Pampa Energia SA (PAM) 2020 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for waiting. I'm Margarita Chun from IR, and we would like to welcome everyone to Pampa Energía First Quarter 2020 Results Video Conference. We will -- we inform you that this event is being recorded. (Operator Instructions)

Before proceeding, please read the disclaimer that is located in the second page of our presentation.

Let me mention that forward-looking statements are based on the beliefs and assumptions of Pampa Energía management and on information currently available to the company. They involve risks, uncertainties and assumptions because they are related to future events and, therefore, depend on circumstances that may or may 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 Energía and could cause results to differ materially from those expressed in such forward-looking statements.

Now I'll turn the video conference over to Lida Wang, Investor Relations Officer of Pampa Energía. Lida, you may begin the conference.

Thank you, Margarita. Good morning, everyone, and thank you for joining our conference call. This is a special call so for the interest of time, I will make a brief summary of the quarter's key figures, the impact of COVID-19 and the latest since our last call. We will focus more on the core businesses of Pampa, power and E&P as TGS and Edenor already held their call earlier this week. As you can see, our CEO, Mr. Gustavo Mariani; and our CFO, Mr. Gabriel Cohen, are both here and joining us for the Q&A.

Before we begin, let me remind you that Pampa's Q1 2019 and 2020 figures are all recorded under U.S. dollar as functional currency. In the case of the peso-linked subsidiaries such as our utilities, their figures are adjusted by inflation and shown in dollars at the end of the reporting period FX. Also, you can see in this slide what businesses are included when we talk about of Pampa consolidated as well as Pampa restricted group, a definition we commonly used for governance purposes.

It is publicly known that COVID-19 has spread all over the world, and Argentina is no exception. The federal government declared mandatory lockdown effective as from March 20 and has been following its evolution by extending it from time to time. Therefore, all Pampa's businesses were deemed essential, except for SBR production and the petrochemicals segment. What does it mean? Basically, we are carrying out our operations normally but with minimum personnel in place and only doing essential tasks. Therefore, for those who unavoidably have to go to work. Their health and safety is our paramount. So we put in place new protocols set by a interdisciplinary committee that is reviewing all the time and to keep it updated with the latest information available.

From 1,900 teammates working at Pampa and subsidiary, 2/3 are employed at our operating assets or perform operated jobs, and 70% of them are going to work. The other 1/3 of our personnel are support areas for our businesses and corporate. So -- and only 10% of them are going to work. The rest, that is almost 50% of our workforce, is staying at home working remotely.

Q1 '20 was not much affected by COVID-19, but it is expected to negatively impact somehow in the next quarter. On the one hand, some direct government measures have been enacted that impacted all such as the hold to service disconnections for certain users that fail to pay or delay payments to perform massive consumption ratings, whereas the freeze in domestic LPG prices affecting TGS and other sites.

On the other hand, we are witnessing lower demand of oil and gas, lesser power dispatch, collapsing the demand of petrochemical products and higher delinquency, many from end users at Edenor, gas distribution companies at TGS and from CAMMESA, our largest clients at power and gas. Therefore, to reduce the impact of the difficult conditions ahead, we have revisited our budget by reducing operating and capital expenditures, especially at upstream, without impacting the safety and reliability of our assets.

So let's start commenting the quarter's key takeaways. As shown on Slide 5, revenues in Q1 '20 fell 4% year-on-year to $721 million mainly because CAMMESA took over the fuel procurement at the beginning of the year, in addition to the hold to tariff increases since last year impacting on regulated -- our regulated utilities, lower prices of oil and gas and new pricing scheme in peso as from February for spot power capacity. This were partially offset by higher sales from new power units as well as improved electricity demand at Edenor. Therefore, in Q1 '20, around 40% of our sales were [peso-linked], but more than 50% in EBITDA terms was in dollars, mainly coming from our core businesses, new power capacity and E&P.

Adjusted EBITDA increased year-on-year by 5% to $221 million for the quarter mainly explained by more power capacity, powering -- lower E&P royalties and Edenor fines due to the better quality of service and dilution of the peso-denominated costs because of FX, partially offset by tariff freeze at utilities and lower prices at legacy power in E&P. Quarter-on-quarter, EBITDA increased by 30% mainly because Q1 comprises most of the power of the summer peak season for electricity, therefore, higher electricity sales, higher spot prices for power, lower fines at Edenor but also lower prices at E&P.

As we show on the right below, power generation takes more than 50% of the consolidated EBITDA, while E&P takes 13%, mostly led by gas production and only 3% for oil, and the rest is composed by our utilities, Edenor and TGS and Transener at our equity stake. Moreover, as shown in the chart below, in the first quarter of this year, our CapEx decreased significantly compared to the last year and last quarter mainly because we are at the final stages of Genelba Plus' expansion project and Ensenada just kicked-off. E&P is heavily lowering the drilling and completion phase due to the uncertain pricing environment, in addition to the lower CapEx at Edenor because of the devaluation and tariff freeze.

