Metrogas S.A. — Interim / Quarterly Report 2001

Nov 14, 2001

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

METROGAS S.A.

FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2001 AND 2000

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

METROGAS S.A.

FINANCIAL STATEMENTS

AS OF SEPTEMBER 30, 2001 AND 2000

INDEX

Report of Independent Accountant

Balance Sheets

Income Statements

Statements of Changes in Shareholders' Equity

Statements of Cash Flows

Notes to Financial Statements

Exhibits A, B, C, D, E, F, G and H

Summary of Activity

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

METROGAS S.A.

Legal address: Gregorio Araoz de Lamadrid 1360 - Buenos Aires

FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2001 AND 2000

Fiscal years Nº 10 and 9 commenced January 1, 2001 and 2000

Principal activity: Provision of natural gas distribution services

Date of registration with the Public Registry of Commerce: December 1, 1992

Duration of Company: Until December 1, 2091

By-laws amendments:

Approved by Shareholders' Extraordinary Meeting held on February 3, 1993

Approved by Shareholders' Ordinary and Extraordinary Meeting held on April 18, 1994

Approved by Shareholders' Extraordinary Meeting held on June 29, 1994

Approved by Shareholders' Ordinary and Extraordinary Meeting held on April 19, 1995

Approved by Shareholders' Extraordinary Meeting held on February 7, 1996

Parent company: Gas Argentino S.A.

Legal address: Gregorio Araoz de Lamadrid 1360 - Buenos Aires

Principal activity: Investment

Percentage of votes held by the parent company: 70%

Composition and changes in capital stock as of September 30, 2001

Composition

Classes of shares	Subscribed, registered and paid-in
Outstanding:	Thousands of $
Ordinary certified shares of $ 1 par value and 1 vote each:
Class A	290,277
Class B	221,977
Class C	56,917
Capital stock as of September 30, 2001	569,171

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

METROGAS S.A.

FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2001 AND 2000

Changes in Capital Stock

	Subscribed, registered and paid-in
	Thousands of $
Capital as per charter of November 24, 1992 registered with the Public Registry of Commerce on December 1, 1992 under No. 11,670, Corporations Book 112, Volume A	12
Capital increase approved by the Shareholders' Meeting held on December 28, 1992 and registered with the Public Registry of Commerce on April 19, 1993 under No. 3030, Corporations Book 112, Volume A	388,212
Capital increase approved by the Shareholders' Meeting held on June 29, 1994 and registered with the Public Registry of Commerce on September 20, 1994 under No. 9566, Corporations Book 115, Volume A	124,306
Capitalization of the capital adjustment approved by the Shareholders’ Meeting held on March 12, 1997 and registered with the Public Registry of Commerce on June17, 1997 under No. 6,244, Corporations Book 121, Volume A	56,641
Capital stock as of September 30, 2001	569,171

William Harvey Adamson
President

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

METROGAS S.A.

NOTES TO FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000

NOTE 1 - THE COMPANY’S BUSINESS

MetroGAS S.A. (the "Company" or "MetroGAS"), a local gas distribution company, was incorporated on November 24, 1992 and began operations on December 29, 1992, when the privatization of Gas del Estado S.E. ("GdE") (an Argentine Government-owned enterprise) was completed.

The Argentine Government, by Executive Decree No. 2,459/92 dated December 21, 1992, granted MetroGAS an exclusive license to provide the public service of natural gas distribution in the area of the Federal Capital and southern and eastern Greater Buenos Aires, by operating the assets allocated to the Company by GdE for a period of 35 years from the Takeover Date (December 28, 1992), plus an optional renewal period of 10 years under certain conditions.

NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

The financial statements have been prepared in accordance with generally accepted accounting principles in Argentina ("Argentine GAAP") and in accordance with the requirements of the Comisión Nacional de Valores ("CNV").

The ENARGAS issued some resolutions listing certain guidelines for information disclosure in the financial statements to be considered by the gas transportation and distribution companies as from January 1, 2001. According to the application of the above-mentioned resolutions, the Company has made significant changes to the disclosure of its financial statements.

The financial statements as of September 30, 2000 are included for comparative purposes as required under the Argentine GAAP. Certain reclassifications, as a consequency of the above-mentioned disclosure changes, have been made to these financial statements for the information to be consistent to the financial statements as of September 30, 2001.

2.1. Recognition of the effects of inflation

The financial statements have been prepared in constant Argentine pesos reflecting the overall effects of inflation through August 31, 1995. In accordance with the General Resolution No. 272 of the CNV which instruments Decree No. 316/95 of the National Executive Branch, restatement of financial statements has been discontinued as from September 1, 1995. Moreover, Resolution No. 140/96 of the Argentine Federation of Professional Councils of Economic Science ("FACPCE") dated March 29, 1996 stipulates that adjustment for inflation of financial statements would be applicable only if the annual variation in the General Level Wholesale Price Index ("GLWPI") exceeds 8%. The variation in this index pro-rated for the periods ended September 30, 2001 and 2000 did not exceed 8%, so the financial statements as of September 30, 2001 and 2000 recognized the effects of inflation only through August 31, 1995.

2.2. Valuation criteria

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

a) Cash, investments, trade and other receivables and liabilities

Amounts in Argentine pesos without principal adjustment clauses have been valued at nominal value, which include accrued interest through the end of each period, if applicable.

Amounts in foreign currencies have been valued at nominal value converted at appropriate period-end exchange rates including accrued interest, if applicable.

Trade receivables include accrued but unbilled services as of the end of each period and the amounts resulting from the deferral of the billing of the tariff adjustments related to the changes in the US Producer Price Index (“PPI”) (see Note 7.3). Trade receivables are stated net of the allowance for doubtful accounts, which is based on the Company's estimates of collections.

Mutual funds have been valued at the listed prices of the units at the end of the period; those funds correspond to investment at a fixed rate.

Treasury bills issued by Buenos Aires Province named “Patacón” have been valued at nominal value.

b) Inventories

Warehouse material has been valued at weighted average price since July 1998 as a result of the change of accounting system. Those values do not differ significantly from replacement costs at September 30, 2001 and 2000.

Gas inventories at September 30, 2000 delivered for processing to the General Cerri Plant owned by Transportadora de Gas del Sur S.A. (“TGS”) have been valued at replacement cost.

c) Fixed assets

For fixed assets received at the time of the granting of the License, their original value has been based on the global transfer value defined in the Transfer Agreement, which was the equivalent of the shareholders' contributions and the liabilities transferred.

Based on the special work performed by independent experts, the global original value mentioned above has been assigned to the transferred assets based on their respective fair value. The remaining useful life has been determined based on the years of service estimated by the Company according to the type, current condition and renewal and maintenance programs of the assets.

Assets acquired or constructed after the granting of the License have been valued at their acquisition cost or construction cost restated on constant Argentine pesos as of August 31, 1995, except for distribution networks constructed by third parties (several associations and cooperative organizations). As established by ENARGAS these distribution networks are valued at the amounts equivalent to specific gas cubic meters.

Fixed assets are depreciated under the straight-line method, using annual rates sufficient to extinguish asset values by the end of their estimated useful lives.

The Company capitalized the net cost of external financing of construction work in "Fixed assets" until such construction is ready to be put into service. As mentioned in Note 8, the capitalized interest during the periods ended September 30, 2001 and 2000 amounted to $ 2,622 thousand and $ 2,116 thousand, respectively.

The Company capitalized during the periods ended September 30, 2001 and 2000 $ 4,127 thousand and $ 4,117 thousand, respectively, corresponding to the portion of operating costs attributable to the planning, execution and control of investments in fixed assets.

Pipeline gas inventories have been valued at their respective replacement costs.

Warehouse material has been valued at weighted average price since July 1998 as a result of the change of accounting system. Those values do not differ significantly from replacement costs at September 30, 2001 and 2000.

