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Metrogas S.A. Annual Report 2000
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Download source fileFree translation from the original prepared in Spanish for publication in Argentina
METROGAS S.A.
ANNUAL REPORT &
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
Free translation from the original prepared in Spanish for publication in Argentina
METROGAS S.A.
ANNUAL REPORT &
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
INDEX
Annual Report
Report of Independent Accountant
Balance Sheets
Income Statements
Statements of Changes in Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
Exhibits A, B, C, D, E, G and H
Summary of Activity
ANNUAL REPORT
To the Shareholders:
Pursuant to applicable legal provisions and to the Company’s bylaws, we submit for your consideration the documentation related to the Company’s financial statements for the ninth fiscal year, ended on December 31, 2000, which is the Company’s eighth full fiscal year of operations.
MACROECONOMIC CONTEXT
The year 1999 dramatically highlighted the competitiveness problems and limited saving levels in the Argentine economy. After a decade of deep structural changes and long economic growth periods, a combination of adverse external and internal factors, such as the Brazilian currency devaluation and the political weakening of President Carlos Menem’s administration in its final period after ten years in government, caused GDP to fall by 3.2% during 1999.
A better international context and positive expectations regarding the presidential change in December of 1999 nurtured more optimistic prospects for the year 2000.
The foundations of the Argentine economy based on its currency convertibility (one peso per dollar), reserves to back all monetary liabilities and a stable financial system, remained unchanged. However, the economic measures adopted, basically focused on tax increases, failed to generate growth opportunities.
In April 2000 the first signs of inflation in the United States appeared, as well as the fear that the Federal Reserve might again increase the interest rate. On the other hand, the Argentine economy ministry reduced public sector wages, which did not help to recover internal confidence in the country and consequently recession continued.
Starting in September 2000, new events contributed to greater international uncertainty: higher oil prices, war in the Middle East and falling prices in the principal stock exchanges. These events also had a negative impact on the Argentine economy, as did the Senate crisis and the Vice-president’s subsequent resignation.
Although the international economy began to recover towards the end of October 2000, Argentina continued to undergo a recessive period, thus becoming the key concern spot among emerging markets. This ongoing recession has called into question Argentina’s ability to access capital markets during 2001 for the purpose of refinancing all its debt maturities. Consequently, Standard & Poors decided to lower Argentina’s credit rating, and country risk came close to 1000 base points.
At this point, the government launched a new program, based mainly on: freezing federal and provincial primary expenditure, reforming the social security system and approving the budget for 2001. For these seasons, the IMF and the World Bank, supported by the US Treasury and other governments, granted a reserve fund, the so-called “financial shield”, which ensures the refinancing of all 2001 debt maturities.
As a result of the above-mentioned measures, the expectation is that Argentina should be able to regain its pre-crisis position and that the current administration should capitalize on the experience gained from its first year in office and take advantage of the financial shield in order to improve its country risk position, which is a key factor for the purpose of accelerating investment rates and creating opportunities for economic growth.
COMPANY PROFILE
Introduction
MetroGAS is the largest gas distributor in Argentina in terms of distributed gas volumes and number of customers. The Company distributes approximately 26.6% of the total natural gas supplied by the nine distribution companies licensed after the privatization of Gas del Estado in late 1992 and currently has almost 1.9 million customers in its service area (Buenos Aires City and eleven municipalities in the south of Greater Buenos Aires), a densely populated area including major power plants and other industrial and commercial users.
During its eighth full fiscal year of operations, the Company continued to consolidate the major changes implemented since the Takeover Date, thus achieving greater operational efficiency and updating its strategic plan in order to attain its objectives.
Outlook for the Industry
Natural gas consumption in Argentina has trebled since 1980. In that year, consumption was approximately 9.3 billion cubic meters and in 2000 it increased to over 30.9 billion cubic meters (*). This increase reflects energy substitution by end users, an abundant supply of natural gas, relatively low prices compared to other energy sources and increased capacity of major gas pipelines. The Company believes that the demand for natural gas will grow in proportion to the growth of Argentina’s economy.
Furthermore, Argentina has an 11,472-kilometer-long network of high pressure pipelines with capacity for transporting approximately 108 million cubic meters per day. It should be noted that Latin American countries have begun to develop a pipeline network in order to meet growing demand in the region.
Argentina’s proven gas reserves are in excess of 748.1 billion cubic meters, with 17 years supply guaranteed. Most of these reserves have been discovered as a result of oil exploration activities. There are 19 known sedimentary basins in the country, ten of which are fully on-shore; three are off-shore and six are both on- and off-shore. Production is concentrated in five basins: the Northwest basin in northern Argentina, the Neuquén and Cuyo basins in central Argentina and the Gulf of San Jorge and Austral basins in the south of Argentina. In 2000 (**), estimated annual production of natural gas reached almost 44.5 billion cubic meters, mainly from the Neuquén basin. Approximately 73.1% of the gas purchased by MetroGAS during 2000 came from the Neuquén basin and the remaining 26.9% from the Austral and Gulf of San Jorge basins.
(*) According to the latest available information supplied by the National Gas Regulatory Authority (ENARGAS) - October 1999/September 2000 Quarterly Report.
(**) According to the latest available information supplied by the National Oil and Gas Institute (IAPG) - August 2000 Monthly Bulletin.
DESCRIPTION OF OPERATIONS
Supply and Transportation of Gas
During 2000 the Company exercised, when recommendable, the existing options on contracts for the purchase of natural gas, in order to adjust the contracted volumes to the demand for natural gas, optimize the service offered to customers and encourage the intensive use of gas in multiple applications.
Since early 2000, the Company has been purchasing in the spot market, and since May 1999 it has taken advantage of Executive Order 1020, under which, depending on the purchase price and on the basin prices published by ENARGAS, it shares with customers 50% of the profit or loss resulting from differences in such prices. The volume purchased in the spot market during 2000 accounts for approximately 11% of the total volume of gas purchased by MetroGAS.
Contracted firm transportation capacity up to the Buenos Aires City gate was 21.28 million cubic meters per day as from June 2000. Contracted firm transportation capacity up to Bahía Blanca, which is used to recover calorific power after the by-product obtainment process was 0.40 million cubic meters per day as from June 2000.
Customers and Market
The Company’s main business aims are to consolidate and increase current business levels and to increase the Company’s share in the energy consumption pattern of its customers (electric power generation, industrial use of gas and use of compressed natural gas (CNG) as fuel in public transport and private vehicles).
MetroGAS sales and profits are highly sensitive to weather conditions. The demand for natural gas is, and accordingly, MetroGAS sales and profits are, significantly higher during the winter months (from May to September).
Set forth below is a summary of the Company’s Income Statements for each quarter of the fiscal years ending on December 31, 2000 and 1999, which reflect the seasonal variations in sales and earnings levels of MetroGAS during the course of the fiscal year.
| 2000 (thousands of pesos) | |||||
| For the quarters ended on | |||||
| 03-31 | 06-30 | 09-30 | 12-31 | Total fiscal year | |
| Net sales | 141,363 | 199,112 | 246,076 | 131,899 | 718,450 |
| Gross profit | 26,961 | 63,901 | 84,211 | 31,566 | 206,639 |
| Operating income | 6,206 | 39,615 | 55,917 | 6,457 | 108,195 |
| Income before tax | (1,573) | 31,207 | 49,052 | 788 | 79,474 |
| Net income | (2,391) | 19,422 | 28,515 | 2,497 | 48,043 |
| 1999 (thousands of pesos) | |||||
| For the quarters ended on | |||||
| 03-31 | 06-30 | 09-30 | 12-31 | Total fiscal year | |
| Net sales | 125,261 | 195,553 | 214,444 | 157,389 | 692,647 |
| Gross profit | 21,722 | 58,461 | 67,150 | 36,917 | 184,250 |
| Operating income | 1,251 | 36,302 | 43,336 | 16,776 | 97,665 |
| Income before tax | (6,948) | 27,592 | 36,103 | 9,485 | 66,232 |
| Net income | (6,948) | 20,476 | 22,788 | 5,725 | 42,041 |
As mentioned above, MetroGAS provides distribution services to nearly 1.9 million customers within its service area, of whom approximately 69% are in Buenos Aires City. A partial census taken by the Argentine Government in 1991 showed that 77% of the households within the MetroGAS service area were connected to the distribution system (95% within Buenos Aires City).
It should be noted that during 2000 MetroGAS met record demand levels, which reached 24.4 million cubic meters, delivered on July 11.
Sales to residential customers in 2000 and 1999 totalled 26.4% and 27.4%, respectively, of the Company’s total sales volume and approximately 55.5 % and 51.7% of the Company’s revenues.
Residential customer gas consumption in 2000 was higher than in 1999, due to the lower average temperatures in the winter period. The average temperature during the 2000 winter period (May to September) was 12.1º C, down from 13.2º C in the 1999 winter period.
MetroGAS relies, to a considerable extent, on sales to power plants to maintain high utilization of its firm transportation capacity (load factor), specially during the warmer months of low residential demand. MetroGAS’ power plant customers hold 46.7% of the wholesale electric market of Argentina.
The trend for the year 2001 in the electricity market is towards the introduction of new combined-cycle plants and the strategy of MetroGAS is to work in cooperation with the units in its service area.
Since 1993, power plants have begun implementing an investment program which involves the replacement of generating units by new combined-cycle technologies with a much lower generation cost.
Combined-cycle turbines have a lower specific demand for natural gas. The effect of the lower volume required by such customers will be offset by the increased activity level of these plants, due to their greater energy-dispatching capacity as a result of lower marginal costs compared to other plants outside the Company’s service area.
This is a major technological leap in the electricity generation sector. Argentina thus becomes one of the countries with the lower electricity cost in the wholesale electricity market. During 2000, the Argentine Network was interconnected with the Brazilian Electric Network. Central Costanera and Central Puerto plants, customers of the Company, are two of the electricity providers for the interconnection.
As a result of the program, the following combined-cycle plants are operating within the Company’s service area: Buenos Aires (since 1995), Costanera (since 1998), Puerto (since 1999) and Dock Sud which, although began testing during 2000, it did not yet demand 100% of the transportation capacity hired from the Company, and is expected to do so in March 2001. Since 1997, MetroGAS has assigned part of its firm transportation capacity to the Genelba Plant, a combined-cycle plant located outside its service area, pursuant to agreements under which the Company may repurchase part of such firm transportation capacity during peak demand periods. A.E.S. Paraná will launch its combined-cycle plant to the market during the second half of 2001 and MetroGAS will provide transportation to the marketer serving the plant, thus improving utilization of its transportation capacity.
During 2000, natural gas consumption at the power plants served by MetroGAS was considerably higher than in 1999. This was due to the higher price of fuel oil , the lower availability of hydroelectric energy in some basins, and the beginning of operation of new combined-cycle technology.
In 2000 and 1999 sales of gas and transportation and distribution services to power plants accounted for 42.0% and 39.6%, respectively of the total volume delivered by the Company, providing, in a highly competitive energy market, approximately 14.0% and 18.5% of the Company’s net sales during such years.
Sales of gas and transportation and distribution services to industrial, commercial and governmental customers accounted for approximately 20.5% and 20.5% of the Company’s sales volume and approximately 18.2% and 18.6% of its net sales during 2000 and 1999, respectively. Volumes delivered to such customers during 2000 were slightly higher, which was consistent with the patterns observed in industrial activity levels.
During 2000, all contracts due to expire during the year, which accounted for approximately 45% of the agreements in force, were successfully renewed. This action was undertaken in an increasingly competitive environment, a highlight of which was the drive shown by the Regulatory Authority in issuing measures aimed at increasing commercial by-pass alternatives.
Company´s efforts also focused on finding energy solutions for our commercial and industrial customers. In this context, new equipment for natural gas compression, intended for specific applications (forklifts, small vehicle fleets), was launched to the market as part of the strategy to promote the use of CNG.
Argentina is the world leader in terms of the number of light vehicles converted to CNG and is the Latin American leader in terms of the number of gas stations.
In 2000, CNG consumption in the Company’s service area increased compared to 1999. Strategies and technical and business actions focused on vehicle conversion, and new agreements were reached with car assembly plants in order to get their vehicles converted to CNG with a full warranty, in the light and small utilitarian vehicles segment. Additionally, work will continue with public transportation companies for them to use CNG as fuel for their vehicles.
In addition to these steps, MetroGAS continues working with federal, provincial and local government authorities to develop incentives for the mass use of CNG as fuel in public passenger transportation and private vehicles, taking into account the environmental and economic advantages to be gained for the population as a whole.
