GAS TRANSPORTER OF THE SOUTH INC

6-K 1 fs310308.htm FINANCIAL STATEMENT AS OF MARCH 31, 2008 html PUBLIC "-//IETF//DTD HTML//EN" Financial statements and Summary of Events

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

_______

FORM 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities and Exchange Act of 1934

For June 5, 2008

Transportadora de Gas del Sur S.A.

Don Bosco 3672, Fifth Floor

1206 Capital Federal

Argentina

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F X Form 40-F

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to the Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _ No X

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b)

TRANSPORTADORA DE GAS DEL SUR S.A. (TGS or the Company)

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2008 ( 1 )

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's consolidated interim financial statements as of March 31, 2008 and December 31, 2007 and for the three-month periods ended March 31, 2008 and 2007, which have been prepared in accordance with generally accepted accounting principles in force in the Autonomous City of Buenos Aires (except for what is mentioned in Note 2.b., to the consolidated interim financial statements), and the regulations of the Comisión Nacional de Valores ( the Argentine National Securities Commission, CNV) and the Ente Nacional Regulador del Gas (National Gas Regulatory Agency in Argentina, ENARGAS) .

The Company s consolidated interim financial statements for the three-month periods ended March 31, 2008 and 2007 have been subject to a limited review performed by Sibille, and for the three-month periods ended March 31, 2006, 2005 and 2004 have been subject to limited reviews performed by Price Waterhouse & Co S.R.L., Buenos Aires, Argentina, independent auditors.

1- Basis of Presentation of Financial Information

Effects of inflation:

The consolidated interim financial statements have been prepared in constant Argentine pesos, recognizing the overall effects of inflation up to August 31, 1995. As from that date, in line with professional accounting standards and the requirements of the control authorities, the Company discontinued the restatement of its financial statements until December 31, 2001.

However, as a result of high inflation rates since early 2002 - and as established by Resolution No. 3/2002 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires (CPCECABA) and Resolution No. 415 of the CNV - as from January 1, 2002 the Company resumed the recognition of the effects of inflation in these consolidated interim financial statements, following the provisions of Technical Resolution (TR) No. 6, as amended by TR No. 19, both issued by the Argentine Federation of Professional Councils in Economic Sciences (Argentine Federation). Accounting measurements restated due to the change in the purchasing power of the currency up to August 31, 1995, as well as those which have been originated between that date and December 31, 2001, are stated in the currency value as of the later date.

On March 25, 2003, the Argentine Government issued Decree No. 664, which provides that financial statements for periods ending after such date shall be stated in historical Argentine pesos. As a consequence and in accordance with Resolution No. 441, issued by the CNV, the Company suspended inflation accounting effective March 1, 2003. This criterion is not in line with effective accounting standards, which stipulate that financial statements should be restated as of December 31, 2003. The non-recognized inflation effect on net income for the three-month periods ended March 31, 2008 and 2007 is not significant.

The Argentine Wholesale Price Index (WPI) published by the Instituto Nacional de Estadísticas y Censos (INDEC) was used for the restatement of the financial statements, as mentioned above.

2. Results of Operations

The following table presents a summary of the consolidated results of operations for the three-month periods ended March 31, 2008 and 2007:

	2008	2007	Variation
	(in millions of Pesos)
Net revenues	464.1	339.5	124.6
Gas transportation	127.3	125.5	1.8
NGL production and commercialization	320.4	182.5	137.9
Other services	16.4	31.5	(15.1)
Costs of sales	(213.9)	(153.8)	(60.1)
Operating costs	(164.4)	(105.9)	(58.5)
Depreciation and amortization	(49.5)	(47.9)	(1.6)
Gross profit	250.2	185.7	64.5
Administrative and selling expenses	(67.0)	(34.6)	(32.4)
Operating income	183.2	151.1	32.1
Other (expense) / income, net	(3.5)	15.4	(18.9)
Gain on related companies	0.4	0.6	(0.2)
Net financial expense	(43.5)	(53.1)	9.6
Income tax expense	(55.9)	(47.6)	(8.3)
Net income	80.7	66.4	14.3

Overview

For the three-month period ended March 31, 2008, the Company has reported a net income of Ps. 80.7 million, in comparison to the Ps. 66.4 million net income recorded in 2007. This increase is mainly due to a higher operating income generated by the NGL Production and Commercialization business segment, partially offset by lower revenues from the Other services business segment.

Net revenues

Gas transportation

Gas transportation service is the main business activity of the Company, taking into account the invested capital and the resources affected to its operation, not being as important in the relative participation in the total net income of the Company because of the pesification of regulated tariffs at an exchange rate of US$ 1=Ps. 1 since the enactment of the Economic Emergency Law. This business segment represented approximately 27% and 37% of total net revenues earned during the three-month periods ended March 31, 2008 and 2007, respectively. Gas transportation service revenues are derived principally from firm contracts, under which pipeline capacity is reserved and paid for, regardless of actual usage by the shipper. TGS also provides interruptible transportation services subject to available pipeline capacity.

Gas transportation revenues for three-month period ended March 31, 2008 increased by Ps. 1.8 million as compared to the same period 2007. This increase was principally a consequence of additional revenue generated by new firm transportation contracts signed with natural gas producer and industrial clients, which became effective in March and May 2007.

Revenues related to the interruptible transportation service might be affected in the future due to the creation of the Gas Electronic Market in line with the provisions of the Executive Branch Decree No. 180/04 (for further information on this issue and on the current status of tariff renegotiation see Note 7.b. to the consolidated interim financial statements). Revenues related to this service amounted to Ps. 5.1 million and Ps. 7.6 million for the three-month periods ended March 31, 2008 and 2007, respectively.

NGL production and commercialization

As opposed to the gas transportation segment, the NGL production and commercialization segment is not subject to regulation by ENARGAS.

Net revenues from the NGL production and commercialization segment represented approximately 69% and 54% of TGSs total net revenues during the three-month periods ended March 31, 2008 and 2007, respectively. NGL production and commercialization activities are conducted at the Cerri Complex, located near Bahía Blanca and connected to each of the Companys main pipelines. At the Cerri Complex, TGS recovers ethane, propane, butane and natural gasoline. TGS sells its NGL production in the domestic and the international market. TGS sells its production of propane and butane to NGL marketers in the domestic market. These products and natural gasoline are exported to Petrobras International Finance Company, a subsidiary of Petrobras Petróleo Brasileiro S.A. at current international market prices. Ethane is entirely sold in the domestic market to PBB-Polisur S.A. at agreed prices.

The NGL Production and Commercialization segment revenue increased by Ps. 137.9 million in the three-month period ended March 31, 2008 in comparison to the same period 2007, caused mostly by higher NGL international reference prices and, at a less extent, to higher volumes sold.

Other services

The other services segment is not subject to regulations by ENARGAS.

The Company renders services called midstream, that mainly consist in gas conditioning, gathering and compression services, which are generally rendered at wellhead, as well as activities related to construction, operation and maintenance of pipelines and compressor plants. Other services revenues include telecommunication services rendered by Telcosur S.A., a company controlled by TGS.

Revenues from other services segment decreased by Ps. 15.1 million in the three-month period ended March 31, 2008 as compared to the same period of 2007. This variation is due basically to lower sales generated by construction services.

Cost of sales and administrative and selling expenses

Costs of sales and administrative and selling expenses for the three-month period ended March 31, 2008 rose approximately Ps. 92.5 million compared to the same period 2007. This increase is mainly due to: (i) a Ps. 47.5 million increase in NGL production costs, and (ii) a Ps. 36.0 million rise in taxes on export due to the higher international reference prices and increase of rates (from 20% to 25% for propane and butane exports, and from 5% to 45% for gasoline exports which came into effect in May 2007 and November 2007, respectively).

At the end of March 2008, the National Government replaced the regime of fixed export tax rates by a variable export tax regime, with a minimum effective tax rate of 45%, and increasing if the international price increases over an established average price.

Net financial expense

Net financial expense for the three-month period ended March 31, 2008 reported a Ps. 9.6 million negative variation as compared to the same period 2007. The breakdown of net financial expense is as follows:

	2008	2007
	(in millions of Pesos)
Generated by assets
Interest income	5.4	11.4
Foreign exchange gain	1.0	5.5
Subtotal	6.4	16.9
Generated by liabilities
Interest expense	(35.3)	(42.3)
Foreign exchange loss	(9.8)	(23.0)
Other expenses and financial charges	(4.8)	(4.7)
Subtotal	(49.9)	(70.0)
Total	(43.5)	(53.1)

This variation is mostly attributable to lower interest expenses generated by liabilities of Ps. 7.1 million (resulting from a reduction in financial indebtedness of approximately 20%) and a lower foreign exchange loss of Ps. 8.7 million. Both effects were partially offset by lower interest income generated by current investments.

Other (expense) / income, net

Other (expense) / income, net registered a negative variation of Ps. 18.9 million in the three-month period ended March 31, 2008, compared to the same period of 2007. This variation is mainly due to the partial reversal (of Ps. 15.5 million) of an allowance established in connection with turnover tax claim made by the Province of Buenos Aires (with respect to NGL sales billed since 2002). This allowance reversal was recorded as the result of the confirmation made by the Tax Court of this province that ethane sales were within the scope of the turnover tax exemption. (For further information see Note 9.a. to the consolidated interim financial statements).