Aggregate fixed assets value does not exceed recoverable value.

d) Intangible assets

Intangible assets represent organization costs, which amotization was estimated over a five-year term, the issuance of debt pursuant to the Medium-Term Note Program, which amortization was estimated in accordance with the debt maturity of the corresponding series and certain projects related to future income generation, which amortization was estimated over a three-year term.

e) Severance indemnities

Severance indemnities are expensed when paid.

f) Income tax

Income tax is recorded on the basis of the estimated tax liability for each fiscal year. The income tax rate applied to the periods ended September 30, 2001 and 2000 is 35% of net taxable income, calculated pursuant to the procedures set forth by applicable tax provisions.

g) Shareholders' equity accounts

These accounts have been restated on a constant Argentine peso basis as mentioned in Note 2.1.

h) Recognition of revenues

The Company recognizes revenues on an accrual basis upon delivery to customers, which includes estimated amounts of gas delivered but not yet billed at the end of each period. The amounts effectively delivered have been determined based upon the volumes of gas purchased and other historical data.

2.3. Earnings and dividends per share

Earnings per share were calculated on the basis of weighted average shares outstanding at September 30, 2001 and 2000, which amounted to 569,171,208.

2.4. Financial instruments

The Company has used a financial instrument to manage its exposure to fluctuations in the euro exchange rate. This instrument, as stated in Note 8, corresponds to future foreign currency purchase agreement. The corresponding amounts payable are accrued in “Financial debt” and the related charges are included in “Financial and holding results from liabilities”.

MetroGAS has not used any other financial instruments to manage its exposure to fluctuations in foreign currency exchange or interest rates and, accordingly, has not entered into transactions that create off-balance sheet risks associated with such financial instruments.

The Company does not use financial instruments for trading purposes.

NOTE 3 - ANALYSIS OF THE MAIN ACCOUNTS OF THE FINANCIAL STATEMENTS

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

NOTE 4 - BREAKDOWN OF DUE DATES OF INVESTMENTS, RECEIVABLES AND PAYABLES

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

As of September 30, 2001, investments in mutual funds were made at an average interest rate of approximately 11% per annum and “Patacones” at an annual interest rate of 7%; the Company has recorded these investments at their par value as they are used to cancel taxes payable. Aditionally, as of September 30, 2000 comprise saving account deposits, accruing interest at an average rate of 3.1% per annum. Pursuant to the terms of the License, in the case of invoices for services not paid on their due date, the Company will be entitled to collect interest on late payment at a rate equivalent to 150% of the 30-day interest rate in local currency, collected by the Banco de la Nación Argentina, as from the due date through the date of payment. As there are overdue receivables, following a prudent criterion the Company recognizes these revenues at the time of efective collections.

The receivable corresponding to changes in turnover tax in the Province of Buenos Aires accrues interest at an annual 9.5% rate. Payables do not accrue interest, except for the Financial Debts, which are set forth in Note 8.

NOTE 5 - TRANSACTIONS AND BALANCES WITH AFFILIATE COMPANIES

Gas Argentino S.A. (“Gas Argentino”), as owner of 70% of the Company's capital stock, is the controlling shareholder of MetroGAS. MetroGAS carries out certain transactions with the shareholders of Gas Argentino who were as follows as of September 30, 2001: British Gas International B.V. (a wholly owned subsidiary of BG Group plc.) (“British Gas”) (54.67%), YPF S.A. (“YPF”) (26.67%), Argentina Private Development Company Ltd (“A.P.D.C.”) (subsidiary of YPF) (18.66%), or with their affiliates.

On April 4, 2001, the Inspección General de Justicia approved the merger of Astra Compañía Argentina de Petróleo S.A. (“Astra”) and YPF, in force as from January 1, 2001.

The financial statements include the revenues and expenses derived from the following transactions with affiliate parties:

• Direct or indirect gas supply contracts with YPF and Astra (as of September 30, 2000)
• Management fees accrued pursuant to the Technical Assistance Agreement with BG International Limited (member of British Gas holding).
• Fees under the Manpower Supply Agreement with BG International Limited (member of British Gas holding).

Significant transactions with affiliate parties are as follows:

	September 30,
	2001		2000
	Thousands of $
Gas purchases	30,458		3,119
Technical operator's fees	7,149		7,763
Manpower supply	1,008		1,010

The outstanding balances as of September 30, 2001 and 2000 from transactions with affiliate companies are as follows:

	September 30,
	2001		2000
	Thousands of $
Current Assets
a) Other receivables
BG International Limited	12		-
	12		-
Current Liabilities
b) Affiliate companies
BG International Limited	5,622		5,974
Astra	-		170
YPF	4,096		-
	9,718		6,144

NOTE 6 - RESTRICTED ASSETS

A substantial portion of the assets transferred by GdE has been defined as "Essential Assets" for the performance of licensed service. Therefore, the Company is obliged to segregate and maintain them together with any future improvements in accordance with certain standards defined in the License.

The Company may not, for any reason, dispose of, encumber, lease, sublease or loan Essential Assets for purposes other than providing licensed service, without prior authorization from the Ente Nacional Regulador del Gas ("ENARGAS"). Any extensions and improvements that the Company may make to the gas distribution system after the Takeover Date may only be encumbered to secure credits maturing after a period of one year, used to finance new extensions of and improvements to licensed service.

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

Upon expiration of the License, the Company will be entitled to collect the lesser of the following two amounts:

a) The net book value of the Company's property, plant and equipment determined on the basis of the price paid by Gas Argentino, and the original cost of subsequent investments carried in US Dollars and adjusted by the PPI, net of the accumulated depreciation.

b) The proceeds of a new competitive bidding, net of costs and taxes paid by the successful bidder. (See Note 7.1.)

NOTE 7 - REGULATORY FRAMEWORK

The natural gas distribution system is regulated by Law No. 24,076 (the "Gas Act"), which, together with Executive Decree No. 1,738/92, other regulatory decrees, the specific bidding rules (“Pliego”), the Transfer Agreement and the License establish the legal framework for the Company's business.

The License, the Transfer Agreement and regulations promulgated pursuant to the Gas Act contain requirements regarding quality of service, capital expenditures, restrictions on transfer and encumbrance of assets, restrictions on cross ownership among production, transmission and distribution of gas and restrictions on transfer of capital stock of MetroGAS.

The Gas Act and the License establish ENARGAS as the regulatory entity to administer and enforce the Gas Act and applicable regulations. ENARGAS' jurisdiction extends to transportation, marketing, storage and distribution of natural gas. Its mandate, as stated in the Gas Act, includes the protection of consumers, the fostering of competition in the supply of and demand for gas, and the encouragement of long-term investment in the gas industry.

Tariffs for gas distribution services were established in the License and are regulated by ENARGAS.

The tariff formula is subject to adjustment as from December 31, 1997, and thereafter every five years, according to the criteria that the ENARGAS will establish. The ratemaking methodology contemplated by the Gas Act and the License is the so-called "price cap with periodic review" methodology, a type of incentive regulation which allows regulated companies to retain a portion of the economic benefits arising from efficiency gains.

In addition, the Company’s tariffs are subject to semi-annual adjustments as a result of changes in the PPI and periodic adjustments in the Company’s costs of purchasing and transporting gas.

7.1. Distribution License

Upon expiration of the original 35-year term, MetroGAS may apply to ENARGAS for a renewal of the License for an additional ten-year term. ENARGAS is required at that time to evaluate the Company's performance and make a recommendation to the Argentine Government. MetroGAS would be entitled to such ten-year extension of its License unless ENARGAS can prove that MetroGAS is not in substantial compliance with all its obligations.

At the end of the 35-year or 45-year term, as the case may be, the Gas Act requires that a new competitive bidding be held for the License, in which MetroGAS would have the option, if it had complied with its obligations, to match the best bid offered to the Argentine Government by any third party.