Sales of CNG accounted for approximately 6.9% and 7.2% of the Company’s sales volume and 6.9% and 6.4% of the Company’s net sales during 2000 and 1999, respectively. The increase in sales of CNG during 2000 was due to intensive advertising campaigns launched, the sale of CNG-converted vehicles from the major car assembly plants, the larger number of gas stations selling CNG within the Company’s service area and the substantial increase in the price difference between liquid fuel and CNG as a result of the variations in oil prices.
During 2000, the Company continued contracting for processing the separation of liquid gas from the natural gas owned by MetroGAS at the Gral. Cerri Complex in Bahía Blanca, owned by Transportadora Gas del Sur S.A.
Net sales of liquid gas related to natural gas processing increased by 15.6% during the year ended on December 31, 2000 compared to 1999 and volumes delivered to this category decreased by 13.4%. The increase in net sales relative to the decrease in volumes delivered was due to higher international prices, which recovered their past positions as from September 1999 as a result of the increase in oil prices.
The Operation of the Distribution System
In 2000, the Company continued making the “K” Factor Investments approved by ENARGAS for the period from 1998 to 2002, which include: (i) expanding the supply system, building 2,400 km of distribution pipelines and approximately 97,000 services, i.e. some 480 km of pipeline per year; (ii) internal movements, replacement of the current system in order to increase capacity and ensure reliable supply, with a 26-km target for the five-year period; and (iii) construction of a high-pressure back-up pipeline of approximately 60 km by 24 inches diameter.
As regards 2000 and the expansion of the gas supply, over 380 km of distribution pipelines and 13,300 services were built. The total figure as from January 1, 1998 to December 31,2000 is 1,467 km and 50,096 services.
The Company has started the analyses and bidding phrase of the project for construction of the new Buchanan-Retiro pipeline, which will back up the high pressure system ring and enable the implementation of a pressure reduction program in segments in which this is needed due to age and general condition. This will ensure that the increasing demand by the Company’s customers is met.
The Buchanan-Retiro pipeline will be a 70-km-long high-pressure pipeline with a diameter of 30 inches.
In order to ensure the integrity of the distribution system, actions undertaken focused on optimizing preventive and corrective maintenance activities. Corrective maintenance is now fully integrated into the Service Centre, which consolidates a number of activities related to customer service. The Service Centre is the main channel for communication with customers, particularly when handling emergencies. Cost, quality and speed of service are therefore key aspects of this function.
The Company continues carrying out a substantial amount of multifunctional training in Safety and Operations, to have a team that will improve customer service in a cost-effective way. During 2000, costs remained even with 1999 levels, while absorbing a workload that increased by 17.6%.
Preventive maintenance activities seek to minimize system failure risks. These activities are directly linked to the Company’s capital investment. Additionally, preventive maintenance is responsible for the system’s scheduled and unscheduled maintenance activities.
A benefit derived from investment in preventive maintenance is the reduction in leakage activity levels corresponding to emergencies reported. During 2000 and 1999, the leaks rate per hundred kilometers remained stable at an average of 56 and 61, respectively.
A key area of work during 2000, which had started in 1999, was the revision of the supply chain. With the cooperation of the support unit of BG International Limited, its Technical Operator, MetroGAS has launched an action plan that seeks to achieve greater efficiencies in capital and operating costs. As a result of the first completed stage, Contract Management, it was possible to implement controls that will prove useful for the purpose of early identification of problems, thus enhancing proactive steps. At the moment, the action plan to continue with the following steps of the project is being designed.
The value of material inventories as of December 31, 1999 of $ 8.4 million, has continued to decrease, and as of December 31, 2000, it amounted to $ 6.2 million, i.e. a 26% reduction.
Capital investments
In 2000, the Company made approximately $ 45.1 million capital investments, including the “K” Factor Investments required by the Regulatory Authority. Detailed information on such investments is set forth in Exhibit A of the financial statements.
The total amount of capital investments made by MetroGAS during its first eight years of operation is of approximately $ 462 million.
These investments have been made not only to comply with the Mandatory and “K” Factor Investments but have also included improvements, such as the replacement of primary pipelines and services, which will help the Company meet its goals of expanding the distribution system and increasing its efficiency.
Customer Service
During 2000, the Company undertook a number of actions aimed at introducing new and improved practices as regards the quality of service it offers. To this end, a study on “Channel Strategy” was carried out at the Commercial Offices, which originated the major action guidelines for the coming years in connection with the number and type of offices required, their geographic location, new telephone service features, types of business to be dealt with by each channel and the suitable technologies for each. The program will be implemented in successive stages, starting in the second half of 2001.
As regards operating activities, the Company continued moving transactions from Commercial Offices to the Call Centre, which enables a more efficient process and effective response to customers. During 2000, the Company also began to update the caller and customer routing systems at points of service, introducing newer technology in order to evaluate the service process. This will lead to the development of indicators for more accurate evaluation of service times per employee, procedures at offices, waiting time during off-peak and peak hours and maximum and minimum waiting times. This process will be completed during the first half of 2001.
Also in 2000, and as part of the new image launched by the Company, new uniforms were introduced for commercial office employees, taking into account the opinions of the personnel concerned. At the same time, signs and the whole signalling system were replaced in order to fit the Company’s new image.
Based on its Five-Year Technological Program, the Company is currently changing its commercial system, for which purpose new system requirements have been defined, considering the needs of MetroGAS customers. The implementation of the new commercial system for residential customers is estimated for the first quarter of 2001.
During 2000, the number of customers going to pay their bills at Commercial Offices decreased by 15%, based on a number of steps related to the collection process, such as extending the term of payment until the last due date with the possibility of billing the collecting late payment charges in the following invoice.
In November 2000, a new invoice format for residential customers was launched, which meets all the guidelines agreed upon with the Chief of Cabinet’s Office, in order to agree on the invoice data presentation principles for all utilities. Another change was the use of envelopes to send the invoices, which ensures confidentiality of invoice data and protection from damage during the delivery process.
The number of calls processed by the Call Centre during 2000 increased by 32%. This increase was mainly related to telephone collections and complaints. In order to meet the demand, the Company decided to increase the number of staff, and in late 2000 it awarded the contract for renovation of the telephone exchange, software and technological equipment, which will turn the Company’s Call Centre into a Customer Contact Management Centre, thus achieving true coordination between customer access channels and MetroGAS response channels. This change will lead to improved overall efficiency in the Call Centre service process, which is expected to be fully operational by the end of April 2001.
During 2000, the number of new customers increased by 2.5% as a result of the incorporation of 4,369 customers, located in areas where “K” Factor work was done, while the remaining 42,079 customers were gained on the pre-existing network.
Additionally during 2000, the “MetroGAS at home with you” project was launched. This enables new customers to access MetroGAS by financing internal installation works, which, due to the costs involved, often prevented potential customers from having natural gas. This project is a link between such customers and financial institutions participating in the project. Customers are able to choose from a list of technicians specialized in this kind of work, who signed a special agreement with MetroGAS that fixes prices for each type of project. Between November 1 and the end of 2000, three thousand customer applications had been received from customers interested in the product.
In 2000, reengineering of the Customer Acquisition area was completed, thus meeting the goal of reducing total process time between the first contact with the customer and its conection to MetroGAS distribution system.
Human Resources
As regards the Employment Area, MetroGAS issued its Internal Employment Policy, which contained a systematic and fair process related to the identification of vacant positions, enabling the Company’s personnel to have access to tasks involving greater responsibility. Additionally, MetroGAS issued the Young Professionals Policy that aimed at generating a high-potential graduates selection process in order to strengthen the Company’s staff through on-the job training, with a tutoring system and regular assessments of new personnel members.
Another policy issued was the Personnel Performance Assessment Policy, whose aims can be summarized as follows: a) generating a system in accordance with MetroGAS Dictionary of Values and Incumbencies; b) introduction of a performance rating instrument to supplement the tool for measuring individual behaviour at work in terms of their tasks and relationship with others (Feed Back 360); c) counting with a tool to facilitate compensation management and d) offering a structured opportunity for communication between evaluators and evaluated personnel.
The Company strengthened its Coaching Program for executive officers, carrying out actions that were supported by all Directors, Managers and Chiefs of Department.
Furthermore, a Management Training Program for Supervisors was launched, including the development of management skills and identification with leadership roles as well as quality, cost control and planning, negotiation and personnel management contents.
The number of training hours provided in 2000 was 34,700. This included programs on: Service Quality; Sales Techniques at Commercial Offices; Financing of Internal Installations and Launching of New Products; the Comprehensive Support Program for the Call Centre, as part of the Commercial Focus; the Program for the Gas Quality and Validation Laboratory; the Support Program for the Service Centre; the Update Program for Maintenance Personnel; the Program on Regulation Systems and Workshops on New Operating Regulations are some examples of technical training programs.
As regards Internal Communications, the Fourth Internal Opinion Survey was given to the Company’s personnel. This survey, which is conducted every two years, was answered by 80.2% of total respondents, and showed higher satisfaction and favourable opinion rates in all respects.
Through its Technical Training Centre, the Company agreed to offer a training program for the personnel of the largest water distribution company in Argentina, as well as creating regular updating training offers for personnel of distribution and subdistribution companies, offering presentations of the Company’s installations to ARTs (Worker Compensation Companies) and meeting specific demands of distribution companies from Argentina and Uruguay, among other activities.These steps not only enabled recovery of 50% of the Technical Training Centre’s costs, but were also a channel for consolidating the Company’s image and for contact with industry, utilities and the community.
The number of employed personnel increased during the year 2000, mainly due to the increased activity levels of the Call Center and the development of the Sales Promotion structure, intended to attract new residential customers.
The Company’s medical service continues its preventive actions, aimed at avoiding industrial accidents and diseases and conducting campaigns for prevention of cardiovascular diseases, vaccination against flu and tetanus as well as its Policy on Alcohol and Drugs.
In March 2000, the Collective Bargaining Agreement signed with the Gas Industry Workers Union expired. Following new negotiation, it was agreed to include in the basic agreement conditions the value of the Annual Bonus, which accounted for an approximate variation of 3% in the salaries of each category under the agreement; this became effective as of May 2000 and, consequently, payment of the Annual Bonus was discontinued for personnel under the agreement. This change did not lead to a higher annual labour cost.
In February 2000, the Executive Directors´ Committee approved the new Compensation Policy, which includes the main guidelines and programs related to compensation and benefits. Most positions not covered by the above-mentioned agreement were evaluated and their salaries were subject to review during the year.
Incentive schemes were also designed as required by current projects, such as the acquisition of new customers project, the pipeline project and the incentive plan for commercial offices.
A multifunctional team designed and submitted to the Executive Directors´ Committee a Suggestions Plan based on experience gained from a 1996 plan and from similar programs implemented at other companies (including the British Gas plan). The proposed target for the first campaign was to receive 160 suggestions within four months (the original term), and finally 225 suggestions were received in three months.
Finance
In March 2000, under the $ 600 million Global Program, the Company underwrote and issued Series A Notes having a face value of US$ 100 million and maturing in 2003, at a price equal to 99.9677% of their nominal value. These Notes accrue interest at a rate of 9.875% per annum, payable semiannually. The Series A Notes were authorized to be listed on the Buenos Aires Stock Exchange and on the Luxembourg Stock Exchange, on March 24, 2000 and April 3, 2000, respectively.
In September 2000, under the $ 600 million Global Program, the Company underwrote and issued Series B Notes having a face value of 110 million euros (equivalent to approximately US$ 94.4 million at the exchange rate from the date of the issuance) and maturing in 2002, at a price equal to 99.9% of their nominal value. These Notes accrue interest at a rate of 7.375% per annum, payable annually. The Series B Notes were authorized to be listed on the Luxembourg Stock Exchange on September 27, 2000. The Company has entered into a future euro purchase agreement in order to manage its exposure to the devaluation of the US dollar with respect to the euro. Accordingly, in such agreement an exchange rate was fixed (0.8585 euros per dollar) at the interests cancellation date and the maturity date of the Series.
The proceeds obtained under these Series were applied to refinance maturing debts and short-term liabilities.
The Company’s rating, both international: Standard & Poor’s BB+, Fitch BB+; and local: Humphrey’s Argentina (a Moody’s subsidiary) AAA, Fitch AA+ is good. This rating and the Company’s past performance in the capital market, together with the quality and reputation of its shareholders, have been and are valuable elements when it comes to resorting to debt markets.
The Company intends to refinance maturing debts as well as financial needs resulting from the implementation of the Investment Plan during the year 2001, to the extent allowed by the capital markets.
Relationship with the Regulatory Authority
In September 1999, ENARGAS issued Resolution No. 1192, whereby it finally determined the Service Quality Indicators or Standards control system, effective as from January 1, 2000. These indicators cover commercial and technical-operational aspects such as telephone service delays, leaks per kilometre, cathodic protection, billing management, supply problems, etc.
During the year 2000, the Company worked on implementation of the Indicators with ENARGAS and the other licensees, with a view to an ongoing improvement of service and system safety.