Income tax

For the three-month period ended March 31, 2008, the Company reported a Ps. 55.9 million income tax expense, a Ps. 8.3 million increase in comparison with the same period 2007. This increase is due to higher net income before income tax reported in the three-month period ended March 31, 2008.

3. Liquidity

The Companys primary sources and uses of cash during the three-month periods ended March 31, 2008 and 2007, are shown in the table below:

	2008	2007	Variation
	(in millions of Pesos)
Cash flows provided by operating activities	216.4	136.7	79.7
Cash flows used in investing activities	(36.3)	(82.8)	46.5
Cash flows (used in) / provided by financing activities	(0.7)	52.0	(52.7)
Net increase in cash and cash equivalents	179.4	105.9	73.5

Cash flows provided by operating activities for the three-month period ended March 31, 2008 amounted to Ps. 216.4 million, which were principally allocated to increase its cash position.

The Ordinary Shareholders Meeting held on April 10, 2008 approved a Ps. 32 million dividend payment to be paid on May 7, 2008.

4. Consolidated Balance Sheet Summary

Summary of the consolidated balance sheet information as of March 31, 2008, 2007, 2006, 2005 and 2004:

	(in thousands of Argentine pesos as described in Note 2.b. to the consolidated interim financial statements) — 2008	2007	2006	2005	2004
Current assets	902,559	845,505	885,935	599,650	920,222
Non-current assets	4,238,002	4,382,285	4,458,447	4,519,734	4,625,176
Total	5,140,561	5,227,790	5,344,382	5,119,384	5,545,398
Current liabilities	367,375	350,404	395,816	298,704	3,376,053
Non-current liabilities	1,763,263	2,028,905	2,434,042	2,520,885	10,256
Subtotal	2,130,638	2,379,309	2,829,858	2,819,589	3,386,309
Shareholders equity	3,009,922	2,848,480	2,514,524	2,299,795	2,159,089
Minority Interest	1	1	-	-	-
Total	5,140,561	5,227,790	5,344,382	5,119,384	5,545,398

5. Consolidated Statements of Income Summary

Summary of the consolidated statements of income information for the three-month periods ended March 31, 2008, 2007, 2006, 2005 and 2004:

	(in thousands of Argentine pesos as described in Note 2.b. to the consolidated interim financial statements) — 2008	2007	2006	2005	2004
Operating income	183,192	151,156	167,706	99,846	116,851
Other (expense) / income, net	(3,521)	15,334	(411)	4,949	187
Gain / (loss) on related companies	410	601	(615)	225	(876)
Net financial expense	(43,494)	(53,144)	(73,260)	(3,376)	(11,400)
Net income before income tax	136,587	113,947	93,420	101,644	104,762
Income tax expense	(55,897)	(47,596)	(3,003)	(8,449)	(4,345)
Net income for the period	80,690	66,351	90,417	93,195	100,417

6. Statistical Data (Physical Units)

	Three-month period ended March 31, — 2008	2007	2006	2005	2004
Gas Transportation
Average firm contracted capacity (in billions of cubic feet per day (Bcf/d))	2.59	2.53	2.52	2.30	2.18
Average daily deliveries (in Bcf/d)	2.07	2.01	1.97	2.07	1.95

NGL production and commercialization
* Production
Ethane (in short tones)	106,631	102,198	98,654	83,154	106,370
Propane and butane (in short tones)	145,476	150,499	150,949	114,920	159,679
Natural Gasoline (in short tones)	31,687	32,209	32,512	23,601	32,349
* Local market sales (a)
Ethane (in short tones)	106,631	102,198	98,654	83,154	106,370
Propane and butane (in short tones)	56,992	62,946	61,519	50,823	55,018
Natural Gasoline (in short tones)	-	2,025	1,349	1,332	2,980
* Exports (a)
Propane and butane (in short tones)	122,928	81,998	100,374	60,693	99,666
Natural Gasoline (in short tones)	28,457	27,261	34,957	22,732	33,054

(a) Includes natural gas processed on behalf of third parties.

7. Comparative ratios

	As of March 31, — 2008	2007	2006	2005	2004
Liquidity (Current assets to current liabilities)	2.46	2.41	2.24	2.01	0.27
Shareholders equity to total liabilities	1.41	1.20	0.89	0.82	0.64
Non current assets to total assets	0.82	0.84	0.83	0.88	0.83

8. Other Information

TGS share market value in Buenos Aires Stock Exchange at closing of last business day

	2008	2007	2006	2005	2004
January	3.30	4.08	3.25	3.37	3.16
February	3.08	4.00	3.20	3.55	3.06
March	2.90	3.88	3.19	3.40	3.08
April		4.33	3.11	3.04	2.54
May		4.84	3.04	3.60	2.38
June		4.97	3.01	3.26	2.37
July		4.60	3.18	3.65	2.53
August		4.27	3.06	3.64	2.58
September		4.25	3.40	3.79	2.86
October		4.45	3.56	3.80	3.06
November		3.62	3.64	3.50	3.03
December		3.80	4.19	3.36	3.05

10. Outlook

TGSs key goal in 2008 consists of the creation of the appropriate conditions for the re-composition of the economic value of the business and the development of alternative expansion mechanisms, by means of prepayment schemes from its clients.

For the NGL production and commercialization segment, TGSs strategy is targeted at finding alternatives to natural gas availability as the Company moves forward in the value chain, developing innovating solutions related to logistics services. As regards Other services segment, its strategy is directed to focus in the resources required for the development of new business opportunities both in the local market and the regional market settling down in its vast know-how of the business and the industry.

Besides, TGS will also keep the focus on the efficiency of its operations, core to the development of its business, applying new technologies to its processes and participating actively in the market of goods and services to maximize the level of competitiveness in satisfying the natural gas demand.

In the field of internal processes, TGS will be working on an excellence model based on the standards outlined in the National Quality Prize, combining them with its initiatives.

Buenos Aires, May 5, 2008.

Claudio Fontes Nunes
Board of Directors Chairman

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

BUSINESS DESCRIPTION

Transportadora de Gas del Sur S.A. (the Company or TGS) is one of the companies created as a result of the privatization of Gas del Estado S.E. (GdE). The Company commenced operations on December 29, 1992 and it is engaged in the transportation of natural gas and production and commercialization of natural gas liquids (NGL). TGSs pipeline system connects major gas fields in southern and western Argentina with gas distributors and industries in those areas and in the greater Buenos Aires area. The gas transportation license to operate this system for a period of thirty-five years (the License) was exclusively granted to the Company. TGS is entitled to a one-time extension of ten years provided that it has essentially met the obligations imposed by the License and by the Ente Nacional Regulador del Gas (National Gas Regulatory Agency or ENARGAS). The General Cerri Gas Processing Complex (the Cerri Complex), where the Company processes natural gas by extracting NGL, was transferred from GdE along with the gas transmission assets. The Company also renders midstream services, which mainly consist of gas treatment, removal of impurities from the natural gas stream, gas compression, wellhead gas gathering and pipeline construction, operation, and maintenance services.

TGSs controlling shareholder is Compañía de Inversiones de Energía S.A. (CIESA), which holds approximately 55.3% of the Companys common stock. Local and foreign investors hold the remaining ownership of TGSs common stock. CIESA is owned 50% by Petrobras Energía S.A. (Petrobras Energía) and a subsidiary of Petrobras Energía (jointly Group Petrobras Energía), 40% by CIESA Trust, (the Trust), and the remainder 10% by a subsidiary of Enron Corp. (Enron).

The current ownership of CIESAs common stock is the result of the first stage of the Master Settlement and Mutual Release Agreement (the Settlement Agreement), signed by Petrobras Energía and Enron subsidiaries on April 16, 2004. The shareholding exchange was carried out on August 29, 2005, after the ENARGAS approval by Note No. 4,858 issued in July 2005. In this stage, Enron subsidiaries transferred 40% of the outstanding share capital of CIESA to the Trust; and Petrobras Energía and its subsidiaries transferred their TGS class B common shares (accounting for 7.35% of the outstanding share capital of TGS) to Enron subsidiaries.

The second stage will be implemented through the Restructuring Agreement signed on September 7, 2005 among CIESA, its current shareholders and its creditors. This agreement consists of two stages: the first one that is the partial refinancing of CIESAs indebtedness (due in April 2002) for approximately US$23 million that has been completed, and the second one that will be achieved once the approvals of the Comisión Nacional de Valores (the Argentine National Securities Commission or CNV), ENARGAS and Comisión Nacional de la Defensa de la Competencia are obtained, the cancellation of the remaining debt (whose principal amounts to US$ 201 million) through CIESAs transfer to its creditors of TGS class B common shares that accounts for approximately 4.3% of TGSs common stock (which will be simultaneously exchanged for the 10% of CIESAs outstanding shares held by a subsidiary of Enron), and the issuance of new CIESAs shares in such a manner that the creditors will hold 50% of the common stock. Finally, the Trust will transfer its CIESAs shareholding to Petrobras Energía, in order to hold the remaining 50%.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Companys consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in force in the Autonomous City of Buenos Aires (Argentine GAAP) and the regulations of the CNV and the ENARGAS. Argentine GAAP differs in certain significant respects from generally accepted accounting principles in the United States of America (US GAAP). Such differences involve methods of measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP and Regulation S-X of the Securities and Exchange Commission (SEC). These consolidated interim financial statements do not include any valuation adjustments or additional disclosures to reflect such differences.

