EX-3 4 exhibit3.htm Unassociated Document
Exhibit 3
 
 


 
EDENOR S.A.


 






CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2012

 
 

 
 
Edenor S.A.
Consolidated Statements of Financial Position
at December 31, 2012, 2011 and January 1, 2011
(Stated in thousands of pesos)
 
   
Note
    12.31.12     12.31.11       01.01.11  
ASSETS
                             
                               
Non-current assets
                             
Property, plant and equipment
    10       4,344,599       3,995,310       3,712,330  
Intangible assets
    11       845,848       793,015        
Interest in joint ventures
    7       422       419       415  
Trade receivables
    15       47,730       45,725       45,531  
Other receivables
    14       70,491       50,263       18,496  
Total non-current assets
            5,309,090       4,884,732       3,776,772  
                                 
Current assets
                               
Assets under construction
    12       84,466       45,504        
Inventories
    16       85,002       45,325       12,407  
Trade receivables
    15       889,383       534,732       421,193  
Derivative financial instruments
    13             1,316        
Financial assets at fair value through profit or loss
    13       3,415       2,132       430,836  
Other receivables
    14       135,578       76,265       40,069  
Cash and cash equivalents
    17       71,108       130,509       246,007  
Total current assets
            1,268,952       835,783       1,150,512  
Assets of disposal groups classified as held for sale
    40       223,398       1,291,078        
TOTAL ASSETS
            6,801,440       7,011,593       4,927,284  
 
 
2

 
 
Edenor S.A.
Consolidated Statements of Financial Position
at December 31, 2012, 2011 and January 1, 2011
 (Stated in thousands of pesos)
 
   
Note
    12.31.12     12.31.11     01.01.11  
EQUITY
                             
Equity attributable to the owners
                             
Share capital
    19       897,043       897,043       897,043  
Adjustment to capital
    19       397,716       986,142       986,142  
Additional paid-in capital
    19       3,452       21,769       18,317  
Treasury stock
    19       9,412       9,412       9,412  
Adjustment to treasury stock
    19       10,347       10,347       10,347  
Legal reserve
    20             64,008       64,008  
Accumulated deficit
    20       (899,789 )     (557,336 )     (241,942 )
Equity attributable to the owners
            418,181       1,431,385       1,743,327  
Non-controlling interests
            71,107       415,801        
TOTAL EQUITY
            489,288       1,847,186       1,743,327  
                                 
LIABILITIES
                               
Non-current liabilities
                               
Trade payables
    21       155,313       87,682       50,984  
Deferred revenues
    23       264,427       174,796        
Other liabilities
    22       1,894,772       1,373,689       984,518  
Borrowings
    24       1,350,700       1,189,882       1,035,113  
Salaries and social security taxes payable
    25       17,460       23,591       19,277  
Benefit plans
    26       97,436       83,503       41,492  
Provisions
    30       80,019       66,144       6,816  
Taxes liabilities
    28       9,971       17,652       8,979  
Deferred tax liability
    27       230,411       348,749       250,279  
Total non-current liabilities
            4,100,509       3,365,688       2,397,458  
                                 
Current liabilities
                               
Trade payables
    21       1,188,532       623,673       377,113  
Borrowings
    24       103,143       59,025       46,855  
Derivative financial instruments
    13                   7,253  
Salaries and social security taxes payable
    25       384,307       275,789       180,432  
Benefit plans
    26       14,968       11,326        
Taxes liabilities
    28       202,546       147,723       111,080  
Other liabilities
    22       150,387       128,634       5,934  
Provisions
    30       10,493       10,344       57,832  
Total current liabilities
            2,054,376       1,256,514       786,499  
Liabilities of disposal groups classified as held for sale
    40       157,267       542,205        
TOTAL LIABILITIES
            6,312,152       5,164,407       3,183,957  
TOTAL LIABILITIES AND EQUITY
            6,801,440       7,011,593       4,927,284  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3

 
 
Edenor S.A.
Consolidated Statements of Comprehensive Loss
for the years ended December 31, 2012 and 2011
 (Stated in thousands of pesos)

   
Note
    12.31.12     12.31.11  
Continuing operations
                     
Revenue from sales
    31       3,725,256       2,805,817  
Revenue from construction
            117,615       87,374  
Electric power purchases
            (2,062,220 )     (1,325,458 )
Cost of construction
            (117,615 )     (87,374 )
Subtotal
            1,663,036       1,480,359  
Transmission and distribution expenses
    32       (1,570,072 )     (1,094,825 )
Gross profit
            92,964       385,534  
                         
Selling expenses
    32       (430,403 )     (310,312 )
Administrative expenses
    32       (296,404 )     (224,316 )
Gain from acquisition of companies
    38             434,959  
Gain from interest in joint ventures
            3       4  
Other operating income
    33       33,336       27,901  
Other operating expense
    33       (112,787 )     (54,880 )
Operating (expense/income)
            (713,291 )     258,890  
                         
Financial income
    34       86,009       55,568  
Financial expenses
    34       (296,848 )     (216,123 )
Other financial results
    34       (166,698 )     (97,214 )
Net financial expense
            (377,537 )     (257,769 )
(Loss) Profit before taxes
            (1,090,828 )     1,121  
Income tax
    27       99,779       (152,971 )
Loss for the year from continuing operations
      (991,049 )     (151,850 )
Loss from discontinued operations
    18       (22,367 )     (139,531 )
Loss for the year
            (1,013,416 )     (291,381 )
                         
Loss for the year attributable to:
                       
Owners of the parent
            (1,016,470 )     (304,057 )
Non-controlling interests
            3,054       12,676  
Loss for the year
            (1,013,416 )     (291,381 )
                         
Loss for the year attributable to owner of the parent:
                       
Continuing operations
            (1,000,621 )     (157,675 )
Discontinued operations
            (15,849 )     (146,382 )
              (1,016,470 )     (304,057 )
 
 
4

 

Edenor S.A.
Consolidated Statements of Comprehensive Loss
for the years ended December 31, 2012 and 2011
(Stated in thousands of pesos)
 
                   
   
Note
    12.31.12     12.31.11  
Other comprehensive loss
                     
Items that will not be reclassified to profit or loss
                     
Actuarial losses on benefit plans
    26       4,701       (13,764 )
Tax effect of actuarial losses on benefit plans
            (1,646 )     4,817  
Total other comprehensive loss from discontinued operations
                  (3,393 )
Total other comprehensive loss
            3,055       (12,340 )
                         
Comprehensive loss for the year attributable to:
                       
Owners of the parent
            (1,013,204 )     (315,394 )
Non-controlling interests
            2,843       11,673  
Comprehensive loss for the year
            (1,010,361 )     (303,721 )
                         
Comprehensive loss for the year attributable to owner of the parent:
                       
Continuing operations
            (997,355 )     (166,393 )
Discontinued operations
            (15,849 )     (149,001 )
              (1,013,204 )     (315,394 )
                         
Basic and diluted loss per share attributable to owner of the parent:
                       
Basic and diluted loss per share – from discontinued operations
    35       (0.02 )     (0.16 )
Basic and diluted loss per share – from continuing operations
    35       (1.12 )     (0.17 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
 
Edenor S.A.
Consolidated Statements of Changes in Equity
for the years ended December 31, 2012 and 2011
(Stated in thousands of pesos)
 
   
Attributable to the owners of the parent at 12.31.12
             
   
Share capital
   
Adjustment to capital
   
Treasury stock
   
Adjustment to treasury stock
   
Additional paid-in capital
   
Legal reserve
   
Other comprehensive income
   
Accumulated deficit
   
Subtotal
   
Non-controlling interests
   
Total equity
 
Balance at January 1, 2011
    897,043       986,142       9,412       10,347       18,317       64,008       (6,588 )     (235,354 )     1,743,327             1,743,327  
Acquisition of companies (Note 38)
                                                            230,040       230,040  
Additional purchase of non-controlling interests (Note 37)
                            3,452                           3,452       (9,861 )     (6,409 )
Variation in non-controlling interests due to acquired companies sale agreements
                                                            183,949       183,949  
                                                                                         
Other comprehensive loss for the year
                                        (11,337 )           (11,337 )     (1,003 )     (12,340 )
(Loss) gain for the year
                                                (304,057 )     (304,057 )     12,676       (291,381 )
Balance at December 31, 2011
    897,043       986,142       9,412       10,347       21,769       64,008       (17,925 )     (539,411 )     1,431,385       415,801       1,847,186  
Subsidiarie´s sale
                                                          (365,499 )     (365,499 )
Cash dividends - Aeseba S.A.
                                                          (5,811 )     (5,811 )
Absorption of accumulated losses - Shareholders' Meeting of  04/27/2012 (Note 41)  (1)
          (588,426 )                 (18,317 )     (64,008 )           670,751                    
Increase of non-controlling interest of discontinued operations (Note 40)
                                                                          23,773       23,773  
Other comprehensive (loss) gain for the year
                                        3,266             3,266       (211 )     3,055  
(Loss) gain for the year
                                                (1,016,470 )     (1,016,470 )     3,054       (1,013,416 )
Balance at December 31, 2012
    897,043       397,716       9,412       10,347       3,452             (14,659 )     (885,130 )     418,181       71,107       489,288  
 
 
(1)   The absorption of accumulated losses was made on the basis of the Financial Statements prepared under previous generally accepted accounting principles (Argentine GAAP), in effect as at December 31, 2011.
 
    The accompanying notes are an integral part of these consolidated financial statements.
 
