20-F 1 ednform20f_2015.htm FORM 20-F ednform20f_2015.htm - Generated by SEC Publisher for SEC Filing  

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015 Commission File number: 001-33422

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

Distribution and Marketing Company of the North S.A.

Argentine Republic

(Translation of registrant’s name into English)

(Jurisdiction of incorporation or organization)

Avenida Del Libertador 6363

Ciudad de Buenos Aires, C1428ARG

Buenos Aires, Argentina
(Address of principal executive offices)

Leandro Montero

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

Chief Financial Officer

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

Title of each class:

Name of each exchange on which registered

Class B Common Shares

New York Stock Exchange, Inc.*

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

New York Stock Exchange, Inc.

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

__________

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

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

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

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

Yes o No þ

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

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

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

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:  U.S. GAAP o
International Financial Reporting Standards as issued by the International Accounting Standards Board
þ Other o

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

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

 

 

 


 
 

 

  Part I 
Item 1.  Identity of Directors, Senior Management and Advisors  1 
Item 2.  Offer Statistics and Expected Timetable  1 
Item 3.  Key Information  1 
Item 4.  Information on the Company  33 
Item 4A.  Unresolved Staff Comments  63 
Item 5.  Operating and Financial Review and Prospects  63 
Item 6.  Directors, Senior Management and Employees  100 
Item 7.  Major Shareholders and Related Party Transactions  109 
Item 8.  Financial Information  113 
Item 9.  The Offer and Listing  119 
Item 10.  Additional Information  122 
Item 11.  Quantitative and Qualitative Disclosures about Market Risk  140 
Item 12.  Description of Securities Other than Equity Securities  141 
 
Part II 
Item 13.  Defaults, Dividend Arrearages and Delinquencies  142 
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds  142 
Item 15.  Controls and Procedures  142 
Item 16A.  Audit Committee Financial Expert  143 
Item 16B.  Code of Ethics  143 
Item 16C.  Principal Accountant Fees and Services  144 
Item 16D.  Exemptions from the Listing Standards for Audit Committees  144 
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers  144 
Item 16F.  Change in Registrant’s Certifying Accountant  144 
Item 16G.  Corporate Governance  144 
Item 16H.  Mine Safety Disclosures  148 
 
Part III 
Item 17.  Financial Statements  149 
Item 18.  Financial Statements  149 
Item 19.  Exhibits  149 
Index to Financial Statements  152 

 

 


 

 

PART I

Item 1.         Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.         Offer Statistics and Expected Timetable

Not applicable.

Item 3.         Key Information

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

FORWARD‑LOOKING STATEMENTS

This annual report includes forward‑looking statements, principally under the captions “Item 3. Key Information - Risk Factors”, “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”. We have based these forward‑looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business.  Forward‑looking statements may also be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ materially from those expressed or implied in our forward‑looking statements, including, among other things:

·         the outcome and timing of the integral tariff revision process (Revisión Tarifaria Integral or “RTI”) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;

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

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

·         electricity shortages;

·         potential disruption or interruption of our service;

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

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

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

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

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

·         additional matters identified in “Risk factors”.

 

 

 

 

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

SELECTED FINANCIAL DATA

The following tables present our summary financial data for the years ended December 31, 2015, 2014, 2013, 2012 and 2011. This information should be read in conjunction with our audited financial statements as of December 31, 2015 and 2014 and for each of the three years in the period ended December 31, 2015 (the Financial Statements”), the related notes thereto and the information under “Item 5. Operating and Financial Review and Prospects.ˮ included elsewhere in this annual report. The financial data as of December 31, 2015, has been derived from our Financial Statements.

Our Financial Statements have been prepared in accordance with International Financing Reporting Standards (“IFRSˮ), as issued by the International Accounting Standards Board (“IASBˮ), and these have been approved by resolution of the board of directors’ meeting held on March 8, 2016.  See “Item 18—Financial Statements”.

The selected statement of comprehensive (loss) income data for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, and the selected statement of financial position data as of December 31, 2015, 2014, 2013, 2012 and 2011 have been prepared in accordance with IFRS, as issued by the IASB, and have been derived from our financial statements, which were audited by Price Waterhouse & Co. S.R.L. (“PwC”), member firm of PricewaterhouseCoopers network. The financial data as of December 31, 2011, 2012 and 2013 is derived from our audited consolidated financial statements that are not included in this annual report, which were also audited by PwC.

Despite the delay in the implementation of certain provisions of the Adjustment Agreement, particularly in relation to the implementation of the semi-annual rate adjustments resulting from the CMM (as defined below) and the completion of the RTI process, the recent adoption of certain measures, such as Resolution No. 32/15 of the Argentine Secretariat of Energy (the “SE”) and Resolution No. 7/16 of the Ministry of Energy and Mining (the “Ministry of Energy”), has allowed us to not only maintain the quality and safety of our service but also to satisfy the constant year-on-year increase in demand for electricity following Argentina’s relative economic growth in recent years (especially, from 2012 through 2015). Accordingly, we have been able to absorb the higher costs associated with the increased supply of electricity and to carry out investments and essential operation and maintenance-related works as planned.

During 2015, we recorded positive operating and net income reversing the negative economic and financial situation experienced in previous years. Such improvement was achieved mainly as a consequence of the issuance on March 13, 2015 of Resolution No. 32/15 of the SE, which addressed the need for adjustment of the economic and financial situation of distribution companies granting us a temporary increase in income through funds provided by CAMMESA, applicable retroactively as from February 1, 2015, to cover costs and investments associated with the regular provision of the public service of distribution of energy on account of the future RTI.

Notwithstanding the foregoing, as of December 31, 2015, our negative working capital amounted to Ps. 1,811 million, which included debt owed to CAMMESA of Ps. 1,808.6 million plus accrued interest, as described under Note 2.c.IX.e to our Financial Statements, with respect to which we have submitted to CAMMESA a repayment plan in November 2015 based on available and projected cash flows data. As of the date of this annual report, negotiations with CAMMESA continue with respect to a final repayment schedule. On December 16, 2015, the Macri administration issued Decree No. 134/15, which declared the state of emergency with respect to the national electricity system, authoritizing the Ministry of Energy to implement a nation-wide plan of action for the generation, transmission and distribution of electricity and to take actions to guarantee the supply of the electricity under adequate economic and technical conditions.

During January 2016, the Ministry of Energy issued Resolutions No. 6/16 and No. 7/16 implementing a new tariff schedule that improved the income of distribution companies such as us to enable them to make investments, carry out maintenance works and expand their networks during 2016 Pursuant to such resolutions, the Argentine Electricity Agency (Ente Nacional Regulador de la Electricidad, the “ENRE”) implemented a VAD (as defined below) adjustment to the tariff schedule on account of the future RTI, and is expected to take all necessary action to conclude the RTI process by December 31, 2016.

 

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Notwithstanding the foregoing, our board of directors (the “Board of Directors”) continues evaluating the sufficiency of financial resources allocated to pay for operation costs, investment plans and debt service, together with the impact on the different variables that affect our business, such as demand behavior, losses, penalties and service quality, among others. In addition, our Board of Directors will continue to actively participate in the RTI process, which is expected to be concluded by December 31, 2016 in accordance with Section 5 of Resolution No. 7/16 of the Ministry of Energy.

Our Financial Statements are included in this annual report beginning on page F-1.

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

 

In this annual report, except as otherwise specified, references to “$”, “U.S.$” and “Dollars” are to U.S. Dollars, and references to “Ps.” and “Pesos” are to Argentine Pesos.  Solely for the convenience of the reader, Peso amounts as of and for the year ended December 31, 2015 have been translated into U.S. Dollars at the selling exchange rate for U.S. Dollars quoted by Banco de la Nación Argentina (the “Banco Nación”) on December 31, 2015, which was  Ps. 13.04 to U.S.$ 1.00, unless otherwise indicated. The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate. See “Item 3. Key Information—Exchange Rates” and “Item 3.  Key Information—Risk Factors—Risks Relating to Argentina—Fluctuations in the value of the Argentine Peso could adversely affect the Argentine economy, which could, in turn adversely affect our results of operations.”

