Empresa Distribuidora y Comercializadora Norte SA (EDN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen and thank you for waiting. At this time, we would like to welcome everyone to Pampa Energia and Edenor's joint fourth quarter 2017 results conference call.

We would like to inform you that this event is being recorded. (Operator Instructions) Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of Pampa Energia and Edenor's management and on information currently available to both companies. They involve risk, uncertainties and assumptions, because they relate to future events and therefore, depends on circumstances that may or more not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Pampa Energia and Edenor, and could cause results to differ materially from those expressed in such forward-looking statements.

Now, I'll turn the conference over to Mr. Leandro Montero, CFO of Edenor. Mr. Montero, you may begin your conference.

Thank you very much. Good morning, everyone, and thanks for joining our fourth quarter 2017 jointly earnings conference call for Pampa Energia and Edenor. As we usually do, myself, Leandro Montero will be presenting for Edenor first, and then Lida Wang will present for Pampa Energia.

First, we will focus on the main events that lately took place and then briefly review the results of the quarter. As you know, you can always call any member of our team for more details on the results of the deals or any doubts you might have.

In first place, I will refer to the recent tariff increases that are effective as from February -- as from December 2017, and February 2018, fulfilling the distribution fee assessment that arose with the Comprehensive Tariff Review.

On November 30, last year, the ERNE through Resolution No. 603 established the new power capacity reference prices, stabilized prices for energy and transportation as well as the new social tariff and the new tariff system encouraging savings. Thus, a new tariff scheme was effective as from December 1, 2017.

Furthermore, the resolution approved the new distribution cost considering the 18% second step of the staggered update under the Tariff Review and an 11.6% inflation adjustment for the first semester of 2017, and including the retroactive effect of these adjustments over consumptions recorded in the month of August through November last year. This retroactive effect amounted to ARS 754 million, which was billed in 2 installments, in December 2017, and January 2018, and accounted for in full as of December 31, 2017. In the same vein, the second relevant matter we have to mention is that on January 31, this year, pursuant to Resolution No. 33, the ENRE established a new tariff scheme effective as from February 1, 2018, including new power capacity reference prices and new stabilized prices for energy and transportation. In turn, it approved the new distribution costs with the last 18% tranche under the Tariff Review, an 11.9% inflation adjustment for the second semester 2017 and a negative adjustment of 2.51% related to the “E” stimulus factor as well as a proportional deferred income for a total amount of ARS 6.3 billion of the staggered tariff update applied in the period February 2017-January 2018, which is recoverable in 48 monthly installments since February this year. Additionally, it informed that the average tariff value amounts to ARS 2.4627 per KWh.

Turning into another subject. On January 18th, this year, the merger of Central Térmica Loma de la Lata with IEASA and EASA, controlling companies of Edenor, could be completed after obtaining the necessary approvals by regulators with the unanimously approval by Loma de la

Lata shareholders' meeting, which put on record that as from the meeting's date and until the registration of the final merger agreement, Loma de la Lata's Board of Directors will take on EASA and IEASA's management.

Loma de La Lata and IEASA and EASA are currently conducting the necessary procedures before the applicable entities in order to obtain the authorizations, registrations and recordings necessary for Loma de La Lata to operate as the continuing company in the merger.

Meanwhile, on September 22, last year, the Board of Directors of Pampa Energía approved the merger of certain subsidiaries of the group, including Central Termica Loma de la Lata, the acquiring company of EASA, into PESA, as the acquiring or absorbing company. The effective date of the merger was set on October 1, last year, and the transfer to PESA of the totality of the acquired companies' equity took effect, with all the latter's rights and obligations, assets and liabilities becoming incorporated into the acquiring company's equity; all that subject to corporate approvals required under the applicable regulations and the registration with of the Public Registry of Commerce of both the merger and the dissolution without liquidation of the acquired companies.

Then, on December 26, last year, we were served notice of the request for authorization to modify our controlling class A shares.

Last but not least, on December 4, last year, Moody's Latin America issued a report raising the local rating of our 2022 Corporate Bonds from Baa2 to Aa3 at local rating, and the global rating from B3 to B1, with a stable outlook; as well as the rating for shares from Category 2 to Category 1. These raises followed Moody's recent upgrading of the rating of Argentina's Government Bonds from B3 to B2, along with the rise of the sovereign ceiling in foreign currency from B2 to B1.

The upgrading of the ratings, in our case, was based on the improvement of our financial indicators that have already been materialized throughout 2017, reflecting the first phase of the tariff increase implemented through the tariff review at the beginning of last year. In addition, said upgrading incorporated Moody's vision that the second phase of the Tariff Review process will be fully applied with the recent publication of the new tariff scheme.

Now, taking into consideration our results in the fourth quarter of 2017, net sales increased by

71%, reaching about ARS 6.8 billion, compared to ARS 4 billion for the same period in 2016.

This increase is mainly explained by the application of the first and second step of the tariff increase resulting to the comprehensive tariff review and to a lesser extent, to the inflation adjustment of the distribution costs -- the distribution cost operate in December. The first distribution fee adjustment, which was limited to 42% became effective as from February 1, 2017, whereas the second adjustment of 18%, granted pursuant to Resolution No. 603, entered into effect on December 1, 2017, one month later than the date stipulated in the Tariff Review.