 
6

 
 
Edenor S.A.
Consolidated Statements of Cash Flows
for the years ended December 31, 2012 and 2011
 (Stated in thousands of pesos)
 
   
Note
    12.31.12     12.31.11  
Cash flows from operating activities
                     
Loss for the year
          (1,013,416 )     (291,381 )
Ajustments to reconcile net loss to net cach flows provided by operating activities
                     
Depreciation of property, plant and equipment
    10       197,871       187,893  
Amortization of intangible assets
    11       24,891       20,093  
Disposals of property, plant and equipment
    33       1,886       1,878  
Loss from retirement of intangible assets
    33       7,962       10,737  
Gain from interest in joint ventures
            (3 )     (4 )
Gain from the purchase of financial debt
    34             (6,546 )
Interest on loans and other liabilities
    34       151,169       109,028  
Exchange differences
    34       194,087       102,822  
Income tax
    27       (99,779 )     152,971  
Allowance for the impairment of trade receivables and
other receivables
    14, 15       18,520       10,808  
Provision for contingencies, net of recovery
            26,442       8,094  
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other trade receivables
    34       (421 )     (1,170 )
Changes in fair value of financial instruments
    34       (39,053 )     (13,296 )
Gain from acquisition of companies
    38             (434,959 )
Benefit plans accrued
    26       31,026       15,647  
Discontinued operations
            246,227       202,348  
Changes in operating assets and liabilities (excluding previous adjustments):
                       
Net increase in trade receivables
            (341,952 )     (136,560 )
Net increase in other receivables
            11,720       (88,337 )
Increase in inventories
            (39,677 )     (32,918 )
Increase in assets under construction
            (38,962 )     (45,504 )
Increase in trade payables
            545,572       25,413  
Increase in salaries and social security taxes payable
            102,388       139,244  
Decrease in benefit plans
            (8,750 )     (15,647 )
Increase in taxes
            49,654       36,461  
Increase in deferred revenue
            89,630       174,796  
Increase in other liabilities
            140,799       203,684  
(Decrease) Increase in provisions
            (12,418 )     3,746  
Income tax paid
            (34,099 )     (24,376 )
Increase for funds obtained from the program for the rational use of electric power (Res SE N° 1037/07)
            410,674       337,990  
Increase for funds obtained from the program for the rational use of electric power (Res MIVSPBA N° 252/07)
            13,127       5,995  
Net cash flows provided by operating activities
            635,115       658,950  
 
 
7

 

Edenor S.A.
Consolidated Statements of Cash Flows
for the years ended December 31, 2012 and 2011
 (Stated in thousands of pesos)
 
                   
   
Note
    12.31.2012     12.31.2011  
Cash flows from investing activities
                     
Decrease from sale of financial assets at fair value
          37,770       442,000  
Additions of property, plant and equipment
          (549,046 )     (443,407 )
Additions of intangible assets
          (85,686 )     (63,366 )
Payment for acquisition of companies
                (442,911 )
Payment for acquisition of additional non-controlling interests
                (6,409 )
Loans granted
          (14,643 )      
Collection of loans proceeds from borrowing
          142,372        
Collection for sale of discontinued operations
          104,610          
Discontinued operations
    18       (200,839 )     (279,940 )
Net cash flows used in investing activities
            (565,462 )     (794,033 )
                         
Cash flows from financing activities
                       
Loans taken
            95,751       298,190  
Repayments of borrowings
            (210,263 )     (380,433 )
Change in non-controlling interest - Dividend Distribution Aeseba
            (5,811 )      
Dividends paid
            (5,588 )      
Discontinued operations
    18       (39,919 )     98,547  
Net cash flows (used in) provided by financing activities
            (165,830 )     16,304  
                         
Net decrease in cash and cash equivalents
            (96,177 )     (118,779 )
                         
Cash and cash equivalents at beginning of year
    17       130,509       246,007  
Gain from exchange differences in cash and cash equivalents
            36,776       3,281  
Changes in cash and cash equivalents
            (96,177 )     (118,779 )
Cash and cash equivalents at end of year
            71,108       130,509  
                         
Cash and cash equivalents in the statements of financial position
    17       71,108       130,509  
Cash and cash equivalents included in assets available for sale
    40       11,154       28,305  
Cash and cash equivalents at end of year
            82,262       158,814  
 
 
8

 
 
Edenor S.A.
Consolidated Statements of Cash Flows
for the years ended December 31, 2012 and 2011
 (Stated in thousands of pesos)
 
   
Note
      12.31.2012       12.31.2011  
Supplemental cash flows information
                     
Investing and financing activities that do not generate cash flow
                     
                       
Financial cost charged to fixed assets
          6,405       4,095  
                       
Changes in assets for disposal classified as held for sale
                     
Increased credit extended related companies
          (41,707 )      
Decrease advance payments received related companies
          (10,406 )      
                       
Acquired companies
                     
Cash and cash equivalents
                119,042  
Property, plant and equipment and intangible assets
                1,881,404  
Inventories
                4,256  
Trade receivables
                255,260  
Other receivables
                84,649  
Trade payables
                (257,770 )
Borrowings
                (450,018 )
Deferred tax liability
                (78,845 )
Other liabilities
                (331,026 )
Net assets
    38             1,226,952  
Non-controlling interests
                  (230,040 )
Net assets acquired
    38             996,912  
Bargain purchase
                  434,959  
Cash paid
    38             (561,953 )
Cash and cash equivalents in acquired companies
                  119,042  
Net cash outflow for acquisition of companies
    38             (442,911 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
9

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
1.
General information

History and development of the Company

Empresa Distribuidora Norte S.A. (EDENOR S.A. or the Company) was organized on July 21, 1992 by Decree No. 714/92 in connection with the privatization and concession process of the distribution and sale of electric power carried out by Servicios Eléctricos del Gran Buenos Aires S.A. (Segba S.A.).

By means of an International Public Bidding, the Federal Government awarded 51% of the Company’s capital stock, represented by the Class "A" shares, to the bid made by Electricidad Argentina S.A. (EASA), the parent company of Edenor S.A. The award as well as the transfer contract were approved on August 24, 1992 by Decree No. 1,507/92 of the Federal Government.

On September 1, 1992, EASA took over the operations of EDENOR S.A.

The corporate purpose of EDENOR S.A. is to engage in the distribution and sale of electricity within the concession area. Furthermore, among other activities, the Company may subscribe or acquire shares of other electricity distribution companies, subject to the approval of the regulatory agency, lease the network to provide electricity transmission or other voice, data and image transmission services, and render advisory, training, maintenance, consulting, and management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by EDENOR S.A. or through subsidiaries or related companies. In addition, the Company may act as trustee of trusts created under Argentine laws, including extending secured credit facilities to service vendors and suppliers acting in the distribution and sale of electricity, who have been granted guarantees by reciprocal guarantee companies owned by the Company.

Edenor S.A. and its indirectly controlled company EDEN, distribute electricity to more than 3.03 million customers in a concession area that is comprised of the northern area of the City of Buenos Aires, the northern and northwestern metropolitan areas of Greater Buenos Aires, and the northern area of the Province of Buenos Aires.
 
The Company’s economic and financial situation

In the years ended December 31, 2012 and 2011, the Company recorded negative operating and net results, with its liquidity level and working capital having been affected as well. This situation is due mainly to both the continuous increase of its operating costs that are necessary to maintain the level of the service, and the delay in obtaining rate increases and higher costs recognition (“CMM”), requested in the presentations made until now by the Company in accordance with the terms of the Adjustment Agreement.

It is worth mentioning that the Company has not only maintained the quality of the distribution service but also satisfied the constant year-on-year increase in the demand for electricity that has accompanied the economic growth of the last years. Due to both the continuous increase recorded in the costs associated with the provision of the service and the need for additional investments to meet the increased demand, the Company has adopted a series of measures aimed at mitigating the negative effects of this situation on its financial structure, such as reducing certain specified costs, selling certain investments, reducing top management personnel’s fees, seeking new financing options, refinancing the financial debt with extended maturity terms and/or deferring the timing for certain estimated capital expenditures; provided that these measures do not affect the sources of employment, the execution of the investment plan or the carrying out of the essential operation and maintenance works that are necessary to maintain the provision of the public service.

In this regard, and among other measures, the Company has (i) entered into an agreement with unions in order to grant interim advances, which were included in salaries as from January 2013, on account of the future salary increases that could finally result from the collective bargaining negotiation and made arrangements with the authorities concerning the funds necessary to face the increases that could result from the new collective bargaining negotiation underway (Note 5.3.c); (ii) made arrangements and obtained for the payment in advance by the Federal Government of amounts relating to the Framework Agreement; (iii) collected the total amount of the loans granted to the subsidiary company EDEN, and mainly (iv) sold its shareholding in connection with EDESA’s assets and collected the totality of the loan granted to such subsidiary company.
 
 
10

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
Furthermore, the Company has made a series of presentations before control and regulatory authorities in order to jointly instrument the necessary mechanisms to contribute to an efficient provision of the distribution service, the maintenance of the level of investments and the compliance with the increased demand. In this context and in light of the situation that affects the electricity sector, the ENRE has issued Resolution 347/12 (see note 2.c.V), which establishes the application of fixed and variable charges that allowed the Company to obtain additional revenue as from November 2012. However, such additional revenue is insufficient to make up the aforementioned deficit due to the constant increase of operating costs and the expectations regarding salary or third-party costs increases for the year 2013.

 In view of the aforementioned, and given the inefficacy of the administrative and judicial actions pursued and presentations made by the Company, on December 28, 2012, an action for the protection of the Company’s rights (“acción de amparo”) was brought against the ENRE so that the Regulatory Authority, in the performance of its duties, could adopt those measures which, in the Company’s opinion, are not only urgently needed but also essential for the provision of the public service of electricity distribution that the Company is required to provide under the concession agreement on a continuous, regular and safe basis. Specifically, this action was brought not only to abate the ENRE’s unlawful omission, as the Application Authority, to adjust the electricity rate schedule in accordance with the variations recorded in costs, as established in the agreement and the law, thus preventing the Company from receiving, in consideration of the service currently provided, sufficient revenues to face the necessary operating costs and the indispensable and imperative investments to provide the service in a continuous, regular, and, mainly, safe manner, but also as a protection against corporate, personal and criminal liability that could eventually arise from the conditions under which the Company is forced to provide the service.
 