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

 

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Statement of comprehensive (loss) income *

 

   

2015

 

2015

 

2014

 

2013

 

2012

 

2011

   

US$

 

Ps.

 

Ps.

 

Ps.

 

Ps.

 

Ps.

Continuing operations

                       

Revenue from sales (1)

 

291.6

 

3,802.2

 

3,598.4

 

3,440.7

 

2,976.2

 

2,302.0

Electric power purchases

 

(155.1)

 

(2,022.0)

 

(1,878.1)

 

(2,050.3)

 

(1,740.2)

 

(1,130.9)

Subtotal

 

136.5

 

1,780.2

 

1,720.3

 

1,390.4

 

1,236.0

 

1,171.1

Transmission and distribution expenses

 

(241.8)

 

(3,153.7)

 

(2,825.1)

 

(2,055.3)

 

(1,344.1)

 

(970.5)

(Loss) Gross income

 

(105.3)

 

(1,373.5)

 

(1,104.8)

 

(664.9)

 

(108.1)

 

200.6

   

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

(63.9)

 

(832.8)

 

(657.9)

 

(548.3)

 

(352.9)

 

(261.9)

Administrative expenses

 

(54.1)

 

(706.1)

 

(496.8)

 

(324.8)

 

(249.4)

 

(196.6)

Other operating income

 

6.1

 

79.2

 

52.4

 

61.6

 

32.3

 

22.5

Other operating expense

 

(38.5)

 

(502.5)

 

(318.7)

 

(142.8)

 

(150.3)

 

(93.8)

Gain from acquisition of companies

 

-

 

-

 

-

 

-

 

-

 

435.0

Income from non-reimbursable customer contributions

 

0.1

 

0.8

 

0.8

 

0.7

 

-

 

-

Operating (loss) profit before SE Resolution 250/13 and subsequent Notes

 

(255.7)

 

(3,334.9)

 

(2,525.0)

 

(1,618.5)

 

(828.4)

 

105.8

Income recognition on account of the RTI - SE Resolution 32/15

 

385.4

 

5,025.1

 

-

 

-

 

-

 

-

Higher costs recognition - SE Resolution 250/13 and subsequents Notes

 

42.3

 

551.5

 

2,271.9

 

2,933.1

 

-

 

-

Operating profit (loss)

 

171.9

 

2,241.7

 

(253.1)

 

1,314.6

 

(828.4)

 

105.8

                         

Financial income

 

7.4

 

96.2

 

235.5

 

287.1

 

75.5

 

53.5

Financial expenses (2)

 

(34.5)

 

(450.0)

 

(592.0)

 

(504.9)

 

(226.0)

 

(150.6)

Other financial expense

 

(43.1)

 

(561.7)

 

(324.5)

 

(273.1)

 

(168.1)

 

(93.5)

Net financial (expense) income

 

(70.2)

 

(915.5)

 

(681.0)

 

(490.9)

 

(318.6)

 

(190.6)

Profit (Loss) before taxes

 

101.7

 

1,326.2

 

(934.1)

 

823.7

 

(1,147.0)

 

(84.8)

 

                       

Income tax

 

(14.1)

 

(183.8)

 

154.4

 

44.1

 

116.7

 

(82.2)

Profit (Loss) for the year from continuing operations

 

87.6

 

1,142.4

 

(779.7)

 

867.8

 

(1,030.3)

 

(167.0)

 

                       

Discontinued operations

 

-

 

-

 

-

 

(95.1)

 

16.9

 

(124.4)

Profit (Loss) for the year

 

87.6

 

1,142.4

 

(779.7)

 

772.7

 

(1,013.4)

 

(291.4)

                         

Profit (Loss) for the year attributable to:

                       

Owners of the Company

 

87.6

 

1,142.4

 

(779.7)

 

771.7

 

(1,016.5)

 

(304.1)

Non-controlling interests

 

-

 

-

 

-

 

1.0

 

3.1

 

12.7

Profit (Loss) for the year

 

87.6

 

1,142.4

 

(779.7)

 

772.7

 

(1,013.4)

 

(291.4)

                         

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

                       

Continuing operations

 

87.6

 

1,142.4

 

(779.7)

 

867.9

 

(1,030.3)

 

(167.0)

Discontinued operations

 

-

 

-

 

-

 

(96.2)

 

13.8

 

(137.1)

   

87.6

 

1,142.4

 

(779.7)

 

771.7

 

(1,016.5)

 

(304.1)

 

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Statement of comprehensive (loss) income * (continued)

 

   

2015

 

2015

 

2014

 

2013

 

2012

 

2011

   

US$

 

Ps.

 

Ps.

 

Ps.

 

Ps.

 

Ps.

Other comprehensive income

                       

Items that will not be reclassified to profit or loss

                       

Results related to benefit plans

 

(0.3)

 

(3.7)

 

(17.8)

 

(21.0)

 

7.9

 

(10.2)

Tax effect of actuarial income (losses) on benefit plans

 

0.1

 

1.3

 

6.2

 

7.4

 

(2.8)

 

3.6

Total other comprehensive loss from discontinued operations

 

-

 

-

 

-

 

-

 

(2.1)

 

(5.7)

Total other comprehensive (loss) income

 

(0.2)

 

(2.4)

 

(11.6)

 

(13.6)

 

3.0

 

(12.3)

                         

Comprehensive income for the year attributable to:

                       

Owners of the parent

 

87.4

 

1,140.0

 

(791.3)

 

758.1

 

(1,013.2)

 

(315.4)

Non-controlling interests

 

-

 

-

 

-

 

1.0

 

2.8

 

11.7

Comprehensive income (loss) for the year

 

87.4

 

1,140.0

 

(791.3)

 

759.1

 

(1,010.4)

 

(303.7)

                         

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

                       

Continuing operations

 

87.4

 

1,140.0

 

(791.3)

 

757.1

 

(1,025.1)

 

(173.6)

Discontinued operations

     

-

 

-

 

1.0

 

11.9

 

(141.8)

   

87.4

 

1,140.0

 

(791.3)

 

758.1

 

(1,013.2)

 

(315.4)

                         

Basic and diluted earnings (loss) per share:

                       

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

 

0.10

 

1.27

 

(0.87)

 

0.97

 

(1.15)

 

(0.19)

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

 

-

 

-

 

-

 

(0.11)

 

0.02

 

(0.15)

                         

Basic and diluted earnings (loss) per ADS (3):

                       

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

 

1.95

 

25.40

 

(17.40)

 

19.40

 

(23.00)

 

(3.80)

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

 

-

 

-

 

-

 

(2.20)

 

0.40

 

(3.00)

 

(*)      Certain amounts of the presented financial data for comparative purposes (2014, 2013, 2012 and 2011) have been reclassified (with regard to the financial statements as of such dates) following the disclosure criteria used for the financial statements as of December 31, 2015, mainly due to discontinued operations.

(1)     Revenue from operations is recognized on an accrual basis and derives mainly from electricity distribution. Such revenue includes electricity supplied, whether billed or unbilled, at the end of each year, and has been valued on the basis of applicable tariffs and the charges determined by the Resolution No. 347/12.

(2)     Net of interest capitalized at December 31, 2015, 2014, 2013, 2012 and 2011 for Ps. 255.9, Ps. 123.9 million, Ps. 24.5 million, Ps. 25.4 million and Ps. 16.1 million, respectively.

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

 

 

 

 

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Statement of financial position

 

 

 

2015

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

US$

 

Ps.

 

Ps.

 

Ps.

 

Ps.

 

Ps.