Furthermore, the 11.6% first semester inflation adjustment in the comprehensive tariff review to be effective as from August last year, was also delayed until December 2017. Despite this delay, the retroactive effect of both adjustments was added in real terms to the new tariff scheme, effective as from December 1, 2017. It amounted to ARS 754 million and was fully accounted for as of December 31, last year, but was billed in 2 installments in the months of December 2017 and January 2018.

On the other hand, the impact on income resulting from the deferral of revenues due to the gradual recognition of distribution fee assessment has not been accounted for yet in our financial statements amounting approximately ARS 4.9 billion for the period between February 1 to December 31

2017. This proceeds will be incorporated in 48 monthly installments into our distribution fee as from February this year, plus the corresponding inflation adjustment.

The increase in the amount of sales from services was partially offset by a 1.5% decrease in the volume of energy sold, which reached to 5 TWh in the fourth quarter last year, against 5.1 TWh for the same period in 2016, mainly due to a decrease of 3.9% in residential customers' demand as well as a 3.7% decrease in medium commercial customers' demand, partially offset by a 1.7% and a 0.4% increase in the demand by industrial and wheeling system customers, respectively. As far as the residential customer demand is considered, the lower consumption is associated with weather conditions, as during the months of November and December last year, temperatures were on average 0.6 centigrade lower than in 2016, with a lower occurrence of extremely high temperatures.

Furthermore, the decrease in consumption by medium commercial customers is mainly attributable to a slight fall in the economic activity in specific sectors and to a more rational use of energy. On the other hand, industrial and wheeling system customers presented a growth in line with the positive variation of the industrial production index. Besides, Edenor's customer base increased by

2.9%.

The electricity power purchases increased 177% to ARS 3.6 billion in the fourth quarter last year compared to ARS 1.3 billion in the same period 2016, mainly due to an approximate 182% increase in the purchase average price resulting from the entry into force, in February and December last year, of the new seasonal prices for electricity, set forth by Resolution issued by the Secretariat of Electricity Energy. However, it is important to note that the reference seasonal price was still subsidized for residential customers, where the subsidy was approximately 44% of their system's average generation cost. Additionally, even though the energy loss rate remained substantially unchanged, reaching 16.4% in the fourth quarter last year against 16.2% in the same period 2016, its associated cost increased by 138% following the application of the new seasonal price for its determination.

Meanwhile, operating expenses remained roughly flat, with a 1.2% quarter-on-quarter decrease, reaching ARS 2,410 million in the fourth quarter last year, against ARS 2,438 million in the same period 2016. This is accounted for by a ARS 293 million decrease in penalties resulting from changes introduced by ENRE Note No. 125, 248, both in fines calculation methodology and in the criteria for their adjustment. This effect was offset by a ARS 162 million increase in salaries, social security taxes and pension plans as a result of the staggered salary increases granted by the company during 2017, in line with inflation; ARS 119 million surge in fees and remuneration for services, mainly attributable to the incorporation of the meter reading personnel into the Luz y Fuerza union and higher collection costs and taxes as a result of the application of the new tariff scheme; and, lastly, a ARS 26 million increase in depreciations due to the growth of fixed assets during last year.

Arriving to our net operating income, it had a decrease of ARS 634 million, recording profits for about ARS 646 million in the fourth term last year, against profits for ARS 1.3 billion for the same period in 2016. This negative variation was mainly due to the fact that in the fourth quarter of 2016 an extraordinary positive result was disclosed on account of purchase loans and VAD, in order to compensate the effect of the precautionary measures passed during that year, in the amount of

ARS 271 million and ARS 1,126 million, respectively.

This decrease was partially offset by a ARS 508 million increase in the margin resulting from the tariff update granted by the comprehensive tariff review as from February 2017.

Regarding our financial results, they experienced a 48.5% decrease, with an approximate ARS 444 million loss in the fourth quarter last year, against ARS 299 million loss for the same period 2016. The main reason was the acceleration in the domestic currency depreciation rate against the U.S. Dollar, which caused a negative impact due to the exchange differences in the amount of ARS 91 million, and higher financial interest charges payable, in the amount of ARS 46 million, as our financial debt is denominated in U.S. Dollars, in addition to the interests accrued by the new loan disbursed in October 2017.

Another fact to take into account is the change

In the methodology for disclosing penalty interest, in the amount of ARS 48 million, which was included within our operating expenses during 2016.

Finally, net results showed a ARS 631 million decrease, reaching a ARS 22 million profit in the fourth term last year, against a ARS 654 million profit for the same period in 2016. This is mainly explained by lower results due to resolutions in the amount of ARS 1.1 billion, which were partially offset by an increase in the gross margin as a result of the tariff update under the comprehensive tariff review.

Furthermore an improvement in results due to lower income tax charges in the amount of ARS 148 million was recorded because of the new applicable income tax rates for the deferred income tax projections, partially offset by ARS 145 million decrease in financial results.

Talking about Edenor's adjusted EBITDA, it reached to a gain of ARS 794 million in the fourth quarter last year, but ARS 672 million lower than the same period 2016. This is mainly due to the fact that the fourth quarter 2016 included an extraordinary compensation for precautionary measures in the amount of ARS 1.1 billion and a reclassification of financial interest on the balance of sanctioned penalties for a total amount of ARS 48 million.

Excluding the retroactive effect, EBITDA in the fourth quarter 2016 would have resulted in a gain of

ARS 480 million under normalized basis. This means a 65% increase in EBTIDA, to reach the before mentioned ARS 794 million in the fourth quarter 2017.

