution costs in a timely manner or at all, has affected our capacity to perform our commercial obligations and could also have a material adverse effect on our capacity to perform our financial obligations. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern

Since execution of the agreement entered into with the Argentine government in February 2006 relating to the adjustment and renegotiation of the terms of our concession (the “Adjustment Agreement”) and as required by them, we have been engaged in an Integral Tariff Revision (Revisión Tarifaria Integral, or “RTI”) with the ENRE.. However, the timeline for completing this process and the favorability to us of the final resolution are both uncertain  

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. In addition, we have estimated that the actual distribution costs have been significantly higher than the ones determined with the CMM adjustments that have been requested. Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot assure you that we will receive similar adjustments in the future. As of the date of this annual report we have requested twelve additional increases under the CMM since May 2008, eleven of which have been recognized by ENRE (they have been applied retroactively to amounts owed to us up to September 2013, pursuant to Resolution 250/13 and subsequent Note 6,852/13), but have not been transferred to the tariff structure as of the date of filing of this annual report. Under the terms of the Adjustment Agreement, these twelve increases should have been approved in May and November of each year from 2008 onwards. 

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During the years ended December 31, 2012 and 2011, we recorded a significant decrease in net income and operating income (we recorded operating loss in 2012), and our working capital and liquidity levels were negatively affected, primarily as a result of the delay in obtaining a tariff increase and in having our tariff adjusted to reflect increases in our distribution costs, coupled with a constant increase in operating costs to maintain adequate service levels all of which has affected our capacity to perform our commercial obligations. In this context and in light of the situation that affects the electricity sector, the ENRE issued Resolution 347/12 in November 2012, which establishes the application of fixed and variable charges that have allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up our operating deficit due to the constant increase in operating costs and the estimated salary or third-party costs increases for the year 2014.


                If we are not able to recover all of the incremental costs contemplated by the increase requests pursuant to the CMM and all such future cost increases, and/or if there is a significant lag time between when we incur the incremental costs and when we receive increased revenues, and/or if we are not successful in achieving a satisfactory renegotiation of our tariff structure,  we may be unable to comply with our financial obligations, we may suffer liquidity shortfalls and we may need to restructure our debt to ease our financial condition, any of which, individually or in the aggregate, would have a material adverse effect on our business and results of operations and may cause the value of our ADSs to decline. As a result, there is substantial doubt with respect to the ability of the Company to continue as a going concern.

We have prepared our annual financial statements for the fiscal year ended December 31, 2013 included herein, assuming that we will continue as a going concern. Our independent auditors, PwC, issued a report dated March 7, 2014, on our Consolidated Financial Statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011, which contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. As discussed in Note 1 to our Consolidated Financial Statements, despite the recognition of the CMM retroactive adjustments set in Resolution 250/13 and Note 6852/13, the steady increase in the operating costs necessary to maintain the level of service and the delay in obtaining genuine tariff increases will continue to affect our operating results and have raised substantial doubt with respect to our ability to continue as a going concern.  In this respect, the recognition of the CMM retroactive adjustments is not enough to restore our economic and financial conditions to the level required by a public service concession such as ours.  Management's plans in response to these matters are also described in Note 1. However, our financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 do not include any adjustments or reclassifications that might result from the outcome of this uncertainty. See Item 18—“Financial Statements.”

The goal of the RTI is to achieve a comprehensive revision of our tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our cost base, to provide us with an adequate return on our asset base.  Although we believe the RTI will result in a new tariff structure, we cannot assure you that the RTI will conclude in a timely manner or at all, or that the new tariff structure will effectively cover all of our costs or provide us with an adequate return on our asset base.  Moreover, the RTI could result in the adoption of an entirely new regulatory framework for our business, with additional terms and restrictions on our operations and the imposition of mandatory investments. We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed on our operations. Our inability to obtain tariff adjustments in line with the actual changes in costs could deepen our inability to meet our trade obligations and could also have a material adverse effect on our ability to meet our financial obligations

                Although Resolution 250/13 and Note 6,852/13 recognized the corresponding CMM adjustments retroactively, these have not been sufficient to support the real variation in costs, principally due to salary adjustments and increased operating expenses above the inflation recorded by the INDEC. Our inability to obtain tariff adjustments in line with the actual change in costs has deepened our inability to meet obligations vis-a-vis CAMMESA, our major supplier, and has had a material adverse effect on our ability to meet our financial obligations as a result of a shortage in liquidity, which may result in the need to restructure our debt and may have a material adverse effect on our business and results of operations and could also adversely impact on our financial condition and the market value of the ADSs.

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Our distribution tariffs may be subject to challenges by Argentine consumer and other groups

Our tariffs have been challenged by Argentine consumer associations, such as the action brought again us in December 2009, by an Argentine consumer association (Unión de Usuarios y Consumidores) 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 FederalSala V) overturned the judgment of the lower administrative court. The Unión de Usuarios y Consumidores filed a Federal Extraordinary Appeal (“Recurso Extraordinario Federal”) against such decision, which was granted on March 11, 2011. On October 1, 2013, the Supreme Court of Justice decided to dismiss the Federal Extraordinary Appeal that had been filed. A final judgment in our favor has been rendered.
               
              We cannot make