As a result of negotiations between the Argentine Government, ENARGAS and the Distribution and Transportation Companies, it was agreed to defer the collection of the amounts related to the US Producer Price Index (PPI) corresponding to the first six months of 2000, and to recover this accrued revenues during the period July 2000-April 2001.
On July 17, 2000, the Distribution and Transportation Companies, ENARGAS and the Argentine Government confirmed through an agreement the pass through to the tariffs as from July 1, 2000 of: a) the balance to be billed corresponding to PPI adjustment deferred metioned above for the first six months of 2000; and b) the PPI increase (3.78%) as of that date. Additionally, they agreed to defer the collection of the amounts related to the PPI adjustments corresponding to the period as from July 1, 2000 through June 30, 2002. Consequently, a “PPI StabilizationFund” was established, which is a credit against third parties guaranteed by the Executive National Government, and therefore the corresponding accrued revenues, will be recovered through the tariffs as from July 1, 2002 to June 30, 2004, according to the methodology established in such agreement.
On August 4, 2000, Decree No. 669 was issued by the Executive National Government, confirming the terms of this Agreement.
In connection with an action filed by the Ombudsman against the Argentine Government and ENARGAS, requesting that the PPI be declared unconstitutional, the district court issued an interim order, notified to MetroGAS on August 29, 2000, establishing the suspension of the Decree Nº 669. Accordingly, ENARGAS informed MetroGAS to apply the tariffs in effect since May 1, 2000. The Company appealed this measure and the corresponding ENARGAS note. ENARGAS and the Executive Power (the Ministry of Economy and Energy Branch of Govermment) also appealed the mentioned interim order for the Federal Administrative Chamber of Appeals to solve the main issue.
During January 2000, MetroGAS received several notes from ENARGAS, which sought to modify the relationship with Marketers as well as the competition rules in the gas market in general. Submissions were made to the Regulatory Authority in connection with specific cases.
On July 6, 2000, the Company received a draft note regulating the Interruptible Distribution service, allowing a 30-day term for an opinion to be issued and in order to meet the previous consultation requirement under the Regulatory Framework. MetroGAS sent its comments but received no reply from ENARGAS.
Under Resolution No. 1748 dated June 1, 2000, ENARGAS introduced amendments to the Service Regulation for “Small” and “Large” General Service users, with alternatives for purchase of gas and/or transportation from third parties, reducing the benchmark volume limit from 10,000 to 5,000 cubic metres a day. The economic impact of this measure on the Company is being assessed and an administrative claim has been filed, while the possibility of requesting a review in court has not been ruled out.
In general terms, the Company continued developing communication channels with the Regulatory Authority, in order to enable actions that will lead to better customer service, while taking into account the roles and rights of all parties falling within the scope of the Regulatory Framework.
Five-Year Rates Review
The Distribution Licence provides for tariffs to be reviewed every five years. The first such Five-Year Review set the applicable tariffs from January 1, 1998 to December 31, 2002, based on the determination of the Efficiency Factor (“X”) and the Investment Factor (“K”).
At the end of 1999, ENARGAS sent a draft schedule to natural gas distribution and transportation companies for the second Five-Year Review, which would set the applicable tariffs for the period from January 1, 2003 to December 31, 2007.
Although during 2000 ENARGAS did not issue the General Review Methodology, which had originally been planned for March 2000, MetroGAS began to work on compliance with certain requirements under the Licence. To this end, special working groups were set up to work on this matter and to prepare all the information that is required in order to comply with Licence requirements, as well as any other information considered necessary for the purpose of successfully dealing with this complex process, which will have a significant impact on the Company’s future operations.
Evolution of the Company’s Image
During 2000, the Company developed its Annual Corporate Communications Plan. The Company’s strategy focused on conveying the message that MetroGAS is the gas distributor with the largest number of customers, that it provides its customers with an efficient and safe service, that the Company has never been favoured with special measures or subsidies and that it has been carrying out ambitious investment programs on an ongoing basis, even in a relatively unfavourable general environment.
The consistent application of the Corporate Communications Strategy once again proved positive. Opinion surveys carried out by Centro de Estudios Unión para la Nueva Mayoría in October 2000 indicated that the Company received over 90% favourable image rating, broken down into 90.2% for public opinion generally and 91% for opinion-makers.
Community Action
In November 2000, the MetroGAS Foundation was launched, a private nonprofit entity created by MetroGAS in order to develop and support programs, projects and actions intended for the community, particularly as regards technical and professional training and job placement for young people, the promotion of education and health and environmental protection.
The Foundation was born out of the Company’s belief that the private sector must strengthen its commitment to the community by making a daily contribution to meet the goals and targets fixed by the public sector for the good of society.
The Foundation will also implement and take part in Educational Campaigns at public and private schools for the prevention of road accidents and the promotion of proper use of natural gas, in addition to cooperating with public safety organizations (Civil Defence Agencies and Voluntary Firefighters).
The Foundation will channel the different community activities which MetroGAS has carried out in the past, such as donations to hospitals like the Children’s Hospital and the Garrahan Hospital, among others.
Finally, in 2000 MetroGAS received the Ceibo 2000 Award from the Buenos Aires Government Environmental and Regional Development Branch, for the disinterested contribution to its work and the Company´s contribution to the global change process, as part of its commitment to life and to the defense of environmental values.
NATURAL GAS AND THE ENVIRONMENT
Together with the other distribution and transportation companies, MetroGAS took part in the preparation of a draft regulation for environmental protection in natural gas transportation and distribution activities, under the coordination of ENARGAS.
The Company also continued and intensified controls in treatment of contaminating waste, such as anaerobics and monoethylene glycol, as well as used batteries and brake fluid.
The Company also complied with the requirements of BG Group plc. Arising out of a Health, Safety and Environmental Audit performed in 1999.
Changes were introduced into vents, and in regulating stations in which high noise levels were found during 1999 sound measurements.
During 2000, a leadership program was implemented for all Company levels, in order to develop awareness as to the roles and responsibilities involved in each function, on the basis of which reviews were suggested and implemented in connection with different components of the Health, Safety and Environmental policy.
COMPOSITION OF THE CAPITAL STOCK
The Capital Stock as of December 31, 2000 consisted of 569,171,208 common shares of three classes: Class A, Class B and Class C, each having a par value of one peso and entitling holders to one vote per share.
| Classes of outstanding shares | Subscribed, registered and paid-in capital Thousands of $ |
| Class A | 290,277 |
| Class B | 221,977 |
| Class C | 56,917 |
| Capital stock as of December 31, 2000 | 569,171 |
All Class A shares, representing 51% of the Company’s capital stock, are owned by Gas Argentino S.A. (GASA) and their transfer is subject to the approval of the regulatory authority.
Class B shares represent 39% of the Company’s capital stock. Of such shares, 19% has been owned by GASA since the privatization of Gas del Estado. The remaining 20% of Class B shares was sold by means of a public offering and is owned by approximately 830 investors.
Class C shares, which represent 10% of the capital stock, were earmarked at the time of privatization for the Employee Stock Ownership Plan (Programa de Propiedad Participada), to benefit the employees of Gas del Estado who were transferred to MetroGas and continued to be employees of the Company as of July 31, 1993, and who decided to participate in the ESOP.
INCOME ALLOCATION PROPOSAL
The following is a breakdown of the income allocation proposal submitted at the Shareholders’ Meeting for approval:
| Thousand of $ | |
| Unappropiated Retained Earnings from 1999 | - |
| 2000 net income | 48,043 |
| Total to be allocated | 48,043 |
| Allocation proposal: | |
| to the Legal Reserve | 2,402 |
| to Cash Dividends (including $34,023 thousand interim cash dividend) | 34,023 |
| to Reserve for Future Dividends | 11,618 |
| Total Allocated | 48,043 |
On November 21, 2000, the Company’s Board of Directors approved an interim cash dividend of $ 34,150 thousand, or $ 0.06 per share and 6% of the capital stock, which was made available to the shareholders on November 29, 2000. $ 127 thousand of the Reserve for Future Dividends and $ 34,023 thousand of Unappropiated Retained Earnings was earmarked for payment of such dividends
The Company’s Board of Directors propose to ratify the payment of dividends and set up a Reserve for Future Dividends in the amount of $ 11,618 thousand which will be at the Board’s disposal for it to use it for payment of cash dividends considering the availability of cash flows, investment programs, financial conditions, operating income and other relevant factors.
| Approval of Charges Against 2000 Earnings | Thousand of $ |
| Directors’ Fees | 24 |
| Employee Participating Bonds | 240 |
Acknowledgement
The Board of Directors would like to express its deep appreciation to the Company’s personnel for its efforts and for the spirit of cooperation it showed in 2000, as well as to its suppliers and customers for their support and for their confidence in MetroGAS.
Buenos Aires, February 2, 2001
Victor José Sardella
Deputy President
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
MetroGAS S.A.
In our opinion, the accompanying balance sheets and the related income statements, statements of cash flows and of changes in shareholders’ equity, all expressed in thousands of Argentine pesos, present fairly, in all material respects, the financial position of MetroGAS S.A. at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in Argentina. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of the financial statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
Buenos Aires, Argentina
February 2, 2001
| PRICE WATERHOUSE & CO. by (Partner) |
| Miguel A. Urus |
Free translation from the original prepared in Spanish for publication in Argentina
METROGAS S.A.
Legal address: Gregorio Araoz de Lamadrid 1360 - Buenos Aires
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999
Fiscal years Nº 9 and 8 commenced January 1, 2000 and 1999
Principal activity: Provision of natural gas distribution services
Date of registration with the Public Registry of Commerce: December 1, 1992
Duration of Company: Until December 1, 2091
By-laws amendments:
Approved by Shareholders' Extraordinary Meeting held on February 3, 1993
Approved by Shareholders' Ordinary and Extraordinary Meeting held on April 18, 1994
Approved by Shareholders' Extraordinary Meeting held on June 29, 1994
Approved by Shareholders' Ordinary and Extraordinary Meeting held on April 19, 1995
Approved by Shareholders' Extraordinary Meeting held on February 7, 1996
Parent company: Gas Argentino S.A.
Legal address: Gregorio Araoz de Lamadrid 1360 - Buenos Aires
Principal activity: Investment
Percentage of votes held by the parent company: 70%
Composition and changes in capital stock as of December 31, 2000
Composition
| Classes of shares | Subscribed, registered and paid-in |
| Outstanding: | Thousands of $ |
| Ordinary certified shares of $ 1 par value and 1 vote each: | |
| Class A | 290,277 |
| Class B | 221,977 |
| Class C | 56,917 |
| Capital stock as of December 31, 2000 | 569,171 |
Free translation from the original prepared in Spanish for publication in Argentina
METROGAS S.A.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999
Changes in Capital Stock
| Subscribed, registered and paid-in | |
| Thousands of $ | |
| Capital as per charter of November 24, 1992 registered with the Public Registry of Commerce on December 1, 1992 under No. 11,670, Corporations Book 112, Volume A | 12 |
| Capital increase approved by the Shareholders' Meeting held on December 28, 1992 and registered with the Public Registry of Commerce on April 19, 1993 under No. 3030, Corporations Book 112, Volume A | 388,212 |
| Capital increase approved by the Shareholders' Meeting held on June 29, 1994 and registered with the Public Registry of Commerce on September 20, 1994 under No. 9566, Corporations Book 115, Volume A | 124,306 |
| Capitalization of the capital adjustment approved by the Shareholders’ Meeting held on March 12, 1997 and registered with the Public Registry of Commerce on June17, 1997 under No. 6,244, Corporations Book 121, Volume A | 56,641 |
| Capital stock as of December 31, 2000 | 569,171 |
| Victor José Sardella |
| Deputy President |
Free translation from the original prepared in Spanish for publication in Argentina
METROGAS S.A.
NOTES TO FINANCIAL STATEMENTS
FOR THE FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NOTE 1 - THE COMPANY’S BUSINESS
MetroGAS S.A. (the "Company" or "MetroGAS"), a local gas distribution company, was incorporated on November 24, 1992 and began operations on December 29, 1992, when the privatization of Gas del Estado S.E. ("GdE") (an Argentine Government-owned enterprise) was completed.
The Argentine Government, by Executive Decree No. 2,459/92 dated December 21, 1992, granted MetroGAS an exclusive license to provide the public service of natural gas distribution in the area of the Federal Capital and southern and eastern Greater Buenos Aires, by operating the assets allocated to the Company by GdE for a period of 35 years from the Takeover Date (December 28, 1992), plus an optional renewal period of 10 years under certain conditions.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally accepted accounting principles in Argentina ("Argentine GAAP") and in accordance with the requirements of the Comisión Nacional de Valores ("CNV").
