Metrogas S.A. — Annual Report 2004

Mar 15, 2005

Free translation from the original prepared in Spanish for publication in Argentina

ANNUAL REPORT

AND

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004

Free translation from the original prepared in Spanish for publication in Argentina

METROGAS S.A.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003

Free translation from the original prepared in Spanish for publication in Argentina

METROGAS S.A.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003

INDEX

Annual Report

Report of Independent Accountants

Balance Sheets

Statements of Operations

Statements of Changes in Shareholders’ Equity

Statements of Cash Flows

Notes to Financial Statements

Exhibits A, B, C, E, F, 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 thirteenth fiscal year, ended December 31, 2004.

MACROECONOMIC CONTEXT

More than two years have gone by since the worst moments of the crisis Argentina suffered during mid-2002 and the beginning of 2003, and it is worth mentioning that the regular stabilisation of the macro economy has been the dominant characteristic in 2004. Especially during this year, currency stability, low inflation rates and an important increase in the economic activity have been positive factors, which encouraged such stabilisation process.

During 2004 the Gross Domestic Product (“GDP”) grew over 8%, thus surpassing the most optimistic forecasts. The restructuring of the sovereign debt, if a reasonable level of acceptance is reached, will extend the expansive stage, keeping in the short term, the upward trend of domestic expense. This trend finds a limit in the depletion of the set capacity and in the surplus of the Payment Balance current account.

As long as the maximum usage of capital stock continues to be recovered, the choice for mechanisms to stimulate aggregate demand must be more and more careful so as to foster investment growth, thus expanding production borders, increasing employment possibilities and encouriging exports.

The rate of unemployment which was around 14.5% during 2003, continued to improve, and by the end of 2004 it lowered to 13.2%. It is worth remembering that this rate was over 20% in 2002 considering that beneficiaries of the Head of Household programmes and other similar programmes were employed. Nevertheless, the employment / product relation shows no improvement in productivity, jeopardizing the country’s sustainable growth.

In perspective, 2004 was a good year regarding inflation issues. Consumers’ Prices Index (“CPI”) closed at 6.1%, substantially lower than the objective set by the authorities from the Central Bank of the Argentine Republic (BCRA). Nevertheless, there are certain factors that foresee a probable rise in prices, among these factors are the following: a high pace of monetary expansion encouraged by the new authorities from the BCRA to maintain dollar value, a prospect of higher investment of capitals after moving out from default, a reduction in the set capacity and pressure coming from issues regarding salaries.

One of the pillars of the government’s economic policy has been to keep inflation under control. Retail prices, according to the CPI, only showed a 3.7% increase during 2003, and a 6.1% increase in 2004; wholesale prices, according to the Wholesale Prices Index (“WPI”), increased by 2.0% during 2003, and by 7.9% during 2004. However, while some prices are growing steadily, some other prices, basically influenced by an improvement in demand, are accelerating their growth.

In regard of tax collection, in 2004 the Federal Administration of Government Revenues (“AFIP”) closes year 2004 at record values, consolidating the upward trend that has been recorded since mid 2002. AFIP ‘s revenues during 2004 grew by 36% compared to 2003 and were 24% higher than what was foreseen in the budget for 2004. It is clear that a step forward against evasion has been given, that the economy’s recovery gave taxpayers a better payment capacity and that the conditions in the financial market were rather lax at that time.

The deposits of the financial system closed in 2004 with a 27% growth. Different from what had happened in 2003, in 2004 the decisive growth factors were the deposits from the public sector, which were practically doubled as a consequence of the hoarding of high fiscal surplus. Likewise, the BCRA complied with the monetary programme for the sixth consecutive trimester, buying dollars coming from the commercial surplus thus generating a high monetary expansion and keeping tax rates low. Probably the monetary authority will have to soak up most liquid assets infusions to get rid of all pressure coming from inflation matters.

Finally, generalised conditions of economic growth in most of the countries, together with very low international interest rates were key elements for the macroeconomic context of the country. No doubt the future challenge to overcome eventual bottlenecks in this model will be to go a step further regarding exports; not only by strengtheningthe balance of payments current account, but also by compensating the fall of international agricultural prices. Additionally, a smaller dependency on prices of commodities should be pursued together with a development in exports that will have to start playing a more relevant role in the process.

LICENSE CONTRACT RENEGOCIATION

The Public Emergency and Exchange Regime Reform Law No. 25,561 (“Emergency Law”) affected the legal background for concession or license contracts of utility services.

The main provisions as of the abovementioned Law that have an impact on the License duly granted to MetroGAS by the Federal Government and that modify express provisions of Law No. 24,076 (the “Gas Law”) are the following: pesification of tariffs previously fixed in convertible dollars at the exchange rate specified in the Convertibility Law (Law No. 23,928), the prohibition of tariff adjustments based on any foreign index, thus preventing the application of the international index specified in the Regulatory Framework (US Producer Price Index-PPI), and the government’s unilateral decision to renegotiate the license granted to the Company in 1992.

Furthermore, the Emergency Law established the beginning of a renegotiation process of utility contracts granted by the National Executive Power (“PEN”) without prejudice to the requirements that utility services companies should go on complying with all their obligations. The process began on February 12, 2002 when the PEN issued Executive Order No. 293, through which the Ministry of Economy was entitled to carry out the renegotiation, and on February 22, 2002, Executive Order No.370 was passed appointing all members of the Committee for Public Works and Services Contracts Renegotiation. (“CRC”)

After President Néstor Kirchner assumption, on May 25, 2003, and by means of Executive Order No.311/03 dated July 3, the PEN created the “Unit for the Renegotiation and Analysis of Utility Contracts” (“UNIREN”), aiming at giving advice during the renegotiation process of 61 public works and services contracts and developing a regulatory framework common to all utilities. This unit is presided over by the Federal Planning, Public Investment and Service Minister, and the Economy and Production Minister, continues the contract renegotiation process developed by the previous Contract Renegotiation Committee, and takes on all issues in progress.

During 2002 and 2003, although MetroGAS strictly complied with the submittance of all information required, that the very reports made by the CRC and the UNIREN stated that the gas sector posed no difficulties as to the execution of license contracts and the compliance of conditions and obligations committed, and that licensees, among them MetroGAS, complied with the necessary conditions to continue with the process of renegotiation, there was no possibility of going beyond Phase II of such process.

A temporary rate increase established by the National Executive Power through Executive Order No. 2437/02 and 146/03 was not even implemented due to different legal proceedings.

Year 2004 started with a process of renegotiation that was supposed to last 120 days but delayed due to deadlines extended successively by the National Government under the terms of the emergency legislation, which was originally due in December 2003 but extended up to December 31, 2004 by Law NO.25,790 issued October 22, 2003.

On January 13, 2004, MetroGAS sent a note to the Unit proposing the inclusion in the agenda of subjects that the Company considered relevant.

As from that date, only sporadic meetings were held with the technical teams but 2004 went by and no meaningful improvements were achieved, thus not allowing necessary consensus to close fase III of the renegotiation process and, consequently, start Phase IV (Signing of an agreement)

In regard of the little progress registered in the renegotiation process of 61 contracts included in Executive Order No.311/03, the deadline of the emergency was extended for one more year, until December 31, 2005 through Law No. 25,972 issued in the Official Bulletin on December 17, 2004.

Dated January 13, 2005, the UNIREN sent all gas distributors a Letter of Understanding Project where essential information was refferred to attachmentsnot included therein. This Letter of Understanding, according to the UNIREN, sets the terms and conditions of the final agreement of renegotiation that will previously be examined in a public hearing. Such document instead of being based on negotiations among the different parties as described in provisions in force, was an unilateral decision from the government. MetroGAS replied on January 27, 2005, that being an incomplete document, it was not possible to evaluate it in due form but the Company expressed its willingness to take actions tending to reach a consensus.

Dated February 3, 2005, the UNIREN sent a new note, expressing its disagreement with the arguments and conclusions stated by MetroGAS in its note sent on January 27; answered by MetroGAS on February 18, 2005, expressing that during three years all requested information was submitted, besides making additional presentations aimed at finishing Phase III of the process and at arranging the license contract on mutual agreement without introducing structural changes, so as to preserve during the emergency the contract itself and the conditions originally agreed upon, with the intention of restoring them in the future. In addition, it was stated that in spite of the delay in the regularisation of the License Contract, the service is rendered in a normal, regular, continuous and efficiency way, keeping the quality level of the presentations although no actions or measures are taken by the government contributing to minimizing the higher cost of the system’s operation, maintenance and development.

After approximately three years since the beginning of the License renegotiation established by the Public Emergency Law, neither the phases set by the government have been accomplished nor measures have been set forth to improve the company’s generation of funds nor the License Contract has been rearrangedor its financial economic balance has been re-established, in the same way the Licensee and its investors have not been compensated or redressedfor the damage caused.

New regulation

In mid-February 2004, the PEN issued two Executive Orders which provisions influence the Company’s operating activities and its economic and financial performance. Executive Order No. 180/04 establishes an investment scheme for basic gas infrastructure works and creates a Gas Electronic Market to coordinate transactions associated to gas purchase markets under Spot conditions and to secondary gas transportation and distribution markets. Executive Order No. 181/04 enables energy authorities to enter into agreements with gas producers in order to determine an adjustment in the price of gas purchased by gas distributors and the implementation of mechanisms applicable to users who purchase their own gas in a direct way because distributors will no longer be able to supply them. Furthermore, the Executive Order divides Residential customers in three subcategories according to their consumption levels.

Later on, a number of resolutions and provisions were passed to rule the mentioned Executive Orders. The main provisions introduced are regarding the following: i) Suspending exports of natural gas surplus which may be useful for domestic supply, ii) Elaborating a Rationalisation Programme of natural gas exports and of the Use of Transportation Capacityiii) Approving the agreement for implementing the schedule for the normalisation of gas prices at points of entry into the transportation system, therefore, the Company has restructured most of its natural gas purchasing contracts, iv) Awarding prizes for lowering consumption below defined levels and applying additional charges to certain users who exceed those same levels, such programme was suspended as from September 15, 2004, up to April 30, 2005, v) Setting up and constituting a trust system by means of a trust fund, vi) Approving a mechanism to carry out cuts effectivelyin order to guarantee gas supply to those uninterruptible users, vii) Creating a Gas Electronic Market to supply natural gas under spot conditions and secondary transportation and distribution markets, ruled by Buenos Aires Stock Exchange.

The impact made on the company by these standards cannot be estimated in a whole yet, since in order to be implemented they require certain subsequent rules from the authorities responsible for the energy area, and in some cases these rules have not been issued.

RESTRUCTURING OF FINANCIAL DEBT

During 2004 MetroGAS continued focusing on the efficient management of cash flow to ensure the rendering of the public service legally awarded under the license, meanwhile the company maintained a fluent communication with all creditors hoping to get the necessary consensus for the restructuring proposal launched on November 7, 2003, according to the terms and conditions of the Out-of-court Preventive Agreement (“Acuerdo Preventivo Extrajudicial” –“APE”)

The Proposal presented by MetroGAS basically offers its financial creditors two options:

• Cash option- The Company offers to buy up to US$ 100 million from the Principal of the debt, in cash at a price of $ 0,50 per each $ 1 of capital of the debt (with the same proportion for the different currencies in which the debt is denominated: pesos, dollars, and euros);
• Modification Option: This proposal basically increases the capital amount, adding accrued interests at 2,5% per annum from the last interest payment, modifying the final maturity date extending it to 9 years from the settlement date, and modifying interest rates and depreciation conditions (for further details see the public prospectus of the proposal)

In general terms the proposal avoids reducing principal amount to creditors who choose the Modification Option, reduces the Company’s refinancing risk and enables the company to share the benefits of a possible improvement in the Company’s financial conditions with creditors. Court Approval of the APE would affect the right of all creditors, even if they have participated or not in the invitation.

Up to now MetroGAS has extended the APE solicitation period many times, granting in some opportunities the right to withdraw consents, without obtainingthe necessary majority to carry out the necessary judicial proceedings for such agreement.

COMPANY PROFILE

MetroGAS is the largest gas distribution Company in Argentina in terms of number of customers and of delivered gas volumes. MetroGAS distributes approximately 26.0 % (*) of the total natural gas supplied by the nine distribution companies licensed after the privatisation of Gas del Estado in late 1992 and currently has over 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.)

Natural gas consumption in Argentina has trebled since 1980. In that year, consumption was approximately 9,300 MMm3 (million of cubic meters) and in 2004 it increased to over 33,476 MMm3 (*) This increase is due to energy substitution by end users, an abundant supply of natural gas, low relative prices compared to other energy sources and an increased capacity of major gas pipelines and the expansion of distribution networks. The Company believes that the increased demand for natural gas will grow in proportion to the growth of Argentina’s economy.

Argentina’s proven gas reserves amount to 612,496 MMm3 (**), with a 12 –year 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, 10 of which are on-shore; 3 are off-shore and 6 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; the Gulf of San Jorge and Austral basins in the south of the country. In 2004 the estimated annual production of natural gas reached almost 52,298 MMm3 (***) mainly coming from the Neuquén basin. Approximately 62% of all gas purchased by MetroGAS during 2004 came from the Neuquén basin and the remaining 38% from the Austral and Gulf of San Jorge basins.

Gas reserves and the relation among these reserves and production concerning the guarantee for years of supply have decreased compared to last year due to different factors. Among them we can mention regulatory uncertainty and the difference between oil and gas prices.

(*) According to the latest available information provided by the National Gas Regulatory Authority (“ENARGAS”)- December 2004.

(**) According to the latest available information provided by the Energy Secretariat – December 2003.

(***) According to the latest available information provided the Energy Secretariat - December 2004.

DESCRIPTION OF OPERATIONS

Gas supply and transportation

The Emergency Law and its regulatory decrees include regulations on private contracts valid at the time this law became effective in January 2002 and entered into in foreign currency or with adjustment clauses in foreign currencies. The law provides for the translation into pesos of all obligations at $ 1 per US$ 1, plus the Benchmark Stabilisation Coefficient index (“CER”). Should the obligations become too burdensome and the parties be unable to reach agreement, the matter may be referred to court so that a fair value may be fixed. Obligations arising after the passing of the Law are not to be subject to adjustment clauses.

MetroGAS natural gas purchase contracts have the abovementioned characteristics.

Dated on April 2, 2004, the Energy Secretariat together with a big number of natural gas producers signed an agreement referred to as “Agreement 2004”, setting natural gas price at points of entry into the transportation system(“PIST”),valid until December 31, 2006. The Ministry of Federal Planning of Public Investment and Services (“MPFIPyS”) confirmed Agreement 2004 to be valid in Resolution No. 208/04.

Agreement 2004 set a 45-day period starting on April 23, 2004, during which gas purchase contracts between gas producers and gas distribution companies had to be renegotiated, mainly on volumes and Take or Pay (“TOP”) obligations.

During the months of May and June 2004, MetroGAS renegotiated all contracts, except one. By signing the Agreement, producers renounced their demands regarding price “pesification” of their contracts (originally in US dollars) and the CER adjustment, on condition that the government respect the terms of Agreement 2004. At the time of issuing the present financial statment, the Company cannot guarantee that the government will go on respecting the terms and conditions of the mentioned Agreement.

Firm transportation volumes hired up to the Buenos Aires City Gate untilDecember 2004 amount to 22.4 MMm3/d. Firm transportation volume hired up to Bahía Blanca, that is used to recover heat value after obtaining by-products, amounts to 0.4 MMm3/d. Besides, MetroGAS has 0.55 MMm3/d of firm transportation hired in Tierra del Fuego.

In July 2004, in the context of Transportadora Gas del Sur´s Open bidding No. 3/04, 0.16 MMm3/d of transportation capacity was licensed to MetroGAS from the Tierrra del Fuego area up to the Buenos Aires City Gate.The necessary works for this expansion should be finished by July 2005, and for its financing they depend on the creation of a trust fund, under the management of the Government. Up to now, such fund has not been created, and it is not possible to precise when it will be or when the works will be finished.

As a consequence of the energetic crisis the country has been undergoing since 2002, gas production was not enough to supply the domestic market during 2004. In order to avoid a supply shortage, the Energy Secretariat and the ENARGAS issued resolutions that allowed distributors to use, for their firm clients, all gas which was originally intended for exports and electric generation. All distributors took advantage of these resources except MetroGAS, thus increasing electric generation costs because of the use of fuel oil and affecting gas sales to Chile and Brazil. The strategy adopted by MetroGAS regarding long term gas purchases and spot and long term transportation, allowed this distributor to do without these emergency mechanisms, as well as to offer a service to their industrial customerswithout meaningful restrictions.

Customers and Market

Allied to the objectives set for this year, the Company was able to consolidate its relationship with its Large Industrial Customers and in the market of Small and Medium sized companies (PYMES) and Commercial Customers. At the same time, market conditions and the evolution of the industrial activity paved the way for an increase in the demand of natural gas, mainly based on the reactivation of the idle capacity of existing customers, developing actions to improve sale conditions in the Large Customer market.

The Company’s economic results are highly influenced by weather conditions. The demand for natural gas and, in consequence, MetroGAS turnover and profits, are considerably higher during winter time (May to September).