Regarding Edenor's capital expenditures, during the fourth quarter last year, our investments totalized about ARS 1.3 billion, compared to ARS 694 million in the same quarter 2016, resulting an 86% increase. From that total, 64% corresponds to network infrastructure and expansion, and

The remaining 36% to network maintenance.

The increase in investments results from our ambitious plan for the 2017-2021 period, which was affected in its first year of implementation by the partial deferral of the revenues increase granted by the comprehensive tariff review. Consequently, we have drawn up an investment plan in line with this new scenario which is currently been strictly executed.

Taking into account our energy losses, they showed a slight increase, reaching 16.4% in the fourth quarter last year in comparison with 16.2% for the same period 2016. Its cost in pesos increased

In 183 million quarter-over-quarter, as a result of more than a 100% growth in its cost, due to the application of the new seasonal price, amounting a loss of ARS 316 million for the fourth term last year.

Furthermore, in the fourth quarter last year, we continued taking actions to reduce energy losses on 2 fronts: on the one hand, Market Discipline actions were intensified aiming to detect and normalize irregular connections and electricity theft and frauds and; on the other hand, there was an increase in the installation of Inclusion Meters to foster consumption self-management and the integration of users having an irregular income, at the same time encouraging the reduction and prevention of irregular connections. We expect to intensify these actions until reaching expected levels with the purpose of meeting the outlined loss reduction goals.

Finally, as far as financial debt is concerned, as of December last year, the outstanding principal of our dollar-denominated financial debt amounts to $226 million, of which $176 million correspond to our Senior Notes 2022, and $50 million to the bank loan taken out with ICBC Dubai Branch for a term of 36 months and a 6-month Libor rate plus a spread of 2.75% semiannual incremental.

So this concludes my review on Edenor. I will now leave you with Lida Wang, Investor Relations

Manager at Pampa Energía, who will express on other relevant events of the group, as well as the consolidated results. After that, we will be open for questions. Lida?

Good morning everyone and thank you Leandro. I will give you a short recap of events since our last call of last year in November. This is a quite abnormal quarter since as required by IFRS standards, our financial statements are unconsolidating, the results coming from the assets agreed for sale. Although transactions' closings are yet pending, we are reporting them as discontinued

Operations.

So, beginning with the Adjusted EBITDA, we are showing the figures including the discontinued operations, so the investor can reconcile figures with past reporting. As you can see on slide 4, in the fourth quarter of 2017 we recorded an EBITDA of ARS 5.2 billion, compared to an EBITDA of

ARS 4.1 billion in the same period of 2016.

The large variation was due to increases of ARS 845 million in power generation, ARS 51 million in oil and gas segment, ARS 484 million in refining and distribution, ARS 478 million in holding and others plus intersegment eliminations, partially offset by ARS 671 million in electricity distribution and ARS 108 million in petrochemicals segment.

The higher EBITDA of ARS 845 million at our generation segment was mainly given by the update in the legacy capacity remuneration, which currently is 77% of our total installed capacity, billing under the new scheme in US dollars. In the same period of last year, legacy capacity was remunerated in pesos and at lower dollar terms. Peso devaluation also positively impacted our EBITDA, since our entire segment is set to invoice in U.S. Dollars, in addition to the commissioning of new generation machines: Loma's gas turbine #5, Parque Pilar and on December of last year, we began operations at Ingeniero White for 100 MW, therefore successfully completing the committed 305 MW under 2016's thermal fast track tenders. We are proud to say we achieved the operational date before the scheduled date, and as the other projects we delivered on or before time, this is remarkable compared to other peers' projects.

All these positive effects were partially offset by a 22% lower dispatch quarter-over-quarter, mainly because of Genelba's CCGT working at 50% during the entire quarter, but the positive news is that the faulting gas turbine has been replaced and the CCGT is back to normality since the beginning of 2018. Also, the quarter's generation was affected by a major maintenance at Loma's steam turbine, as well as lower dispatch at Piedra Buena. The decreases were partially offset by higher electricity production at Pichi Picún Leufú's hydro that is recovering from a drought in 2016. Also we managed to maintain an availability rate of 81% with increased installed capacity, which is higher in comparison with 79% of the same quarter of last year.

Last in Power Generation news, we are adding other 2 wind farms in Bahía Blanca area to the

Projects pipeline, for a total of 100 MW and an investment of $140 million. We are one of the few companies to have dispatch priority clearance by CAMMESA, so through this expansion we would be selling the electricity directly to private large users, taking advantage of the new term market for renewable energy and diversifying our customer base and generation source. Besides organic growth, we keep seeking to expand this business that we consider core to Pampa's strategy, staying alert of new opportunities in the sector, especially at the M&A from the Government asset's divestments.

Moving on briefly to the distribution segment which was previously reviewed by Leandro, during the fourth quarter of 2017, the EBITDA decreased by ARS 671 million on a consolidated basis compared on the -- to the same period of 2016, mainly because of the gradual application of the comprehensive tariff review increase set in February 2017. In addition to last year's one-time income recognition by CAMMESA because of the injunction.

In the oil and gas segment, in the fourth quarter of 2017 we posted an adjusted EBITDA of ARS 2.3 billion, similar to the EBITDA recorded at Q4 2016, all including discontinued operations.