The financial statements as of December 31, 1999 are included for comparative purposes as required under the Argentine GAAP. Certain reclassifications have been made to these financial statements for the information to be consistent to the financial statements as of December 31, 2000.
2.1. Recognition of the effects of inflation
The financial statements have been prepared in constant Argentine pesos reflecting the overall effects of inflation through August 31, 1995. In accordance with the General Resolution No. 272 of the CNV which instruments Decree No. 316/95 of the National Executive Branch, restatement of financial statements has been discontinued as from September 1, 1995. Moreover, Resolution No. 140/96 of the Argentine Federation of Professional Councils of Economic Science ("FACPCE") dated March 29, 1996 stipulates that adjustment for inflation of financial statements would be applicable only if the annual variation in the General Level Wholesale Price Index ("GLWPI") exceeds 8%. The variation in this index for the years ended December 31, 2000 and 1999 did not exceed 8%, so the financial statements as of December 31, 2000 and 1999 recognized the effects of inflation only through August 31, 1995.
2.2. Valuation criteria
The principal valuation criteria used in the preparation of the financial statements are as follows:
a) Cash, investments, trade and other receivables and liabilities
Amounts in Argentine pesos without principal adjustment clauses have been valued at nominal value, which include accrued interest through the end of each year, if applicable.
Amounts in foreign currencies have been valued at nominal value converted at appropriate year-end exchange rates including accrued interest, if applicable.
Mutual funds have been valued at the listed prices of the units at the end of the year; those funds correspond to investments at a fixed rate.
Trade receivables include accrued but unbilled services as of the end of each period and the amounts resulting from the deferral of the collection of the tariff adjustements related to the changes in the US Producer Price Index (“PPI”) (see Note 7.4). Trade receivables are stated net of the allowance for doubtful accounts, which is based on the Company's estimates of collections.
b) Inventories
Pipeline gas inventories have been valued at their respective replacement costs. Warehouse material has been valued at weighted average price since July 1998 as a result of the change of accounting system. Those values do not differ significantly from replacement costs in force during 1999 and 2000.
Gas inventories delivered for processing to the General Cerri Plant owned by Transportadora de Gas del Sur S.A. (“TGS”) have been valued at replacement cost.
c) Fixed assets
For fixed assets received at the time of the granting of the License, their original value has been based on the global transfer value defined in the Transfer Agreement, which was the equivalent of the shareholders' contributions and the liabilities transferred.
Based on the special work performed by independent experts, the global original value mentioned above has been assigned to the transferred assets based on their respective fair value. The remaining useful life has been determined based on the years of service estimated by the Company according to the type, current condition and renewal and maintenance programs of the assets.
Assets acquired or constructed after the granting of the License have been valued at their acquisition cost or construction cost restated on constant Argentine pesos as of August 31, 1995, except for distribution networks constructed by third parties (several associations and cooperative organizations). As established by ENARGAS Resolutions Nos. 355, 422, 587 and 1,356, these distribution networks are valued at the amounts equivalent to specific gas cubic meters, as detailed in Note 14.4.
Fixed assets are depreciated under the straight-line method, using annual rates sufficient to extinguish asset values by the end of their estimated useful lives.
The Company capitalized the net cost of external financing of construction work in "Fixed assets" until such construction is ready to be put into service. As mentioned in Note 8, the capitalized interest during the years ended December 31, 2000 and 1999 amounted to $2,860 thousand and $3,283 thousand, respectively.
The Company capitalized during the years ended December 31, 2000 and 1999 $3,182 thousand and $3,034 thousand, respectively, corresponding to the portion of operating costs attributable to the planning, execution and control of investments in fixed assets.
Aggregate fixed assets value does not exceed recoverable value.
d) Intangible assets
Intangible assets represent charges resulting from the voluntary retirement plan implemented by the Company, the costs corresponding to the issuance of debt pursuant to the Medium-Term Note Program and certain projects related to future income generation. Amortization was estimated over a five-year term, except for the costs related to the issuance of debt, which is established in accordance with the debt maturity, ending December 2000 in the case of voluntary retirements.
e) Severance indemnities
Severance indemnities are expensed when paid.
f) Income tax
Income tax is recorded on the basis of the estimated tax liability for each fiscal year. The income tax rate applied to the years ended December 31, 2000 and 1999 is 35% of net taxable income, calculated pursuant to the procedures set forth by applicable tax provisions.
g) Shareholders' equity accounts
These accounts have been restated on a constant Argentine peso basis as mentioned in Note 2.1.
h) Recognition of revenues
The Company recognizes revenues on an accrual basis upon delivery to customers, which includes estimated amounts of gas delivered but not yet billed at the end of each year. The amounts effectively delivered have been determined based upon the volumes of gas purchased and other historical data.
2.3. Earnings and dividends per share
Earnings and dividends per share were calculated on the basis of weighted average shares outstanding at December 31, 2000 and 1999, which amounted to 569,171,208.
2.4. Financial instruments
The Company has used a financial instrument to manage its exposure to fluctuations in the euro exchange rate. This instrument, as stated in Note 8, corresponds to future foreign currency purchase agreement. The corresponding amounts payable are accrued in “Financial debt” and the related charges are included in “Financial and holding results from liabilities”.
MetroGAS has not used any other financial instruments to manage its exposure to fluctuations in foreign currency exchange or interest rates and, accordingly, has not entered into transactions that create off-balance sheet risks associated with such financial instruments.
The Company does not use financial instruments for trading purposes.
NOTE 3 - ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS
Details regarding the significant amounts included in the accompanying financial statements are as follows:
NOTE 4 - BREAKDOWN OF DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES
The due dates of investments, receivables and payables break down as follows:
Investments as of December 31, 2000 and 1999 comprise saving account deposits, accruing interest at an average rate of 3% and 2,4% per annum, respectively. Furthermore, as of December 31, 1999 investments in mutual funds were made at an average interest rate of aproximately 6% per annum. Pursuant to the terms of the License, in the case of invoices for services not paid on their due date, the Company will be entitled to collect interest on late payment at a rate equivalent to 150% of the 30-day interest rate in local currency, collected by the Banco de la Nación Argentina, as from the due date through the date of payment. As there are overdue receivables, following a prudent criterion the Company recognizes these revenues at the time of efective collections.
The receivable corresponding to changes in turnover tax in the Province of Buenos Aires accrues interest at an annual 9.5% rate. Payables do not accrue interest, except for the Financial Debts, which are set forth in Note 8.
NOTE 5 - TRANSACTIONS AND BALANCES WITH AFFILIATE COMPANIES
Gas Argentino S.A. (“Gas Argentino”), as owner of 70% of the Company's capital stock, is the controlling shareholder of MetroGAS. MetroGAS carries out certain transactions with the shareholders of Gas Argentino: British Gas International B.V. (a wholly owned subsidiary of BG Group plc.) (“British Gas”) (54.67%), Astra Compañía Argentina de Petróleo S.A. (“Astra”) (26.67%), Argentina Private Development Company Ltd (“A.P.D.C.”) (subsidiary of Astra) (18.66%), or with their affiliates.
The financial statements include the revenues and expenses derived from the following transactions with affiliate parties:
- Direct or indirect gas supply contracts with Astra.
- Management fees paid pursuant to the Technical Assistance Agreement with BG International Limited (member of British Gas holding).
- Fees under the Manpower Supply Agreement with BG International Limited (member of British Gas holding).
Significant transactions with affiliate parties are as follows:
| December 31, | |||
| 2000 | 1999 | ||
| Thousands of $ | |||
| Gas purchases | 4,091 | 3,477 | |
| Technical operator's fees | 8,218 | 6,938 | |
| Manpower supply | 1,478 | 1,278 |
The outstanding balances as of December 31, 2000 and 1999 from transactions with affiliate companies are as follows:
| December 31, | |||
| 2000 | 1999 | ||
| Thousands of $ | |||
| Current Assets | |||
| a) Other receivables | |||
| BG International Limited | - | 69 | |
| - | 69 | ||
| Current Liabilities | |||
| b) Affiliate companies | |||
| BG International Limited | 6,627 | 4,138 | |
| Astra | 344 | 275 | |
| 6,971 | 4,413 |
NOTE 6 - RESTRICTED ASSETS
A substantial portion of the assets transferred by GdE has been defined as "Essential Assets" for the performance of licensed service. Therefore, the Company is obliged to segregate and maintain them 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 for purposes other than providing licensed service, without prior authorization from the Ente Nacional Regulador del Gas ("ENARGAS"). Any extensions and improvements that the Company may make to the gas distribution system after the Takeover Date may only be encumbered to secure credits maturing after a period of one year, used to finance new extensions of and improvements to licensed service.
As a general rule, upon expiration of the License, the Company will be obliged to transfer to the Argentine Government, or its designee, the Essential Assets listed in the updated inventory as of the expiration date, free of any debt, encumbrance or attachment.
Upon expiration of the License, the Company will be entitled to collect the lesser of the following two amounts:
a) The net book value of the Company's property, plant and equipment determined on the basis of the price paid by Gas Argentino, and the original cost of subsequent investments carried in US Dollars and adjusted by the PPI, net of the accumulated depreciation.
b) The proceeds of a new competitive bidding, net of costs and taxes paid by the successful bidder. (See Note 7.1.)
NOTE 7 - REGULATORY FRAMEWORK
The natural gas distribution system is regulated by Law No. 24,076 (the "Gas Act"), which, together with Executive Decree No. 1,738/92, other regulatory decrees, the specific bidding rules (“Pliego”), the Transfer Agreement and the License establish the legal framework for the Company's business.
The License, the Transfer Agreement and regulations promulgated pursuant to the Gas Act contain requirements regarding quality of service, capital expenditures, restrictions on transfer and encumbrance of assets, restrictions on cross ownership among production, transmission and distribution of gas and restrictions on transfer of capital stock of MetroGAS.
The Gas Act and the License establish ENARGAS as the regulatory entity to administer and enforce the Gas Act and applicable regulations. ENARGAS' jurisdiction extends to transportation, marketing, storage and distribution of natural gas. Its mandate, as stated in the Gas Act, includes the protection of consumers, the fostering of competition in the supply of and demand for gas, and the encouragement of long-term investment in the gas industry.
Tariffs for gas distribution services were established in the License and are regulated by ENARGAS.
The tariff formula is subject to adjustment as from December 31, 1997, and thereafter every five years, according to the criteria that the ENARGAS will establish. The ratemaking methodology contemplated by the Gas Act and the License is the so-called "price cap with periodic review" methodology, a type of incentive regulation which allows regulated companies to retain a portion of the economic benefits arising from efficiency gains.
In addition, the Company’s tariffs are subject to semi-annual adjustments as a result of changes in the PPI and periodic adjustments in the Company’s costs of purchasing and transporting gas.
7.1. Distribution License
Upon expiration of the original 35-year term, MetroGAS may apply to ENARGAS for a renewal of the License for an additional ten-year term. ENARGAS is required at that time to evaluate the Company's performance and make a recommendation to the Argentine Government. MetroGAS would be entitled to such ten-year extension of its License unless ENARGAS can prove that MetroGAS is not in substantial compliance with all its obligations.
At the end of the 35-year or 45-year term, as the case may be, the Gas Act requires that a new competitive bidding be held for the License, in which MetroGAS would have the option, if it had complied with its obligations, to match the best bid offered to the Argentine Government by any third party.
As a general rule, upon termination of the License, MetroGAS will be entitled to receive the lower of the net book value of certain specified assets of MetroGAS or the proceeds, net of costs and taxes, paid by the successful bidder in a new competitive bidding process (see Note 6).
MetroGAS has various obligations under the Gas Act, including the obligation to comply with all reasonable requests for service within its license area. A request for service is not considered reasonable if it would be uneconomic for a distribution company to undertake the requested extension of service. MetroGAS also has the obligation to operate and maintain its facilities in a safe manner, which obligation may require certain investments for the replacement or improvement of facilities as set forth in the License.
The License details further obligations of MetroGAS, which include the obligation to provide distribution service, to maintain continuous service, to operate in a prudent manner, to maintain the distribution network, to carry out the Mandatory Investment program, to keep certain records and to provide periodic reports to ENARGAS.
7.2. Mandatory Investments
On December 28, 1999, ENARGAS issued Note 5,601, which approved the Mandatory Investments for 1997. These Mandatory Investments were set forth in the Basic Licence Rules only for the period 1993-1997.
7.3. “K” Investment Factor
Under the tariffs tables effective as from July 1, 1998 to January 1, 2001, ENARGAS reported the Company’s compliance, in 1998, 1999 and 2000, with works related to network extension and granted the Company the “K” Investment Factor. However, the Company has requested to the ENARGAS, to reconsider the procedure regarding the K factor application. This happened as a result of not applying the “K” factor to homogeneous distribution margins as stated when originally determined.