A summary of the Profit and Loss Account of each of the quarters of the years ended on December 31, 2004 and 2003 is included below in order to reflect MetroGAS’ seasonal variation of sales and annual profitability.

		2004 (thousands of pesos)
		For the quarters ended on
		03-31	06-30	09-30	12-31	Total Fiscal year
	Net sales	147,128	219,946	249,961	197,037	814,072
	Gross profit	21,207	63,814	66,757	23,151	174,929
	Operating (loss) income	(4,398)	33,857	34,567	(5,447)	58,579
	Income (loss) before tax	9,176	(25,958)	(11,490)	(94,705)	(122,977)
	Net income (loss)	1,868	(18,650)	(11,490)	(94,705)	(122,977)

	2003 (thousands of pesos) (*)
	For the quarters ended on
	03-31	06-30	09-30	12-31	Total Fiscal Year
Net sales	111,189	179,766	227,299	133,231	651,485
Gross profit	11,103	50,682	29,359	53,609	144,753
Operating (loss) income	(16,985)	23,836	(830)	23,951	29,972
Income (loss) before tax	96,619	59,921	(80,555)	(40,324)	35,661
Net income (loss)	98,626	318	(68,866)	(40,324)	(10,246)

(*) Figures adjusted due to inflation as of February 28, 2003.

As mentioned above, MetroGAS provides distribution service to over 1.9 million customers within its service area, 66% of which are in the City of Buenos Aires.

Sales to residential customers in 2004 and 2003 totaled 21.3% and 26.6%, respectively, of the sales volume and approximately 46.8% and 59.0% of net sales.

MetroGAS depends strongly on its sales to electric power plants to maintain a high utilization of its firm transportation capacity (Load Factor), especially during warmer months, when residential consumption is reduced. Among its customers, MetroGAS has electric power plants that produce46% of the total thermal power generated in the wholesale electricity market in the country.

Since 1993 electric power plants have implemented an investment programme which involves the replacement of generating units by new technologies called “combined cycles”, implying a much lower generation cost.

The following combined-cycle plants have been operating within MetroGAS’ service area: Central Térmica Buenos Aires, since 1995; Central Costanera, since 1999; Central Puerto, since 1999 and Central Dock Sud since March 2001. Moreover, A.E.S. Paraná launched its combined-cycle plant to the market during November 2001. MetroGAS provides transportation to the marketer rendering such service to the plant, thus improving utilization of its transportation capacity.

The increase in the demand for electricity which started in 2003, continued during 2004. This fact, together with a supply shortage due to the lack of new combined-cycles since 2001, led to a big dispatch from the pool of thermal generation plants of MetroGAS’ area,not only of combined-cycles but also of open-cycled steam turbines. Consequently, there is a strong sales seasonal decrease (winter-summer) in MetroGAS’ area.

Gas sales and the transportation and distribution service to electric power plants in 2004 and 2003 accounted for 50.0% and 42.0% respectively, of the delivered gas volume. It is worth mentioning, that in a highly competitive energy market, these figures represented 19.4% and 8.2% of net sales for each year, respectively.

Gas sales and the transportation and distribution service to industrial and commercial customers and public entities amounted to approximately 17.8% and 20.1% of the Company’s turnover and about 20.1% and 20.6% of net sales during 2004 and 2003, respectively.

During 2004 all supply contracts with industrial customers, which expired during this same year, were renewed.

According to preventive measures taken in the face of winter 2004, some modifications have been made regarding sales conditions to this market, including options that allow more operational flexibility in the face of potential supply difficulties.

The Compressed Natural Gas (“CNG”) market represented about 8.7% and 9.6% of the Company’s turnover and 11.3% and 10.2% of net sales during 2004 and 2003, respectively. Growth rates above historical averages were maintained during 2004. This was due to a big number of conversions of light-duty vehicles encouraged by a considerable price differential between CNG and liquid fuels.

During 2004 all pilot examinations testing different products for using CNG in heavy-duty vehicles concluded successfully. MetroGAS took part in these tests in different ways; starting from their development up to results’ control. As a consequence of the mentioned tests, six products are ready to be launched in the market.

MetroGAS together with GasNor, successfully coordinated the tests for two buses, from “El Detalle”, with “Cummins” CNG-fueled engines; these tests were carried out along different parts of our country in order to give public means of transport companies the economic and environmental advantages of using CNG in their activity.

Operation of the distribution system

Although the crisis broken at the end of fiscal year 2001 is still strongly conditioning the Company’s operating activities, MetroGAS was able to end fiscal year 2004 showing high quality indicators in the gas distribution service rendering.

Just like during 2002 and 2003, MetroGAS was forced to keep on suspending investment on expansion and reinforcement of the distribution system (K factor works). However, and as a result of a severe price modification of relative energy prices, the Company had to face a higher increase in demand, which was reflected, among other aspects, in the layingof new services above 18,400 Km (approximately 71% and 6% above fiscal year 2002 and 2003, respectively) and in the control of the construction of works financed by third parties equivalent to 40.8 Km of mains (approximately 91% and 68% above fiscal year 2002 and 2003, respectively).

Based on risk models developed in 2003, MetroGAS planned and implemented the replacement of 31.2 Km of low-pressure mains with their associated services.

Aiming at improving the Company’s low-pressure system operation through a quicker and stricter control of supply pressures, MetroGAS subsequently carried out the project “Telecontrol of Profiling Units in Regulating Stations”. In this way, during 2004, 20 new plants with distance control were incorporated. Therefore, pressure control at 40% of the total stations for decreasing pressure from the Company’s low-pressure system, is performed by telecontrol profiling units.

Additionally, and being an action contemplated in the preventive maintenance plan, MetroGAS completed an inspection type DCVG (Direct Current Voltage Gradient) of 91 Km of the Company’s high-pressure system, this control aimed at identifying potential failures in the installations.

Regarding corrective maintenance of the system, more than 4,300 residential services and more than 25,000 meters have been replaced, among other actions intended for short-term maintenance of the distribution system.

Emergencies call centre registered approximately 50,400 claims, from which about 10,500 were classified by the Company as high priority. All these claims were taken care of in situ within two hours of the call and 97.9% within an hour of the call being received.

The coordination and execution of more than 208,200 gas supply cuts and supply reinstallation contributed to a better control of the levels of indebtedness and illicit actions.

Regarding materials and services supply, MetroGAS has continued with its effort to hold back a possible cost increase, implementing, among others, different actions orientated towards taking advantage of synergies with other companies from the gas industry.

Capital investment

In order to mitigate the impact of the crisis on MetroGAS’ financial position, the Company has optimised its capital investment, reducing them to levels that are compatible with the business continuity and the supply of a safe service in the short term. Detailed information is found in Exhibit “A” of the financial statements.

The accumulated total amount of investments made by MetroGAS during its first thirteen years of operation amounts to US$ 546 million approximately.

Customer service

In general, all patterns from 2003 remained the same during 2004; therefore 2003 working parameters in the relationship with our customers were repeated, thus focusing MetroGAS’ activity on the following aims:

1. To respond to an increasing demand of feasibility studies and activities associated to obtaining gas supply beyond the existing distribution network, which like last year continued growing because of natural gas delayed tariffs compared to other alternative fuels
2. To continue improving the system of meeting customers’ claims, which are received by the Company through different channels.
3. To cooperate with Fundación MetroGAS in community-support and charitable campaigns.
4. To continue with actions to limit costs, both direct costs or costs generated by suppliers and contractors.

In this context it is worth mentioning that compared to 2003, there was an increase in all activities related to Customers Incorporations, with a 6% of gross incorporations, 11% in feasibility, 22% in inspection requests and 24% in requests for network expansion projects, under the system of works by third parties.

In regard of general claims made by customers, and within a process of continuous improvement in their care, at the beginning of this year a Call Centre was created to concentrate possible solutions to these claims and to control the process regarding quality. It is worth mentioning that all claims received from our customers during 2004 amounted to 21,830, showing a 30% decrease compared to claims received during 2003.

As to commercial quality indicators set by ENARGAS, it is worth mentioning that all of them fell within the set limits, surpassing last year’s performance.

During 2004, the whole personnel from Commercial Offices were trained on customer care service quality during eleven courses.

Within all the activities performed, not only to improve customer care in general but also to optimise costs, the following are emphasised:

• Installing an electronic hold-on call system at all commercial offices and at the technical office in Buenos Aires City.
• Authorising the collection process to large customers at the Centro Commercial Office
• Incorporating credit cards such as American Express and Italcred to the Company’s commercial agreements
• Reducing the number of uncollectable invoices by means of credit cards.
• Reducing the cost on bank commissions by means of the collection system.
• Implementing campaigns with outgoing calls, with a recorded message requesting the payment of due obligations.
• Converting our collection system from automatic debit to “Direct Debit”.

Human resources

Company headcount as of December 31, 2004, amounts to 1,014 employees. MetroGAS continued prioritizing redistribution of functions, stability of personnel with seniority and a conservative handling of the budget.

Considering the variations in the cost of living and salary changes in the market, MetroGAS implemented an average increase of 11.7% to all the Company’s personnel. For that reason, in September 2004, an agreement with the Workers Union from the Gas Industry (Sindicato de Trabajadores de la Industria del Gas) was signed, granting a 12% increase to basic salaries and including the tax-free amount to basic salaries of all unionised personnel. For the non-unionised personnel, the increase was based on individual merit varying from no increase at all to a maximum 18% increase.

Furthermore, until August 2004 the Company complied with the payment of the tax-free amount established by Executive Order 1347/03, which is compulsory for unionised personnel and which in fairness was extended to non-unionised personnel.

It is worth mentioning that health plans are still effective both for unionised and non-unionised personnel, making significant efforts to maintain medical service costs without deteriorating the level of professional service.

Additionally, aiming at improving health care services to the personnel, the “Obra Social de los Trabajarores de la Industria del Gas” (“OSTIG”), Docthos, as the medical service provider, and the Company signed an agreement.

During 2004, activities in the area of communication with the personnel were continued, these were led by directors, managers, head of departments and supervisors in order to meet the needs of the staff regarding regular Breakfast meetings, programmed visits to different locations through the Itinerant Leadership Programme and the monthly Cascade Communication.

Regarding skills improvement and training, the biggest efforts were focused on the revision of safe operational practices in relationship with jobs performed on the high, medium and low-pressure gas network directed to personnel from the operation area and to contracting companies. On the other hand, all the personnel from customer care service at Commercial Offices and Call Centre took part in a programme on the best practices regarding Customer Care Quality, this programme was totally designed and given by professionals from the Company.

Regarding Management training, Coaching programmes aimed at directors, managers and heads of department continued, focused on business conversations as a way of reinforcing the effectiveness and synergy of actions from the different lines of work. The Professionals Programme was focused, for the first time, on behaviour aspects for leaders development.

Health, Safety and Environment

During 2004, the Company has strengthened its efforts tending to improve all issues related to health, safety and environment. That’s why, for example, the Safety Behaviour Programme was launched, orientated to detecting and correcting certain patterns of behaviour that could be the origin of potential incidents.

On the other hand, during November and December many independent audit proceedings took place; they were related to health, safety and environment. The first audit was performed by a group of experts from the Technical Operator (BG Group), while the second one was performed by specialists from Det Norske Veritas, the latter one under ISO 14001 and OSHAS 18001 standards, achieved by the end of 2003.

As a result of the audit performed by Consolidar S.A., a Working Risk Management Agent, MetroGAS is engaged in actions to change from level 3, its current level and which implies the fulfilment of all legal obligations regarding health and safety, to level 4, the maximum level according to the legislation in force (Ley de Riesgos de Trabajo No.24,557), which implies reaching levels of prevention and conditions and working environment that are higher than legal obligations.

The development of operating activities as a whole, has contributed significantly to let the Company achieve an excellent performance regarding safety, reaching a ratio of 0.23 lost time incidents per million worked man hours, being the lowest possible level reached since the beginning of MetroGAS’ operations.

In 2004, MetroGAS was awarded the Annual Prize to the best Performance in Safety matters, granted by the Instituto Argentino del Petróleo y del Gas, in the category of “Companies with more than one million hours worked”, in a contest where all companies operating hydrocarbons in Argentina took part.

Relationship with the Regulatory Authority

During 2004 there were changes in the Board of Directors and management scheme of the ENARGAS; in the same way approximately sixty new officials were incorporated in different areas. The ENARGAS Board of Directors has gathered a group of consultants who are controlling and auditing all actions in process.

The new Board of Directors’ members are: Accountant Fulvio Mario Madaro, the President, Engineer Daniel Muñoz who kept his position as Vice President and Mr. Mario Rodolfo Vidal as a new First Speaker.

MetroGAS continued with its best efforts to maintain a relationship with the Regulatory Authority so that both could comply with their corresponding responsibilities.

On May 11, 2004, the ENARGAS passed Resolution No. 3,014 temporarily approving the Tariff framework for winter (May 2004- September 2004); it establishing new gas prices at wellhead according to the “schedule for the normalization of gas prices at points of entry into the transportation system”, valid until December 31, 2006,which was signed by the Energy Secretariat and the majority of gas producers, and which was approved by Resolution MPFIPyS No. 208/04.

On October 28, 2004 the ENARGAS passed Resolution No. 3,092 temporarily approving the Tariff Framework for the summer (October 2004-April 2005) and determining new gas prices- at points of entry into the transportation system- included in the tariff, according to the price increase path included in the previously mentioned Agreement.

Five-Year Tariff Review

The Distribution License provides for a Tariff Review to be conducted every five years. The first Tariff Review established the tariff structure that would apply from January 1, 1998 to December 31, 2002 based on a calculation of the Efficiency Factor (Factor X) and of the Investment Factor (Factor K).

The second Five-Year Tariff review, that was to define the tariff structure valid as from January 1, 2003, was in progress within the terms scheduled in the Regulatory Framework, at the moment the Emergency Law was passed on January 6, 2002.

In a note dated February 8, 2002, ENARGAS declared the suspension of the terms fixed for the Second Five-Year Tariff Review until the renegotiation process provided for in Section 9 of the Emergency Law was performed.

As to date, it is still unknown when the Five-Year Tariff Review will be reinitiated, which will further depend on new conditions that may emerge from the Contract Renegotiation Process.

Institutional Relationship Management

By the end of March 2004 Néstor Kirchner was well positioned for the presidency, and despite conflicts between the Government and the rest of the Justicialist parties, Kirchner’s ruling was not affected and the Peronist party approved the majority of its legislative proposals in the Congress.

The priority in the economic agenda was focused on the renegotiation with external creditors, stability of the macroeconomic variables, growth consolidation and the comfortable fiscal situation played in favour of the Government and left the opposition with just a few arguments.

Insecurity and unemployment were still priorities for the public opinion, meanwhile there were still some problems to be solved, such as the renegotiation with public services companies; and although Kirchner’s positive image experimented a decreasing tendency, the President keeps public acceptance at high levels.

In this context, and keeping a low profile, MetroGAS continued with institutional relationships with the purpose of consolidating bonds with people from the Government. Furthermore, the Company insisted on strengthening institutional bonds with regulatory authorities and opinion creators and on its relationship with customers.

On the other hand, all activities performed by Fundación MetroGAS were much supported and spread regarding social responsibility, and continued to be leading edge on the communication strategy of the industry.

Evolution of the Company’s image

MetroGAS´image had no negative impact: the results of the opinion surveys conducted by Centro de Estudios Unión para la Nueva Mayoría, in December, 2004, showed, once more, that the percentage of positive image obtained by MetroGAS has been the highest among public services companies, not only among Opinion Leaders (76%) but also in the Public Opinion in general (74%).

Community Service Activities

During 2004 and by means of programmes developed by Fundación MetroGAS, the Company maintained a close relationship with the community in the areas of children health care, culture and environmental protection.

Along this period, “Fundación MetroGAS” continued implementing the School Educational Orchards Programme attended by more than 1,300 students, as well as the Orchard at “Casa Garraham”, and at the same time it started the Therapeutic Orchard Programme at the Psychopathology Service of the “Hospital de Niños de Pedro Elizalde”. Moreover, “Fundación MetroGAS” continued with its programme to train young people, in consequence, more than 100 people were inserted in the labour market through courses on Telemarket and lathing. It also continued training fire-fighters, hospital paramedics and Civil Defence personnel. All these courses were delivered by staff from the different areas of MetroGAS. In the same way, the “Fundación” continued sponsoring “Benito Quinquela Martín” Square during 2004.

The Corporate Volunteer Programme, mainly supported by “Fundación MetroGAS”, made more than 80% of the Company’s personnel get involved in community service activities. Within the activities carried out during 2004 by the different groups there are: Theatre plays at hospitals, free soup kitchens and kindergartens by the group called “Caminito de colores”, scarves and blankets knitted by a group called “Ovillos y Agujas” for Maternidad Sardá and for Kindergarten “Jardín Cristo Rey”, Word and Excel courses as well as Internet courses given to children from a soup kitchen called “Alicia” and courses on Telemarket. Besides, MetroGAS’ personnel donated milk to different soup kitchens around the service area of the Company.

In the same way, the area of Customers incorporation helped to install natural gas service to a free soup kitchen called “Los Obreritos” from Florencio Varela and MetroGAS’ commercial offices organized a campaign to sell Christmas cards so as to collaborate with the Maternidad Sardá and Hospital Rivadavia, both located in the City of Buenos Aires.