ASSETS

 

 

 

 

 

   

 

 

 

 

 

Non-current assets

 

 

 

 

 

   

 

 

 

 

 

Property, plant and equipment

 

681.4

 

8,885.8

 

6,652.5

 

5,189.3

 

4,344.6

 

3,995.3

Intangible assets

 

-

 

-

 

-

 

-

 

845.8

 

793.0

Interest in joint ventures

 

-

 

0.4

 

0.4

 

0.4

 

0.4

 

0.4

Deferred tax asset

 

3.8

 

50.0

 

87.2

 

-

 

-

 

-

Other receivables

 

11.8

 

153.8

 

249.2

 

199.4

 

195.0

 

50.3

Trade receivables

 

1.8

 

23.6

 

-

 

-

 

2.0

 

45.7

Total non-current assets

 

698.9

 

9,113.6

 

6,989.3

 

5,389.1

 

5,387.8

 

4,884.7

 

 

 

 

 

 

   

 

 

 

 

 

Current assets

 

 

 

 

 

   

 

 

 

 

 

Assets under construction

 

-

 

-

 

-

 

-

 

84.5

 

45.5

Inventories

 

10.3

 

134.9

 

74.0

 

83.9

 

85.0

 

45.3

Other receivables

 

82.8

 

1,079.8

 

250.3

 

522.1

 

127.2

 

76.3

Trade receivables

 

73.8

 

963.0

 

882.9

 

803.1

 

889.4

 

534.7

Financial assets at fair value through profit or loss

 

119.7

 

1,560.4

 

254.4

 

216.4

 

3.4

 

2.1

Derivative financial instruments

 

0.0

 

0.2

 

-

 

-

 

-

 

1.3

Cash and cash equivalents

 

9.9

 

129.0

 

179.1

 

243.5

 

71.1

 

130.5

Total current assets

 

296.6

 

3,867.3

 

1,640.7

 

1,869.0

 

1,260.6

 

835.7

Assets of disposal group classified as held for sale

 

-

 

-

 

-

 

-

 

223.4

 

1,291.1

TOTAL ASSETS

 

995.4

 

12,980.9

 

8,630.0

 

7,258.1

 

6,871.8

 

7,011.5

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

   

 

 

 

 

 

Capital and reserves attributable to the owners

 

 

 

 

 

   

 

 

 

 

 

Share capital

 

68.8

 

897.0

 

897.0

 

897.0

 

897.0

 

897.0

Adjustment to share capital

 

30.5

 

397.7

 

397.7

 

397.7

 

397.7

 

986.1

Additional paid-in capital

 

0.3

 

3.5

 

3.5

 

3.5

 

3.5

 

21.8

Treasury stock

 

0.7

 

9.4

 

9.4

 

9.4

 

9.4

 

9.4

Adjustment to treasury stock

 

0.8

 

10.3

 

10.3

 

10.3

 

10.3

 

10.3

Other comprehensive (loss) income

 

(3.2)

 

(42.3)

 

(39.9)

 

(28.3)

 

(14.6)

 

64.0

Accumulated deficit

 

19.1

 

249.4

 

(893.0)

 

(113.3)

 

(885.1)

 

(557.3)

Equity attributable to the owners

 

116.9

 

1,525.0

 

385.0

 

1,176.3

 

418.2

 

1,431.3

Non-controlling interest

 

-

 

-

 

-

 

-

 

71.1

 

415.9

TOTAL EQUITY

 

116.9

 

1,525.0

 

385.0

 

1,176.3

 

489.3

 

1,847.2

 

 

 

 

 

 

   

 

 

 

 

 

LIABILITIES

 

 

 

 

 

   

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

   

 

 

 

 

 

Trade payables

 

17.3

 

225.0

 

231.1

 

220.8

 

155.3

 

87.7

Other payables (1)

 

183.4

 

2,391.9

 

1,644.6

 

944.7

 

1,894.8

 

1,373.7

Borrowings

 

188.7

 

2,461.0

 

1,598.4

 

1,309.9

 

1,350.7

 

1,189.9

Deferred revenue

 

11.8

 

153.8

 

109.1

 

33.7

 

264.4

 

174.8

Salaries and social security taxes payable

 

6.1

 

80.0

 

62.9

 

26.0

 

17.5

 

23.6

Benefit plans

 

15.7

 

204.4

 

150.4

 

102.7

 

97.4

 

83.5

Deferred tax liability

 

-

 

-

 

-

 

73.4

 

230.4

 

348.7

Tax liabilities

 

0.1

 

1.9

 

3.2

 

4.4

 

10.0

 

17.7

Provisions

 

19.9

 

259.6

 

112.1

 

83.1

 

80.0

 

66.1

Total non-current liabilities

 

443.1

 

5,777.6

 

3,911.8

 

2,798.7

 

4,100.5

 

3,365.7

                         

Current liabilities

 

 

 

 

 

   

 

 

 

 

 

Trade payables

 

343.2

 

4,475.4

 

3,299.6

 

2,481.2

 

1,208.5

 

623.7

Other payables (1)

 

11.6

 

151.7

 

187.1

 

147.2

 

150.4

 

128.6

Borrowings

 

3.7

 

48.8

 

34.0

 

40.6

 

103.1

 

59.0

Derivative financial instruments

 

-

 

-

 

5.9

 

-

 

-

 

-

Deferred revenue

 

0.1

 

0.8

 

0.8

 

-

 

-

 

-

Salaries and social security taxes payable

 

56.2

 

733.1

 

610.6

 

420.9

 

383.6

 

275.8

Benefit plans

 

2.2

 

28.3

 

10.6

 

-

 

15.0

 

11.3

Tax liabilities

 

13.0

 

169.7

 

160.5

 

182.5

 

253.6

 

147.7

Provisions

 

5.4

 

70.5

 

24.1

 

10.7

 

10.5

 

10.3

Total current liabilities

 

435.5

 

5,678.3

 

4,333.2

 

3,283.1

 

2,124.7

 

1,256.4

Liabilities of disposal group classified as held for sale

 

 

 

-

 

-

 

-

 

157.3

 

542.2

TOTAL LIABILITIES

 

878.5

 

11,455.9

 

8,245.0

 

6,081.8

 

6,382.5

 

5,164.3

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

995.4

 

12,980.9

 

8,630.0

 

7,258.1

 

6,871.8

 

7,011.5

 

(1)       Includes the amounts collected through the Program for the Rational Use of Electricity Power (PUREE). As of December, 31, 2014 and 2013 net of Ps. 2,235.1 million and Ps. 1,661.1 million, respectively, compensated pursuant to Resolution No. 250/2013 and Notes 6852/2013, 4012/14, 486/14 and 1136/14, which as of December 31, 2014, 2013, 2012 and 2011 amounted to Ps. 17.5 million, Ps. 108.6 million, Ps. 1,352 million and Ps. 928.7 million, respectively, included under current and non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA according to Resolution No. 1,037/07 of the SE. Since the issuance of Resolution No. 32/15, the PUREE funds are considered part of Edenor´s income on account of the future RTI.

 

 

6


 
Table of Contents
 

 

Statement of Cash flows

 

 

 

2015

 

2015

 

2014

 

2013

 

2012

 

2011

 

 

US$

 

Ps.

 

Ps.

 

Ps.

 

Ps.

 

Ps.

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Profit for the year

 

87.6

 

1,142.4

 

(779.7)

 

772.7

 

(1,013.4)

 

(291.4)

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

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

21.6

 

281.4

 

237.6

 

212.1

 

192.6

 

184.8

Loss on disposals of property, plant and equipment

 

0.3

 

3.5

 

1.0

 

1.2

 

1.8

 

1.8

Net accrued interest

 

25.6

 

333.7

 

341.0

 

196.6

 

182.6

 

95.3

Exchange differences

 

68.6

 

894.8

 

427.9

 

365.8

 

192.9

 

100.5

Income tax

 

14.1

 

183.8

 

(154.4)

 

(44.1)

 

(116.7)

 

82.2

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

 

1.8

 

24.1

 

19.7

 

33.7

 

54.4

 

13.2

Adjustment to present value of receivables

 

(0.4)

 

(5.4)

 

(8.1)

 

(2.4)

 

2.2

 

(1.2)

Provision for contingencies

 

17.4

 

226.4

 

75.4

 

36.0

 

24.8

 

16.6

Other expenses - FOCEDE

 

4.6

 

59.6

 

97.7

 

-

 

-

 

-

Changes in fair value of financial assets

 

(24.8)

 

(323.6)

 

(67.6)

 

(16.1)

 

(39.1)

 

(14.8)

Accrual of benefit plans

 

6.8

 