7.4. US PPI semi-annual adjustment
ENARGAS through Resolution No. 1477 adjusted MetroGAS' tariffs as of January 1, 2000, without including the tariffs variation pursuant to the PPI, which would have resulted in a 3.78% increase in the transportation and distribution components of the tariffs as of that date. This was due to the fact that in negotiations with ENARGAS and the Argentine Government, the Distribution and Transportation Companies agreed to defer the collection of the amounts related to the PPI adjustment corresponding to the first six months of the year. Moreover, ENARGAS established, through the same resolution, the methodology to recover the acrrued revenues corresponding to the application of the PPI during the first half of 2000, as from July 1, 2000 and through a ten-month period.
On July 17, 2000, the Distribution and Transportation Companies, ENARGAS and the Argentine Government confirmed through an agreement the pass through to the tariffs as from July 1, 2000 of: a)the balance to be billed corresponding to PPI adjustment deferred metioned above for the first six months of 2000; and b) the PPI increase (3.78%) as of that date. Additionally, they agreed to defer the collection of the amounts related to the PPI adjustments corresponding to the period as from July 1, 2000 through June 30, 2002. Consequently, a “PPI StabilizationFund” was established, which is a credit against third parties guaranteed by the Executive National Government, and therefore the corresponding accrued revenues, will be recovered through the tariffs as from July 1, 2002 to June 30, 2004, according to the methodology established in such agreement. As of December 31, 2000 the “PPI StabilizationFund” corresponded to an account receivable that amounted to $5,503 thousand and an account payable with the distribution companies of $2,208 thousand, equivalent to the 2.32% PPI increase.
On August 4, 2000, Decree No. 669 was issued by the Executive National Government, confirming the terms of this Agreement.
On August 29, 2000 MetroGAS was notified of an interim order, brought forward by the Ombudsman, establishing the suspension of the Decree No. 669, refering principally to the inconstitutionality of the tariff adjustment according to a mechanism of indexation based on a foreing index within the applicability of the Convertibility Law. Accordingly, ENARGAS informed the Company that the tariffs should be set back to the situation previous to Decree No. 669 and it should apply the tariffs in effect since May 1, 2000. MetroGAS appealed this measure and the corresponding ENARGAS note. Additionally, ENARGAS and the Executive Power (Ministry of Economy and Energy Branch of the Government) also appealed the mentioned interim order for the Federal Administrative Chamber of Appeals to solve the main issue. Resolution of this matter is pending.
According to the suspension of the Decree N° 669 established by the interim order, MetroGAS management believes that it is fully applicable the semi-annual adjustment according to the variation of the PPI as stated in the License. Consequently, the adjustment would be significantly higher. Furthermore, the attorney reprensenting the ENARGAS and the Executive Power, defended the legitimacy of the application of the PPI variation on tariffs. Accordingly, the Company has accrued the corresponding net amounts in these financial statements and has classified the related account receivables and payables according to Decree N°669.
7.5. General Matters
The License could be revoked by the Argentine Government upon the recommendation of ENARGAS in the following circumstances:
- Serious and repeated failure by the Company to meet its obligations.
- Total or partial interruption of noninterruptible service for reasons attributable to
the Company of a duration in excess of the periods stipulated in the License within
a calendar year.
- Sale, assignment or transfer of the Company's essential assets or encumbrances
thereon without ENARGAS' prior authorization, unless such encumbrances
serve to finance extensions and improvements to the gas pipeline system.
- Bankruptcy, dissolution or liquidation of the Company.
- Ceasing and abandoning the provision of the licensed service, attempting to assign
or unilaterally transfer the License in full or in part (without ENARGAS' prior
authorization) or giving up the License, other than as permitted therein.
- Transfer of the technical assistance agreement mentioned above, or delegation of
the functions granted in that agreement without ENARGAS' prior authorization.
With regard to restrictions, the License stipulates that the Company may not assume the debts of Gas Argentino or grant loans, encumber assets to secure debt or grant any other benefit to creditors of Gas Argentino.
NOTE 8 - FINANCIAL DEBT
The following table sets forth a breakdown of the Company's Financial Debt as of December 31, 2000 and 1999, indicating the average interest rates and maturity date for each credit line:
| December 31, | ||||||||
| 2000 | 1999 | |||||||
| Financial Debt | Interest Rate | Maturity | Interest Rate | Maturity | ||||
| Medium-Term Negotiable Bonds - 1998 Global Program: Series A Series B | 9 7/8 % 7.375 % | 04/01/2003 09/27/2002 | - - | - - | ||||
| Medium-Term Negotiable Bonds - 1994 Global Program: Series A Series B Series C | - 10 7/8% - | - 05/15/2001 - | 12% 10 7/8% Libor+2.375% | 08/15/2000 05/15/2001 12/02/2000 | ||||
| Short-Term Negotiable Bonds - 1994 Global Program: Series F (*) | - | - | - | 03/29/2000 | ||||
| Secured Overdrafts | 9.20%-11.75% | 01/02/2001-06/19/2001 | 8.75% | 03/29/2000 |
(*) Yield to maturity for investors is 8.75%
Details regarding the amount of the nominal interest and the effect of the capitalized interest are as follows, for the years ended December 31, 2000 and 1999:
| December 31, | |||||
| 2000 | 1999 | ||||
| Thousands of $ | |||||
| - Nominal financial cost | 34,.095 | 36.199 | |||
| - Net financial results of other debts | 364 | 42 | |||
| Total interest | 34,459 | 36,241 | |||
| - Capitalized interest (Note 2.2.c)) | (2,860) | (3,283) | |||
| Total interest charged to the results of operations | 31,599 | 32,958 |
8.1. Short and Medium-Term Negotiable Bonds
1994 Global Program:
The Shareholders' Ordinary and Extraordinary Meeting held on April 1994 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$350 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the program by the CNV.
On March 23, 1995, the CNV, pursuant to Resolution No. 10,877, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.
On August 15, 1995 the Company issued the Series A of the Short and Medium-Term Negotiable Corporate Bonds for a total of US$120 million, at an annual interest rate of 12% payable every six months and total amortization at five year maturity as of the date of issuance. On November 6, 1995, the Series A Notes were registered with the SEC and authorized for listing on the Bolsa de Comercio de Buenos Aires ("BCBA") on December 28, 1995. On September 1998 and April 2000, MetroGAS repurchased Negotiable Corporate Bonds, Series A, for US$3 million and US$12.69 million par value, respectively. The Series A Notes matured in August 2000 and were totally cancelled with the funds obtained from secured overdrafts.
On May 8, 1996, MetroGAS placed and issued US$100 million Series B Notes, maturing in 2001, for a price equivalent to 99.786% of the face value, which shall earn interest at the rate of 10 7/8% per annum, payable semiannually. The Series B Notes were registered with the SEC on May 8, 1996 and authorized for listing on the BCBA on May 29, 1996. On October 22, 1997 and September 16, 1998, MetroGAS repurchased Negotiable Corporate Bonds, Series B, for US$13.196 million and US$2 million par value, respectively.
On December 2, 1996, MetroGAS placed and issued US$62.5 million Series C Notes. The Series C Notes mature in December 2000 and bear interest from the date of issuance at a floating rate of LIBO plus 1.375%, 1.875%, 2.125% and 2.375%, for the first, second, third and fourth year, respectively. The Series C Notes, that were authorized to trade on the Luxembourg Stock Exchange, were totally cancelled on June 2, 2000 with the funds obtained from secured overdrafts.
On March 29, 1999, the Company placed and issued an amount of US$70 million of its Series F Notes under the abovementioned Global Program with zero coupon at a price equivalent to 91.8514% of face value. This Series matured in March 2000 and was totally cancelled.
The offering of the Series A, B, C, D, E and F was made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
1998 Global Program:
The Shareholders' Ordinary and Extraordinary Meeting held on December 22, 1998 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$600 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the Program by the CNV.
On August 19, 1999, the CNV, pursuant to Resolution No. 12,923, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.
On March 27, 2000, MetroGAS has placed and issued US$100 million Series A Notes, maturing in 2003, for a price equivalent to 99.9% of the face value, which shall earn interest at the rate of 7.375% per annum, payable annually. The Series B Notes were authorized for listing on the BCBA on March 24, 2000 and on Luxembourg Stock Exchange on April 3, 2000.
On September 27, 2000, MetroGAS has placed and issued euros 110 million Series B Notes (equivalent to approximately US$94.4 million, at the exchange rate from the date of the issuance), maturing in 2002, for a price equivalent to 99.9% of the face value, which shall earn interest at the rate of 7.375% per annum, payable annually. The Series B Notes were authorized for listing on the Luxembourg Stock Exchange on September 27, 2000. The Company has entered into a future euro purchase agreement in order to manage its exposure to the devaluation of the US dollar with respect to the euro. Accordingly, in such agreement an exchange rate was fixed at the interests cancellation date and the maturity date of the Series.
The offering of the Series A and B were made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
8.2. Non-current financial debt
Maturities of principal amounts of non-current financial debt as of December 31, 2000 are as follows:
| 2002 | 2003 | Total | ||
| Thousands of $ | ||||
| Medium-term Negotiable Bonds | 94,435 | 100,000 | 194,435 | |
| 94,435 | 100,000 | 194,435 | ||
NOTE 9 - CAPITAL STOCK
As of December 31, 2000, the Company's capital stock amounted to $569,171 thousand, all of which is fully subscribed, paid-in and registered.
The latest capital increase to $569,171 thousand was approved by the Shareholders’ Extraordinary Meeting held on March 12, 1997. This increase was authorized by the CNV on April 8, 1997 and by the BCBA on April 10, 1997 and was registered with the Public Registry of Commerce on September 17, 1997 under No. 6,244, Corporations Book 121, Volume A.
Gas Argentino, the holding company, owns 70% of the total Company's capital stock, the 20% originally held by the Government was subject to an Initial Public Offering as specified below, and 10% is hold by the Employee Stock Ownership Plan (Programa de Propiedad Participada or "PPP")(See Note 12).
In accordance with the Transfer Agreement, in 1994 the Argentine Government offered to sell, through an initial public offering, its 20% holding in the Company's capital stock, represented by 102,506,059 Class B shares, which were transferred to private entities.
On November 2, 1994, the CNV, pursuant to Resolution No. 10,706, admitted to public offering all the Company's outstanding shares at such date. The ADSs issued in the United States were registered with the SEC. The Class B shares and the ADSs were approved for listing on the BCBA and the NYSE, respectively.
The Company is required to keep in effect the authorization to offer the Company's capital stock to the public and the authorization for the shares to be listed on the Argentine Republic's authorized securities markets for a minimum period of 15 years as of the respective dates on which such authorizations are granted.
Once this first five years after the Take Over Date have elapsed, any decrease, redemption or distribution of the Company’s shareholders’ equity will require prior authorization by ENARGAS.
The Shareholders Meeting held on April 24, 2000, ratified the interim cash dividend of $28,459 thousand, equivalent to $0.05 per share and 5% of capital stock, which was placed at the disposal of shareholders as from November 24, 1999. In addition, it was proposed the setting up of a Reserve for future dividends amounting to $11,510 thousand.
On May 18, 2000 the Company's Board of Directors resolved to allocate the Reserve for future dividends set up on April 24, 2000 to the distribution of cash dividends amounting to $ 11,383 thousand ($ 0.02 per share, equivalent to 2% of the capital stock) placed at the disposal of shareholders as from May 31, 2000.
On November 21, 2000 the Company's Board of Directors ratified the interim cash dividend of $34,150 thousand, equivalent to $0.06 per share and 6% of capital stock, which was placed at the disposal of shareholders as from November 29, 2000, affecting $127 thousand of the Reserve for future dividends and $34,023 thousand of the Unapropiated retained Earnings.
NOTE 10 - RESTRICTIONS ON THE DISTRIBUTION OF PROFITS
In accordance with the Argentine Corporations Law and the Company's by-laws, 5% of the Company's net income for the year must be transferred to the Company's Legal Reserve, until it reaches 20% of the subscribed capital including the adjustments to capital stock.
The Company's by-laws provide for issuing a Profit Sharing Bonus, equivalent to 0.5% of the Company's net income, to be paid annually to all the Company's employees (see Note 12). The amount corresponding to this caption, calculated on the basis of income for the year, has been deducted as an expense in the Income Statements for the years ended December 31, 2000 and 1999.
NOTE 11 - LIMITATION ON THE TRANSFERABILITY OF GAS ARGENTINO
SHARES
The Pliego stipulates that Gas Argentino can sell part of its participation in the Company under the condition that it must maintain 51% of MetroGAS' equity.