The consolidated interim financial statements include the accounts of TGS and its subsidiary Telcosur S.A. (Telcosur), over which it has effective control. The Company followed the methodology established in Technical Resolution (TR) No. 21 Equity Method of Accounting, Consolidation of Financial Statements and Related Party Transactions, of the Argentine Federation of Professional Councils in Economic Sciences (Argentine Federation) and approved by the Professional Council in Economic Sciences of Autonomous City of Buenos Aires (CPCECABA). The accounting policies followed by Telcosur in the preparation of its financial information are

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

consistent with those applied by TGS. All significant intercompany transactions have been eliminated in consolidation.

Detailed data reflecting subsidiary direct control as of March 31, 2008 and 2007 and December 31, 2007 is as follows:

Company		Closing date	Legal address
Telcosur S.A.	99.98 %	December 31	Don Bosco 3672, 6 th Floor
			Autonomous City of Buenos Aires

Financial statements of Telcosur have been used for consolidation purposes for the three-month periods ended March 31, 2008 and 2007 and the year ended December 31, 2007.

Use of estimates

The preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements, as well as the reported amounts of revenues and expenses during the reporting fiscal year. Estimates are used when accounting for the allowance for doubtful accounts, depreciation, amortization, income taxes, provision for contingencies, fair value of assets and present value of long term receivables and liabilities. Actual results could be significantly different from such estimates.

Consolidated interim financial statements for the three-month periods ended March 31, 2008 and 2007 are unaudited. The consolidated interim financial statements include, in the opinion of the management, all adjustments, consisting only of normal adjustments that are considered necessary for a fair presentation of the information in the financial statements. Results for the three-month periods ended March 31, 2008 and 2007 do not necessarily reflect the portion of the Companys result for the complete fiscal year.

Presentation of consolidated interim financial statements in constant Argentine pesos

As established by Resolution No. 3/2002 of the CPCECABA and Resolution No. 415 of the CNV, as from January 1, 2002, the Company resumed the recognition of the effects of inflation in these consolidated interim financial statements, following the provisions of TR No. 6, as amended by TR No. 19, both issued by the Argentine Federation. Accounting measurements restated due to the change in the purchasing power of the currency up to August 31, 1995, as well as those which have been originated between that date and December 31, 2001, are stated in the currency value as of the later date.

On March 25, 2003, the Argentine Government issued Decree No. 664, which provides that financial statements for periods ending after such date shall be stated in historical Argentine pesos. As a consequence and in accordance with Resolution No. 441, issued by the CNV, the Company suspended inflation accounting effective March 1, 2003. This criterion is not in line with effective accounting standards, which stipulate that financial statements should be restated as of September 30, 2003. The non-recognized inflation effect on net income for the three-month periods ended March 31, 2008 and 2007 is not significant.

The Argentine Wholesale Price Index (WPI) published by the Instituto Nacional de Estadísticas y Censos (INDEC) was used for the restatement of the financial statements, as mentioned above.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Short-term receivables and liabilities in currency

Short-term receivables and liabilities, including accrued interest, if applicable, at the end of each period / year have been valued at their respective nominal amount, which does not materially differ from the present value of the future cash flow that the receivables and liabilities will generate, using the internal rate of return estimated at inception.

Foreign currency assets and liabilities

Assets and liabilities denominated in foreign currencies, including accrued interest, if applicable, have been translated at the prevailing exchange rates at the end of each period / year. Detailed information is disclosed in Exhibit G.

Inventories

Inventories consist of natural gas of TGS (in excess of line pack classified as property, plant and equipment) and third parties in the pipeline system, and NGL obtained from natural gas processing at the Cerri Complex. Inventories have been valued at replacement or reproduction cost, as applicable. The carrying value of inventories does not exceed their net realizable value.

Current investments

Bank accounts and time deposits in local and foreign currency have been valued at their face values plus accrued interest, which do not materially differ from their discounted value using the internal rate of return effective at inception.

Mutual funds have been valued at market value at period /year-end .

Long-term receivables and liabilities in currency

Long-term receivables and liabilities (except for deferred tax assets and liabilities and asset tax credit) have been valued based on the best estimate of the discounted value of the amounts expected to be collected or paid, as applicable, using the interest rate effective at the time of the initial measurement.

Loans have been valued based on the present value of the amounts expected to be paid, using the internal rate of return estimated at the inception of the transaction. This rate does not significantly differ from the market interest rate at that moment.

Assets and liabilities generated as a result of the application of the deferred tax method and the asset tax credit have been calculated at their nominal value.

Non-current investments

Equity investments in companies in which the Companys ownership interest ranges between 20% and 50% are Gas Link S.A. (Link), Transporte y Servicios de Gas en Uruguay S.A. (TGU) and Emprendimientos de Gas del Sur S.A. (EGS) and have been accounted for under the equity method. These investments have been valued based on the financial statements at the dates specified in Exhibit C, which have been prepared applying the same accounting policies as those used by the Company to prepare its consolidated interim financial statements. As of March 31, 2008 and 2007, the investment in Link has been adjusted by Ps. 4,314 and Ps. 4,326, respectively, due to the elimination of intercompany profits. The book value of the investment in EGS as of March 31, 2008 and December 31, 2007 includes Ps. 67 and Ps. 64, respectively, corresponding to the transactions between EGS and

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

the Company in the three-month period ended March 31, 2008 and December 31, 2007. Likewise, for such transactions, the book value of the investment in TGU as of said periods includes Ps. 34 and Ps. 29, respectively.

The Company considers its foreign subsidiary TGU to be a non-integrated subsidiary. Consequently, TGUs assets and liabilities have been translated into Argentine pesos using the exchange rate in effect at year-end, while its common stock and retained earnings accounts have been translated using historical exchange rates.

The Companys management is not aware of any significant subsequent events which affected the financial statements of EGS, Link and TGU from December 31, 2007 to March 31, 2008.

Property, plant and equipment, net

Assets transferred from the privatization of GdE: The value of these assets was determined based on the price paid for the acquisition of 70% of the Companys common stock, which amounted to US$ 561.2 million. This price was the basis to determine a total value of common stock of US$ 801.7 million, which, when added to the debt assumed under the Companys privatization agreement (the Transfer Agreement) of US$ 395.0 million, resulted in a total value for property, plant and equipment of US$ 1,196.7 million. Such value, converted at the exchange rate in effect as of the date of the Transfer Agreement, has been restated for the effects of inflation as described in Note 2.b).

Line pack: It represents the natural gas in the transportation system that is necessary to keep the system at operating capacity, valued at acquisition cost and restated for the effects of inflation as described in Note 2.b).

Capitalization of foreign exchange loss: Resolutions No. 3/2002 and No. 87/03 issued by the CPCECABA established that exchange losses arising from the devaluation of the peso from January 6, 2002 to July 28, 2003, to the extent that they were related to foreign currency liabilities existing at the first date, are to be added to the cost basis of assets acquired or constructed with direct financing by such foreign currency liabilities. Similar accounting treatment is permitted, but not required, for foreign exchange losses arising from indirect financing. It was assumed that the proceeds from such financings were used, firstly, to cover working capital requirements and, secondly, to finance the acquisition or construction of assets that do not qualify for capitalization. The remainder was assumed to relate to assets for which capitalization is permitted.

Additions: They have been valued at acquisition cost restated for the effects of inflation as described in Note 2.b). The Company has capitalized all the investments stipulated as mandatory in the License during the first five-year period, in order to achieve system integrity and public safety equal to those required by international standards. Such investments included, among others, the costs of survey programs related to internal and external pipeline inspection, cathodic protection and pipeline replacement and recoating. Additionally, Resolutions No. 1,660 and No. 1,903 issued by ENARGAS include definitions prescribing which costs should be considered improvements and which costs should be considered maintenance expenses. Repair and maintenance costs have been expensed as incurred.

Depreciation: Accumulated depreciation related to natural gas transportation assets is computed under the straight-line method over the estimated useful lives of the specific assets, which are lower than the maximum useful lives established by the ENARGAS through Resolutions No. 1,660 and No. 1,903.

For depreciation of all other property, plant and equipment, the Company uses the straight-line method of depreciation and applies the annual depreciation rates disclosed in Exhibit A.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the statement of income.

Capitalized foreign exchange loss is depreciated over the remaining useful lives of the assets that led to such capitalization.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Financial expense capitalization: The Company capitalizes financial expense on long term construction projects. Financial expense capitalized was Ps. 704 and Ps. 2,905 for the three-month periods ended March 31, 2008 and 2007, respectively.

Based on the projections made as discussed in Note 2.a) and c), the Companys management believes that the recorded value of property, plant and equipment does not exceed its recoverable value.

Intangible assets

Intangible assets have been valued at their historical cost, less accumulated amortization.

Debt issuance costs are being amortized in the term of the notes issued on May 14, 2007 (Note 6).

The intangible assets balance includes costs generated by the acquisition of turbine maintenance and repair licenses and the expenses related to the creation of the Global Program 2007. Both of these items are being amortized in a 5-year period.

Income tax

The Company and its subsidiary have calculated their respective income tax charges using the deferred tax method, which considers the effect of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

To estimate deferred tax assets and liabilities, the tax rate expected to be in effect at the time of utilization was applied to identify temporary differences and tax loss carryforwards based on the legal requirements effective at the time of preparation of these consolidated interim financial statements.