As a general rule, upon termination of the License, MetroGAS will be entitled to receive the lower of the net book value of certain specified assets of MetroGAS or the proceeds, net of costs and taxes, paid by the successful bidder in a new competitive bidding process (see Note 6).

MetroGAS has various obligations under the Gas Act, including the obligation to comply with all reasonable requests for service within its license area. A request for service is not considered reasonable if it would be uneconomic for a distribution company to undertake the requested extension of service. MetroGAS also has the obligation to operate and maintain its facilities in a safe manner, which obligation may require certain investments for the replacement or improvement of facilities as set forth in the License.

The License details further obligations of MetroGAS, which include the obligation to provide distribution service, to maintain continuous service, to operate in a prudent manner, to maintain the distribution network, to carry out the Mandatory Investment program, to keep certain records and to provide periodic reports to ENARGAS.

7.2. “K” Investment Factor

Under the tariffs tables effective as 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 to the ENARGAS, to reconsider the procedure regarding the K factor application. This happened as a result of not applying the “K” factor to homogeneous distribution margins as stated when originally determined.

7.3. US PPI semi-annual adjustment

ENARGAS through Resolution No. 1477 adjusted MetroGAS' tariffs as of January 1, 2000, without including the tariffs variation pursuant to the PPI, which would have resulted in a 3.78% increase in the transportation and distribution components of the tariffs as of that date. This was due to the fact that in negotiations with ENARGAS and the Argentine Government, the Distribution and Transportation Companies agreed to defer the collection of the amounts related to the PPI adjustment corresponding to the first six months of 2000. Moreover, ENARGAS established, through the same resolution, the methodology to recover the acrrued revenues corresponding to the application of the PPI during the first half of 2000, as from July 1, 2000 and through a ten-month period.

On July 17, 2000, the Distribution and Transportation Companies, ENARGAS and the Argentine Government agreed to pass through to the tariffs, as from July 1, 2000 of: a) the PPI adjustment deferred for the first six months of 2000; and b) prospectively increasing the tariff by the PPI increase (3.78%). Additionally, they agreed to defer the billing of the amounts related to the PPI adjustments corresponding to the period from July 1, 2000 through June 30, 2002. The amounts thus accumulated during the deferral period are guaranteed by the National Government, and therefore the corresponding accrued revenues will be recovered through the tariffs as from July 1, 2002 to June 30, 2004. As of September 30, 2001 such unbilled revenue approximated to $ 55,746 thousand. Additionally, the Company has recorded an account payable to its gas transportation providers of $ 23,613, since delated transportation contracts include a similar clause. On August 4, 2000, Decree No. 669 was issued by the Executive National Government, confirming the terms of this Agreement.

On August 29, 2000 MetroGAS was notified of a court order, suspending Decree No. 669, refering principally to the inconstitutionality of the tariff adjustment according to a mechanism of indexation based on a foreing index within the applicability of the Convertibility Law. Accordingly, ENARGAS informed the Company that the tariffs should be reduced to exclude the PPI adjustment. MetroGAS, as well as most distribution and transportation companies appealed this ruling and the corresponding ENARGAS resolution. Additionally, ENARGAS and the Executive Power also appealed the court order. This appeal was rejected by the Chamber of Appeals so leave is being bought to appeal the decision before the Supreme Court.

Under existing legislation, MetroGAS has the right to add a tariff adjustment to its customers' bills based on the PPI. While not currently billable to customers, the National Government has indicated that MetroGAS has a legal right to bill customers for this tariff adjustment. Based on the advice of legal counsel, the Company believes that at the time gas is delivered to the customer, the National Government has a legal obligation to pay MetroGAS the amount of the tariff adjustment in the event the Company is not permitted to bill such tariff adjustment to customers.

7.4. General Matters

The License could be revoked by the Argentine Government upon the recommendation of ENARGAS in the following circumstances:

• Serious and repeated failure by the Company to meet its obligations.
• Total or partial interruption of noninterruptible service for reasons attributable to

the Company of a duration in excess of the periods stipulated in the License within

a calendar year.

• Sale, assignment or transfer of the Company's essential assets or encumbrances

thereon without ENARGAS' prior authorization, unless such encumbrances

serve to finance extensions and improvements to the gas pipeline system.

• Bankruptcy, dissolution or liquidation of the Company.
• Ceasing and abandoning the provision of the licensed service, attempting to assign

or unilaterally transfer the License in full or in part (without ENARGAS' prior

authorization) or giving up the License, other than as permitted therein.

• Transfer of the technical assistance agreement mentioned above, or delegation of

the functions granted in that agreement without ENARGAS' prior authorization.

With regard to restrictions, the License stipulates that the Company may not assume the debts of Gas Argentino or grant loans, encumber assets to secure debt or grant any other benefit to creditors of Gas Argentino.

NOTE 8 - FINANCIAL DEBT

The following table sets forth a breakdown of the Company's Financial Debt as of September 30, 2001 and 2000, indicating the average interest rates and maturity date for each credit line:

		September 30,
		2001				2000
Financial Debt	Interest Rate		Maturity		Interest Rate		Maturity
Medium-Term Negotiable Bonds - 1998 Global Program: Series A Series B Series C	9 7/8 % 7.375 % Libor + 2.625%		04/01/2003 09/27/2002 05/07/2004		9 7/8% 7.375% -		04/01/2003 09/27/2002 -
Medium-Term Negotiable Bonds - 1994 Global Program: Series B	-		-		10 7/8%		05/15/2001
Overdrafts	7.00%-10.25%		10/01/2001-06/14/2002		8.00%-9.63%		10/02/2000- 12/04/2000

Details regarding the amount of the nominal interest and the effect of the capitalized interest for the periods ended September 30, 2001 and 2000 are as follows:

	September 30,
	2001			2000
	Thousands of $
- Nominal financial cost	24,931		26,530
- Net financial results of other debts	226			259
Total interest	25,157			26,789
- Capitalized interest (Note 2.2.c))	(2,622)			(2,116)
Total interest charged to the results of operations	22,535			24,673

8.1. Short and Medium-Term Negotiable Bonds

1994 Global Program:

The Shareholders' Ordinary and Extraordinary Meeting held on April 1994 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$350 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the program by the CNV.

On March 23, 1995, the CNV, pursuant to Resolution No. 10,877, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.

On May 8, 1996, MetroGAS placed and issued US$100 million Series B Notes, maturing in 2001, for a price equivalent to 99.786% of the face value, which shall earn interest at the rate of 10 7/8% per annum, payable semiannually. The Series B Notes were registered with the SEC on May 8, 1996 and authorized for listing on the BCBA on May 29, 1996. On October 22, 1997 and September 16, 1998, MetroGAS repurchased Negotiable Corporate Bonds, Series B, for US$13.196 million and US$2 million par value, respectively. The Series B Notes matured in May 2001 and were totally cancelled with the funds obtained from the Series C issued under 1998 Global Program.

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

1998 Global Program:

The Shareholders' Ordinary and Extraordinary Meeting held on December 22, 1998 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$600 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the Program by the CNV.

On August 19, 1999, the CNV, pursuant to Resolution No. 12,923, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.

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

On September 27, 2000, MetroGAS has placed and issued Euros 110 million Series B Notes (equivalent to approximately US$94.4 million, at the exchange rate from the date of the issuance), maturing in 2002, for a price equivalent to 99.9% of the face value, which shall earn interest at the rate of 7.375% per annum, payable annually. The Series B Notes were authorized for listing on the Luxembourg Stock Exchange on September 27, 2000. The Company has entered into a future euro purchase agreement in order to manage its exposure to the devaluation of the US dollar with respect to the euro. Accordingly, in such agreement an exchange rate was fixed (0.8585 Euros per dolar) at the interests cancellation date and the maturity date of the Series.

On May 7, 2001, MetroGAS issued US$130 million Series C Notes, out of which US$115 million were placed at the moment of the inssuance and the remaining U$S 15 million were placed on August 7, 2001, maturing in 2004, at a price equal to 100% of the face value with a floating rate of LIBOR plus 2.625% up 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.