In addition, the Company's by-laws provide that ENARGAS' approval must be obtained prior to transfer of the Class A shares (representing 51% of capital stock). The Pliego states that such prior approval will be granted three years after the Takeover Date provided that:
- The sale covers 51% of capital stock or, if the proposed transaction is not a sale,
the act of reducing the shareholding will result in the acquisition of
a shareholding of not less than 51% by another investing company,
- The applicant provides evidence that the transaction will not affect the
operating quality of the licensed service, and
- The existing technical operator, or a new technical operator approved
by ENARGAS, retains at least 15% of the new investor company's shares
and the technical assistance contract remains in force.
Shareholders of Gas Argentino are subject to the same restrictions as those set forth in the preceding paragraph.
NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN
Executive Decree No. 1,189/92 of the Argentine Government, which provided for the creation of the Company, established that 10% of the capital stock represented by Class C shares was to be included in the PPP, as required under Chapter III of Law No. 23,696, the instrumentation of which was approved on February 16, 1994 by means of Decree No. 265/94 of the National Executive. The Class C shares are held by a trustee for the benefit of GdE employees transferred to MetroGAS who remained employed by MetroGAS on July 31, 1993 and who elected to participate in the PPP.
In addition, the Company's by-laws provide for the issuance of profit sharing bonuses as defined in Article 230 of Law No. 19,550, in favor of all regular employees so as to distribute 0.5% of the net income of each year among the beneficiaries of this program. The accrued amounts have been expensed on the Income Statement of each year (See Note 10).
Participants in the PPP purchased their shares from the Argentine Government for $1.10 per share, by either paying cash for them or by applying dividends on such shares and 50% of their profit sharing voucher to the purchase price. The trustee will retain custody of the Class C shares until they are fully paid.
Once the Class C shares are fully paid, they may be converted at the request of the holders thereof into freely disposable Class B shares. This decision is to be taken by the Class C shareholders, acting as a single class. While the PPP is in effect, neither the by-laws of the Company nor the proportions of the various shareholdings may be changed until the requirements set forth in the PPP are fully complied with.
NOTE 13 - LONG-TERM CONTRACTS
In order to satisfy gas demand, MetroGAS entered into long-term contracts to assure reasonable amounts of gas supply and gas transportation services. In order to efficiently provide the license service, MetroGAS entered into a long-term contract for the administration of the business at international standards through the Technical Assistance Agreement.
13.1. Gas supply
Under different long-term contracts with YPF, Perez Companc, Total Austral/Pan American Energy/Wintershall Energía joint venture and other producers of Tierra del Fuego, Neuquén and Santa Cruz Provinces, the Company is entitled to purchase a major portion of its natural gas needs as follows:
Volumes - Daily averages for the years
| 2000 | 2001 | 2002 | 2003 | 2004 | ||||||
| MMCM/d (1) | 17.7 | 13.5 | 12.3 | 11.8 | 7.3 | |||||
| MMCF/d (2) | 624.9 | 475.5 | 434.1 | 414.8 | 259.3 |
According to the long-term contract provisions, the natural gas volumes and amounts that MetroGAS is obligated to pay for regardless of whether or not they are taken ("take-or-pay amounts") are as follows:
Volumes - Daily averages for the years
| 2000 | 2001 | 2002 | 2003 | 2004 | ||||||
| MMCM/d (1) | 13.0 | 10.3 | 9.3 | 8.8 | 5.0 | |||||
| MMCF/d (2) | 458.2 | 361.8 | 327.5 | 310.2 | 177.5 | |||||
| Amount committed/year (3) | 232.8 | 178.4 | 157.7 | 151.3 | 93.6 |
(1) Millions of cubic meters per day
(2) Millions of cubic feet per day
(3) Millions of dollars
The gas supply contracts also entitle MetroGAS to certain reductions of its take-or-pay amounts in the event that demand from power plants in the Company's service area falls below certain volumes of gas per day or in the event of any direct purchase of gas from a supplier or intermediaries and of transportation services for the purchased gas (avoiding MetroGAS network). Management does not consider it likely that the Company will incur in a material take-or-pay liability for volumes of gas not taken as of December 31, 2000.
13.2. Gas transportation
MetroGAS has entered into a number of transportation contracts, with expiration dates ranging between 2004 and 2014, with TGS, Transportadora de Gas del Norte S.A. and other companies, which provide for firm transportation capacity of 21.7 MMCM (765.6 MMCF) per day, considering the transportation capacity contracted as of December 31, 2000.
The Company is obligated to pay approximately $378,790 thousand for the entire period between 2000 and 2001, $562,640 thousand for the entire period between 2002 and 2004 and $1,490,230 thousand for the entire period between 2005 and 2014, for firm transportation capacity under such contracts.
13.3. Gas delivery commitments
In order to compete with fuel oil as an energy source for power plants and to prevent the bypass of its distribution system by major customers, MetroGAS has agreements in place with certain dual-fuel power plants whereby it commits to deliver during the winter months minimum volumes of gas on an interruptible basis. If minimum volumes are not met, MetroGAS is required to refund a portion of any excess of fuel oil price over gas prices on undelivered volumes.
13.4. Technical assistance agreement
Under this agreement, BG International Limited (member of British Gas holding) provides technical assistance to the Company for the payment of an annual technical assistance fee equal to the greater of US$3,000 thousand or 7% of the amount obtained after substracting US$3,000 thousand from pre-tax income before financing results. This contract is for a term of eight years as from Takeover Date and is renewable with the consent of both parties. The expenses resulting from this contract, the technical operator's fees, are disclosed in Note 5.
NOTE 14 - FISCAL AND LEGAL MATTERS
14.1. Income Tax to be Recovered
The Dirección General Impositiva ("DGI") (General Tax Board) challenged the method followed by the Company for the calculation of the tax depreciation expense deducted in the 1992 tax return involving an income tax amount of approximately $5,000 thousand. For the purpose of avoiding the high interest that the Company would have to pay in the event that the position maintained by the tax authorities prevailed, MetroGAS voluntarily paid in August 1994, under protest, the amount assessed plus accrued interest.
On December 28, 1994, the Company initiated administrative proceedings with the DGI to obtain the full refund of the amount paid plus interest accrued as of that date at the rate of 6% per annum. On December 27, 1995, the DGI notified the Company that its Administrative Appeal had been denied. This denial of repayment was appealed by the Company before the Tribunal Fiscal de la Nación (National Tax Court) on December 28, 1995. On August 21, 1996, said Court issued a decision rejecting the Administrative Appeal. On October 22, 1996, MetroGAS filed an appeal against this ruling in the National Chamber of Appeals for Federal Administrative Disputes, which is in process.
There are legal arguments in favor of the Company that have not been affected by the National Tax Court’s decision, which does not represent a final conclusion on the Company's rights to obtain the reimbursement of the amounts paid.
Pursuant to a decision of the National Securities Commision, the Company was required to incorporate into its financial statements as of December 31, 1996 an accounting allowance for the total amount of the credit recorded for that item. The outstanding balance of such allowance as of December 31, 2000 and 1999 is included in Other receivables and amounted to $5,778 thousand.
14.2. Transfer to tariff - Turnover Tax
On November 17, 1997, the ENARGAS issued Resolution No. 544/97 authorizing the passing through to tariff of the variation in the taxable base for the Turnover Tax within the jurisdiction of the Province of Buenos Aires from January 1993 to December 31, 1997, for an amount of $16,824 thousand. In addition the resolution established a term for the recovery of the abovementioned amounts of 96 months.
In view of the term for recovery established by ENARGAS for the amount accumulated at December 31, 1997, the Regulator laid down in Note No.108 dated January 12, 1998 that such amounts accrue interest at an annualized percentage rate of 9.5% on balances pending recovery at the end of each fiscal year of the Company.
Consequently, as of December 31, 2000 and 1999 the financial statements of the Company included a current receivable of $2,140 thousand and $1,875 thousand and a non-current receivable of $9,819 thousand and $11,814 thousand, respectively. Interest accrued at December 31, 2000 and 1999 amounts to $1,189 thousand and $1,347 thousand and has been recognized as financial and holding results in the income statements for these periods.
On March 20, 1998, the Company requested ENARGAS to transfer to tariff the cost variations derived from the increase in turnover tax in the jurisdiction of the Federal Capital. On July 14, 2000 ENARGAS issued Resolution N° 1,787 rejecting MetroGAS´ claim. On August 23, 2000 the Company filed an administrative recourse which at the date of issue of these financial statements, the claim made by MetroGAS was pending resolution by ENARGAS.
14.3. Pass-through of the cost of purchasing gas
The Regulatory Framework establishes that the distributor’s tariff will be adjusted semiannually to reflect changes in the cost of purchasing gas. The object of this adjustment is to ensure that the distributors recovers no more and no less than its actual cost of purchasing gas. The cost of purchasing gas was recorded by the Company as Gas Supply within its Operating Costs. However, ENARGAS failed to approve the pass-through of increases in the cost of gas. As a result, MetroGAS was unable to recover approximately $23,062 thousand of its gas purchase costs in 1995, 1996, 1997, 1998, 1999 and 2000.
As a consequence of the impossibility of recovering the gas cost during those years the Company brought several legal actions at the National Chamber of Appeals on Federal Contentious Administrative matters. These claims amounted to approximately $6,295 thousand.
The mentioned Chamber rejected one of the legal actions stating that ENARGAS has complied with the regulatory framework and has not violated MetroGAS righs in the tariffs approval process.
Accordingly, the Company withdrew the other legal actions.
Nevertheless, as a result of the abovementioned limitation MetroGAS has filed several administrative actions amounting to $16,767 thousand that, as of the date of these financial statements, are pending resolution.
14.4. Distribution network extensions constructed by third parties
Pursuant to ENARGAS Resolution No. 283 issued in March 1996, the distribution network extensions that had been partially or completely financed by third parties and incorporated to the Company’s equity from the Takeover Date must be paid off by the Company according to the resolutions mentioned below.
In August 1996 ENARGAS issued Resolution No. 355 whereby it established the amounts to be recognized to third party users financing in full the undertakings transferred to the Company under the terms of Resolution No. 283/96. Those balances amount to the equivalent of 1,550, 1,530 and 1,460 cubic meters corresponding to the undertakings transferred to the Company in 1993, 1994 and 1995, respectively.
In February 1997, ENARGAS issued Resolution No. 422 recognizing the amount of bonuses corresponding to the year 1996, which amount to the equivalent of 1,330 cubic meters.
Resolution No. 587 dated March 1998 established the amount of bonuses payable for the undertakings transferred to the Company in 1997, which amounts to the equivalent of 1,000 cubic meters plus nine fixed charges.
On December 9, 1999, ENARGAS issued Resolution No. 1,356, which specifies the amounts of bonuses in consideration of residential distribution networks started and transferred during 1998 and networks which started in 1997 and were transferred for operation to the Company during 1998, amounting to the equivalent of 1,200 cubic metres.
14.5. Income tax on gas network extensions constructed by third parties
In July 1999, the Federal Administration of Public Revenue (“AFIP”) notified MetroGAS of an ex-officio ruling challenging income tax returns corresponding to fiscal years 1994 and 1995 and determining tax adjustments amounting to $2,017 thousand and $453 thousand, respectively.
Those adjustments derive from the tax authorities’ decision to attempt to tax the increase in net worth as a result of the incorporation of gas networks assigned by third parties during the abovementioned periods, according to Resolution No. 7/81 issued by the DGI.
The AFIP considers that the transfer of networks does not constitute assignment at no cost since, although no price has been determined, the obligation undertaken by the Company is to provide the service committed in exchange for a fixed price established in the tariff regime.
The resolution of the tax authorities establishes that the increase in net worth generated by the incorporation of the transferred assets is to be considered as taxable income and cannot be treated as tax exempt income as it does not constitute gratuitous enrichment.
MetroGAS filed an appeal with the National Tax Court against the ruling of the AFIP claiming lack of contributory capacity based on the fact that MetroGAS did not record taxable income, either because the net worth increase derived from the incorporation of the networks (free assignment) is tax-free or because the operation corresponds to an acquisition of fixed assets in installments (assignment for a consideration) (see Note 14.4).
14.6. Stamp Tax
On December 15, 1999, the tax authorities of Neuquén notified MetroGAS that it was liable for stamp taxes of $17.2 million with respect to contracts transferred by Gas del Estado to the Company and entered into before the privatization of Gas del Estado.
Regarding this matter, the Ministry of Economy has acknowledged, in a letter dated October 7, 1998, the Argentine Government’s responsibility for stamp taxes accruing prior to December 28, 1992, date of the privatization of Gas del Estado.
On January 26, 2000, the tax authorities of Neuquén informed MetroGAS that it was liable for taxes of $14.5 million with respect to Tacit Acceptance Contracts between several gas companies and MetroGAS executed after the privatization of Gas del Estado.