89.3

 

51.4

 

22.5

 

20.4

 

9.9

Gain from acquisition of companies

 

-

 

-

 

-

 

-

 

-

 

(435.0)

Higher costs recognition - SE Resolution 250/13 and subsequents Notes

 

(42.3)

 

(551.5)

 

(2,271.9)

 

(2,933.1)

 

-

 

-

Income recognition on account of the RTI - SE Resolution 32/15

 

(38.0)

 

(495.5)

 

 

 

 

 

 

 

 

Net gain from the repurchase of Corporate Notes

 

-

 

-

 

(44.4)

 

(88.9)

 

-

 

(6.5)

Income from non-reimbursable customer contributions

 

(0.1)

 

(0.8)

 

 

 

 

 

 

 

 

Discontinued operations

 

-

 

-

 

-

 

168.6

 

287.8

 

349.8

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Increase in trade receivables

 

(3.1)

 

(40.6)

 

(55.3)

 

(48.5)

 

(306.0)

 

(63.6)

Increase in other receivables

 

(26.7)

 

(347.9)

 

(134.7)

 

(111.7)

 

(15.6)

 

(44.0)

Decrease (Increase) in inventories

 

(4.7)

 

(60.9)

 

9.9

 

(42.7)

 

(18.3)

 

(10.5)

Increase in assets under construction

 

-

 

-

 

-

 

-

 

-

 

(8.6)

Increase (Decrease) in deferred revenue

 

3.5

 

45.5

 

76.2

 

(0.7)

 

16.9

 

17.5

(Decrease) Increase in trade payables

 

50.7

 

660.8

 

(528.4)

 

(87.0)

 

207.7

 

195.6

Increase in salaries and social security taxes payable

 

10.7

 

139.7

 

226.7

 

95.3

 

88.8

 

63.7

Decrease in benefit plans

 

(1.6)

 

(21.2)

 

(11.0)

 

(7.9)

 

(4.0)

 

(2.7)

(Decrease) Increase in tax liabilities

 

(10.8)

 

(141.0)

 

(28.7)

 

(44.9)

 

43.4

 

(19.2)

Increase in other payables

 

(4.8)

 

(62.1)

 

162.3

 

262.0

 

40.9

 

120.2

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

 

2.0

 

25.6

 

482.9

 

491.9

 

410.7

 

338.0

Net decrease in provisions

 

(2.5)

 

(32.6)

 

(33.0)

 

(25.3)

 

(12.1)

 

(11.0)

Subtotal before variations of debts with Cammesa

 

155.5

 

2,027.5

 

(1,907.5)

 

(794.9)

 

242.7

 

680.5

Increase in account payable and mutuum with Cammesa

 

91.2

 

1,189.5

 

3,455.5

 

2,231.5

 

295.7

 

10.1

Net cash flows provided by operating activities

 

246.7

 

3,217.0

 

1,548.0

 

1,436.6

 

538.4

 

690.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Payment of property, plants and equipments

 

(160.7)

 

(2,095.5)

 

(1,400.1)

 

(892.4)

 

(537.9)

 

(434.7)

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

 

(77.6)

 

(1,012.1)

 

(64.6)

 

(97.4)

 

37.8

 

443.5

Payment for adquisition of companies

 

-

 

-

 

-

 

-

 

-

 

(442.9)

Payment for adquisition of additional non-controlling interests

 

-

 

-

 

-

 

-

 

-

 

(6.4)

Loans granted

 

-

 

-

 

-

 

-

 

(0.5)

 

(39.7)

Collection of financial receivables with related companies

 

-

 

-

 

-

 

2.1

 

142.4

 

90.6

Collection for sales of discontinued operations

 

-

 

-

 

-

 

-

 

-

 

126.7

Incorporation of Cash and Cash equivalents in acquired companies

 

-

 

-

 

-

 

-

 

-

 

119.0

Collection of receivables from sale of subsidiaries - SIESA

0.3

 

4.3

 

3.0

 

2.9

 

-

 

-

Discontinued operations

 

-

 

-

 

-

 

(124.2)

 

(232.1)

 

(610.9)

Net cash flows used in investing activities

 

(238.0)

 

(3,103.3)

 

(1,461.7)

 

(1,109.0)

 

(590.3)

 

(754.8)

 

 

7


 
Table of Contents
 

 

Statement of  Cash flows (continued)

 

   

2015

 

2015

 

2014

 

2013

 

2012

 

2011

   

US$

 

Ps.

 

Ps.

 

Ps.

 

Ps.

 

Ps.

Cash flows from financing activities

                       

Loans taken

 

-

 

-

 

-

 

-

 

0.8

 

298.2

Repayment of principal on loans

 

-

 

-

 

(0.4)

 

(25.5)

 

(36.5)

 

(252.5)

Payment of interest on loans

 

(13.3)

 

(172.9)

 

(155.3)

 

(177.0)

 

(128.9)

 

(127.9)

Discontinued operations

 

-

 

-

 

-

 

25.4

 

136.8

 

55.9

Net cash flows used in financing activities

 

(13.3)

 

(172.9)

 

(155.7)

 

(177.1)

 

(27.8)

 

(26.3)

                         

Net (decrease) / increase in cash and cash equivalents

 

(4.5)

 

(59.2)

 

(69.5)

 

150.5

 

(79.7)

 

(90.4)

                         

Cash and cash equivalents at beginning of year

 

13.7

 

179.1

 

243.5

 

71.1

 

130.5

 

246.0

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

 

-

 

-

 

-

 

11.2

 

28.3

 

-

Exchange differences in cash and cash equivalents

 

0.7

 

9.1

 

5.1

 

10.7

 

3.2

 

3.3

Net (decrease) increase in cash and cash equivalents

 

(4.5)

 

(59.2)

 

(69.5)

 

150.5

 

(79.7)

 

(90.4)

Cash and cash equivalents at the end of year

 

9.9

 

129.0

 

179.1

 

243.5

 

82.3

 

158.8

                         
                         

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

 

9.9

 

129.0

 

179.1

 

243.5

 

71.1

 

130.5

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

 

-

 

-

 

-

 

-

 

11.2

 

28.3

Cash and cash equivalents at the end of the year

 

9.9

 

129.0

 

179.1

 

243.5

 

82.3

 

158.8

                       

-

                         

Supplemental cash flows information

                       

Non-cash operating, investing and financing activities

                       
                       

-

Financial costs capitalized in property, plant and equipment

(19.6)

 

(255.9)

 

(123.9)

 

(24.5)

 

(6.4)

 

4.1

                       

-

Acquisitions of property, plant and equipment through increased trade payables

 

(12.8)

 

(166.8)

 

(144.8)

 

(126.4)

 

-

 

-

                       

-

Decrease from offsetting of PUREE-related liability against receivables (SE Resolution 250/13 and SE Notes 6852/13 and 4012/14)

 

0.8

 

10.6

 

(574.0)

 

(1,661.1)

 

-

 

-

                         

Decrease from offsetting of liability with CAMMESA for electricity purchases against receivables (SE Resolution 250/13 and SE Notes 6852/13 and 4012/14)

 

12.1

 

158.1

 

(2,218.4)

 

(1,152.3)

 

-

 

-

                       

-

Decrease from offset of other liabilities with CAMMESA for loans for consumption (Mutuums) granted for higher salary costs (SE Resolution 32/15)

 

(38.0)

 

(495.5)

 

-

 

-

 

-

 

-

                       

-

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

 

-

 

-

 

91.6

 

165.1

 

-

 

-

                       

-

                       

-

Increase in financial assets at fair value from subsidiary sale

 

-

 

-

 

-

 

(334.3)

 

-

 

-

                       

-

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

 

-

 

-

 

-

 

52.8

 

-

 

-

                       

-

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

 

-

 

-

 

-

 

(44.6)

 

-

 

-

                       

-

Acquisitions of property, plant and equipment through increased debt FOTAE

 

-

 

-

 

(32.9)

 

(49.0)

 

-

 

-

                         

Acquired Companies

                       

Cash and Cash equivalents

 

-

 

-

 

-

 

-

 

-

 