8.2. Non-current financial debt

Maturities of principal amounts of non-current financial debt as of September 30, 2001 are as follows:

	2003	2004		Total
	Thousands of $
Medium-term Negotiable Bonds
	100,000	130,000		230,000
	100,000	130,000		230,000

NOTE 9 - CAPITAL STOCK

As of September 30, 2001, the Company's capital stock amounted to $569,171 thousand, all of which is fully subscribed, paid-in and registered.

The latest capital increase to $569,171 thousand was approved by the Shareholders’ Extraordinary Meeting held on March 12, 1997. This increase was authorized by the CNV on April 8, 1997 and by the BCBA on April 10, 1997 and was registered with the Public Registry of Commerce on September 17, 1997 under No. 6,244, Corporations Book 121, Volume A.

Gas Argentino, the holding company, owns 70% of the total Company's capital stock, the 20% originally held by the Government was subject to an Initial Public Offering as specified below, and 10% is hold by the Employee Stock Ownership Plan (Programa de Propiedad Participada or "PPP")(See Note 12).

In accordance with the Transfer Agreement, in 1994 the Argentine Government offered to sell, through an initial public offering, its 20% holding in the Company's capital stock, represented by 102,506,059 Class B shares, which were transferred to private entities.

On November 2, 1994, the CNV, pursuant to Resolution No. 10,706, admitted to public offering all the Company's outstanding shares at such date. The ADSs issued in the United States were registered with the SEC. The Class B shares and the ADSs were approved for listing on the BCBA and the NYSE, respectively.

The Company is required to keep in effect the authorization to offer the Company's capital stock to the public and the authorization for the shares to be listed on the Argentine Republic's authorized securities markets for a minimum period of 15 years as of the respective dates on which such authorizations are granted.

Once this first five years after the Take Over Date have elapsed, any decrease, redemption or distribution of the Company’s shareholders’ equity will require prior authorization by ENARGAS.

The Shareholders Meeting held on April 24, 2000, ratified the interim cash dividend of $28,459 thousand, equivalent to $0.05 per share and 5% of capital stock, which was placed at the disposal of shareholders as from November 24, 1999. In addition, it was proposed the setting up of a Reserve for future dividends amounting to $11,510 thousand.

On May 18, 2000 the Company's Board of Directors resolved to allocate the Reserve for future dividends set up on April 24, 2000 to the distribution of cash dividends amounting to $ 11,383 thousand ($ 0.02 per share, equivalent to 2% of the capital stock) placed at the disposal of shareholders as from May 31, 2000.

On November 21, 2000 the Company's Board of Directors ratified the interim cash dividend of $34,150 thousand, equivalent to $0.06 per share and 6% of capital stock, which was placed at the disposal of shareholders as from November 29, 2000, affecting $127 thousand of the Reserve for future dividends and $34,023 thousand of the Unapropiated retained Earnings.

The Shareholders Meeting held on April 27, 2001, ratified the interim cash dividend of $34,150 thousand, equivalent to $0.06 per share and 6% of capital stock, which was placed at the disposal of shareholders as from November 29, 2000. In addition, it was proposed the setting up of a Reserve for future dividends amounting to $11,618 thousand.

On May 16, 2001 the Company's Board of Directors resolved to allocate the Reserve for future dividends set up on April 27, 2001 to the distribution of cash dividends amounting to $ 11,383 thousand (correspond $ 0.02 per share, equivalent to 2% of the capital stock) placed at the disposal of shareholders as from May 30, 2001.

NOTE 10 - RESTRICTIONS ON THE DISTRIBUTION OF PROFITS

In accordance with the Argentine Corporations Law and the Company's by-laws, 5% of the Company's net income for the year must be transferred to the Company's Legal Reserve, until it reaches 20% of the subscribed capital including the adjustments to capital stock.

The Company's by-laws provide for issuing a Profit Sharing Bonus, equivalent to 0.5% of the Company's net income, to be paid annually to all the Company's employees (see Note 12). The amount corresponding to this caption, calculated on the basis of income for the year, has been deducted as an expense in the Income Statements for the nine-month periods ended September 30, 2001 and 2000.

Addicionally, according to the offering of the Series C of Negociable Bonds (see Note 8), the Company will not be able to declare or pay dividends while existing an event of default. As of the date of issuance of these financial statements, MetroGAS has not incurred in any event of default according to the offering above-mentioned.

NOTE 11 - LIMITATION ON THE TRANSFERABILITY OF GAS ARGENTINO

SHARES

The Pliego stipulates that Gas Argentino can sell part of its participation in the Company under the condition that it must maintain 51% of MetroGAS' equity.

In addition, the Company's by-laws provide that ENARGAS' approval must be obtained prior to transfer of the Class A shares (representing 51% of capital stock). The Pliego states that such prior approval will be granted three years after the Takeover Date provided that:

• The sale covers 51% of capital stock or, if the proposed transaction is not a sale, the act of reducing the shareholding will result in the acquisition of a shareholding of not less than 51% by another investing company,
• The applicant provides evidence that the transaction will not affect the operating quality of the licensed service, and
• The existing technical operator, or a new technical operator approved by ENARGAS, retains at least 15% of the new investor company's shares and the technical assistance contract remains in force.

Shareholders of Gas Argentino are subject to the same restrictions as those set forth in the preceding paragraph.

NOTE 12 - EMPLOYEE STOCK OWNERSHIP PLAN

Executive Decree No. 1,189/92 of the Argentine Government, which provided for the creation of the Company, established that 10% of the capital stock represented by Class C shares was to be included in the PPP, as required under Chapter III of Law No. 23,696, the instrumentation of which was approved on February 16, 1994 by means of Decree No. 265/94 of the National Executive. The Class C shares are held by a trustee for the benefit of GdE employees transferred to MetroGAS who remained employed by MetroGAS on July 31, 1993 and who elected to participate in the PPP.

In addition, the Company's by-laws provide for the issuance of profit sharing bonuses as defined in Article 230 of Law No. 19,550, in favor of all regular employees so as to distribute 0.5% of the net income of each year among the beneficiaries of this program. The accrued amounts have been expensed on the Income Statement of each period (See Note 10).

Participants in the PPP purchased their shares from the Argentine Government for $1.10 per share, by either paying cash for them or by applying dividends on such shares and 50% of their profit sharing voucher to the purchase price. The trustee will retain custody of the Class C shares until they are fully paid.

Once the Class C shares are fully paid, they may be converted at the request of the holders thereof into freely disposable Class B shares. This decision is to be taken by the Class C shareholders, acting as a single class. While the PPP is in effect, neither the by-laws of the Company nor the proportions of the various shareholdings may be changed until the requirements set forth in the PPP are fully complied with.

NOTE 13 - LONG-TERM CONTRACTS

In order to satisfy gas demand, MetroGAS entered into long-term contracts to assure reasonable amounts of gas supply and gas transportation services. In order to efficiently provide the license service, MetroGAS entered into a long-term contract for the administration of the business at international standards through the Technical Assistance Agreement.

13.1. Gas supply

Under different long-term contracts with YPF, Perez Companc, Total Austral/Pan American Energy/Wintershall Energía joint venture and other producers of Tierra del Fuego, Neuquén and Santa Cruz Provinces, the Company is entitled to purchase a major portion of its natural gas needs as follows:

Volumes - Daily averages for the years

		2001		2002		2003		2004		2005
MMCM/d (1)		13.5		12.3		11.8		7.3		5.6
MMCF/d (2)		475.5		434.1		414.8		259.3		196.2

According to the long-term contract provisions, the natural gas volumes and amounts that MetroGAS is obligated to pay for regardless of whether or not they are taken ("take-or-pay amounts") are as follows:

Volumes - Daily averages for the years

		2001		2002		2003		2004		2005
MMCM/d (1)		10.3		9.3		8.8		5.0		4.0
MMCF/d (2)		361.8		327.5		310.2		177.5		139.8
Amount committed/year (3)		183.8		153.9		144.1		86.4		72.7

(1) Millions of cubic meters per day

(2) Millions of cubic feet per day

(3) Millions of dollars

The gas supply contracts also entitle MetroGAS to certain reductions of its take-or-pay amounts in the event that demand from power plants in the Company's service area falls below certain volumes of gas per day or in the event of any direct purchase of gas from a supplier or intermediaries and of transportation services for the purchased gas (avoiding MetroGAS network). Management does not consider it likely that the Company will incur in a material take-or-pay liability for volumes of gas not taken as of September 30, 2001.