The Company believes the application of this tax is illegitimate because, according to the instrumental nature of the stamp tax, it applies only to written documents (i) that contain an offer and an express acceptance by the other party in the same document or (ii) that are documented by means of an exchange of letters whereby the acceptance letter contains or restates the main terms of the agreement. MetroGAS operates with the different gas and transportation companies through the exchange of letters with tacit acceptance, which are not taxable.
ENARGAS has notified the Ministry of Economy and MetroGAS that the stamp tax had not been considered for purposes of establishing the initial distribution tariffs and that, if the stamp tax is upheld by the Supreme Court of Justice of Argentina, the stamp tax should be deemed to be a new tax which would be required to be passed through to tariffs. ENARGAS also instructed all distribution and transportation companies to initiate administrative and/or legal actions to contest the claims of the Province of Neuquén in respect of stamp taxes.
MetroGAS filed a declaratory action against the Province of Neuquén with the Supreme Court of Justice of Argentina to determine the validity of the claims made by the Province of Neuquén. Resolution on this matter is still pending.
14.7. Others
At the date of issuance of these financial statements, there are discrepancies between the Company and the regulatory authorities as to the interpretation of various matters. After an in depth study of such discrepancies, the Company considers that the final resolution of these situations will not have any material impact that has not been taken into consideration in the financial statements as of December 31, 2000.
| Victor José Sardella |
| Deputy President |
METROGAS S.A.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND 1999
SUMMARY OF ACTIVITY REQUIRED BY RESOLUTION No. 290/97 ISSUED BY THE COMISION NACIONAL DE VALORES
1. Significant accounting policies
The information contained in this Summary of Activity Report has been prepared in accordance with Resolution No. 290/97 issued by the Comisión Nacional de Valores (“CNV”) and should be read together with the attached financial statements as of December 31, 2000 and 1999, which have been prepared in accordance with Argentine GAAP.
Based on Decree No. 316/95 of the Argentine Executive Branch, dated August 15, 1995, the CNV, pursuant to General Resolution No. 272, discontinued the practice of restating the financial statements to account for the effect of inflation as from September 1, 1995. Moreover, Resolution No. 140/96 of the Argentine Federation of Professional Councils of Economic Science (“FACPCE”), dated March 29, 1996, provides that the adjustment for inflation would be applicable only if the annual variation in the General Level Wholesale Price Index (“GLWPI”) exceeded 8%. The variation in the above-referenced index for the years ended December 31, 2000 and 1999, does not exceed 8%, so the Company’s financial statements as of December 31, 2000 and 1999 recognized the effects of inflation only through August 31, 1995.
2. Economic Aspects of the Company
General - Seasonality
MetroGAS sales and earnings are highly sensitive to weather conditions in Argentina. Demand for natural gas and, consequently, MetroGAS sales and earnings, are significantly higher during the winter months (May through September), owing to the larger gas sales volume and the tariff mix that affects revenues and gross profit.
Analysis of Operations for the years ended December 31, 2000 and 1999
The year ended December 31, 2000 was characterized by an increase in thermal power generation due to the beginning of operation of several combined cycle power plants. Therefore, natural gas deliveries to power plants increased significantly. Furthermore, lower temperatures were recorded during the second and third quarter of 2000 compared to the same quarters of 1999, so volumes delivered to residential customers increased by 5.7% during 2000.
On June 30, 1997 ENARGAS issued Resolution No. 464/97 approving the maximum tariffs for MetroGAS corresponding to the 1998/2002 period. This Regulatory Authority established the percentage variation of the “X” Efficiency Factor at 4.7% and the “K” Factor. Under the tariff tables effective as from July 1, 1998 to July 1, 2000, the “K” Factor was applied to residential, small and medium-sized commercial and industrial consumers (general P and general G), sub-distributors and natural compressed gas tariffs. As of December 31, 2000 the accumulated “K” Factor included in tariffs amounted to an average rate of 2.5% for each customer category.
As a result of the abovementioned factors, the Company net sales during the year ended December 31, 2000 increased by 3.7% and operating costs increased by 0.7% compared to the previous year resulting in a $22,389 thousand increase in the gross income, amounting to $206,639 thousand during 2000 compared to $184,250 thousand in the previous year. An operating income of $108,195 thousand was recorded in the year ended December 31, 2000, representing an increase of 10.8% compared to $97,665 thousand recorded in the previous year.
The Company’s net income corresponding to the year ended December 31, 2000 increased to $48,043 thousand, totaling an increase of 14.3% in net result compared to the net income of $42,041 thousand recorded in the previous year.
Operating results and financial condition
Net sales
Total net sales increased by 3.7% during the year ended December 31, 2000 to $718,450 thousand from $692,647 thousand during 1999. This increase was mainly due to a rise in net sales to residential customers, net sales of compressed natural gas (“CNG”), liquid gas processing sales and net sales of gas and transportation and distribution services to industrial, commercial and governmental customers, amounting to $40,548 thousand, $5,427 thousand, $5,150 thousand and $2,135 thousand, respectively.
Since July 1998 the “K” Factor was included in tariffs, representing an accumulated average rate of 2.5% over the distribution margins as of December 31, 2000. This increase percentage in distribution margins is applied only to residential, small and medium-sized commercial and industrial consumers, sub-distributors and CNG consumers.
Net sales to residential customers increased by 11.3%, from $358,286 thousand during the year ended December 31, 1999 to $398,834 thousand during 2000. The increase in net sales was due to the increase in tariff resulted from “K” Factor adjustment applied to this category of customers and from the increase in the U.S. Producer Price Index (“PPI”) applicable to tariffs since January 1, 2000 and July 1, 2000. Sales volume delivered to residential customers increased by 5.7% during the year ended December 31, 2000 compared to the previous year. This increase is due to lower temperatures recorded during the second and third quarters of 2000 compared to the same quarters of 1999.
Net sales of gas and transportation and distribution services to power plants decreased by 21.4% during 2000 compared to the previous year. Volumes delivered to these customers increased by 16.7% compared to the previous year. This significant increase in volumes was mainly due to the increase in thermal power generation due to the installation of combined cycle technology, which allowed thermal power plants to increase the achievement of volumes dispatched during 2000. Furthermore, the increase in volumes delivered to this category of customers with respect to the decrease in the net sales corresponds to the major increase in the volumes delivered under transportation and distribution services at a lower tariff than the volumes of sales of gas.
Although the lower level of economic activity in Argentina since 1999, volumes delivered to industrial, commercial and governmental customers increased by 9.4% during 2000 compared to the previous year. Net sales to these users category increased by 1.7%. This higher increase in volumes delivered to his category of customers with respect to net sales corresoponds to the major increase in the volumes delivered under transportation and distribution services at a lower tariff than the volumes of sales of gas.
Net sales of CNG increased by 12.3% during 2000 compared to the previous year as a consequence of abovementioned “K” Factor, which increased the tariff applied to this consumer category and the increase in the PPI applicable to tariffs since January 1, 2000 and July 1, 2000. Volumes of CNG delivered during 2000 increased by 5.5% compared to the previous year due to an increase in the number of CNG-converted vehicles as a result of the repeatedly increases in the prices of competing fuels.
Net sales related to processing of natural gas increased by 15.6% during the year ended December 31, 2000 with respect to the previous year, and volumes delivered to these users category decreased by 13.4%. This significant increase was mainly due to the increase in the international price of liquid gas. As from September 1999 prices have increased and recovered their historical positions.
The following table shows the Company’s net sales by customer category for the years ended December 31, 2000 and 1999, in thousands of pesos:
| For the year ended December 31, 2000 | % of Net Sales | For the year ended December 31, 1999 | % of Net Sales | ||||
| Residential | 398,834 | 55.5 | 358,286 | 51.7 | |||
| Power Plants | 66,992 | 9.3 | 114,288 | 16.5 | |||
| Industrial, Commercial and Governmental | 114,070 | 15.9 | 115,250 | 16.6 | |||
| Compressed Natural Gas | 49,494 | 6.9 | 44,067 | 6.4 | |||
| Processed Natural Gas | 38,257 | 5.3 | 33,107 | 4.8 | |||
| Total gas sales | 667,647 | 92.9 | 664,998 | 96.0 | |||
| Transportation and Distribution Services | |||||||
| - Power plants | 33,933 | 4.7 | 14,094 | 2.0 | |||
| - Industries | 16,870 | 2.4 | 13,555 | 2.0 | |||
| Subtotal | 50,803 | 7.1 | 27,649 | 4.0 | |||
| Net sales | 718,450 | 100.0 | 692,647 | 100.0 |
The following table shows the Company’s natural gas sales volume by customer category for the years ended December 31, 2000 and 1999, in million of cubic meters:
| For the year ended December 31, 2000 | % of Volume of Gas Delivered | For the year ended December 31, 1999 | % of Volume of Gas Delivered | ||||
| Residential | 1,886.1 | 26.4 | 1,784.8 | 27.4 | |||
| Power Plants | 1,077.5 | 15.1 | 1,830.5 | 28.5 | |||
| Industrial, Commercial and Governmental | 943.6 | 13.2 | 985.5 | 15.1 | |||
| Compressed Natural Gas | 494.1 | 6.9 | 468.3 | 7.2 | |||
| Processed Natural Gas | 299.5 | 4.2 | 345.9 | 5.3 | |||
| Total Sales Volume | 4,700.8 | 65.8 | 5,415.0 | 83.1 | |||
| Transportation and Distribution Services | |||||||
| - Power plants | 1,928.3 | 26.9 | 744.2 | 11.5 | |||
| - Industries | 519.9 | 7.3 | 351.9 | 5.4 | |||
| Subtotal | 2,448.2 | 34.2 | 1,096.1 | 16.9 | |||
| Total volume of gas delivered | 7,149.0 | 100.0 | 6,511.1 | 100.0 |
Operating Costs
Operating costs totaled $511,811 thousand during the year ended December 31, 2000, representing a 0.7% increase compared to $508,397 thousand registered in the previous year. This variation was primarily due to an increase in transportation costs, in payroll and social contributions, in fees for services and in other operating costs, partially offset by a decrease in cost of gas purchases.
During the year ended December 31, 2000, 5,240.7 million of cubic meters were acquired representing a decrease of 6.2% with respect to the gas volumes purchased in 1999. This decrease in volumes purchased is due to the change in mix of sales to power plants and industrial, commercial and governmental customers, increasing volumes delivered under transportation and distribution services and drecreasing volumes of sales of gas which are sold at a higher tariff as a consequence of the cost of gas included in it.
Gas transportation costs increased 5.7% from $205,457 thousand during the year ended December 31, 1999 to $217,209 thousand during 2000. This increase was mainly due to higher gas processing costs and higher transportation costs due to the increase in the PPI applicable since January 1, 2000 and July 1, 2000.
The following chart shows the Company’s operating costs by type of expense for the years ended December 31, 2000 and 1999, in thousands of pesos:
| For the year ended December 31, 2000 | % of Total Operating Expenses | For the year ended December 31, 1999 | % of Total Operating Expenses | ||||
| Gas purchases | 243,460 | 47.6 | 259,465 | 51.0 | |||
| Gas transportation | 217,209 | 42.5 | 205,457 | 40.4 | |||
| Depreciation of Fixed Assets | 26,749 | 5.2 | 26,620 | 5.2 | |||
| Payroll and social contributions | 13,007 | 2.5 | 11,575 | 2.3 | |||
| Operations and maintenance | 3,499 | 0.7 | 4,636 | 0.9 | |||
| Fees for services | 3,703 | 0.7 | 1,546 | 0.3 | |||
| Other operating costs | 7,366 | 1.4 | 2,132 | 0.4 | |||
| Capitalization of Fixed Assets Costs | (3,182) | (0.6) | (3,034) | (0.5) | |||
| Total | 511,811 | 100.0 | 508,397 | 100.0 |
Administrative Expenses
Administrative expenses decreased by 1.9% from $ 39,302 thousand during the year ended December 31, 1999 to $ 38,539 thousand recorded in 2000. This decrease was mainly due to the decrease in the depreciation of fixed assets and a reduction in the contribution to ENARGAS´ budget.
Selling Expenses
Selling expenses increased by 9.9% from $ 28,466 thousand during the year ended December 31, 1999 to $ 31,271 thousand during 2000. The increase resulted mainly from an increase in the allowance for doubtful accounts and in advertising and publicity charges.
Other Expenses
Other expenses increased by 52.2% from $ 18,817 thousand during the year ended December 31, 1999 to $ 28,634 thousand during 2000. This increase resulted mainly from the increase in the technical operator’s fees, that are calculated based on the net income of the Company, and in certain provisions.
Financing and Holding Results
Net financing and holding results totaled a loss of $ 29,191 thousand during the year ended December 31, 2000 compared to $ 31,373 thousand during the previous year.