119

Property, plant and equipment

 

-

 

-

 

-

 

-

 

-

 

1,881

Inventories

 

-

 

-

 

-

 

-

 

-

 

4

Trade receivables

 

-

 

-

 

-

 

-

 

-

 

255

Other receivables

 

-

 

-

 

-

 

-

 

-

 

85

Trade payables

 

-

 

-

 

-

 

-

 

-

 

(258)

Borrowings

 

-

 

-

 

-

 

-

 

-

 

(450)

Deferred tax liability

 

-

 

-

 

-

 

-

 

-

 

(79)

Other liabilities

 

-

 

-

 

-

 

-

 

-

 

(331)

Net Assets

 

-

 

-

 

-

 

-

 

-

 

1,227

Non-controlling interests

 

-

 

-

 

-

 

-

 

-

 

(230)

Net assets acquired

 

-

 

-

 

-

 

-

 

-

 

997

Bargain Purchase

 

-

 

-

 

-

 

-

 

-

 

435

Cash Paid

 

-

 

-

 

-

 

-

 

-

 

(562)

Cash and cash equivalents in acquired companies

 

-

 

-

 

-

 

-

 

-

 

119

Net Cash Flow for acquisition of companies

 

-

 

-

 

-

 

-

 

-

 

(443)

 

 

 

8


 
Table of Contents
 

 

 

 

Year ended December 31,

 

2015

 

2014

 

2013

 

2012

 

2011

Operating data

                 

Energy sales (in GWh):

22,402

 

21,312

 

21,674

 

20,760

 

20,098

Residential

9,671

 

9,114

 

9,114

 

8,662

 

8,139

Small Commercial

1,878

 

1,714

 

1,780

 

1,688

 

1,601

Medium Commercial

1,828

 

1,712

 

1,828

 

1,717

 

1,700

Industrial

3,680

 

3,431

 

3,458

 

3,335

 

3,442

Wheeling System(1)

4,200

 

4,213

 

4,374

 

4,261

 

4,156

Public Lighting

688

 

678

 

683

 

668

 

656

Shantytowns

435

 

430

 

417

 

409

 

384

Others (2)

21

 

20

 

20

 

20

 

20

Customers (in thousands) (3)

2,835

 

2,800

 

2,773

 

2,726

 

2,699

Energy Losses (%)

14.90%

 

13.82%

 

13.00%

 

13.30%

 

12.60%

MWh sold per employee

5,122

 

4,920

 

6,024

 

7,088

 

7,188

Customers per employee

648

 

647

 

771 

 

931

 

965

 

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

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

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

 

 

 

EXCHANGE RATES

                                                                                                                       

From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank of Argentina (Banco Central de la República Argentina, the “Central Bank”) was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar (the “Convertibility Regime”).  On January 6, 2002, the Argentine Congress enacted the Public Emergency Law No. 25,561 (the “Public Emergency Law”), formally putting an end to the Convertibility Regime and abandoning over ten years of U.S. Dollar-Peso parity.  The Public Emergency Law grants the Executive Branch of the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market.  The Public Emergency law has been extended until December 31, 2017.  For a brief period following the end of the Convertibility Regime, the Public Emergency Law established a temporary dual exchange rate system.  Since February 2002, the Peso has been allowed to float freely against other currencies, although the government has the power to intervene by buying and selling foreign currency for its own account, a practice in which it may engage on a regular basis.

After several years of moderate variations in the nominal exchange rate, the Peso lost more than 30% of its value with respect to the U.S. Dollar in each of 2013 and 2014, and in 2015, the Peso lost approximately 52% of its value with respect to the U.S. Dollar, including a depreciation of approximately 34% mainly experienced after December 17, 2015 following the announcement of the lifting of a significant portion of exchange restrictions (See “—Risk Factors—Factors Relating to Argentina—Fluctuations in the value of the Peso could adversely affect the Argentine economy, and consequently, our results of operations or financial condition”).  This was followed by a devaluation of the Peso with respect to the U.S. Dollar of approximately 9.9% from January 1, 2016 through April 14, 2016.  There can be no assurance that the Argentine Peso will not depreciate or appreciate again in the future. 

 

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

 

   

Low

 

High

 

Average

 

Period End

   

(Pesos per U.S. Dollar)

Year ended December 31,

               

2011

 

3.97

 

4.30

 

4,13(1)

 

4.30

2012

 

4.30

 

4.92

 

4,55(1)

 

4.92

2013

 

4.93

 

6.52

 

5,48(1)

 

6.52

2014

 

6.54

 

8.56

 

8,23(1)

 

8.55

2015

 

8.56

 

13.40

 

9,51(1)

 

13.04

                 

Month

       

November-2015

 

9,56(2)

 

9,69(2)

 

9.63

 

9.69

December-2015

 

9,70(2)

 

13,40(2)

 

11.41

 

13.04

January-2016

 

13,20(2)

 

13,96(2)

 

13.65

 

13.96

February-2016

 

14,13(2)

 

15,80(2)

 

14.85

 

15.80

March-2016

 

14,39(2)

 

15,80(2)

 

14.95

 

14.70

April-2016(3)

 

14,33(2)

 

14,79(2)

 

14.55

 

14.33

                 

_____________________

               

Source: Banco Nación

               

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

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

(3) Represents the corresponding exchange rates from April 1 through April 14, 2016.

 

 

 

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RISK FACTORS

Risks Related to Argentina

Overview

We are a stock corporation (sociedad anónima) incorporated under the laws of the Republic of Argentina and all of our revenues are earned in Argentina and all of our operations, facilities, and customers are located in Argentina.  Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic, regulatory, political and financial conditions prevailing in Argentina, including growth, inflation rates, currency exchange rates, interest rates, and other local, regional and international events and conditions that may affect Argentina in any manner.  For example, slower economic growth or economic recession could lead to a decreased demand for electricity in our concession area or to a decline in the purchasing power of our customers, which, in turn, could lead to a decrease in collection rates from our customers or increased energy losses due to illegal use of our service.  Actions of the Argentine government concerning the economy, including decisions with respect to inflation, interest rates, price controls (including tariffs and other compensation of public services), foreign exchange controls and taxes, have had and may in the future have a material adverse effect on private sector entities, including us.   For example, during the Argentine economic crisis of  2001, the Argentine government froze electricity distribution margins and caused the pesification of our tariffs, which had a materially adverse effect on our business and financial condition and led us to suspend payments on our financial debt at the time.

We cannot assure you that the Argentine government will not adopt other policies that could adversely affect the Argentine economy or our business, financial condition or results of operations.  In addition, we cannot assure you that future economic, regulatory, social and political developments in Argentina will not impair our business, financial condition or results of operations, or cause the market value of our ADSs and Class B common shares to decline.

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

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high levels of inflation and currency devaluation.  Sustainable economic growth in Argentina is dependent on a variety of factors, including the international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable rate of inflation.

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

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

·         Argentina’s public debt as a percentage of GDP remains high, the availability of long-term credit is scarce and international financing remains limited;

·         continued increases in public expenditure could result in fiscal deficits and affect economic growth;

·         inflation remains high and threatens to continue at those levels;

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

·         a significant number of protests or strikes could take place, as they have in the past, which could adversely affect various sectors of the Argentina economy;

·         energy or natural gas supply may not be sufficient to supply increased industrial activity (thereby limiting industrial development) and consumption;

 

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·         unemployment and informal employment remains high; and

·         in the climate created by the above-mentioned conditions, demand for foreign currency has grown, generating a capital flight effect to which the Fernández de Kirchner administration reacted in the past with regulations and currency exchange transfer restrictions.

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

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

The impact of the recent congressional and presidential elections on the future economic and political environment of Argentina is uncertain, but likely to be material

Presidential and congressional elections in Argentina took place on October 25, 2015, and a runoff election (ballotage) between the two leading Presidential candidates was held on November 22, 2015, which resulted in Mr. Mauricio Macri being elected President of Argentina.  The Macri administration assumed office on December 10, 2015, and is expected to adjust longstanding fiscal and monetary policies that have resulted in recurrent public sector deficits, inflation and pervasive foreign exchange controls and limited foreign investment. 