In this Slide 6 that we're seeing, we want to show you the impact of the lockdown in the Argentine power grid. The crisis began in the second half of 2018, economic crisis. So first half is unaffected. 2019 was mostly hit by the crisis, recurring towards the last quarter. 2020 began with that push, but as the lockdown took place in March '20, April is north 20% on average lower than March, being reduced around 3,000 megawatts of net demand. If we compare it with April 2019, the net demand was around 20% -- 12% down on average. But if we compare it to the year before, 2018, net demand is around 20% down. So it is important to highlight that in April, it's chillier -- was chillier than previous years as well May right now because we are heading into the winter season that starts only in June, increasing power demand again. This is why main demand is revamping as well as many industries that were approved to reopen in the last weeks.

As the power demand is lower, the marginal unit to the dispatch is cheaper. But also, renewals are disrupting the dispatch ranking, therefore, the cheapest combined cycles as the last units of the -- are the last units to fulfill the demand. However, the power generation business model is highly dependent on capacity payments. So lower dispatch does not much impact on the revenue making as long as records outstanding availability, especially for PPA-based energy. Our 2 combined cycles at Loma de la Lata and Genelba are fuel dispatch, but the remaining thermal units were not so required.

If we take the average of the gross power demand prequarantine of 19 days versus the post lockdown of 48 days as of May 6, the Argentine demand overall fell by 26% or 4,500 megawatts, mostly driven by industries closed that have not been deemed essential such as carmakers, steel industry, construction, textile and so on. DistCos also got affected but mainly because most of the SMEs and large users were closed down by the lockdown. Comparing the lockdown period with the same period on 2019, the decrease is 8%, still mostly due to the industries.

Moving to the power generation segment as seen on Slide 8. During the first quarter of 2020, we posted an adjusted EBITDA of $114 million, 18% higher than 2019, mainly given by the recently acquired Ensenada Barragán power plant that we co-own with YPF, our newly commissioned wind farms with private PPAs and Genelba Plus' new gas turbines as well as the devaluation impact on our peso-denominated costs. These effects were partially offset mainly by the reduction anticipation in the remuneration scheme for the spot energy as from February 2020, worsened by the FX depreciation.

Quarter-on-quarter summer pricing for spot and energy and higher power dispatch in Q1 contributed to the 6% increase in the EBITDA. Keep in mind that spot energy comprises 46% of our power generation EBITDA, diminishing its share when ongoing expansions with PPA become operational.

In Q1, generation was 18% higher year-on-year, mainly due to the commissioning of Genelba Plus thermal plant gas turbine and higher dispatch at Piedra Buena and Loma. The operatorship of -- at Ensenada Barragán as well as the higher -- generation coming from the wind farm, which ranked senior in the dispatch priority because their cost is close to 0, plus the mandatory dispatch for safety of the transmission grid at Piquirenda and Güemes and higher water imports at Pichi Picún Leufú also contributed to the Q1 2020 EBITDA. These effects were partially offset by lower water flows at Mendoza hydros, lower dispatch at Ingeniero White and Pilar for variable [cost ranking reasons, plus lower generation] at EcoEnergía due to scheduled maintenance at TGS’ Cerri. Quarter-on-quarter, power generation increased 21% mainly because of the scheduled maintenances in Q4.

The availability rate in this -- in the first quarter of 2020 was 96.6% with an installed capacity of 4.8 gigawatts. That includes Ensenada Barragán thermal power plant, 100 basis points higher than the same quarter of last year but 100 basis lower than the quarter -- Q4, mainly because of outages at Güemes. Moreover, regarding installed capacity, in Q1, we achieved 4.8 gigawatts, 880 megawatts more than the Q1 2019, thanks to the acquisition of Barragán, capacity increase at Genelba Plus and the wind farms, PEPE II and PEPE III.

On the news section, this -- in February of this year, the currency for spot energy remuneration was converted to peso with monthly inflation adjustment.

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Continuing on the news section. Since February this year, the currency for spot energy remuneration was converted to peso with monthly inflation adjustments, and the capacity payment was decreased. However, after the lockdown began, on April 8, the Secretary of Energy instructed CAMMESA to postpone set inflation adjustment on legacy energy that should have been applied after March until further decision. However, as of today, we did not receive any administrative notice. Had it been updated, [waging] 60% CPI and 40% PPI, March transactions would have adjusted by 2.4%.

Regarding our fully owned wind farms, PEPE II and III, after their commissioning in May last year, we found out certain defects in the blades of the wind generators, resulting in the outages. Vestas, our supplier, have started a repair-and-replacement task. One of the wind farms is almost resumed on full recovery effective maybe by August of this year. We highlight that despite the lower generation due to business interruption, the impact is minor as it was covered by the guarantee of Vestas and the insurance policy.