13.2. Gas transportation

MetroGAS has entered into a number of transportation contracts, with expiration dates ranging between 2004 and 2016, with TGS, Transportadora de Gas del Norte S.A. and other companies, which provide for firm transportation capacity of 22.8 MMCM per day, considering the transportation capacity contracted as of September 30, 2001.

The Company is obligated to pay approximately $390,760 thousand for the entire period between 2001 and 2002, $553,450 thousand for the entire period between 2003 and 2005 and $1,422,170 thousand for the entire period between 2006 and 2016, for firm transportation capacity under such contracts.

13.3. Gas delivery commitments

In order to compete with fuel oil as an energy source for power plants and to prevent the bypass of its distribution system by major customers, MetroGAS has agreements in place with certain dual-fuel power plants whereby it commits to deliver during the winter months minimum volumes of gas on an interruptible basis. If minimum volumes are not met, MetroGAS is required to refund a portion of any excess of fuel oil price over gas prices on undelivered volumes.

13.4. Technical assistance agreement

Under this agreement, BG International Limited (member of British Gas holding) provides technical assistance to the Company for the payment of an annual technical assistance fee equal to the greater of US$3,000 thousand or 7% of the amount obtained after substracting US$3,000 thousand from pre-tax income before financing results. The orginal contract was in force for a term of eight years as from Takeover Date. Provided that the contract is renewable with the consent of both parties, they agreed its renewal for an aditional eight-year term in force as from December 28, 2000. The terms and conditions of the original agreement were maintained. The expenses resulting from this contract, the technical operator's fees, are disclosed in Note 5.

NOTE 14 - FISCAL AND LEGAL MATTERS

14.1. Income Tax to be Recovered

The Dirección General Impositiva ("DGI") (General Tax Board) challenged the method followed by the Company for the calculation of the tax depreciation expense deducted in the 1992 tax return involving an income tax amount of approximately $5,000 thousand. For the purpose of avoiding the high interest that the Company would have to pay in the event that the position maintained by the tax authorities prevailed, MetroGAS voluntarily paid in August 1994, under protest, the amount assessed plus accrued interest.

On December 28, 1994, the Company initiated administrative proceedings with the DGI to obtain the full refund of the amount paid plus interest accrued as of that date at the rate of 6% per annum. On December 27, 1995, the DGI notified the Company that its Administrative Appeal had been denied. This denial of repayment was appealed by the Company before the Tribunal Fiscal de la Nación (National Tax Court) on December 28, 1995. On August 21, 1996, said Court issued a decision rejecting the Administrative Appeal. On October 22, 1996, MetroGAS filed an appeal against this ruling in the National Chamber of Appeals for Federal Administrative Disputes, which is in process.

There are legal arguments in favor of the Company that have not been affected by the National Tax Court’s decision, which does not represent a final conclusion on the Company's rights to obtain the reimbursement of the amounts paid.

Pursuant to a decision of the National Securities Commision, the Company was required to incorporate into its financial statements as of December 31, 1996 an accounting allowance for the total amount of the credit recorded for that item. The outstanding balance of such allowance as of September 30, 2001 and 2000 is included in Other receivables and amounted to $5,778 thousand.

14.2. Transfer to tariff - Turnover Tax

On November 17, 1997, the ENARGAS issued Resolution No. 544/97 authorizing the passing through to tariff of the variation in the taxable base for the Turnover Tax within the jurisdiction of the Province of Buenos Aires from January 1993 to December 31, 1997, for an amount of $16,824 thousand. In addition the resolution established a term for the recovery of the abovementioned amounts of 96 months.

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

Consequently, as of September 30, 2001 and 2000 the financial statements of the Company included a current receivable of $ 2,828 thousand and $ 2,249 thousand and a non-current receivable of $ 8,199 thousand and $ 10,335 thousand, respectively. Interest accrued at September 30, 2001 and 2000 amounts to $ 779 thousand and $ 907 thousand and has been recognized as financial and holding results in the income statements for these periods.

On March 20, 1998, the Company requested ENARGAS to transfer to tariff the cost variations derived from the increase in turnover tax in the jurisdiction of the Federal Capital. On July 14, 2000 ENARGAS issued Resolution N° 1,787 rejecting MetroGAS´ claim. On August 23, 2000 the Company filed an administrative recourse. At the date of issue of these financial statements, the claim made by MetroGAS was pending resolution by ENARGAS.

14.3. Income tax on gas network extensions constructed by third parties

Pursuant to ENARGAS Resolution No. 283 issued in March 1996, the distribution network extensions that had been partially or completely financed by third parties and incorporated to the Company’s equity from the Takeover Date must be paid off by the Company according to the resolutions mentioned below.

In July 1999, the Federal Administration of Public Revenue (“AFIP”) notified MetroGAS of an ex-officio ruling challenging income tax returns corresponding to fiscal years 1994 and 1995 and determining tax adjustments amounting to $2,017 thousand and $453 thousand, respectively.

Those adjustments derive from the tax authorities’ decision to attempt to tax the increase in net worth as a result of the incorporation of gas networks assigned by third parties during the abovementioned periods, according to Resolution No. 7/81 issued by the DGI.

The AFIP considers that the transfer of networks does not constitute assignment at no cost since, although no price has been determined, the obligation undertaken by the Company is to provide the service committed in exchange for a fixed price established in the tariff regime.

The resolution of the tax authorities establishes that the increase in net worth generated by the incorporation of the transferred assets is to be considered as taxable income and cannot be treated as tax exempt income as it does not constitute gratuitous enrichment.

MetroGAS filed an appeal with the National Tax Court against the ruling of the AFIP claiming lack of contributory capacity based on the fact that MetroGAS did not record taxable income, either because the net worth increase derived from the incorporation of the networks (free assignment) is tax-free or because the operation corresponds to an acquisition of fixed assets in installments (assignment for a consideration).

14.4. 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 to $ 48.1 million (including fine and interests).

Additionally, Neuquén asserted that MetroGAS is liable for stamp tax of $ 23.8 million (including fine and interests) in respect of transportation contracts entered into after the privatization of GdE.

Besides, on January 26, 2000, the tax authorities of Neuquén informed MetroGAS that it was liable for taxes of $14.5 million with respect to Tacit Acceptance Contracts between several gas companies and MetroGAS executed after the privatization of Gas del Estado.

Furthermore, on April 6, 2001 TGS informed MetroGAS the final determination made by Rio Negro, regarding the contracts transferred by GdE and entered into before the privatization of GdE. MetroGAS is responsible for an amount of $ 148.2 million (including fine and interests). Accordingly, TGS filed a declaratory action against Rio Negro with the Supreme Court of Justice of Argentina and obtanined an injunction as a consequence of which Rio Negro has suspend all the collection proceedings until the final ruling is issued.

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

Besides, ENARGAS has notified the Ministry of Economy and MetroGAS that the stamp tax had not been considered for purposes of establishing the initial distribution tariffs and that, if the stamp tax is upheld by the Supreme Court of Justice of Argentina, the stamp tax should be deemed to be a new tax which would be required to be passed through to tariffs. ENARGAS also instructed all distribution and transportation companies to initiate administrative and/or legal actions to contest the claims of the Province of Neuquén in respect of stamp taxes.