Since assuming office, the Macri administration has announced and already implemented several significant economic and policy reforms, including:

 

  • Electricity system state of emergency and reforms.  The Macri administration declared the state of emergency of the national electricity system that will remain in effect until December 31, 2017. The state of emergency allows the Argentine government to take actions designed to guarantee the supply of electricity.  In addition, following the Macri administration’s announcement that it would reexamine energy subsidy policies, the Ministry of Energy increased electricity rates for the wholesale market for purchases made between February 1 and April 30, 2016.   This increase was used to reduce subsidies to the sector. On January 29, 2016, the ENRE, through Resolution No. 1/16 approved a new tariff structure which became effective on February 1, 2016, and introduced different prices depending on the categories of customers. Such resolution also contemplates a social tariff for residential customers who comply with certain consumption requirements, which includes a full exemption for monthly consumptions below or equal to 150 Kwh and tariffs benefits for customers who exceed such consumption level but achieve a monthly consumption lower than that of the same period in the immediately preceding year. On the same date, through Resolution No. 2/2016, the ENRE partially repealed Resolution No. 347/2012, discontinuing the FOCEDE (as defined below) and ordering us to open a special bank account with a Central Bank authorized entity where the funds received pursuant to Resolution No. 347/2012 must be deposited.

 

  • INDEC reforms.  In light of questions raised by the International Monetary Fund (“IMF”) regarding the reliability of the information produced by the INDEC, the Macri administration appointed Mr. Jorge Todesca, previously a director of a private consulting firm, as head of the INDEC.  It is expected that the INDEC will implement certain methodological reforms and adjust certain macroeconomic statistics on the basis of these reforms. On January 8, 2016, Decree No. 55/2016 was issued by the Argentine government declaring a state of administrative emergency on the national statistical system and on the official agency in charge of the system, the INDEC, until December 31, 2016. Following the declared emergency, the INDEC has ceased publishing statistical data until a rearrangement of its technical and administrative structure is finalized. During the implementation of these reforms, however, the INDEC will use official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires.   Despite these expected reforms, there is uncertainty as to whether official data will be sufficiently corrected and within what time period such data will be corrected, and what effect these reforms will have on the Argentine economy and public accounts.

 

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  • Foreign exchange reforms.  In addition, the Macri administration  implemented certain reforms to the foreign exchange market regulatory framework that provide greater flexibility and easier access to the foreign exchange market.  The principal measures adopted as of the date of this annual report include (i) the elimination of the requirement to register foreign exchange transactions in the Argentine Tax Authority’s (“AFIP”)database;, (ii) the elimination of the requirement to transfer the proceeds of new financial indebtedness transactions into Argentina and settle such proceeds through the single and free‑floating foreign exchange market (the “MULC”), (iii) the reestablishment of the U.S.$2.0 million monthly limit per resident on the creation of offshore assets, (iv) a decrease from 30% to 0% of the registered, non-transferable and non-interest-bearing deposit required in connection with certain transactions involving foreign currency inflows, (v) the reduction of the required period that the proceeds of any new financial indebtedness incurred by residents, held by foreign creditors and transferred through the MULC must be maintained in Argentina from 365 calendar days to 120 calendar days from the date of the transfer of the relevant amount and (vi) the elimination of the requirement of a minimum holding period (72 business hours) for purchases and subsequent sales of the securities. In addition, on December 17, 2015, following the announcement of the lifting of a significant portion of exchange restrictions, the Peso depreciated approximately 36% against the U.S. Dollar.  The exchange rate published by Banco Nación as of April 14, 2016 was 14.33 to U.S.$1.00.

 

  • Foreign trade reforms.  The Macri administration eliminated export duties on wheat, corn, beef and regional products, and reduced the export duty on soybeans by 5% to 30%.  Further, the 5% export duty on most industrial exports and export duties on mining exports were eliminated.  With respect to payments of existing debts for imports of goods and services, the Macri administration announced the gradual elimination of amount limitations for access to the MULC and eliminated the amount for any new transactions. As of December 17, 2015, the amount limitations for such existing debt transactions are expected to gradually decrease and be eliminated in June 2016.

 

  • Financial Policy. Soon after taking office, the Macri administration sought to settle the outstanding claims with holdout creditors.  See “—Argentina’s ability to obtain financing from international markets is limited, in part due to the unresolved litigation with holdout bondholders, which may impair its ability to foster economic growth and, consequently, affect our business, results of operations and prospects for growth.”

 

As of the date of this annual report, the impact that these measures and any future measures taken by the Macri administration will have on the Argentine economy as a whole, and the electricity sector in particular, cannot be predicted.  While we believe that the effect of the planned liberalization of the economy will be positive for our business by stimulating economic activity, it is not possible to predict such effect with certainty and such liberalization could also be disruptive to the economy and fail to benefit or harm our business.  In addition, there is uncertainty as to which measures announced during the Presidential campaign by the Macri administration will be taken and when.  Since assuming office, the Macri administration has begun reviewing certain public employee contracts in several sectors and reformed energy and gas sector tariffs. However, we cannot predict how the Macri administration will address certain other political and economic issues that were central during the presidential election campaign, such as the financing of public expenditures, public service subsidies and tax reforms, or the impact that any measures related to these matters that are implemented by the Macri administration will have on the Argentine economy as a whole.  In addition, political parties opposed to the Macri administration retained a majority of the seats in the Argentine Congress in the recent elections, which will require the Macri administration to seek political support from the opposition for its economic proposals and creates further uncertainty as to the ability of the Macri administration to pass any measure which it may expect to implement.  Political uncertainty in Argentina relating to the measures to be taken by the Macri administration in respect of the Argentine economy could lead to volatility in the market prices of securities of Argentine companies, such as ours. We cannot assure you the impact that these measures or any future measures taken by the Macri administration will have on the Argentine economy, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs and Class B common shares.

 

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If the high levels of inflation continue, the Argentine economy and our results of operations could be adversely affected

Inflation has, in the past, materially undermined the Argentine economy and the Argentine government’s ability to create conditions that permit growth.  In recent years, Argentina has confronted inflationary pressures, evidenced by significantly higher fuel, energy and food prices, among other factors.  According to data published by the Instituto Nacional de Estadística y Censos (National Statistics and Census Institute or “INDEC”), the rate of inflation reached 10.6% in 2013, 21.4% in 2014 and 11.9% in the ten-month period ended October 31, 2015.  The wholesale price index (“WPI”) increased 12.7%, 13.1%, 14.8% and 28.3% in each of those years, respectively, and 10.6% in the ten-month period ended October 31, 2015.  In November 2015, the INDEC suspended the publication of the consumer price index (the “CPI”) and the WPI.  See “—The credibility of several Argentine economic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and, in turn, limit our ability to access credit and the capital markets” below.  The previous administration has in the past implemented programs to control inflation and monitor prices for essential goods and services, including freezing the prices of supermarket products, and price support arrangements agreed between the Argentine government and private sector companies in several industries and markets. 

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

The credibility of several Argentine economic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and, in turn, may limit our ability to access credit and the capital markets

In January 2007, INDEC modified its methodology used to calculate the CPI, which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households.  Since then, through 2015, the credibility of the CPI, as well as other indices published by the INDEC have been called into question.

On November 23, 2010, the Fernández de Kirchner administration began consulting with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system. However, Argentina was subsequently censured by the IMF in 2014 for failing to make sufficient progress in adopting remedial measures to address the quality of official data, including inflation and GDP.

In order to address the quality of official data, a new price index was put in place on February 13, 2014. The new price index represented the first national indicator to measure changes in prices of final consumption by households. Unlike the previous price index, which only measured inflation in the urban sprawl of the City of Buenos Aires, the new price index is calculated by measuring prices of goods across the entire urban population of the 24 provinces of Argentina. Using this new methodology, the consumer price index rose to 11.9% in the ten-month period ended October 31, 2015. Although this new methodology brought inflation statistics closer to those estimated by private sources, material differences between official inflation data and private estimates remained during 2015. In November 2015, the INDEC suspended the publication of the CPI and the WPI. 