With the aim of maintaining and guaranteeing the provision of the public service, and in order to alleviate the financial situation, given the aforementioned cash deficit, as from October 2012 the Company found itself forced to partially cancel, on a temporary basis, the obligations with the Wholesale Electricity Market with surplus cash balances after having complied with the commitments necessary to guarantee the provision of the public service, including the investment plans underway and operation and maintenance works. We consider this situation as a transitional system to be applied until the new regulatory model announced by the National Authorities, aimed at restoring the economic and financial equation of the Concession Agreement, is implemented. In connection with the aforementioned, the Company has been ordered by the ENRE and CAMMESA to cancel such debt. In its reply to the ENRE, the Company rejected the Regulatory Authority’s competence to intervene in its commercial issues with third parties, and, in its reply to CAMMESA, the Company stated that the cash deficit that prevents it from canceling the total amount of the debt is a case of force majeure inasmuch as the Company does not have the possibility of approving its electricity rates, but, at the same time, has to maintain the priority given to the operation of the public service.

Should the conditions existing at the date of these financial statements continue, the Board of Directors believes that the Company’s economic and financial situation will continue to deteriorate and cash flows and operating results for the year 2013, and financial ratios, will be negatively impacted.

Furthermore, and as described in Note 19 to these financial statements, the Company’s loss of capital stock must be dealt with and resolved by its shareholders.

In light of the above mentioned, the Company’s Board of Directors continues analyzing different scenarios and possibilities to mitigate or reduce the negative impact of the Company’s situation on its operating cash flows and thereby present the shareholders with diverse courses of action. Nevertheless, the improvement of revenues so as to balance the economic and financial equation of the concession continues to be the most relevant aspect.
 
 
11

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
The outcome of the overall electricity rate review is uncertain as to both its timing and final form. Therefore, the uncertainties of the previous year continued during the year being reported, thus if in fiscal year 2013: (i) the new electricity rate schedules are not issued by the ENRE; (ii) the Company is not granted other mechanism to compensate cost increases, in addition to the revenue obtained as a result of Resolution 347/12 or the funds derived from the PUREE, and/or; (iii) the Company does not obtain from the Federal Government other mechanism that provides it with financing for cost increases, it is likely that the Company will have insufficient liquidity and will therefore be obliged to implement various measures to preserve cash and enhance its liquidity. Additionally, the Company may not ensure that it will be able to obtain additional financing on acceptable terms.  Therefore, should any of these measures, individually or in the aggregate, not be achieved, there is significant risk that such situation will have a material adverse impact on the Company’s operations. Edenor may need to enter into a renegotiation process with its suppliers and creditors in order to obtain changes in the terms of its obligations to ease the aforementioned financial situation.

Given the fact that the realization of the projected measures to revert the manifested negative trend depends, among other factors, on the occurrence of certain events that are not under the Company’s control, such as the requested electricity rate increases or their replacement by a new remuneration system, the Board of Directors has raised substantial doubt about the ability of the Company to continue as a going concern in the term of the next fiscal year.

 
Nevertheless, these Consolidated Financial Statements have been prepared in accordance with the accounting principles applicable to a going concern, assuming that the Company will continue to operate normally. Therefore, they do not include the effects of the adjustments or reclassifications, if there were any that might result from the outcome of this uncertainty.

2.
Regulatory framework
 
2.1
EDENOR S.A.

a.
General

The Company is subject to the regulatory framework provided under Law No. 24,065 and the regulations issued by the National Regulatory Authority for the Distribution of Electricity (ENRE).

The ENRE is empowered to approve and control tariffs, and control the quality levels of the technical product and service, the commercial service and the compliance with public safety regulations, as established in the Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE will be entitled to apply the penalties stipulated in the Concession Agreement, which may include the foreclosure on the Class “A” shares, which have been pledged as collateral by the majority holders thereof.

The Distribution Company’s obligations are, among others, to make the necessary investments and carry out the necessary maintenance works in order to ensure that the quality levels established for the provision of the service in the concession area will be complied with and that electricity supply and availability will be sufficient to meet the demand in due time, securing the sources of supply.

If the Company repeatedly fails to comply with the obligations assumed in the Concession Agreement, the grantor of the concession will be entitled to foreclose on the collateral granted by the majority shareholders by means of the pledge of the Class A shares and sell them in a Public Bid. This, however, will not affect the continuity of the Holder of the concession. At the date of issuance of these financial statements, there have been no events of non-compliance by the Company that could be regarded as included within the scope of this situation.
 
 
12

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
Furthermore, the Concession Agreement may be rescinded in the event of the Distribution Company undergoing bankruptcy proceedings. Additionally, if the Grantor of the Concession fails to discharge his obligations in such a manner that the Distribution Company is prevented from providing the Service or the Service is severely affected on a permanent basis, the Distribution Company may request, after demanding the regularization of such situation in a term of 90 days, that the agreement be rescinded.

b.
Concession

The term of the concession is 95 years, which may be extended for an additional maximum period of 10 years. The term of the concession is divided into management periods: a first period of 15 years and subsequent periods of 10 years each. At the end of each management period, the Class “A” shares representing 51% of the capital stock of EDENOR S.A., currently held by EASA, must be offered for sale through a public bidding.  If EASA makes the highest bid, it will continue to hold the Class “A” shares, and no further disbursements will be necessary. On the contrary, if EASA is not the highest bidder, then the bidder who makes the highest bid shall pay EASA the amount of the bid in accordance with the conditions of the public bidding.  The proceeds from the sale of the Class “A” shares will be delivered to EASA after deducting any amounts receivable to which the Grantor of the concession may be entitled.

On July 7, 2007 the Official Gazette published Resolution No. 467/07 of the ENRE pursuant to which the first management period is extended for 5 years to commence as from the date on which the Review of the Company Tariff Structure (RTI) goes into effect. Its original maturity would have taken place on August 31, 2007.

In accordance with the provisions of Resolution No. 467/2007 of the ENRE, the commencement of the aforementioned process for the sale of the shares shall take place when the five-year tariff period beginning after the ending of the RTI comes to an end.

The Company has the exclusive right to render electric power distribution and sales services within the concession area to all users who are not authorized to obtain their power supply from the Wholesale Electricity Market (MEM), thus being obliged to supply all the electric power that may be required in due time and in accordance with the established quality levels. In addition, the Company must allow free access to its facilities to any MEM agents whenever required, under the terms of the Concession.

No specific fee must be paid by the Company under the Concession Agreement during the term of the concession.

On January 6, 2002, the Federal Executive Power passed Law No. 25,561 whereby adjustment clauses in US dollars, as well as any other indexation mechanisms stipulated in the contracts entered into by the Federal Government, including those related to public utilities, were declared null and void as from such date. The resulting prices and rates were converted into Argentine pesos at a rate of 1 peso per US dollar.

Furthermore, Law No. 25,561 authorized the Federal Executive Power to renegotiate public utility contracts taking certain criteria into account.

It is worth mentioning that both the declaration of economic emergency and the period to renegotiate public utility contracts were extended through December 31, 2013 by Law No. 26,729.

 
13

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
c.
Edenor’s electricity rate situation

 
I.
Adjustment Agreement entered into between Edenor S.A. and the Federal Government

On September 21, 2005, Edenor S.A. signed an Adjustment Agreement within the framework of the process of renegotiation of the Concession Agreement set forth in Law No. 25,561 and supplementary regulations, which was ratified on February 13, 2006.

The Adjustment Agreement establishes the following:

 
i)
the implementation of a Temporary Tariff Structure (“RTT”) effective as from November 1, 2005, including a 23% average increase in the distribution margin, which may not result in an increase in the average rate of more than 15%, and an additional 5% average increase in the distribution added value, allocated to certain specified capital expenditures;

 
ii)
the requirement that during the term of said temporary tariff structure, dividend payment be subject to the approval of the regulatory authority;

 
iii)
the establishment of a “social tariff” for the needy and the levels of quality of the service to be rendered;

 
iv)
the suspension of the claims and legal actions filed Edenor S.A. and its shareholders in national or foreign courts due to the effects caused by the Economic Emergency Law;

 
v)
the carrying out of a Tariff Structure Review (“RTI”) which will result in a new tariff structure that will go into effect on a gradual basis and remain in effect for the following 5 years. In accordance with the provisions of Law No. 24,065, the ENRE will be in charge of such review;

 
vi)
the implementation of a minimum investment plan in the electric network for an amount of $ 178.8 million to be fulfilled by Edenor S.A. during 2006, plus an additional investment of $ 25.5 million should it be required;

 
vii)
the adjustment of the penalties imposed by the ENRE that are payable to customers as discounts, which were notified by such regulatory agency prior to January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect through the date on which they are effectively paid, using, for such purpose, the average increase recorded in the Company’s distribution costs as a result of the increases and adjustments granted at each date;

 
viii)
the waiver of the penalties imposed by the ENRE that are payable to the National State, which have been notified, or their cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect;

The payment term of the penalties imposed by the ENRE, which are described in paragraph vii above, is 180 days after the approval of the Tariff Structure Review (RTI) in fourteen semiannual installments, which represent approximately two-thirds of the penalties imposed by the ENRE before January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect, subject to compliance with certain requirements.

Said agreement was ratified by the Federal Executive Power through Decree No. 1,957/06, signed by the President of Argentina on December 28, 2006 and published in the Official Gazette on January 8, 2007.  This agreement stipulates the terms and conditions that, upon compliance with the other procedures required by the regulations, will be the fundamental basis of the Comprehensive Renegotiation of the Concession Agreement of the public service of electric power distribution and sale within the federal jurisdiction, between the Federal Executive Power and the Company.
 