The reconciliation between the current tax an the income tax expense charged to the statement of income in the three-month periods ended March 31, 2008 and 2007 is as follows:

	2008	2007
Current tax	(57,080)	(253)
Temporary differences variation	1,183	(6,464)
Tax loss carryforwards utilization	-	(40,879)
Income tax expense	(55,897)	(47,596)

The components of the net deferred tax asset and liabilities as of March 31, 2008 and December 31, 2007 are the following:

Non-current deferred tax assets and liabilities	03/31/2008	12/31/2007
Allowance for doubtful accounts	27	27
Deferred revenues	(523)	(683)
Present value other receivables	38	38
Property, plant and equipment, net	(77,214)	(77,695)
Other provisions	768	869
Provision for contingencies	17,477	16,838
Foreign exchange gain generated by current investments	915	177
Labor provisions	2,386	3,120
Net deferred tax liability (Note 4.i. and 4.d.) (1)	(56,126)	(57,309)

(1)

Net of deferred tax asset of Ps. 62 and Ps. 95 (recorded under Other non-current receivables) as of March 31, 2008 and December 31, 2007, respectively.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Income tax expense computed at the statutory tax rate on pre-tax income differs from the income tax expense for the three-month periods ended March 31, 2008 and 2007 as follows:

	2008	2007
Pre-tax income	136,587	113,947
Statutory income tax rate	35%	35%
Income tax expense at statutory income tax rate	(47,805)	(39,881)
Permanent differences at statutory income tax rate
- Inflation adjustment	(8,041)	(8,239)
- Non-taxable income or non-deductible expenses	(53)	135
- Others	2	389
Income tax expense	(55,897)	(47,596)

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become recoverable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning in making these assessments. This evaluation is based on internal projections made as discussed in Note 2.a).

Within the framework of Resolution No. 312/05 from the FACPCE, the net book value of the inflation adjustment included in the accounting value of the property, plant and equipment is a temporary difference and thus, the deferred tax liability is required to be recorded. However, said resolution provides the possibility of disclosing it in the notes to the financial statements instead of recording it. TGS has elected to disclose the deferred tax liability in notes to the consolidated interim financial statements . This deferred tax liability does not constitute an account payable, but it is a liability that will be reversed over the remaining period over which these assets are depreciated. In compliance with Resolution No. 487 of the CNV, TGS advises that, if that liability had been recognized, the deferred tax liability as of March 31, 2008, would have increased in Ps. 679,784 (generating a net liability position of Ps. 735,972) and a positive effect of Ps. 8,042 and Ps. 8,148 on the Companys net income for the three-month periods ended March 31, 2008 and 2007, respectively, would have been recognized. Additionally, in the rest of 2008 and subsequent years, TGS would have recorded a lower income tax expense as follows:

	Amount
From 04-01-08 to 12-31-08	22,654
Year 2009	30,708
Year 2010	30,359
Year 2011	30,305
Year 2012 onwards	565,758
Total	679,784

Asset tax

The Company and its subsidiary are subject to the Asset Tax Law (Impuesto a la Ganancia Mínima Presunta). The asset tax is calculated on an individual entity basis at the statutory tax rate of 1%, and is based upon the taxable assets of each Argentine entity as of the end of the year. This tax is complementary to income tax and the Company is required to pay the greater of the income tax or the asset tax. Any excess of the asset tax over the income tax may be carried forward and recognized as a payment on account of any excess of income tax over asset tax occurring within the subsequent ten years.

In the opinion of management, it is probable that the Company will utilize such asset against future taxable income charges within the next ten years and, as a result, the Company has recognized the accumulated asset tax charge within Other non-current receivables in the accompanying consolidated balance sheet. This tax credit has been recorded at its nominal value according to what it is mentioned in Note 2.g).

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

The breakdown of the asset tax credit as of March 31, 2008 is as follows:

Fiscal year	Amount	Year of expiration
2002	10,395	2012
2003	26,214	2013
2004	23,861	2014
2005	22,680	2015
2006	22,807	2016
2007	7,960	2017
Income tax accrual	(50,863)
Balance at the end of the period (Note 4.d.)	63,054

Advances from customers in kind

The advances from customers in kind have been valued at their respective nominal amount considering that this value is higher than the cost of rendering the gas transportation services that will cancel said advances.

Allowances and provisions for contingencies

The Company provides for losses relating to its accounts receivable. The allowance for losses is based on managements evaluation of various factors, including the credit risk of customers, historical trends and other information. While management uses the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimation, and the consolidated interim financial statements reflect that consideration.

The Company has certain contingent liabilities with respect to existing claims, lawsuits and other proceedings, including those involving legal and regulatory matters. The Company records liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments known by TGS at the date of the issuance of these consolidated interim financial statements, estimates of the outcome of these matters and the experience of its legal counsel in contesting, litigating and settling other matters. As the scope of the contingent liabilities become better defined, there will be changes in the estimates of future costs, which could have a material effect on the Company's future results of operations and financial condition or liquidity.

Contingencies and allowances are disclosed in Exhibit E.

Shareholders' equity accounts

These accounts have been restated to account for the effects of inflation as described in Note 2.b), except for "Common stock" which is stated at original cost. The adjustment derived from the restatement of such account has been disclosed under the line item Inflation adjustment to common stock, in the Statement of Changes in Shareholders Equity.

Revenue recognition

Firm transportation revenues are recognized based on the accrued contracted capacity reserved regardless of actual usage. For interruptible transportation services and certain NGL production and commercialization contracts, revenues are recognized upon the delivery of natural gas or gas liquids to customers, respectively. For other NGL production and other services contracts, revenues are recognized when services are rendered.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Statement of income accounts

Accounts relating to the statement of income have been recorded considering the following criteria:

-Accounts that accumulate monetary transactions, at their nominal value.

-Expenses related to consumption of non-monetary assets have been charged to the statement of income considering the restated cost of such assets as described in Note 2.b).

-Gain on related companies were determined on the basis of TGS affiliates results and were disclosed under Gain on related companies.

Other (expense) / income, net for the three-month periods ended March 31, 2008 and 2007, include the following items:

	2008	2007
(Increase in) / reversal of allowances and provisions (Exhibit E)	(1,827)	15,475
Others	(1,694)	(141)
Total	(3,521)	15,334

Earnings per share and per American Depositary Shares (ADS)

Earnings and dividends per share and per ADS for the three-month periods ended March 31, 2008 and 2007 have been calculated based on 794,495,283 outstanding shares during each period. One ADS represents five Class B shares. As the Company does not have preferred stock or convertible debt, the amount of basic earnings per share is the same as the amount of diluted earnings per share.

Derivative financial instruments

The Company has outstanding derivative financial instruments with major financial institutions with the aim to reduce the risk of the financial market, at a competitive cost in accordance with the market conditions, to manage the impact of the floating interest rate changes and the US dollar exchange rate changes. TGS does not use financial instruments with speculative aims.

The derivative financial instrument described in Note 6 consists of a currency forward and has been valued

at its net realizable value.

CONSOLIDATED BUSINESS SEGMENT INFORMATION

The Company's business segments are as follows: (i) natural gas transportation services through its pipeline system; (ii) NGL production and commercialization and (iii) other services, which include midstream and telecommunication services (the latter rendered by its subsidiary, Telcosur).

Operating income / (loss) consists of net revenues minus operating expenses. In the calculation of operating income / (loss), the following items have not been included: other expenses, gain (loss) on related companies, net financial results and income tax expense.

Assets and liabilities were allocated to each segment based on the specific identification of the assets and liabilities related to the specific business. Assets and liabilities that cannot be allocated to a specific segment were grouped under "Corporate" and include current investments and loans, among others.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Three-month period ended March 31, 2008	Gas Transportation	NGL Production and Commercialization	Other Services	Corporate	Total
Net revenues	127,320	320,401	16,381	-	464,102
Operating income / (loss)	54,634	140,069	(712)	(10,799)	183,192
Depreciation of property, plant and equipment	37,073	8,757	3,656	412	49,898
Additions to property, plant and equipment	15,355	6,455	4,114	2,038	27,962
Identifiable assets	3,740,262	525,211	171,426	703,662	5,140,561
Identifiable liabilities	226,042	106,474	8,396	1,789,726	2,130,638

Three-month period ended March 31, 2007	Gas Transportation	NGL Production and Commercialization	Other Services	Corporate	Total
Net revenues	125,488	182,517	31,524	-	339,529
Operating income / (loss)	55,909	88,709	17,908	(11,370)	151,156
Depreciation of property, plant and equipment	36,628	7,812	3,402	430	48,272
Additions to property, plant and equipment	37,769	8,571	2,421	3,396	52,157
Year ended December 31, 2007
Identifiable assets	3,737,490	474,601	174,224	615,369	5,001,684
Identifiable liabilities	249,528	59,510	9,345	1,753,753	2,072,136

The Company renders services of gas transportation principally to gas distribution companies and Petrobras Energía. Significant customers in terms of net revenues from gas transportation for the three-month periods ended March 31, 2008 and 2007 are as follows:

	2008	2007
MetroGAS S.A.	44,643	43,970
Camuzzi Gas Pampeana S.A.	22,651	22,444
Gas Natural BAN S.A.	17,375	17,393
Petrobras Energía	7,037	7,241
Camuzzi Gas del Sur S.A.	5,215	5,359

Significant customers in the NGL production and commercialization segment are Petrobras International Finance Company (PIFC), a subsidiary of Petrobras Petróleo Brasileiro S.A. and PBB-Polisur S.A. (Polisur). Net revenues from these customers (include NGL sales made on behalf of third parties, from which TGS withholds charges for the production and commercialization of NGL) for the three-month periods ended March 31, 2008 and 2007 are as follows:

	2008	2007
PIFC	301,760	137,601
Polisur	75,501	59,669

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

4. SUMMARY OF SIGNIFICANT BALANCE SHEET ITEMS AS OF MARCH 31, 2008 AND DECEMBER 31, 2007

a)	Current accounts receivable	03/31/2008	12/31/2007
	Gas transportation
	MetroGAS S.A.	11,096	8,773
	Camuzzi Gas Pampeana S.A.	8,903	8,803
	Gas Natural BAN S.A.	7,621	7,479
	Camuzzi Gas del Sur S.A.	2,577	2,128
	Profertil S.A. (Profertil)	1,293	1,261
	Repsol-YPF S.A. (Repsol YPF)	5,450	3,045
	Total Austral S.A. (Total Austral)	1,876	3,345
	Pan American Sur S.R.L. (PAS)	391	2,948
	Related companies	4,105	4,125
	Others	11,754	12,866
	Subtotal	55,066	54,773
	NGL production and commercialization
	Polisur	32,952	22,032
	Pan American Energy LLC (Argentine Branch)	506	1,165
	Total Austral	5,087	3,788
	Related companies	115,201	47,848
	Others	175	6,827
	Subtotal	153,921	81,660
	Other services
	Pan American Energy LLC (Argentine Branch)	-	939
	Profertil	5,188	3,437
	Gas trust fund (Note 7.c.)	9,286	9,230
	Related companies	4,626	2,604
	Others	14,961	13,173
	Subtotal	34,061	29,383
	Allowance for doubtful accounts (Exhibit E)	(716)	(716)
	Total	242,332	165,100
b)	Other current receivables
	Tax credits	18,598	13,357
	Prepaid insurance expense	1,623	4,311
	Advances to suppliers	10,486	26,127
	Claims to third parties (1)	17,136	25,493
	Others	7,557	8,342
	Total	55,400	77,630
c)	Non-current accounts receivable
	Other services
	Profertil	12,262	13,443
	Total	12,262	13,443

d) — Deferred income tax (Note 2.k.)	62	95
Asset tax credit (Note 2.l.)	63,054	113,917
Easement expense to be recovered	4,233	4,233
Others	4,765	4,909
Total	72,114	123,154

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

e)	Current accounts payable		12/31/2007
	Suppliers	157,218	147,954
	Customers (Credit balances)	25,754	13,594
	Related companies	9,994	2,042
	Total	192,966	163,590
f)	Taxes payable
	Turnover tax	1,619	568
	Income tax (net of advances and others)	10,808	6,371
	Value added tax (VAT)	8,979	106
	Tax on exports	10,110	23,021
	Others	3,410	4,203
	Total	34,926	34,269
g)	Current advances from customers (2)
	Aluar Aluminio Argentino S.A.C.I. (Aluar)	2,411	2,411
	Total Austral	6,602	6,426
	Wintershall Energía S.A. (Wintershall)	1,832	1,656
	PAS	4,402	4,284
	Others	270	585
	Total	15,517	15,362
h)	Other liabilities
	Provisions for GdE lawsuit (Note 9.d.)	12,456	12,035
	Other provisions	477	119
	Total	12,933	12,154
i)	Non-current taxes payable
	Deferred Income tax (Note 2.k.)	56,188	57,404
	Total	56,188	57,404
j)	Non-current advances from customers (2)
	Aluar	54,944	55,539
	Total Austral	39,705	41,582
	Wintershall	1,943	2,628
	PAS	26,470	27,721
	Others	13	21
	Total	123,075	127,491

It corresponds to an arbitration claim initiated by TGS against the Bank of America for the amount of US$ 9 million, net of related payments received. The claim is based on the annulment made by the bank, of the transfer of funds to TGS account that had been instructed by the Company on December 6, 2007 to redeem securities of the Columbia Strategic Cash Fund (Cash Fund arranged by the Bank of America). On such date, the Cash Fund entered into a liquidation process, and pledged to refund to the subscribers the proceeds of the settlement of its investments in the following months. From December 6, 2007 to the date of the issuance of these consolidated interim financial statements the Cash Fund has reimbursed to TGS US$ 3,5 million, on account of the US$ 9 million (Note 9.e.).

They are mainly related to the financing of TGS pipeline system expansion works for the rendering of firm transportation services contracted by such clients. The advance payments will be settled with the effective rendering of firm transportation service.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

5. SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the consolidated statement of cash flows, the Company considers all highly liquid temporary investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The cash flow statement has been prepared using the indirect method, which requires a series of adjustments to reconcile net income for the period to net cash flows from operating activities.

Cash and cash equivalents at the end of the three-month periods ended March 31, 2008 and 2007 are as follows:

	2008	2007
Cash and banks (1)	125,399	13,984
Current investments	476,413	570,180
Current investments other than cash and cash equivalents	(31,148)	-
Total cash and cash equivalents	570,664	584,164

(1) As of March 31, 2008, includes Ps. 122.228 corresponding to balances from bank accounts in foreign currency .

Non-cash transactions are as follows:

	2008	2007
Acquisition of property, plant and equipment through an increase in accounts payable	11,285	4,137
Financial expense capitalization	(704)	(1,325)

Cash flows resulting from operations include net financial expense generated by cash and cash equivalents as of March 31, 2008 and 2007 for Ps. 3,197 and Ps. 6,235, respectively.

6. LOANS

Short-term and long-term debt as of March 31, 2008 and December 31, 2007 comprises the following:

	03/31/2008	12/31/2007
Current Loans:
1999 EMTN Program: Series 2 notes (1)	95	94
Interests payable	47,232	15,636
Financial leases (annual interest rate of 7.65%)	246	729
Total current loans	47,573	16,459
Non- current loans:
2007 EMTN Program: Series 1 notes	1,584,000	1,574,500
Total non-current loans	1,584,000	1,574,500
Total loans	1,631,573	1,590,959

(1) Corresponds to notes that were not tendered in the debt exchange made in December 2004 and bear an annual interest rate of 10.375%.

Issuance of notes under the 2007 Global Program:

The Extraordinary Shareholders' meeting held on December 21, 2006 approved the creation of the Global Program for the issuance of new notes of a maximum aggregate amount of US$ 650,000,000. This Program was authorized by the CNV on January 18, 2007.

With the aim of improving the indebtedness profile of the Company and to soften the restrictions of the previous debt, in May and June 2007, TGS succeeded in the process of refinancing its financial debt by means of the

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

issuance of new notes in an amount of US$ 500,000,000 within the 2007 Global Program, and the prepayment of its prior debt by a tender offer, the redemption of those notes not tendered and the prepayment of the IDB loans.

The early amortization of the restructured debt generated a Ps. 10,576 gain, which is net of a cost of Ps. 25,222 paid for the prepayment of Tranche B-A (equaled to the 2% of the principal amount), and the Ps. 2,291 premium paid for the equivalent of 0.25% of the residual principal amount of the tendered notes.

The issuance of the US$ 500,000,000 notes within the Global Program 2007, due on May 14, 2017, accrues interest at a fix annual rate of 7.875%, payable semi-annualy. The principal amount will be amortized in four equal payments of US$ 125,000,000, which mature on May 14, 2014, 2015, 2016 and 2017. Public trading of these notes was authorized by the Bolsa de Comercio de Buenos Aires ("BCBA"), the Mercado Abierto Electrónico (MAE) and the Luxembourg Stock Exchange.

Covenants :

The Company is subject to some restrictive covenants under its outstanding debt obligations which include, among others, some restrictions to incur new debt, dividend payments, the granting of guarantees, assets sales and transactions with related companies.

The Company may incur new debt, under these restrictions, among others:

As long as after incurring the new debt, (i) the consolidated coverage ratio (quotient of the consolidated adjusted EBITDA -earnings before financial results, income tax, depreciation and amortization-) and the consolidated interest expense) is equal or higher than 2.0:1; and (ii) the consolidated debt ratio (quotient of the consolidated debt and the consolidated EBITDA) is equal or lower than 3.75:1.

For the refinancing of the outstanding financial debt.

Provided by advances from customers.

The Company may pay dividends as long as (i) the Company is not in default under the new debt obligations, (ii) immediately after the dividend payment, the Company would be able to incur in additional indebtedness pursuant to a. from the preceding paragraph.

Derivative financial instruments

In November 2007, the Company entered into a currency forward agreement with a major financial institution, which expiration date is on May 12, 2008. By means of this hedge agreement, the Company ensured the purchase of US$ 9 million at an exchange rate of Ps. 3.227 per U.S. Dollar, in order to afford the interest payment of its financial debt on May 14, 2008. To the purpose of its settlement, the Company will take the reference exchange rate informed by the Central Bank of the Argentine Republic (BCRA) through the Circular A 3,500. As of March 31, 2008, its fair value amounts to approximately negative Ps. 405 and was recorded in Current Loans with debit to Other Comprehensive Loss account.