This variation is mainly due to improved gas sales price in US Dollar and Argentine Peso because of the effect of the FX devaluation, partially offset by lower hydrocarbons production, mainly because of the service termination at Medanito La Pampa block by the end of (inaudible) EBITDA adjusted by 23.1% ownership, which contributed ARS 32 million.

Our total production in Q4 2017 declined 12% compared to Q4 2016, reaching 68,000 barrels of oil equivalent per day, composed by 284 million cubic feet per day of natural gas production and

20.7 thousand barrels of BOE per day of crude oil and LPG production.

The decrease in gas mainly responds to the divestments mentioned before in 2016, partially offset by higher level of domestic gas production at El Mangrullo and Río Neuquén blocks due to better pricing. During Q4 2017 our weighted average sale price was $6.2 per million BTU, $0.43 higher than the same period of 2016, mainly because of a higher level of incremental production recognized under Plan Gas and higher pricing from demand. Keep in mind that Pampa hold Plan gas second generation, which expires on June 2018 and incentives all kinds of gas additional production. No matter if it is unconventional or conventional. After that (inaudible) our tight gas production will be joining the Plan Gas for unconventional resources, which contribution is lower but it is offset by the increasing demand price, especially from residential and gas for cars as they are converging to $7 per million BTU mostly by 2019.

In that sense, YPF, (inaudible) by the Plan Gas for unconventional resources. Once these investment plans are approved, they will need to be validated by the Ministry of Energy. Regarding the licenses' extension in Sierra Chata and El Mangrullo blocks, we are still negotiating with the provincial authorities to obtain new and extended unconventional licenses as mentioned in the previous call.

In the oil side, the decrease in production is mainly due to the termination of Petrolera Pampa's service at Medanito La Pampa block by the end of October 2017, the decrease in Venezuela's blocks production and the decline in the mainly mature oil-bearing blocks of Pampa and PELSA.

Quarter-over-quarter the crude oil average sale price dropped by more than $2 per barrel, reaching to $55 per barrel, which did not help at all the declining crude oil production. As from October 2017, the agreement for the transition to International Prices of the Argentine Hydrocarbon Industry was lifted, allowing the domestic price of crude oil barrel to be used as raw material for refining to be determined based on free domestic market rules. The oil production is entirely loaded to the refinery in Bahía Blanca.

During the fourth quarter of 2017 we continued with our investment plan budgeted for 2017 of 76 wells drilled and completed. As of December of 2017, 75 wells were drilled and 69 were completed.

Our focus is the development of blocks with tight gas reservoirs, which are Rincón del Mangrullo

El Mangrullo, Rio Neuquén and Sierra Chata. In the tight gas blocks, during last quarter we drilled

5 wells and completed 6 wells, achieving 35 wells drilled and 30 wells completed throughout 2017.

Therefore, our consolidated gas production run rate keeps very similar to the past quarters performance.

In addition, this quarter we must highlight the exploration campaign in Parva Negra Este, in which we drilled and completed a well with 2,500 meters of horizontal branch. This well drilled to Vaca

Muerta is currently being tested with an accumulation of 40 days of gas production, 83 days after the start of flowback production. As of December 31, 2017, the production is above 8 million cubic feet per day and producing steadily, with potential for growth, and the current production is connected to Sierra Chata block through a pipeline. Parva Negra Este block's accumulated production recorded 200 million cubic feet as of now.

Regarding our proven developed and undeveloped reserves, it is worth pointing out that as of

December 2017 we reached 167 million barrels of BOE, of which 75% is natural gas, all of them in Argentina and 84% corresponding to Pampa. This 16% increase was mainly given by the 35-year license extension at Rincón del Mangrullo block, exploration activities and higher historical gas prices that derisked reserves. Given the current production conditions in Venezuela, our reserves there are valued at zero.

Regarding the strategic divestments, we carried out lately, on January of this year we agreed to sell to Vista Oil & Gas our direct ownership of 58.88% at PELSA, 3.85% of PELSA's blocks and

100% at Medanito and Jagüel de los Machos oil-bearing blocks for a price of $360 million plus standard adjustments. The transaction is subject to certain conditions precedent, including the approval of Vista's shareholders meeting, so it is still pending of closing. Though we were not actively seeking to divest these assets, we received this offer that made us to reassess our position in oil production within our Company's strategy. We rather focus this resources to the development of our tight and shale gas resources, which we see with much more potential because as long as the country continues importing of LNG to cover consumption, gas margins are implicitly protected by the import parity as it is the marginal price to cover the gas supply deficit.

The refining and marketing segment posted an adjusted EBITDA of ARS 405 million, compared to a EBITDA loss of ARS 79 million recorded in the same period of last year, all including discontinued operations. The variation is mainly because of lower crude oil cost, which reached its convergence toward export parity, in addition to the improvement on refined products' sale price due to the suspension of the Producers and Refiners' Agreement. The EBITDA considers Refinor's EBITDA adjusted by 28.5% ownership, which contributed to Pampa ARS 45 million.

In operating terms, sales volume of refined products totaled 443,000 cubic meter in Q4 '17, 7% lower than same period of last year mainly due to lower load factor at the refinery and imports of diesel oil, as a result of the decline in demand, partially offset by higher sales of asphalts and IFOs due to the market activity improvement.