 
14

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
Additionally, on February 5, 2007 the Official Gazette published Resolution No. 51/07 of the ENRE which approves the electricity rate schedule resulting from the RTT, applicable to consumption recorded as from February 1, 2007. This document provides for the following:

 
i)
A 23% average increase in distribution costs, service connection costs and service reconnection costs in effect, except for the residential tariffs;

 
ii)
An additional 5% average increase in distribution costs, to be applied to the execution of the works and infrastructure plan detailed in the Adjustment Agreement;

 
iii)
Implementation of the Cost Monitoring Mechanism (“CMM”) contemplated in the Adjustment Agreement, which for the six-month period commenced November 1, 2005 and ended April 30, 2006, shows a percentage of 8.032%. This percentage will be applied to non-residential consumption recorded from May 1, 2006 through January 31, 2007;

 
iv)
Invoicing in 55 equal and consecutive monthly installments of the differences arising from the application of the new electricity rate schedule for non-residential consumption recorded from November 1, 2005 through January 31, 2007 (paragraphs i) and ii) above) and from May 1, 2006 through January 31, 2007 (paragraph iii) above);

 
v)
Invoicing of the differences corresponding to deviations between foreseen physical transactions and those effectively carried out and of other concepts related to the MEM, such as the Specific fee payable for the Expansion of the Network, Transportation and Others;

 
vi)
Presentation, within a period of 45 calendar days from the issuance of this resolution, of an adjusted annual investment plan, in physical and monetary values, in compliance with the requirements of the Adjustment Agreement.

Resolution No. 434/2007 established, among other things, that the obligations and commitments set forth in section 22 of the Adjustment Agreement be extended until the date on which the electricity rate schedule resulting from the RTI goes into effect, allowing Edenor S.A. and its shareholders to resume the legal actions suspended as a consequence of the Adjustment Agreement if the new electricity rate schedule does not go into effect.
 
 
II.
Tariff Structure Review (RTI)

On July 30, 2008, the National Energy Secretariat (“SE”) issued Resolution No. 865/08 which modifies Resolution No. 434/07 and establishes that the electricity rate schedule resulting from the RTI will go into effect in February 2009. At the date of issuance of these financial statements, no resolution has been issued concerning the application of the electricity rate schedule resulting from such process.

With regard to the commencement of the RTI process, the ENRE has begun this process, and Edenor S.A., on November 12, 2009, submitted its revenue requirements proposal for the new period, which included the grounds and criteria based on which the request is made. As from that moment, the Company has made successive and reiterated presentations. In this regard, the Company has filed a Preliminary Administrative Action (“Reclamo Administrativo Previo”) before the Ministry of Federal Planning, Public Investment and Services as well as a petition for the immediate resolution of the subject matter.
 
 
15

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
 
III.
PUREE-CMM (Program for the Rational Use of Electric Power-Cost Monitoring Mechanism)

Resolution No. 1,037/07 of the SE established that the amounts paid by Edenor S.A. as Quarterly Adjustment Coefficient (“CAT”) implemented by section 1 of Law No. 25,957, as well as the amounts corresponding to the Cost Monitoring Mechanism (CMM) for the period May 2006 through April 2007 (see point ii and iii), be deducted from the funds resulting from the difference between surcharges billed and discounts made to customers, resulting from the implementation of the PUREE, until their transfer to the tariff is granted by the regulatory authority. Furthermore, it establishes that the CMM adjustment for the period May 2006 through April 2007, applicable as from May 1, 2007, is 9.63%.

The CMM adjustment for the May - October 2007 period, applicable as from November 1, 2007 was 7.56 % and amounted to $ 45.531 million.

On October 25, 2007, the ENRE issued Resolution No. 710/2007 which approved the aforementioned CMM compensation mechanism.

Additionally, in November 2007 and May 2008, the Company requested additional increases in its distribution margins in accordance with the CMM in order to reflect the variations recorded in its distribution cost base for the periods May-October 2007 and November 2007-April 2008.

In July 2008, the Company obtained an increase of approximately 17.9% in the DAV that could be transferred to tariffs. This increase represented the 9.63% CMM increase for the May 2006-Abril 2007 period, as well as the 7.56% CMM increase for the May–October 2007 period. These CMM increases were transferred to the Company’s tariff structure as from July 1, 2008 and resulted in an average increase of 10% for small and medium-demand commercial customers, industrial customers and large-demand users who buy energy directly from generators, and in an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh, in accordance with a step-up system depending on bimonthly consumption levels. 

Notwithstanding the fact that pursuant to Note No. 81,399 sent to the Energy Secretariat the ENRE confirmed an additional 5.79% increase in accordance with the CMM for the November 2007-April 2008 period, as of to date, the Regulatory Authority has neither approved a new rate system that would include such increase in the Company’s rates nor authorized the Company to collect such increase by other means, for example through an off-setting mechanism against contributions made to the PUREE, as was the case in the past.

Due to the increase recorded in operating and maintenance costs in accordance with the criterion of the polynomial formula contemplated in the Adjustment Agreement, at the date of issuance of these Financial Statements, the Company has submitted to the ENRE the CMM adjustment requests in accordance with the following detail:

Period
Application date
CMM Adjustment
November 2007 - April 2008
May 2008
5.79%
May 2008 – October 2008
November 2008
5.68%
November 2008 - April 2009
May 2009
5.07%
May 2009 – October 2009
November 2009
5.04%
November 2009 – April 2010
May 2010
7.10%
May 2010 – October 2010
November 2010
7.24%
November 2010 – April 2011
May 2011
6.10%
May 2011 – October 2011
November 2011
7.72%
November 2011 – April 2012
May 2012
8.53%
May 2012 – October 2012
November 2012
7.32%
 
 
16

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
At the date of issuance of these financial statements, the aforementioned ratios as well as the real major costs that should be recognized and transferred to the tariff are pending approval by the ENRE. However, the Company has become aware of certain internal administrative proceedings through communications of the Regulatory Entity to the Under-Secretariat of Management Control and Coordination of the Ministry of Federal Planning, Public Investment and Services, according to which the analysis made by them shows percentages similar to those calculated by the Company with regard to CMM ratios. 

Based on this information, the Company has estimated that the claims effectively made for CMM adjustments, which were not transferred to tariffs nor authorized to be collected by other means, amount to approximately $ 1,999 million. In accordance with the Company’s estimate, the amount of the real major costs submitted in the presentations made and not yet authorized to be transferred to electricity rates is significantly higher than that determined after solely considering the CMM adjustments confirmed by the Regulatory Authority. 

For these concepts, and until such time as the CMM adjustments are effectively transferred to tariffs, the distribution company is entitled to use PUREE excess funds, as established in Resolutions 1037/07 and 1383/08 of the Energy Secretariat and ENRE Note 83818. In this regard, and up to date, the Company has neither recognized nor accrued any amount receivable for this concept in these financial statements, until approval is granted by the control authority.

By Resolution 347/12, the ENRE established the application of a fixed and a variable charge associated with power to be included in customer bills, which the distribution company will collect on account of the CMM adjustments stipulated in section 4.2 of the Adjustment Agreement and specifically use for the making of investments and reactive maintenance tasks. Although in the whereas clauses of the Resolution the ENRE recognizes the existence of CMM adjustment requests (incorporar con la terminología usada en la resolución) and states that the authorized charges are on account of CMM adjustments, it says nothing about what provisions will apply concerning the effect thereof for the period elapsed between the date such requests were made and the date of their application to the customer bill.

In this regard, the Company is currently analyzing the steps to be followed in order to obtain economic recognition of the CMM adjustments resulting from this new charge, the company estimates this charge in $ 1,661 million approximately,  until the provisions for the management and quantification thereof are determined by the competent authorities.

At December 31, 2012, and 2011 and January 1, 2011, liabilities generated by the excess funds deriving from the application of the PUREE, amount to $ 1,277.76 million, $ 867.09 million and $ 529.10 million, respectively, and have been disclosed in the Other non-current liabilities account. This increase in liabilities is due to the fact that the Company was allowed to keep such funds (SE Resolutions Nos. 1037/07 and 1383/08 and ENRE Note No 83818  in order to cover the CMM increases not transferred to the tariff.

Furthermore, the necessary steps to regularize the situation are being taken in order to restore the economic and financial equation of the business, in view of the increases recorded in operating costs. At the same time, administrative and judicial actions have been brought aimed at obtaining both CMM recognition and that the Overall Electricity Rate Review stipulated in the Adjustment Agreement, whose performance is pending, be carried out by the ENRE.
 
 
IV.
Electricity rate schedules

The SE issued Resolution No. 1,169/08 which approved the new seasonal reference prices of power and energy in the Wholesale Electricity Market (“MEM”). Consequently, the ENRE issued Resolution No. 628/08 which approved the values of the electricity rate schedule to be applied as from October 1, 2008. The aforementioned electricity rate schedule included the transfer of the increase in the seasonal energy price to tariffs, with the aim of reducing Federal Government grants to the electricity sector, without increasing Edenor’s distribution added value.
 
 
17

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
On June 15, 2012, the National Energy Secretariat established the Seasonal Prices to be paid by the customers served by the agents who provide the public service of electricity distribution of the MEM in order for them to be consistent with the situation existing in winter and compatible with payment capacity of the different social classes comprising the residential customer category of the referred to agents’ electricity rate schedules. For such purpose, the Energy Secretariat issued Resolution No. 255/12 which suspended the application of sections 6, 7, and 8 of SE Resolution No. 1169/08 from June 1, 2012 through September 30, 2012. Furthermore, it established the energy reference prices in the Market, applicable to the June 1-July 31, 2012 and the August 1-September 30, 2012 periods, for the different customer categories. Additionally, it established the application of SE Resolution No. 1301/11, and other complementary regulations and instructions, to all the customers mentioned therein as the parties subject to compliance thereof (section 8 of SE Resolution No. 255/12).

Furthermore, on November 30, 2012, the Company was notified of SE Resolution No. 2016, which approved the MEM Summer Scheduling for the November 1, 2012-April 30, 2013 period, calculated in accordance with the “Scheduling of Operation, Load Dispatch and Price Calculation Procedures”. Additionally, it establishes the application as from November 1, 2012 of the Subsidized Seasonal Reference Prices defined in Appendix I for each Distribution Agent identified therein. It is also established that, as from November 1, 2012, the Un-Subsidized Seasonal Reference Price in the MEM is kept at an annual average value of $320 Mwh for each Distribution Agent mentioned in Appendix II.  It is clearly stated that in the case of Un-Subsidized Seasonal Reference Prices, the values to be transferred to final tariffs will in no case exceed those established in Appendix II.