Corporative Government

At the Shareholders’ Assembly on April 29, 2004, two independent Directors were appointed so that local regulations would be complied with. During May 2004, an Audit Committee was set up, with three directors, two of them being independent.

Commercial Policy, Company, Financial and Investment Planning

According to the economic context and dispositions issued by the National Government which include the modifications of the standards of MetroGAS’ Regulatory Framework, the Company decides to focus its efforts on ensuring the business continuity, keeping the quality and reliability of all gas supply, complying with the License Basic Rules, and finally based on the results of the renegotiation of the License Agreement, MetroGAS will define its strategy towards the future and issues such as company planning, commercial policy and the development of the investment plan.

Decision Taking and Internal Control System

MetroGAS’ current organizational structure is as shown below:

Board of Directors

Audit Committee

Internal Audit Directorate

General Directorate

Comptroller

Commercial Directorate

Operations Directorate

Administration & Finance Dir.

Legal & Regulatory Affairs Directorate

Human Resources Directorate

The Company encourages delegation of authority, thus allowing quick and efficient replies to every activity, at the same time there is a clear and explicit definition of the scopes of such delegation by setting limits of approval implemented in a systematised way, which minimise risks.

Furthermore, MetroGAS has an Internal Audit area whose mission is to guarantee the Board of Directors, the Audit Committee, the Direction Committee and the managerial level of the company that there are effective and efficient processes of internal control to identify and handle the business’ risks.

All standardised processes, administrative proceedings, fluid communications, regular issues of reports on management planning and control and performance assessments, within the framework of policies set by the Direction Committee, consolidate the internal control system, give reasonable certainty of achieving objectives, provide reliable financial information and ensure the compliance of regulations in force.

Sarbanes-Oxley Law

This Law, called after two senators of the Congress of the United States who promoted it, arouse after the scandals that took place in first line companies during 2001 and 2002, such scandals disclosed inappropriate accounting practices carried out by companies quoting in the US Stock Exchange and which are under the supervision of the Securities and Exchange Commission (“SEC”); the aim of this Law is to regain the trust of investors in the market of capitals.

This Law was passed with the objective of achieving reasonable reliability on Accounting and Financial information, it requires the General Director and the Director of Administration and Finance to sign an annual certification, where they state, among other things, that they are fully responsible for establishing, keeping and monitoring an internal control structure, giving an annual report on the effectiveness of this internal control when issuing Financial Statements. Furthermore, external auditors have to give an opinion about them too.

Should the certification be false, the law imposes punishments such as fines up to US$ 5,000,000 and up to 20 years imprisonment.

MetroGAS is registered in the Stock Exchange of the United States and is compelled by requirements from the SEC, for that reason the mentioned Law is applicable to the Company’s procedures. MetroGAS has already complied with all sections of this law in force as from fiscal year ended on December 31, 2002, and will have to comply with the rest of the dispositions at issuing its report on December 31, 2005.

In order to comply on due date with all requirements stated by this Law, MetroGAS has conformed a working team with personnel from the Administration and Finance area and from the Legal area and has hired the services of Ernst & Young as a consultant.

The project is focused on the assessment of internal controls over the accounting information issue. Up to date MetroGAS has performed the survey, the assessment of the design and the operation of all controls and has implemented remedy plans. During next fiscal year the Company is going to carry out operation tests of controls and implement remedy actions over weaknesses found.

Dividend Policy

In the past, subject to the Company’s results and other relevant factors, MetroGAS’ Board of Directors recommended to pay dividends, during the last quarter of each year, on a temporary basis, and in case of the Ordinary Meeting, the final dividend, within limits set by the Argentine Corporations Law and considering all restrictions established in the debt issue prospectus.

Policy of compensation to the Board of Directors and to Managerial staff.

The compensation to the Board of Directors is fixed by an Ordinary Meeting of Shareholders within the limits set by the Argentine Corporations Law.

As of December 31, 2004, the compensation policy for managerial staff, consists of a monthly fixed payment and a variable payment based on the fulfilment of objectives fixed on an annual basis. The compensation policy does not provide for Option Plans on the Company’s shares or for long-term incentives.

CAPITAL STOCK STRUCTURE

Capital stock as of December 31,2004 is composed of 569,171,208 common shares classified in three different categories; Class “A”, “B” and “C”, each having a one peso par value and entitled to one vote per share.

Outstanding Shares Categories Subscribed, Recorded and Paid-in Capital

(Thousands of pesos)

Class “A” 290,277

Class “B” 221,977

Class “C” 56,917

____________

Capital Stock as of December 31, 2004 569,171

The total number of Class “A” shares, representing 51% of the Company’s Capital stock is owned by Gas Argentino S.A. (GASA) and their transferability is subject to the approval of the Regulatory Authority.

Class “B” shares represent 39% of the Capital Stock. Of such shares, 19 % is owned by GASA since the privatisation process of Gas del Estado. The remaining 20% was sold at a Public Offering and is owned by approximately 1,033 investors.

Class “C” shares which represent 10% of the Capital Stock, were assigned during the privatisation process to the Employee Stock Ownership Plan (Programa de Propiedad Participada); the beneficiaries of this 10 % were employees from Gas del Estado who were transferred to MetroGAS, continued working for the Company up to July 31, 1993, and who chose to participate in the above mentioned plan.

Income Allocation Proposal

The Company’s Board of Directors suggests as follows:

Approval of charges against the results of total fiscal year:

Board of Director’s fees Thousands of pesos

_______________

230

The Company’s Board of Director proposes that the Shareholders Meeting keep the net loss of fiscal year ended on December 31, 2004, that amounted to $ 122,977 as unappropiated retained loss.

Due to the net loss as of December 31, 2004, and since there is no income from previous fiscal years, there is no possibility to propose a distribution.

Acknowledgement

The Board of Directors would like to express its deepest appreciation to MetroGAS’ personnel for their co-operation in their daily tasks, as well as to its customers, suppliers and creditors for their support and for their confidence in MetroGAS.

Buenos Aires, March 4, 2005.

Vito Sergio Camporeale

Deputy President

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders, President and Directors of

MetroGAS S.A.

1. We have audited the accompanying balance sheet of MetroGAS S.A. as of December 31, 2004 and 2003 and the related statements of operations, of changes in shareholders’ equity and of cash flows for each of the two years ended December 31, 2004, and the complementary notes 1 to 15 and exhibits A, B, C, E, F, G and H. The preparation and issuance of 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 audit.
2. We conducted our audits in accordance with generally accepted auditing standards in Argentina. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
3. The Company has prepared the financial statements applying valuation and disclosure criteria established by the Comisión Nacional de Valores (Argentine National Securities Commission “CNV”) which, as explained in Note 3. to the financial statements, differ in certain respects from applicable accounting standards in effect in the Autonomous City of Buenos Aires. The main effects derive from: i) the treatment of assets and liabilities arising from the application of the deferred tax method, ii) the application of disclosure criteria for related parties transactions established by Technical Pronouncement No. 21, and iii) the recognition of the effects of inflation on the financial statements as of September 30, 2003. The effect on the financial statements of the different valuation criteria mentioned in point i) has been included in Note 3.2.e), while the effects described in points ii) and iii) have not been quantified by the Company. The application of the CNV resolutions represents a departure from generally accepted accounted principles in Argentina.
4. The changes in Argentine economic conditions and the amendments to the License under which the Company operates made by the National Government mentioned in Note 2. to the financial statements, mainly the suspension of the original tariff updating regime, have affected the Company’s economic and financial equation, generating uncertainty as to the future development of its business and the Company’s ability to comply with the financial obligations assumed. Management is in the process of renegotiating certain terms of the License with the National Government to counteract the negative impact caused by the above mentioned circumstances and negotiating the contract terms with its main suppliers to adapt them to the new economic and regulatory context in which it operates.
5. As explained in Note 9. to the financial statements, the effects of the devaluation of the Argentine peso on the Company’s foreign currency financial debt as well as the circumstances mentioned in point 4. have resulted in the Company failing to pay principal and interest corresponding to financial obligations since March 25, 2002. Based on the contractual terms, as at December 31, 2004 the financial liabilities were overdue and claimable. MetroGAS’s management is analyzing with its financial advisors a comprehensive restructuring plan. At the date of these financial statements, the final outcome of this process cannot be determined.
6. The Company has prepared its projections to determine the recoverable value of its non-current assets, based on forecasts of the outcome of the renegotiation processes mentioned in points 4. and 5. Due to their uncertain outcome, we are not in a position to determine whether the premises used by management to prepare those projections will take place in the future and, consequently, whether the recoverable value of non-current assets exceeds their respective net carrying values.
7. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The uncertainties mentioned in points 4., 5. and 6 raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or reclassifications that might result from the outcome of these uncertainties.
8. In our opinion, except for the departure from professional accounting standards discussed in point 3. above and subject to the effect of possible adjustments and reclassifications on the financial statements that might be required for the resolution of the situations described in points 4., 5., 6. and 7., the financial statements of MetroGAS S.A. present fairly, in all material respects, its financial position at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the two years ended December 31, 2004, in accordance with accounting principles generally accepted in Argentina.
9. The accompanying financial statements are presented on the basis of accounting principles generally accepted in Argentina, which differ from the accounting principles generally accepted in other countries, including the United States of America.

Buenos Aires, Argentina

March 4, 2005

PRICE WATERHOUSE & CO. S.R.L. 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 – Autonomous City of Buenos Aires

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003

Fiscal years No. 13 and 12 commenced January 1, 2004 and 2003

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’ Ordinary and Extraordinary Meeting held on December 28, 1992

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

Approved by Shareholders’ Extraordinary General Meeting held on March 12, 1997

Approved by Shareholders’ Ordinary and Extraordinary Meeting held on April 29, 2003

Approved by Shareholders’ Ordinary and Extraordinary held on December 10, 2003

Parent company: Gas Argentino S.A.

Legal address: Gregorio Araoz de Lamadrid 1360 - Autonomous City of Buenos Aires

Principal activity: Investment

Percentage of votes held by the parent company: 70%

Composition and changes in capital stock as of December 31, 2004

Composition

Classes of shares	Subscribed, registered and paid-in
Outstanding:	Thousands of Ps.
Ordinary certified shares of Ps. 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, 2004	569,171

Free translation from the original prepared in Spanish for publication in Argentina

METROGAS S.A.

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003

Changes in Capital Stock

	Subscribed, registered and paid-in
	Thousands of Ps.
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. 3,030, 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. 9,566, Corporations Book 115, Volume A	124,306
Capitalization of the adjustment to capital stock approved by the Shareholders’ Meeting held on March 12, 1997 and registered with the Public Registry of Commerce on June 17, 1997 under No. 6,244, Corporations Book 121, Volume A	56,641
Capital Stock as of December 31, 2004	569,171

Free translation from the original prepared in Spanish for publication in Argentina

METROGAS S.A.

NOTES TO FINANCIAL STATEMENTS AS OF

AND FOR THE YEAR ENDED DECEMBER 31, 2004 AND 2003

NOTE 1 - THE COMPANY’S BUSINESS

MetroGAS S.A. (the "Company" or "MetroGAS"), a 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.

Through Executive Decree No. 2,459/92 dated December 21, 1992, the Argentine Government 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 35-year period from the Takeover Date (December 28, 1992). This period can be extended for an additional 10-year period under certain conditions (the “License”).

As further described in Note 2, the conditions under which the Company develops its activity and its regulatory framework have been significantly modified.

NOTE 2 – THE ARGENTINE ECONOMIC SCENARIO AND ITS IMPACT ON THE COMPANY’S ECONOMIC AND FINANCIAL CONDITION

Since December 2001 the Government adopted a number of measures in order to face up to the crisis the country was undergoing, which implied a deep change in the economic model effective so far. One of the most important measures was the implementation of a floating rate of exchange that resulted in a significant devaluation during the first months of 2002, the pesification of certain assets and liabilities in foreign currency deposited in the country and the ensuing increase of internal prices.

The following are some of the measures adopted by the Government, which are still in force as of the date of issuance of these financial statements and their effect on the economic and financial position of the Company.

Foreign currency-denominated financial debts to financial institutions in the Argentine financial system

On February 3, 2002 the Government issued Executive Order No. 214 providing that debts denominated in US dollars or other foreign currencies owed to financial institutions in the Argentine financial system on that date were converted into pesos at a rate of Ps. 1 per US$ 1 (or at an equivalent rate for other currencies). The principal amount of such debt is subject to a benchmark stabilization coefficient (“CER”) and an interest rate from February 3, 2002. As of December 31, 2004, the financial debt (capital original) of MetroGAS, to be valued as described above, amounted to Ps. 67, 716 thousand.

Regulatory Framework

In connection with contracts for public works and services, the Emergency Law provides that clauses providing for tariffs to be set at the peso equivalent of tariffs expressed in US dollars, as well as tariff indexation clauses based on the price indexes of other countries or any other indexation mechanisms, will no longer be given effect and that tariffs expressed in US dollars be converted into pesos on a Ps 1 = US$ 1 basis. The Emergency Law further provides for the renegotiation of public utility licenses and specifies that the renegotiated provisions not prevent utility companies from complying with their obligations in the ordinary course of business. The Emergency Law authorized the Government to renegotiate public utility licenses taking into account the following: (a) the impact of the tariffs on the competitiveness of the economy and on income distribution; (b) the quality of services and the contractually required investment programs; (c) the interest of users as well as service access conditions; (d) the safety of the systems involved; and (e) company profitability.

On February 12, 2002, the Government issued Executive Order No. 293/02, which entrusted the Economy Ministry (“EM”) with the renegotiation of public utility licenses and created a Committee for the Renegotiation of Contracts for Public Works and Services (the "Renegotiation Committee").

The License renegotiation process started formally on March 21, 2002, the date on which the Renegotiation Committee distributed to the natural gas distribution and transportation companies the guidelines for such renegotiation. On April 9 and 16, 2002, MetroGAS filed with the Renegotiation Committee the information required by those guidelines and made a detailed reservation of the Company’s and its investors’ rights. On April 17, 2002, MetroGAS made its oral presentation before the Renegotiation Committee in accordance with the guidelines.

This renegotiation process has been affected by a court order dated May 16, 2002 preventing the Renegotiation Committee from making any decision until it submits to the consumer representative a copy of the documentation filed by the licensee companies, and allows him to participate in the meetings in which technical matters are discussed. The EM has appealed this order. The Government also established that any and all claims for breach of the licenses that are being renegotiated are to be filed with the Renegotiation Committee. Any claim filed by a licensee outside the renegotiation process will result in automatic exclusion from the process. MetroGAS has challenged this Executive Order by appropriate proceedings. Resolution No. 308/02, published on August 16, 2002, provided that regulatory and enforcement authorities with jurisdiction over public utility licensees should continue exercising their authority and powers.

Finally, the Resolution provided that, should licensee companies file a claim with a court or submit a claim to arbitration in connection with the alleged breach of contract based on emergency rules while the renegotiation process is in progress, such companies shall be summoned by the EM to abandon the action under penalty of being excluded from the renegotiation process. MetroGAS has challenged the Executive Order by appropriate proceedings.

Executive Order No. 1,834 was published on September 17, 2002 and is valid through the last day of the emergency period declared by the Emergency Law. This Executive Order provides that the filing for reorganization proceedings or of a petition in bankruptcy by or against a public utility company involved in the renegotiation process shall not lead to termination of their licenses notwithstanding contrary provisions of such licenses.

The EM convened a public hearing to be held on September 26, 2002 to discuss emergency rate adjustments requested by the gas transportation and distribution companies. Furthermore, the National Gas Regulatory Authority (“ENARGAS”) summoned all transportation and distribution licensee companies to a public hearing to be held on November 18, 2002 to discuss this demand. Both hearings were not held because they were temporarily enjoined at the request of the Ombudsman of the City of Buenos Aires and certain consumer organizations.

Through Executive Orders No. 2,437/02 and No. 146/03 the National Executive Power provided for the temporary readjustment of gas and electricity rates. However, through injunctions brought by the Ombudsman of the City of Buenos Aires, the National Ombudsman and the Consumer Associations, the suspension of the effects of Executive Orders No. 2,437/02 and No. 146/03 was ordered.

In March 2003, MetroGAS requested the EM, in his capacity as President of the Renegotiation Committee, to continue and complete stage III established in Resolution EM No. 20/2002. The Minister of Economy responded to MetroGAS’ note by confirming that the renegotiation process was still in progress.

Before the assumption of the actual president, Néstor Kirchner, MetroGAS sent a note with a summary of the Company’s participation in the different stages of the renegotiation process until that date.

The actual administration that took office on May 25, 2003 signed Decree No. 311 through which a Unit of Renegotiation and Public Services Analysis (the “Unit”) was set up within the Ministry of Economy and the Ministry of Federal Planning Public Investment and Service. Its mission is to advice the Government in the renegotiation process of public utility contracts pursuant to the Emergency Law.