Regarding the other strategic divestments carried out in the (inaudible) refining and marketing of fuels, this one was thoroughly analyzed even before we took over the former Petrobras Argentina. We knew that the current scale and structure of the segment lacked of competitiveness and therefore, it required (inaudible) to achieve sustainability, so we either have to choose as binary as scale up or divest in this business. We worked throughout 2017 in both options, but as we couldn't acquire a company with the desirable size to continue betting in the business, we decided to divest for $90 million plus adjustments and Trafigura is the buyer. The closing of this transaction is also pending.

In petrochemicals, we posted an adjusted EBITDA loss of ARS 38 million during the fourth quarter of 2017, ARS 108 million less compared to the same period of last year, mainly due higher operating and raw material costs, mostly denominated in U.S. Dollar, that increased at a faster pace than international pricing references, denominated in U.S. Dollar as well. The adjusted EBITDA does not consider a contingencies update with San Lorenzo customs from former Petrobras Argentina, for

$121 million -- ARS 121 million, sorry.

In operating terms, total sales volume of our petrochemicals segment decreased by 18% in Q4 '17 totaling 104 thousand tons compared to Q4 '16.

The decrease mainly responds to lowering domestic sales of octanes followed by styrene products, in addition to lower exports of reforming products, partially offset by higher exports of SBR because of international prices' improvement.

Finally, our holding and others segment presented an adjusted EBITDA of ARS 284 million (sic) [ARS 248 million] in the fourth quarter of 2017, compared to a loss of ARS 221 million in the same period of 2016. This is mainly due to higher fees charged to our subsidiaries, adjusted EBITDA by ownership from TGS and Transener, in addition to higher third-party fees and legal costs incurred in Q4 2016 for the

Acquisition of former Petrobras Argentina.

TGS' EBITDA adjusted by our indirect stake of 25.5% contributed to Pampa ARS 403 million in the quarter from an implicit total of ARS 1.6 billion, 66% higher compared to the same period of last year, mainly due to the tariff increase resulting from the RTI of gas transportation business, we implemented 181% cumulative since April to December of last year. That is, 2 out of the 3 installments plus costs variation adjustment.

Moreover, the margin improvement in the liquids processing segment, which was due to higher prices as well as sales volume contributed to the EBITDA performance in TGS. Because TGS’s Integral Agreement is not -- still not in force, the increases are vested under transitory status until the agreement is approved by the congressional committee, which is estimated to be in April of this year. On February 20, TGS made a presentation before a public hearing, in which they presented a 42% tariff increase schedules resulting from the third and final hike plus costs variation calculated until February 2018. The ENARGAS have not released the final tariff schedules yet.

Moreover, Transener's EBITDA adjusted by our indirect shareholding of 26.3% contributed ARS 327 million in the fourth quarter of 2017, from an implicit total of ARS 1.2 billion. This figure is almost 9x higher than the same period of last year and the year before, mainly because of the application of the RTI tariff scheme since February of last year and acknowledgment of higher costs applicable as of December of 2017 but retroactively applicable from August of 2017, date that costs variation should have been applied according to the Tariff Review. Moreover, Transener was granted the second costs variation increase in February of this year. The next update is in August of this year.

Moving on to the latest news in the segment, since the acquisition of Petrobras Argentina, Pampa began a corporate reorganization process in order to make the company's structure more efficient and simple, synergies of costs and generate operating cash flow at the parent and not through the subsidiaries locally. In this regard, on December 21, the boards of the involved companies in the merger approved the exchange ratios. Among them the previously announced exchange ratio of 2.2699 shares of Pampa for each share of Petrolera Pampa.

As we are -- completion of the corporate reorganization's first stage, that began with the collapse of the former Petrobras Argentina in November 2016. On February 28 of this year, we received a notification from the CNV, the Argentine SEC, that an Argentine federal criminal court was conducting an investigation on ANSES, the Argentine pension fund, regarding their sale of Petrobras Argentina's share during the mandatory tender offers that Pampa was obliged to make in 2016 in compliance with the Capital Markets Law. Because of that criminal investigation, the court resolved that the CNV and I quote, "must not take any measure and/or definitive resolution regarding the merits of the case without prior authorization from this court, in relation to the filing that is being processed in the CNV regarding the corporate reorganization of Pampa Energia S.A." We highlight that the court's investigation is not over our tender offers, is not over the merger or the company, whatsoever. But the delay in the registration of the merger directly affects our minority shareholders of Pampa Energia -- Petrobras Argentina locally and overseas, that are waiting for the share swap to take place once the merger is duly registered. The company have filed all the corresponding documents and responded all the inquiries made by the CNV in duly time. In light of this development, Pampa vows to continue taking the necessary measures to promote and obtain the registration of the merger. Therefore, overall -- once all the corresponding regulatory and corporate approvals are obtained, the merger transactions are duly registered before the Argentine Public Registry, the shared capital will be composed by 2,083 million shares of Pampa, representing a 7% dilution.

In terms of net income, Pampa presented a consolidated gain of ARS 1.7 billion in the fourth quarter of 2017, of which ARS 1.5 billion corresponds to the shareholders of Pampa -- of the company, now compared to the loss of ARS 982 million in the same period of 2016. This is mainly explained by the better pricing as a result of the tariff reviews, the increases in remuneration, in oil and gas and generation, and FX effect, partially offset by the higher operating costs and financial exchange difference from the peso devaluation.