On January 8, 2016, Decree No. 55/2016 was issued by the Argentine government declaring a state of administrative emergency on the national statistical system and on the official agency in charge of the system, the INDEC, until December 31, 2016. Following the declared emergency, the INDEC ceased publishing statistical data until a rearrangement of its technical and administrative structure is finalized. During the implementation of these reforms, however, INDEC will use official CPI figures and other statistics published by the Province of San Luis and the City of Buenos Aires.  Despite these expected reforms, there is uncertainty as to whether official data will be sufficiently corrected and within what time period such data will be corrected, and what effect these reforms will have on the Argentine economy. The Macri administration has released an alternative CPI index based on data from the City of Buenos Aires and the Province of San Luis and is currently working on a new inflation index.  According to the most recent publicly available information based on data from the Province of San Luis, the CPI grew by 31.6% in 2015 and the inflation rate was 6.5%, 4.2% and 2.7%, in December 2015, January 2016 and February 2016, respectively. According to the most recent publicly available information based on data from the City of Buenos Aires, the CPI grew by 26.9% in 2015 and the inflation rate was 3.9%, 4.1% and 4.0%, in December 2015, January 2016 and February 2016, respectively. As of the date of this annual report, the Argentine government has reached settlement agreements with holders of a significant portion of the defaulted bonds. 

 

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No official inflation data has been released since the new INDEC authorities have taken charge, and there is uncertainty regarding current rates of inflation.

The discontinuation of the publication of indices by the INDEC has generated uncertainty in Argentina’s economy, and any future required correction or restatement of the INDEC indices could result in a decrease in confidence in Argentina’s economy, which, in turn, could have an adverse effect on our ability to access international capital markets to finance our operations and growth, and which could, in turn, adversely affect our results of operations and financial condition and cause the market value of our ADSs and Class B common shares to decline.

Argentina’s ability to obtain financing from international markets is limited, in part due to the unresolved litigation with holdout bondholders, which may impair its ability to foster economic growth and, consequently, affect our business, results of operations and prospects for growth

The prospects for Argentine companies of accessing financial markets might be limited in terms of the amount of financing available, and the conditions and cost of such financing.

Economic policy measures adopted by the Argentine government, may continue to prevent Argentine companies such as us from accessing the international capital markets or make the terms of any such transactions less favorable than those provided to companies in other countries in the region, and may therefore negatively impact our financial condition or cash flows.

In 2005 and 2010, Argentina conducted exchange offers to restructure part of its sovereign debt that had been in default since the end of 2001.  As a result of these exchange offers, Argentina restructured over 92% of its eligible defaulted debt. 

Commencing in 2002, holdout creditors filed numerous lawsuits against Argentina in several jurisdictions, including the United States, Italy, Germany, and Japan.  These lawsuits generally assert that Argentina failed to make timely payments of interest or principal on their bonds, and seek judgments for the face value of or accrued interest on those bonds.  Judgments have been issued in numerous proceedings in the United States and Germany, but to date creditors have not succeeded, with a few minor exceptions, in executing on those judgments. 

In February 2012, plaintiffs in 13 actions in New York, involving claims for U.S.$ 428 million in principal, plus interest, obtained a U.S. district court order enjoining Argentina from making interest payments in full on the bonds issued pursuant to the 2005 and 2010 exchange offers (“Exchange Bonds”) unless Argentina paid the plaintiffs in full, under the theory that the former payments violated the pari passu clause in the 1994 Fiscal Agency Agreement (the “FAA”) governing those non‑performing bonds.  The U.S. district court order was stayed pending appeals.  The Second Circuit Court of Appeals confirmed the so-called pari passu injunctions, and on June 16, 2014 the U.S. Supreme Court denied Argentina’s petition for a writ of certiorari and the stay of the pari passu injunctions was vacated on June 18, 2014.  Additionally, in 2015, plaintiffs that had obtained pari passu injunctions amended their complaints to include claims that Argentina’s servicing of more recently issued BONAR 2024 bonds, as well as all external indebtedness in general, would violate the pari passu clause.  The U.S. district court has not ruled on these new claims and discovery among the parties remains ongoing.  On October 30, 2015, the U.S. district court issued new pari passu injunctions, substantially identical to the ones already in effect, in 49 additional proceedings, involving claims for over U.S.$ 2.1 billion under the 1994 FAA, plus billions more in pre- and post-judgment interest.  On November 10, 2015, Argentina appealed the decision.

In 2014, the Argentine government took a number of steps intended to continue servicing the bonds issued in the 2005 and 2010 exchange offers, which had limited success. Holdout creditors continued to litigate expanding the scope of issues to include payment by the Argentine government on debt other than the Exchange Bonds and the independance of the Central Bank.

 

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The Macri administration engaged in negotiations with holders of defaulted bonds in December 2015 with a view to bringing closure to fifteen years of litigation. In February 2016, the Argentine government entered into an agreement in principle to settle with certain holders of defaulted debt and put forward a proposal to other holders of defaulted debt, including those with pending claims in U.S. courts, subject to two conditions: obtaining approval by the Argentine Congress and the lifting of the pari passu injunctions. On March 2, 2016, the U.S. district court agreed to vacate the pari passu injunctions, subject to two conditions:  first, the repealing of all legislative obstacles to settlement with holders of defaulted debt securities issued under the FAA, and second, the full payment to holders of pari passu injunctions with whom the Argentine government had entered into an agreement in principle on or before February 29, 2016, in accordance with the specific terms of such agreements. The U.S. district court’s order has been appealed and on April 13, 2016 was affirmed by the Second Circuit Court of Appeals.  On March 31, 2016, the Argentine Congress repealed the legislative obstacles to the settlement and approved the settlement proposal. As of the date of this annual report, the Argentine government has reached settlement agreements with holders of a significant portion of the defaulted bonds. 

As of the date of this annual report, litigation initiated by bondholders that have not accepted Argentina’s settlement offer continues in several jurisdictions, although the size of the claims involved has decreased significantly.  The lifting of the injunctions issued by the United States courts preventing bondholders from receiving their interest payments on the bonds issued pursuant to the 2005 and 2010 exchange offers and the related subsequent events paved the way for the Argentine government to regain access to the international capital markets, with an issue of U.S.$16.5 billion aggregate principal amount of 3-year, 5-year, 10-year and 30-year bonds on April 22, 2016 and the pari passu injunctions were vacated.

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

Fluctuations in the value of the Peso may also adversely affect the Argentine economy, our financial condition and results of operations.  The devaluation of the Peso may have a negative impact on the ability of certain Argentine businesses to service their foreign currency-denominated debt, lead to very high inflation, significantly reduce real wages, jeopardize the stability of businesses whose success depends on domestic market demand including public utilities and the financial industry and adversely affect the Argentine government’s ability to honor its foreign debt obligations.  After several years of moderate variations in the nominal exchange rate, the Peso lost more than 30% of its value with respect to the US Dollar in each of 2013 and 2014, and in 2015, the Peso lost approximately 52% of its value with respect to the U.S. Dollar, including a depreciation of approximately 34% mainly experienced after December 17, 2015 following the announcement of the lifting of a significant portion of foreign exchange restrictions.  Since the devaluation in December 2015, the Central Bank has allowed the Peso to float and limited interventions to those needed to ensure the orderly functioning of the foreign exchange market. As of April 14, 2016, the exchange rate was Ps. 14.33 to U.S.$1.00.  We are unable to predict the future value of the Peso against the U.S. Dollar.  If the Peso devalues further, the negative effects on the Argentine economy could have adverse consequences for our business, our results of operations and the market value of our ADSs, including as measured in U.S.Dollars.

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

Government intervention may adversely affect the Argentine economy and, as a result, our business and results of operations

In the recent past, the Fernández de Kirchner administration increased its direct intervention in the economy, including through the implementation of expropriation and nationalization measures, price controls and exchange controls.