Regarding the expansions in the pipeline, we are in the final stages of the closing to CCGT of 383 megawatts at Genelba Plus. You can see on Slide 9 the picture of the existing CCGT and the new one under work. Because of the lockdown, expansion works were interrupted for almost 3 weeks. Resuming in mid-April, a whole private energy infrastructure work, including Genelba Plus and Barragán expansions were deemed essential. Consequently, we expect COD to be postponed for about 45 days, estimating by the beginning of August.

Also, as you can see on Slide 10, due to the aforementioned lockdown impact, we are resuming expansion works at Ensenada Barragán thermal power plant, a 280-megawatt CCGT project at the Southern outskirts of Buenos Aires City. Currently, we are focused on regaining the time lost to achieve the COD by Q1 2020, therefore, billing a PPA for 10 years with CAMMESA.

Like in the power, the lockdown negatively impacted the domestic gas demand but to a lesser extent than crude oil, dropping month-to-month 0.5 Bcf per day or 11% in April, driven by lesser power demand, therefore reducing thermal generation dispatch on lesser gas needed to fire by CAMMESA. And to a lesser extent, lower industrial consumption because of the shutdown, the numbers is nonessential. This was partially offset by retail consumption because weather is cooling.

If we take the average gas demand prequarantine versus post lockdown as of April 30, demand overall fell by 17% or 850 million cubic feet per day, mostly driven by thermal power generation, nonessential industries closed and gas for cars, offset by gas for distCos but just because weather is becoming colder. Comparing the lockdown period with the same time in 2019, the decrease is 9%, still more -- still mostly due to the power generation and industries. This lockdown coincided with the gas off-peak season, which bottoms at fall and spring in Argentina. However, as we are approaching winter, we expect this consumption trend to reverse at a faster pace, like today, as CAMMESA is requesting more and more gas again and industries are gradually resuming operations.

Now I'll turn to Lida so that she can continue with the E&P analysis.

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So Slide 13. Moving on to the E&P results. Q1 2020 has posted an adjusted EBITDA of $29 million, 38% lower than Q1 2019, mainly because this is still reflecting the downward trend in gas sales -- gas prices, driven by CAMMESA and, to a lesser extent, lower crude oil prices, partially offset by lower royalties and peso-denominated expenses. EBITDA quarter-on-quarter increased 44% mainly explained by lower costs due to the lower activity and dilution, no exploration expenses recorded in Q1 and higher oil production, partially offset by lower gas prices and production.

Despite all, our overall production in Q1 2020 remained stable year-on-year and quarter-on-quarter, reaching to 46,000 barrels of oil equivalent per day, of which 88% is composed by natural gas.

On the oil side, which only represented 3% of total EBITDA for Pampa in the quarter, production levels were similar year-on-year, reaching to 5,300 barrels per day. But quarter-on-quarter, oil production grew 7% mainly due to higher production in Rincón de Aranda, our first shale oil dealer. During Q1 2020, the crude oil sales price decreased year-on-year by 9% but remained similar quarter-on-quarter, reaching almost $50 per barrel, mainly explained by the falling Brent prices in January and worsened since the lockdown in March.

Government is analyzing the return of domestic reference price known as (foreign language) to ensure domestic production continuity. But as of the day, no regulation was issued. 54% of our oil production is Escalante heavy oil, which is the sweet, and given the current clean fuels trend, it's pricing premium to many.

Regarding the gas production on Slide 14, we can see the quarter reached an average of 244 million cubic feet per day, stable year-on-year and quarter-on-quarter despite the prices, which have been ongoing down since 2018, affected by the fact that this is a highly regulated market, though technically it should be competitive, the lack of long-term contractualization, incentive products fully designed and inability to pass-through the actual prices to the consumer.

Lower pricing impact from the breakeven -- impact on the breakeven equation, therefore, producers respond with less drilling rate and natural decline took place. And because of that, production was lower in Río Neuquén and Rincón del Mangrullo in the first quarter 2020, plus a minor decrease at Sierra Chata and our other blocks that were partially offset by increases at El Mangrullo, a block in which evacuation infrastructure was expanded given the outstanding productivity and upside potential. And also, keep in mind that it is fully owned by us, holding operatorship as well.

In Q1 2020, El Mangrullo reached 154 million cubic feet per day of gas production, 11% higher than Q1 2019 and contributed more than 60% of our overall gas, ranked the 4th highest gas-producing block in Neuquina Basin. This is also remarkable that 8% of the Q1 2020 production corresponded to shale gas from the completion of 2 horizontal wells.

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Dear all, we apologize once more. Please wait for a few minutes.

Okay. Resuming. So it is remarkable that 8% of Q1 2020 production corresponded to shale gas from the completion of 2 horizontal wells, El Mangrullo block last year.