REGULATORY FRAMEWORK

General framework and current tariff context:

The Companys natural gas transportation business is regulated by Law No. 24,076 (the Natural Gas Act), its regulatory decree No. 1,738/92 and by regulations issued by ENARGAS, which is entitled, among other things, to set the basis for the calculation, monitoring and approval of tariffs (the Regulatory Framework). According to the Regulatory Framework, transportation tariffs were to be calculated in US dollars and converted into Argentine pesos at the time the customer was billed using the exchange rate prevailing at that time. The basic gas transportation tariffs charged by TGS had been established at the time of the

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

privatization of GdE and were to be adjusted, subject to prior authorization, in the following cases: (i) semi-annually to reflect changes in the US producer price index (PPI) and (ii) every five years according to efficiency and investment factors determined by ENARGAS. The efficiency factor is a reduction to the base tariff resulting from future efficiency programs while the investment factor increases the tariffs to compensate the licensees for future investments which are not repaid through tariffs. Also, subject to ENARGAS approval, tariffs were to be adjusted to reflect non-recurrent circumstances or tax changes, other than income tax.

The terms and conditions as described in the precedent paragraph in connection with tariff adjustments contemplated within the Regulatory Framework are no longer effective since the enactment of the Public Emergency Law in early 2002 (the Emergency Law), which, among other provisions, eliminated tariff increases based on US dollar exchange rate fluctuations, foreign price indexes or any other indexing procedure and established a conversion rate of one peso to one US dollar for tariffs. The Emergency Law also granted the Executive Branch power to renegotiate contracts entered into with private utility companies, pursuant to the framework included in the said law as long as it is in force, which will expire in December 31, 2008, after several extensions.

In July 2003, the Unit for Renegotiation and Assessment of Utilities Contracts (UNIREN) was created under the joint jurisdiction of the Ministry of Economy and Production and the Ministry of Federal Planning, Public Investment and Services. UNIREN conducts the renegotiation process of the contracts related to utilities and public works, and is entitled to enter into total or partial agreements with the licensees and submit projects regulating the transitory adjustment of tariffs and prices, among other things. At the end of 2003, the UNIREN submitted the Preliminary Renegotiation Guidelines to TGS including a draft agenda with main issues to be discussed during the renegotiation process such as costs, investment programs and financing, rates of return and tariffs, etc, and a renegotiation schedule which set December 28, 2004 as the deadline for the adjustment of the regulatory framework with the approval of the National Congress.

In July 2004, UNIREN submitted to TGS a proposal for the adjustment of the contractual terms and conditions of the License, which among other things provided for a tariff increase of 10% effective as from 2005, an overall tariff review to become effective as from 2007 and required TGSs and its shareholders abandonment of any claim or lawsuit resulting from the effects of the Public Emergency Law on the License prior to the effectiveness of a renegotiation of the License, and also demanded TGS to hold the Argentine government harmless from any claim or lawsuit filed by its shareholders. As this proposal differed from discussions TGS previously had with UNIREN, the Company rejected it and sought to reach an overall agreement with UNIREN by the end of 2004 (in line with UNIRENs original proposal set forth in the Preliminary Renegotiation Guidelines) and to carry out the process of obtaining approval from the National Congress during the first semester of 2005.

During the Public Hearing held on April 27, 2005, with the aim of discussing the above mentioned proposal, UNIREN reaffirmed its 10% tariff increase proposal and suggested to advance the process of the overall tariff revision, so that the resulting tariff adjustments would come into effect during 2006. UNIREN also outlined a first stage that included the postponement of the potential claims from the Company and its shareholders, prior to a renegotiation of the License, and the subsequent abandonment of any such claims from TGS or its shareholders, and the agreement to hold harmless the Argentine Government. Regarding the original proposal, TGS put forward the need to improve certain items of UNIRENs original proposal and expressed its willingness to continue the negotiation.

In June and November 2005, TGS received two proposals from UNIREN which were in line with the previous one. Said proposals also established, as an additional condition, the Companys and its shareholders abandonment of any future claim or lawsuit regarding the PPI tariff adjustments which were not applied in 2000 and 2001. TGS responded to the proposals, and declared that the original 10% increase was insufficient and committed not to file any administrative, arbitration or judicial claim or lawsuit in Argentina or abroad, as long as a reasonable renegotiation agreement was reached. Moreover, TGS stated that the Company is determined to make its best efforts to obtain similar commitments from its investors.

In November 2005, in response to the requirement made by the UNIREN, CIESA and Petrobras Energía Holding (as CIESAs shareholder) confirmed that they had not initiated or intended to initiate in the future any claim against the Argentine Republic. Furthermore, Ponderosa Assets L.P. (Ponderosa) as a controlling

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

company of Enron Pipeline Company Argentina S.A. (EPCA) and Enron Argentina CIESA Holding S.A. (EACH) (both TGSs shareholders at that time, and in the case of EPCA, currently CIESAs minority shareholder) informed on the existence of a claim which, jointly with Enron Corp., it had initiated against the Argentine Republic before the International Center for the Settlement of Investment Disputes (ICSID) and that it would only consider waiving its claim if Ponderosa has received fair compensation. In May 2007, the ICSID ordered the Argentine Government to pay US$ 106.2 million to Enron Corp.

During 2006, the UNIREN made two new proposals to TGS with the same guidelines established in the previous proposals, reflecting no significant progress in the tariff renegotiation process as of the date of the issuance of these consolidated interim financial statements.

The NGL production and commercialization segment is not regulated by the ENARGAS, and as it is provided in the Transfer Agreement, is organized as a separate business unit within the Company, keeping accounting information separately. However, the Federal Energy Bureau regulates the propane and butane sales price for the local market. This organism determines annually a minimum volume of propane and butane to be commercialized in the local market in order to guarantee the domestic supply.

The License establishes, among other restrictions, that the Company will not be able to afford CIESA´s obligations, nor granting loans, real guarantees or of any other sort in favor of the creditors of this company.

Gas Electronic Market (MEG)

The Executive Branch, through Decree No. 180/04, among other measures, established the creation of the MEG with the purpose of improving the transparency of financial and operating performance, the coordination of daily transactions both of the gas spot and the transportation and distribution secondary markets along with the shaping of efficient prices through offer and demand free interaction. To that purpose, all firm transportation capacity non-allocated for the following day shall be marketed through the MEG and the proceeds from that capacity sale will be used at the Energy Bureaus criteria. Non-allocated capacity includes remaining capacity not used in any of the transportation systems or pipelines. This implies that TGS is bound to offer daily non-allocated capacity that complies with this condition in the MEG, which might have a material impact on the Companys interruptible transportation revenues. Notwithstanding the MEG started its operations in August 2005, it has not started yet with respect to the transactions related to natural gas transportation and distribution.

Expansion of the gas transportation system

Due to the lack of expansions of the natural gas transportation system over the last years (as a consequence of the pesification of tariffs and the fact that the renegotiation of the license is still pending) and a growing gas demand in certain segments of the Argentine economy, the Argentine Government established - through Executive Branch Decree No. 180/04 and Resolution No. 185/04 issued by the Ministry of Federal Planning, Public Investment and Utilities - the framework for the creation of a trust fund (the gas trust fund) aimed at financing the expansion of the national gas transportation system.

Within this framework, the first expansion of the San Martín Pipeline ended in August 2005, which increased the transportation capacity by 102 millions of cubic feet per day (MMcf/d). This project involved the construction of approximately 316 miles of pipeline and a 30,000 HP compression capacity increase through the construction of a compressor plant and the revamping of some of TGSs existing compressor units. The gas trust fund financed US$ 311 million from a total amount of US$ 351 million, while TGS invested approximately US$ 40 million (including VAT for U$S 7 million).

The gas trust fund repays it investment by means of the 20% of the total net revenues generated by the current tariffs from the additional transportation capacity and collects an specific charge, which is finally paid by industries, power plants and compressed natural gas suppliers for whom gas transportation supply is made under firm contracts. This charge represents an 81.6% increase in the current tariffs. The works financed by these means belong to the gas trust fund and, TGS, as well as being in charge of the management of the works, is responsible for the operation and maintenance of the gas trust assets. The cost

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

of TGS's investment is being recovered through collection of the remaining 80% of current tariff rate. This surplus is also bound for the payment of operation and maintenance expense of these new assets.

In April 2006, the Ministry of Federal Planning and Public Investment and Utilities, the Federal Energy Bureau and natural gas transportation companies, among others, signed a Letter of Intent to carry out the second expansion of the gas pipeline system. This new expansion will increase the transportation capacity by 883 MMcf/d, of which approximately 332 MMcf/d correspond to TGS system. In December 2006, the gas trust fund contracts and the works management agreement were signed; the latter is in charge of TGS.

According to this agreement, TGS will bill Ps. 50 million plus VAT as a consideration for the services to be rendered for the 247 MMcf/d expansion (for the three-month period ended March 31, 2008, the Company recorded a provision of Ps. 9.3 million), and the expansion works management fee for the remaining 85 MMcf/d has not yet been determined. The property of the works will be entitled to a gas trust fund and the investment would be financed by other gas trust funds, whose trustors are the shippers who subscribed the additional capacity. The works will be repaid with a new tariff charge that will be finally paid by the industries, power plants and large and medium-size businesses.

In accordance with the current schedule, the first stage, which consists of an expansion of 78MMcf/d in transportation capacity, will be on operation on May 31, 2008.

Essential assets

A substantial portion of the assets transferred by GdE has been defined as essential for the performance of the gas transportation service. Therefore, the Company is required to segregate and maintain these assets, together with any future improvements, in accordance with certain standards defined in the License.

The Company may not, for any reason, dispose of, encumber, lease, sublease or loan essential assets nor use such assets for purposes other than providing the licensed service without the prior authorization of ENARGAS. Any expansion and improvement that the Company may make to the gas pipeline system after the takeover may only be encumbered to secure loans that have a term of more than one year to finance new expansions and improvements to the licensed service.