This Unit is authorized to sign full or partial agreements for the renegotiation of contracts with licensees for subsequent approval by the Executive Branch, submit projects associated to possible temporary rate adjustments, make recommendations for the operation of services and develop a proposal for a general regulatory framework. The Unit is headed by an Executive Secretary, appointing Mr. Gustavo Simeonoff through joint resolution No. 118 and 25 of both Ministries, having previously been coordinator of the Renegotiation Committee, created by Decree No. 293/02.

On October 1, 2003, the Government passed Law 25,790 that extends until December 31, 2004 the deadline for renegotiation of the public utility contracts under the Emergency Law. This deadline was extended for a year until December 31, 2005, through Law 25,972 issued in the Official Bulletin on December 17, 2004.

The Unit summoned licensee companies to a meeting, held on November 26, 2003, to establish a schedule of activities to analyse different issues related to the license renegotiation. On November 28, 2003 the Unit sent MetroGAS the Guidelines for Renegotiation including a schedule of activities.

On January 13, 2004, MetroGAS sent a note to the Unit proposing to include in the agenda issues that the Company considers relevant.

As from that date there were no significant improvements in the Renegotiation Process of the License.

Dated January 13, 2005, the Unit sent all gas distributors a Letter of Understanding Project where essential information was referred to attachments not included therein. The Company, according to reply letter sent on January 27, 2005, believes that as being an incomplete document not derived from negotiations between the parties, it is not possible to evaluate it in due form.

Dated February 3, 2005, the UNIREN sent a new note, expressing its disagreement with the arguments and conclusions stated by MetroGAS in its note dated on January 27, 2005.

MetroGAS’ replied to the UNIREN’s last note received on February 18, 2005, expressing that during the course of the process started by the government, the Company complied with the submittance of all requested information, besides making additional presentations aimed at finishing Phase III of the process and at arranging the License Contract on mutual agreement without introducing structural changes, so as to preserve during the emergency the contract itself and the conditions originally agreed upon, with the intention of restoring them in the future. In addition it was stated that in spite of the delay in the regularisation of the License Contract, the service is rendered in a normal, regular, continuous and efficiency way, keeping the quality level of the presentations, although the inexistance of actions or measures by the government contributing to minimising the higher cost of the system’s operation, maintenance and development.

New Regulations

In mid-February 2004 the Executive Power issued two Executive Orders which provisions could influence the Company’s operating activities and its economic and financial performance. Executive Order No. 180/04 established an investment scheme for basic gas infrastructure works, creating two categories (firm sale and interruptible sale) for Compress Natural Gas customer, as well as an Electronic Gas Market to coordinate transactions associated to gas purchase at the Spot market and to secondary gas transportation and distribution markets. Executive Order No. 181/04 enabled the energy authorities to enter into agreements with gas producers to determine an adjustment in the price of gas purchased by gas distributors and the implementation of applicable mechanisms to users who purchase their own gas directly as distributors would no longer be able to supply them. Furthermore, the Order divided “residential” customers in three categories according to consumption.

Later on a set of resolutions and provisions was issued to regulate the abovementioned executive orders. The main provisions refer to: i) suspension of the exportation of surpluses of natural gas useful for internal supply, ii) development of a Rationalization Programme for the Exportation of Natural Gas and Use of Transportation Capacity, iii) ratification of the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices at Points of Entry into the Transportation System, through which the Company has restructured most of its gas purchase contracts (Note 14), iv) prizes for reduced consumption below defined thresholds and the application of additional charges to certain customers that exceed them, this programme was suspended from September 15, 2004 to April 30, 2005 and v) creation and constitution of a Trust System through a Trust Fund and vi) approval of a useful cut-off mechanism to ensure supply to uninterruptible customers and vii) creation of a Gas Electronic Market to supply natural gas under spot conditions and secondary transportation and distribution markets, ruled by Buenos Aires Stock Exchange.

On August 24, 2004 the Argentine Government sent a bill about the regulatory framework of public services to the Congres. If it is passed, its provisions will be applied both to current public service companies and to licenses granted in the future.

At the date of these financial statements the Company is analyzing the abovementioned provisions and it is not possible to determine the final implications in its operation and results.

Contracts denominated in US dollars or containing dollar adjustment clauses

The Emergency Law contains provisions governing contracts between private parties existing as of the effective date of the Emergency Law, which provide for payment in foreign currencies or contain foreign currency adjustment clauses. In this regard, the Emergency Law provides for conversion into pesos of all obligations at an exchange rate of Ps. 1 per US$ 1. Should the result be too burdensome for one of the parties and should the parties fail to agree to modifications of such obligations, the matter may be referred to the courts in order for an equitable result to be established. Obligations arising after the passing of the Emergency Law may not be subject to adjustment clauses.

The Company is a party to a number of such contracts, the most material of which are for the gas purchase of natural gas and are essential to permit the Company to serve its customer. Under the provisions established in the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices abovementioned and the renegotiation of most of the contracts agreed with the Company’s gas suppliers, subject to the continuous compliance by the National Government with all the obligations it has assumed, gas producers with whom there have been renegotiations would commit themselves to suspend actions and/or procedures brought against the Gas Distributors for claims resulting from the abovementioned law, which suspension would become a final waiver on December 31, 2006.

Deferral of the exchange losses deduction for income tax purposes

Up to 20% of the losses arising from the conversion to pesos of foreign currency-denominated assets and liabilities existing as of the effective date of the Emergency Law at an exchange rate of Ps. 1.4 per US$ 1 are deductible for income tax purposes in each of the first five fiscal years ended after the effective date of the Emergency Law. The deferred income tax asset arising as a result of this provision is recorded in the financial statements as of December 31, 2004 as stated in Note 3.2.j).

Impact on the Company’s financial and economic position

The provisions of the Emergency Law modify the rules of the Regulatory Framework applicable to the transportation and distribution of natural gas (principally rules providing for tariffs to be calculated in US dollars and stated in pesos and for tariff adjustments by reference to international indexes).

The regulations governing gas distribution guaranteed that foreign investments made in Argentina would be protected under the principle of “legal security” at the federal level (Law No. 24,076 and its regulations) and at the supranational level (execution of Bilateral Treaties on Promotion and Mutual Protection of Investments). This structure was based on a currency board system, dollar-denominated tariffs and tariff adjustments on the basis of international indexes.

This structure has been seriously affected not only by the measures adopted as a result of the emergency but also because it has de facto been abrogated, leading to legal uncertainty that makes it impossible for the Company to invest and carry on its business. Remedying these problems goes well beyond the scope of the renegotiation process.

Normalizing the License requires that the fundamental guidelines of the Regulatory Framework and the bidding rules under which investors decided to take part in the privatisation process be respected.

In view of the substantial and significant adverse changes that have taken place in Argentina, on March 25, 2002, MetroGAS announced the suspension of its principal and interest payments on all of its financial debt (see Note 9).

The circumstances above described, have been considered by MetroGAS’ management in performing the significant accounting estimates included in these financial statements including those related to the recoverable value of non-current assets. The Company’s management periodically performs economic and financial projections based on alternative scenarios that consider macroeconomic, financial, market and regulatory matters. In preparing projections, the Company’s management has considered the effect of expected tariffs changes, as well as certain adjustments to the Company’s operating costs to recompose its economic and financial equation. Actual future results could differ from those estimates.

The Company’s action plan

The Company’s management has implemented an action plan in order to reverse the major impact of the current emergency on the Company. Some of the main steps under way include the following:

• To continue the process in connection with the renegotiation of the License;
• To continue the action plan in order to modify contracts in light of the current situation;
• To continue with the plan for reducing investments and expenses without thereby affecting the Company’s obligation and ability to provide normal and reliable service to its customers;
• To maintain strict financial control in order to adjust financial expenditures to internally generated funds until financial system liquidity is restored;
• To secure any necessary tax advice in order to make the best possible use of tax loss carryforwards arising out of the impact of the emergency on the Company’s results; and
• To continue with the plan to restructure all of the Company’s financial indebtedness (see Note 9).

The impact of the measures adopted by the Government on the Company’s financial statements as of December 31, 2004 has been calculated on the basis of projections and estimates made by MetroGAS’ management. Actual future results could differ from such projections and such differences could be significant. Consequently, the Company’s financial statements may not reflect all adjustments that could result from these adverse conditions. It is not possible to predict the evolution of the Argentine economy, the outcome of the renegotiation of the License or of contracts (including debt obligations) denominated in US dollars or other foreign currencies or their consequences on the Company’s financial and economic position. Accordingly, any decisions made on the basis of these financial statements should take account of the foregoing and the financial statements should be read in light of such uncertainties.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements were prepared in accordance with generally accepted accounting principles in Argentina ("Argentine GAAP") established by the Federation of Professional Councils of Economic Science (“FACPCE”) and approved by the Professional Council in Economic Science of the Autonomous City of Buenos Aires (“CPCECABA”), with the modifications established by the National Securities Commission (“CNV”). Figures are expressed in thousands of Argentine pesos. These accounting rules are consistent with those applied in the previous fiscal year.

CPCECABA approved the Technical Resolution No. 21 “Equity Value – consolidation of financial statements – information to be disclosed by related parties” through its Resolution M.D. No. 5/03. This Technical Resolution and the modifications incorporated became effective for fiscal years started as of April 1, 2003.

CNV has adopted this Technical Resolution through its General Resolution No. 459/04 establishing its applicability for financial years started as of April 1, 2004. Based on these guidelines, as of December 31, 2004, this Technical Resolution had not become effective.

3.1. Recognition of the effects of inflation and compared information

The financial statements have been prepared in constant Argentine pesos reflecting the overall effects of inflation through August 31, 1995. As from that date and according to generally accepted accounting principles and control body requirements, the restatement for inflation has been discontinued through December 31, 2001. Since January 1, 2002, and in accordance with generally accepted accounting principles and control body requirements, the Company resumed inflation accounting, considering that accounting measurements restated for inflation up to August 31, 1995, as well as those corresponding to the period from that date to December 31, 2001, are expressed in constant pesos of such latter date.

Accordingly, conversion factors derived from the internal wholesale price index (“IPIM”), issued by the National Institute of Statistics and Census (“INDEC”), have been used. The accumulated inflation rate from January 1, 2002 to February 28, 2003, amounted to 120% in accordance to the abovementioned index.

On March 25, 2003, the National Executive Power issued Executive Order No. 664 that establishes that financial statements for fiscal years ending after that date should be stated in nominal Argentine pesos. Consequently, according to Resolution No. 441, issued by CNV, the Company discontinued the restatement for inflation of its financial statements effective March 1, 2003. This criterion does not agree with current professional accounting rules, which establish that financial statements must be restated for inflation as of September 30, 2003.

Some figures of the financial statements for the year ended December 31, 2003 have been reclassified for comparative purposes to current ones.

3.2. Valuation criteria

The preparation of the financial statements in conformity with generally accepted accounting principles requires Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Estimates are used when accounting for the allowance for doubtful accounts, depreciation, amortization, and impairment of long-lived assets, income taxes and contingencies. Actual future results could differ from those estimates.

The principal valuation criteria used in the preparation of the financial statements are as follows:

a) Cash and deposits in banks

Amounts denominated in Argentine pesos without adjustment clauses have been valued at nominal value.

b) Assets and liabilities in foreign currency

Amounts denominated in foreign currency have been valued at nominal value translated at period-end exchange rates, except for:

• Financial debts in foreign currency owed to financial institutions in the Argentine financial system which have been converted into pesos at a rate of Ps. 1 per US$ 1 (as described in Note 2), including accrued interest through the end of the year, if applicable; and
• Accounts payable in foreign currency have been valued at the rate of exchange valid at the close of the period/year.

c) Investments

Government bonds (“BODEN”) have been valued at fair market value at the end of each period.

Treasury bills (“Patacones”) issued by the Province of Buenos Aires and bills issued to cancel Buenos Aires Province obligations (“Lecops”) have been valued at face value (see Note 5) as they are applied at face value to pay taxes.

d) Trade receivables, other receivables and liabilities

Trade receivables include accrued but unbilled services as of the end of each period. Trade receivables are stated net of the allowance for doubtful accounts, which is based on the Company’s estimates of collections.

Trade receivables, other receivables and liabilities are stated at their nominal value including accrued interest at the end of the period, if appropriate. The outstanding balance obtained by applying this criterion does not differ significantly from the accounting valuation obtained by calculating the discounted value of the respective assets and liabilities, using the applicable internal rate of return at inception.

The account denominated PURE Resolution No. 415/04 represents the Programme for the Rational Use of Energy that established prizes for reduced consumption below defined thresholds and the application of additional charges to certain customers that exceed them. It was in force from April 29 to September 14, 2004.

The outstanding balance included in Trade Receivables resulting from the abovementioned concept represents prizes for reduced consumption, while the one included in Accounts Payable represents the application of additional charges to certain customers for excessive consumption, to be deposited in the Trust Fund stated by ENARGAS.

e) Other receivables not included in d) above

Other receivables not included in d) above have been stated at present value on the basis of the amounts expected to be collected discounted by using the interest rate for savings accounts published by Banco de la Nación Argentina, except for deferred income tax assets, which have been stated at nominal value as required by CNV rules. This criterion does not agree with the accounting policies in effect in the Autonomous City of Buenos Aires, which requires these balances to be discounted. If the discount established by Resolution No. 243/01, issued by CPCECABA would be applied, net deferred income tax assets would have decreased by Ps. 1.9 million, approximately. The present value was calculated by using the interest rate for savings accounts published by Banco de la Nación Argentina in accordance with the Company’s projections based on its best estimates.

f) Inventories

Warehouse materials are valued at the replacement costs effective as at December 31, 2004, and 2003. An allowance for inventory of obsolescence has been recognized based on management’s estimates.

Values obtained, net of the allowance for obsolescence, do not exceed their estimated recoverable values at the end of the year.

g) Fixed assets

The value of fixed assets received at the Takeover Date is based on the aggregate transfer value specified in the Transfer Agreement, which was the equivalent to the shareholders’ contributions plus liabilities assumed. This value has been restated for inflation as described in Note 3.1.

On the basis of special work performed by independent experts, the aggregate transfer value mentioned above has been assigned to the transferred assets based on their respective fair values. The Company has determined the remaining useful life of those assets based on the type and current condition of, and the renewal and maintenance programs for, those assets.

Assets acquired or constructed after the Takeover Date are valued at their acquisition cost adjusted for inflation as described in Note 3.1 except for distribution networks constructed by third parties (several associations and cooperative organizations). As established by ENARGAS, these distribution networks are valued at the value of natural gas the Company is required to deliver free of charge inconsideration of such transfers.

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. Depreciations of these assets have been calculated on the basis of the amounts of these assets adjusted by inflation as of February 28, 2003.

The Company capitalizes the net cost of external financing used to fund assets under construction until such assets are ready for their intended use. As mentioned in Note 9, capitalized interest during the years ended December 31, 2004 and 2003 amounted to Ps. 883 thousand and Ps. 1,222 thousand respectively.

During the years ended December 31, 2004 and 2003 the Company capitalized Ps. 2,142 thousand and Ps. 3,156 thousand, respectively, corresponding to the portion of operating costs attributable to the planning, execution and control of investment projects.

Pipeline gas inventories have been valued at their respective acquisition costs restated for inflation, according to note 3.1.

Warehouse materials have been valued at weighted average price since July 1998 as a result of the change of accounting system.

Aggregate fixed assets value does not exceed its recoverable value.

h) Intangible assets

During the current year, all expenses corresponding to planning and financial advice, hired from J.P. Morgan Securities Inc. and J.P. Morgan Chase Bank, Buenos Aires branch, respectively, to develop an integral plan to restructure financial liabilities were reclassified as “Other Credits”, as a consequence of the implementation of new Accounting Standards.

i) Severance indemnities

Severance indemnities are expensed when paid.

j) Income tax

The Company records income tax using the deferred income tax method. Accordingly, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities.

Deferred tax assets arise principally from income tax loss carryforwards and from the deferrement for income tax purposes of the exchange difference generated by foreign-currency denominated financial debt with institutions out of the Argentine financial system. Deferred tax liabilities arise principally from temporary differences between book values and tax basis of fixed assets and other assets, basically for the different depreciation criteria and the treatment of certain financial results (interests, exchange difference and restatement for inflation), capitalized in such items.

The following table shows changes and breakdown of deferred tax assets and liabilities:

Deferred tax assets

	Estimated loss carryforward	Trade receivables		Financial debt	Others		Valuation allowance		Total
	Thousands of Ps.
Balances as of December 31, 2003	269,361	11,765	32,095		14,787	(170,632)		157,376
Charges to statement of operations	30,114	969	(10,698)		3,954	(25,580)		(1,241)
Balances as of December 31, 2004	299,475	12,734	21,397		18,741	(196,212)		156,135

Deferred tax liabilities

	Fixed assets		Others		Total
	Thousands of Ps.
Balances as of December 31, 2003	(12,426)	(2,759)		(15,185)
Charges to statement of operations	2,919	(1,678)		1,241
Balances as of December 31, 2004	(9,507)	(4,437)		(13,944)

Deferred assets resulting from tax loss registered by the Company as of December 31, 2004, approximately amount to $ 299,475 and $ 269,361 at the end and opening of the fiscal year. Such tax loss can be compensated with utilities from future fiscal years, $ 268,835 becoming due in 2007 and $ 30,640 becoming due in 2009.