This decrease mainly derived from a reduction in loss from financial and holding results generated by liabilities amounting to $ 1,577 thousand compared to 1999, principally resulting from a lower indebtedness recorded during 2000, compared to the previous year. Interest generated by assets at December 31, 2000 increased by $ 578 thousand with respect to the previous year.
Other Income and Expenses
Other income and expenses recorded a gain of $ 470 thousand during the year ended December 31, 2000 compared to a loss of $60 thousand recorded during 1999.
Income Tax
During the year ended December 31, 2000, $ 31,431 thousand was accrued for income tax, resulting in an effective tax rate of 39.5%. During the year ended December 31, 1999, the Company accrued an income tax charge for $ 24,191 thousand, resulting an effective tax rate of 36.5%. The increase in the effective rate is due to certain allowances and provisions that were non-deductible for tax purposes.
Net cash provided by operating activities
Net cash provided by operating activities amounted to $ 85,602 thousand during the year ended December 31, 2000 and $ 110,219 thousand during the previous year. This decrease in funds is mainly due to the increase in tax payments as a consequence of the increase in income tax advances and the increase in other receivables and in trade receivables due to higher sales during 2000, partially offset by the higher income after the adjustments of the non-cash items.
Net cash used in investing activities
Net cash used in investing activities totaled $ 45,083 thousand during the year ended December 31, 2000 compared to $ 44,408 thousand used during the previous year, representing an increase in the investment level in fixed assets in accordance with the investment plans for 2000.
Net cash used in financing activities
Net cash used in financing activities was $ 53,821 thousand during the year ended December 31, 2000, compared to $ 49,489 thousand used during the previous year. This decrease in net cash during 2000 with respect to the previous year was mainly due to the higher dividend payments, partially offset by a lower payment of loans compared to the new loans obtained.
Liquidity and capital resources
Financing
As of December 31, 2000, the total indebtedness of the Company was $ 342,717 thousand.
On August 15, 1995, the Company placed and issued its Series A Notes under the Short and Medium-Term Note Program with a face amount of US$ 120.0 million and an interest rate of 12% per annum payable semi-annually with full principal repayment at maturity, which is five years from the date of issue. On November 6, 1995, the Series A Notes were registered with the Securities and Exchange Commission. The Series A Notes were authorized for listing on the Buenos Aires Stock Exchange on December 28, 1995. On September 29, 1998, the Company repurchased Negotiable Corporate Bonds, Series A, for US$ 3.0 million par value. Furthermore, on April 2000, MetroGAS repurchased Negotiable Corporate Bonds, Series A, for U$S 12.69 million par value. The Series A Notes matured in August 2000 and were totally cancelled with the funds obtained from secured overdrafts.
On May 8, 1996, MetroGAS placed and issued its Series B Notes with a face amount of US$ 100.0 million with an interest rate of 10 7/8% per annum, payable semiannually, at a price equivalent to 99.786% of the face value and maturity in 2001. The Series B Notes were registered with the SEC on May 8, 1996 and authorized for listing on the Buenos Aires Stock Exchange on May 29, 1996. On October 22, 1997, the Company repurchased Series B Notes issued under the Short and Medium-Term Note Program having a face value of US$ 13.2 million. Furthermore, on September 16, 1998, the Company repurchased US$ 2.0 million par value of Negotiable Corporate Bonds corresponding to that series.
On December 2, 1996, the Company placed and issued its Series C Notes with a face amount of US$ 62.5 million, a term of four years, a floating interest rate based on the LIBO rate plus 1.375%, 1.875%, 2.125% and 2.375% for the first, second, third and fourth year, respectively. The Series C Notes that were authorized for listing on the Luxembourg Stock Exchange, were totally cancelled on June 2, 2000 with the funds obtained from secured overdrafts.
On March 29, 1999, the Company placed and issued an amount of US$ 70.0 million of its Series F Notes under the abovementioned Global Program with zero coupon at a price equivalent to 91.8514% of the face value. This Serie matured in March 2000 and was totally cancelled.
The offering of the Series A, B, C, D, E and F was made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
The Shareholders' Extraordinary Meeting held on December 22, 1998 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$ 600.0 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the Program by the CNV.
On August 19, 1999, the CNV, pursuant to Resolution No. 12,923, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.
On March 27, 2000, the Company has placed and issued, under the new Negotiable Corporate Bonds Global Program, its Series A Notes with a face amount of US$ 100.0 million, at a price equivalent to 99.677% of the face value, with an interest rate of 9.875% per annum, payable semiannually and maturity on April 2003. The Series A Notes have been authorized for listing on the Buenos Aires Stock Exchange on March 24, 2000 and on the Luxembourg Stock Exchange on April 3, 2000.
On September 27, 2000, MetroGAS has placed and issued euros 110 million Series B Notes (equivalent to approximately US$ 94.4million, at the exchange rate from the date of the issuance), maturing in 2002, for a price equivalent to 99.9% of the face value, which shall earn interest at the rate of 7.375% per annum, payable annually. The Series B Notes were authorized for listing on the Luxembourg Stock Exchange on September 27, 2000. The Company has entered into a future euro purchase agreement in order to manage its exposure to the devaluation of the US dollar with respect to the euro. Accordingly, in such agreement an exchange rate was fixed at the interests cancellation date and the maturity date of the Series.
The offering of the Series A and B were made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.
Capitalization
The Company’s total capitalization at December 31, 2000 amounted to $942,746 thousand, consisting of $148,282 thousand short-term debt, $194,435 thousand long-term debt and shareholders’ equity of $600,629 thousand. Financial debt as a percentage of total capitalization amounted to 36.4% at December 31, 2000 and to 36.9% at December 31, 1999.
Comparative Balance Sheet
In order to appraise the development of the Company’s activities, the table below sets forth comparative balance sheet information from the Company’s financial statements as of December 31, 2000, 1999, 1998, 1997 and 1996.
| 12.31.00 | 12.31.99 | 12.31.98 | 12.31.97 | 12.31.96 | |||||
| Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | |||||
| Thousands of $ | |||||||||
| Current Assets | 145,117 | 158,648 | 141,489 | 137,155 | 146,606 | ||||
| Non-current Assets Assets | 903,309 | 892,065 | 889,966 | 872,664 | 847,529 | ||||
| Total Assets | 1.048.426 | 1,050,713 | 1,031,455 | 1,009,819 | 994,135 | ||||
| Current Liabilities | 251,754 | 368,390 | 180,311 | 140,480 | 100,426 | ||||
| Non-current Liabilities | 196,643 | 84,804 | 264,304 | 269,304 | 282,500 | ||||
| Total Liabilities | 448,397 | 453,194 | 444,615 | 409,784 | 382,926 | ||||
| Shareholders’ Equity | 600,029 | 597,519 | 586,840 | 600,035 | 611,209 | ||||
| Total | 1,048,426 | 1,050,713 | 1,031,455 | 1,009,819 | 994,135 |
Comparative Results
The table below contains a summary of the income statements for the years ended December 31, 2000, 1999, 1998, 1997 and 1996.
| 12.31.00 | 12.31.99 | 12.31.98 | 12.31.97 | 12.31.96 | |||||||||||||||
| Thousands of $ | |||||||||||||||||||
| Gross Profit | 206,639 | 184,250 | 144,133 | 148,957 | 164,895 | ||||||||||||||
| Administration, Commercialization And Other Expenses | (98,444) | (86,585) | (79,963) | (80,901) | (85,688) | ||||||||||||||
| Operating Income | 108,195 | 97,665 | 64,170 | 68,056 | 79,207 | ||||||||||||||
| Financial results | (29,191) | (31,373) | (27,218) | (22,048) | (18,326) | ||||||||||||||
| Other Income (Expenses) | 470 | (60) | 201 | 16,932 | 1,262 | ||||||||||||||
| Income before tax | 79,474 | 66,232 | 37,153 | 62,940 | 62,143 | ||||||||||||||
| Income tax Income tax | (31,431) | (24,191) | (13,921) | (17,925) | (18,288) | ||||||||||||||
| Income tax for the fiscal year 1993 | - | - | - | - | (5,778) | ||||||||||||||
| Net Income | 48,043 | 42,041 | 23,232 | 45,015 | 38,077 |
Comparative Statistical Data
The table below shows a summary of operating data for the years ended December 31, 2000, 1999, 1998, 1997 and 1996.
| 12.31.00 | 12.31.99 | 12.31.98 | 12.31.97 | 12.31.96 | |||||
| Volumes | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | Balance Sheet | ||||
| Thousands of cubic meters | |||||||||
| Gas purchased by MetroGAS | 5,240,731 | 5,928,176 | 4,799,369 | 4,504,523 | 5,603,986 | ||||
| Gas contracted by third parties | 2,664,282 | 1,230,146 | 1,104,809 | 2,503,941 | 1,951,082 | ||||
| 7,905,013 | 7,158,322 | 5,904,178 | 7,008,464 | 7,555,068 | |||||
| Volume of gas withheld: | |||||||||
| - Transportation | (506,587) | (417,990) | (358,869) | (468,733) | (460,984) | ||||
| - Loss in distribution | (232,366) | (208,440) | (183,779) | (185,375) | (287,121) | ||||
| - Transportation and processing gas production | (17,035) | (20,840) | (28,415) | (24,801) | (26,161) | ||||
| Volume of gas delivered | 7,149,025 | 6,511,052 | 5,333,115 | 6,329,555 | 6,780,802 |
Comparative ratios
The table below contains certain financial ratios as of December 31, 2000, 1999, 1998, 1997 and 1996.
| 12.31.00 | 12.31.99 | 12.31.98 | 12.31.97 | 12.31.96 | |
| Liquidity | 0.58 | 0.43 | 0.78 | 0.98 | 1.46 |
| Indebtedness | 0.75 | 0.76 | 0.76 | 0.68 | 0.63 |
| Earnigns before income tax | 0.14 | 0.12 | 0.07 | 0.11 | 0.11 |
Other information
The table below contains information regarding the price per share of the Company’s Common Shares and its ADSs:
| Share Price on the Buenos Aires Stock Exchange (1) | Share Price of ADSs on the New York Stock Exchange (1) | ||
| $ | US$ | ||
| Closing price | 1.30 | 13.00 | |
| December | 1994 | 1.03 | 10.12 |
| March | 1995 | 0.90 | 9.38 |
| June | 1995 | 0.86 | 8.62 |
| September | 1995 | 0.92 | 9.12 |
| December | 1995 | 0.98 | 9.75 |
| March | 1996 | 0.97 | 9.50 |
| June | 1996 | 1.05 | 10.62 |
| September | 1996 | 0.95 | 9.87 |
| December | 1996 | 0.94 | 9.38 |
| March (2) | 1997 | 1.05 | 11.38 |
| June | 1997 | 1.01 | 10.00 |
| September | 1997 | 0.86 | 8.50 |
| December | 1997 | 0.77 | 7.75 |
| March | 1998 | 0.93 | 9.25 |
| June | 1998 | 0.90 | 8.81 |
| September | 1998 | 0.80 | 7.88 |
| December | 1998 | 0.85 | 8.13 |
| March | 1999 | 0.79 | 8.00 |
| June | 1999 | 0.88 | 8.44 |
| September | 1999 | 0.93 | 9.25 |
| December | 1999 | 0.89 | 8.75 |
| March | 2000 | 0.91 | 8.63 |
| June | 2000 | 0.88 | 8.75 |
| September | 2000 | 0.91 | 9.25 |
| December | 2000 | 0.84 | 8.06 |
(1) Prices on the last business day of the month.
(2) On March 12, 1997, the Shareholders’ Extraordinary Meeting of the Company approved the capitalization of the capital stock adjustment, and the number of listed shares was increased from 199,886,815 to 221,976,771.
Outlook of MetroGAS
Base on its mid-term goals and more specifically on estimations for 2000, the Company intends to focus its efforts on the following:
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Intensifying efforts to improve the quality of customer service.
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Maintaining the good public image that the Company has developed by continuing with the policy of communicating with customers and publicizing the Company’s activities.
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Continuing the investment plan in all areas.
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Continuing to promote and develop new business opportunities that will increase the Company’s efficiency and profitability.
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Improving the profitability of operations by optimizing the costs of firm transportation capacity, by developing new opportunities for the sale of gas to power plants and by participating in projects to promote the export of gas from Argentina.
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Minimizing technical losses in the Company’s distribution network.
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Increasing overall efficiency by improving the meter-reading processes, the billing and collections procedures, the management of past-due accounts and the control of gas leaks.
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Reviewing the Company’s administrative processes more intensively in order to increase productivity and reduce costs.
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Maintaining the excellent work safety rates to continue the Health, Safety and Environmental Policy implemented by the Company.
Buenos Aires, February 2, 2001
| Victor José Sardella |
| Deputy President |