MetroGAS filed a declaratory action against the Province of Neuquén with the Supreme Court of Justice of Argentina to determine the validity of the claims made by the Province of Neuquén. Resolution on this matter is still pending.

The Company believes the application of this tax is illegitimate because, according to the instrumental nature of the stamp tax, it applies only to written documents (i) that contain an offer and an express acceptance by the other party in the same document or (ii) that are documented by means of an exchange of letters whereby the acceptance letter contains or restates the main terms of the agreement. MetroGAS operates with the different gas and transportation companies through the exchange of letters with tacit acceptance, which are not taxable.

Based on the above-mentioned MetroGAS operates with different gas and transportation companies through the exchange of letters with tacit aceptance, considering that these are not taxable.

14.5. Others

At the date of issuance of these financial statements, there are discrepancies between the Company and the regulatory authorities as to the interpretation of various matters. After an in depth study of such discrepancies, the Company considers that the final resolution of these situations will not have any material impact that has not been taken into consideration in the financial statements as of September 30, 2001.

William Harvey Adamson
President

METROGAS S.A.

FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2001 AND 2000

SUMMARY OF ACTIVITY REQUIRED BY RESOLUTION No. 290/97 ISSUED BY THE COMISION NACIONAL DE VALORES

1. Significant accounting policies

The information contained in this Summary of Activity Report has been prepared in accordance with Resolution No. 290/97 issued by the Comisión Nacional de Valores (“CNV”) and should be read together with the attached financial statements as of September 30, 2001 and 2000, which have been prepared in accordance with Argentine GAAP.

Based on Decree No. 316/95 of the Argentine Executive Branch, dated August 15, 1995, the CNV, pursuant to General Resolution No. 272, discontinued the practice of restating the financial statements to account for the effect of inflation as from September 1, 1995. Moreover, Resolution No. 140/96 of the Argentine Federation of Professional Councils of Economic Science (“FACPCE”), dated March 29, 1996, provides that the adjustment for inflation would be applicable only if the annual variation in the General Level Wholesale Price Index (“GLWPI”) exceeded 8%. The variation in the above-referenced index pro-rated for the nine-month periods ended September 30, 2001 and 2000, does not exceed 8%, so the Company’s financial statements as of September 30, 2001 and 2000 recognized the effects of inflation only through August 31, 1995.

The ENARGAS issued some resolutions listing certain guidelines for information disclosure in the financial statements to be considered by the gas transportation and distribution companies as from January 1, 2001. According to the application of the above-mentioned resolutions, the Company made has significant changes to the disclosure of its financial statements.

2. Economic Aspects of the Company

General - Seasonality

MetroGAS sales and earnings are highly sensitive to weather conditions in Argentina. Demand for natural gas and, consequently, MetroGAS sales and earnings, are significantly higher during the winter months (May through September), owing to the larger gas sales volume and the tariff mix that affects revenues and gross profit.

Analysis of Operations for the nine-month periods ended September 30, 2001 and 2000

The nine-month period ended September 30, 2001 was characterized by changes in the mix sales to power plants, increasing volumes delivered under transportation and distribution services and decreasing volumes of sales of gas. Furthermore, volumes delivered to residential customers decreased by 8.4% during the first nine months of 2001 due to higher temperatures recorded during the second and third quarter of 2001 compared to the same quarters of 2000.

On June 30, 1997 ENARGAS issued Resolution No. 464/97 approving the maximum tariffs for MetroGAS corresponding to the 1998/2002 period.

This Regulatory Authority established the percentage variation of the “X” Efficiency Factor at 4.7% and the “K” Factor. Under the tariff tables effective as from July 1, 1998 to July 1, 2001, the “K” Factor was applied to residential, small and medium-sized commercial and industrial consumers (general P and general G), sub-distributors and natural compressed gas tariffs. As of September 30, 2001 the accumulated “K” Factor included in tariffs amounted to an average rate of 3.1% for each customer category.

The Company´s net sales during the nine-month period ended September 30, 2001 decreased by 10.3% and operating costs decreased by 11.8% compared to the same period of the previous year resulting in a $10,619 thousand reduction in the gross income, decreasing to $153,317 thousand during the first nine months of 2001 compared to $163,936 thousand in the same period of the previous year. An operating income of $93,015 thousand was recorded in the nine-month period ended September 30, 2001 compared to $97,854 thousand recorded in the same period of the previous year.

The Company’s net income corresponding to the nine-month period ended September 30, 2001 increased to $45,946 thousand, totaling an increase of 0,9% in net result compared to the net icome of $45,546 thousand recorded in the same period of the previous year.

Operating results and financial condition

Net sales

Total net sales decreased by 10.3% during the nine-month period ended September 30, 2001 to $525,904 thousand from $586,551 thousand in the same period of 2000. This reduction was mainly due to a decrease in net sales to power plants, liquid gas processing sales, net sales to residential customers and net sales to industrial, commercial and governmental customers amounting to $41,458 thousand, $20,264 thousand, $2,218 thousand, and $1,014 thousand, respectively. This reductions were partially offset by an increase in net sales of compressed natural gas (“CNG”), amounting to $4,307 thousand.

Since July 1998 up to July 1, 2001 the “K” Factor was included in tariffs, representing an accumulated average rate of 3.1% over the distribution margins. This increase percentage in distribution margins is applied only to residential, small and medium-sized commercial and industrial consumers, sub-distributors and CNG consumers.

Net sales to residential customers decreased by 0.7%, from $329,782 thousand during the nine-month period ended September 30, 2000 to $327,564 thousand during the same period of 2001. Sales volume delivered to residential customers decreased by 8.4% during the nine-month period ended September 30, 2001 compared to the same period of the previous year. This decrease is due to lower daily comsumption per capita. The lower decrease in net sales was due to the increase in tariff resulted from “K” Factor adjustment applied to this category of customers and to the increase in the U.S. Producer Price Index (“PPI”) applied to tariffs on January 1 and July 1, 2001.

Net sales of gas and transportation and distribution services to power plants decreased by 46.3% compared to the same period of the previous year. Volumes delivered to these customers decreased by 13.1% during the first nine months of 2001 compared to the same period of the previous year. This decrease was mainly due to the increase in hydraulic power generation in most basins, which generated a lower gas consumption due to the abundant supply of hydroelectric power during the first nine months of 2001, compared to the same period of the previous year. Furthermore, the major decrease recorded in net sales to this category of customers is due to the change in mix of sales, decreasing the volumes of sales of gas and increasing the volumes delivered under transportation and distribution services which are sold at a lower tariff.

Due to the lower level of economic activity in Argentina since the beginnig of 1999, volumes delivered to industrial, commercial and governmental customers decreased by 13.5% during the first nine months of 2001 compared to the same period of the previous year. Nevertheless, net gas sales and transportation and distribution services to these users category only decreased by 1.0% during the first nine months of 2001 compared to the same period of the previous year, due to the PPI increase applied to the tariff on January 1 and July 1, 2001.

Net sales of CNG increased by 11.9% during the nine-month period ended September 30, 2001 compared to the same period of the previous year as a consequence of abovementioned “K” Factor and the PPI variation, which increased the tariff applied to these consumers. Volumes of CNG delivered during the first nine months of 2001 increased by 4.4% compared to the the same period of the previous year due to an increase in the number of CNG-converted vehicles as a result of the repeatedly increases in the prices of competing fuels.

The start-up of an important Gas Processing Plant in the province of Neuquen, at the beginning of 2001, caused a significant change in the liquids processing industry. Consequently, according to the Contract entered into between MetroGAS and Transportadora Gas del Sur (“TGS”) for gas processing through a plant of its own, MetroGAS suffered a reduction in the assignment of products extracted. In order to mitigate this effect MetroGAS and TGS agreed on certain modifications to the terms of their commercial agreement, through which MetroGAS obtained reduced costs related to such activity. Net sales, as well as volumes available for processing during the first nine months of 2001, were reduced by 72.2% and 64.5%, respectively, compared to the same period in 2000. Additionally the gross income of this activity decreased 45.6% basically as a consequence of the decrease of the oil international prices.