Finally, moving on to news related to the debt in Slide 14, it is worth highlighting that the leverage of the company is still quite low compared to other peers in the same industry. As of December 31, 2017, the gross consolidated debt including affiliates debt at ownership reached to $2.2 billion, of which 92% is denominated in U.S. dollar and 84% placed at the parent, as we are collapsing certain subsidiaries because that's the case. Net of cash, net debt amounts to $1.3 billion. The average interest rates are 7.2% in dollars and 22.4% in peso. Average life is below 6 years.

Given the sales transaction at the refining and marketing and crude oil production and exploration segments, the resulting cash inflow allows the company to comfortably face the defined strategic investments. Therefore, the company considers that it is unnecessary to issue a bond convertible into common shares, which terms and conditions were approved by the company's Board of Directors in June 2017. So this concludes our presentation. Now, I will turn to the operator, who will open the room for questions. Thank you.

(Operator Instructions) The first question comes from [Alan] with (inaudible).

I have a couple of questions for Edenor and Pampa. The first one for Leandro. Could you please clarify if your claim to solve your debt with CAMMESA is against the ENRE or the federal government? And little bit CAMMESA, I mean we understand, why your debt with CAMMESA was originated, but we want to confirm that the claim is against the ENRE as this organization has been allowed for tariffing goods of CAMMESA? And then if we -- you expect any waiver for the potential income tax liability after a potential debt combination with CAMMESA? And well, your expectations about the timing of conclusion of this claim?

Well, the first question related to the claim. The claim Edenor filed in 2013 is, again, the national government -- the national trade impact because the ENRE is just a regulator, but authority that granted the concession to Edenor is the federal government, okay, in general term. So the claim was filed in 2013 against the federal government and should be solved by the federal government. The other question was related about the possibility to get tax waiver related to any agreement we can get. We don't think it could be possible under the current law. So if we are able to get to an agreement this year, all the income tax effect, for sure, to be or will have to be fulfilled during the following years.

Then -- was last year ended with -- free cash flow for Edenor and you mentioned in the press release that you're going to ramp up your CapEx plan this year as you reach the final installments of the tariff adjustments. Do you see free cash flow evolving to positive territory anytime soon? And what are your financing plans for Edenor for this year? If you expect the company to return to the market with a new bond issuance maybe this year?

Well, regarding the cash flow for the following year, for sure, in fact, during 2017, we reduced our CapEx plan, we adjusted -- we didn't reduce, we adjusted the CapEx plan to the revenue that were applied or were approved under the Comprehensive Tariff Review. We expect that cash flow to be positive during 2018, even taking into consideration the increase according to the CapEx plan we presented in the Comprehensive Tariff Review. So we expect to have a higher CapEx during this year. In U.S. dollars, it's a bit higher, approximately 30% higher and investment may be high because of the FX effect, but the effect to that positive cash flow. And in regarding the issuance of our new debt, we are still waiting to end with negotiations and to clean our financial experiment of the new long debt with CAMMESA before issuing or attempt to issue a new -- attempting to issue a new bond.

And now a question for Lida. First of all, generation, I would like to know do you see possible delay of the capacity payments or the base energy payments could increase in dollar terms in the future from of the current values, I mean, mainly for thermal generation?

Okay. So I don't have any guidance on that, okay? We haven't been approached by the government. We are working with this full fare with relation to the latest SEC November last year. So I will come back, of course, but we don't have any guidance and I think talking with the peers and colleagues and other peers in the industry and no one has a clue on that too.

And then about the oil and gas business, I have a couple of questions. As the sale of (inaudible) have clearly moved from (inaudible) natural gas. On the first question is about production. What are your estimates on production growth from the upcoming years? Do you have any unconventional pilots to be launched? Then -- well, most of your current natural gas production is playing by unconventional areas such as Rincón del Mangrullo, Sierra, Neuquén and so on. Other thing is that Plan Gas II expires in June. We would like to know what to expect after June in terms of prices and profitability? I know that the new incentive plan applies only to incremental production in these areas. Is it still profitable? This is same production by investing in new wells and prices may be between $4, $4.5, mainly given the strict production the kind of these areas have? Hello?

Yes, wait a second please.

[Anna], I have here with me our E&P Planning Manager with me, so he will background me in this answering and we'll make it quick. The investment in Vaca Muerta is our medium to long-term upside potential, I must say. This net acreage is still very preliminary but we see that there is a potential here. That's why we are very excited about the results in carbonate. I said that we are taking this seriously still very calm. We planned this year to do 2 -- we budget this year to do 2 pads in Sierra Chata and El Mangrullo that is 6 wells Vaca Muerta. This is a loss, but the plan's always can be changed. We always -- we are very flexible and we always see what's going on in the market. Last year, we were caught by the Plan Gas change. So -- plus, we see the gas production still very profitable and the margins are very good, okay? It's being showing that. The production going forward is going to be entirely, purely, very, very healthy, 95%, 90% of gas after the divestment, okay? That's a -- and a 100% ownership to Pampa. So this is good. And I assume you also had a third question, but I hope I answered most of it.

This is (inaudible) from E&P. The production or the increase in the production in each block, but mainly it's going to be according to the distribution and capacity of the first one, opportunity. We have some projects that don't have opportunities maybe on divest and we have set the value to show you that in order to increase the production I will say in the main block that we work, valued to be (inaudible) the capacity and increase the capacity of course. And one more question on the company. Yes, losses (inaudible) and as Lida mentioned, we are installing a new expansion of individual growth and this is related with the unconventional and the plan for the future and it's also related to the [revolution] of our unconventional, obviously it's related according to -- based on our production, mainly unconventional production based on that. Okay, (inaudible) operated that, that's for a ramp up the end of this month.