The realization of deferred income tax assets, including the abovementioned tax loss carryforwards, depends on the generation of future taxable income when temporary differences would be deductible. Accordingly, the Company has considered the expected reversal of the deferred income tax liabilities; tax planning and taxable income projections based on its best estimates as stated in Note 2 when evaluating the recoverability of such deferred tax assets.

Based on these projections, MetroGAS has recorded a valuation allowance against these deferred tax assets amounting to Ps. 196,212 thousand and Ps. 170,632 thousand at the end and the beginning of the year.

Net deferred tax assets at the end and the beginning of the year according to the information included in the above tables amounted to Ps. 142,191 thousand.

The table below shows the reconciliation between the income tax charge included in the statement of operations and the income tax resulting from applying the statutory income tax rate on the pre-tax income (loss) for the year.

		December 31,
		2004		2003
		Thousand of Ps.
Income tax (benefit) expense calculated using the statutory rate over pre-tax (loss) income		(43,042)		12,482
Permanent Differences
Restatement for inflation		19,737		15,663
Non deductible expenses and not considered income		(2,275)		3,485
Valuation allowance on deferred income tax assets		25,580		14,277
Income tax expense		-		45,907

k) Asset tax

Law No. 25,063 established asset tax for the term of ten fiscal years as from the year ended December 31, 1998. This tax complements the income tax, as it implies a minimum tax on potential income on certain operating assets at a 1% rate and the fiscal obligation will be the higher of both taxes. Pursuant to this law, the Company is required to pay the greater of the income tax or the asset tax. Any excess of the asset tax over the income tax may be carry forward and recognized as a payment on account of future income tax charges. The Company recorded a credit balance for the asset tax at the end of the period, which is disclosed within “Other receivables”, as the Company estimates this amount will be offset against future income tax obligations.

l) Balances with related parties

Balances with related parties generated from commercial transactions and other various transactions have been valued according to the conditions agreed by the parties involved.

m) Provision for contingencies

The Company provides for possible labour and commercial contingencies, as well as various risks that could result in obligations for the Company. To estimate these amounts and the probability of occurrence, the opinion of the Company’s legal advisors has been considered. Furthermore, insurance coverage contracted by the Company has also been taken into account. As of the date of issuance of these financial statements, the Company’s management believes there are no elements to determine that other contingencies may occur and impact negatively MetroGAS’ financial condition.

n) Shareholders’ equity accounts

These accounts have been adjusted for inflation as mentioned in Note 3.1, except for the “Capital stock” account, which has been maintained at its original amount. The related adjustment required between January 1, 2002 and February 28, 2003 has been disclosed under the caption “Adjustment of capital stock”.

o) Revenue recognition

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 period. The amounts effectively delivered have been determined based upon the volumes of gas purchased and other historical data.

p) Statements of operations accounts

These accounts as of December 31, 2003 have been restated in constant Argentine pesos as of February 28, 2003, as follows:

• Accounts reflecting monetary transactions throughout the period (Sales, operating costs, administrative and selling expenses and other losses net) have been restated in February 28, 2003 constant Argentine pesos, by application to the original value the conversion factor corresponding to the month when the transaction occurred.
• Income charges related to non-monetary assets valued at restated cost (depreciation of fixed assets have been computed based on the restated amounts at February 28, 2003 of such assets.

• Holding results on inventories which are valued at replacement cost are stated net of the effect of each period’s inflation on such inventories and have been disclosed in the Statements of operations in “Financing and holding results from assets”.

• Financing results (interest, exchange gains/losses) have been disclosed net of the effect of inflation of the related assets and liabilities. The effect of inflation on the remaining monetary assets and liabilities has been disclosed in “Results from exposure to inflation”.

3.3. Basic and diluted (loss) per share

Basic and diluted losses per share were calculated on the basis on shares in circulation at December 31, 2004 and 2003, respectively, which amounted to 569,171,208. The Company does not have any outstanding instrument with a potential dilutive effect; consequently both of these ratios are equal.

3.4. Financial instruments

As of December 31, 2004 and 2003, 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 derivative instruments for speculative purposes.

3.5 Industry segment information

The Company operates exclusively in the rendering of public natural gas distribution service. The rest of the activities do not qualify as segments to be presented individually under the guidelines of Technical Resolution No. 18 of FACPCE.

NOTE 4 - ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS

Details regarding the significant amounts included in the accompanying financial statements are as follows:

NOTE 5 - DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES

The due dates of investments, receivables and payables are as follows:

As of December 31, 2004, investments corresponded to “BODEN” bearing interest at an annual rate of 1.06%. As of December 31, 2003 investments were composed of "BODEN" bearing interest at an annual rate of 1.35%, “Patacones” bearing interest at an annual rate of 1.07% and were recorded at their nominal value as they are used to settle taxes payable; and non-interest bearing “Lecops”. Pursuant to the terms of the License, in the case of invoices for services not paid when due, 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, charged by the Banco de la Nación Argentina, as from the due date through the date of payment. As these are overdue receivables, and following standards of prudence, the Company recognizes this income at the time of actual collection. These conditions could be modified as detailed in Note 2.

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 9. Certain payables accrue CER adjustment clause (see Notes 2 and 14).

NOTE 6 - TRANSACTIONS AND BALANCES WITH AFFILIATED 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 and their affiliates. As of December 31, 2004, the Shareholders of Gas Argentino are British Gas International B.V. (a wholly owned subsidiary of BG Group plc.) (“British Gas”) (54.67%) and YPF S.A. (“YPF”) (45.33%).

These financial statements include the expenses derived from the following transactions with affiliated companies:

• Direct and indirect gas supply contracts with YPF.
• Management fees accrued pursuant to the Technical Assistance Agreement with BG International Limited (member of British Gas holding).

Significant transactions with affiliated companies are as follows:

	December 31,
	2004		2003
	Thousands of Ps.
Gas purchases	98,278		85,050
Technical operator’s fees	557		518
Contingent Technical operator’s fees	4,081		3,935

The outstanding balances as of December 31, 2004 and 2003 from transactions with affiliated companies are as follows:

	December 31,
	2004		2003
	Thousands of Ps.
Current Assets
a) Other receivables
YPF	-		17
BG International Limited	-		30
	-		47
Non Current Assets
b) Other receivables
Gas Argentino	-		5,407
BG International Limited	757		534
	757		5,941
Current Liabilities
c) Accounts payable
YPF	9,294		4,841
BG International Limited	2,481		2,478
	11,775		7,319
Non Current Liabilities
d) Accounts payable
BG International Limited	12,008		7,406
	12,008		7,406

NOTE 7 - RESTRICTED ASSETS

As contemplated by Note 2, the provisions mentioned below have been and/or may be modified. It is not possible to assess the impact of any such modifications.

A substantial portion of the assets transferred to MetroGAS by GdE has been defined in the License as “Essential Assets” for the performance of licensed service. 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 must 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 ENARGAS. Any extensions and improvements that the Company may make to the gas distribution system after the Takeover Date may only be encumbered to collateralize loans maturing after a period of one year and used to finance new extensions of and improvements to the distribution network.

Upon expiration of the License, the Company will be obliged to transfer to the Government, or its designee, the Essential Assets listed in the updated inventory as of the expiration date, free of any debt, encumbrance or attachment.

As a general rule, upon expiration of the License, the Company will be entitled to collect the lesser of the following two amounts:

a) The 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 8.1.).

NOTE 8 - REGULATORY FRAMEWORK

As contemplated by Note 2, the provisions mentioned below have been and/or may be modified. It is not possible to assess the impact of any such modifications.

The natural gas distribution system is regulated by Law No. 24,076 (the “Gas Act”), which, together with Executive Order No. 1,738/92, other regulatory decrees, the specific bidding rules (“Pliego”), the Transfer Agreement and the License establishes the Regulatory 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 gas production, transportation and distribution companies and restrictions on transfers 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 the ENARGAS.

The tariff formula is subject to adjustment as from December 31, 1997, and thereafter every five years, according to criteria established by ENARGAS. 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 US PPI and other factors and periodic adjustments in the Company’s costs of purchasing and transporting gas.

8.1. 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 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 stated in the Gas Act and its regulations and in the License.

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 has complied with its obligations, to match the best bid offered to the Government by any third party.

As a general rule, upon termination of the License, MetroGAS will be entitled to receive the lower of the value of specified assets of MetroGAS or the proceeds paid by the successful bidder in a new competitive bidding process (see Note 7).

MetroGAS has various obligations under the Gas Act, including the obligation to comply with all reasonable requests for service within its service 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. Such 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 the system in a prudent manner, to maintain the distribution network, to carry out mandatory investment program, to keep certain accounting records and to provide periodic reports to ENARGAS.

8.2. “K” Investment Factor

Under the tariff tables effective from July 1, 1998 to July 1, 2001, ENARGAS reported the Company’s compliance, in 1998, 1999, 2000 and the first semester of 2001, with works related to network extension and granted the Company the “K” Investment Factor. However, the Company has requested ENARGAS, to reconsider the procedure regarding the application, of the “K” Investment Factor, maintaining that ENARGAS did not apply the “K” Investment Factor to homogeneous distribution margins as stated when originally determined.

8.3. US PPI semi-annual adjustment

ENARGAS through Resolution No. 1,477 adjusted MetroGAS’ tariffs as from January 1, 2000 without including adjustments to reflect changes in the US 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 Government, the distribution and transportation companies agreed to defer the collection of the amounts related to the US PPI adjustment corresponding to the year 2000. Moreover, ENARGAS established, through the same resolution, the methodology to recover the accrued revenues corresponding to the application of the US PPI adjustment to the first semester of 2000 during the ten-month period beginning July 1, 2000.

On July 17, 2000, the gas distribution and transportation companies, ENARGAS and the Government agreed to pass through to the tariffs, as from July 1, 2000: a) the US PPI adjustment deferred for the first six-months of 2000; and b) an increase in the tariffs to reflect the US PPI increase (3.78%). Additionally, they agreed to defer the billing of the amounts related to the US PPI adjustments corresponding to the period from July 1, 2000 through September 30, 2002. The deferred amounts were guaranteed by the Government and therefore the corresponding accrued revenues would be recovered through the tariffs as from July 1, 2002 to June 30, 2004.

On August 4, 2000, Executive Order No. 669/00 was issued by the Government, confirming the terms of this agreement.

On August 29, 2000 MetroGAS was notified of a court order, suspending Decree No. 669/00, referring mainly to the unconstitutionality of the tariff adjustment according to a mechanism of indexation based on a foreign index within the applicability of the Convertibility Law. Accordingly, ENARGAS informed the Company that the tariffs should be reduced to exclude the US PPI adjustment. MetroGAS, as well as most gas distribution and transportation companies, appealed this ruling and the corresponding ENARGAS resolution. Additionally, ENARGAS and the Government also appealed the court order. On October 5, 2001 the Chamber of Appeals rejected this appeal. The Government and several gas companies have appealed the decision before the Supreme Court of Justice of Argentina. It is not possible to predict when the Court will rule on this matter.

As a result of (i) the Argentine financial crisis (see Note 2), which limited the ability of the Federal Government to honor its obligations as well as its access to credit facilities and led to a formal sovereign debt default declaration in December 2001 and (ii) the subsequent passing of the Emergency Law, which, among other provisions, and specifically as regards contracts for public works and services, made clauses providing for adjustments in dollars or other foreign currency ineffective, as well as indexation clauses based on the price indexes of other countries and any other indexation mechanisms, in addition to fixing a one peso to one dollar rate for tariffs and ordering renegotiation of utility contracts, (the scope of which has not been accurately defined), passing US PPI on to tariffs, as rightfully claimed by the Company, becomes impracticable. Both a transfer to the tariffs of the US PPI as well as the possibility of recovery through the Federal Government, which endorsed the related credits, are contingent on future events that are beyond the Company’s control.

In view of the current scenario, the net effect of income accrued during 2001 and 2000 in connection with the deferral of US PPI adjustments has been reversed in the financial statements as of December 31, 2001 in the “Extraordinary Loss” item.

The reversal should not be understood as a waiver of rights arising out of the Regulatory Framework that governs the Company’s activities or as an abandonment of any of the actions filed by the Company so far.

On February 1, 2002, ENARGAS, according to the Emergency Law, approved tariffs without including the US PPI adjustment. Consequently, MetroGAS has filed an administrative action, the resolution of which, as of the date of issuance of these financial statements is pending.

8.4. General Matters

The License may be revoked by the Argentine Government upon the recommendation of ENARGAS under 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 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.

The License stipulates that the Company cannot assume the debts of Gas Argentino or grant loans to, encumber assets to secure debt of, or grant any other benefit to creditors of, Gas Argentino.

NOTE 9 - FINANCIAL DEBT

The following table sets forth the breakdown of the Company’s Financial Debt as of December 31, 2004 and 2003, indicating the average interest rates and maturity date for each item:

	December 31,
	2004				2003
Financial Debt	Interest Rate	Maturity		Interest Rate				Maturity
Medium-Term Negotiable Obligations - 1998 Global Program: Series A Series B Series C	9 7/8 % 7.375 % Libor + 3.25%	04/01/2003 09/27/2002 05/07/2004		9 7/8% 7.375% Libor + 3.25%				04/01/2003 09/27/2002 05/07/2004
Overdrafts with Argentine financial institutions	8.00%	03/25/2002		8.00%		03/25/2002
Overdrafts with foreign financial institutions	7.94%-11.26%	02/19/200206/14/2002		7.94%-11.26%			02/19/2002 06/14/2002

Details regarding the amount of the nominal interest and the effect of the capitalized interest for the years ended December 31, 2004 and 2003 are as follows:

	December 31,
	2004		2003
	Thousands of Ps.
- Nominal financial cost	108,164		106,777
- Net financial results of other debts	71		416
Total interest	108,235		107,193
- Capitalized interest (Note 3.2.h))	(883)		(1,222)
Total interest charged to the results of operations	107,352		105,971

1998 Global Program:

At the Extraordinary Shareholders’ Meeting held on December 22, 1998 the Shareholders approved the creation of a Global Program for issuing unsecured non-convertible Short and Medium-Term Negotiable Bonds, for an amount of up to US$ 600 million (or the equivalent in other currencies or currency combinations) 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 Bonds of MetroGAS.

On March 27, 2000, MetroGAS issued US$ 100 million of Series A Notes maturing in 2003, at a price equivalent to 99.677% of the face value and bearing interest at the rate of 9.875% per annum, payable semiannually. The Series A Notes were authorized for listing on the Buenos Aires Stock Exchange ("BCBA") on March 24, 2000 and on the Luxembourg Stock Exchange on April 3, 2000.

On September 27, 2000, MetroGAS issued euros 110 million Series B Notes (equivalent to approximately US$ 94.4 million, at the exchange rate in force at the date of the issuance), maturing in 2002, at a price equivalent to 99.9% of the face value and bearing 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 had 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 US dollar) at the interests’ cancellation date and the maturity date of the Series. Such agreement was cancelled during 2002 as mentioned below.

On May 7, 2001, MetroGAS issued US$ 130 million Series C Notes, out of which US$ 115 million were placed at the moment of the issuance and the remaining US$ 15 million were placed on August 7, 2001. The Series C Notes were issued at their face value, mature in May 2004 and bear interest at LIBOR plus a margin ranging from 2.625% to 3.25%. The Series C Notes were authorized for listing on the BCBA on June 15, 2001.

The offering of the Series A, B and C were made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.

On March 25, 2002, MetroGAS announced the suspension of principal and interest payments on all of its financial indebtedness due to the fact that the Emergency Law, together with implementing regulations, altered fundamental parameters of the Company’s license, including the suspension of the tariff adjustment formula and the redenomination of the tariff into pesos, and also the announcement of the devaluation of the peso. Consequently, the domestic and international financial markets are closed to the Company as they are to most of the Argentine companies.

On March 26, 2002, the Buenos Aires Stock Exchange decided to transfer MetroGAS Negotiable Bonds to “Rueda Reducida” trading (a special screen for companies experiencing certain adverse financial conditions) due to the abovementioned factors.

On March 27, 2002, the Luxembourg Stock Exchange suspended the trading of Euros 110 million Notes maturing in 2002 and US$ 100 million Notes maturing in 2003 issued by MetroGAS. This decision was adopted by the Luxembourg Stock Exchange and does not cause a de-listing of the notes. The suspension of the trading was adopted to protect the investors.

Since the payment suspension announcement, the Company has defaulted on capital and interest payments of several financial obligations and, as a consequence, an event of default has occurred under the Global Program of Negotiable Bonds. The default gives the right to holders of certain financial debts to: i) require for an additional interest at an average rate of 2% per annum, and ii) through the procurement of certain majorities declare entire debt due, demanding anticipated cancellation.

Additionally, certain of the Company debt agreements contain clauses that allow the banks to debit automatically from MetroGAS’ bank accounts the amount of interest and principal owed to them.