During first quarter 2020, our accrued weighted average sales price for gas was $2.30 per million BTU, 26% lower year-on-year and 22% quarter-on-quarter, mainly due to the continuous reduction on the price for gas-fired power plants, which also impacted negatively the commercialization in industrial segment and spot prices. Prices are now in the lowest point in the years -- in years and hardly covering the country's marginal breakeven cost.

Also, as you can see, right [below] our production is skewed towards CAMMESA and our own Energía Plus units, leaving only 15% to other segments. The lower prices obtained in domestic markets were partially offset by exports to Chile, which comprise 7% of our production.

So from January this year, CAMMESA is centralizing all the fuel fire as thermal units, concentrating more gas in the market and taking advantage of the off-peak season until April to keep lowering the purchase prices so power grid costs are cheaper. Of course, these have trade-offs over the long-term domestic production. Since January, tenders are in a monthly basis. But this one in particular was fully nonbinding, interruptible. Therefore, offers were in excess of actual production and demand, accumulating almost 5 Bcf per day of volume because no commitment was encouraged and because we were in the top of the off-peak season and producers rather keep selling instead of curtailing production.

As a result, average sales price was $1.70 per million BTU, average at Neuquina Basin. However, aiming to discourage speculative bids and provide an investment final, since February, CAMMESA added a 30% deliver-or-pay binding condition, encouraging commitment and reflecting more realistic offer curve. Therefore, offer volumes diminished by more than half and realized prices at wellhead rose to roughly $2 per million BTU during Q1 2020.

However, since the lockdown began, CAMMESA tenders for April and May resulted into lower average bid prices as we can see on the chart on Slide 15, driven by the sudden drop in the gas demand, combined with the peak -- with the off-peak season. We think May should be the bottom in prices because winter season is approaching, retail is demanding more gas and some industries are allowed to resume operations. Additionally, the country still imports gas from Bolivia and soon from LNG, with prices that even though they are reduced because of the collapse in the global demand, still outnumbers the prices for domestic production.

Moving on the bottom line of the P&L in terms of net income attributable to the owners of the company. Pampa reported a consolidated gain of $40 million in the first quarter of 2020, whereas in the same period of 2019, $167 million was reported, mainly due to the recording of a loss from impairment of assets, lesser result from net monetary position or RECPAM recorded due to the lower passive net monetary position allocated to the electricity distribution segment and higher income tax charges.

Now I'll turn the call to Lida so can -- so that she can analyze the final chart about the financial status of the company.

Hello? Do you hear me?

Yes, we can hear you.

Slide 19. So we have been very proactive towards the cash and liability management and this time paid-off. In this slide, we show all the layers of the company from restricted group to consolidated figures, but for covenant purposes, let's focus on the restricted group, that is primarily Pampa stand-alone.

We continued redeeming lending facilities, highlighting that during Q1 2020, Pampa paid at maturity and precanceled a total of $65 million dollar-denominated debt, in addition to bond repurchases of $51 million face value. Therefore, the restricted group gross debt in Q1 2020 recorded $1.6 billion, roughly $170 million lower than the last quarter's closing due to the step transactions plus put lower accrued interest and peso-denominated debt dilution.

The gross debt is 92% denominated in dollars, like in December 2019, bearing an average interest rate of 7.7%. Average life remained around 5.6 years. The cash amounted to $373 million, which is lower than the $537 million in December 2019 due to security purchases, debt redemption and higher collection days, offset by lower CapEx and collection of Plan Gas credits. So the restricted group, net debt remained similar to the last quarter at $1.2 billion. Moreover, net debt-to-LTM EBITDA remain low at 2.4x.

After Q1, despite the challenging situation in Argentina, we continued receiving support from the capital market, which recognized Pampa's credit, thus we issued 2 short peso bonds for a total of $27 million, in addition to net borrowings of $63 million equivalent of peso-denominated debt. Moreover, Pampa further repurchased bonds for $32 million face value at average of 64

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Sorry, I'm continuing -- Margarita continuing. At average of [60%]. Therefore, we are shifting to peso-denominated debt. It is worth highlighting that the cumulative maturities until 2022 amounts to $172 million, and 75% of that is denominated in pesos.

In terms of consolidated, including affiliates at ownership, Pampa Group recorded net debt of $1.6 billion, similar to December '19. Moreover, net debt-to-EBITDA remained low at 1.8x.

Finally, regarding our share buyback program. In April, Pampa's Board approved the seventh share buyback program for $20 million, with price cap of $10 per ADR, effective once the sixth program concludes. Moreover, last month, our shareholders meeting approved the third cancellation of shares in treasury for 6.1 million ADRs. And last Friday, the Public Registry of Organizations, also known as (inaudible), cleared the second cancellation of 6.1 million ADRs in treasury previously approved by shareholders of Pampa in October last year. Of the day, Pampa's outstanding capital stock amounts to 62.9 million ADRs and holds in treasury, 0.9 million ADRs.