Just to make it clear. This year, the second half -- in the first half, we are going to make some expansion of our service that are being done and just to offset the one's mentioned. Of course, this is subject to the success of the expansion that we see very -- in accordance with that. And once that is done, we can unlock the production, because right now, it's facing a bottleneck and increase the production at the year end.

I have lots and lots of questions. Given the seasonality problem that exist in the natural gas market in Argentina, I love to know what are your thoughts on potential short-term sources of demand for natural gas especially in summer months. Mainly like, (inaudible) which investing to go over the winter demand which is maybe a logistic. That's the last question on gas.

Again this is market analysis, but we -- our view of (inaudible) also on winter so. You have to fit the demand so we have to risk for part of the winter and the summer. And after the decrease of natural gas production, domestic gas production, we start to see the seasonality of what is going on summer. But in the short term, what we see the number are that we reported in the month of summer and from winter too. It's not only for seasonality. Maybe in the meantime, currently all the programs that unconventional, the different companies are announce -- are starting to produce an increase. We are in different scenario and when we -- we have the functionality, but in the short term, we don't see that.

We would like to know if Pampa would eventually be looking to become an operator of (inaudible) instead of being a financial partner in JVs? That's the last one.

Alan, I think you are wrong on that. We are operators. We are operators in Neuquén, we are operators in Sierra Chata. We are operators in (inaudible). So we are operators, we are not financial partners.

And also last year, we were awarded (inaudible) so we are 100% (inaudible) and we are also operators. Pampa is one operator to be last year but that is the company but in April it was approved.

The next question comes from Frank McGann with Bank of America Merrill Lynch.

Two questions, if I could. One, just related to the mergers both within Edenor as well as within Pampa as a whole. Given that you are putting together and collapsing a lot of structure, I was just wondering are there any material savings that we should think about going forward as you look into 2018 and '19 in terms of costs or taxes or other things? And any other benefits that could come from those changes in the corporate structure. And then secondly, it's a simple question for Leandro. In terms of the net tariff increase in February, we should think of it as 28.9% with perhaps some reduction for the efficiencies required by the regulators. Is that how we should think of the increase?

Frank, one regarding the -- regarding the -- I start with the second question because the first one is about Pampa. In the case of Edenor, the corporate structure is -- it has no impact. So -- because the final holding company of Edenor remains Pampa Energia, okay, the controlling company. Regarding the second question about efficiencies. In fact what the regulator said was a combined stimulus factor, we increased our distribution fee because of investments or CapEx, we could -- we make every year and at the same time produce every year a percentage because of efficiency that is required by the regulator. So our estimated OpEx for the following 4 years are taking into account that reduction or that efficiency required by the regulator. And at the same time, we are complying with the CapEx plan in order to get the key factor within the part of the similar factor that rewards the CapEx we make. During the first year in 2017, we were supposed to be granted a key factor higher than we received from the ENRE. That's why the E as stimulus factor was negative in 2.51%. We are discussing with the regulator about the situation because we think our key factor, which rewards the CapEx remain should have been higher, but we are still discussing with the regulator about that, okay?

You know us for a long time and we like to be very simple and very efficient. That's one of the why we Pampa, we were a 152 people in the corporate parent controlling the largest electricity integrated company of the country, and now we are the largest energy independent delivery company and we want to continue the same philosophy. That's why we are merging, we are collapsing, we see a lot of -- of course we are taking advantage of the carryforward that Pampa, the parent has, that's why we are (inaudible) built controllers. We are doing it. We are carrying out of course subject to regulatory and corporate approvals in regards to the second stage. The third stage is already implemented, there is no impact. The tax efficiency is very important. The cost efficiency is even more important. We are aiming at minimizing at the most corporate expenditure. So this is the main reason why we are divesting us. So, we are no longer to scale out on those businesses, we also downsizing our corporate services related to that, reporting wise, legal wise et cetera. This is very important. So I think we will carry forward and this is not going to end. We will keep looking for anything -- any opportunity to build any synergy we can.

The next question comes from Bruno Montanari with Morgan Stanley.

Just 2 quick questions. One on the whole [BV] issue with a discussion -- with the judge and the CNV, what is the company's expectation in terms of the timeline? So when do you think this can be fully resolved and behind? And second question, I think you've been making very good progress on selling these bits and pieces of non-core assets. Should there be more to come either in utilities or on the upstream businesses of Pampa?

About the [PB] merger, recurring and we informed, duly informed. This is totally approved and CNV approved and all the regulatory, a full piece approved, so there is no impact. There is a criminal investigation, this is true that's why we -- as soon as we have notice about this, we informed to the market and we don't have any estimates. We are -- our commitment to keep doing as much as we can to promote this merger, because the main affected people are besides the company of course and the -- all the shareholders of Petrobras are continuing. So we're doing the best we can to request CNV, how can we unlock the situation and we can understand this criminal investigation has nothing to do with our tender offers or our merger. We always -- you know us as well very well. So we are very active and if there is any opportunity to invest or divest, we always are ready. So right now, we think that the bulk of it is done but we never know.

The next question comes from Carolina Carneiro with Santander.