MetroGAS executed an early termination of the future euro purchase agreement referred to above. The Company used the funds it received upon such termination to make, on August 12, 2002, an extraordinary payment of interest accrued to April 30, 2002 on its financial debt. Subsequently, on November 1, 2002, MetroGAS made a new interest payment corresponding to the Negotiable Bonds in accordance with the following detail: (i) interest accrued on its Series A Negotiable Bonds between April 30, 2002 and its due date on October 1, 2002; (ii) interest accrued on its Series B Negotiable Bonds between April 30, 2002 and its due date on September 27, 2002 and (iii) interest accrued and matured on its Series C Negotiable Bonds between April 30, 2002 and September 30, 2002. In addition, the Company paid interest accrued at September 30, 2002 corresponding to other financial indebtedness.

On September 30, 2003, MetroGAS has received a notification from Citibank, N.A., acting as Trustee for the Floating Rate Series C Notes, announcing the acceleration of this Series. In accordance with the emission terms of the supplement Global Negotiable Obligations Program an event of default, once having obtained certain majorities, allows the financial creditors to require immediate payment of all balances due in accordance with the contract terms, as if the obligations were overdue and claimable.

On November 7, 2003, the Company announced the commencement of a solicitation of consents to restructure its unsecured financial indebtedness pursuant to, an acuerdo preventivo extrajudicial (the “APE”), or out-of-court reorganization agreement, under Argentine law. An APE is an insolvency remedy available to debtors under the Argentine Bankruptcy Law consisting of an out-of-court agreement, between a debtor and a certain percentage of its unsecured creditors that is submitted to a court. Once an APE receives court approval, the APE is binding mechanism that affects all unsecured creditors of the relevant debtor whether or not such creditors have participated in the negotiation or execution of the APE agreement. The last deadline expires on April 1, 2005.

MetroGAS has retained J.P. Morgan Securities Inc. and J.P. Morgan Chase Bank Buenos Aires Branch in order to assist the Company with the development of such restructuring plan by providing management and financial advisory services.

As of December 31, 2003, following Citibank’s N.A. resignation as trustee, register agent, authentication agent and paying and transfer agent related to Negotiable Bonds and Citibank N.A., Buenos Aires branch’s resignation as the trustee agent in Argentina and remaining faculties related to the Indenture Agreement dated as of September 8, 1999 and supplemental agreements. The Bank of New York was designated to perform the abovementioned tasks and Banco de Valores S.A. was appointed as trustee, register co-agent, and paying and transfer co-agent related to the Negotiable Bonds.

On April 30, 2004, the Company’s Board of Directors provided for the application of the funds deposited as of that date at Bank BNP Paribas Luxembourg, as well as all the funds deposited in the future, to the fulfilment of the proposal to be agreed with financial creditors under the debt restructuring process already started, thus ensuring continuity of activities.

At the Extraordinary Shareholders’ Meeting held on October 15, 2004 the Shareholders approved the extension of the Global Program for issuing unsecured non-convertible Short and Medium-Term Negotiable Bonds, for an amount of up to US$ 600 million or the equivalent in Argentine pesos or other currencies.

NOTE 10 - CAPITAL STOCK

As of December 31, 2004, the Company’s capital stock totaled Ps. 569,171 thousand, all of which is fully subscribed, paid-in and registered.

The Shareholders at the Extraordinary Shareholders’ Meeting held on March 12, 1997 approved the most recent capital increase resulting in total capital stock of Ps. 569,171 thousand. This increase was authorized by the CNV on April 8, 1997 and by the Buenos Aires Stock Exchange on April 10, 1997 and was registered with the Public Registry of Commerce on June 17, 1997 under No. 6,244, Corporations Book 121, Volume A.

Gas Argentino owns 70% of the Company’s capital stock, 20% of the Company’s capital stock was distributed in an initial public offering as specified below and 10% of the Company’s capital stock is hold by the Employee Stock Ownership Plan (Programa de Propiedad Participada or “PPP”) (see Note 13).

In accordance with the Transfer Agreement, in 1994 the Government sold through an initial public offering the 20% of the Company’s capital stock it held, represented by 102,506,059 Class B Shares. At the date of these financial statements this capital stock is property of private investors.

On November 2, 1994, the CNV, pursuant to Resolution No. 10,706, authorized to public offering all the Company’s outstanding shares at such date. The Class B Shares offered in the United States are represented by American Depositary Shares ("ADSs") and were registered with the SEC. The Class B Shares and the ADSs were approved for listing on the BCBA and the New York Stock Exchange (“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 were granted.

Any decrease, redemption or distribution of the Company’s shareholders’ equity will require prior authorization by ENARGAS.

NOTE 11 - RESTRICTIONS ON THE DISTRIBUTION OF PROFITS

In accordance with the Argentine Corporations Law, the Company’s by-laws and Resolution No. 434/03 of the CNV, 5% of the Company’s net income for the year plus (less) prior year adjustments 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 13).

Additionally, the Company is prohibited by the terms of its Series C Notes (see Note 9) from paying dividends during the continuation of an event of default there under.

NOTE 12 - LIMITATION ON THE TRANSFERABILITY OF GAS ARGENTINO SHARES

The Pliego stipulates that Gas Argentino, as controlling shareholder of MetroGAS, may sell part of its shares in the Company, provided it retains 51% of MetroGAS’ equity.

In addition, the Company’s by-laws provide that ENARGAS’ approval must be obtained prior to the 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 MetroGAS’ capital stock or, if the proposed transaction is not a sale, it will result in the acquisition of at least 51% of MetroGAS’ equity by another 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 owner’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 13 - EMPLOYEE STOCK OWNERSHIP PLAN

Executive Decree No. 1,189/92 of the Government, which provided for the creation of the Company, establishes that 10% of the capital stock represented by Class C shares is to be included in the PPP, as required under Chapter III of Law No. 23,696. The transfer of the Class C Shares was approved on February 16, 1994 by Executive Order No. 265/94. 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 will be deductible as expense in the income statements of each year (see Note 11).

Participants in the PPP purchased their shares from the Government for Ps. 1.10 per share, either by paying cash for them or by applying dividends on such shares and 50% of their profit sharing bonus 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 transferable Class B shares. The decision to convert Class C Shares to Class B Shares must 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 14 - LONG-TERM CONTRACTS

In order to assure itself of sufficient gas supply and transportation capacity to enable it to provide the licensed service, MetroGAS entered into long-term contracts for the purchase of gas and gas transportation services. In order to obtain access to technical expertise required providing its licensed service, MetroGAS entered into the long-term Technical Assistance Agreement referred to below.

14.1. Gas supply

In order to meet gas supply requirements, the Company operates with the following suppliers: Repsol YPF, Total Austral, Wintershall Energía, Pan American Energy and other producers in Tierra del Fuego, Neuquén y Santa Cruz.

As a result of the ratification of the Agreement for the Implementation of the Schedule for the Normalization of Gas Prices at Points of Entry into the Transportation System, issued on April 22, 2004 by Resolution No. 208/04 effective until 31 December, 2006, the Company has renegotiated most of the gas purchase contracts in order to adapt contract conditions (Note 2) to the new regulations. Based on this renegotiation, the gas supply contracted is the following:

Volumes - Daily averages for the years

		2004		2005		2006		2007		2008		2009/10
MMCM/d (1)		15.1		15.9		15.9		5.8		1.5		2.0
MMCF/d (2)		534.2		561.9		561.9		206.5		53.0		69.4

According to the long-term contract provisions, the minimum 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 also set forth in the table below:

Volumes - Daily averages for the years

		2004		2005		2006		2007		2008		2009/10
MMCM/d (1)		11.1		12.1		12.1		4.7		1.3		1.8
MMCF/d (2)		392.4		428.1		428.1		167.7		47.7		62.5
Amount committed/year (3)		225.1		304.3		329.3		87.5		32.7		43.0

(1) Million cubic meters per day

(2) Million cubic feet per day

(3) Million pesos. For estimating committed amounts we considered the wellhead gas prices resulting from the renegotiation of current contracts under Executive Order No. 181/04 and Resolution No. 208/04. As from July 2005 we have considered prices effective as that date until the end of the current contracts.

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 (which bypasses MetroGAS network). The Company considers it unlikely that its take or pay commitments for gas supplies will lead to significant liabilities for gas not taken at December 31, 2004.

14.2. Gas transportation

MetroGAS has entered into a number of transportation contracts, with expiration dates ranging between 2006 and 2016, with Transportadora de Gas de Sur S.A. ("TGS"), Transportadora de Gas del Norte S.A. ("TGN") and other companies, which provide for firm transportation capacity of 23.4 MMCM per day, considering the transportation capacity contracted as of December 31, 2004.

The Company is obligated to pay approximately Ps. 389.3 millon for the entire period between 2004 and 2005; Ps. 569.9 millon for the entire period between 2006 and 2008 and Ps. 1,049.0 millon for the entire period between 2009 and 2020, for firm transportation capacity under such contracts.

The contracts entered into by MetroGAS with gas transportation companies could be subject to modifications due to Emergency Law provisions (see Note 2) applicable to utility services, which include natural gas transportation. As of the date of issuance of these financial statements it is not possible to assess the impact of these modifications.

TGS awarded to MetroGAS a firm transportation capacity of 159,459 m3/day from the reception area at Tierra del Fuego up to the delivery area at Greater Buenos Aires, under priority 3; that is, to supply its Firm FD, SGG, SGP and NGV customers. This award shall be valid from June 1, 2005 to June 1, 2020, subject to the completion of the extension works by TGS.

14.3 Transportation and distribution commitments

The contracts entered into with power plants include clauses to cede transportation during the winter period; these clauses allow MetroGAS to restrict the transportation and distribution service for a determinate volume to supply its non-interruptible demand.

In case MetroGAS is obligated to restrict the transportation and distribution service for a higher volume than the established in each contract, mainly due to a higher firm demand, those contracts establish penalties to pay to power plants due to these restrictions.

During year 2004, the Company has renegotiated sales contracts with Central Dock Sud and Central Térmica Costanera. Particulary for Central Dock Sud, contract modifications stipulate that the fine to be paid for 2004, 2005 and 2006 cannot surpass 100% of the invoicing amount, MetroGAS will annually pay up to 30% of the invoicing amount and the rest will be compensated in additional service days split in three equal parts during the following years, if this is not possible a fine will be paid.

14.4. Technical assistance agreement

Under this agreement, BG International Limited, a member of British Gas holding, provides technical assistance to the Company in exchange 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 subtracting US$ 3,000 thousand from pre-tax income before financing results. The original contract was in force for a term of eight years from the Takeover Date. The parties, agreed to renew the contract for an additional eight-year term beginning December 28, 2000. The terms and conditions of the original agreement were not changed.

The Emergency Law (see Note 2) establishes the conversion into pesos of all liabilities emerging from private contracts in effect at the time the Emergency Law became effective which were denominated in foreign currency or contained a foreign currency adjustment clause at the exchange rate Ps. 1 = US$ 1 (or at equivalent rates for other currencies). The CER is to be applicable to such contracts. The Technical Assistance Agreement has been modified accordingly.

The modifications mentioned above, include a provisional clause, requiring the Company to pay an annual fee equal to the greater of Ps. 360 thousand, adjusted by CER (Fixed Management Fee) or, 7% of Company Net Profits (Fee on Profits) provided financial debt restructuring has been achieve. The agreement establishes that from the fiscal year in which the Fee on Profits may be higher than Ps. 3,000 thousand adjusted by CER and provided financial debt restructuring has been achieved, the abovementioned clause will have no further effect and the Company shall pay, besides the ordinary Management Fee, an additional amount equivalent to the Fixed Management Fee of Ps. 3,000 thousand annually less payments made in accordance with the provisional clause, adjusted by CER from March 1, 2002. The accrued expenses resulting from this contract are disclosed in the Technical operator’s fees line in Exhibit H. Transactions and balances with affiliated companies related to this contract are described in Note 6.

NOTE 15 - FISCAL AND LEGAL MATTERS

15.1. 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 Ps. 16,824 thousand. In addition the resolution established a term for the recovery of the abovementioned amounts of 96 months.

Due to the recovery period established by ENARGAS for the amount accumulated at December 31, 1997, the Regulator in Note No. 108 dated January 12, 1998 laid down that such amounts accrue interest at an annualized percentage rate of 9.5%.

Consequently, as of December 31, 2004 and 2003 the financial statements of the Company include a current receivable of Ps. 4,057 thousand, and Ps. 3,805 thousand respectively and a non-current receivable of Ps. 2,623 thousand as of December 2003. Interest accrued at December 31, 2004 and 2003 amounts to Ps. 535 thousand and Ps. 922 thousand, respectively and have been recognized as financial and holding results from assets in the statements of operations 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 No. 1,787 rejecting MetroGAS’ claim. On August 23, 2000 the Company filed an administrative recourse, which was rejected by the ENARGAS on November 15, 2000, leading the Company to file the administrative recourse provided by article 100 of the Proceedings Law. At the date of issuance of these financial statements, the claim made by MetroGAS is pending resolution by ENARGAS.

On October 11, 2002 MetroGAS requested ENARGAS a rate adjustment pursuant to the article 46, Law 24,076.

15.2 Stamp Tax

On April 4, 2001, the tax authorities of Neuquén notified MetroGAS of the final determination with respect to contracts transferred by GdE to the Company and entered into before the privatization of GdE, of which MetroGAS is liable for an amount of up to Ps. 48.1 million (including fines and interest).

Additionally, Neuquén asserted that MetroGAS is liable for stamp tax of Ps. 23.8 million (including fines and interest) with respect to transportation contracts entered into after the privatization of GdE.

On January 26, 2000, the tax authorities of Neuquén informed MetroGAS that it was liable for stamp taxes of Ps. 14.5 million with respect to Tacit Acceptance Contracts between several gas companies and MetroGAS that were executed after the privatization of GdE.

MetroGAS filed a declaratory action against the Province of Neuquén with the Supreme Court of Justice of Argentina (“CSJN”) to determine the validity of the claims made by the Province of Neuquén and to request the Court, on the basis of similar cases, to order an injunction. The CSJN upheld the request and instructed Neuquén not to continue actions for collecting the stamp tax.

Furthermore, on April 6, 2001 TGS informed MetroGAS the final determination made by Rio Negro, regarding the contracts transferred by GdE and entered into by MetroGAS before and after the privatization of GdE, respectively. MetroGAS is responsible for an amount of Ps. 148.2 million (including fines and interests). Accordingly, TGS filed a declaratory action against Rio Negro with the CSJN and obtained an injunction. Consequently, Rio Negro has suspended all the collection proceedings until the final ruling is issued.

The tax authority of the province continued with resolution of the claims despite the injunction, considering that it only implies the suspension of all collection proceedings.

The EM has acknowledged, in a letter dated October 7, 1998, the Argentine Government’s responsibility for stamp taxes accruing prior to December 28, 1992, the date of the privatization of GdE.

ENARGAS has notified the ME 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 CSJN, 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 legal actions to contest the claims of the Province of Neuquén with respect to stamp taxes.

On September 18, 2003 the tax authorities of the Province of Neuquén notified MetroGAS of the commencement of a new administrative proceeding related to the offer of gas purchase contracts with Repsol, Pecom Chauvco, Santa Fe, Wintershall, Total y Pan American, claiming 50% of the stamp tax related to the offers on which the producers have paid 50% of the stamp tax under the terms of Provincial Decree No. 786/98. Furthermore, Neuquén claims for offers with tacit acceptance related to the resale of transportation capacity from MetroGAS to Pecom.

MetroGAS has initiated an administrative proceeding to analyze the issue, since this is an interim assessment.

MetroGAS has filed defence with the Province of Neuquén and on November 19, 2003 it brought an injunction within the framework of the declaratory judgement action initiated in November 1999 in relation to gas contracts. On March 31, 2004 the CSJN sustained the injunction brought by MetroGAS and instructed the Province of Neuquén to cease to initiate proceedings aimed at collecting stamp tax on those contracts.

In the proceedings “Transportadora de Gas del Sur S.A. against the Province of Santa Cruz about request for declaratory judgement”, on April 15, 2004, CSJN decided to sustain the request made by TGS and consequently, declared that offers with implicit acceptance, which are the subject matter of this litigation, cannot be taxed. The ruling established that legal expenses were to be borne by the Province.

On the same date and with the same result obtained by TGS, CSJN ruled on proceedings “Y.P.F. S.A. against the Province of Tierra del Fuego on request for declaration of constitutionality” and “Shell Compañía Argentina de Petróleo S.A. against Neuquén on request of unconstitutionality”. The recent rulings of CSJN, summarised above, would probably be applicable actions brought by MetroGAS.

In the case heard at the Supreme Court of Neuquén “MetroGAS against Provincia del Neuquén about request for declaratory judgment” notice has been served to MetroGAS by the representative of Neuquén Province to declare the case abstract and set court costs in the order established. The request is based on Executive Order No. 1133/04 of June 7, 2004, which annulled the determination adopted by the provincial tax authority to demand stamp tax on "assigned contracts". It is clear that this change of criteria and the final administrative act are motivated by the abovementioned recent decisions of the Supreme Court of Neuquén. MetroGAS answered the petition requesting that the Province of Neuquén pay all court costs.

The Company believes that this tax is not legitimate based on the instrumental nature of the stamp tax, which 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 terms of the agreement.

MetroGAS operates with different gas and transportation companies through the exchange of letters with tacit acceptance and considers these to not be taxable.