As in previous years, Resolution No. 1,037/07 of the Energy Secretariat, ratified by Note No. 1,383/08 of that Secretariat, continued to produce effects. The aforementioned resolution modified the earmarking of the funds resulting from the application of the Program for the Rational Use of Electric Power (“PUREE”), being it possible to deduct therefrom a) the amounts paid by the Company as Quarterly Adjustment Coefficient (“CAT”) implemented by Section 1 of Law No. 25,957, to calculate the total value of the National Fund of Electricity (FNEE); and b) the amounts corresponding to the electricity rates adjustments due to the application of the Cost Monitoring Mechanism (“CMM”) established in the Adjustment Agreement, until the transfer to the tariff of either of the aforementioned concepts, as applicable, is recognized.
 
 
V.
Resolution ENRE No. 347/2012

On November 23, 2012, the ENRE issued Resolution 347 pursuant to which distribution companies were authorized, as from the issuance thereof, to include in their bills a fixed amount for small-demand (T1) customers and a variable amount for medium and large-demand (T2 and T3) customers, to be calculated on a percentage of their respective power charges. Such amounts, which will be clearly indicated in the bills sent to customers, will constitute a special account, which will be managed by a Trust, and will be exclusively used for the execution of distribution infrastructure works and corrective maintenance of each distribution company’s facilities.

As established in such Resolution, on November 29, 2012, the Company, in its capacity as Trustor, and Nación Fideicomisos S.A., as Trustee, entered into a private Financial and Management Trust Agreement, whereby the Company, as settlor of the trust, agreed to assign and transfer to the Trustee the fixed amounts set forth by Resolution 347 that are effectively collected, which will constitute the trust assets. Such agreement was ratified and approved by the Company’s Board of Directors on December 11, 2012.

On December 18, 2012, the Company and Nación Fideicomisos S.A., signed the respective Operating Manual, whose purpose is to implement, standardize, and enable the collection and management of the trust assets. On that date, the Company’s Board of Directors approved the Operating Manual and appointed its attorneys-in-fact to represent the Company before Nación Fideicomisos S.A. in issues related to the Trust and the Operating Manual.

The fixed amounts resulting from the application of this resolution represent revenue for the Company, accordingly as mentioned in Note 4.4.a.

Moreover, a plan for the execution of works is agreed by and between the Company and control authorities, based on which, the Company will subsequently request that trust funds be withdrawn in order to apply them to the payment of the aforementioned works. At December 31, 2012, these trust assets have been disclosed in the Other receivables account and amount to $ 3.79 million.
 
 
18

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
d.
Framework agreement

On January 10, 1994, the Company, together with EDESUR S.A., the Federal Government and the Government of the Province of Buenos Aires entered into a Framework Agreement, whose purpose was to establish the guidelines under which the Company is to supply electricity to low-income areas and shantytowns.

On July 22, 2011, the Company, together with EDESUR S.A. and EDELAP S.A., entered into an Addendum with the Federal Government and the Government of the Province of Buenos Aires, for the renewal for a term of four years of the New Framework Agreement that had been signed on October 6, 2003. Such extension was approved on September 21, 2012 by Resolution 248/12 issued by the ENRE and ratified by the Ministry of Federal Planning, Public Investment and Services through Resolution 247.

At December 31, 2012, 2011 and January 1, 2011, receivable balances with the Federal Government and the Government of the Province of Buenos Aires amount to $ 25.4 million, $ 25.7 million and $ 33.05, respectively.

With regard to the amount receivable the Company has with the Province of Buenos Aires, on October 18, 2012 the Company entered into an Agreement for the Settlement of Non-financial Obligations and Subscription of Buenos Aires Province Government Bonds, pursuant to which the Company agreed to receive an amount of 325 in cash and subscribe Series B Bonds for a residual nominal value of $ 6.14 million, as settlement of the debt that at December 31, 2010 such Province had with the Company for the electric power supplied to low-income areas.
 
e.
Penalties

 
i.
General

As the control authority, the ENRE is empowered to control the quality levels of the technical product and service, the commercial service and the compliance with public safety regulations, as established in the Concession Agreement. If the Distribution Company fails to comply with the obligations assumed, the ENRE will be entitled to apply the penalties stipulated in the Concession Agreement.

At December 31, 2012, 2011 and January 1, 2011, the Company has accrued the penalties for resolutions not yet issued by the ENRE relating to the control years elapsed as at those dates. Additionally, the Company has applied the adjustment contemplated in the temporary tariff structure as well as the adjustments established by the electricity rate schedules applied during fiscal year 2008, Resolutions Nos. 324/08 and 628/08.

ENRE Penalties and Discounts included in the Adjustment Agreement are adjusted as stipulated in such agreement, caption c item a-Adjustment Agreement between Edenor S.A. and the Federal Government, whereas the penalties imposed subsequent to the Adjustment Agreement are adjusted as established in each of the resolutions pursuant to which such penalties are imposed.

Furthermore, at December 31, 2012, the Company’s Management has considered that the ENRE has mostly complied with the obligation to suspend lawsuits aimed at collecting penalties, without prejudice to maintaining an open discussion with the entity concerning the effective date of the Adjustment Agreement and, consequently, concerning the penalties included in the renegotiation and those subject to the criteria of the Transition Period.
 
 
19

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
 
ii.
Specific situations

Due to the events occurred between December 20 and December 31, 2010 in Edenor’s concession area, on February 9, 2011, the ENRE issued Resolution No. 32/11 pursuant to which a penalty procedure was initiated due to the Company’s failure to comply with the provisions of Section 25 sub-sections a), f) and g) of the Concession Agreement, Section 27 of Law No. 24,065, and ENRE Resolution No. 905/99.

On February 9, 2011, Edenor S.A. was notified of the issuance of ENRE Resolution No. 32/11, whereby the Company was fined in the amount of $ 1.1 million and ordered to compensate those customers who had been affected by the power cuts for approximately $ 30.04 million. These amounts have been recorded in the Other current liabilities account.

Edenor S.A. filed a Direct Appeal with the Appellate Court in Contentious and Administrative Federal Matters No. I, requesting that the Resolution be declared null and void. Additionally, Edenor S.A. filed –with the same Court– a petition for the granting of a precautionary measure, aimed at suspending the application of the fine imposed until a decision on the direct appeal is issued.  On March 23, 2011, the court ordered the suspension of the penalty (payment of the amounts imposed), until a decision on the precautionary measure petition filed by Edenor S.A. is rendered. Against this decision, the ENRE filed a post-judgment motion for reversal (“Recurso de Reposición”) which was rejected in all its terms. On April 28, 2011, the Court rejected the precautionary measure petition filed. Therefore, Edenor S.A. filed an extraordinary federal appeal (“Recurso Extraordinario Federal”), which –after having been made available to the ENRE- was dismissed. The Company then filed an appeal (“Recurso de Queja por apelación denegada”) with the Supreme Court requesting that the rejected extraordinary federal appeal be sustained, which as of to date has not been resolved. Furthermore, on July 8, 2011, Edenor S.A. requested that notice of the substance of the case be served on the ENRE. Having this procedural step been carried out and the service of notice been answered, the proceedings are “awaiting resolution”.

On November 15, 2012, the Company was notified by the Regulatory Authorities of ENRE Resolution No. 336/2012, pursuant to which the Area in charge of Applying and Managing the ENRE’s Regulations was instructed to immediately initiate the corresponding penalty procedure in order for the distribution companies EDENOR and EDESUR S.A. to: a) determine the customers affected by the power cuts occurred as a consequence of failures between October 29 and November 14, 2012; b) determine the discounts to be recognized to each of them, and; c) credit them on account of the final discounts that will result from the evaluation of the Technical Service Quality relating to the six-month control period.

In addition, it was resolved that the Company and EDESUR S.A. be ordered to compensate each small-demand residential customer (T1R) who had been affected by the power cuts occurred during the aforementioned period. The amount of the compensation will depend on the length of the power cut, provided, however, that such power cut lasted more than 12 continuous hours. The provision recorded by the Company for penalties and compensations amounts to $ 16.7 million.
 
f.
Restriction on the transfer of the Company’s common shares

The by-laws provide that Class “A” shareholders may transfer their shares only with the prior approval of the ENRE. The ENRE must communicate its decision within 90 days upon submission of the request for such approval, otherwise the transfer will be deemed approved.

Furthermore, Caja de Valores S.A. (the Public Register Office), which keeps the Share Register of the shares, is entitled (as stated in the by-laws) to reject such entries which, at its criterion, do not comply with the rules for the transfer of common shares included in (i) the Argentine Business Organizations Law, (ii) the Concession Agreement and (iii) the Company’s by-laws.

In addition, the Class “A” shares will be pledged during the entire term of the concession as collateral to secure the performance of the obligations assumed under the Concession Agreement.
 
 
20

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
Other restrictions:

 
·
In connection with the issuance of Corporate Notes; EASA is required to be the beneficial owner and owner of record of not less than 51% of the Company’s issued, voting and outstanding shares during the term of the Corporate Notes.

 
·
In connection with the Adjustment Agreement signed with the Grantor of the Concession and ratified by Decree No. 1,957/06; Section ten stipulates that from the signing of the agreement through the end of the Contractual Transition Period, the majority shareholders may not modify their ownership interest nor sell their shares.

 
·
In connection with the restructuring of the totality of EASA’s financial debt that ended on July 19, 2006; if EASA did not comply with its payment obligations under the new debt, its creditors could obtain an attachment order against the Company’s Class A shares held by EASA, and, consequently, the Argentine Government would be entitled, as stipulated in the concession agreement, to foreclose on the pledged shares.
 
g.
Concession of the use of real property

Pursuant to the Bid Package, SEGBA granted the Company the free use of real property for periods of 3, 5 and 95 years, with or without a purchase option, based on the characteristics of each asset, and the Company would be responsible for the payment of any taxes, charges and contributions levied on such properties and for the taking out of insurance against fire, property damage and third-party liability, to SEGBA’s satisfaction.