So this concludes our presentation. Now we are going to open the floor for questions. (Operator Instructions)

Our first question comes from Bruno Montanari from Morgan Stanley.

I hope everyone is safe and healthy as we can see here. I have 2 questions. First, what measures of cash preservation is the company implementing nowadays? And how low can you -- can your total investment be for this year without affecting the operations?

And a second question, can you comment on any recovery you are seeing now in May versus the worst of the crisis and the lockdown, which seems to have happened in April, across the businesses? That would be very helpful.

Gus?

Now you can hear me? You can hear me? Okay. Please keep your microphone open so -- I didn't write down the question so I will need your help again. Thank you for the question, and thanks. We are all healthy and working from home. And as Lida and Margarita previously explained, unlike our peers before the lockdown, everything run smoothly. And we have been able to work without any problems at all from home, with now more than 50% of the workforce of the company working from home.

Regarding measures to protect the cash, we've been working on controlling OpEx, revising everything that we can. In terms of CapEx, that -- we didn't need to do anything extraordinary because of the lockdown of the new situation because we have very low projected CapEx for this year. In the case of power generation, just finishing the Genelba expansion, which we are happy we will be able to do and put it online in a few months from now, and continue with Ensenada Barragán, basically because there is a subsidiary that already has all the cash needed in order to complete the expansion work over the next 2 years.

On the E&P side, CapEx planned for this year were already very low. And yes, there, we cut that a little bit further. We were doing some exploration on shale oil, which -- and I remember explaining this on the previous call, we decided to postpone. And on the gas side, we were not planning any relevant CapEx for this year.

So capital expenditures for this year are, as Lida mentioned before, significantly lower than 2019. If you can please repeat the other questions?

Sure. I was just wondering if you could comment on any recovery or anecdotal evidence you are seeing now in May versus the worst of the crisis and the lockdown, which appear to have happened in April. Just so we can get a sense of how things are evolving from the worst.

So as Lida and Margarita said, we didn't suffer. In the case of electricity, in our case, it was a very small reduction in power generation during the lockdown due to the relatively good efficiency of our power plant. So maybe if the total consumption dropped by about 15%, our consumption dropped around 5%. And so we didn't suffer much. We are not seeing yet any significant recovery. And same can be said about the gas consumption that, so far, the moves are more related to weather than to economic activity.

Something that we are not seeing in our business but I understand that has started to pick up is the consumption of fuels basically because there's starting to be more activity on the street, so more movement. So gas -- sorry, naphtha, in English -- gasoline that originally dropped something like 70% is already recovering. But that's not something that we can tell you directly, but it's information that we are getting from the industry.

So in our businesses, we are not yet feeling the easing of the lockdown. But basically, that is because we haven't suffered significant drop in quantities sold either at the peak of the lockdown.

Thank you, Bruno. Our next question comes from Ezequiel Fernández from Balanz.

Thank you very much for the materials. Very complete, as useful as always. I have 2 questions. The first one is related to -- if you're considering any acquisition perhaps of the more financially troubled power generation assets in Argentina. And the second question is related to which gas price in terms of [quarter] dollars per MMBtu would make you more comfortable in terms of drilling and development activity perhaps going into next year.

Regarding acquisitions, we are not seriously starting any. And we -- as I think most of you are aware of, we have a strong financial position, and we could eventually analyze potential acquisition. So far, we have decided to concentrate on the buybacks of stocks and debt, which so far, we like them more than an acquisition. Anyway, we will keep our eyes open and study anything that comes to us. But we are not -- we have no -- we don't have any serious or anything in the pipeline.

Regarding gas prices, it's not that easy to give a price because it's not only a matter of price but it's also a matter of conviction of the ability of the offtaker to pay it down the road and sustainability of the -- of that price in the medium term or in the long term. So it's not what I want to point out, but I think it's not only a matter of prices going up but also of having a credible long-term perspective for investing in anything in Argentina, but especially in gas prices, in that production.

I think the number has to be higher in average for the year of $3.50. That's -- obviously, it depends on your portfolio of reserves and on which reserves you are going to develop. But I think long-term prices -- in order to activity in the industry to resume, I would say that prices need to be at least above $3.50.

Thank you, Ezequiel. Our next question comes from Santiago Wesenack of AR Partners.

Actually, it's 3 quick questions, if I may. The first one has to do with the -- how are you seeing collections from CAMMESA on the power generation side? Are there any delays or anything new there?

The second one, also on the power gen side. During the quarter, we saw actually a year-over-year decrease in the gross profit per megawatt hour. So I was -- especially, we saw it also on the thermal assets despite the Resolution 31. So I was wondering whether this new, like $30 per megawatt hour could be like a threshold level for the rest of the year.

And the third one, on the E&P side, I was wondering if you can give us any guidance in terms of what's the natural decline rate for your production given the low prices that Gustavo just talked about.