15.3. Income Tax - bad debt deduction

On November 5, 2002, the Federal Tax Authority ("AFIP") informed MetroGAS of the Ex-officio ruling that disallowed bad debt deductions on the Company's Income Tax Returns for fiscal years 1996 and 1997 and established a tax adjustment for those years of Ps. 854 thousand and Ps. 1,585 thousand, respectively.

On November 26, 2002 MetroGAS registered with the corresponding registry, the Ps. 6.9 million attachments levied by AFIP on some of the company’s real property in the City of Buenos Aires. Notice was served on MetroGAS on September 11, 2003. As of December 31, 2004, the residual accounting value of the attached fixed assets amounted to Ps. 46.2 millon.

The AFIP rejected the bad debt deduction, which was determined by the Company based on the following indicators:

• Disappearance of the debtor as evidenced by the change of the name in which the relevant account was maintained.

• Removal of the meter from the location of customers, which owed MetroGAS less than Ps. 1,000.

AFIP's main argument to challenge the deduction is based on the fact that MetroGAS should have started legal actions to collect those debts.

On November 26, 2002, MetroGAS appealed the AFIP's determination to the Tax Court.

On December 3, 2002, executive order No. 2,442/02 was published, replacing Article 136 of the income tax regulations applicable to years ended after the publication date (year 2002). One of its main objectives is to rule on the requirements that not very significant defaulted payments should meet to enable their deduction as bad debts. The following requirements are established: debts remained unpaid for at least 180 days, notice of non-payment has been served on the debtor and the debtor's service has been disconnected or terminated. Furthermore, the amount should not exceed that established by AFIP. On March 7, 2003 General Resolution No. 1,457 of AFIP was published, establishing the amount in Ps. 1,500. And on June 18, 2004 General Resolution No. 1693, which increased the deduction amount to Ps. 5,000, was published.

According to the abovementioned, the Company does not estimate that the final outcome of this administrative proceeding will be adverse.

15.4 Revision and inspection of works in public spaces levy, and occupancy of public space levy and study

15.4.1 Revision and inspection of works in public spaces levy

In 1997, MetroGAS and several other public service companies entered into an agreement for the coordination of work in public spaces (“Streets Work Agreement” or “SWA”) with the government of the City of Buenos Aires (“GCABA”). Pursuant to such agreement, the Company agreed to pay the GCABA Ps. 0.5 million per year, to compensate for street work inspection costs.

In 1998, the GCABA created an occupancy of public space levy, applicable (among others) to gas pipelines, which was included in the city’s annual budgets. That levy has been challenged by the public service companies and has not been paid.

From 2000 onwards, the GCABA included in its budget a study, revision and inspection of works in public spaces levy applicable (among others) to gas pipelines. Although the SWA was explicitly mentioned as a precedent, the tax amounts were unilaterally increased by the GCABA.

On January 26, 2001, ENARGAS informed MetroGAS that, in the case of the study, revision and inspection of works in public spaces levy, the Company would have to demonstrate the impact of the changes on consumer prices, whereas, in the case of the occupancy of public space levy, MetroGAS would have to challenge the validity of the new tax, both through administrative proceedings and judicial action. ENARGAS also informed the GCABA that all changes in taxation would be dealt as a pass-through cost and would have to be absorbed by the consumers of the jurisdiction in which these changes were introduced.

On April 30, 2001, the GCABA sent MetroGAS a letter claiming the payment of the study, revision and inspection of works in public spaces levy, which was followed by a formal claim on May 16, 2001 for Ps. 5.2 million for 2000.

In addition, on December 2, 2002 the GCABA made a written request regarding the study, revision and inspection of works in public spaces levy for an amount of Ps. 7.6 million relating to the years 2000 and 2001. Subsequently the GCABA claimed unpaid amounts in connection with the study, revision and inspection of works in public spaces levy and the agreement entered into in 1997 for a total amount of Ps. 1.0 million. MetroGAS filed an administrative appeal against both claims.

On July 11, 2003, the GCABA claimed the payment of the study, revision and inspection of works in public spaces levy for an amount of Ps. 0.1 million corresponding to May 2003. MetroGAS filed an administrative appeal against this claim. Furthermore, MetroGAS received new claims for the study, revision and inspection of work in public spaces levy for an amount of Ps. 0.3 million approximately, corresponding to July, August, September and October 2003, which were challenged at an administrative instance.

MetroGAS has been receiving notifications for the payment of the Study, Revision and Inspection of works in public spaces Levy, which amount to $10.0 million up to October 2004 (included). Due to these notifications MetroGAS has filed appeals for reconsideration before the GCABA.

On November 3, 2004, GCABAnotified MetroGAS that all appeals for reconsideration presented on due form were rejected, and granted the Company a 5-day term to expand the appeal lodged alternatively, previous to being presented to the Secretary of Infrastructure and Planning of the GCABA. The expansion to the Appeal was presented.

15.4.2 Occupancy of public space levy

On May 12, 2003, the GCABA claimed the payment of the occupancy of public space levy for the period from 1998 to 2003 in the total amount of Ps. 16.3 million, payable by the Company by May 31, 2003. MetroGAS filed an administrative appeal against this claim. In addition, the Company gave notice to ENARGAS as a first step to requesting inclusion in the tariff paid by its customers in the City of Buenos Aires of any amounts MetroGAS is required to pay as a result of these claims.

On June 6, 2003, the GCABA sent a $ 0.5 million bill of payment for the right to use and occupy public spaces, which corresponded to the second quarter of the year 2003. On June 17, 2003, the original received was returned making reference to the arguments on the Appealfrom May 27, 2003.

On February 27, 2004, the GCABA sent bills claiming payment of the occupancy of public space tax for the 3rd and 4th quarters of 2003 and 1st quarter of 2004, which amounted to approximately Ps. 1.8 million. The Company will file an administrative appeal against Dirección General de Rentas of GCABA. In addition, the bill for the 2nd period of 2004 was returned to GCABA.

On September 22, 2004, the rejection of administrative appeals, duly presented, with regard to occupational rate of public spaces, was notified to MetroGAS by the GCABA. The claim amounts to Ps. 19.2 million from 1998 to the second quarter of 2004 inclusive. The Resolution of the Treasury of the Government of Buenos Aires, ends the administrative stage and enables the GCABA to begin judicial actions to collect the claimed sums.

On December 2004 the GCABA sentbills of payment for the right to use and occupy public spaces corresponding to the third and fourth quarterof 2004. The Company filed appeals for these new complaints.

MetroGAS consistently denies legal validity for the occupancy of public space tax and insists that the amount applicable for the study, revision and inspection of works in public spaces should be the one established in the SWA carried out in 1997, which the Company paid regularly.

Notwithstanding the above, MetroGAS has lodged filings before ENARGAS requesting passthrough onto the tariff of the sums claimed for ocuppation of public spaces, while talks with the Government of Buenos Aires continued.

15.5. Filing for Bankruptcy and executives proceedings

15.5.1. Filing for Bankruptcy

1. Iaccarino, Edelmira Zulema vs. MetroGAS - Bankruptcy proceeding

A request for bankruptcy was made against MetroGAS. The Company made a judicial deposit of $ 891,080 and therefore the request for bankruptcy was rejected. At present the money is in a long-term deposit, renewable every thirty days under the order of the Court having jurisdiction in this case, waiting for the plaintiff to start the collection of the amount of money previously mentioned.

1. Chameris Investments vs. MetroGAS – Bankruptcy procceding

Chameris Investments made a request for bankruptcy. MetroGAS made a judicial deposit of $ 1,260,267 and therefore the request for bankruptcy was rejected. At present the money is in a long-term deposit renewable every thirty days under the order of the Court having jurisdiction in the case, waiting for the plaintiff to start the collection of the amount of money previously mentioned.

15.5.2. Executive Proceedings and Appeals for Relief (“amparos”)

At the time of these financial statements, the Company maintains certain executory proceedings and “amparos” iniciated by holders of Negotiable Obligations, which are pending resolution.

As a consequence of one of the mentioned lawsuits a bondholder has laid an embargo upon a building belonging to MetroGAS located in the City of Buenos Aires. The net book value of the fixed assets with an embargo amounted to $ 2.3 million as of December 31, 2004.

15.6. Others

At the date of issuance of these financial statements, there are disagreements between the Company and the regulatory authorities as to the interpretation of various legal matters. In management's opinion, the final resolution of these disagreements will not have material impact on the Company's financial statements as of December 31, 2004.

Vito Sergio Camporeale
Deputy President

METROGAS S.A.

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003

SUMMARY OF ACTIVITY REQUIRED BY RESOLUTION No. 368/01 ISSUED BY THE COMISION NACIONAL DE VALORES

Significant accounting policies

The information contained in this Summary of Activity Report has been prepared in accordance with Resolution No. 368/01 issued by the National Securities Comission (“CNV”) and should be read together with the attached financial statements as of December 31, 2004 and 2003, which have been prepared in accordance with Argentine GAAP.

The financial statements have been prepared in constant Argentine pesos reflecting the overall effects of inflation through August 31, 1995. As from that date and according to generally accepted accounting principles and control body requirements, the restatement for inflation has been discontinued through December 31, 2001. Since January 1, 2002, and in accordance with generally accepted accounting principles and control body requirements, the Company resumed inflation accounting, considering that accounting measurements restated for inflation up to August 31, 1995, as well as those corresponding to the period from that date to December 31, 2001, are expressed in constant pesos of such latter date.

Accordingly, conversion factors derived from the internal wholesale price index (“IPIM”), issued by the National Institute of Statistics and Census (“INDEC”), have been used. The accumulated inflation rate from January 1, 2002 to February 28, 2003, amounted to 120% in accordance to the abovementioned index.

On March 25, 2003, the National Executive Power issued Executive Order No. 664 that establishes that financial statements for fiscal years ending after that date should be stated in nominal Argentine pesos. Consequently, according to Resolution No. 441, issued by CNV, the Company discontinued the restatement for inflation of its financial statements effective March 1, 2003. This criterion does not agree with current professional accounting rules, which establish that financial statements must be restated for inflation as of September 30, 2003.

Professional Council in Economic Science of the Autonomous City of Buenos Aires (“CPCECABA”) approved the Technical Resolution No. 21 “Equity Value – consolidation of financial statements – information to be disclosed by related parties” through its Resolution M.D. No. 5/03. This Technical Resolution and the modifications incorporated became effective for financial years started as of April 1, 2003.

CNV has adopted this Technical Resolution through its General Resolution No. 459/04 establishing its applicability for financial years started as of April 1, 2004. Based on these guidelines, as of December 31, 2004, this Technical Resolution had not become effective.

According to accepted accounting principles, some figures of the financial statements for the year ended December 31, 2003 have been reclassified for comparative purpose to current ones.

The Argentine Economic Scenario and its impact on the Company

As from the date the Emergency Law and subsequent decrees were passed, the Company's activity has been significantly affected. As describes in Note 2 to the financial statements, the Company’s management is currently defining and implementing an action plan in order to reverse the severe impact of the scenario on the Company’s results of operations. Note 2 to these financial statements describes the economic scenario, the impacts of the Emergency Law and subsequent decrees on the Company and the uncertainties caused on the Company’s future results.

General Considerations

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 (from May to September), due to the larger gas volumes sold and the tariff mix affecting revenues and gross profit.

On September 30, 1997 National Gas Regulatory Authority (“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 between July 1, 1998 and July 1, 2001, the “K” Factor was applied to residential, small and medium-sized commercial and industrial consumers (general P and general G), sub-distributors and compressed natural gas tariffs. As of December 31, 2004 the accumulated “K” Factor included in tariffs amounted to an average rate of 3.1% for each customer category.

On February 1, 2002, ENARGAS, according to the Emergency Law, approved the tariff table without including the US PPI adjustment applicable as from January 1, 2002. Consequently, MetroGAS has filed an administrative action wich resolution is pending as of the date of issuance of these financial statements.

Subsequently, ENARGAS approved temporarily and for the period from May 1 to June 30, 2002, the tariffs expressed in pesos. The tariffs approved corresponded to the price of gas at wellhead for the same period of 2001. ENARGAS extended these tariffs for another month, up to July 31, 2002 and finally ratified them as from August 1, 2002.

Executive Order No. 181 issued on February 13, 2004, created new categories of residential customers (R1, R2 y R3) and Small General Service (P1, P2 y P3). Tariffs applicable to all residential categories and to P1 y P2 categories did not suffer the increase of the gas price at wellhead passed through.

On April 29, 2004, Resolution No. 415 of the Energy Secretariant established the Programme for the Rational Use of Energy, based on incentives and additional charges for excess of consumption. The objective of this programme is to encourage residential and commercial customers to reduce or not to increase their gas consumption with reference to the same period of 2003, in order to have more gas available for industrial use. The Programme shall be valid for one year, and may be extended by the Energy Secretariat. Residential customers R1, R2, R3, and customers of the P General Service, whose monthly annual average consumption classifies them in the first or second stage of the category, shall be active players of the programme. The programme was suspended from September 15, 2004 to April 30, 2005.

On May 11, 2004 the ENARGAS by means of Resolution N° 3,014 approved, on a temporary basis, the Tariff Framework expressed in pesos applicable to the period extending from May 1, 2004 to September 30, 2004.

On October 28, 2004 the ENARGAS by means of Resolution N° 3,092 approved, on a temporary basis, the Tariff Framework expressed in pesos applicable to the period extending from October 1, 2004 to April 30, 2005.

The abovementioned Tariff Frameworkscontain the values of the price of gas at wellhead which results from the Agreement for the implementation of the schedule for the normalization of gas prices at points of entry into the transportation system, signed among the Energy Secretariat and natural gas producers.

Analysis of Operations for the years ended December 31, 2004 and 2003

The Company’s sales during the year ended on December 31, 2004, increased 25.0% and operating costs increased 26.1% compared to the year 2003, thus producing an increase in gross profit of $ 30,176 million, amounting to $ 174,929 million in the year 2004 compared to $ 144, 753 million in the previous year.

During the year ended December 31, 2004 an operating income of Ps. 58,579 thousand was recorded compared to Ps. 29,972 thousand recorded in the previous year.

During the year 2004, operating income increased 95.4% compared to the previous year. However, the increase in financial losses due to exchange rate differences resulting from a bigger depreciation of the peso in comparison to the dollar and the euro registered during the year 2004 compared to 2003, generated bigger net losses in 2004 compared to the previous year.

The Company’s net loss for the year ended December 31, 2004 amounted to Ps. 122,977 thousand compared to a net loss of Ps. 10,246 thousand for the previous year.

Operating results and financial condition

Sales

The Company´s sales during the year ended December 31,2004 increased by 25.0 %, amounting to $ 814,072 million compared to $ 651,485 million in the year 2003. Such increase was mainly due to a higher total supplied volume, a change in the sales mix increasing volumes of gas supplied to electric power plants and industries, which are supplied at a higher tariff than those of transportation and distribution service, and an increase in the gas value included in the tariffs according to the tariff frameworks approved by ENARGAS on a temporary basis on May 11, 2004 and on October 28, 2004.

Delivered volumes to residential customers during the year ended Deceember 31, 2004 decreased by 2.9% compared to 2003. Furthermore, sales to residential customers decreased by 0.92% from Ps. 384,463 thousand during the year ended December 31, 2003 to Ps. 380,962 thousand in the year 2004, due to higher average temperatures which caused a lower residential gas consumption partially offset by an increase of 1.5% in the number of residential customers.

Volumes delivered to power plants increased by 44.6% during the year 2004 compared to the previous year and gas sales increased by 194.8%. This increase was mainly due to the increase in the electricity demand and lower hydroelectric generation, which affected power plants gas consumption during the year 2004 compared to the previous year. Furthermore, sales of gas services to power plants had a significant increase.

Volumes delivered to industrial, commercial and governmental customers increased by 7.7% during the year 2004 compared to the previous year. Gas sales and transportation and distribution services to these customers increased by 21.5% during the year ended December 31, 2004 compared to the previous year. This increase mainly results from the continuous economy recovery, a rate increase according to the provisions of the new tariff schedule issued by ENARGAS that is in force since May and October 2004 and the renegotiation of several customer contracts.

Volumes of CNG delivered during the year 2004 increased by 10.4% compared to the previous year due to a constant increase in the number of CNG-converted vehicles as a result of the high competitiveness of this fuel against its alternatives. Sales of CNG increased by 38.8% during the year ended December 31, 2004 compared to the previous year, due to the abovementioned increase in volumes delivered, the increase in the gas value included in the tariff of this segment and the impact of the change according to the provisions of the new tariff schedule issued by ENARGAS. Sales and volumes available for processing during the year 2004 increased by 56.4% and 56.9%, respectively, compared to the year 2003 due to the increase volumes of gas delivered, as a result of the increase in gas demand as well as the increase in the price of gas at wellhead.