The Company may make all kind of improvements to the properties, including new constructions, upon SEGBA’s prior authorization, which will become the grantor’s property when the concession period is over, and the Company will not be entitled to any compensation whatsoever. SEGBA may terminate the loan for use contract after demanding the performance by the Company of any pending obligation, in certain specified cases contemplated in the Bid Package. At present, as SEGBA’s residual entity has been liquidated, these presentations and controls are made to the National Agency of Public Properties (ONABE), with which the Company entered into a debt recognition and refinancing agreement for $ 4.68 million on September 25, 2009.

The form of payment stipulated in the aforementioned agreement established an advance payment of $ 1,12 million, which the Company made on September 25, 2009, and 48 installments of $ 0.10 million for the remaining balance of $ 3.5 million. The installments include compensatory interest of 18.5% per annum under the French system, and are payable as from October 2009

At December 31, 2012, 2011 and January 1, 2011, the outstanding principal amounts for this concept total $ 0.7 million, $ 1.8 million and $ 2.6 million, respectively, which have been recorded in Trade payables under Other.
 
h.
Stabilization factor

By Note No. 2883 dated May 8, 2012 (reference Resolutions MEyFP No. 693/11 and MPFIPyS No. 1900/2011), the National Energy Secretariat has implemented a mechanism whose objective is to keep the amounts billed to residential customers throughout the year stable, thereby minimizing the effects of the seasonal consumption of electricity.

This methodology applies to all residential customers, regardless of whether or not they receive Government grants on electricity rates, who may opt to adhere to this stabilization system.
 
 
21

 
 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
Average consumption is determined based on the consumption recorded in the last six two-months consumption periods. The stabilization factor arises from the difference between the aforementioned average consumption and the current two-month consumption period. This value will be added to or subtracted from the two-month consumption period charges, and the result obtained will be the amount to be paid before the corresponding taxes. The adjustments that are to be made in accordance with the differences between average consumption and recorded consumption will be reflected in the bill for the last two-month consumption period of each calendar year.

The differences that arise as a consequence of comparing the annual average consumption to the current two-month consumption period will be recorded at the end of each period in the trade receivables balance sheet account, crediting or debiting the account, as the case may be, if the annual average consumption is higher or lower than the current two-month consumption period.
 
2.2
EDEN S.A.

a.
General

Empresa Distribuidora de Energía Norte S.A. is subject to compliance with the electric power sector regulatory framework of the Province of Buenos Aires, in accordance with the provisions of Law No. 11,769/96 (text consolidated by Decree 1868/04 and amendments introduced by Laws Nos. 13,929 and 14068) and its Regulatory Decree No. 2479/04 issued by the Government of the Province of Buenos Aires.

On May 27, 1997, a Provincial Concession Agreement was entered into by and between Empresa Distribuidora de Energía Norte S.A. and the Application Authority of Law 11,769/96, pursuant to which the Company was granted the concession of the public service of electricity distribution and sale within the concession area stipulated therein. This agreement also stipulates the terms and conditions for the provision of such service.
 
b.
Concession

Empresa Distribuidora de Energía Norte S.A. (“EDEN S.A.”) is a company created by the Province of Buenos Aires, which privatized 100% of its capital stock in the framework of Decree No. 106/97 of the Provincial Executive Power.

The aforementioned privatization was carried out through the awarding of the concession of the exclusive right to provide the electricity distribution service for a term of ninety-five years to commence as from the takeover date. The term of the concession is divided into management periods, a first period of fifteen years and subsequent periods of ten years each. The grantor of the concession may extend the term of the concession for a maximum period of ten years.

On June 2, 1997, the Holder of the concession took over the operations of Empresa Distribuidora de Energía Norte S.A.
 
c.
Electricity rate situation

On October 25, 2005, the Ministry of Infrastructure, Housing and Public Services (MIVySP) and EDEN signed a Protocol of Understanding pursuant to which the following was defined: a) a way to recover revenue from the concession by means of economic and financial models that contemplate a basic and objective economic and financial balance; and b) the need to carry out an overall electricity rate review, which was expected to take place in October 2007 but has never been carried out. That Protocol of Understanding was approved by Decree No. 2,862/05 and ratified by the 2006 budget law.
 
 
22

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
In accordance with the application of the revenue adjustment mechanism contemplated in the Protocol of Understanding, electricity rate increases have been granted since 2005, the last requests being those detailed below:

On June 1, 2011, the MIVySP issued Resolution No. 415/2011, which, approving the request for the adjustment of the electricity distribution service costs submitted by EDEN, authorized a 9% increase in EDEN’s average sale rate, to be distributed among final users to consumption recorded as from June 1, 2011.

Additionally, on November 9, 2011, EDEN made a new request to the MIVySP, which is pending approval, requesting an adjustment of rates commensurate with the increases recorded in operating costs (of approximately 17% as compared to the presentation made in December 2010), and the variation in the valuation of the assets made available for the provision of the service at June 2011 (of approximately 21% as compared to the presentation made in December 2010).

On July 20, 2012, the Infrastructure Ministry of the Province of Buenos Aires issued Resolution No. 243/2012, published in the Official Gazette on July 24 of the current year, which established the new electricity rate schedules applicable to the July 1-July 31, 2012 and August 1-September 30, 2012 periods, and from October 1, 2012, thereby restoring electricity rates in the concession area of Eden S.A. These electricity rate schedules were resolved with the aim of covering the increase in prices of the resources necessary to provide the service (labor, supplies and services), which have recorded a significant increase in prices.
 
d.
Fines of the Electric Power Control Authority of the Province of Buenos Aires (“OCEBA”)

EDEN has recorded a provision for OCEBA’s penalties, applying the coefficients informed by the Provincial Energy Administration.

The balance of the provision, which amounts to $ 14.6 million and 10.33 million at December 31, 2012, and 2011 respectively has been disclosed in the Other liabilities account.
 
e.
Obligations and restrictions arising from the privatization

In accordance with the Bidding terms and conditions, EDEN S.A. is required to comply, among others, with the following obligations:

a) Not to transfer the class “A” shares without the prior approval of the Control Authority.

b) To make the necessary investments and carry out the necessary maintenance works in order to guarantee service quality levels.

c) To refrain from granting in favor of third parties any security interest on the assets used in the provision of the public service such as mortgages, pledges or any other lien, without prejudice to EDEN’s right to freely dispose of those assets which in the future may become inadequate or unnecessary for such purpose. This prohibition does not apply in the case of security interests granted by the Holder of the concession over an asset at the time of its acquisition as collateral for the payment of the purchase price.

d) To pay the inspection and control tax to be fixed by the Control Authority.
 
3.
Basis of preparation

This consolidated financial Statements have been prepared in accordance with and in compliance with IFRS as issued by the IASB.
 
 
23

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
As mentioned in Note 4.1 of Exhibit I presented together with the Financial Statements as at June 30, 2012, the Company’s first IFRS financial statements to be prepared are those for the fiscal year ending December 31, 2012. As at December 31, 2011, the accounting standards applicable in Argentina and used in the preparation of the financial statements were the generally accepted accounting principles (Argentine GAAP).

In its financial statements as at December 31, 2011, the Company presented a note concerning the reconciliation between Argentine GAAP and IFRS of (1) the Company’s total equity at the date of transition (January 1, 2011), (2) the final result of operations and cash flows for the year ended December 31, 2011 and (3) total equity at December 31, 2011, indicating the main valuation adjustments between the aforementioned sets of standards.

Nevertheless, the Company decided to present additional information including a detail of each of the accounts comprising the statement of financial position at December 31, 2011 and the income statement for the year then ended under IFRS. Said detailed information was solely presented for information purposes and to show how each equity and income statement account would have been disclosed under IFRS.

Additionally, on May 21, 2012, the Company presented its first Interim Financial Statements as at March 31, 2012 and for the three-month period then ended in accordance with International Accounting Standard (IAS) 34. As required, such Interim Financial Statements included an exhibit with the financial information for the last annual reporting period prepared in accordance with IFRS. That information included not only the valuation aspects previously presented as part of the reconciling information in the Financial Statements of December 2011 but also additional disclosures required under IFRS.

Due to the preparation of the financial statements as of December 31,, 2012 and for the year then ended, and as part of a process aimed at aligning accounts and other operative issues with a view to the issuance of the first annual IFRS financial statements as at December 31, 2012, the Company has made certain changes in the classification of balances at December 31, 2011 previously presented.

The Consolidated Financial Statements are stated in thousands of Argentine pesos, unless specifically indicated otherwise.

These Consolidated Financial Statements were approved for issue by the Company’s Board of Directors on March 8, 2013.
 
4.
Accounting policies

The main accounting policies used in the preparation of these consolidated financial statements are detailed below. These accounting policies have been consistently applied to all the reporting periods, unless indicated otherwise.

4.1
Adoption of International Financial Reporting Standards

4.1.1
Application of IFRS 1

The National Securities Commission (CNV), through Resolutions Nos. 562/09 and 576/10, has established the application of Technical Resolution No. 26 of the Argentine Federation of Professional Councils in Economic Sciences (subsequently amended by Technical Resolution No. 29 of the Argentine Federation of Professional Councils in Economic Sciences), which adopts the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) (hereinafter referred to as “IFRS”), for those entities that make a public offering of their capital stock or corporate notes pursuant to Law No. 17,811, or have requested authorization for their being included in such public offering system.
 
 
24

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
The Company fully adopted the IFRS issued by the International Accounting Standards Board (IASB) as from the fiscal year commenced January 1, 2012.  The adoption of these standards has caused changes in the Company’s accounting policies, which have been recognized in the consolidated financial statements for the year ended December 31, 2012 and in those for interim periods. Furthermore, the presentation of the consolidated financial statements as at December 31, 2011 was adjusted for comparative purposes as a result of IFRS adoption. This recognition and the corresponding adjustments are presented in caption 4.1.2, in accordance with the reconciliation of equity at December 31, 2011 and January 1, 2011 (date of transition to IFRS) and the reconciliation of comprehensive income and cash flows at December 31, 2011.