I'll answer the question about the collection from CAMMESA, and I think Lida can give you more details about the other ones. We've seen -- we are experiencing delays from CAMMESA that -- I would say that these delays from CAMMESA started in the third quarter of last year. So from no delays in September or October of last year, today, we have like 1.5 months of delayed payment from CAMMESA. So more or less, every month, CAMMESA pays around 70% of the transaction or 80 -- between 70% and 80% of the transaction and increases its debt against the generation sector by around 20% of the monthly transaction. That has been roughly, in average, the behavior in the last few months.

I can say that it has slightly deteriorated the quarter since the lockdown started. That's basically because distribution companies are paying significantly less to CAMMESA. So the national government has to fill in the gap and provide more support to CAMMESA in order to pay the transaction. So it deteriorated when the lockdown began and since then, more or less stabilized.

Lida, can you cover the other questions?

Yes. Yes. If you hear me. I don't know because I'm in the office but -- so basically, we have higher gross margin, firstly, because we have -- remember that we are taking into account in Ensenada Barragán with 567 megawatts under a PPA. So that contributes greatly to the gross margin. Also, we have the PEPEs -- don't have fuel. It's -- yes, and it's purely gross margin. So that's another reason why we see the big jump. And then we have 207 megawatts of new capacity that, today, they are billing under -- mostly under spot market. So that's -- and they are dispatching in the spot market. So that's why you see a big contribution year-on-year.

Regarding the E&P depletion rates, the business, E&P business, initially suggest that because our nature of gas is unconventional type, you can see, for example, in the case of Rincón del Mangrullo, it's, on average, around 15%, yearly basis. It's a equation that is 15% per -- going around, right? It's cumulative for -- [formation] that their nature are more conventional. They are around 8% of depletion rate.

(Operator Instructions)

Okay. Hello?

Yes, Lida, we can hear you.

Okay. Santi says thank you. So Santi, let me -- tell me if you have more questions.

No. Actually, that -- well, probably the last one, but it's also related to the gross margin per megawatt hour. So we're seeing this $30 positively influenced by, as you said, Ensenada Barragán and the PEPEs and renewables. So this $30 level could be like a new threshold for the rest of the year?

I don't know because -- I would say no because we have the legacy number that we did reduce as from February of this year. The reduction implies around $30 million as Gustavo said in the Q4 conference call. But now we have to say that -- we've been told that inflation adjustment won't be happening until further notice. So that will be around $25 million more affecting the gross margin. So I would say this year, legacy compared to last year legacy is around $50 million less in gross margin.

Our next question comes from Jacob Steinfeld from Ashmore.

I -- my first question was just answered. So on the inflation adjustment, you said 50 -- $25 million comes from the assumption that there's going to be no inflation adjustment and then $25 million from the lower remuneration for the legacy power. Is that right -- versus last year?

Yes. Well, it's the other way around. So $30 million less because of the 11 months of reduced capacity payments plus -- depends on the evolution of the official effects and the evolution of inflation. But if the valuation ends at the end of the year around 86, I think 82. I don't remember the -- our projection, but we have an average of the year of 2020 of 72. Last year, the average was lower. So you can see here that the valuation curve, we are expecting around $25 million [shifts] further. So in total, it's $55 million for the 11-month period, okay?

Okay. And then all the bonds that you've repurchased either in the first quarter or subsequently, are those being canceled? Or are you just holding them in treasury?

We -- basically, so far, they are in our books. They have not been canceled. So that's where we are.

And is there a reason why those aren't canceled versus the shares that were canceled? Or is the plan to cancel them?

No, no. It's not the plan to sell those bonds. But it's an instrument of liquidity. Sometimes you may do even repos or whatsoever. So it's a good instrument to -- for the liquidity management in any event.

Yes. The reason why the shares are canceled are because there is a local restriction that you cannot hold more than 10% of your outstanding stock in treasury. So once we reach the 10% limit, we need to cancel them in order to be able to continue repurchasing shares. In the case of the [bonds], there is no reason or rush to cancel them. So as Gabby said, it's better to have them in the treasury than cancel them, allow us more flexibility in the future to keep us -- to keep them in treasury.

Okay. That's understandable. I guess my last question is on the CapEx. I was wondering if you could provide a little bit more detail on your expect to spend for the rest of the year in oil and gas and power generation. I'm wondering just if -- given the quarantine and the delays, whether some of the CapEx gets pushed out to 2020.

Sorry, the last part of the question?

Yes. Whether due to the quarantine and some of the delays on the power generation projects, for example, did some of the CapEx get pushed out into next year?

At Pampa, we had -- we started this year with only the CAMMESA project to be completed. With 99.5% of the work, we're already done. And in February, we started the commissioning of all the CCTG. That takes several months. And we hope it will be completed by late July, early August. 95% or between 90% and 95% of the CapEx of the Genelba project was already spent last year. So this year was only the tail of the expense. Roughly, between $30 million and $40 million were left to be spent in Genelba project at Pampa.