The following chart shows the Company’s Sales by customer category for the years ended December 31, 2004 and 2003, expressed in thousand of pesos:

	For the year ended December 31, 2004		% of Sales		For the year ended December 31, 2003		% of Sales
Gas sales:
Residential	380,962		46.8		384,463		59.0
Power Plants	111,245		13.7		4,722		0.7
Industrial, Commercial and Governmental	134,027		16.5		112,239		17.2
Compressed Natural Gas	92,020		11.3		66,282		10.2
Subtotal	718,254		88.3		567,706		87.1
Transportation and Distribution Services
Power plants	46,276		5.7		48,708		7.5
Industrial, Commercial and Governmental	29,217		3.6		22,077		3.4
Subtotal	75,493		9.3		70,785		10.9
Processed Natural Gas	20,325		2.4		12,994		2.0
Total of Sales	814,072		100.0		651,485		100.0

The following chart shows the Company’s natural gas sales and transportation and distribution services volume by customer category for the year ended December 31, 2004 and 2003, expressed in millions of cubic meters:

	For the year ended December 31, 2004				% of Volume of Gas Delivered						For the year ended December 31, 2003					% of Volume of Gas Delivered
Gas sales:
Residential	1,719.8			21.3					1,771.0						26.6
Power Plants	1,259.2			15.6					69.0						1.0
Industrial, Commercial and Governmental	915.9			11.3					824.8						12.4
Compressed Natural Gas	703.3			8.7					637.0						9.6
Subtotal	4,598.2			56.9					3,301.8						49.6
Transportation and Distribution Services
Power plants	2,779.8			34.4					2,724.1						41.0
Industrial, Commercial and Governmental	526.3			6.5					514.3						7.7
Subtotal	3,306.1			40.9					3,238.4						48.7
Processed Natural Gas	175.8			2.2					112.0						1.7
Total volume delivered	8,080.1			100.0					6,652.2						100.0

Operating Costs

Operating costs totaled Ps. 639,143 thousand during the year ended December 31, 2004, representing a 26.1% increase compared to Ps. 506,732 thousand recorded in the previous year. This increase was mainly attributed to higher gas volumes purchased compared to the year 2003 and the increase in the price of gas purchased as a result of the Implementation of the Schedule for the Normalization of Gas Prices at Points of Entry into the Transportation System.

During the year 2004, 5,428.9 million of cubic meters were acquired representing an increase of 40.4% in respect of the gas volumes purchased in the year 2003. This increase was mainly due to the increase in volumes delivered to power plants, CNG and industrial, commercial and governmental customers. During the year ended December 31, 2004 gas costs increased by 60.5% mainly due to the increase in volumes acquired, and higher prices given from the Implementation of the Schedule for the Normalization of Gas Prices at Points of Entry into the Transportation System.

Gas transportation costs lightly decreased from Ps. 195,560 thousand during the year ended December 31, 2003 to Ps. 194,902 thousand during the year 2004. Gas transportation rates have not been increased since January 2002 when the Emergency Law became effective.

During the years ended December 31, 2004 and 2003, the Company capitalized Ps. 2,142 thousand and Ps. 3,156 thousand, respectively, corresponding to the portion of operating costs attributable to the planning, execution and control of investments in fixed assets.

The following chart shows the Company’s operating costs by type of expense for the years ended December 31, 2004 and 2003, expressed in thousand of pesos:

	For the year ended December 31, 2004		% of Total Operating Expenses		For the year ended December 31, 2003		% of Total Operating Expenses
Gas purchases	320,998		50.2		200,005		39.5
Gas transportation	194,902		30.5		195,560		38.6
Depreciation of Fixed Assets	75,710		11.8		66,960		13.2
Payroll and social contributions	19,437		3.0		17,505		3.4
Operations and maintenance	7,526		1.3		7,200		1.4
Technical operator’s fee	4,638		0.7		4,453		0.9
Sundry Materials	3,108		0.5		2,011		0.4
Fees for sundry services	1,879		0.3		1,597		0.3
Other operating expenses	13,087		2.0		14,597		2.9
Capitalization of Operating Costs in Fixed Assets	(2,142)		(0.3)		(3,156)		(0.6)
Total	639,143		100.0		506,732		100.0

Administrative Expenses

Administrative expenses decreased by 12.6% from Ps. 59,481 thousand during the year ended December 31, 2003 to Ps. 51,989 thousand in the year ended December 31,2004. This decrease was mainly due to the reduction in intangibles assets amortization, fixed assets depreciation, and lower legal contingencies that were partially offset by an increase in payroll and social contributions and taxes, rates and contributions.

Selling Expenses

Selling expenses increased by 16.4% from Ps. 55,300 thousand during the year ended December 31, 2003 to Ps. 64,361 thousand in the year 2004. This increase was mainly due to higher taxes, rates and contributions, payroll and social contributions and allowance for doubtful accounts.

Financing and Holding Results

Financing and holding results for the year ended December 31, 2004 totaled a loss of Ps. 182,955 thousand compared to a gain of Ps. 7,075 thousand in the previous year.

Such variation was the consequence of the fluctuation in the exchange rate applicable to the financial debt in foreign currency with financial entitiesout of the Argentine financial system. During this year the Argentine peso was devaluated against the dollar and the euro, while during the previous year the Argentine peso had been partially revaluated, compared to the dollar.

Other Income (expenses) net

Other income (expenses) net, for the year ended December 31, 2004 totaled a gain of Ps. 1,399 thousand compared to a loss of Ps. 1,386 thousand recorded in the previous year. This increase was mainly generated by larger income from penalties charged to contractors and higher income for fines to registered installers partially offset by higher reimbursements for incidents.

Income Tax

During the year ended December 31, 2004, the Company made no provisions for income tax while in the previous year a Ps. 45,907 charge had been registered..

Net cash flows provided by operating activities

Net cash flows provided by operating activities were $ 160,607 thousand during the year ended December 31, 2004, while during the previous year they totaled $165,121 thousand. The decrease in net cash flows provided by operating activities is mainly due to the increase in the funds required by the working capital, is partially offset by a higher operating income.

Net cash flows used in investing activities

Net cash flows used in investing activities totaled Ps. 31,091 thousand during the year ended December 31, 2004 compared to Ps. 14,184 thousand used during the previous year.

Liquidity and capital resources

Financing

As of December 31, 2004, the total indebtedness of the Company was Ps. 1,597,836 thousand.

At the Extraordinary Shareholders’ Meeting held on December 22, 1998 the Shareholders approved the creation of a Global Program for issuing unsecured non-convertible Short and Medium-Term Negotiable Bonds, for an amount of up to US$ 600 million (or the equivalent in other currencies or currency combinations) 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 Bonds of MetroGAS.

On March 27, 2000, MetroGAS issued US$ 100 million of Series A Notes maturing in 2003, at a price equivalent to 99.677% of the face value and bearing interest at the rate of 9.875% per annum, payable semiannually. The Series A Notes were authorized for listing on the Buenos Aires Stock Exchange ("BCBA") on March 24, 2000 and on the Luxembourg Stock Exchange on April 3, 2000.

On September 27, 2000, MetroGAS issued euros 110 million Series B Notes (equivalent to approximately US$ 94.4 million, at the exchange rate in force at the date of the issuance), maturing in 2002, at a price equivalent to 99.9% of the face value and bearing 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 had 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 US dollar) at the interests’ cancellation date and the maturity date of the Series. Such agreement was cancelled during 2002 as mentioned below.

On May 7, 2001, MetroGAS issued US$ 130 million Series C Notes, out of which US$ 115 million were placed at the moment of the issuance and the remaining US$ 15 million were placed on August 7, 2001. The Series C Notes were issued at their face value, mature in May 2004 and bear interest at LIBOR plus a margin ranging from 2.625% to 3.25%. The Series C Notes were authorized for listing on the BCBA on June 15, 2001.

The offering of the Series A, B and C were made in full compliance with the Fund Allocation Plan. The funds obtained were allocated to the refinancing of short-term indebtedness.

On March 25, 2002, MetroGAS announced the suspension of principal and interest payments on all of its financial indebtedness due to the fact that the Emergency Law, together with implementing regulations, altered fundamental parameters of the Company’s license, including the suspension of the tariff adjustment formula and the redenomination of the tariff into pesos, and also the announcement of the devaluation of the peso. Consequently, the domestic and international financial markets are closed to the Company as they are to most of the Argentine companies.

On March 26, 2002, the BCBA decided to transfer MetroGAS Negotiable Bonds to “Rueda Reducida” trading (a special screen for companies experiencing certain adverse financial conditions) due to the abovementioned factors.

On March 27, 2002, the Luxembourg Stock Exchange suspended the trading of Euros 110 million Notes maturing in 2002 and US$ 100 million Notes maturing in 2003 issued by MetroGAS. This decision was adopted by the Luxembourg Stock Exchange and does not cause a de-listing of the notes. The suspension of the trading was adopted to protect the investors.

Since the payment suspension announcement, the Company has defaulted on capital and interest payments of several financial obligations and, as a consequence, an event of default has occurred under the Global Program of Negotiable Bonds. The default gives the right to holders of certain financial debts to: i) require for an additional interest at an average rate of 2% per annum, and ii) through the procurement of certain majorities declare entire debt due, demanding anticipated cancellation.

Additionally, certain of the Company debt agreements contain clauses that allow the banks to debit automatically from MetroGAS’ bank accounts the amount of interest and principal owed to them.

MetroGAS executed an early termination of the future euro purchase agreement referred to above. The Company used the funds it received upon such termination to make, on August 12, 2002, an extraordinary payment of interest accrued to April 30, 2002 on its financial debt. Subsequently, on November 1, 2002, MetroGAS made a new interest payment corresponding to the Negotiable Bonds in accordance with the following detail: (i) interest accrued on its Series A Negotiable Bonds between April 30, 2002 and its due date on October 1, 2002; (ii) interest accrued on its Series B Negotiable Bonds between April 30, 2002 and its due date on September 27, 2002 and (iii) interest accrued and matured on its Series C Negotiable Bonds between April 30, 2002 and September 30, 2002. In addition, the Company paid interest accrued at September 30, 2002 corresponding to other financial indebtedness.

On September 30, 2003, MetroGAS has received a notification from Citibank, N.A., acting as Trustee for the Floating Rate Series C Notes, announcing the acceleration of this Series. In accordance with the emission terms of the supplement Global Negotiable Obligations Program an event of default, once having obtained certain majorities, allows the financial creditors to require immediate payment of all balances due in accordance with the contract terms, as if the obligations were overdue and claimable.

On November 7, 2003, the Company announced the commencement of a solicitation of consents to restructure its unsecured financial indebtedness pursuant to, an acuerdo preventivo extrajudicial (the “APE”), or out-of-court reorganization agreement, under Argentine law. An APE is an insolvency remedy available to debtors under the Argentine Bankruptcy Law consisting of an out-of-court agreement, between a debtor and a certain percentage of its unsecured creditors that is submitted to a court. Once an APE receives court approval, the APE is binding mechanism that affects all unsecured creditors of the relevant debtor whether or not such creditors have participated in the negotiation or execution of the APE agreement. The last deadline expires on April 1, 2005.

MetroGAS has retained J.P. Morgan Securities Inc. and J.P. Morgan Chase Bank Buenos Aires Branch in order to assist the Company with the development of such restructuring plan by providing management and financial advisory services.

As of December 31, 2003, following Citibank’s N.A. resignation as trustee, register agent, authentication agent and paying and transfer agent related to Negotiable Bonds and Citibank N.A., Buenos Aires branch’s resignation as the trustee agent in Argentina and remaining faculties related to the Indenture Agreement dated as of September 8, 1999 and supplemental agreements. The Bank of New York was designated to perform the abovementioned tasks and Banco de Valores S.A. was appointed as trustee, register co-agent and paying and transfer co-agent related to the Negotiable Bonds.

On April 30, 2004, the Company’s Board of Directors provided for the application of the funds deposited as at that date at Bank BNP Paribas Luxembourg, as well as all the funds deposited in the future, to the fulfilment of the proposal to be agreed with financial creditors under the debt restructuring process already started, thus ensuring continuity of activities.

At the Extraordinary Shareholders’ Meeting held on October 15, 2004 the Shareholders approved the extension of the Global Program for issuing unsecured non-convertible Short and Medium-Term Negotiable Bonds, for an amount of up to US$ 600 million or the equivalent in Argentine pesos or other currencies.

Capitalization

The Company’s total capitalization at December 31, 2004 amounted to Ps. 2,250,577 thousand, consisting of Ps. 1,597,836 thousand short-term debt and shareholders’ equity of Ps. 652,741 thousand.

Comparative Balance Sheet

In order to appraise the development of the Company’s activities, the chart below sets forth comparative balance sheet information from the Company’s financial statements as of December 31, 2004, 2003, 2002, 2001 and 2000, in constant Argentine pesos as of February 28, 2003.

	12.31.04		12.31.03		12.31.02		12.31.01		12.31.00
	Balance Sheet
	Thousands of Ps.
Current Assets	476,392		322,519		221,090		365,197		313,266
Non-current Assets	1,946,486		2,007,439		2,110,840		2,030,775		1,996,522
Total Assets	2,422,878		2,329,958		2,331,930		2,395,072		2,309,788
Current Liabilities	1,758,129		1,546,834		1,542,245		615,490		561,430
Non-current Liabilities	12,008		7,406		3,721		522,551		450,426
Total Liabilities	1,770,137		1,554,240		1,545,966		1,138,041		1,011,856
Shareholders’ Equity	652,741		775,718		785,964		1,257,931		1,297,932
Total	2,422,878		2,329,958		2,331,930		2,395,972		2,309,788

Comparative Results of Operations

The chart below contains a summary of the statements of operations for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, in constant Argentine pesos as of February 28, 2003.

	12.31.04				12.31.03				12.31.02				12.31.01			12.31.00
	Thousands of Ps.
Gross Profit		174,929				144,753				172,875				452,548			476,643
Administrative and Selling Expenses		(116,350)				(114,781)				(176,021)				(224,796)			(248,747)
Operating Income		58,579				29,972				(3,146)				227,752			227,896
Financial Results		(182,955)				7,075				(685,600)				(56,698)			(54,075)
Other Income (Expenses) net		1,399				(1,386)				1,327				(1,516)			1,036
(Loss) Income Before Taxes		(122,977)				35,661				(687,419)				169,538			174,857
(Expense) Income Tax Benefit		-				(45,907)				197,509				(61,523)			(63,140)
Ordinary (Loss) Income		(122,977)				(10,246)				(489,910)				108,015			111,717
Extraordinary loss		-				-				-				(47,704)			-
Net (Loss) Income		(122,977)				(10,246)				(489,910)				60,311			111,717

Comparative Statistical Data

The chart below shows a summary of operating data for the years ended December 31, 2004, 2003, 2002, 2001 and 2000.

	12.31.04				12.31.03		12.31.02		12.31.01		12.31.00
	Volumes
	Thousands of cubic meters
Gas purchased by MetroGAS	5,428,853			3,866,739			3,586,212		3,803,240		5,240,731
Gas contracted by third parties	3,544,264			3,587,942			2,854,905		3,193,506		2,664,282
	8,973,118			7,454,681			6,441,117		6,996,746		7,905,013
Volume of gas withheld:
* Transportation	(576,457)			(499,486)			(447,558)		(490,597)		(506,587)
* Loss in distribution	(307,618)			(299,931)			(224,777)		(187,977)		(232,366)
* Transportation and processing gas production	(8,978)			(3,000)			(13,000)		(6,539)		(17,035)
Volume of gas delivered	8,080,065			6,652,264			5,755,782		6,311,633		7,149,025

Comparative ratios

The chart below contains certain financial ratios as of December 31, 2004, 2003, 2002, 2001 and 2000.

	12.31.04	12.31.03	12.31.02	12.31.01	12.31.00
Liquidity	0.27	0.21	0.14	0.59	0.56
Solvency	0.37	0.50	0.51	1.11	1.28
Immobilization	0.80	0.86	0.91	0.85	0.86

Profitability (0.19) (0.01) (0.48) 0.05 0.09

Other information

The chart 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)
		Ps.	US$
Closing price		1.30	13.00
December	1994	1.03	10.12
December	1995	0.98	9.75
December	1996	0.94	9.38
December	1997	0.77	7.75
December	1998	0.85	8.13
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
March	2001	0.79	8.00
		Share Price on the Buenos Aires Stock Exchange (1)	Share Price of ADSs on the New York Stock Exchange (1)
		Ps.	US$
June	2001	0.69	6.80
September	2001	0.58	6.30
December	2001	0.68	6.50
March	2002	0.75	3.30
June	2002	0.57	1.30
September	2002	0.35	0.97
December	2002	0.55	1.43
March	2003	0.69	2.40
June	2003	1.05	3.82
September	2003	1.04	3.38
December	2003	1.98	6.44
January	2004	1.85	6.00
February	2004	1.67	5.65
March	2004	1.60	5.35
Abril	2004	1.38	4.90
May	2004	1.15	4.08
June	2004	1.12	3.71
July	2004	1.05	3.71
August	2004	1.11	3.75
September	2004	1.35	4.46
October	2004	1.30	4.22
November	2004	1.13	3.99
December	2004	1.30	4.26

(1) Prices on the last business day of the month.

Outlook of MetroGAS

Based on the economic situation and the provisions issued by the National Government, which include the modification of MetroGAS’ Regulatory Framework, the Company will concentrate its efforts towards ensuring business continuity, maintaining the quality of gas supplies and meeting the Basic License Rules. Finally, and depending on the outcome of the renegotiation of the License define its future strategy.

Autonomous City of Buenos Aires, March 4, 2005.

Vito Sergio Camporeale
Deputy President