The Shareholders’ Meeting that considers the consolidated financial statements as at December 31, 2012 will have to make the decision that arises from the application of that mentioned in the preceding paragraphs.
 
a.     Mandatory exceptions provided under IFRS 1

 
i.
The Company has applied the following mandatory exceptions to the retrospective application of IFRS in the preparation of the reconciliations of shareholders’ equity and results of operations included below

 
·
Estimates

Estimates at December 31 and January 1, 2011 under IFRS are consistent with those made under Argentine GAAP.

 
·
Classification and measurement of financial assets

The classification and measurement of financial assets is made in accordance with IFRS 9, which was early adopted by the Company at January 1, 2011. This standard, which provides two categories for measurement purposes: amortized cost and fair value, has been applied by the Company in accordance with the facts and circumstances existing at the date of transition.

 
ii.
The following mandatory exceptions provided by IFRS 1 have not been applied as they are not relevant for the Company:
 
·     Derecognition of financial assets and liabilities
·     Hedge accounting
·     Non-controlling interests
·     Derivative instruments
 
b.     Optional exemptions provided under IFRS 1

Certain optional exemptions from retrospective application of IFRS are permitted under IFRS 1, having the Company applied the following:

 
·
Deemed cost

The cost of property, plant and equipment, adjusted in accordance with Argentine GAAP, has been adopted as deemed cost at the date of transition to IFRS, considering that such cost is similar to amortized cost under IFRS.
 
 
25

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
4.1.2
Reconciliation of consolidated equity at December 31 and January 1, 2011 and of the Statement of Income at December 31, 2011

The following chart shows the reconciliation of the statement of changes in equity in accordance with Argentine GAAP and Equity in accordance with IFRS:
 
      12.31.11     01.01.11  
Equity under Argentine GAAP
      1,314,518       1,749,915  
Loss related to defined benefit plans
(a)
    (29,120 )     (10,136 )
Gain from purchase of companies
(b.i and ii)
    434,959        
Loss from valuation at realizable value of assets available for sale
(c)     (172,838      
Derecognition of transaction costs
(b.iv)
    (4,269 )      
Derecognition of negative goodwill amortization
(b.iii)
    (12,340 )      
Additional acquisition of non-controlling interests
(d)
    3,452        
IFRIC 12 application to service concession agreements
(e)
    (12,1 65 )      
Deferred income tax
(f)
    (97,379 )     3,548  
Non-controlling interests
      6,567        
Edenor's equity under IFRS
      1,431,385       1,743,327  
Non-controlling interests under IFRS
      415,801        
Equity under IFRS
      1,847,186       1,743,327  
 
The following chart shows the reconciliation of the statement of income in accordance with Argentine GAAP and of Comprehensive income in accordance with IFRS:
 
      12.31.2011  
Statement of income under Argentine GAAP
      (435,397 )
Gain from purchase of companies
(b.i and ii)
    434,959  
Loss from valuation at realizable value of assets available for sale
(c)
    (172,838 )
Derecognition of transaction costs
(b.iv)
    (4,269 )
Derecognition of negative goodwill amortization
(b.iii)
    (12,340 )
IFRIC 12 application to service concession agreements
(e)
    (12,165 )
Deferred income tax
(f)
    (107,571 )
Non-controlling interests
      18,240  
Edenor's loss for the year under IFRS
      (291,381 )
Other comprehensive loss
      (11,337 )
Non-controlling interests related to other comprehensive income
      (1,003 )
Comprehensive loss for the year under IFRS
      (303,721 )
 
a.
Benefit plans

In accordance with Argentine GAAP, neither actuarial gains nor losses, nor past service costs pending amortization are recognized by the Company in the financial statements. In accordance with IFRS, and considering that the Company has early adopted the revised IAS 19, the actuarial gains and losses not recognized at the date of transition have been recognized by the Company in comprehensive income, whereas past service costs pending amortization at the date of transition have been recognized in retained earnings/accumulated deficit. The effect in equity is a decrease of $ 29.12 million and $ 10.14 million at December 31 and January 1, 2011, respectively. The effect in comprehensive income for the year ended December 31, 2011 is a loss of $ 18.98 million.
 
 
26

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)

b.
Gain from the purchase of companies

i)
Purchase negotiation

Refers to the gain recognized under IFRS, considering all the adjustments explained below, mainly by derecognizing the negative goodwill of acquired companies, plus some differences resulting from net assets acquired.

ii)
Differences in the accounting basis of purchases

In accordance with Argentine GAAP, the excess of the fair value of the assets acquired and liabilities assumed in a business combination over the purchase price is recognized as negative goodwill and amortized in accordance with the straight-line method over a period equal to the weighted average of the remaining useful life of the assets identified in the acquired company that are subject to depreciation.

In accordance with IFRS, the Company has reassessed the purchase price allocation. In that connection, the following differences between Argentine GAAP and IFRS were identified:

Fair value of net assets acquired – Argentine GAAP
      1,276,236  
Differences from application of IFRIC 12
1)     (54,003 )
Benefit plan liability
2)     (15,250 )
Deferred income tax effect
3)     24,238  
Derecognition of transaction costs
4)     (4,269 )
Fair value of net assets acquired – IFRS
      1,226,952  

 
1)
Differences from application of IFRIC 12

In accordance with Argentine GAAP, the assets used in the framework of service concession agreements of the subsidiary EDEN (indirectly controlled company through AESEBA), whether received at the time of entering into the concession agreements or acquired by the companies during their term of duration, are classified as property, plant and equipment and are depreciated based on the useful life assigned to each specific asset, irrespective of the term of duration of the concession agreements.

In accordance with IFRS, the essential assets used in the framework of service concessions, whether received at the time of entering into the concession agreement or acquired by the companies during their term of duration, are classified as a single asset within intangible assets and are amortized on a straight-line basis throughout the estimated useful life of each of the underlying fixed assets that make up its value, without exceeding the term of the concession.

The assets that are not essential for the rendering of the distribution service are not included within the scope of IFRIC 12; therefore, those assets are carried at cost subsequently depreciated, and included within property, plant and equipment.

The effects of the recognition of IFRIC 12 in the Company’s consolidated financial statements are as follow:

 
·
Reclassification of all the essential assets received by the Concession Agreement, and considered essential to the distribution service, into a separate intangible asset;

 
·
Construction contracts: in accordance with Argentine GAAP, construction of infrastructure funded with customer contributions is recognized as revenue at the time the funds are received. In accordance with IFRS, in particular under the scope of IFRIC 12, such construction must be recognized as revenue from construction deferred on the remaining useful life of the Concession Agreement, considering that the operator has an obligation with the customer for providing the distribution service. Such difference gave rise to a reconciling adjustment at the acquisition date of $ 54 million, decreasing property, plant and equipment and retained earnings/accumulated deficit, and increasing the intangible asset under IFRIC 12  and deferred revenue
 
 
27

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
 
2)
Benefit plan liability

In accordance with Argentine GAAP, unrecognized actuarial losses are disclosed in a note to the financial statements.

In accordance with IFRS, cumulative unrecognized actuarial losses have been recognized at the date of transition (January 1, 2011) in retained earnings/accumulated deficit. Consequently, the Company assumed at the time of acquisition an additional liability relating to the subsidiaries’ defined benefit plans. Such additional liability amounted to $ 15.25 million.

 
3)
Deferred income tax effect

Refers to the effect in the deferred income tax of all the previously mentioned adjustments.

 
4)
Transaction costs

In accordance with Argentine GAAP, transaction costs are part of the consideration paid. The impact of such costs resulted in a decrease of negative goodwill.

iii) Derecognition of negative goodwill amortization

In accordance with Argentine GAAP, in those business combinations in which the acquisition cost was lower than the proportion of the fair value of the incorporated net assets and liabilities, the difference was recognized as negative goodwill and is systematically recognized in profit or loss over a period equal to the weighted average of the remaining useful life of the identifiable assets of the acquired company that are subject to depreciation.

For IFRS application purposes, negative goodwill is derecognized as its recognition is not permitted.

iv) Derecognition of transaction costs
 
In accordance with IFRS, such costs are not part of the consideration paid and are expensed as incurred.

The chart below summarizes the effect of the differences in the consideration paid:
 
Consideration paid – Argentine GAAP
    566,222  
Transaction costs
    (4,269 )
Consideration paid – IFRS
    561,953  
 
c.
Loss from valuation at fair value less costs to sell of assets available for sale

Refers to the additional loss for the sale of subsidiaries as a result of the decrease in the fair value of the net assets acquired at the time of acquisition.  Due to the fact that the fair value less costs to sell was similar under both standards (Argentine GAAP and IFRS), the difference arises from its base of valuation at the time of the acquisition.

In accordance with IFRS, assets held for sale are classified separately within current assets and current liabilities and are valued at the lower of carrying amount and fair value less costs to sell.
 
 
28

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
d.
Additional acquisition of non-controlling interests

Refers to the additional acquisition of non-controlling interests in subsidiaries, which, in accordance with Argentine GAAP, was recorded discounting the negative goodwill by the difference between the fair value of non-controlling interests and the consideration paid. In accordance with IFRS, such difference was recorded as Additional paid-in capital.
 
e.
IFRIC 12 application to concession agreements

EDEN constructs part of its pieces of equipment (essential for the rendering of the distribution service) based on customer contributions under Argentine GAAP such contributions are recorded as revenues upon the payment by the customers.

Under IFRS, the construction of infrastructure with customer contributions is recognized as deferred revenue over the estimated useful life of each of the underlying fixed assets that make up its value, without exceeding the term of the concession.
 
f.
Deferred income tax

At December 31, 2011 and January 1, 2011, this reconciling item relates to the recognition, under IFRS, of the deferred tax effect of all the previously described adjustments.
 