In terms of maintenance and -- maintenance CapEx and generation, this year, we are going to spend between $40 million and $50 million.

In the case of E&P, it's between what we consider expansion CapEx, especially the exploratory projects and the maintenance CapEx in order to maintain production or to reduce the decline of the production this year. At the beginning of the year, we were budgeting to spend around $130 million. And now we think that we are going to spend half of that in 2020, okay? So between the 2 segments, around $75 million of maintenance CapEx and around $70 million of expansion CapEx.

Our next question comes from [Fernando Lanus].

Our next question comes from Florencia Mayorga Torres.

Just a follow-up regarding working capital. You mentioned that collection from Plan Gas were enough to offset the delays in the payment of CAMMESA. I would like to know how much you collected regarding Plan Gas.

And another question is regarding a report that S&P published early this week, where [lower] your rating and several Argentine corporates. I mentioned some concern regarding the ability of corporate to access to the market to -- but with foreign exchange market to repay debt. I don't know if you have any comments or if you are raising some issues to (inaudible), but to understand more the area of (inaudible) about that.

Gus, I will answer about the Plan Gas. And then I think Gabby, suitable for doing the second question. Plan Gas, we have 30 installments of $4.7 million per month. We have been collecting it on time. The government has been reprofiling some bonds, but this one particularly has not been reprofiled. And we've been collecting on time. So for the quarter, you can see at 3 months, it's $15 million that we are offsetting it with higher working capital that -- for this quarter, it's breakeven, almost breakeven. Of course, for working capital, we are expecting that we will be raising as at the remainder of the year.

Yes. In respect of the question -- to what -- central bank for dollar repayment. Clearly, the new restrictions had an impact in the short-term for the coming month because it was back-valued, but we do not foresee any problems accessing the whole -- in order to pay either our imports or our interest or principal payments of debt. Clearly, the impact is more on managing your liquidity, if you want to buy or not. On -- the objective of the last central bank regulation was to limit your ability to buy dollars in the unregulated market. But there is no expectation to foresee problems in accessing to repay our debt and our imports.

Okay. Perfect. Just a follow-up regarding the power generation. Do you receive any update on the suspension of the inflation adjustment to the legacy? When do you expect that could be restored after COVID? Just the government -- any message on that or...

Well, we haven't received any -- no feedback from the government on when they are planning to resume. But as you correctly pointed out, I don't expect that to happen until there is a new normal in Argentina or we are back to business.

Our next question comes from Matias Castagnino from BCP.

So the questions are kind of a follow-up. The first one, I saw in your cash flow statement a big increase in the trade payables that is kind of offsetting the increase in trade receivables. So is that just a response to the delays of CAMMESA? And who are you delaying the payments to?

And then that $25 million additional impact on the legacy that you mentioned, is that assuming also the lower demand because of the lockdown? Or that is not assumed? And lastly, if you have any comments on the news that came out today regarding Ensenada Barragán and if Pampa is a part at all on that team.

I think the -- the first question because...

The first question is mine. Yes, I think you're seeing the consolidated financial statements where the cash flow statement take into account Edenor. [You know] that we've been delaying payments at Edenor massively. So -- in March, not much. But going forward, we have been significantly seeing lower pace. So that's why we are not having those kind of delays on payables in Pampa per se. So it's basically Edenor. So if you take out Edenor from the balance that completes the balance sheet. You will see that Pampa payables is still normal.

Yes. Matias, just to complete our way, but as we're saying, in case of Pampa, we are not delaying any payments as the case of Edenor. And I'm sure that was discussed in their conference. Edenor, as most of the distribution companies in the country, are delaying payments to CAMMESA due to 3 reasons. The most important one is the freeze of tariffs that's already almost 1.5 years because the last increase in tariff or VAD for Edenor was in February of last year. Then because of the recession and especially because of the lockdown, a significant drop in consumption. And because of the lockdown, the reduced collections, which now are starting to recover because they open up more so that (inaudible) and those kind of collection houses, I don't know how to say that in English, so they are starting to recover. But as long as the freeze in VAD continues for distribution companies, their payments to CAMMESA is not expected to improve significantly.

Regarding the other part of the question, the news about Barragán, I haven't seen the news. So if you can -- I don't know, Lida, Gabby, have you -- Margarita, have you all?

No.

Can you comment on us, what are those news?

Casanello prosecuted 2 former government officials for when the plant was first awarded to the government, like he's saying that he might be investigating then the selling to YPF and Pampa. That is in EconoJournal, the journal.

Okay. So the judge is investigating the sale of Barragán to YPF and Pampa, that is the -- that's the news?

No. The news is that he prosecuted 2 officials, like he said that there might be a second kind of investigation regarding then the...

Yes. I haven't seen the news. And so far, we haven't been noticed of being part of the investigation or anything. Regarding this, this is that its own news that there was a [violation] -- (foreign language)

(inaudible)

Well, there -- it was a -- there was...