Two questions. One for Leandro on Edenor issue. Can you update us on the plan to reduce loss ratio? I remember you guys mentioned at the beginning of 2017 the installment of up to 250,000 electronic metering between '17 and '19 to reach maybe in the next 2, 3 years, the regulatory target for losses. And we saw that this quarter, you guys managed to maintain and even reduce a little bit the loss ratio to 16% versus 17%, 18% in the previous quarters. So just to have an update on that. And what do you expect for 2018 in terms of the loss ratio? And for Lida on Pampa, just a follow-up on the discussions regarding the gas costs and the development of Mangrullo and Neuquén. Remember please towards how are the negotiations with the labor unions? And when we can expect some news regarding the potential reputation of a resolution or some way to solve this problem so we can see the development of these areas in the short term?

Okay, Carolina. Well, I'd like to start with your question about Edenor. During 2017, we started to work on a plan to reduce energy losses as you know. During this year -- sorry, during 2017, because of the tariff increase, we expected, according to our experience, that energy losses were going to increase aiming approximately an annual rate of almost more than 18%. Finally, we ended the annual energy losses in 2017 around 17%, which was the same ratio we had in 2016. That was a great news for us because the first thing is that we started late or at the niche of 2017 to work or to increase activity in order to fight against energy losses to then -- to fight against the stealing of energy. So we started in -- we were not able to apply the full plan in 2017, and we expect to have a higher activity during this year in 2018. So we were able to keep the same levels of energy losses with this winded plan -- energy losses reduction plan. But I should say that on the other hand, we had a very long winter. You know that our higher losses come from (inaudible) energy from those people that uses electricity to heat -- or for heating. So because of the long winter we had, we had to get the energy losses controlled. So you expect that during this year, in 2018, we will be able to install 1,000 meters. With increase in meter that are helping us to reduce energy losses and not only to that but also to include people into the system. They can turn into clients of Edenor, they can claim when they don't have electricity and they can pay a reduced tariff or a controlled tariff for their consumption. And they can control the consumption as well. And that's why, they have reduced their consumption and the energy losses are still lower. So with respect to this is one of our main goal for the following year. And we are investing a lot of our time and money on that. Lida?

Okay. Regarding your question about development and the (inaudible) costs, it's -- we managed for the past 5 years to decrease pretty much the recommended development cost in vision on pay gas. We progressed, in our financial statement you can find that. The union level agreement is not directly affecting us in the short, medium term, but it will affect us at least indirectly in the medium, long term. This is something very new, and this is a very free-lease market, and but a lot of consumption can be made. So we think that in the medium term, when we bargain again the services from our E&P contractors, they can reflect that in their prices.

The next question comes from Gustavo Fingeret with Bradesco.

I had 2 quick questions. The first one is regarding the sale of assets of ENARSA, if you have an update to share with us? And if you're interested in participating in them? And the second question is for Edenor is related to how much do you think will be demand this year if you can give us some guidance on that?

Gustavo, good morning. (inaudible) you know the only ones that are totally official are the sale of Transener. Our -- so we are now in the same. But the sale of our partner in Transener, that is ENARSA and Citelec. They are on the sale. There has been a resolution of others, so -- but we can't acquire that because we are -- we'll rather wait, we are not available -- we are -- we can't control that company. Diamante has -- the 2 power plants that ENARSA has, is called Brigadier López and Ensenada de Barragán. The deal or signing of the deals are not delivered yet, but it's already publicly, clearly, they're willing to sell. It's ready there. So we are waiting that those deals are available. So we can participate. We understand that's going to be in the first half of this year.

Regarding the question about the demand in Edenor, you expect that -- we were expecting this year, even we have reviewed our expectations or our projections for demand. We were waiting to have an increase in demand of about a bit more than 2% because of increase in the quantity of customers and because we thought or we're seeing that the industrial customer will increase their demand because of the increase in the activity. And residential schools remain even equal than the year before. But the only thing we have by the moment is the construction in January that is showing that a decrease of about 0.3%. It is nothing but mainly because of the decrease in residential customers to reduce their consumption in 1.3% during that month. So we don't know exactly how the levers -- tariff interest will impact on our customers' behavior, but we will be able to see that after April when the bills with the fully -- with the full impact of the tariff will arrive to their homes.

The next question comes from Florencia Torres with TPC (sic) [TPCG].

I would like to ask you 2 questions related to Pampa. One, if you know the timeline of the potential new generation auction this year in terms of thermal and also renewable resources? And also any guidance regarding CapEx plan for 2018?

Regarding the potential losses, we don't have any guidance. I think the government already approached [off the record] that they were still doing a renewal this year, but about thermal auctions, we don't have anything on that. So we'll have to see. I think, what the government is trying to do is to start doing by private, the 2 private. So this is a good time for them. In CapEx, this year, the only thing that we are committing the pipeline, you know, is CAMMESA's expansion is $160 million. It's $160 million out of $350 million total investment that will be completed by 2020. Also we have another $140 million from the wind farm that we are developing from Pampa Energia and De la Bahia. This is a private PPA that we're aiming at, so this is -- these are the 2 expansions that we're doing this year, $300 million. Going forward, I don't know -- you never know about us, right? We are very flexible. This is a business that we are very bullish on it. So we'll see.

This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Montero and Ms. Wang for any closing remarks.

Well, thank you very much all of you for attending this joint conference call. We'll see you next quarter. Bye-bye.

Thank you. This concludes today's presentation. You may disconnect your line at this time, and have a nice day.