During the first nine months of 2001, the accrued revenues corresponding to the deferral of the billing of the PPI adjustment to tariffs (see Note 7.3.) amounted to $33,787 thousand.

The following table shows the Company’s net sales by customer category for the nine-month periods

ended September 30, 2001 and 2000, in thousands of pesos:

	For the period ended September 30, 2001		% of Net Sales		For the period ended September 30, 2000		% of Net Sales
Gas sales:
Residential	327,564		62.3		329,782		56.2
Power Plants	17,853		3.4		63,163		10.7
Industrial, Commercial and Governmental	88,577		16.8		90,186		15.4
Compressed Natural Gas	40,530		7.7		36,223		6.2
Subtotal	474,524		90.2		519,354		88.5
Transportation and Distribution Services
- Power plants	30,182		5.7		26,330		4.5
- Industrial, Commercial and Governmental	13,406		2.6		12,811		2.2
Subtotal	43,588		8.3		39,141		6.7
Processed Natural Gas	7,792		1.5		28,056		4.8
Net sales	525,904		100.0		586,551		100.0

The following table shows the Company’s natural gas sales volume by customer category for the nine-month periods ended September 30, 2001 and 2000, in thousands of cubic meters:

	For the period ended September 30, 2001		% of Volume of Gas Delivered		For the period ended September 30, 2000		% of Volume of Gas Delivered
Gas sales:
Residential	1,475,151		29.9		1,610,031		28.5
Power Plants	260,515		5.3		1,010,547		17.9
Industrial, Commercial and Governmental	648,924		13.2		742,620		13.1
Compressed Natural Gas	379,669		7.7		363,676		6.4
Subtotal	2,764,259		56.1		3,726,874		65.9
Transportation and Distribution Services
- Power plants	1,771,290		36.0		1,328,547		23.5
- Industrial, Commercial and Governmental	310,945		6.3		366,563		6.5
Subtotal	2,082,235		42.3		1,695,110		30.0
Processed Natural Gas	81,283		1.6		228,709		4.1
Total volume of gas delivered	4,927,777		100.0		5,650,693		100.0

Operating Costs

Operating costs totaled $372,587 thousand during the nine-month period ended September 30, 2001, representing a 11.8% decrease compared to $422,615 thousand registered in the same period of the previous year. This decrease was primarily due to a decrease in cost of gas purchases and the lack of liquid proccesing costs during the first nine months of 2001 due to the modifications to the terms of their in the commercial agreement with TGS, as mentioned above, partially offset by an increase in transportation costs.

During the nine-month period ended September 30, 2001, 3,085 million of cubic meters were acquired representing a decrease of 29.5% with respect to the gas volumes purchased in the same period of 2000. This decrease in volumes purchased is due to the change in mix of sales to power plants, increasing volumes delivered under transportation and distribution services and decreasing volumes of sales of gas which are sold at a higher tariff as a consequence of the cost of gas included in it. Furthermore, the decrease in volumes purchased is due to the decrease in volumes delivered to residential customers as a consequence of the higher temperatures recorded during the second and third quarters of 2001. Consequently, gas costs decreased by 23.4%.

Gas transportation costs increased 7.4% from $157,275 thousand during the nine-month period ended September 30, 2000 to $168,880 thousand during the same period of 2001. This increase was mainly due to the increase in firm transportation volumes contracted and higher transportation costs due to the increase in the PPI applied on January 1, 2001 and July 1, 2001. During the first nine months of 2001, accrued transportation costs corresponding to the deferral of the billing of the PPI adjustment to tariffs (see Note 7.3.) amounted to $ 15,500 thousand.

During the nine-month period ended September 30, 2001 and 2000, the Company capitalized $ 4,127 thousand and $ 4,117 thousand, respectively, corresponding to the portion of operation 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 nine-month periods ended September 30, 2001 and 2000, in thousands of pesos:

	For the period ended September 30, 2001		% of Total Operating Expenses		For the period ended September 30, 2000		% of Total Operating Expenses
Gas purchases	158,805		42.6		207,346		49.1
Gas transportation	168,880		45.3		157,275		37.2
Depreciation of Fixed Assets	20,392		5.5		19,866		4.7
Payroll and social contributions	12,096		3.3		11,622		2.7
Operations and maintenance	4,087		1.1		4,566		1.1
Technical operator´s fee	7,149		1.9		7,763		1.8
Sundry Materials	1,366		0.4		2,050		0.5
Fees for sundry services	927		0.2		640		0.2
Liquid processing	-		-		7,739		1.8
Other operating costs	3,012		0.8		7,865		1.9
Capitalization of Fixed Assets Costs	(4,127)		(1.1)		(4,117)		(1.0)
Total	372,587		100.0		422,615		100.0

Administrative Expenses

Administrative expenses decreased by 15.0% from $ 43,184 thousand during the nine-month period ended September 30, 2000 to $ 36,722 thousand recorded in the same period of 2001. This decrease was mainly due to the decrease in fees for sundry services and the reduction in the amortization of intangible assets, mainly due to the complete amortization of voluntary retirement in December 2000.

Selling Expenses

Selling expenses increased by 3.0% from $ 22,898 thousand during the nine-month period ended September 30, 2000 to $ 23,580 thousand during the same period of 2001. The increase resulted mainly from an increase in payroll and social security contributions partially offset by a decrease in fees for profesional services.

Financing and Holding Results

Net financing and holding results totaled a loss of $ 18,409 thousand during the nine-month period ended September 30, 2001 compared to $ 19,484 thousand during the same period of the previous year.

This decrease mainly derived from a reduction in loss from financial and holding results generated by liabilities amounting to $ 1,554 thousand compared to the same period of 2000, principally resulting from a lower indebtedness recorded during the first nine months of 2001, compared to the same period of the previous year.

Other Income and Expenses

Other income and expenses recorded a loss of $538 thousand during the nine-month period ended September 30, 2001 compared to an income of $316 thousand recorded during the same period of 2000.

Income Tax

During the nine-month period ended September 30, 2001, $28,122 thousand was accrued for income tax, resulting in an effective tax rate of 38.0%. During the nine-month period ended September 30, 2000, the Company accrued an income tax charge for $33,140 thousand, resulting an effective tax rate of 42.1%. The decrease in the effective rate is due to certain allowances and provisions that were non-deductable for tax purposes during the first nine months of 2000.

Net cash (used in) provided by operating activities

Net cash used in operating activities amounted to $ 3,063 thousand during the nine-month period ended September 30, 2001 and $ 46,187 thousand provided by operating activity during the same period of the previous year. This variation in funds is mainly due to the increase in trade receivables and in other receivables.

Net cash used in investing activities

Net cash used in investing activities totaled $ 51,769 thousand during the nine-month period ended September 30, 2001 compared to $ 31,624 thousand used during the same period of the previous year, representing an increase in the investment level in fixed assets.

Net cash provided by (used in) financing activities

Net cash provided by financing activities amounted to $ 56,591 thousand during the nine-month period ended September 30, 2001, compared to $ 27,177 thousand used in during the same period of the previous year. This variation was mainly due to a lower payment of loans during the first nine months of 2001, partially offset by a lower issuance of debt and a decrease in overdrafts compared with the first nine months of 2000.

Liquidity and capital resources

Financing

As of September 30, 2001, the total indebtedness of the Company was $ 413,673 thousand.

The Shareholders' Extraordinary Meeting held on December 22, 1998 approved the creation of a Global Program for issuing simple non-convertible Short and Medium-Term Negotiable Corporate Bonds, for an amount of up to US$ 600 million (or the equivalent in other currencies or currencies combination) over a five-year term as from the date of authorization of the Program by the CNV.