4.1.3
Reconciliation of the statement of cash flows for the year ended December 31, 2011
 
         
ADJUSTMENTS
             
         
ASSOCIATED
   
EFFECTS OF
       
   
ARGENTINE
   
WITH ASSETS
   
TRANSITION
       
   
GAAP
   
AVAILABLE
   
TO IFRS
   
 
 
      (1)    
FOR SALE
      (2)     IFRS  
Net cash flows provided by operating activities
    550,030       (633,056 )     741 ,976       658,950  
                                 
Net cash flows used in investing activities
    (975,216 )     563,991       (382,808 )     (794,033 )
                                 
Net cash flows used in financing activities
    (119,016 )     97,370       37,950       16,304  
                                 
Financial results in cash and cash equivalents
                3,281       3,281  
Cash and cash equivalents at beginning of year
    676,843             (430,836 )     246,007  
Cash and cash equivalents at end of year
    132,641               (2,132 )     130,509  
Net decrease in cash and cash equivalents
    (544,202 )     28,305       425,423       (118,779 )
Cash and cash equivalents included in assets available for sale
          28,305             28,305  
Cash and cash equivalents at end of year
    132,641       28,305       (2,132 )     158,814  
 
 
(1)
Refers to the amounts included in the consolidated financial statements as at December 31, 2011 approved by the Board of Directors with certain reclassifications for IFRS disclosure purposes.

 
(2)
Refers to debt instruments that are not considered as cash and cash equivalents under IFRS.
 
 
29

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)

 
4.2
Changes in the accounting policy under IFRS

 (a) New standards, amendments and interpretations mandatory for financial years beginning January 1, 2012 and adopted by the Company

There have been no new standards, amendments or interpretations whose application is mandatory for financial years beginning January 1, 2012 that could have a material impact on the Group.

(b) New standards, amendments and interpretations not effective and early adopted by the Company

The Company has early adopted the following IFRS or revised IFRS:

 
i.
Revised IAS 1 “Financial statements presentation”: applicable to financial years beginning on or after July 1, 2012.

 
ii.
Revised IAS 19 “Employee benefits”: applicable to financial years beginning on or after January 1, 2013.

 
iii.
Revised IAS 27 “Separate financial statements”: applicable to financial years beginning on or after January 1, 2013.

 
iv.
Revised IAS 28 “Investments in associates and joint ventures”: applicable to financial years beginning on or after January 1, 2013.

 
v.
IFRS 9 “Financial instruments”: applicable to financial years beginning on or after January 1, 2015.

 
vi.
IFRS 10 “Consolidated financial statements”: applicable to financial years beginning on or after January 1, 2013.
 
 
vii.
IFRS 11 “Joint arrangements”: applicable to financial years beginning on or after January 1, 2013.
 
 
viii.
IFRS 12 “Disclosure of interests in other entities”: applicable to financial years beginning on or after January 1, 2013.
 
IAS 1 was amended in June 2011. The amendment improves the consistency and clarifies the presentation of items within other comprehensive income. The main change implies the grouping of items of other comprehensive income into items that might be subsequently reclassified to profit or loss and those that will not be reclassified to profit or loss in subsequent periods.

IAS 19 was amended in June 2011. The main impact on the financial statements is as follows:
 
 
i.
the corridor method is eliminated and all actuarial gains and losses are recognized in other comprehensive income when they occur;
 
 
ii.
all past service costs are immediately recognized in profit or loss;
 
IAS 27 and IAS 28 were amended in May 2011 following the issuance of IFRS 10 and IFRS 11. The revised IAS 27 refers to the accounting for subsidiaries, joint arrangements and associates in the parent’s separate financial statements. Revised IAS 28 refers to the accounting for associates, entities over which significant influence is held and joint ventures.

IFRS 9 was issued in November 2009 and amended in October 2010 and introduces new requirements for the classification, measurement and derecognition of financial assets and liabilities.
 
 
30

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
IFRS 9 requires that all financial assets within the scope of IAS 39 “Financial instruments – Recognition and measurement” be subsequently measured at amortized cost or fair value. Therefore, the investments in debt instruments that are maintained within a business model whose objective is to collect the contractual future cash flows, and these cash flows are solely payments of principal and interest on principal, are measured at amortized cost at year-end. The other investments in debt or equity instruments are measured at fair value at year-end.

The most significant effect of IFRS 9 concerning the classification and measurement of financial liabilities refers to the accounting for changes in the fair value of financial liabilities (designated as financial liabilities at fair value through profit or loss) as a consequence of changes in the credit risk of such liabilities. Therefore, the amount of change in the fair value of financial liabilities as a consequence of changes in the credit risk of that debt is recognized in other comprehensive income, unless such recognition would create an accounting mismatch.

IFRS 10 was issued in May 2011 and determines a single control model for the consolidation of entities of the same economic group, irrespective of the nature of the investee. This control model includes three elements:

 
i.
power over the investee;
 
ii.
exposure or rights to variable returns from its involvement with the investee;
 
iii.
ability to use the power mentioned in i) to affect the investor’s returns.

IFRS 10 replaces the portion of IAS 27 that addresses the manner and opportunity at which the investor must prepare his consolidated financial statements, and fully replaces SIC-12 “Consolidation of special purpose entities”.

IFRS 11 was issued in May 2011. This standard is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and therefore accounts for its share of assets, liabilities, revenue and expenses. Joint ventures arise where the joint venture has rights to the net assets of the arrangement and therefore equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed.

IFRS 12 was issued in May 2011 and applies to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The standard establishes the minimum disclosure objectives that are to be presented to comply with such objectives so as to help users of the financial statements evaluate the nature of and the risks associated with interests in other entities.

(c) New standards, amendments and interpretations not effective and not early adopted by the Company

Neither the Company nor its controlled companies have early adopted the IFRS or revised IFRS detailed below:
 
 
IFRS 13 “Fair value measurement”: applicable to financial years beginning on or after January 1, 2013.

IFRS 13 was issued in May 2011 and determines a single framework for fair value measurements when fair value is required by other standards. This IFRS applies to financial and non-financial elements measured at fair value, where fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Board of Directors has estimated that IFRS 13 will be adopted in the Company’s financial statements for the annual period beginning January 1, 2013.  Although it is not possible to reasonably determine the impact of the potential effect of the aforementioned standard until a detail analysis is made, it is probable that the changes will not significantly affect the information disclosed in the Group’s financial statements.

There are no other standards or interpretations that are not effective in respect of which a significant effect on the Company is expected.
 
 
31

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
4.3
Consolidation

 
a.
Subsidiaries

The consolidated financial statements include the Company’s financial statements as well as those of its subsidiaries.  Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
 
 
b.
Business combinations

Business acquisitions are accounted for by applying the acquisition method. Consideration for the acquisition is measured at fair value, calculating at the acquisition date the aggregate of the fair value of the assets transferred, the liabilities incurred or assumed and the equity instruments issued and delivered by the Company in exchange for control of the business acquired.

The costs associated with the acquisition are expensed when incurred. The identifiable assets acquired and liabilities assumed in the business combination are recognized at their acquisition-date fair value.

The value of goodwill represents the excess amount of the aggregate of the consideration for the acquisition, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the acquiree over the net amount of the identifiable assets acquired and the liabilities assumed, at the acquisition date.

If as a result of the assessment, the net amount of the identifiable assets acquired and the liabilities assumed exceeds the aggregate of the consideration for the acquisition, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the acquiree, such excess amount is immediately recognized in profit or loss as a bargain purchase.

If the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to the acquiree's identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the acquirer shall account for the combination using those provisional values. The acquirer shall recognise any adjustments to those provisional values as a result of completing the initial accounting:

 
a)
within twelve months of the acquisition date; and
 
b)
from the acquisition date.

 
c.
Changes in ownership interest in subsidiaries that do not result in a loss of control

Transactions with non-controlling interests that do not result in a loss of control are accounted for as equity transactions. The difference between the fair value of the consideration paid for the shares acquired and the recorded value of the subsidiary’s net assets is recorded in equity.
 
 
32

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
 
d.
Disposal of subsidiaries

When the Company ceases to have control in a subsidiary, any retained investment is measured at fair value at the date that control is lost, recognizing the change in the recorded value in the statement of comprehensive income. The fair value is the cost on initial recognition of the investment held, being recorded as an associate, joint venture or financial asset, as applicable.

 
e.
Interests in joint ventures

The Company has early adopted the application of IFRS 11 as from January 1, 2011, the main concepts of which are as follow:

 
i.
A joint arrangement takes place among two or more parties when they have joint control: joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

 
ii.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Such parties are called joint ventures.

 
iii.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. These parties are called joint operators.

The Company accounts for its investment in joint ventures in accordance with the equity method. Under this method, the interest is initially recognized at cost and subsequently adjusted by recognizing the Company’s share in the profit or loss obtained by the joint venture, after acquisition date. The Company recognizes in profit or loss its share of the joint venture’s profit or loss and in other comprehensive income its share of the joint venture’s other comprehensive income.

When the Company carries out transactions in the joint ventures, the generated profit and losses are eliminated in accordance with the percentage interest held by the Company in the joint venture.

The accounting policies of joint ventures have been modified, if applicable, to guarantee consistency with the policies adopted by the Company.

4.4
Revenue recognition

 
a.
Revenue from sales

Revenue is measured at the fair value of the consideration collected or to be collected, taking into account the estimated amount of any discount, thus determining the net amounts.

Revenue is recognized when the revenue earning process has been completed, the amount of revenue may be reliably measured and it is probable that the economic benefits associated with the transaction will flow to the Company.

Revenue from the electricity provided by the Company to low-income areas and shantytowns is recognized to the extent that the Framework Agreement has been renewed for the period in which the service was rendered.

Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charge regarding with the Resolution 347/12 (Note 2.c.V).
 
 
33

 
 
EDENOR S.A.
Notes to the Consolidated Financial Statements as at December 31, 2012, 2011 and January 1, 2011
(Continued)
 
The Company also recognizes revenue from other concepts included in distribution services, such as new connections, reconnections, rights of use on poles, transportation of electricity to other distribution companies, etc.

Revenue from CMM (Cost Monitoring Mechanism) amounts are recognized in the accounting to the extent that they have been approved by the ENRE (Note 2).

The aforementioned revenue from operations was recognized when all of the following conditions were met:

 
1.
the entity transferred to the buyer the significant risks and rewards;

 
2.
the amount of revenue was measured reliably;

 
3.
it is probable that the economic benefits associated with the transaction will flow to the entity;