[Do we have] a complaint?

Now I see this in the press. I just...

Okay. But what I would say is I think it's politically motivated and is targeting basically the government officials of the previous administration. This was -- the sale of Ensenada Barragán was a public auction. The first public auction, if I don't remember wrong, was for the summer of last year. I don't recall whether it was January or February of last year, which nobody showed up. And then there was a second round at mid of the year where we decided to be with YPF to participate. And [there's] other participants. And we won the auction. So that's all I can tell you. And on the investigation, I have no other news.

Okay. And then the other question, that $25 million of the legacy, is that including the lower expected demand?

No. No. We ran the [Margo]. Margo is a -- it's a model that runs -- simulates the dispatch in the country. We already -- in 2020, we already figured out before the COVID as the most inefficient machines. Piedra Buena and Güemes won't be dispatched as much. So we were modulating that only (inaudible) will be there to dispatch and that's what is considering. So we would have pretty conservative goal. And even that, with the COVID and everything we -- the forecast of the dispatch of Pampa remains very similar to last year.

Our next question comes from Antonella Rapuano from Santander.

My question goes on the technical issues that you experienced in the wind farms in the turbines. So if you could give us some details or more insight about it and the potential impact in the generation going forward for Pampa.

No. So basically, we had -- the manufacturer detected some problems in other wind farms from the same model in other country and (inaudible) they told us. So -- but we -- today, for example, we have 28 wind farms from the 2 -- mining the 2, PEPE II and PEPE III, and only 6 of them are out of service. The rest of them, they're serving. One of the wind farm is already fully -- almost fully recovered. The other one, due to COVID, everything is more slower, but we expect to have it fixed by August. The business interaction has been covered fully by Vestas and the insurance policies, so there's no impact for Pampa.

(Operator Instructions)

Here's one. The next question is from (inaudible).

No, we cannot hear you. We can see you but we cannot hear you.

(technical difficulty)

(Operator Instructions)

There's a next one. Walter of Santander.

Okay. While (inaudible) fixes her microphone, we can continue with [Wolfgang].

Can you hear me?

Yes.

Yes.

I have a question regarding your share repurchase program. These days, many companies are focusing on strengthening their balance sheet, keeping their cash together. Are you starting to get some second thoughts about continuing to repurchase your own shares given uncertainty in demand, uncertainty in regulation and fluctuation of exchange rates?

We are perfectly aware of the crisis we are living. And we -- obviously, we don't know how long is it going to last. On the other hand, we feel that we have a company that is healthy. We are still -- we are producing significant positive cash flow. We have a strong cash position. We have -- as Lida and Gabby pointed out, we have almost no debt maturities until 2023. What we have in 2021 are peso-denominated maturities and very small.

So we are every day revising what we do with our cash. And we still consider that the reason that we are spending that cash with share buybacks, we are comfortable. So regarding your question, yes, we do revise that, and I would say, on a daily basis. And we are still comfortable with what we are carrying out.

Okay. I would just add that the last program that was approved, it's for $20 million. It's -- it has been a much smaller amount than previous programs of buyback, okay?

So (inaudible) Imperial Capital, she is asking is there any risk of government renegotiating the PPAs? And that's -- that will be the last question of the call.

Sorry, what was the question, Lida?

Is there any risk of government renegotiating the PPAs?

Yes. The risk exists definitely there. But I cannot give a different answer than the one that we have been giving for, I don't know, for 1.5 years at least -- is that I think the government is aware of the consequences of unilaterally changing those contracts. So they are trying to -- I think they will try to avoid doing that. And -- but the risk of that happening obviously increases if the macroeconomic conditions of Argentina deteriorates significantly.

So far, we haven't had any communication from the government at all. And we hope it will continue that way, but it will depend very much on the macroeconomic conditions of the country.

I have another question in the chat from (inaudible). He's asking what will be our strategy if CAMMESA payments start to get delayed materially further.

I think that the strategy -- the most important part of the strategy is being one of the strongest player, strongest agent in the segment. So our colleagues -- many of our colleagues will have significant trouble ahead of us. So I hope that by the time that those kind of delays start impacting us, CAMMESA and the government have already begun to react in a positive way. So I cannot think of anything else than remain strong. I think that -- remain financially strong. That will be our goal and our strategy towards that possible outcome. I don't know -- Gabby, anything else?

I would just add, in that sense was the recent issuance of peso-denominated bonds in the local market to have a cushion of -- for that having.

Okay. So I think it's 1.5 hours (inaudible) more. But if you have any questions, you don't hesitate to ask us. We're -- from wherever you are, please stay safe. Take care of yourself. We are available for you. And thank you for joining this call, this -- with all the problems, but I hope you enjoyed it and it was helpful for you.

Thank you so much.

Thank you.

Thank you. Bye-bye.

Thank you for joining. Bye.

Bye.