On August 19, 1999, the CNV, pursuant to Resolution No. 12,923, admitted to public offering the mentioned Global Program of Issuance of Negotiable Corporate Bonds of MetroGAS.

On March 27, 2000, the Company has placed and issued, under the new Negotiable Corporate Bonds Global Program, its Series A Notes with a face amount of US$ 100.0 million, at a price equivalent to 99.677% of the face value, with an interest rate of 9.875% per annum, payable semiannually and maturity on April 2003. The Series A Notes have been authorized for listing on the Buenos Aires Stock Exchange on March 24, 2000 and on the Luxembourg Stock Exchange on April 3, 2000.

On September 27, 2000, MetroGAS has placed and issued euros 110 million Series B Notes (equivalent to approximately US$ 94.4million, at the exchange rate from the date of the issuance), maturing in 2002, for a price equivalent to 99.9% of the face value, which shall earn interest at the rate of 7.375% per annum, payable annually. The Series B Notes were authorized for listing on the Luxembourg Stock Exchange on September 27, 2000. The Company has entered into a future euro purchase agreement in order to manage its exposure to the devaluation of the US dollar with respect to the euro. Accordingly, in such agreement an exchange rate was fixed (0.8585 Euros per dolar) at the interests cancellation date and the maturity date of the Series.

On May 7, 2001, MetroGAS issued US$130 million Series C Notes, out of which US$115 million were placed at the moment of the inssuance and the remaining U$S 15 million were placed on August 7, 2001, maturing in 2004, at a price equal to 100% of the face value with a floating rate of LIBOR plus 2.625% up 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.

Capitalization

The Company’s total capitalization at September 30, 2001 amounted to $1,048,265 thousand, consisting of $183,673 thousand short-term debt, $230,000 thousand long-term debt and shareholders’ equity of $634,592 thousand. Financial debt as a percentage of total capitalization amounted to 39.5% at September 30, 2001 and to 34.8% at September 30, 2000.

Comparative Balance Sheet

In order to appraise the development of the Company’s activities, the table below sets forth comparative balance sheet information from the Company’s financial statements as of September 30, 2001, 2000, 1999, 1998 and 1997.

	09.30.01		09.30.00		09.30.99		09.30.98		09.30.97
	Balance Sheet		Balance Sheet		Balance Sheet		Balance Sheet		Balance Sheet
	Thousands of $
Current Assets	229,720		206,636		198,659		185,955		178,435
Non-current Assets Assets	949,992		900,335		890,598		887,027		852,394
Total Assets	1,179,712		1,106,971		1,089,257		1,072,982		1,030,829
Current Liabilities	303,003		279,734		321,700		200,269		126,473
Non-current Liabilities	242,117		195,555		147,304		264,304		282,500
Total Liabilities	545,120		475,289		469,004		464,573		408,973
Shareholders’ Equity	634,592		631,682		620,253		608,409		621,856
Total	1,179,712		1,106,971		1,089,257		1,072,982		1,030,829

Comparative Results

The table below contains a summary of the income statements for the nine-month periods ended September 30, 2001, 2000, 1999, 1998 and 1997.

	09.30.01					09.30.00				09.30.99				09.30.98				09.30.97
	Thousands of $
Gross Profit		153,317			163,936				139,444				113,850				116,996
Administration and Commercialization		(60,302)			(66,082)				(62,636)				(55,314)				(53,311)
Operating Income		93,015			97,854				76,808				58,536				63,685
Financial results		(18,409)			(19,484)				(19,758)				(20,245)				(17,452)
Other Income (Expenses)		(538)			316				(303)				925				1,602
Income before tax		74,068			78,686				56,747				39,216				47,835
Income tax Income tax		(28,122)			(33,140)				(20,431)				(13,767)				(15,149)
Net Income		45,946			45,546				36,316				25,449				32,686

Comparative Statistical Data

The table below shows a summary of operating data for the nine-month periods ended September 30, 2001, 2000, 1999, 1998 and 1997.

	09.30.01				09.30.00		09.30.99		09.30.98		09.30.97
Volumes	Balance Sheet				Balance Sheet		Balance Sheet		Balance Sheet		Balance Sheet
	Thousands of cubic meters
Gas purchased by MetroGAS	3,085,151			4,374,500			4,531,025		3,635,253		3,503,796
Gas contracted by third parties	2,376,448			1,882,467			838,174		751,449		2,110,474
	5,461,599			6,256,967			5,369,199		4,386,702		5,614,270
Volume of gas withheld:
- Transportation	(380,404)			(414,415)			(365,394)		(248,406)		(322,470)
- Loss in distribution	(149,171)			(177,981)			(164,906)		(135,459)		(151,043)
- Transportation and processing gas production	(4,247)			(13,878)			(15,522)		(20,395)		(18,191)
Volume of gas delivered	4,927,777			5,650,693			4,823,377		3,982,442		5,122,566

Comparative ratios

The table below contains certain financial ratios as of September 30, 2001, 2000, 1999, 1998 and 1997.

	09.30.01	09.30.00	09.30.99	09.30.98	09.30.97
Liquidity	0.76	0.74	0.62	0.93	1.41
Indebtedness	0.86	0.75	0.76	0.76	0.66

Other information

The table below contains information regarding the price per share of the Company’s Common Shares and its ADSs:

		Share Price on the Buenos Aires Stock Exchange (1)	Share Price of ADSs on the New York Stock Exchange (1)
		$	US$
Closing price		1.30	13.00
December	1994	1.03	10.12
March	1995	0.90	9.38
June	1995	0.86	8.62
September	1995	0.92	9.12
December	1995	0.98	9.75
March	1996	0.97	9.50
June	1996	1.05	10.62
September	1996	0.95	9.87
December	1996	0.94	9.38
March (2)	1997	1.05	11.38
June	1997	1.01	10.00
September	1997	0.86	8.50
December	1997	0.77	7.75
March	1998	0.93	9.25
June	1998	0.90	8.81
September	1998	0.80	7.88
December	1998	0.85	8.13
March	1999	0.79	8.00
June	1999	0.88	8.44
September	1999	0.93	9.25
December	1999	0.89	8.75
March	2000	0.91	8.63
June	2000	0.88	8.75
September	2000	0.91	9.25
December	2000	0.84	8.06
		Share Price on the Buenos Aires Stock Exchange (1)	Share Price of ADSs on the New York Stock Exchange (1)
		$	US$
January	2001	0.84	8.62
February	2001	0.80	8.00
March	2001	0.79	8.00
April	2001	0.76	7.50
May	2001	0.71	7.20
June	2001	0.69	6.80
July	2001	0.64	6.50
August	2001	0.63	6.20
September	2001	0.58	6.30

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

(2) On March 12, 1997, the Shareholders’ Extraordinary Meeting of the Company approved the capitalization of the capital stock adjustment, and the number of listed shares was increased from 199,886,815 to 221,976,771.

Outlook of MetroGAS

Base on its mid-term goals and more specifically on estimations for 2001, the Company intends to focus its efforts on the following:

• Intensifying efforts to improve the quality of customer service.

• Maintaining the good public image that the Company has developed by continuing with the policy of communicating with customers and publicizing the Company’s activities.

• Continuing the investment plan in all areas.

• Continuing to promote and develop new business opportunities that will increase the Company’s efficiency and profitability.

• Improving the profitability of operations by optimizing the costs of firm transportation capacity, by developing new opportunities for the sale of gas to power plants and by participating in projects to promote the export of gas from Argentina.

• Minimizing technical losses in the Company’s distribution network.

• Increasing overall efficiency by improving the meter-reading processes, the billing and collections procedures, the management of past-due accounts and the control of gas leaks.

• Reviewing the Company’s administrative processes more intensively in order to increase productivity and reduce costs.

• Maintaining the excellent work safety rates to continue the Health, Safety and Environmental Policy implemented by the Company.

Buenos Aires, November 6, 2001

William Harvey Adamson
President