Upon expiration of the License, the Company will be required to transfer to the Argentine Government or its designee, the essential assets listed in an updated inventory as of the expiration date, free of any debt, encumbrances or attachments, receiving compensation equal to the lower of the following two amounts:

the net book value of the essential assets determined on the basis of the price paid by the acquiring joint venture, and the original cost of subsequent investments carried in US dollars and adjusted by the PPI, net of accumulated depreciation according to the calculation rules to be determined by ENARGAS; or

ii)

the net proceeds of a new competitive bidding.

8. COMMON STOCK AND DIVIDENDS

a) Common stock structure and shares public offer

As of March 31, 2008, 2007 and 2006, the Companys common stock was as follows:

Common Shares Class (Face value $ 1, 1 vote)	Amount of common stock, subscribed, issued, paid in, and authorized for public offer
Class A	405,192,594
Class B	389,302,689
	794,495,283

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

TGS's shares are traded on the BCBA and under the form of the ADS (registered in the SEC and representing 5 shares each) on the New York Stock Exchange.

The Company is required to have in force the authorization of the public offer of its common stock and the corresponding authorization to trade in the different official stock markets in Argentina until 2009.

Limitation on the transfer of the Company's shares

The Company's by-laws provide that prior approval of ENARGAS and the unanimous approval of CIESAs shareholders, under agreements among them, must be obtained in order to transfer Class A shares (representing 51% of common stock). The Bid Package states that approval of ENARGAS will be granted provided that:

The sale covers 51% of common stock or, if the proposed transaction is not a sale, the transaction that reduces the shareholding will result in the acquisition of a shareholding of not less than 51% by another investment company; and

The applicant provides evidence to the effect that the transaction will not impair the operating quality of the licensed service.

In the case of shareholders of CIESA who have qualified to obtain such condition due to the equity, guarantee and/or technical background of their respective parent companies, the sale of shares representing the capital of such subsidiaries by the respective ultimate, direct or indirect parent companies, and/or the cessation of management running the Company, requires the prior authorization of ENARGAS.

In case the Company wishes to reduce its capital, redeem its shares or distribute any part of its equity, except for the payment of dividends, in accordance with the provisions of the Argentine Business Associations Law, it requires prior authorization from ENARGAS.

Restrictions on distribution of retained earnings

Under current Argentine legal requirements and CNV standards, 5% of each fiscal year net income must be appropriated into a legal reserve, provided that there is no unappropriated retained deficit. In such case, the 5% should be calculated on any excess of the net income over the unappropriated retained deficit. This appropriation is legally binding until such reserve equals 20% of the amount which results from the sum of the Common stock nominal value and the balance of Cumulative inflation adjustment to common stock.

In addition, the by-laws provide for the issuance of Profit Sharing Vouchers, as defined in Article 230 of the Argentine Business Associations Law, which Vouchers entitle all regular employees to share in 0.25% of the Companys net income for each year.

According to law No. 25,063, the dividends paid in cash or in kind, in excess of the tax profit , will be subject to a 35% withholding tax of the income tax, as sole and only payment.

Furthermore, the Company is subject to certain restrictions for the payment of dividends, which were contemplated in the outstanding debt agreements (Note 6 Covenants).

Dividend Payment

The Ordinary Shareholders Meeting held on April 10, 2008 approved a Ps. 32 million dividend payment to be paid on May 7, 2008.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

LEGAL AND REGULATORY MATTERS

In the framework of the Tax Agreement subscribed by the Argentine Government and the Provinces in 1993, and as from the enactment of provincial Law No. 11,490, NGL sales were exempted from the turnover tax in the Province of Buenos Aires. In September 2003, the Tax Bureau of the Province of Buenos Aires, through Resolution No. 4,560/03, denied the exemption and claimed unpaid taxes on accrued NGL sales since 2002. In October 2003, the Company filed an administrative appeal with the Tax Court of the Province of Buenos Aires.

In February 2007, the Tax Court partially upheld TGS complaint. In its pronouncement, the Tax Court stated that ethane sales were within the scope of the turnover tax exemption but that neither propane nor butane sales qualified for the exemption in the domestic market, because they were not raw materials for an industrial process.

TGS filed an appeal in May 2007 before the Province of Buenos Aires Court alleging that propane and butane sales might be utilized for other uses different from petrochemical industry.

Moreover, in November 2004, TGS received a hearing from the Tax Bureau of the province of Buenos Aires starting thus a tax assessment process regarding the claim mentioned above. On September 26, 2005, TGS was notified of the results of the tax assessment process regarding the turnover tax for the period January 2002 - July 2003, which amounted to Ps. 4.4 million plus interest. On October 18, 2005, TGS presented the corresponding discharge on its belief that the NGL sales activity was conducted under the tax exemption regime discussed above. On April 12, 2006 the motion to dismiss was rejected and therefore, the Company filed the corresponding appeal with the Tax Bureau of this province. On February 19, 2008, TGS was notified with a formal assessment notice of Ps. 3.6 million (including interest) regarding the payment of the turnover tax corresponding to the fiscal period ranging from August 2003 to December 2004. On March 11, 2008, TGS filed a discharge within the Tax Bureau of the Province of Buenos Aires.

As of March 31, 2008, TGS maintains a provision of Ps. 16.9 million, having partially reversed in the year ended December 31, 2007 the provision related to the ethane sales recorded under the line Other expenses, net, pursuant to the sentence pronounced in February 2007, mentioned before.

In February 2005, the Company was served notice by the CNV that certain notes issued in December 2004 by US$178 million did not fulfil the requirements provided by Article 56 of Chapter VI of the CNV Standards and in Resolution No. 470. Therefore, if CNVs interpretation prospers, those notes would not be entitled to the benefits of the tax exemption provided by the law No. 23,576, thus the Company would be exposed to a contingency due to the payment of the withholding income tax on interest payments.

On February 18, 2005, TGS filed an appeal with the CNV, alleging sufficient grounds to support the applicability of Article 56, Chapter VI of CNV Standards and Resolution No. 470/04. However, the CNV denied the Companys appeal and on July 8, 2005, TGS filed an appeal with the Ministry of Economy and Production which was subsequently rejected in November 2006. In December 2006, TGS filed a second appeal with said Ministry seeking reconsideration of the rejection, which was rejected in June 2007. In November 2007, TGS challenged said resolution before the Federal Administrative Court.

The Company believes that it has sufficient grounds and other legal instances to defend its position and thus, as of March 31, 2008, TGS has not recorded any provision in this connection.

In November 2002, the Tax Bureau of the province of Santa Cruz sent TGS a formal assessment notice for the payment of the turnover tax calculated on the natural gas price used by TGS as fuel to render its transportation services. This assessment corresponds to the period from January 1998 to October 2002. In August 2005, the Company paid the amount claimed of Ps. 1.6 million (including interests until December 4, 2002) and started a tax recovery process, first exhausting all other procedural steps, with the Tax Bureau of the province and then initiating a proceeding in the Provincial Tax Court.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

In November 2005, TGS received a notice from the Tax Bureau of the province of Río Negro claiming the payment of Ps. 0.2 million, on the same grounds as those of the Province of Santa Cruz, for the period from January 1999 to May 2005. On February 1, 2008, TGS initiated a tax recovery process with the Tax Court of the province of Río Negro to obtain the refund of Ps. 0.5 million paid in November 2007, after exhausting the same procedural steps followed in the case of province of Santa Cruz.

As of March 31, 2008, the Company recorded a provision of Ps. 21.2 million in respect of this contingency under the line item "Provisions for contingencies", which amount was determined in accordance with the estimations of tax and interests, that would be payable as of such date, in case this contingency turns out unfavourable the Company.

The Companys management believes that, in case the Companys position fails and the turnover tax has to be paid, TGS has a right to recover it by a transportation tariff increase as set forth in the License.

In 1996, GdE filed a legal action against the Company for the reimbursement for the cost of construction of two compressor plants. After a long litigation process, in 2003, the Supreme Court of Justice sustained GdE's claim and sentenced TGS to pay the market price of the compressor plants at the date of the addition to TGS assets plus interest and litigation expenses. As of March 31, 2008, the remaining balance of the sentence amounted to Ps. 47.1 million.

On January 14, 2004, TGS signed an agreement with the UNIREN, which was subsequently ratified by the Argentine government through the Decree No. 959/04 through which TGS will carry out the expansion of the Cordillerano Pipeline. The cost of the expansion will be taken as a payment on account of the final amount to be paid as a consequence of the outcome of the lawsuit described above. The Argentine Government owns such assets and granted their right of use to TGS, who will have to operate and maintain such assets. Therefore, the cost of the works was recorded under "Other Liabilities", offsetting the provision mentioned above. As of March 31, 2008, the net provision amounted to Ps. 12.5 million.

On February 1, 2008, TGS filed an arbitration claim against the Bank of America in order to obtain the refund of US$ 9 million corresponding to the annulment, made by the mentioned bank, of the transfer of funds to TGS account that the Company had instructed the bank to execute on December 6, 2007. The arbitration is conducted under the provisions of the Federal Arbitration Act and the rules of the Judicial Arbitration and Mediation Services, Inc. in the United States of America (Note 4.b.).