In response to the global economic crisis, in December 2008, Law No. 26,425,  was passed by the Argentine Congress unifying the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (the National Social Security Agency, or the “ANSES”), and eliminating the pension and retirement system previously administered by private managers.  In accordance with the new law, private pension managers transferred all of the assets administered by them under the pension and retirement system to the ANSES.  Prior to 2009, a significant portion of the local demand for securities of Argentine companies came from Argentine private pension funds.  With the nationalization of Argentina’s private pension funds, the Argentine government, through the ANSES, became a significant shareholder in many of the country’s public companies.  In April 2011, the Argentine government lifted certain restrictions pursuant to which ANSES had been prevented from exercising more than 5% of its voting rights in any stock exchange listed company (regardless of the equity interest held by ANSES in such companies).  ANSES has since exercised its voting rights in excess of such 5% limit in order to appoint directors in different stock exchange listed companies.  ANSES’s interests may differ from or conflict with those of the other investors in such companies.  In addition, in September 2015, Law No. 27,181 was enacted, which prohibits the sale of shares in Argentine public companies held by the Argentine government or any other action that limits, alters or modifies the use, ownership or nature of such shares, without the prior authorization of Congress. Additionally, Law No. 27,181 created the National Government Equity Holdings Agency (Agencia Nacional de Participaciones Estatales en Empresas), a decentralized agency operating under the scope of the Argentine Executive Branch, which is in charge of implementing any policies and actions related to the exercise by the Argentine government of any rights arising out of the shares it holds. As of the date of this annual report, ANSES owns shares representing 26.8% of our capital stock, and also owns shares of capital stock of our affiliates, Pampa Energía and Transener.

 

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Beginning in April 2012, the Fernández de Kirchner administration provided for the nationalization of YPF and imposed major changes to the legal framework in which oil companies operate, principally through the enactment of Law No. 26,741 and Decree No. 1,277/2012.  In February 2014, the Fernández de Kirchner administration and Repsol announced that they had reached agreement on the terms of the compensation payable to Repsol for the expropriation of the YPF shares.  Such compensation amounted to U.S.$5.0 billion, payable by delivery of Argentine sovereign bonds with various maturities.  Additionally, on December 19, 2012, the Fernández de Kirchner administration issued Decree No. 2,552/2012, pursuant to which it ordered the expropriation of the Predio Rural de Palermo.  However, on January 4, 2013, the Federal Civil and Commercial Chamber granted an injunction that has temporarily blocked the enforcement of Decree No. 2,552/2012. Although the decision was appealed by the Argentine government, the Supreme Court of Justice rejected such appeal and confirmed the Federal Civil and Commercial Chamber’s injunction subject to a decision on the merits.

 

Notwithstanding the measures recently adopted by the Macri administration, we cannot assure you that these or other measures that may be adopted by the current or any future Argentine government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade and investments will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations or cause the market value of our ADSs and Class B common shares to decline.

The implementation in the future of new exchange controls and restrictions on capital inflows and outflows could limit the availability of international credit and could threaten the financial system, adversely affecting the Argentine economy and, as a result, our business

During 2001 and the first half of 2002, Argentina experienced a mass withdrawal of deposits from the financial system as a result of a lack of confidence in the Argentine government’s ability to repay its debt and sustain the parity between the Peso and the U.S. Dollar. This caused a liquidity crisis in the Argentine financial system, which led the Argentine government to impose exchange controls and transfer restrictions, substantially limiting the ability of companies to retain foreign currency or make payments abroad.  After 2002, these restrictions, including those requiring the Central Bank’s prior authorization for the transfer of funds abroad to pay principal and interest on debt obligations, were substantially eased through 2007.  In addition to the foreign exchange restrictions applicable to outflows, in June 2005 the Argentine government adopted various rules and regulations that established new restrictive controls on capital inflows into Argentina, including a requirement that, for certain funds remitted into Argentina, an amount equal to 30% of the funds must be deposited into an account with a local financial institution as a U.S. Dollar deposit for a one-year period without any accrual of interest, benefit or other use as collateral for any transaction.

Through a combination of foreign exchange and tax regulations from 2011 until President Macri assumed office in 2015, the Fernández de Kirchner administration significantly curtailed access to the foreign exchange market by individuals and private-sector entitiesIn addition, during the last few years under the Fernández de Kirchner administration, the Central Bank exercised a de facto prior approval power for certain foreign exchange transactions otherwise authorized to be carried out under applicable regulations, such as dividend payments or repayment of principal of inter-company loans as well as the import of goods, by means of regulating the amount of foreign currency available to financial institutions to conduct such transactions.  The number of exchange controls introduced in the past and in particular after 2011 during the Fernández de Kirchner administration gave rise to an unofficial U.S. Dollar trading market. The Peso/U.S. Dollar exchange rate in such market substantially differed from the official Peso/U.S. Dollar exchange rate.  See “Item 3—Key Information—Exchange Rates” and “Item 10—Exchange Controls.” 

 

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Additionally, the level of international reserves deposited with the Central Bank significantly decreased from US$47.4 billion as of November 1, 2011 to US$25.6 billion as of December 31, 2015, resulting in a reduced capacity of the Argentine government to intervene in the foreign exchange market and to provide access to such markets to private sector entities like us. The Macri administration recently announced a program intended to increase the level of international reserves deposited with the Central Bank through the execution of certain agreements with several foreign entities. As a result of the measures taken under such program, the international reserves increased to US$30.0 billion as of January 30, 2016.

Notwithstanding the measures recently adopted by the Macri administration, in the future the Argentine government could impose exchange controls, transfer restrictions or restrictions on the movement of capital or take other measures in response to capital flight or a significant depreciation of the Peso, which could limit our ability to access the international capital markets and impair our ability to make interest, principal or dividend payments abroad.  Such measures could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth and, consequently, adversely affect our business and results of operations and cause the market value of our ADSs and Class B common shares to decline.  As of the date of this annual report, however, the transfer of funds abroad to pay dividends is permitted to the extent such dividend payments are made in connection with audited financial statements approved by a shareholders’ meeting of the Company.

The actions taken by the Fernández de Kirchner administration to reduce imports may adversely affect our ability to access capital goods that are necessary for our operations

In 2012, the Argentine government adopted an import procedure pursuant to which local authorities must pre-approve any import of products and services to Argentina as a precondition to allowing importers access to the foreign exchange market for the payment of such imported products and services. In 2012, the European Union, the United States of America and Japan filed claims with the World Trade Organization (“WTO”) against certain import-related requirements maintained by Argentina. Recently, the WTO found that those measures are not consistent with Argentina’s obligations under the WTO and requested removal. On December 22, 2015, through Resolution No. 3,823, AFIP removed the import authorization system in place since 2012 denominated Affidavit Advance Import (“DJAI”) and replaced it with the new Comprehensive Import Monitoring System (“SIMI”). Among other changes, local authorities must now reply to any request for approval within a ten-day period from the date in which the request is filed.

We cannot assure that the Argentine government will not modify current export tax rates and import regulations. We cannot predict the impact that any changes may have on our results of operations and financial condition.

 

Application of certain laws and regulations is uncertain and could adversely affect our results of operations and financial condition.

Law No. 26,854, which regulates injunctions in cases in which the Argentine government is a party or has intervened, was promulgated on April 30, 2013 as part of a judicial reform bill approved by the Argentine Congress.  Among the principal changes implemented pursuant to the judicial reform bill is a time limitation on injunctions imposed in proceedings brought against the Argentine government and the creation of three new chambers of Casación, each of which must hear an appeal before the matter is considered by the Supreme Court of Justice of Argentina.  In addition, Law No. 26,855, which became effective on May 27, 2013, modified the structure and functions of the Argentine Consejo de la Magistratura (judicial council), which has the authority to appoint judges, present charges against them and suspend or remove them.  As of the date of this annual report several aspects of this legislation have been struck down as unconstitutional by the Argentine Supreme Court.

 

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On August 7, 2014, Law No. 26,944 on State Responsibility was enacted to regulate government actions. Said law governs the responsibility of the Argentine government regarding the damages that its activity or inactivity may cause to individuals’ properties or rights. Such law establishes that the Argentine government’s responsibility is objective and direct, that the provisions of the civil and commercial codes are not applicable to the actions of the Argentine government in a direct nor subsidiary manner and that dissuas