On November 30, 2007, TGS was served notice of the summary proceedings initiated against the Company by the BCRA. This entity charges TGS with the late settlement of foreign currencies for an approximate amount of US$ 14.7 million. The questioned transactions were conducted between January 2002 and February 2003, a period in which the applicable exchange regulations were subject to frequent changes and the terms for the settlement of foreign currencies were shorter than the current ones.

On February 25, 2008, TGS filed a motion to dismiss before the BCRA requesting the dismissal of the summary proceedings on the grounds of lack of foreign exchange violation. The Company believes that it has several legal instances to defend its position, and accordingly, as of March 31, 2008, TGS has not recorded any provision in respect of this proceeding.

In addition to the matters discussed above, the Company is a party to certain lawsuits and administrative proceedings arising in the ordinary course of business.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

10.

BALANCES AND TRANSACTIONS WITH RELATED COMPANIES

TGS sells propane, butane, and natural gasoline to PIFC, at international prices minus a fixed discount per ton, according to common market practices for this type of transactions.

Petrobras Energía is TGSs technical operator, according to the approval of ENARGAS in June 2004, and subject to the terms and conditions of the Technical Assistance Agreement which provides that Petrobras Energía is in charge of providing services related to the operation and maintenance of the gas transportation system and related facilities and equipment, to ensure that the performance of the system is in conformity with international standards and in compliance with certain environmental standards. For these services, the Company pays a monthly fee based on a percentage of the operating income of the Company.

Additionally, TGS renders natural gas transportation services to Petrobras Energía, for a 106 MMcf/d firm capacity by means of two contracts which expire in 2013 and 2014. Moreover the Company, under certain agreements, processes the natural gas in Cerri Complex and commercializes the NGL for Petrobras Energías account and on behalf of it. For consideration, TGS collects a commission which is calculated over the NGL selling price. This service is regulated by a contract which will due in December 2010.

As of March 31, 2008 and 2007, the outstanding balances corresponding to the Board of Directors compensations amounted to Ps. 78 and Ps. 97, respectively. The accrued amounts for such compensation for the three-month periods ended March 31, 2008 and 2007 were Ps. 234 and Ps. 161, respectively.

The detail of significant outstanding balances for transactions entered into by TGS and its related parties as of March 31, 2008 and December 31, 2007 is as follows:

Company	03/31/2008 — Accounts receivable	Accounts payable	12/31/2007 — Accounts receivable	Accounts payable
Controlling shareholders:
CIESA	37	-	111	-
Petrobras Energía	6,240	9,986	4,558	8,761
Affiliates with significant influence:
Link	103	-	101	-
TGU	214	-	210	-
EGS	4	-	21	-
Other related companies:		-
PIFC	115,197	-	47,332	-
Área Santa Cruz II U.T.E.	308	-	307	-
Refinor S.A.	1,029	-	730	-
WEB S.A.	708	-	643	-
Total	123,840	9,986	54,013	8,761

The detail of significant transactions with related parties for the three-month periods ended March 31, 2008 and 2007 is as follows:

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

Three-month period ended March 31, 2008

Company	Revenues — Gas transportation	NGL production and commercialization	Other services	Gas purchase and others	Compensation for technical assistance	Revenues for administrative services
Controlling shareholders:
Petrobras Energía	7,037	14,822	4,244	1,561	13,823	-
CIESA	-	-	-	-	-	31
Affiliates with significant influence:
Link	-	-	258	-	-	-
Other related companies:
PIFC	-	301,760	-	-	-	-
Refinor S.A.	-	-	370	-	-	-
WEB S.A.	771	-	-	-	-	-
Área Santa Cruz II U.T.E.	-	-	771	-	-	-
Total	7,808	316,582	5,643	1,561	13,823	31

Three-month period ended March 31, 2007

Company	Revenues — Gas transportation	NGL production and commercialization	Other services	Gas purchase and others	Compensation for technical assistance	Revenues for administrative services
Controlling shareholders:
EPCA	-	-	-	-	-	13
CIESA	-	-	-	-	-	31
Petrobras Energía	7,241	7,225	4,372	5,088	12,167	-
Affiliates with significant influence:
Link	-	-	245	-	-	-
TGU	-	-	77	-	-	-
Other related companies:
PIFC	-	137,601	-	-	-	-
Refinor S.A.	-	-	594	-	-	-
WEB S.A.	505	-	-	-	-	-
Área Santa Cruz II U.T.E.	-	-	770	-	-	-
Total	7,746	144,826	6,058	5,088	12,167	44

11. SUBSIDIARY AND AFFILIATES

Telcosur:

The corporate purpose of Telcosur is to render telecommunication services. Telcosur was created to assure the optimal utilization of TGSs telecommunication system. TGSs equity interest in the company is 99.98% and the remaining 0.02% is held by Petrobras Energía Internacional S.A.

Link:

Link was created in February 2001, with the purpose of the operation of a natural gas transportation system, which links TGSs gas transportation system with Cruz del Sur S.A. pipeline. The connection pipeline extends from Buchanan, located in the high-pressure ring that surrounds the city of Buenos Aires, which is part of TGSs pipeline system, to Punta Lara. TGSs ownership interest in such company is 49% and Dinarel S.A. holds the remaining 51%.

TRANSPORTADORA DE GAS DEL SUR S.A.

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2008 AND 2007

(Amounts stated in thousands of Argentine pesos as described in Note 2.b,

except for per share and per ADS amounts in Argentine pesos or unless otherwise indicated)

TGU:

TGU is a company incorporated in Uruguay. This company renders operation and maintenance services to Gasoducto Cruz del Sur S.A. pipeline in the Uruguayan pipeline tranche. TGS holds 49% of its common stock.

EGS:

In September 2003, EGS, a company registered in Argentina, was incorporated. The ownership is distributed between TGS (49%) and TGU (51%). EGS operates its own pipeline, which connects TGSs main pipeline system in the Province of Santa Cruz with a delivery point on the border with Chile.

Transportadora de Gás e Serviços do Brasil S.A.:

In January 2007, TGS and TGU entrusted their legal attorneys in Brazil the incorporation of a Brazilian company in which both companies have the ownership of 40% and 60%, respectively, with the aim to set up new businesses in this country. At the date of the issuance of these consolidated interim financial statements, its shareholders have made no capital contributions to this subsidiary. The corporate name is Transportadora de Gás e Serviços do Brasil S.A.

Claudio Fontes Nunes

Board of Directors Chairman

Independent accountants review report

To the Shareholders, President and Directors of

Transportadora de Gas del Sur S.A.

Don Bosco 3672, 5th. Floor

Buenos Aires

Argentina

We have reviewed the accompanying consolidated balance sheet of Transportadora de Gas del Sur S.A. (TGS or the Company, an Argentine Corporation) and its subsidiary as of March 31, 2008 and the related consolidated statements of income, changes in shareholders equity and cash flows for the three-month period then ended and other related notes and exhibits. The preparation of these financial statements is the responsibility of the Board of Directors of the Company .

We conducted our review in accordance with auditing standards in force in the Republic of Argentina applicable to a review of interim financial statements. A review of interim financial information consists principally in applying analytical procedures to the financial data and inquiring of the individuals responsible for their preparation. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

The accompanying consolidated financial statements were translated into the English language from those issued in Spanish in conformity with the National Securities Commission (CNV) regulations. They were also reformatted in a manner different from those presented in Spanish, but in all other respects follow accounting principles and reporting practices that conform to CNV regulations.

The changes in Argentine economic conditions and the amendments to the License under which the Company operates made by the National Government mentioned in Note 7, mainly the suspension of the original tariff adjustment regime, the consequent pesification and the lack of readjustment of the tariffs, affected the Companys economic and financial condition, generating uncertainty as to the future development of the regulated business. Furthermore, the Company is in the process of renegotiating certain terms of the License with the National Government, and has prepared the projections to determine the recoverable value of its non-current assets based on forecasts of the outcome of such process. We are not in a position to anticipate whether the assumptions used by management to prepare the projections will materialize and consequently whether the recoverable value of the non-current assets related to the regulated business will exceed their respective carrying values.

Based on our review, we report that the financial statements referred to in paragraph 1 consider all the significant facts and circumstances of which we are aware and we have no observations to make other than those mentioned in paragraph 4.

The consolidated financial statements of TGS as of and for the year ended December 31, 2007, of which the consolidated balance sheet is presented for comparative purposes, were examined by us in accordance with auditing standards generally accepted in Argentina. On February 7, 2008 we issued an audit opinion with was qualified for of the unresolved uncertainties relating to (i) the future development of the regulated business, and (ii) the recoverable value of the non-current assets related to the regulated business.

In addition, we issued a review report dated April 25, 2007 based on our review performed in accordance with auditing standards in force in the Republic of Argentina applicable to a review of interim financial statements, of TGSs consolidated financial statements as of and for the three-month period ended March 31, 2007 of which the consolidated statements of income, of changes in shareholders equity and of cash flows are presented for comparative purposes. Such review report included modifications related to unresolved uncertainties relating to (i) the future development of the regulated business and (ii) the recoverable value of the non-current assets related to the regulated business.

Buenos Aires, Argentina

May 5, 2008

SIBILLE

Jorge E. Dietl

Partner

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Transportadora de Gas del Sur S.A.

By:
Name:	Gonzalo Castro Olivera
Title:	Chief Financial Officer

By:
Name:	Carlos Ariosa
Title:	Senior Legal Counsel

Footnotes

1() Not covered by the Auditors Limited Review, except for items 4, 5 and 7.

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